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WeWork's inevitable retreat is here

Tom Carter   

WeWork's inevitable retreat is here
  • WeWork is closing down some of its coworking spaces, including a site in London.
  • The office space giant is also reportedly preparing to file for bankruptcy.

WeWork has started to close some of its coworking spaces as it reportedly prepares to file for bankruptcy.

The company previously said in September that it planned to renegotiate all its leases and exit any "unfit or underperforming" locations. Some of these closures are now underway.

A spokesperson for WeWork confirmed to Insider Thursday that it is ending the tenancy of its New Kings Beam House location in Central London. WeWork members at the impacted building told the BBC that the company had emailed them to say it was closing along with other "unprofitable" sites.

WeWork said that the closure was part of a preplanned strategy to "improve liquidity and strengthen our balance sheet." The spokesperson did not confirm how many sites in the UK it would be closing, but stressed that the region remained a key market for the company.

Once valued at $47 billion, WeWork is now reportedly on the verge of bankruptcy after years of chaotic expansion and financial struggles. Its share price has dropped almost 99% since it went public in 2021. As of Thursday morning, its shares were trading at $1.22.

The Wall Street Journal and Reuters both reported on Tuesday that WeWork could file for Chapter 11 bankruptcy in the coming days. It comes after the company warned that there was "substantial doubt" about its ability to stay in business back in August.

A company that planned to 'change the world'

Once the US's most valuable tech startup, WeWork has seen a dramatic fall from grace.

Backed by Softbank CEO Masayoshi Son's "Vision Fund" and generating a huge amount of buzz in Silicon Valley and beyond, WeWork founder Adam Neumann declared that the company would "change the world."

However, analysts were skeptical, pointing to a lack of a clear business model and uncertainty over whether the company was a tech or real estate firm, with investors tending to pay a steeper premium and be more forgiving of losses for the former.

They warned that WeWork's business model traded long-term liabilities against short-term income steams and risked damaging the wider real-estate industry, with the company responsible for leasing millions of square feet of office space in major city centers.

Years later, WeWork's financial woes could have dire consequences for commercial real estate. In June, Columbia Business School professor Stijn Van Nieuwerburgh warned that the collapse of WeWork could be a "systematic shock" to commercial real estate in many American cities.

The company has failed to recover from its disastrous 2019 IPO launch, which was ultimately delayed and which saw WeWork's valuation plunge by 70% in the space of about a month. Neumann also stepped down after details emerged about the company's huge losses and behind-the-scenes chaos.

As well as a corporate culture that included tequila shots in meetings and sex-filled company retreats, the real estate startup raised eyebrows by creating its own metric for measuring earnings in the run-up to its doomed IPO.

At the time, critics warned that its use of "community-adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization) appeared to leave out some operating costs, with some comparing it to "spurious valuation" metrics used by firms at the peak of the dot-com bubble.

After stepping down from WeWork in 2019, Adam Neumann has gone on to found a new company called Flow, a rental-housing company that bears some similarities to his former venture.

Neumann has been vague about what Flow's business model actually is, but that hasn't stopped VC firm Andreessen Horowitz from investing $350 million in the firm.