How did $47 billion firm WeWork go bankrupt? What happens to Indian operations?

There were times when many predicted that businesses would give up traditional office spaces in favour of WeWork facilities. Now that American dream has gone bust, after the American start-up filed for bankruptcy in New Jersey federal court. WeWork chief executive David Tolley said he was “deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the restructuring support agreement”. “We remain committed to investing in our products, services, and world-class team of employees to support our community,” he added. WeWork’s other founder, Adam Neumann, also issued a statement after the news broke, calling it “disappointing”. “As the co-founder of WeWork who spent a decade building the business with an amazing team of mission-driven people, the company’s anticipated bankruptcy filing is disappointing. It has been challenging for me to watch from the sidelines since 2019 as WeWork has failed to take advantage of a product that is more relevant today than ever before. I believe that, with the right strategy and team, a reorganisation will enable WeWork to emerge successfully,” his statement read. This is one of the most spectacular corporate collapses in recent US history. After all, the company was valued at $47 billion in 2019. But what does this mean for its India operations? Does a bankruptcy mean a complete closure of WeWork? We take a closer look at what went wrong for the office-sharing firm and what this means for its futures. WeWork’s meteoric rise WeWork was founded in 2010 by Adam Neumann and designer Miguel McKelvey. Their vision was to lease office space and then rent smaller parcels of it to customers. The American company grew slowly at first, then fast, and finally at a breakneck pace, powered by a zero-interest-rate finance climate. According to Neumann, WeWork was all about offering people the chance to have fun while they worked, encapsulated in the corporate slogan: “Do What You Love”. [caption id=“attachment_13358152” align=“alignnone” width=“640”] When it began, WeWork promised nothing short of a revolution in the way companies and tens of thousands of employees worked – beer on tap, free coffee and snacks, comfy furnishings, discrete lighting, loads of socialising and other employee-friendly amenities – all for a monthly fee. File image/Reuters[/caption] Considered to be the largest leaseholder of office space in London and New York, WeWork promised nothing short of a revolution in the way companies and tens of thousands of employees worked – beer on tap, free coffee and snacks, comfy furnishings, discrete lighting, loads of socialising and other employee-friendly amenities – all for a monthly fee. It received a flood of funding, including SoftBank, a Japanese technology conglomerate. By 2019, the start-up was one of the largest private tenants of office space in Manhattan, with a valuation of $47 billion (Rs 3.89 lakh crore). It’s footprint has spread far and wide across the world – as of 30 June, the company has 777 locations in 39 countries. The penny drops… However, its meteoric rise began drawing scepticism. In 2019, investors balked at its last valuation ahead of its stock market listing. When it ultimately went public, WeWork was valued much lower – at $9 billion less than a fifth of its private market peak. The failed IPO led to Neumann’s departure, with a controversy erupting over his management style. The New York Times has then reported that the executive “would convince employees to take shots of pricey Don Julio tequila, work 20-hour days (and) attend 2am meetings. He’d convince them to smoke marijuana at work, dance to Journey around a fire in the woods on weekend excursions, smoke more pot [and] drink more tequila.” [caption id=“attachment_13358202” align=“alignnone” width=“640”] Adam Neumann, the former WeWork CEO, was forced to depart the company in 2019 owing to his controversial management style. File image/Reuters[/caption] And many believe that this has been the beginning of their problems. In February 2020, Sandeep Mathrani, an industry veteran with a reputation for rescuing distressed real estate enterprises, took Neumann’s position, claiming to halt the financial bleeding and restore order. However, his ambition was hampered upon his arrival due to the COVID-19 epidemic, which made the prospect of going to work horrifying. As a result, occupancy at WeWork offices plummeted to 46 per cent at its lowest point. In March, WeWork appeared to reach an important turning point when it reached an agreement with some of its largest creditors including SoftBank to reduce its debt load by about $1.5 billion (Rs 12,421,500 crore) and extend other maturities. But in May, after three years on the job, Mathrani abruptly resigned to take a job at Sycamore Partners. And despite its frantic efforts to restructure, WeWork burned through $530 million during the first half of this year and had just $205 million of cash on hand in June. [caption id=“attachment_13358522” align=“alignnone” width=“640”] Creative designed by Network18[/caption] In early August, the company received a further jolt when three board members also left the company due to “a material disagreement regarding Board governance and the Company’s strategic and tactical direction.” It was then that the company also warned that there was “substantial doubt” it would stay in business. What comes next The bankruptcy announcement has shocked the world and may exacerbate the rout in the office space market and wreak even more havoc on commercial landlords in places like New York and San Francisco. Many are also asking if this means more job losses in the market. To that, WeWork India said it operates independently and WeWork Global’s bankruptcy filing in the US will not impact its stakeholders in India. “WeWork India is a separate entity from WeWork Global. The recent Chapter 11 filing will not impact our members and stakeholders in India. We will continue to operate and serve our members, landlords, and partners as usual. Committed to the growth and success of our business,” it said in a post on X.

WeWork India is a separate entity from WeWork Global. The recent Chapter 11 filing will not impact our members and stakeholders in India. We will continue to operate and serve our members, landlords, and partners as usual. Committed to the growth and success of our business. pic.twitter.com/92KeXB1X4I

— WeWork India (@WeWorkIndia) November 7, 2023

Notably, the bankruptcy filing allows it to keep operating as it chalks out a debt repayment plan. News agency Reuters has also reported that WeWork China will not participate in the strategic reorganisation in the United States and Canada. WeWork China is not a branch or unit of WeWork, it said in a statement on WeChat, adding the company has independent operations and management capabilities. With inputs from agencies