WeWork, the ailing office space company built by entrepreneur Adam Neumann that has struggled to right itself in recent years, is in talks with investors to restructure its more than $3 billion in outstanding debt and raise more cash.
The cash infusion would likely give WeWork the hundreds of millions of dollars it needs to keep operating for at least a few years, according to two people familiar with the negotiations. And restructuring its debt would give executives some leeway to continue reshaping the company without worrying about running out of cash.
People said Yardi, a Santa Barbara, California-based real estate software provider, is among investors considering a new investment in the company. Yardi has already worked closely with WeWork as it expands beyond offering co-working spaces to additional services like office management software at its properties.
There’s no guarantee the WeWork deal will finalize, one person said, and even if it does, it could take weeks.
The steps to fix WeWork’s debt come after the company drained more than $700 million in cash last year. However, the company’s performance has gradually improved.
The company’s conversations with investors underscore the ongoing challenges facing its business, which include leasing office space from landlords and then charging clients to use it.
SoftBank, the Japanese investment group that is WeWork’s largest shareholder and largest debtor, is playing a key role in the negotiations. People said it is not expected, however, to inject any additional money into the company. Since 2017, SoftBank has poured more than $10 billion into WeWork and written off billions of dollars in losses on its investments.
SoftBank recently took more steps to shore up WeWork’s financial situation. It lent WeWork $250 million in January, agreed last month to increase the size of the debt facility and extended the date on which it should have been repaid to March 2025 from November this year.
In addition to SoftBank’s efforts, the deal under discussion will give WeWork breathing space to focus on improving its performance and growing the company, which includes finding areas to cut costs. In January, WeWork said it would cut 300 employee jobs.
Sandeep Mathrani, a real estate industry veteran who took over as CEO in February 2020, has been working to improve the company’s financials — a task made easier as filling offices, which had been hit hard during the worst of the Covid-19 pandemic, soared in the last quarter of 2022. .
Last month, on a call with Wall Street analysts, Mr. Mathrani raised the possibility of a debt restructuring, saying the company expected to work to extend the dates by which its debt must be repaid. But the urgency for debt relief may have increased as WeWork grapples with headwinds for its business.
Founded in 2010 in New York, WeWork was once a darling in the startup world and has since become a cautionary tale. Mr. Newman positions WeWork as a company with technological capabilities that have gone beyond the traditional real estate business. The move has attracted well-known investors, such as Benchmark Capital, Fidelity, and SoftBank, and persuaded them to invest in valuations that are closer to high-growth technology companies than to real estate companies.
At its peak, WeWork was valued at $47 billion in early 2019, before it sought to go public. But Mr Newman’s ambitions have fallen to earth as WeWork’s losses mount. The company failed to convince investors to buy into its planned initial public offering, forcing it to cancel those plans.
In September 2019, Mr. Newman stepped down as CEO. SoftBank spent billions of dollars bailing out the company — which was in danger of running out of cash before the end of that year — and buying out shareholders, including Mr Neumann. The WeWork bailout came with mass layoffs.
Things only got worse in 2020 when the pandemic shut down offices and forced employees to work from home and away from Instagram-ready WeWork rental spaces. The company’s clients abandoned their memberships in droves.
At the time, WeWork said its IPO would provide fresh capital to grow the company while it cuts costs by renegotiating leases. It finally went public in October 2021, one of many companies to do so by merging with a special purpose acquisition company.
But the company’s value has continued to decline because it is running out of cash. At the end of last year, WeWork had $287 million in cash, down from $924 million at the end of 2021. In the fourth quarter, WeWork said it lost $568 million because it manipulated expensive leases while selling customers new products, like desks. management software. It ended 2022 with $15.6 billion in lease commitments and more than $3 billion in borrowings that weighed down its balance sheet.
The company’s share price shows how worried investors are about its fate and its debts coming due over the next few years, most of which are owed to SoftBank. Shares of WeWork have been hovering around $1, down nearly 90 percent from its share price when the company went public.
Meanwhile, Mr. Newman walked away with hundreds of millions of dollars. He now runs a new real estate company called Flow backed by Andreessen Horowitz, the prominent projects firm.
Mr. Newman is still a WeWork shareholder, but he is estranged from the company. One person familiar with the situation said that as part of the 2021 deal with SoftBank, when they bought more of his shares, he was not allowed to participate in board meetings. The following year, he was allowed to ask SoftBank if he or someone on his behalf could return to the board as an observer. He did not ask to return.
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