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Comment by hn_throwaway_99 | Hacker News Reader

What the effects of this will be:

1. Like many companies who go through Chapter 11, WeWork will come out stronger after they cut a lot of their debt, offload leases on non-performing locations, and shrink to only be in those locations that can be sustainably profitable.

2. WeWork users are likely to also be happy, as with the greatly reduced debt WeWork can invest in their product (though I think most folks that used it always thought their product was good). Of course, this assumes the locations you use don't get cut.

3. Some landlords are going to take a bath as their leases are terminated during what is essentially a depression in commercial real estate. Given how big WeWork is in many cities, it remains to be seen whether this will have any cascading effects.

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Or the creditors vote for liquidation and WeWork is no more...

No, the creditors have already voted:

> The Company maintains the strong support of its key financial stakeholders and has entered into a Restructuring Support Agreement (“RSA”) with holders representing approximately 92% of its secured notes to drastically reduce the Company’s existing funded debt and expedite the restructuring process.

Perhaps. That's just one class of creditors though. Maybe they'll reject a bunch of leases and come out of bankruptcy, but they wouldn't be the first company to go into Ch 11 with high hopes and never come out.

That's a bet I'd easily take 7 days a week and twice on Sundays.

There is nothing fundamentally wrong with WeWork's core product. Users are generally big fans of their services, they have huge brand recognition and are basically synonymous with co-working spaces, and while the need for corporate office space is drastically reduced post-pandemic, the flexibility that WeWork provides is exactly what many companies want.

The problems with WeWork are nearly entirely with their capital structure. They expanded way too fast, they signed many leases that would never have been profitable (often in bizarro 0-rate environment world sweetheart deals with Adam Neumann), and their ridonculous valuation made them take on way too much debt to fund further expansion. Chapter 11 gets rid of all that. WeWork will be a much smaller company in the rather mundane business of office and property management, but it serves none of their stakeholder's interests to liquidate.

> There is nothing fundamentally wrong with WeWork's core product.

You have to justify this for a company that has just entered bankruptcy.

I suppose it depends on how you define “core”. But even if you take the most conservative definition and call their core product “office space” even that market has been thrown into massive turmoil.

There is plenty wrong with WeWork’s core product and much of what made it popular also made it unprofitable.

That phrase mostly means that the company is profitable, but it's RoI is smaller than the interest rate on its debit.

For having really nothing wrong with the company, it needs to be able to scale profitably too, by having a RoI that is larger than the interest on its assets.

The first part is clearly true for WeWork. On that strict sense, the company is quite alive, and its creditors would lose by closing it down. On the second sense, well, I don't think anybody can really say.

Profitable before considering the alternative of a guaranteed return at a higher rate is unprofitable, people were just confused (or imprecise about an irrelevant distinction) when the interest rate was near 0.

It's still profitable, it's just not financially savvy.

Getting paid 50k as a software engineer is still positive income, just unsavvy compared to getting paid 150k.

> Users are generally big fans of their services

I’m also a big fan of paying below cost for my goods and services. The seller, not so much.

Are they viable though? The market they served is holed below the waterline by people getting the idea that they can WFH and the spread of high speed fibre. The years of the pandemic were years where (if it had been well run) a model like WeWorks could have established itself as the alternative to standard offices, but that's ship saled. Who want's to work in an openplan now?

Seems unlikely they'd go for that under any circumstances. I know they claim billions in assets, but I'm guessing it's all stuff whose resale value has tanked since 2020 and WeWork's actual liquidation value is $0 give or take.

What would the creditors get from the liquidation of a company that leases its spaces? The value of second hand office furniture? Doubt they’ll vote for this.

The asset is the positive operating properties/leases.

The idea from WeWork management would be to shed the bad properties and keep the good ones and operate them as post-BK WeWork.

Creditors could say, great idea, but we want to sell that remaining business for cash rather than leave it in your hands because we don't trust you to continue to run this.

> The asset is the positive operating properties/leases.

This is what they are doing in terms of bankruptcy protection. A liquidation is different - there is no intent to continue operating afterward.

Definitely agree liquidation is non-starter here. They don't sign long term deals with their own customers so WeWork's only real asset is the brand. What the creditors will do is take over ownership from the equity-hodlers, then try to milk the brand for any remaining value. It's conceivable many of the building owners might actually do ok directly operating WeWork branded spaces and keeping the margin that used to go to WeWork for themselves.

That last one has me really worried. A big dump of real estate on an already strained market with a lot of folks using it as investment. How many big buildings have we seen go up in the last year and remain basically empty.

Commercial real estate needs to pull its head out of its ass soon and start heavily discounting spaces or shit’s going to get real real.

> Commercial real estate needs to pull its head out of its ass soon and start heavily discounting spaces or shit’s going to get real real.

Looking at SF, I think it is not only a discount thing. The way it was rented before: "open space" office with bare wall, rows of desks and insanely high price per sqft or a mall is probably not gonna work anymore. They need to repurpose it: convert to apartments, smaller open space offices, regular offices, etc. Trying to do any kind of construction in SF is ridiculously complicated. When money was flowing it created many layers of bureaucracy and complexity, but it was affordable. Since then money flow dried up but complexity and bureaucracy is still there.

> Commercial real estate needs to pull its head out of its ass soon and start heavily discounting spaces or shit’s going to get real real.

Agreed - so many viable businesses have been forced to close due to rent hikes but the underlying problem is that there a lot of investors who were promised guaranteed high returns for commercial property. They should be forced to accept the downside of that gamble but as a group they have so much political clout. Pretty much all of the “return to office” hype machine is driven by those very well-connected people and cities are receptive because most downtowns were heavily over-focused on subsidizing suburban car commuters, which can’t easily be converted into more attractive spaces for actual residents.

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