New hope or last gasp for WeWork? (Or all CoWorking)

David Goldsmith

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"
Sandeep is basically the anti-Adam Neumann,” said Dror Poleg, a former advisor to flexible office provider Breather and the co-chair of the Urban Land Institute’s Technology & Innovation Council. “He’s older. He has classic real estate experience working for the largest companies in the space. He’s very, very well-liked and experienced in the industry.”

"While experts feel the coworking model is here to stay, Roseman said Mathrani is WeWork’s last lifeline to stay afloat.
“If he can’t get it done then the company’s toast,” Roseman said."

https://commercialobserver.com/2020/02/anti-adam-neumann-sandeep-mathrani-is-weworks-best-hope-for-survival/
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
I mean, hard to imagine it completely fails but that debacle was crazy last year with the pulled IPO and 80%+ drop in expected valuation vs bailout valuation. Just so many damn players in this space + WeWorks liabilities = lots of uncertainty
 

David Goldsmith

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I have always been skeptical of the business model because it eats risk for breakfast. That is to say they lock themselves into top dollar long term leases and turn around and sublease short term with no protections.

Then I saw they were giving brokers 100% commissions and was very WTF?
 

David Goldsmith

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Good news or bad news for WeWork?
They are are going to make some money (although between transaction costs in and out, plus carrying for 3 years with now income probably not as much as one might think) but this was going to be a premier fully owned property for the company (as opposed to those it merely subleases out) and now it looks like they are liquidating assets.
 

David Goldsmith

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$4.8B buyback does little to stop SoftBank’s fall
Activist investor Elliott Management pushed for repurchase of an even greater amount of shares


SoftBank is set to buy back $4.8 billion in shares amid demands from an activist investor and a volatile stock market.

The buyback would represent 7 percent of the Japanese conglomerate’s shares, which have been plummeting. The WeWork parent has come under fire recently for its handling of the beleaguered co-working firm’s botched public offering last year. The $4.8 billion buyback is a fraction of the $20 billion activist investor Elliott Management initially pushed for, the Wall Street Journal reported.
 

David Goldsmith

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As Businesses Close, WeWork Tries to Lure Workers Back
The shared office space company is offering its workers $100-a-day bonuses to go to its locations amid the coronavirus crisis.

In the fight against the spreading coronavirus, countless businesses, restaurants and bars have temporarily shuttered to stop people from congregating.
But WeWork, which operates shared work spaces, has kept most of its locations open. As of Tuesday, WeWork’s website said that only two of its co-working offices in North America were closed and that none were closed in Europe. The last public communication about the virus from the company to its customers, which include freelancers, small businesses and large corporations like Amazon, was 12 days ago, in which it listed the precautions it was taking. WeWork has allowed employees who normally staff its locations to work from home, but this week it started to entice some to go in with $100-a-day bonuses, according to an internal memo reviewed by The New York Times.
One thing is clear: A widespread shutdown could deal a grievous blow to WeWork, a once celebrated start-up that was already struggling.
In a turbulent past six months, WeWork called off an initial public offering as investors balked at its losses and corporate governance, laid off hundreds of employees, changed its top leadership twice and was bailed out by SoftBank, WeWork’s dominant shareholder. SoftBank, a Japanese conglomerate that runs a large technology investment fund, stepped in after WeWork nearly ran out of money. But its cash outflows are expected to be even greater this year as it completes an expansion that will almost double its locations.

Though most of WeWork’s locations are officially open the company said it provided essential services that many state and local governments had allowed to continue — almost no one is in them. In Midtown Manhattan, home to several WeWork spaces, the usual heavy flow of customers has dwindled to a trickle, according to two employees who work in or are monitoring those locations, and who asked not to be named because they feared losing their jobs.

The coronavirus pandemic is depressing demand for shared work space, and the looming recession could prompt many freelancers and small businesses, which make up much of WeWork’s customer base, to save money by working from home — something many white-collar professionals worldwide are quickly becoming accustomed to. WeWork customers can sign up for space month to month, allowing them to leave quickly. The company, by contrast, has yearslong leases with landlords.

From all directions, WeWork looks dark,” said Vicki Bryan, chief executive of Bond Angle, a research firm. “This was true before we had this historic pandemic crisis. But now those levers it could have pulled, to at least buy some time, have gone.”

And as it contends with the outbreak, its financial position could weaken because of an internal struggle among its shareholders.

