The Hidden Challenge Facing WeWork


WeWork has withheld the interest due on five senior secured bonds totaling about $95 million. WeWork said in an 8-K that they have a grace period of 30 days to pay the interest before a default event occurs, that they have the liquidity to pay the interest, and that this may be something that is done again. As an office leasing agent on the ground, I think that WeWork’s commentary has overlooked an important aspect. That is the negative impact on tenant demand that will likely result from protracted negotiations with WeWork’s creditor constituencies.

WeWork’s interim chief executive David Talley described the move as “typical” as a “precursor to a conversation.”

WeWork’s Problems Are ExpandingAs always, I consulted Eric Haber who is general counsel of Wharton Property Advisors and an experienced bankruptcy attorney to solicit his views on the latest developments. He stated that, despite the benign description of the missed payments made by management there is still a major obstacle for WeWork. WeWork’s troubles are growing as they fail to pay interest. It already was in an extended negotiation with its landlords to attempt to renegotiate leases and exit unprofitable locations, and now it has thrown down the gauntlet to noteholders.WeWork is trying to exercise its leverage on its major creditor constituencies by conveying the message that the failure to make concessions will result in a bankruptcy filing. There is only so much a company running out of money can do to negotiate its major debt obligations without court. WeWork’s board, including the newly retained directors with experience in reorganization proceedings, must address this dilemma. This is the dilemma that WeWork’s board, including the newly retained directors with experience in reorganization proceedings, must address.

Further exacerbating the problem, WeWork has undertaken multiple sets of negotiations with its landlords outside of bankruptcy over several years. But without meaningful progress, the exercise becomes futile absent new investment or an improvement in the underlying business.

This leads to a very important piece of the WeWork puzzle that has been overlooked by commentators. In its current state, I find it difficult to imagine how WeWork could attract new tenants (known as members) to its spaces. This is because most members are tenants who rent on a month-to-month basis. Some members are on leases that last only six months or one year. It is difficult to imagine how tenants who are renewing their leases or new tenants can feel confident about signing new leases before they know more about the company. WeWork warned in August that they might run out of money within the next year. Any drop in leasing activity will only make things worse.

Perhaps, WeWork will successfully demonstrate sufficient progress in its negotiations with its landlords and noteholders that will impress prospective investors to provide additional funding. At the moment, it seems like a tall task.