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Adam Neumann has made a fresh push to regain control of WeWork even as the co-working group races to raise hundreds of millions of dollars to emerge from bankruptcy and avoid a sale, according to two people familiar with the matter.
The company has attempted to restructure in court since filing for bankruptcy in November, primarily by renegotiating hundreds of leases. However, it was running short of cash and needed as much as $400mn in fresh funding to have a chance of emerging viably, the people said.
The figure required remains in flux but if WeWork was unable to raise new money, then it would have to pivot to selling itself, according to one of the people.
Neumann stepped down as WeWork’s chief executive in 2019 after a failed attempt to take the company he co-founded public. Flow, his new property company, has already made a conditional offer of about $600mn for WeWork.
In a statement to the Financial Times on Wednesday, Alex Spiro, an attorney for Flow, said the company and its financial partners were prepared to beat any other offer that WeWork has received by 10 per cent. Once Flow signs a confidentiality agreement, it could perform due diligence on the deal within two weeks, he added.
WeWork said earlier in April that it expected to emerge from Chapter 11 by the end of May, and another person familiar with the talks said switching to an auction would be a last resort.
“We are committed to emerging from Chapter 11 next month as a strong and sustainable company, and that is where our undivided attention lies,” a WeWork spokesperson said on Wednesday. “Any new financial investment would serve to further strengthen the company as we exit from bankruptcy.”
WeWork remained in discussions about raising the funds with existing lenders including SoftBank and Yardi Systems, a real estate tech provider that has partnered with it on various projects, the person added. Yardi, which did not respond to requests for comment, has only been named in court filings under a pseudonym of “Cupar Grimmond”.
While WeWork has attracted unsolicited interest from potential buyers, none has yet signed a confidentiality agreement, which would be the first step towards any official bid.
Rithm Capital and the real estate business of Leonard Blavatnik’s Access Industries have had preliminary discussions with Neumann about backing a bid for the firm, the people said. A person at Access said the real estate division was not formally involved at this point, while Rithm declined to comment. A spokesperson for Flow said: “The identities of our world-class financial institution backers are all known to WeWork.”
Neumann had previously proposed a $200mn financing, but his chequered past running WeWork has left some of the company’s biggest lenders and advisers sceptical of a return.
In Spiro’s statement, he also accused WeWork of “seeking to rush an insider deal” with a company WeWork has worked closely with.
WeWork has cut its long-term lease obligations by more than $8bn by cancelling about 150 leases and renegotiating a similar number, leaving only about 150 untouched. WeWork has done this, in part, by withholding post-petition rent, a relatively novel tactic in bankruptcy, according to bankruptcy experts. It still has about another 50 leases that have not been settled.
“It’s aggressive, but it was really do-or-die for WeWork,” Daniel Gielchinsky, an attorney at DGIM who specialises in bankruptcy but who is not involved in WeWork’s proceedings, said of the strategy of withholding rent. “If you get a critical mass of landlords who want to make it work, that puts pressure on the other landlords to also negotiate.”
WeWork expects to have more than 20mn square feet of office space globally after emerging from bankruptcy, compared with the 43.9mn sq ft it operated as of December 2022, according to court papers.
While the case largely hinges on its ability to bring down its rent payments, WeWork also needs to ensure it has enough cash to emerge from the costly bankruptcy process.
Renegotiating leases has also proved thorny. In the deals WeWork has struck with landlords, it has often paid out rent it had previously withheld, creating a cash shortfall.
The search for cash has complicated matters for WeWork’s creditors, who hold about $4bn of pre-petition debt. According to the agreement they struck with the company at the time of its bankruptcy filing, creditors are set to swap their loans and bonds into equity in a reorganised WeWork. However, the providers of the funds it now needs may take the bulk of the value in the company that emerges from bankruptcy, forcing existing creditors to be the source of the additional money if they want to preserve their stakes.
At the same time, the cash needs have opened up a window for Neumann and any other potential bidders.
“No one wants to put in a new money [loan],” said one lawyer involved in the case.
Additional reporting by Antoine Gara
