In a dramatic twist of events, WeWork, the coworking and flexible workspace company, finds itself grappling with significant financial challenges. A combination of factors, including rising interest rates, commercial real estate market changes, and customer losses, has eroded its cash flow. This situation is worsened by defaults on interest payments and property rental costs, which account for most (+70%) of its operating expenses.

Due to this precarious situation, the American company has shuttered more than 45 coworking spaces in the United States, equivalent to 20% of its 230 locations in the country. Furthermore, the New York-based company has filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. With this legal protection, the company aims to restructure its finances and address its economic woes while continuing to operate, rather than immediately liquidating its assets.

Following its bankruptcy filing, WeWork has negotiated with several creditors and stakeholders to reach a restructuring agreement to stabilize its finances, ultimately paving the way for sustainable growth. Consequently, the company is seeking approval from U.S. authorities to utilize "cash collateral." The primary objective of this strategy is to secure third-party financing or permission to use its liquid assets to sustain operations throughout the bankruptcy proceedings.

When filing its petition, WeWork disclosed having approximately $164 million in cash and a debt 26% higher than the value of its assets, totaling around $15 billion.

WeWork in Latin America

Despite the challenging situation, WeWork has confirmed that its restructuring measures and bankruptcy protection filing in the United States will not adversely affect its operations in Latin America. WeWork LATAM, which operates in Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico, shows signs of resilience due to its strong partnership with SoftBank Latin American Fund, which ensures its legal and financial structure independence in the region.

However, according to SiiLA, WeWork's performance has been mixed in Brazil, Colombia, and Mexico's major office markets, where WeWork occupies over 500,000 square meters. Data indicates that between Q3 2020 and 2023, WeWork's office space decreased by 15% in Mexico and 1% in Brazil, while it grew by 15% in Colombia.

Regarding WeWork's situation in Latin America, Claudia Woods, CEO of WeWork in the region, recently revealed that the company has maintained an occupancy rate of 73%, with Brazil leading at 82%.

In an interview with Bloomberg in January 2023, Woods indicated that Brazil and Mexico contribute approximately 70% of WeWork's revenue in Latin America, while other countries in the region, such as Argentina, Chile, Colombia, and Costa Rica, contribute the remaining 30%.

According to WeWork's senior executive, despite WeWork's financial challenges in the United States, the company's operations in Latin America remain strong, even surpassing their performance before the coronavirus pandemic, when global vacancy rates increased.

The fate of WeWork remains uncertain. Since 2019, the company has faced scandals over excessive spending, delaying its initial public offering on the New York Stock Exchange for two years (until 2021). Additionally, in 2020, WeWork faced a shareholder class-action lawsuit due to alleged breaches of agreements and mismanagement of financial losses. Currently, the company is dealing with challenges related to bond payment defaults, customer loss, and revenue declines in the United States. How the company restructures its finances and leverages the potential benefits of Chapter 11 will determine its performance on a global scale.

SiiLA will continue to monitor this issue. For more information about this and other players in the real estate market in Mexico and Latin America, explore SiiLA REsource or contact us at contacto@siila.com.mx.