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Jonathan Price – CRE & Flex Expert
Adam Neumann, the ousted co-founder and former CEO of WeWork, has openly criticized the company’s post-bankruptcy reorganization plan, labeling its financial projections as “unsustainable” and warning of potential undercapitalization soon.
According to a report published by CoStar, Neumann revealed in a personal correspondence with WeWork’s bankruptcy court that his investment group, Flow, had attempted to reacquire WeWork with a $650 million offer in March — coupled with a proposal for up to $250 million in debtor-in-possession financing pending due diligence.
Despite Neumann’s persistence, these overtures were reportedly dismissed by WeWork.
Central to Neumann’s critique are WeWork’s bullish forecasts, which he argues relies on “overly optimistic” expectations of rapid increases in WeWork’s occupancy rates. Neumann contends that these projections are inconsistent with WeWork’s past performance and lack sufficient explanation as to how such ambitious targets will be achieved.
Neumann, who was ousted as CEO in 2019 amidst concerns over WeWork’s corporate governance and a failed IPO attempt, warns that failure to meet these lofty projections could leave the company undercapitalized and cash-flow negative in the near term — potentially requiring a return to Chapter 11 bankruptcy protection.
Despite Neumann’s offer and concerns, WeWork appears to be moving forward with an updated restructuring strategy. According to CoStar, the company filed a plan Friday having secured $450 million in combined debtor-in-possession financing from a group of consenting stakeholders that includes Japanese investment giant SoftBank, asset manager BlackRock, and a third-party investor known as Cupar Grimmond LLC.
According to a report published by Bloomberg, if the restructuring is carried out, WeWork will be primarily owned by Cupar Grimmond, which plans to provide approximately $337 million into the business. Additionally, a group of WeWork bondholders has agreed to offer $112 million in financing. Moreover, SoftBank would still own at least 16.5% — with the potential for it to increase to 36% under the new deal.
The proposal is reported to have backing from most owners of WeWork’s $4 billion in senior debt and a committee of unsecured creditors. Neumann could further challenge the proposal, but his offer would need support from many of these senior lenders.
However, everything is not set-in-stone. WeWork still needs to finalize the proposed deal into a contract and seek creditor approval for the amended reorganization plan. It’s possible Neumann could challenge the deal by persuading bankruptcy Judge John K. Sherwood to reject the reorganization proposal. However, Sherwood maintains that it is up to the lenders to decide whether to consider Neumann.
The company has also been renegotiating leases with landlords to reduce its lease burden, which it still identifies as the most significant obstacle to achieving profitability. However, much of that success has taken place in international markets — less so in North America.
As the global workforce moves towards more flexible and hybrid work environments, the outcome of WeWork’s restructuring efforts and its ability to meet its ambitious financial targets will have implications for an industry that has been expanding quickly over the past year.
According to a report published by CoWorking Cafe, many of WeWork’s competitors have continued expansion strategies into 2024, as the demand for spaces rises across the U.S. In Q1 2024, U.S. Coworking spaces expanded at least 6% — adding 346 new spaces for a total of 6,597 nationwide in just a few months.
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Stakeholders and observers alike are keenly watching how WeWork will navigate its significant challenges, including from creditors, and what implications it will have for the flexible work company.
