Global flexible workspace provider WeWork, since exiting bankruptcy protection in June and having shrunk its operation, has achieved a certain feat for the first time in company history: making money, minus certain items, for two straight quarters.
The New York-based company has been so-called EBITDA profitable for the past six months, said CEO John Santora, a former longtime Cushman & Wakefield executive who took the helm last year as WeWork emerged from Chapter 11, on Wednesday at The Real Deal NYC Forum in Manhattan. The closely watched EBITDA metric measures profit before interest, tax, depreciation and amortization.
That WeWork was in the black on that basis for six months through the first quarter is worth noting. The only other time WeWork reported it turned EBITDA profitable was for one month in December 2022, a company spokesperson told CoStar News.
WeWork’s cash flow, however, is “slightly negative” as the company is spending $80 million to $100 million this year to “bring up” and “refresh” some locations, Santora said. It’s also seeking a flagship location in a trophy office tower in New York for the first time, even though that won’t involve WeWork shelling out top dollar, Santora said, adding that WeWork’s cash flow will see “a good picture” by the end of this year.
“There's an evolution of our products and an evolution of spaces,” he said. “We want to be in the right location and doing the right product. We're not going to take a trophy that's $200 bucks a foot. … It’s just something that’s a Class A product with great light and air … and works for us.”
For instance, WeWork could be eyeing properties on Manhattan’s Park Avenue south of Grand Central instead of to the north, he said. The stretch north of Grand Central, housing a who’s who list of corporate giants including Blackstone and JPMorgan Chase, has seen a sharp drop in available office stock, with the corridor commanding many of the city’s top-dollar deals, leasing data has shown.
WeWork already has top-tier U.S. locations such as Salesforce Tower in San Francisco, he said. Global trophy towers with a WeWork inside include 10 York Road in London and 21 Collyer Quay in Singapore, according to the spokesperson.
Demand for workspace
The company’s move to expand its footprint, especially in trophy and Class A buildings, is based on demand as the office sector's flight-to-quality trend continues, the spokesperson told CoStar News, adding that could involve WeWork signing leases or management agreements with landlords.
And as office owners increasingly pitch hotel-like amenities and services to lure tenants, Santora said WeWork has engaged with the Ritz-Carlton Leadership Center to train its employees to give users “that feeling of welcome” and “the ability to enjoy” their space.
WeWork is eyeing growth again after years of taking expensive leases at the cost of profit under co-founder and former CEO Adam Neumann. The strategy eventually led to WeWork’s November 2023 bankruptcy filing.
During the Chapter 11 process, WeWork renegotiated over 190 leases and exited over 170 unprofitable company-owned locations to cut its leasing cost burden. When a judge in June approved a plan for WeWork to emerge debt-free from more than six months in bankruptcy, the company at the time emerged with roughly one-third fewer wholly controlled locations than it had about a year earlier.
WeWork has 600 locations worldwide, including both company-owned and franchise locations, the spokesperson told CoStar News, adding that WeWork has 35 locations spanning over 3.4 million square feet in its home market of New York. In contrast, under Neumann, WeWork said in September 2018 it became the largest private occupier of office space in Manhattan with 5.3 million square feet.
Crowded field of rivals
WeWork, credited with making coworking cool and popular, is competing in an increasingly crowded field where other flexible workspace providers and landlords offer WeWork-like spaces and amenities. For instance, CBRE this year bought WeWork rival Industrious, which CBRE already had a stake in, for an implied enterprise valuation of about $800 million. CBRE said the purchase “underscores” its “strong conviction about Industrious' expertise in workplace experience and operations and the long-term growth prospects for the flexible workplace market.”
Industrious, known for its asset-light business model that does away with leasing risk, last year took over WeWork’s former headquarters space in New York as the company previously told CoStar News it’s been profitable since the end of 2023. Industry giant IWG, which owns brands including Spaces and Regus, also has taken some of WeWork’s former locations.
Still, WeWork is showing clear signs of progress. Santora said WeWork has been “doing a lot of deals” with enterprise customers, or those involving companies with at least 500 employees. WeWork, for instance, in recent months has inked major partnership deals with tech giant Amazon in cities including in New York; Mountain View, California; and Dallas.
Large companies with great financing such as Amazon “enjoy the community aspect” that a WeWork provides along with “the speed to market” that can turn around an office space fast without a traditional longer-term lease that Amazon may have to sign with a landlord that involves a “much more complicated” process, Santora said.
“Amazon doesn’t want to engage with landlords,” Santora said. “They want us to do it. … [Large firms] say, 'Do the buildout.' ... It’s an operating lease and not the capital spending for them. If we provide capital and the buildout, it’s so much faster.”