SoftBank last week threatened to walk away from a tender offer to buy $3 billion of existing shares from other WeWork shareholders. If that transaction doesn’t happen, WeWork would not receive $1.1 billion in debt financing that is part of SoftBank’s rescue, according to a person briefed on the deal, who was not authorized to speak publicly about the matter.
SoftBank in recent months has plowed $1.5 billion into the company in return for new stock, and says it stands behind another $4 billion of debt financing. But if SoftBank walks away from the tender offer and withdraws the $1.1 billion loan, landlords that lease office space to WeWork may begin to doubt SoftBank’s commitment to the business.
SoftBank is facing its own pressures. The company and its $100 billion Vision Fund have stakes in many young companies that were struggling well before the virus hit. In an effort to allay the concerns of investors, SoftBank said on Monday that it would sell assets worth up to $41 billion to buy back $18 billion worth of shares and pay down debt. Its shares soared Tuesday on the news but were still down by a third from the high they reached last month.
“WeWork is not SoftBank’s only drama child,” Ms. Bryan of Bond Angle said.
SoftBank’s new hardened stance toward WeWork could be a negotiating tactic aimed at forcing other investors, including Benchmark Capital and Adam Neumann, WeWork’s co-founder and former chief executive, to accept a lower price.

The other shareholders are fighting back. On Sunday, two WeWork board members — Bruce Dunlevie, a founding partner of Benchmark Capital, and Lew Frankfort, the former chief executive of Coach, who make up a board committee created last year to evaluate its financing options — said in a statement that SoftBank was “obligated to consummate the tender offer” and that “its excuses for not trying to close are inappropriate and dishonest.” Benchmark, a prominent Silicon Valley venture capital firm, applied to sell its entire WeWork stake in the tender offer, according to the person briefed on the deal. Mr. Dunlevie did not respond to a request for comment.

If SoftBank walks away from the offer and WeWork doesn’t get the loans it is counting on, the company could be in peril, analysts say.

“Business disruption related to the global recession, spread of coronavirus and uncertainty surrounding SoftBank’s longer term commitment to WeWork has placed added pressure on the long-term viability of the company,” Standard & Poor’s said in a statement on Monday to explain why it was downgrading WeWork’s credit rating further into junk status. WeWork’s bonds have plunged to levels that suggest investors believe a default is likely.

An immediate problem for WeWork is convincing people that the company is responding appropriately to the coronavirus outbreak. Some employees and customers have questioned WeWork’s decision to keep locations open.

In a memo sent on Sunday to employees in the United States and Canada, WeWork’s chief operating officer, Shyam Gidumal, said the company had been “designated an essential business under orders we have reviewed.”

Asked about the memo, Nicole Sizemore, a company spokeswoman, said under New York State’s order, companies providing mail and shipping, security and storage — services that WeWork provides — are considered essential. “WeWork is a service provider, and we have an obligation to keep our buildings open,” Sandeep Mathrani, WeWork’s chief executive, and Marcelo Claure, executive chairman, said in another company email last Wednesday.

WeWork, however, may be having problems persuading employees to work at its locations. In his memo, Mr. Gidumal said that workers who went in would get $100 a day, up to $500 a week, and that the bonuses would be paid in a lump sum monthly. The money was meant to be “in recognition of our community employees’ willingness to support our members by keeping our buildings open and operating during these extraordinary times,” the memo said.

One of the WeWork employees monitoring Midtown locations said the bonus offer put workers in the difficult position of taking on a potential health risk for a few hundred dollars. This person said lower-paid staff who face financial hardships would be more likely to come in than other employees.
 

David Goldsmith

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WeWork Says Virus Will Hamper Ability to Hit 2020 Targets

WeWork says it doesn’t expect to hit its 2020 financial targets as it grapples with the coronavirus outbreak.
The impact of the virus “will likely have a negative impact” on the company, including on forward-looking information that it previously disclosed, Chief Executive Officer Sandeep Mathrani and Executive Chairman Marcelo Claure wrote in a letter to bondholders on Thursday that was obtained by Bloomberg.
 

David Goldsmith

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Knotel Cuts Half of Its Staff Amid Coronavirus Pandemic
The firm laid off or furloughed half of its 400 global employees

Flexible workspace provider Knotel has cut half of its 400 employees around the world as the company retools to survive the coronavirus pandemic that has sent the global economy in a tailspin, Commercial Observer has learned.


The company — which recently embarked on a restructuring because of the epidemic — laid off 30 percent of its staff around the world today, 127 employees, and furloughed another 20 percent, 68 employees, CEO Amol Sarva told CO. The laid-off staffers were offered six-months of health insurance in lieu of a severance payment as their primary option, but they can opt to receive a severance package based on seniority instead.

Business as usual is over,” Sarva said. “[The coronavirus crisis] isn’t short and we’ve decided that we’re going to take some sharp action ourselves on this. We’re going to prepare for the worst case.”

