What Will Become of WeWork?

• WeWork will likely enter Chapter 11 bankruptcy during Q4 this year, if not before. 
• WeWork has huge name recognition, and that, alongside its 500 odd coworking centers, constitute a potentially valuable asset for the right buyer. 
• I would strongly advise against any real estate firm trying to do it without an operator, because as much as they may think they understand the coworking business, their track record is short and undistinguished in this sector. 

“Never make predictions, especially about the future.” is a saying attributed to the famous film producer, Sam Goldwyn. Despite those wise words, I shall venture an opinion, if not exactly a prediction, that WeWork will enter Chapter 11 bankruptcy during Q4 this year, if not before.  

Assuming that proves to be correct, what happens next is an interesting question to speculate about. I do not for a moment think that the business and the name will disappear, despite the criticism of the business model which has recently appeared in major publications like Fortune and the Financial Times, that really ought to know better. 

Thanks to the antics of its founder, Adam Neumann and his wife, publicized in the excellent AppleTV documentary, “WeCrashed,” WeWork has huge name recognition, and that, alongside its 500 odd coworking centers, constitute a potentially valuable asset for the right buyer.  

Who might that right buyer be? 

Most people’s first choice would certainly be WeWork’s main rival, IWG, which has both the financial and management capacity and the desire to grow, but are there other candidates? The funding for a purchase out of bankruptcy could certainly come from private equity (PE) and a number of major PE firms have shown an interest in investing in coworking companies. The problem with this PE/operator combination is that none of the other coworking companies has the management capacity to take on the re-negotiation of 500 leases. Even Servcorp, the third largest international coworking company would probably choke on such a large mouthful. 

The solution to that problem is, in my view, the addition of a third member to the buyout group, an entity that does have the ability to handle a large number of real estate deals simultaneously. JLL, CBRE or another major real estate professional firm would seem good candidates for this role.  

So that the dream team would end up being: 1. A PE firm providing the equity, 2. A good coworking firm to provide the know-how and 3. A major real estate firm to do the restructuring. I would strongly advise against any real estate firm trying to do it without an operator, because as much as they may think they understand the coworking business, their track record is short and undistinguished in this sector.  

I suppose that, despite my view on the “dream team,” the favorite candidate must still be IWG — but it would be a pity for the property world as a whole if it was IWG that succeeded as buyer. The major corporations that are the clients of the future for WeWork do not like it when there is only one supplier for a key input. Ideally, they would like at least three choices to provide some competition.  

When WeWork first appeared on the scene, and before we realized that the founder was a maniac, we all rejoiced at the prospect of a real competitor for IWG, because we knew it would expand the market for everyone.  

Could the right team turn WeWork into a profitable business? I do not see why not, as there is nothing wrong with the WeWork centers, in general terms. Under sensible management and with the proper level of service for clients, there is every reason to think that they could generate the high levels of cashflow which we are seeing in so many of the smaller operators today.