Bankruptcy law is back in the headlines: WeWork filed Chapter 11 bankruptcy yesterday. This hits close to home, since WeWork is my landlord.
In fairness, since I wrote that post in 2021, my love for WeWork has waxed and waned in stretches.
When I started my firm and wasn’t sure how much office I needed (and for how long), flexible space and term options saved me tens of thousands of dollars. When my family took a 3 week trip to the other side of the world, WeWork Euljiro in Seoul kept my firm running. Plus, as a solo, being around noise and people can be a good thing.
On the other hand, “noise and people” can be bad when it’s mostly “22 year tech bros in shorts and flip flops making loud sales calls.” Don’t get me started about the constant battle to get squatters out of the conference rooms. And, despite what you might think, a dedicated office in a WeWork is surprisingly small and very expensive.
Having said all that, I don’t take this as an indictment of the viability of coworking office space. In fact, the Nashville Post recently ran a great story detailing the growth and innovation in this segment of the market in Nashville.
Instead, it’s probably an indication that all those leases signed by WeWork at pre-COVID lease rates (back when the company had a $47 Billion valuation and a “money ain’t no thing” vibe) were simply unsustainable in our new post-COVID reality.
The Bankruptcy Code has a unique tool available for commercial debtors to fix this exact issue. Under 11 U.S.C. § 365, a debtor has the ability to “assume” or “reject” any of its leases. In layman terms, the debtor gets to keep the leases that are useful to keep and cancel the leases that aren’t useful and it doesn’t want to keep. The mere threat of rejection often spurs a conversation between a debtor and a landlord about modifications to the lease to reflect a more realistic rate of rent.
WeWork’s messaging has been clear. They call this a “strategic reorganization process.” That’s a fancy way of saying “bankruptcy” but without saying “bankruptcy.”
That’s surely intentional. The term “bankruptcy” suggests failure or that the company is shutting down.
In reality, a corporate bankruptcy of this magnitude isn’t really a bankruptcy in the traditional sense–it’s a restructuring process that, incidentally, favors the debtor and incentivizes negotiation and cooperation and, as a result, reorganization. I suspect that, when the business people took over from WeWork’s founder in 2020, the first item on their “to do” list was what to do with so many of these terrible leases. Bankruptcy was always a viable option to fix the company’s troubles.
In short, this is a good thing, and this process will probably allow WeWork to shed some of the mistakes of the past and emerge a more viable company going forward.
As a tenant, I’m hoping they succeed. To that end, I’ll vote in favor of any Chapter 11 Plan on the following condition: They have to create some penalty for the squatters in the conference rooms and phone booths. Every single time I book a conference room, when I open the door for my meeting, it’s filled to capacity, with people in shorts and flip flops. We have to fix this next.
Creditors Rights 101 