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WeWork faces further turmoil after the departure of its CEO

Sandeep Mathrani was considered the savior of WeWork.

A real estate executive, he became chief executive of the troubled office space company in 2020 after a failed initial public offering pushed it. brink of collapse, He had established discipline and order on a business increased rapidly and chaotically Under its co-founder Adam Neumann.

Instead of building a company that “uplifts the consciousness of the world” as mr newman wantedmr mathrani Focused on the static details of running a real estate company, He steered WeWork during the pandemic, asking its landlords to accept lower rents, taking the company public and overseeing a financial restructuring, completed last month, that cut the company’s debt.

But just weeks after the restructuring, the company said on May 16 that Mr. Mathrani would step down, and that no permanent successor had been lined up. Wall Street analysts who met with him recently were stunned — one analyst wrote in a research note that the executive was “skipping ship.” A few weeks later, WeWork’s chief financial officer, who had joined last June, also left.

The upheaval raises new questions about the viability of WeWork, which has spent billions of dollars to build a business that has never come close to breaking even — and must now compete with a flood of cheap office deals that allow working from home. have become available on demand. For commercial real estate.

Investors have given up on the WeWork turnaround. The stock is trading around 20 cents, down more than 95 percent since October 2021 Achieved listing on stock exchange through merger,

“We still believe that the current capital structure is unsustainable,” said Pranav Khattar, a primary credit analyst at S&P Global Ratings.

To a large extent, the company’s fortunes rest with SoftBank, the Japanese conglomerate that has invested nearly $12 billion in WeWork and is its largest shareholder. SoftBank has also lent hundreds of millions of dollars to the company, and took a haircut on its WeWork debt in last month’s restructuring.

By reducing WeWork’s debt by $1.4 billion overall and advancing the repayment of its remaining debt, the restructuring gave WeWork more time to attempt to build a sustainable business. But the company is still burning through vast amounts of cash each quarter and may be forced to shrink substantially through bankruptcy.

The landlord of the office is watching the company with dread.

Stijn van Nieuwerberg, a Columbia Business School professor specializing in real estate, said WeWork’s collapse could be a “systematic shock” to the weak commercial real estate sector in New York, San Francisco and other cities.

“This will happen pour more cold water on the office market, which is struggling badly,” he said, noting that WeWork rents nearly 20 million square feet of office space, more than any other company in the United States.

Until recently, Mr. Mathrani appeared determined to transform WeWork. But he was tired of the challenges of the business and frustrated by his lack of engagement with SoftBank, according to four people familiar with his leadership who spoke on condition of anonymity. Three people familiar with his conversations said he told aides he was particularly upset that it had not moved more quickly to wrap up the debt restructuring.

According to a person familiar with SoftBank’s thinking, the transaction could not be done quickly because it was complex and required sign-offs by multiple parties.

Mr Mathrani declined to comment.

As WeWork and SoftBank discussed restructuring, other parties suggested deals aimed at stabilizing the company.

Last fall, Mr. Neumann, the co-founder who holds a small stake in the company, began telling friends and colleagues that he was thinking of rejoining WeWork and buying back some of its stock, Her conversation, according to three familiar people. Four people familiar with the plans said he has scheduled a meeting with Mr. Mathrani in October to discuss a larger investment and other strategic initiatives that could strengthen the company.

Mr. Neumann recently secured a $350 million investment from venture capital firm Andreessen Horowitz for his new real estate venture called Flow. The two people said he and other investors were considering investing up to $1 billion in WeWork, some of which could be used to buy back some of the company’s debt.

Mr. Mathrani canceled the meeting and has not rescheduled it, the three people said. The two men never met to discuss Mr. Newman’s offer, and it is unclear why Mr. Mathrani was not interested.

Mr. Mathrani opted to negotiate debt restructuring with SoftBank and other investors affiliated with the Japanese company. But he and SoftBank executives struggled to get his approval for the loan deal, drawing the attention of SoftBank Chief Executive Masayoshi Son.

By March, as negotiations on the deal progressed, Mr. Mathrani felt that SoftBank’s influence over the company inhibited his ability to make key decisions, said three people familiar with the matter.

In the spring, as WeWork’s stock plummeted, he approached SoftBank with offers from other companies that were interested in doing deals with WeWork. Co-working company IWG discussed a deal to operate WeWork locations in exchange for a fee, and JLL, one of the world’s largest commercial real estate brokers, is in talks about a possible operating agreement with WeWork. Was doing, according to acquaintance of two people, chatting.

SoftBank wasn’t interested. JLL and IWG declined to comment.

WeWork has made some progress under the leadership of Mr. Mathrani. The company has reduced its costs by negotiating lower rents with landlords and closing some locations. A recent WeWork securities filing states that, since 2019, it has saved nearly $12 billion by terminating and modifying hundreds of leases.

But the company fell far short of some of the targets set by Mr. Mathrani. In August 2021, the company projected that it would generate $4.3 billion in revenue in 2022; It reported $1 billion less than that.

And given the weak demand for office space, the cost to the company could still be too high. It had 614 locations at the end of March, down from about 715 at the end of 2020.

Mr Mathrani and the landlord of the office had failed to fully appreciate the transformation of office work during and after the pandemic. With fewer people coming into the office five days a week, many employers have decided they no longer need to maintain expensive office space.

A major challenge is that WeWork is competing with the vast amount of office space that employers no longer need and are seeking to lease to others. “There’s no doubt that WeWork is more expensive than a well-priced sublet,” said Ruth Kolp-Haber, chief executive of Wharton Property Advisors, a New York office space broker.

She said a 5,000-square-foot office — big enough for 20 people — in a second-level building in Manhattan could be had for about $12,500 a month on the sublet market. Ms. Kolp-Haber said the same amount of space in a comparable WeWork facility would cost about $16,000 a month, acknowledging that WeWork offers tenants more flexibility over how long they want to stay in a space.

A WeWork representative said that subleasing involves significant costs and inconveniences that may make using a WeWork space more attractive.

Even before the recent slump in demand for office space, WeWork’s business model has always been on shaky ground.

Founded in the wake of the financial crisis in 2010 by Mr. Newman and Miguel McKelvey, WeWork signs long-term leases for floors in office buildings or entire buildings. The company refurbishes those spaces and rents them out to freelancers, start-ups and large corporations. The idea was that WeWork could generate more in rental income than it was paying landlords by offering perks like shorter leases, well-designed spaces, and happy hours.

The model never really worked on a large scale. In most places the cost is much higher than the revenue. WeWork grew rapidly, doubling its revenue for most of the years since its founding, but also more than doubling its losses. When the company tried to go public in 2019, investors balked.

WeWork withdrew its IPO in September 2019, and Mr. Neumann resigned as chief executive. Since then, he has received over $700 million from SoftBank selling stock and cash payments.

Two people familiar with the matter said Mr Newman had moved on and was no longer interested in investing in Werk. In a recent financial filing, SoftBank revealed that it has lost more than $10 billion on its investment in WeWork so far.

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