WeWork is compelling its cash-strapped customers to pay rent on their office spaces by threatening debt collection as the co-working company is pummeled by the coronavirus pandemic, a new report claims.
Business Insider lifted the lid on WeWork’s alleged efforts to increase pressure on businesses that have failed to make payments on Wednesday, citing a source with knowledge of the situation who spoke on condition of anonymity.
The source said WeWork’s in-house lawyers sent about 700 letters to non-paying customers in the US and Canada last month, giving them deadlines to pay what they owed. About 100 other customers with higher outstanding balances received letters from external lawyers, the source said.
The letter campaign marks a significant shift in WeWork’s strategy from the spring, when it chose not to punish its customers for failure to make payments when offices around the country were shuttered under stay-at-home restrictions.
WeWork is now taking a tougher stance on non-paying customers as the pandemic drags on and demand for office space remains low with many businesses sticking to remote working.
While coronavirus-related eviction moratoriums are in place around the country to provide relief for struggling businesses, WeWork is able to skirt those moratoriums because its model is based on monthly or yearly membership agreements rather than traditional commercial real-estate leases.
The agreements state that the company can relocate members or terminate their membership for any reason, including failure to pay.
WeWork is compelling its cash-strapped customers to pay rent on their office spaces by threatening debt collection as the co-working company is pummeled by the coronavirus pandemic, a new report claims
Before the pandemic, WeWork had roughly 600,000 customers across its more than 800 co-working spaces worldwide.
It’s unclear how many customers have terminated their memberships since the pandemic hit – but records showed that at least 81,000 left in the second quarter alone.
In the past year WeWork’s valuation plummeted from $47billion or more in August 2019 to just $2.9billion this spring.
The WeWork source who spoke to Business Insider said that the majority of the customers that received letters about outstanding balances were small businesses with fewer than 50 people.
The outlet also spoke to sources at two WeWork member companies in New York that received letters pressuring them to make payments. The sources spoke on condition of anonymity due to ongoing negotiations with WeWork.
One of the members provided the outlet with a copy of their letter, which ordered them to pay their outstanding balance of over 45 days within two weeks.
Failure to do so could result in debt collection or arbitration, the letter warned.
The other member company, which was based at a WeWork space in Brooklyn from 2017 up until June, said WeWork had gone ahead and hired a collections company to recoup unpaid rent.
An executive at the second company said it had refused to pay its final three months of rent in April, May and June because it was unable to use the space during that period due to a statewide lockdown.
WeWork withheld a security deposit from the firm, the executive said, noting that the deposit was almost the same amount as the unpaid rent, so they believed the issue was settled.
‘After several months of silence, WeWork sent a notice to us that they had put us into collections,’ the executive said.
‘It’s an imposition. You have to deal with the fact that there is an agency that can come after you that can take you to court and damage your credit.
‘We thought that WeWork would be more accommodative, but they weren’t.’
WeWork did not immediately return DailyMail.com’s request for comment about the alleged letters. A spokesperson for the company declined to comment when approached by Business Insider, the outlet said.
WeWork is able to skirt Covid-related eviction moratoriums because its model is based on monthly or yearly membership agreements rather than traditional commercial leases
WeWork’s bottom line has taken a huge hit over the course of the pandemic as struggling businesses cut their expenses, including for office space.
With office occupancy rates plummeting, WeWork was forced reduce its workforce by more than 8,000 people, renegotiate leases and sell off assets to reduce its cash burn and shed costs, the Financial Times reported in July.
At the height of its success, WeWork was valued at $47billion before it announced plans for an initial public offering in August 2019.
But the company was forced to abandon the IPO the following month as investors questioned big losses, whether its business model was sustainable, and the way it was run by its co-founder Adam Neumann.
Neumann stepped down last fall amid rumors that he was being pushed out. His partner, co-founder Miguel McKelvey, followed his lead in June.
Last month WeWork announced that its chief financial officer, Kimberly Ross, was leaving the company ‘for personal reasons’ just six months after she took the post in March.
Benjamin Dunham, who had served as CFO of WeWork Americas for the past two years, took over Ross’ role on October 1.
Dunham expressed optimism about WeWork’s future in a news release announcing his new role, saying: ‘It’s a momentous time to be at WeWork, as the value of flexible space has never been stronger.’
Within a few weeks of that release, WeWork was sending its collection letters to non-paying customers, according to Business Insider’s report.
Timeline of WeWork’s rise and fall
A man walks past the logo of WeWork in Tokyo on May 18
2010: Israeli-born Adam Neumann and American-born Miguel McKelvey found WeWork with its first co-working location in Manhattan’s SoHo neighborhood.
2014: After rapid expansion, WeWork is valued at $4.6billion, with investors including JP Morgan Chase & Co, T. Rowe Price Associates, Wellington Management and Goldman Sachs Group.
2016: Fortune warns that WeWork faces daunting challenges, writing: ‘For WeWork to live up to its $10billion valuation, it faces the daunting task of scaling like a software company—but with people, long-term leases, and office furniture.’
2017: SoftBank makes its first investment in WeWork, in a massive $4.4billion funding round that valued the company at $20billion.
2018: The company restricts employees from expensing meals that contain pork, poultry, or red meat for environmental reasons. WeWork also purchases a $60million private jet that Neumann enjoys using frequently.
January 2019: SoftBank injects a further $2 billion in funding at a $47billion valuation. SoftBank’s investments in WeWork now total $10billion.
August 2019: WeWork files a public prospectus for its initial public offering, revealing for the first time the extent of the company’s losses. Analysts express skepticism about the company’s true value and corporate governance.
September 13, 2019: WeWork announces changes to the company’s governance, including the ability for the board of directors to pick any new CEO despite Neumann’s majority voting rights.
September 17, 2019: The We Company, the parent company of WeWork, decided to postpone their IPO until the end of 2019.
September 24: 2019: Facing backlash over the aborted IPO, WeWork announces Neumann will step down as CEO. The company also puts its private jet up for sale.
October 14, 2019: Reports emerge that WeWork warned clients that approximately 1,600 office phone booths at some of its North American offices are tainted with cancer-causing formaldehyde.
October 16, 2019: Facing a cash crunch that threatens to send the company into bankruptcy, WeWork’s board forms a committee to explore a financing lifeline.
October 22, 2019: WeWork board agrees to take a $9.6billion lifeline from SoftBank that sees the Japanese firm take effective control of the startup. As part of the deal, Neumann resigns from the board and gives up his special voting rights. SoftBank executive Marcelo Claure is installed as executive chairman.
May 4, 2020: Neumann sues SoftBank for walking away from a $3billion bailout for the troubled startup he co-founded. The tender offer was part of a $9.6billion rescue financing package that SoftBank agreed with WeWork in October and gave it control of the company. Since then, WeWork’s occupancy rates have plummeted amid the COVID-19 pandemic.
May 19, 2020: SoftBank values WeWork at $2.9billion. CEO Masayoshi Son says the largest portfolio companies ‘have a relatively good chance of passing through the valley of the coronavirus. The exception is WeWork.’
June 3, 2020: Investors who bought shares in WeWork in the months leading up to its failed IPO file a class-action lawsuit against both WeWork and SoftBank alleging that WeWork downplayed losses and overhyped its business plan. McKelvey announces his departure soon after.
Source: Daily Mail
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