WeWork has entered the next phase of its cost-cutting under SoftBank Group’s stewardship. The coworking startup is looking to back out of as many as 100 newly signed leases, which would be at least 10% of its global footprint, The Information reports.
New leases were among the biggest expenditures for WeWork in the third quarter, when it reported a loss of $1.25B after its IPO saga resulted in the removal of co-founder Adam Neumann as CEO. Up to and after it released the now-infamous IPO prospectus, WeWork was leasing up and opening space faster than it ever had — it added as many as 115,000 desks in Q3, making up 69% of all U.S. coworking leasing activity in the quarter, CBRE reports.
The rate of spending was so prodigious that WeWork was reportedly weeks away from running out of cash before SoftBank stepped in to bail it out (and take 80% ownership). As part of the prospectus, WeWork declared that it had about $47B in lease obligations with an average term of 15 years. By the time of the bailout, WeWork had already begun backing away from unfinished leases in cities like Boston, Pittsburgh and Seattle.
Many of the 100 leases WeWork is re-evaluating are for locations that have not opened yet, with the rest being newly opened locations that either have been slow to fill or have required deep concessions to fill, the Information reports. Though WeWork hasn’t yet decided how many leases it will exit, some landlords had previously told Bisnow that they were prepared to take back space in that eventuality.
The about-face in leasing strategy will likely lead to more layoffs early next year as the team in charge of acquiring and fitting out new spaces will be trimmed as its duties shrink, The Information reports. The company let go over 2,400 employees and transferred over 1,000 more to JLL soon after SoftBank CEO Masayoshi Son installed former Sprint head Marcelo Claure as executive chairman and outlined a 90-day turnaround plan.
In addition to the layoffs and leasing reversal, a key platform of the turnaround plan was divesting from all “non-core businesses,” which include ventures started by Neumann, like entrepreneurial elementary school WeGrow, as well as companies acquired by WeWork in its effort to present itself as a tech company. The first acquisition WeWork has been able to offload is Conductor, a search engine optimization and digital marketing firm it purchased in March of 2018. Conductor’s founders and top executives repurchased a controlling interest in the company, while also offering special ownership shares to its current staff, TechCrunch reports. WeWork is attempting to do the same for Managed by Q, but the online office management platform’s founders are in a bidding war for the company with its main competitor, Eden, The Real Deal reports.
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