WeWork has filed for bankruptcy protection and intends to "streamline" its real estate footprint.
Headquartered in New York City, the company filed for Chapter 11 bankruptcy protection on Monday in the United States and announced plans to file for creditor protection in Canada.
In a statement, the company said it has entered into a restructuring support agreement with 92% of its stakeholders in order to "drastically reduce" its debt and further rationalize its commercial office lease portfolio.
WeWork revealed it has a "deliberate and value-maximizing" lease rejection plan that it expects will position the company for "operational and financial success." As part of Monday’s filing, WeWork has requested the ability to "reject the leases of certain locations," which it said are largely non-operational. Affected members have been notified in advance of the company’s exit.
"Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet," said CEO David Tolley. "We defined a new category of working, and these steps will enable us to remain the global leader in flexible work."
According to court documents, WeWork operates over 750 locations in 37 countries, and employs over 2,650 full-time and 50 part-time workers. For the fiscal year 2022, the company’s revenue was approximately $3.25B. WeWork’s failed 2019 IPO valued the company at $47B; when it successfully went public in 2021, it was valued at $9B.
Currently, WeWork has eight locations in Toronto, five in Vancouver, four in Montreal, one in Burnaby, and one in Calgary. It’s not clear which, if any, Canadian locations will be affected by the restructuring process.
Chris Fyvie, Vice President, Sales Representative, at Colliers, told STOREYS that although there is no "clarity or direction" on how WeWork’s bankruptcy will play out, it doesn’t necessarily spell disaster for Toronto’s office market.
"For the traditional co-working model with lots of small users, there are lots of existing and new foreign players that have not over-extended themselves like WeWork has," Fyvie said.
Toronto’s co-working companies have been "very busy and opportunistic" in their quest for space, and he expects that some of WeWork’s competitors will swoop in to backfill the better-quality offices left behind.
Regarding WeWork’s enterprise tenants, who occupy full and half-floors, the bankruptcy may be a "win-win" — the co-working company generally charges such users twice what they’re paying the landlord to lease the space.
But, with WeWork out of the picture, a landlord can offer an existing tenant a significant discount on rent, while still charging the same or even more than they had been with WeWork. And if a tenant doesn’t want to stay, the space left behind will be fully furnished and "likely very leasable."
In August, WeWork admitted to having "substantial doubt" that it could remain in business. The company began to engage with landlords regarding the "underlying cost of real estate" the following month, Tolley said, adding that he has "exceptional confidence" that the company will complete the restructuring process no later than Q2 2024.
"WeWork is going to emerge from this process as a much financially stronger company," Tolley said. "WeWork is here to stay and we sincerely look forward to continuing to work with each of you for many, many years to come."
According to the company, WeWork locations remain open and operational.
