WeWork Wavers on the Brink
WeWork, a New York real estate start-up, is amidst a colossal collapse.
Up until late 2019, WeWork was regarded as a highly successful startup that would likely grow to become one of the world’s largest companies.
WeWork provided various businesses with shared workspaces, removing the need for them to rent separate locations and improving overall efficiency.
In August, the company conducted an initial public offering with a massive $47 billion valuation.
However, the accompanying audit exposed many severe issues that surrounded the business’s operations, and its value plummeted as a result.
Moreover, recent events have further undermined the company, and its future appears to be dire.
The company’s rapid growth since its 2010 founding is, in large part, the result of the resources that it obtained from SoftBank, a Japanese conglomerate known for investing in promising ventures, such as Uber.
Despite the company’s struggles ever since the failed IPO, Softbank decided to bail WeWork out with an additional $3 billion in the fall of 2019.
Further investigations uncovered the startup’s problematic practices.
WeWork had a hard-partying culture which included company-wide drinking and overnight social events all over the world.
Their CEO Adam Neuman purchased buildings ahead of WeWork taking a lease, which is highly unethical and smoked marijuana on the company plane.
The organization’s commitment started to waver and WeWork's $50 billion of long-term lease obligations became an ever more scary public albatross.
In the middle of March, Softbank was poised to cancel the deal to buy $3 billion of WeWork shares, on which WeWork will be increasingly reliant.
WeWork’s already unfavorable prospects began getting worse after losing the financing from SoftBank as some considered its possibility of bankruptcy.
COVID-19, an international source of economic dismantling, has not spared WeWork. The pandemic will likely push the company beyond the point of no return into bankruptcy.
Due to the coronavirus, shared workspaces are becoming increasingly dangerous, as they can spread diseases very effectively due to the crowded environment and surface contamination. Recently, rumors spread that employees who worked in WeWork’s buildings had the virus; these worries have been at least partially confirmed.
As a result, businesses began vacating its premises and shifting to work-from-home models, further damaging the company’s source of revenue.
Due to the current state of the epidemic, these locations are unlikely to return to full functionality anytime soon.
As such, with no income or source of financing alongside dramatic losses, there appears to be no way out for WeWork. With 2% of San Francisco & New York's office market leased, WeWork faces a lot of long-term liabilities and must find a way to fill their space.
While bankruptcy appears to be unavoidable for the company, other companies similar to WeWork may be able to exist in the future.
WeWork has shown that the shared office space model can be viable, and its unprofitability issues may be blamed on the incompetence of its former management mixed with a hyper-growth mode that created expectations that were too high.
There is a possibility that a larger business may buy WeWork out after bankruptcy and retain it as a subsidiary, but the current silence regarding a bailout for WeWork indicates that there is no interest in such an act at the moment by SoftBank or anyone else.
Moreover, due to the financial impact of COVID-19, businesses may be less willing to take on potential liabilities than ever.
Overall, WeWork was an ambitious project but is likely to enter history as a dramatic failure.
Moreover, the refusal of SoftBank to hold to its deal and the current pandemic have particularly affected WeWork due to its financial state and the specific nature of its business model.
Unless some business chooses to purchase all of WeWork’s assets at once during liquidation and continue its operations despite the numerous risks, the company will be gone entirely.
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Written by Xinzhi Rao & Edited by Ethan Samuels & Alexander Fleiss