The Unexpected Winner of WeWork’s Bankruptcy: Adam Neumann

The bankruptcy of the office platform WeWork could produce an unexpected winner: the company founder Adam Neumann, who was once chased away from the farm. Before the now 44-year-old left his company at the end of 2019 after a botched IPO, he negotiated extensive concessions for himself. This also included a loan worth around $430 million from the technology investor Softbank, which is now particularly in focus.

Because Neumann is not personally liable for this. Instead, the terms stipulate that Softbank will claim Neumann’s remaining shares in WeWork in the event of default. Since autumn 2021, their value has reduced from 500 to 4 million dollars. There is now concern at Softbank that Neumann could hand over the shares and forego repayment of the loan.

The Israeli-born entrepreneur is said to have reduced some of his liabilities in 2022, but still owes the technology investor several hundred million dollars. This threatens to deal another serious blow to Softbank, which reported its fourth quarterly loss in a row last week. Neumann, whose fortune was once estimated at around $10 billion and was most recently worth $1.7 billion according to the Bloomberg Billionaires Index, has not yet commented on his intentions. In a statement, he simply emphasized that it was difficult for him to observe WeWork’s decline from the outside.

The platform, once valued at $47 billion, expanded aggressively over the years and was most recently the largest single office tenant in London and New York. But by 2019 at the latest, investors began to have doubts about the business model of renting office space on a long-term basis and reletting it on a short-term basis. After the targeted initial public offering subsequently fell through, WeWork sought its way onto the stock exchange through the back door: In October 2021, the company debuted in New York through a reverse merger with a shell company (Spac) at a significantly reduced valuation.

At this point in time, the corona pandemic and the home office trend had already eroded demand on the office platform, and WeWork regularly burned through liquid assets worth more than $500 million every quarter. The long-term rental obligations make up the most significant part of the $18.65 billion debt pile that WeWork disclosed in an initial filing with the New Jersey bankruptcy court. In contrast, there are assets of $15.06 billion.

For years, WeWork has tried, with limited success, to reduce costs by renegotiating or terminating leases. Due to the bankruptcy, the company can now unilaterally terminate rental agreements in the United States and Canada. The company plans to use this option for 50 to 100 agreements.

In addition to the potential winner Neumann, the platform’s insolvency creates a long list of losers: the landlords who lose income, the tenants who have to look for new offices at short notice – and the shareholders who have already had to cope with massive losses in value in recent years .

By far the biggest loser is Softbank. The conglomerate invested more than $10 billion in WeWork during Neumann’s time as CEO. Together with other investors, Softbank paid a staggered amount of over $1 billion to a company that was controlled and largely owned by Neumann. After the founder had to say goodbye, Softbank expanded its shares and secured up to $5 billion in new loans for the office platform. In total, the company has so far lost more than $14 billion of the approximately $16 billion it invested in WeWork.

Neumann, however, had his farewell in 2019 gilded. At that time, Softbank not only agreed to the loan that has now come into focus, but also to direct payments of $200 million to the entrepreneur. In addition, the Japanese were responsible for $1.75 million that the founder owed WeWork, among other things, for the personal use of private jets. Neumann is still active in the real estate sector. He used part of the income from his time at WeWork to buy residential buildings. Last year he launched his rental start-up Flow – it is supported by a $350 million investment from the venture firm Andreessen Horowitz.