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WeWork imploded in 2019. The pandemic brought it back to life.

"The pandemic has fundamentally changed the way people work, accelerating the demand for flexible workspace," the company said.
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As corporate America scrambles to lure workers back to their cubicles by way of meditation classes and elevator apps, the coronavirus pandemic may have opened up a new opportunity for the beleaguered flexible lease company WeWork to make a turnaround and thrive, real estate analysts said.

"The headwinds facing WeWork and other flexible office providers are similar to those facing traditional landlords: getting people back into the office and signing new leases," said Daniel Ismail, senior analyst and head of office-sector coverage for Green Street, a commercial real estate analytics firm. "Luckily, what the flexible office industry has going for it is the ability to be flexible with leases."

The pandemic gave WeWork an opportunity to "reinvent" itself, said Marcelo Claure, executive chairman of WeWork and chief operating officer of SoftBank, which owns about 80 percent of WeWork. Now, demand for WeWork space is "higher than it was prior to the pandemic," he said last week at a Bloomberg Businessweek virtual summit.

WeWork gained notoriety in 2019 as a Silicon Valley unicorn implosion after it was forced to drop its IPO as investors raised concerns about its financial strength, debt and corporate governance practices. SoftBank, which invested $18.5 billion in the company, initially valued the company at $47 billion. But it dropped the figure to $5 billion after it took over WeWork. SoftBank CEO Masayoshi Son told investors this month that WeWork is among "many investments which failed." He said: "Those are my regrets."

Over the last year, the company has been under the new leadership of CEO Sandeep Mathrani, a veteran retail real estate executive. The company cut overhead costs by $1.1 billion and trimmed $400 million in operating expenses, which improved its free cash flow by $1.6 billion. By December, the company had exited 106 underperforming or not-yet-opened locations and negotiated more than 100 lease amendments that added up to an estimated $4 billion reduction in future lease payments. In the first quarter of this year, it signed $850 million of lease contracts, the most in a quarter since the end of 2019, it said.

"The pandemic has fundamentally changed the way people work, accelerating the demand for flexible workspace among organizations of all sizes," Julia Sullivan, a spokesperson for WeWork, said in a statement. "Over the last year, WeWork demonstrated the resilience of its business model and emerged as a partner of choice for businesses large and small looking for flexibility as they return to work."

But cuts to overhead may have come at the expense of smaller tenants. Market researcher Alan Klement, a WeWork tenant at the company's 43rd Street office in New York City, said he does not plan to return to WeWork after his lease expires at the end of the month. In November, he renegotiated a six-month extension for his office. But in April, the company said it would require a two-month minimum lease and increase his rent by 40 percent.

"I was shocked," he said. "Stuff around here is broken. No one is around. Sometimes I'm the only person here for a whole week. What do you think you're doing here raising the price on me?"

When the building's IT closet air conditioner broke, the company brought in a loud portable air conditioner that clients can hear during conference calls, Klement said.

"It's just kind of a train wreck," he said. "I can go anywhere for what I'm paying now, and other places will happily take my money."

Another former WeWork tenant in New York City, who runs an environmental nonprofit organization and asked to remain anonymous out of fear of retaliation, said she no longer rents space from the company after her lease ended in November.

WeWork held her responsible for about two months of rent during April and June when the state closed all offices to stem the spread of the coronavirus — a problem commercial landlords and tenants across industries faced last year. She emailed the company in June to try to negotiate a rent deal, with no response. The next month, she began getting calls from a collection agency demanding $11,000 to settle her debt with WeWork. In December, the collection agency threatened legal action.

"It escalated quickly, and the number went up shockingly high," she said. She said she has not received a court summons or heard from the company. She now leases an office from a traditional real estate company.

WeWork did not respond to a request for comment about the allegations, citing company policy not to comment on individual tenants.

Still, co-working spaces could be here to stay. A survey by the commercial real estate services firm CBRE found that about 86 percent of tenants said they see flexible office space as a key part of their future real estate strategies. Last fall, Dropbox announced its plan to become a "virtual first" company, where employees will have access to what it calls "Dropbox Studios." The studios function as flexible office hubs for employees to meet and use for daily individual work. Facebook, which leases WeWork office space in San Antonio, said it will not require workers to return to the office.

"The need for agility by traditional enterprise tenants stems from continued economic uncertainty and new workforce behaviors."

"The need for agility by traditional enterprise tenants stems from continued economic uncertainty and new workforce behaviors," CBRE said in its 2020 North America flexible office market report. "The reasons for engaging with flex space are also evolving from ones that were focused on simply exploring the concept to ones that are more sophisticated."

WeWork's business model is set up to capture the difference between what it pays landlords for offices and what smaller tenants pay it as subletters at those offices, said Ismail of Green Street. As in the retail industry, co-working companies used the economic downturn to lighten their assets, "whereby many of the upfront and ongoing costs are shared with landlords," Ismail said.

"More partnerships or revenue-sharing agreements with landlords appear to be a likely path for future growth," he said.

As the country increases its vaccination rate and workers consider going back to the office, WeWork is going public again through a merger with the special purpose acquisition company BowX Acquisition, with an initial value of $9 billion.

WeWork said it is on track for $1.9 billion in revenue this year. It reported $3.2 billion in losses over the course of the pandemic, with an additional $2.1 billion in losses in the first quarter of 2021, as it lost more than a quarter of its members, The Financial Times reported. Mathrani, the CEO, told CNBC that in its EBITDA (earnings before interest, taxes, depreciation and amortization), the company's losses amount to about $1.8 billion in part because of its reduction in administrative expenses. To compare, the company's losses were about $3.9 billion in 2019, he said.

Like many building tenants, WeWork has struggled with rent collection and was even accused of skipping out on paying millions of dollars of its own rent. In April, the company was sued for $37 million by one of its landlords, Walter & Samuels, for defaulting on a lease in Manhattan.

WeWork said that the litigation was "meritless given the fact that there is no default on our lease whatsoever" and that it is "unfortunate that Walter & Samuels has regressed to such frivolous tactics." The company has since paid, and the court ordered WeWork to prepay three months' rent this month, according to court documents filed in New York County.

As office companies consider hybrid workspaces, co-working spaces may find a second life.

Separately, a group of WeWork tenants sent a letter last year demanding that the company end rent collections because of the pandemic. Jim Walden, a lawyer with Walden Macht & Haran who represented the tenants, declined to comment. WeWork did not respond to a request for comment.

As office companies consider hybrid workspaces, co-working spaces may find second lives. Around 10 percent of the returning office workforce will be permanently remote, with the remaining 90 percent either back to full-time office work or working under hybrid models, said Paul Leonard, managing consultant with CoStar Advisory Services, a commercial real estate advisory group.

"I don't know how comfortable people will be going forward being in an office where people are just jammed in like in a subway," Leonard said. "Regardless of the causes, we're going to go through some changes in the market through the end of year and into the beginning of next year. ... It just takes a while for that all to start to kick in."