WeWork, the company that pioneered shared workplaces while gaining notoriety for its volatile business, has filed for Chapter 11 bankruptcy and plans to shed some of its unprofitable locations, including at least two in Atlanta.
The co-working company, which was once valued at $47 billion, became a household name before sustaining one of the most high-profile corporate collapses in recent memory. Between 2020 and June this year, the New York company amassed more than $11 billion in losses, prompting its leaders to declare bankruptcy earlier this week.
The decision to seek relief through bankruptcy leaves WeWork’s 11 metro Atlanta locations in flux as the company’s leaders evaluate how to restructure the company’s books. The company is seeking to reject 69 leases throughout the U.S. and Canada, including its locations in Buckhead’s Tower Place 100 and The Boundary in Midtown.
The bankruptcy comes at a time when most major metros are flooded with unwanted office space as companies grapple with how to incentivize their workers to return to a physical workplace. Any resulting coworking space thrust into the market as a result of WeWork’s restructuring will only exacerbate that issue, according to Trepp Senior Managing Director Manus Clancy.
“This is going to put a lot of borrowers under the gun, and it’s going to put a lot of space out in the market when there’s already a lot of space available,” Clancy told The Atlanta Journal-Constitution.
At the end of September, nearly a third of all office space in metro Atlanta was either vacant or available for sublease, according to real estate services firm CBRE. WeWork’s 11 locations combine to about 623,000 square feet of workspace — nearly as much space as the office component of Ponce City Market.
A WeWork spokesperson told the AJC that Atlanta “remains a key market for WeWork,” adding that the company will aim “to craft solution that set all parties up for sustainable success.”
WeWork CEO David Tolley said in a news release that the company has entered into a restructuring agreement with most of its stakeholders aimed at slashing its debt while trimming its commercial office lease portfolio. The agreement is expected to erase about $3 billion of WeWork’s debt.
“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” Tolley said.
Fall from grace
Since it was founded in 2010, WeWork rocketed to stardom behind its then-CEO and cofounder Adam Neumann. But the resulting crash back to Earth has been etched into the history books, spawning documentaries, fictional miniseries and academic case studies.
WeWork’s initial public offering was delayed in 2019 over questions about Neumann’s management and the company’s prospects for profitability. The cofounder was ultimately let go. The company went public two years later, but it’s only seen its stock tank while struggling to turn a profit.
WeWork shares, which peaked at $13.02 in October 2021, dropped to mere pennies before its stock was halted Monday ahead of the bankruptcy announcement.
Overexpansion became a problem for WeWork, especially once the COVID-19 pandemic upended traditional workplace habits. WeWork’s occupancy dropped from 79% at the onset of the pandemic to 47% by the end of 2020, according to real estate services firm JLL. While that figure would slowly rebound, WeWork struggled to match its pre-pandemic occupancy levels and could not stymie its losses.
In addition, it continued to add more locations. Last November, it opened a 39,000-square-foot modern workplace — boasting amenities like a furnished wellness room and a coffee bar with kombucha on tap — at the fifth floor of 1115 Howell Mill Road in West Midtown.
Credit: Steve Schaefer
Credit: Steve Schaefer
Eric Anderson, an attorney with Parker Hudson who specializes in problem loans, said landlords about to be impacted by WeWork’s bankruptcy have seen the writing on the wall for months.
“I’m not going to say there’s a lot of happy landlords that are going to have their lease rejected, but there probably won’t be many surprised ones,” he said.
‘The jig is up’
As part of Chapter 11 bankruptcy, WeWork will get to reject leases it deems as too costly.
The company has identified 69 locations it wishes to offload, which will require approval from the company’s creditors and U.S. Bankruptcy Judge John Sherwood. Clancy said this is the better alternative to Chapter 7 bankruptcy, which would wipe out all leases.
Atlanta will be relatively unaffected by WeWork rejected leases in comparison to some other major cities, such as New York, which has 41 locations on the proposed list.
“It’s a concern,” Clancy said of the proposed rejected leases in Atlanta. “It’s not a catastrophe.”
Credit: Miguel Martinez for The Atlanta Journal-Constitution
Credit: Miguel Martinez for The Atlanta Journal-Constitution
For the nine WeWork locations in metro Atlanta that the company plans to keep, operations should be unaffected by the bankruptcy proceedings. The list of rejected leases is also not set in stone.
First reported by the Atlanta Business Chronicle, WeWork is a month behind on rent payments for its offices at the 725 Ponce tower along the Beltline’s Eastside Trail and 120 West Trinity in Decatur, both of which are operated by landlord Cousins Properties. On a third-quarter earnings call, Cousins executives said they expected both leases to be rejected if WeWork declared bankruptcy.
Spurned landlords who have their leases rejected “can get in line with all the other unsecured creditors,” Anderson said, and try to recover some of their owed rent payments through the courts. But after that, those office owners will have to compete to get another tenant to rent their space.
“The jig is up, so to speak,” Clancy said. “Now you have a big hole in your rent roll to fill.”
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