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Much like commercial lenders have begun losing patience with delinquent borrowers, WeWork is putting its foot down with some nonpaying members.
WeWork sent 700 letters in the past month to member companies demanding payment of outstanding membership fees, with another 100 companies receiving a similar letter from external law firms, Business Insider reports. The letters set deadlines for payment, in one case giving a two-week time frame.
WeWork's designation as a membership organization rather than a commercial landlord may leave it with short-term revenue deals while it owes long-term rent obligations, but it also exempts it from eviction moratoriums protecting commercial tenants that are still in place in many parts of the country. WeWork's membership contracts contain a clause stating that WeWork can revoke membership at any time, for any reason, BI reports.
Most of the companies that received letters have fewer than 50 employees, BI reports. In some cases, WeWork threatened to send the outstanding bills to collection agencies or arbitration; in at least one case, a company told BI it received a notification that it had already entered collections.
WeWork's valuation has nose-dived from its peak of $47B right before its failed initial public offering to $2.9B in the spring, the Daily Mail reports. That was around when SoftBank Group backed out of a deal to purchase $3B in WeWork stock as part of its bailout of the coworking company.
Earlier this month, WeWork Executive Chairman Marcelo Claure said in a webinar hosted by The Wall Street Journal that he expects the company to reach profitability in 2021. With so many companies looking to escape office deals and so few looking to add office space, there seems little chance to reach profitability without severe cost-cutting measures.
Some of those measures, including mass layoffs, have already been taken. WeWork was looking to back out of as many as 100 new leases in December, before the coronavirus pandemic took hold of the country. The collection letters reportedly were sent out mere weeks after Benjamin Dunham took over as chief financial officer on Oct. 1, BI reports.
Though some of the large companies that have taken space at WeWork locations, — which the company calls "enterprise members" — have multiyear commitments, many smaller businesses have been able to simply walk away from memberships that were month-to-month. At least 81,000 memberships were canceled in the second quarter alone, BI reports.
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