Sarva added that the cuts are “spread evenly across” every one of the 17 markets Knotel is in and did not focus on any one department. Some of its top markets include New York, Boston, Washington, D.C. and Amsterdam.

“It’s really hard,” he said. “It’s not a paint-by-numbers change. We redesigned our whole company for what we need to do now. Unfortunately, a lot of the roles are just not there.”

(Disclosure: Observer Capital, led by Observer Media Chairman and Publisher Joseph Meyer, is a Knotel investor.)

The novel coronavirus outbreak has forced more than 80 percent of Knotel’s customers to work remotely or stop moving in. Earlier this week, Sarva launched a complete restructuring of Knotel that would offer up the 5-million-square-feet it leases around the world to government agencies for emergency COVID-19 needs, called “Spaces for Cities.” Sarva said Knotel would charge governments for the space, but did not discuss specifics.

“Everything’s empty right now,” Sarva previously told CO. “But there are emergency services that are desperately looking for places to put beds, places to do screenings, places to do testing. When the National Guard is in a city, it’s going to need a place to be. We are in discussions and showing different governments what we can do for them.”

As part of the restructuring, Sarva previously said ten people on Knotel’s management team decided to take pay cuts — with Sarva himself slashing his salary in half.

This will be the second round of layoffs for Knotel this year, as the company let go of 24 employees that focused on the New York City market in January.

The highly infectious coronavirus has spread to 202 countries across the world and has had more than 500,000 confirmed cases, according to the World Health Organization’s most recent numbers. It has led to more than 23,000 deaths across the world, WHO said.

The pandemic has led to widespread layoffs around the world. Last week, flex meeting, event and office operator Convene laid off nearly 150 employees, and is planning to furlough additional workers, while coworking giant WeWork is considering laying off another 1,000 employees, as CO previously reported.

Knotel — which reached unicorn status last year when it closed on a $400 million fundraising round — expected to become profitable by the end of the year and, despite the turmoil, Sarva still thinks it will happen.

“We still expect to be profitable this year and we expect 2021 to be the start of a return to a new normal,” Sarva said. “That’s on a reduced forecast on the business. We think it’s going to be a really hard year for everybody.”
 

David Goldsmith

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WeWork offers rent discounts as incentive to secure long-term leases
Move comes as co-working giant tries
to stave off cancellations

WeWork has reportedly offered some customers generous discounts on their rent if they agree to sign long-term lease agreements.

The co-working giant made the offers to reduce the number of cancellations during the pandemic, according to Bloomberg, which cited sources familiar with the matter.

WeWork regularly uses price adjustments as incentives for its tenants, whom it calls members. The latest offers have been more frequent because of the virus, Bloomberg reported, but it is unclear how many offers were made. The co-working company reportedly targeted U.S. customers who were on month-to-month contracts — a group that comprises more than a quarter of WeWork’s membership.

The company has come under scrutiny in recent weeks for keeping its New York locations open despite a statewide order for all non-essential workers to stay home. As of Tuesday, there were more than 75,800 confirmed cases of coronavirus in New York, according to the state’s Department of Health.

A representative for WeWork told The Real Deal last week that some of its members were essential businesses, which exempted its locations from closure under the state’s guidelines. WeWork’s mail service also supported the exemption, they added. Administration officials did not respond to requests for clarification.

Last week, the company laid off 250 people in its development department in an effort to cut costs.


WeWork Offers Half Off to Some Tenants Signing Longer Leases


WeWork has offered some of its tenants half off their rent to lure them into signing longer-term leases and minimize cancellations during the pandemic, according to people with knowledge of the matter.


Some of the discounts are targeted at tenants in the U.S. who are on month-to-month contracts and agree to sign on for as little as two or three months, said some of the people, who asked not to be identified because they weren’t authorized to discuss the arrangements publicly.


The New York-based company has long used discounts to hook tenants but has been making more regular adjustments to the program since the coronavirus outbreak, another person said. It’s unclear how widespread the offers are but, as of last June, more than a quarter of WeWork’s tenants were on month-to-month-leases, according to a securities filing.

The Covid-19 pandemic is keeping large swaths of the global workforce at home and taking a heavy toll on renters of office space. Although the bulk of WeWork locations remain open, the SoftBank-backed company said last week that it no longer expects to hit 2020 financial targets. It separately cut another 250 jobs last week in an ongoing effort to lower expenses. WeWork competitor Knotel Inc. said Friday it will reduce headcount by half.
 

David Goldsmith

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Good luck collecting rents when you've barred tenants from entering the building. This really could be the straw that breaks the camel's back.


