WeWork halts all new lease agreements to stem losses
WeWork has put a halt to the signing of new lease agreements with property owners as the lossmaking group tries to rapidly rein in costs, according to people briefed on the matter.
The move will rattle commercial property owners across the globe who rented to WeWork and upgraded the spaces in order for the group to re-let the buildings to its own customers. Landlords have been bracing for the possibility that WeWork, which has become the biggest office tenant in New York and one of the largest in London, could suspend its expansion.
The decision to put all new leases on ice comes as WeWork’s parent group, the We Company, readies to lay off thousands of its 12,000-plus employees in the coming weeks. On Thursday the company was planning to cut the jobs of roughly 20 employees with close ties to co-founder Adam Neumann, including some of its top managers, those who had been briefed said.
the price WeWork paid for a Gulfstream G-650 jet last year that is now up for sale
Among the senior figures under pressure are vice-chairman Michael Gross and Chris Hill, a brother-in-law of Mr Neumann’s wife, Rebekah. Mr Gross was among the most senior executives and accompanied Artie Minson, who was elevated to co-chief executive of WeWork this week alongside Sebastian Gunningham, on investor roadshows last year.
Others, in what was described as “Adam’s posse” by one insider, caught up in the cuts include a company driver for Mr Neumann’s Maybach. The new co-CEOs have also put up for sale a Gulfstream G-650 jet which WeWork bought new for more than $60m last year.
Mr Hill rose quickly through the company ranks, holding titles including “chief We officer” of its Japanese operations and most recently chief product officer of the whole group.
Jennifer Berrent, the chief legal officer who was seen as having been sidelined by the promotion of Mr Minson and Mr Gunningham to co-CEOs, was expected to remain at the company, some of the people added. Ms Berrent was co-president alongside Mr Minson before he stepped up this week.
The company’s Chelsea headquarters has been gripped by crisis since Mr Neumann was pushed out as chief executive on Tuesday in the wake of the dramatic collapse of its initial public offering. WeWork, which had been expected to be a highlight in a banner year for IPOs, is now trying to secure a new financing lifeline.
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 $1.6bn on sales of $1.8bn.
Creditors have raised concerns over its capital reserves, which stood at roughly $2.5bn at the end of June, and on Thursday analysts S&P Global cut the company’s credit rating deeper into junk territory. The yield on WeWork’s debt surged above 10 per cent on the downgrade, in a sign of the financial strain on the group.
The company is due to receive a $1.5bn capital injection next year from its largest backer, Japan’s SoftBank. The two sides have been in talks over an increase to the sum SoftBank would pump in of at least $1bn, with negotiations centred on the valuation cut WeWork would be dealt in the transaction.
Fresh capital is critical for WeWork, which is also seeking to clinch a much-reduced $3bn to $4bn loan from a group of Wall Street banks. The lenders are refusing to bankroll a deal of that size unless WeWork first raises new equity, according to multiple sources.
Former staff said the cost cuts indicated that Mr Minson and Mr Gunningham were sending a signal to Wall Street that they were serious about changing a culture known for its excesses. The looming departures of the employees with close ties to Mr Neumann was earlier reported by The Wall Street Journal.
The co-CEOs have also decided to sell three of the acquisitions made under Mr Neumann — Conductor, Managed by Q and Meetup — for which they have already received tentative expressions of interest in recent days, two people briefed on the matter said. The company is expected to retain Flatiron School, a coding education business it bought two years ago.
The unravelling of the IPO has already shown up in the accounts of several of WeWork’s investors. The investment bank Jefferies late on Thursday took a $146m writedown on a stake it purchased in the co-working space provider in 2013. Jefferies said it had reduced its valuation based on an estimate it made on August 31, which included a “significant discount due to uncertainty regarding the timing and pricing of We’s IPO”, and that it could face further writedowns in the future.