WeWork Wants Out of Old Deals. Neumann Wants Back In

From the beginning, negotiations between landlords and WeWork have been tense, as the company looks to drop some leases, force significant cuts in others though the bankruptcy process. And things have gotten worse.

According to multiple reports, the company’s restructuring efforts are moving along like a bicycle that hasn’t been lubricated or tuned up in decades, according to the landlords and creditors who are owned a lot of money.

“The company has failed to update its business plan, left details out of a key reorganization proposal and is either unwilling, or unable, to pay the rent on at least some of the office space WeWork uses to make money, creditor lawyers told the judge overseeing WeWork’s Chapter 11 bankruptcy,” wrote Bloomberg.

And as Reuters noted, some of the landlords who provide space to WeWork complained about “hardball tactics,” even as a company in bankruptcy, while able to get relief for previously owed lease payments, is supposed to keep rent payments current. WeWork attorney Steven Serajeddini reportedly acknowledged the failure of initial negotiations, but “said WeWork has had more success after withholding as much as $33 million in January rent from certain landlords.”

In the past, under the lead of company founder Adam Neumann, WeWork signed generous contracts with top properties, put extensive renovation into spaces, all with the thought to capture use and present itself as more a tech than real estate company. Typically, tech firms get higher valuations from investors. But the spectacle needed the right receptacle. Landlords put Class-A office space — the type still in good demand — at the disposal of the company.

What else could happen? Funny you should ask, as Neumann, who was jettisoned from the company, is trying to buy WeWork back again.

As multiple reports last fall noted, even as WeWork struggled, Neumann continued to be worth $1.7 billion. Big backers like SoftBank, which had put more than $10 billion into the company, might not have been left with much, depending on how the bankruptcy proceedings go.

But instead of writing a check totally from his own account, he has claimed to be working with others. A letter from law firm Quinn Emanuel’s Alex Spiro — who helped Elon Musk buy X nee Twitter — which the New York Times reported on suggested that Neumann had been trying for months and that Dan Loeb’s hedge fund, Third Point, was going to partner to help make the finances a reality.

Except Loeb told CNBC that the financing wasn’t committed and discussions were “preliminary.” Which makes the entire situation even odder than it otherwise might have seen.

Neumann was a controversial figure, as Business Insider recounts. “The filings showed that WeWork paid Neumann just shy of $6 million, through a holding company, for the trademark rights for the ‘we’ family trademarks for the company’s name change to the We Company in January 2019. After widespread criticism, Neumann agreed to forgo the payment.”

“WeWork needed chapter 11, no doubt about it, and Chapter 11 provides a lot of room for the very types of fixes that WeWork needs to potentially kind of come out and become a much more streamlined, much less debt-laden, and maybe more successful real estate company,” John Sparacino, a principal with McKool Smith’s bankruptcy litigation practice, tells GlobeSt.com. “Get out of a lot of the leases and rationalize the economics.”

As for Neumann, “Assuming they can put something together, it’ll be a decision for the debtor and the top holders of the debt,” he adds. “I don’t know how much sway Softbank has in that position. I don’t know if they hold a veto position. I don’t know if they hold grudges because he’s burned us once and he’s not going to burn us again.”

“Other than the strange optics, people may need to put bygones behind them or set aside grudges,” Sparacino says.