WeWork shuts Brooklyn location after employee gets Covid-19
Co-working firm has kept its US sites open, calling them “essential”

WeWork has closed one of its Brooklyn locations after an employee tested positive for the coronavirus, The Real Deal has learned.
Members of the co-working space at 81 Prospect Street were notified by email that the employee was last on the premises April 1 “and until further notice, [is] no longer working at the location.”
The site will be closed for cleaning until Monday, the email said. WeWork did not respond to requests for comment.
WeWork’s coronavirus case in Dumbo Heights is one of several at its New York City sites. The company has kept all its U.S. locations open throughout the pandemic — advising its tenants to maintain social-distancing rules — on the grounds that some of them operate “essential businesses.” Such businesses are exempt from Gov. Andrew Cuomo’s ban on going to work. WeWork has said its mail service also spares it from the order.
Some WeWork customers have called on the company to close its locations and waive membership fees while the pandemic plays out.
“They are putting all the members’ lives at risk while trying to keep their employees safe at home just to continue to profit off many small business owners,” one member told The Real Deal in an email, adding that there had been a virus case at the WeWork location where she rented space.
SoftBank’s Marcelo Claure addressed the controversy in a tweet March 18.
“We know there have been questions about WeWork’s response to the coronavirus pandemic, particularly as it relates to WeWork spaces that have remained opened in certain cities around the world,” he wrote. “In the same way we expect certain businesses to remain open for us … we too have members counting on us to remain open so they can run their companies to generate revenue, pay their people, and continue serving their customers.”
TRD has asked the Cuomo administration if WeWork’s exemption claim is valid, but has not received a response. Co-working firms are not included on the state’s official list of essential businesses.
This week, WeWork’s major backer, Tokyo-based SoftBank, announced that it was abandoning plans to buy $3 billion in WeWork shares, a major blow for shareholders including the company’s former CEO, Adam Neumann.
The announcement coincided with reports that WeWork has been appealing to its landlords to slash its rent by as much as 30 percent as it grapples with the economic fallout of the pandemic.
 

David Goldsmith

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Between the WeWork debacle and the coronavirus, the markets have deemed Masayoshi Son’s $100 billion Vision Fund largely worthless. But the legendary investor has other Softbank assets, a track record — and a plan.
With a Flurry of slammed black SUV doors, SoftBank founder Masayoshi Son and his entourage duck into the hush-hush private space within America’s top seafood restaurant, Le Bernardin, the Japanese billionaire easy to mark by the metallic-gray Uniqlo down jacket he wears over his suit.
The man known simply as Masa has gathered around twenty of the world’s largest asset managers in Midtown Manhattan on this day in early March. He hands over a colorful tote bag he’s using instead of a briefcase and assumes the empty chair at the dead center of one side of a large three-sided table. The day before, he’d spoken to a larger group of investors, but he’s billing this morning as an exclusive “Pre-IPO Summit,” and he’s drawn a multitrillion-dollar audience, including BlackRock’s Larry Fink, who sits next to him.

