For WeWork – a new lease on life?
The clock may be ticking.
As reported Friday (Dec. 13), the beleaguered real estate company is eyeing the possibility of exiting 100 leases across the globe, a tactic that might staunch at least some operating losses.
If the firm successfully exits those leases, it would reduce its global office portfolio by as much as 15 percent. The initial reports came from The Information.
According to the reports, in tandem with exiting those leases, the company might lay off more workers – on top of the 2,400 layoffs (19 percent of the staff) that were announced last month.
WeWork, of course, has been scrambling to revamp itself amid an operating cash crunch and a shelved IPO, where the firm had lost $900 million through the first six months of the year.
SoftBank’s decision to take control of WeWork throws something of a lifeline to the company in the form of a $9.5 billion rescue package composed of debt and stock tender. But the road is a long one, considering that the total long-term lease obligations amount to $17.9 billion and total lease obligations are about $47 billion, with a horizon of 15 years. SoftBank CEO Masayoshi Son has said WeWork will have to stop building new office space for a few years, which implies at least some headwind to growth.
Breaking leases is never a great strategy, because it inevitably leads to courtroom drama – of the pricey kind. As reported in Crain’s New York Business, Chestnut Holdings is trying to evict WeWork from a midtown New York City building, and has filed a suit stating that it is owed $30,000 in rent and other monies. WeWork has, in turn, filed documentation stating that it has paid that sum. The landlord alleges that the company violated its lease due to the aforementioned restructuring – an interesting conundrum, we note.
The restructuring is underway because, well, it has to be underway. And it is the restructuring that may trigger the ire of the landlords that enable WeWork to exist. One wonders how the top line will grow enough beyond its run rate of a few billion dollars annually if the company cannot expand. As the saying goes, you cannot cut your way to profitability.
And across it all looms the specter of a recession – not an if, but a when, because that is how the economy works … and that might mean lease defaults. WeWork has about 600,000 tenants participating in its shared office model, and its famed perks may or may not be among the next line items under scrutiny. In the meantime, the clock may be ticking on the firm’s ability to choose which leases to end (at a presumed cost) or renegotiate.
Not an easy position to be in, from any angle.