WeWork, the struggling office company built by entrepreneur Adam Neumann that has struggled to recover in recent years, is in talks with investors to restructure its more than $3 billion outstanding debt and raise more than cash.
A cash injection would most likely give WeWork the hundreds of millions of dollars it needed to keep operating for at least a few years, according to two people with knowledge of the negotiations. And restructuring its debt would give executives some leeway to continue to reshape the business without having to worry about running out of funds.
Yardi, a real estate software provider in Santa Barbara, Calif., is among investors considering new investments in the company, the sources said. Yardi has already worked closely with WeWork as it expands beyond offering coworking spaces to additional services such as office management software at its properties.
There’s no guarantee the WeWork deal will close, and even if it does, it could take weeks, one of the people said.
WeWork’s debt relief measures come after the company spent more than $700 million in cash last year. However, the company’s performance has gradually improved.
And the company’s talks with investors underscore the ongoing challenges of its business, which involves renting office space from landlords and then charging customers for their use.
SoftBank, the Japanese investment conglomerate that is both WeWork’s largest shareholder and largest debtor, is playing a key role in the negotiations. He is not expected to pump any additional cash into the business, however, the people said. Since 2017, SoftBank has invested more than $10 billion in WeWork and written off billions of dollars in losses on its investment.
SoftBank recently took further steps to shore up WeWork’s financial position. It loaned WeWork $250 million in January, and last month agreed to increase the size of a credit facility and extended the date by which it was due to be 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 business, which includes finding areas to cut costs. In January, WeWork announced that it would cut 300 employee positions.
Sandeep Mathrani, a property industry veteran who took over as chief executive in February 2020, has been working to improve the company’s finances – a task made easier by office occupancy, which has been hit hard for the worst of the Covid-19 pandemic, increased in the last quarter of 2022.
In a call with Wall Street analysts last month, Mathrani raised the possibility of debt restructuring, saying the company plans to work to extend the dates by which its debt is due to be repaid. But the urgency to alleviate debt may have increased as WeWork grapples with headwinds in its business.
Founded in 2010 in New York, WeWork has evolved from a once-darling of the start-up world to a cautionary tale. Mr. Neumann has positioned WeWork as a technology-driven company that transcends the traditional real estate industry. It was a pitch that charmed well-known investors, such as Benchmark Capital, Fidelity and SoftBank, and convinced them to invest at valuations closer to high-growth tech companies than real estate.
At its peak, WeWork was valued at $47 billion at the start of 2019, before seeking to go public. But Mr. Neumann’s ambitions crumbled as WeWork’s losses mounted. The company failed to convince investors to buy its planned initial public offering, forcing it to cancel those plans.
In September 2019, Mr. Neumann stepped down as CEO. SoftBank has spent billions of dollars to save the company – which was in danger of running out of cash before the end of this year – and buy out shareholders, including Mr. Neumann. The deal to save WeWork was accompanied by massive layoffs.
Things only got worse in 2020 when the pandemic closed offices and forced employees to work from home and away from WeWork’s Instagram-ready rental spaces. The company’s customers dropped out of their membership en masse.
At the time, WeWork said the IPO would provide new capital to grow the business while reducing costs by renegotiating its leases. It finally went public in October 2021, one of several companies that did so by merging with a special purpose acquisition company.
But the company’s value has continued to decline as it burns through 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 juggling expensive leases while by selling new products, such as desks, to customers. management software. It ended 2022 with $15.6 billion in lease obligations and more than $3 billion in borrowings weighing on its balance sheet.
The company’s stock price shows how nervous investors are about its fate and its debt maturing over the next few years, most of which is owed to SoftBank. WeWork shares hovered around $1, down about 90% from the stock price when the company went public.
In the meantime, Mr. Neumann walked away with hundreds of millions of dollars. He now runs a new real estate start-up called Flow with the backing of Andreessen Horowitz, the prominent venture capital firm.
Mr. Neumann remains a WeWork shareholder, but he is far removed from the company. As part of a 2021 deal with SoftBank, when they bought more of his stock, he was not allowed to attend board meetings, said one of the people with knowledge of the incident. situation. The following year, he was allowed to ask SoftBank if he or a designee could return to the board as an observer. He didn’t ask to come back.
. WeWork is is talks with des investors for help restructure debt