“Despite people’s view that SoftBank might be struggling, we continue to grow,” Son tells them. “Don’t think about the past.”
Easier said than done. SoftBank’s $100 billion Vision Fund is surely the most-scrutinized in the world, and for good reason. Over the past three years, Masa has made a dizzying number of huge, bold bets—88, to be precise—at huge, bold valuations. Things haven’t gone exactly as planned. First, there was Uber, which the Vision Fund backed late, leaving it hundreds of millions underwater. And then WeWork, into which SoftBank has pumped more than $10 billion since 2017, and which cratered since it withdrew its much-maligned IPO plan following the sloppy exit of its self-centered, self-dealing founder, Adam Neumann. A “tough time,” Masa concedes to the group. The previous day, he had given a longer explanation to Forbes privately: “We paid too much valuation for WeWork, and we did too much believe in the entrepreneur. But I think even with WeWork, we’re now confident that we put in new management, a new plan, and we’re going to turn it around and make a decent return.”
To try to pivot, Masa invokes the past. Specifically, his career-clinching deal and SoftBank’s crown jewel, the $20 million check he wrote into Chinese marketplace Alibaba—now valued at more than $120 billion. “Alibaba the first 10 years had almost zero revenue,” Son tells them. “But once it started generating, it popped up dramatically.”
To buttress that point, he trots out nine of his portfolio companies for a 20-minute presentation from each. “The companies today have an initial move ahead of everyone else,” Son says. “It’s the beginning. I want you to see and to feel what is going to happen.” There are indeed some dandies there, including TikTok owner ByteDance and Korean e-commerce leader Coupang.
But the elephant in the room isn’t actually in the room—it’s early March, and Coupang is presenting remotely because of the coronavirus outbreak in Asia. The power table, Masa included, seems naively unprepared for the pandemic about to strike. Masa’s prediction about WeWork already looks absurdly wrong—judging by WeWork’s debt prices, SoftBank’s stake there appears to be heading toward zero, or dimes on the dollar in the best case. The Vision Fund as a whole, with its later- stage, higher-valuation investments in the sharing economy, transportation, travel and real estate, looks similarly distressed. Some two weeks after that meeting, SoftBank’s stock trades at a 73% discount to its parts’ enterprise value.
Things have changed so quickly that SoftBank’s stock might actually jump if the Vision Fund shut down entirely. When Son recently relented, despite longtime insistence that he wouldn’t, and agreed to divest a portion of SoftBank’s public assets (expected to include part of its Alibaba stake) as part of a $41 billion plan to buy back SoftBank stock and pay down debt, investors rejoiced.
Yes, it showed support for the stock price. But the company also announced, mostly to plaudits, that it would be more cautious in making new investments from its fledgling second Vision Fund. “We understand what we need to do in such circumstances,” says SoftBank’s chief financial officer, Yoshimitsu Goto, a longtime Son confidant who speaks with the media even less frequently than his press-shy boss. “I believe Masa does understand the market, too.”
Besides being one of the most extreme investment vehicles in history, the Vision Fund was also a high-speed rebranding exercise. The deal frenzy erased from the public consciousness the fact that SoftBank already holds a bevy of blue-chip assets, and it limited exposure—other than reputational—given that some 70% of the Vision Fund money came from investors like the sovereign funds of Saudi Arabia and Abu Dhabi, and Silicon Valley heavies like Apple and Qualcomm.
SoftBank still owns British chipmaker Arm and wireless carrier Sprint, set to merge with T-Mobile in April, as well as big stakes in Alibaba and SoftBank Corp., the Japanese carrier it took public in 2018, among others.
(More)
 

David Goldsmith

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WeWork sues SoftBank for scrapping $3B bailout deal
Embattled co-working giant says its biggest backer broke a contract

It’s official — WeWork is suing its biggest backer. And this probably won’t be the last time.
The embattled co-working giant is alleging that SoftBank wrongfully pulled out of an agreement to buy $3 billion worth of WeWork shares. That infusion would have helped stabilize WeWork as it worked to rebound from its failed IPO, as it faces a wave of vacancies brought on by the global coronavirus pandemic, the company said Tuesday, in a news release detailing the lawsuit.
The deal was part of a larger bailout package struck last fall after WeWork’s botched IPO. Last month, Softbank said it was pulling out of the $3 billion bailout because of “multiple, new and significant pending criminal and civil investigations” that changed the conditions ahead of the deal’s scheduled April 1 closing date.
The co-working company alleges SoftBank’s action breaks the agreement the two sides made last fall, and calls it “a breach of SoftBank’s fiduciary obligations to WeWork’s minority stockholders, including hundreds of current and former employees.”
WeWork is asking a judge to order the Japanese conglomerate to follow through with the purchase of those shares or pay damages for breaking the contract. The company also alleges that SoftBank has “received most of the benefits” in the fall agreement, including effective control of WeWork.
 

David Goldsmith

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I have posited for a while that WeWork could potentially tank the entire office market. Now they are looking to renegotiate their leases. If they are successful what does that tell everyone who is in the process of looking for space or trying to renew their leases? And if they can't, how much space will be dumped back on the market?


WeWork taps JLL, Newmark to help negotiate rent relief
Coworking firm is not paying April rent at some of its U.S. locations


The co-working firm has stopped paying rent at some of its locations in the U.S. for April as it aims to renegotiate its leases, according to the Wall Street Journal. Multiple other businesses in the country, including Equinox, have also not been paying their April rent.
WeWork had been aiming to lower rent costs and shift its leases to management agreements well before the coronavirus pandemic. Its massive real estate expenses threatened to exhaust its cash following its botched initial public offering attempt last fall, but it was bailed out by its principal investor, SoftBank.
The office-sharing company has controversially kept its U.S. locations open during the pandemic, but most have emptied out as tenants practice social distancing and adhere to government stay-home orders. WeWork is also suing SoftBank over allegations that it wrongfully backed out of an agreement to buy $3 billion of WeWork shares.
Some of the firm’s landlords said WeWork has paid them, while others still have not received the rent.
A spokesperson for WeWork told the Journal in a statement that the firm does not have a companywide policy on rent payments. Instead it is “individually reaching out to our more than 600 global landlord partners to work in good faith towards finding asset-specific solutions that benefit all parties involved.”
 
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