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Next For WeWork: Saved By A White Knight Or Sucked Into A Black Hole?

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That WeWork is burning its last cash reserves is no secret, though the exact time it reaches zero is a matter of conjecture. A rough consensus among experts has named sometime in November as crunch time, unless the company is saved by a suitor.

Burning money

One scenario is a white knight takeover by SoftBank Group, which has long been WeWork's financial mainstay. SoftBank, WeWork's biggest single source of capital in recent years, is negotiating to invest billions more in a bid to take a controlling stake.

Specifically, SoftBank is putting together a rescue financing plan for WeWork that might value the company below $8B, Bloomberg reports, citing anonymous sources, though nothing has been finalized. That would be a far cry from the hypothetical valuations for WeWork that exceeded $45B only about a year ago.

Another possibility is a bailout by WeWork's lenders. Leading the group is JPMorgan Chase, which has heavily invested in WeWork for years and might put up the most capital to keep it going.

Separate proposals from both SoftBank and JPMorgan will probably be made to WeWork during the week of Oct. 21, CNBC reports. At the same time, the company might lay off as many as 2,000 workers, the Guardian reports, or about 13% of its staff.

Without billions to buoy the company, WeWork will face a grim fate, with bankruptcy firmly on the table, CNBC also reports. Such an implosion would create a major disruptive ripple throughout the commercial real estate market, especially in places where it is a major landlord, like New York City.

The CRE disruption would not be an industry-changing, good disruption, as so often touted by members of the tech industry, but rather an old-fashioned disruption that hurts business. That is because WeWork has $22B in long-term liabilities, with $17.9B of that tied to long-term leases, according to the prospectus for its shelved initial public offering.

Currently, WeWork leases about 11M SF of office space, or about 2% of the total office market in the case of New York, and almost as much in San Francisco, MarketWatch reports.

Moreover, the company warned in its prospectus that the length of the leases extends for periods significantly longer than the membership agreements with its tenants, which may be terminated with as little notice as one month.

In other words, tenants are able to skedaddle, leaving WeWork holding the bag, which it would promptly pass along to its landlords. WeWork is negotiating to get out of some of its most expensive leases, but time is short.

WeWork's potential contraction could “negatively affect the valuations of surrounding office properties in those cities, even if they don’t have direct exposure to WeWork,” Bank of America Merrill Lynch analysts wrote in a weekly client note.