Sandeep Mathrani was supposed to be WeWork’s savior.
A real estate executive, he became the chief executive of the troubled office space company in 2020 after a failed initial public offering pushed it to the brink of collapse. He instilled discipline and order on a business that had grown fast and chaotically under its co-founder Adam Neumann.
Instead of building a company that would “elevate the world’s consciousness” as Mr. Neumann had wanted, Mr. Mathrani focused on the staid details of running a real estate company. He steered WeWork through the pandemic, got its landlords to accept less rent, took the company public and oversaw a financial restructuring, completed last month, that cut the company’s debt.
But just weeks after the restructuring, the company said on May 16 that Mr. Mathrani would step down, and that no permanent successor was lined up. Wall Street analysts who had recently met with him were stunned — one analyst wrote in a research note that the executive was “abandoning ship.” A couple of weeks later, WeWork’s chief financial officer, who had joined last June, departed, too.
The turmoil raises fresh questions about the viability of WeWork, which has spent billions of dollars building a business that has never come close to breaking even — and must now compete with the flood of cheap office deals that have become available since working from home shrank demand for commercial real estate.
Investors have all but given up on a WeWork turnaround. The stock is trading around 20 cents, down more than 95 percent from October 2021 when it secured a stock market listing through a merger.
“We still believe that the current capital structure remains unsustainable,” said Pranav Khattar, a primary credit analyst at S&P Global Ratings.
To a large extent, the company’s fate rests with SoftBank, the Japanese conglomerate that has invested nearly $12 billion in WeWork and is its largest shareholder. SoftBank has also lent the company hundreds of millions of dollars, and took a haircut on its WeWork debt in last month’s restructuring.
By reducing WeWork’s debt by $1.4 billion overall and pushing out the repayment of its remaining debt, the restructuring gave WeWork more time to try to build a sustainable business. But the company is still burning through large amounts of cash each quarter and may be forced to shrink substantially, perhaps through bankruptcy.
Office landlords are watching the company with dread.
A collapse of WeWork could be a “systematic shock” to the weak commercial real estate sector in New York, San Francisco and other cities, said Stijn Van Nieuwerburgh, a Columbia Business School professor who specializes in real estate.
“It wouldpour more cold water on the office market, which is struggling direly,” he said, noting that WeWork rents nearly 20 million square feet of office space, more than any other company in the United States.
Until recently, Mr. Mathrani appeared committed to turning WeWork around. But he had grown exhausted by the challenges of the business and was frustrated by what he perceived as a lack of engagement from SoftBank, according to four people familiar with his leadership who spoke on the condition of anonymity. He told colleagues that he was particularly annoyed that it did not move more quickly to wrap up the debt restructuring, three people familiar with his conversations said.
The transaction could not be done quickly because it was complex and required sign-off by numerous parties, according to a person familiar with SoftBank’s thinking.
Mr. Mathrani declined to comment.
As WeWork and SoftBank discussed a restructuring, other parties suggested deals aimed at steadying the company.
Last fall, Mr. Neumann, the co-founder, who holds a small stake in the company, started telling friends and associates that he was thinking about getting involved in WeWork again and buying back some of its stock, according to three people familiar with his conversations. He scheduled a meeting with Mr. Mathrani in October to discuss a large investment and other strategic initiatives that could bolster the company, four people familiar with the plans said.
Mr. Neumann had recently landed a $350 million investment from the venture capital firm Andreessen Horowitz for his new real estate venture called Flow. He and other investors were considering an investment in WeWork of up to $1 billion, some of which could have been used to buy back some of the company’s debt, two of the people said.
Mr. Mathrani canceled the meeting and did not reschedule it, the three people said. The two men never met to discuss Mr. Neumann’s proposal, and it is not clear why Mr. Mathrani was not interested.
Mr. Mathrani opted to negotiate the debt restructuring with SoftBank and other investors allied with the Japanese company. But he and SoftBank executives struggled to get the attention of SoftBank’s chief executive, Masayoshi Son, to secure his approval for the debt deal.
By March, as negotiations over the deal dragged on, Mr. Mathrani increasingly felt that Softbank’s influence over the company hampered his ability to make key decisions, three people familiar with the matter said.
In the spring, as WeWork’s stock tumbled, he approached SoftBank with offers from other companies that were interested in striking deals with WeWork. The co-working company IWG discussed a deal to operate WeWork’s locations in return for a fee, and JLL, one of the world’s largest commercial real estate brokers, was in talks about a potential operating agreement with WeWork, according to two people familiar with the conversations.
SoftBank was not interested. JLL and IWG declined to comment.
WeWork has made some progress under Mr. Mathrani. The company has lowered its costs by negotiating lower rents from landlords and closing some locations. A recent WeWork securities filing said that, since 2019, it had saved nearly $12 billion by terminating and amending hundreds of leases.
But the company fell far short of some goals Mr. Mathrani had set. In August 2021, the company projected it would bring in $4.3 billion of revenue in 2022; it ended up reporting $1 billion less than that.
And the company’s costs may still be too high given the weak demand for office space. It had 614 locations at the end of March, down from around 715 at the end of 2020.
Mr. Mathrani and office landlords had failed to fully appreciate the transformation of office work during and after the pandemic. With fewer people coming into the office five days a week, many employers decided they no longer needed to maintain expensive office space.
One big challenge is that WeWork is competing with a huge amount of office space that employers no longer need and are seeking to lease out to others. “There’s no question that WeWork is more expensive than a well-priced sublet,” said Ruth Colp-Haber, chief executive of Wharton Property Advisors, a New York office space broker.
She said a 5,000-square-foot office — big enough for 20 people — in a second-tier building in Manhattan could be had for about $12,500 a month on the sublet market. A similar amount of space in a comparable WeWork facility would probably cost about $16,000 a month, Ms. Colp-Haber said, acknowledging that WeWork offers tenants more flexibility over how long they want to be in a space.
A WeWork representative said subleasing involved significant costs and inconveniences that could make using a WeWork space more attractive.
Even before the recent downturn in demand for office space, WeWork’s business model always rested on a shaky premise.
Founded by Mr. Neumann and Miguel McKelvey in 2010 in the wake of the financial crisis, WeWork signed long-term leases for floors in office buildings or entire buildings. The company refurbished those spaces and rented them out to freelancers, start-ups and large corporations. The idea was that WeWork could generate more in rental income than it was paying landlords by offering shorter leases, well-designed spaces and perks like happy hours.
The model never really worked on a large scale. At most locations, costs greatly outpaced revenue. WeWork grew fast, doubling its revenue most years since it was founded, but it also more than doubled its losses. When the company sought to go public in 2019, investors balked.
WeWork withdrew its I.P.O. in September 2019, and Mr. Neumann resigned as chief executive. Since then, he has received more than $700 million from selling stock to SoftBank and from cash payments.
Two people familiar with the matter said Mr. Neumann had moved on and was no longer interested in investing in WeWork. In a recent financial filing, SoftBank disclosed that it had so far taken more than $10 billion of losses on its investments in WeWork.