Leasing Deals Resume at WeWork, But It’s Not Business as Usual

By Paul Bubny

The We Company has refuted reports that it’s halting all new lease agreements as it tries to rein in costs. However, with or without new leasing deals, it’s not exactly business as usual at the parent company of WeWork as it deals with the fallout of delaying its initial public offering.

A report that WeWork would stop signing new leases, first published in the Financial Times on Thursday, was picked up by several other media outlets including Reuters, CNBC and Fox Business. On Friday, a company spokesperson told Barron’s this wasn’t the case.

“WeWork continues to sign new lease agreements with our landlord partners,” the spokesperson told Barron’s. The spokesperson added, though, “We expect the pace of entering new lease agreements to slow over the next several quarters as we pursue more strategic growth and focus on accelerating our path to profitability.”

The FT later reported that the lease suspension put in place on Monday had been lifted, although the rapid pace of dealmaking that has marked the company’s growth over the past two years would be slowed. The paper reported that WeWork had received “a deluge of calls from landlords” following Thursday’s report.

However, the We Company statement apparently didn’t say anything about other points raised in Thursday’s FT article, which ran two days after co-founder Adam Neumann stepped down as CEO and was replaced by co-CEOs Sebastian Gunningham and Artie Minson. In common with other recent reports, the FT piece reiterated that the company was planning to lay off thousands of its 12,000-plus employees globally.

Rank-and-file workers aren’t the only ones facing the prospect of pink slips. The FT reported that the company also planned to cut the jobs of some 20 employees with close ties to Neumann, including some of its top managers. Among the senior figures under pressure are vice-chairman Michael Gross and Chris Hill, a brother-in-law of Neumann’s wife, Rebekah. Other senior executives have reportedly resigned in recent weeks, including Granit Gjonbalaj, the head of real estate development.

“Current and former employees have described to the FT an atmosphere filled with chaos as they wait to see how the two men who replaced co-founder Adam Neumann as co-chief executives will rein in its losses,” the FT reported on Friday. “Several have talked of decisions being made and reversed within hours of each other.”

Decisions that appear to have been finalized include the sales of three businesses acquired under Neumann’s leadership: Conductor, Managed by Q and Meetup. The FT reported that Gunningham and Minson “have already received tentative expressions of interest in recent days.” Gunningham and Minson are also looking to sell a $60-million Gulfstream G-650 jet the company bought last year.

The IPO, which was to have occurred as early as this month, was originally targeted toward a valuation of $47 billion. By the time the company shelved plans for the IPO, the company’s bankers were said to be floating valuations closer to $20 billion, Barron’s reported.

What hadn’t diminished along with the valuation was the expense of WeWork’s rapid expansion. “The group has burnt through capital as it expanded to more than 500 offices in 111 cities, and last year it reported a loss of $1.6 billion on sales of $1.8 billion,” the FT reported.

Along with the sales of businesses, the company is turning to other funding sources. It’s due to receive a short-term capital injection of $1.5 billion next year from Softbank, its largest investor, and is in discussions to boost that amount, according to the FT.

“Fresh capital is critical for WeWork, which is also seeking to clinch a much-reduced $3-billion to $4-billion loan from a group of Wall Street banks,” the FT reported. “The lenders are refusing to bankroll a deal of that size unless WeWork first raises new equity.”

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