WeWork vs COVID-19?
The coronavirus pandemic has brought the world to a standstill. The fear of this virus has shut down or slowed most businesses.
Like most industries, the coworking space industry has suffered too.
And if the coworking industry has suffered, can WeWork be far behind?
But the question to be asked is this: Is coronavirus the only factor threatening the future of WeWork?
How is WeWork dealing with the coronavirus?
WeWork offices all over the world have been taking massive preventive measures against the coronavirus. It stopped providing breakfast and barista services. It suspended all events globally and, in China, discouraged visitors.
Elsewhere, according to a WeWork spokesperson, offices are being cleaned more frequently. It is also permitting (but not requiring) its own employees worldwide to work from home.
“Since the beginning of the coronavirus outbreak, WeWork has been closely monitoring the situation and ensuring measures are implemented in line with CDC, WHO and local government guidance to protect our employees and members around the world,” says a WeWork spokesperson.
However, despite these preventive measures, coworkers are avoiding WeWork like the plague.
“I think WeWork is potentially the worst place you can be during this pandemic,” says Chase Feiger, a serial entrepreneur and Under 30 alumnus whose latest venture RxDefine previously rented space in Dallas, Santa Monica and San Francisco from WeWork.
Where the problem truly lies
The coronavirus, according to many, could not come at a worse possible time for the coworking giant. It’s building leases are locked at 15 years on average while its tenants have the option to sign month-to-month leases, which allows them to leave WeWork when trouble comes knocking.
WeWork might have incorporated a lot of factors in its risk analysis, but it seems to have missed out on a global pandemic.
“It is hard to imagine we are going to be here in a few weeks,” says a New York business owner, who asked to remain anonymous because he is hoping to get out of his $9,000 a month lease, which is up in May, a month early. “Are we any more at risk going to WeWork than going to my kid’s school? Probably not, but there is an optics component to it.”
In January 2019, WeWork’s valuation stood at a whopping $47 billion.
Yes, you heard that right.
A lot of the blame for WeWork’s shaky future lies on its former co-founder and CEO Adam Neumann who’s financial habits were extravagant, to put it mildly.
From flying 2,000 employees from 15 countries to the English countryside for three days of partying and corporate presentations or spending $60 million on a luxurious Gulfstream G650, Adam Neumann did it all.
In 2018, WeWork’s securities filings exposed the sorry state of affairs.
The company had lost $1.9 billion on revenue of $1.8 billion.
This wasn’t the only bad year as the losses continued to expand, rising to $1.25 billion in just the third quarter of 2019.
This wasn’t all. In the first three quarters of 2019, total losses skyrocketed to $2.6 billion on revenue of $2.4 billion.
Since then, WeWork has refrained from releasing financial information.
WeWork’s bonds traded at a distressed price of 65 cents on the dollar on Friday, according to CapIQ, a level typically reserved for companies at risk of defaulting on interest payments and possibly heading for bankruptcy.
SoftBank, one of WeWork’s biggest investors, backed away from part of its planned bailout of $3 billion worth of WeWork shares from existing investors, including Neumann. Its pullback may also delay indefinitely $1.1 billion in new debt it was promised after the buyout went through.
According to trusted sources, the reason SoftBank decided to back off was that WeWork had failed to meet the conditions of the deal due to regulatory probes and other issues.
Bailouts and asset sales have been the primary reasons why WeWork has been keeping afloat until now.
WeWork received $5 billion from SoftBank in October 2019.
Since then, WeWork has fired more than 2400 people and have been selling off pieces of its business at huge losses.
In the USA, fortunately for WeWork, no city has asked it to shut down but in San Francisco Bay Area, the government has asked for non-essential businesses to shut down.
With the growing rise in coronavirus cases, more WeWork spaces could be shut down.
A ray of hope
There may be a bit of a buffer for WeWork from its push into the corporate market, which represents 40% of tenants and one-third of revenue, as the coronavirus renews interest in catastrophe planning.
Goldman Sachs, for example, has a full floor of a WeWork building in London reserved and set up for emergency use, though the bank is not currently using that space.
“It’s sort of the prepper mentality,” says Joe Brady, CEO Americas of the Instant Group, a broker and manager of flexible space who is currently working with two dozen companies in search of extra desks due to coronavirus. “You look silly doing it, but once the zombie apocalypse happens it’s nice to have your bunker.”
But big questions for WeWork remain about how many of these big tenants it can continue to lure, and whether it will have to offer substantial rent cuts to get them.
If you want to know more about WeWork or coworking in general, visit us at www.workstreet.in.