WeWork Still Charging Rent To Members Who Can’t Come, Paying Bonuses To Workers Who Do
Coworking giant WeWork is keeping its U.S. locations open as the coronavirus outbreak worsens and a number of states and cities have temporarily banned nonessential activities. The company said that what it does is essential and thus it should continue operating.
WeWork is being criticized by members for not being willing to close during the pandemic, nor offering refunds or a suspension of rent for members who are unwilling or unable to use their space.
"When [New York Gov. Andrew Cuomo] said you can't go to work, I contacted WeWork to ask about rent, and they told me that they were still open, so I had to pay it," WeWork member Lloyd Cox told Bisnow. "I told them I'm not paying rent, and they said they would get back to me, and they haven't yet."
When asked to comment about its current policy, a WeWork spokesperson forwarded a memo Chairman Marcelo Claure and CEO Sandeep Mathrani recently sent to employees.
"WeWork is a service provider and we have an obligation to keep our buildings open," Claure and Mathrani said in the memo. "In the same way we expect certain businesses to remain open for us — whether it be a fulfillment center to send us a package, a bank so we can handle finances, grocery stores and pharmacies to supply us our valued goods — we too have members counting on us to remain open."
Claure and Mathrani went on to say that WeWork has undertaken a range of efforts — increased building cleanings, new work-from-home policies, reduced staffing models, rotational work programs, and Uber subsidies to avoid mass transportation — to operate its buildings safely.
In a separate memo to employees, the New York Times and CNBC reported, WeWork Chief Operating Officer Shyam Gidumal offered community workers at WeWork locations $100 a day to go into their offices and help run the locations.
"In recognition of our Community employee’s willingness to support our members by keeping our buildings open and operating during these extraordinary times, we are pleased to share that those employees who staff our buildings are eligible for a bonus award that will be paid out in a lump sum on a monthly basis," Gidumal wrote in the memo, which was published by CNBC. "The bonus will be based on each employee’s contribution and presence in the office to address specific member needs. The bonus award will range from $100 per day and up to $500 per week."
Cox is self-employed, and has been running a subscription website out of WeWork's 214 West 29th St. office in Chelsea in Midtown Manhattan since last August on a month-to-month agreement, he said.
His was one of at least seven New York locations that had a member test positive for COVID-19, the New York Post previously reported and Cox confirmed. His office reopened the next day after WeWork undertook a cleaning of the space. There have also been reported cases at WeWork locations in other major U.S. cities, such as Los Angeles and Chicago.
To quit such an agreement under normal conditions, a member needs to give 30 days' notice. Considering that his work doesn't count as essential, and that he isn't comfortable going to his dedicated desk in any case, Cox said he believes WeWork should let him quit paying rent right away.
"The most frustrating part is they aren't communicating anything," Cox said. "They're just saying that they are open for business."
Small-business owners are particularly angry at WeWork, the Washington Post reports, especially those with longer-term contracts for space that they don't want any more. Some members have started a petition on Coworker.org, a worker advocacy platform, calling for the company to close during the pandemic and not charge membership fees while it is closed.
“I’m paying close to $5K a month in rent, and I’m not there. Imagine how crippling that is to a small business,” business owner Doria Lavagnino told the Post.
"For its shared spaces, WeWork would do well to shut down and reimburse members for lost time," Urban Land Institute's Technology and Innovation Council co-chair Dror Poleg said. "For the private offices, the situation is trickier. I haven't seen any large landlord shut down its buildings and services completely."
Landlords typically leave it to their tenants to decide whether being in the office is essential, Poleg said. Even tenants who switched to remote work still need to access equipment and material at the office.
"On this front, WeWork is in the same boat as other office landlords, and its position is reasonable," Poleg said.
The pandemic comes at a time of considerable financial stress for WeWork as the company tries to emerge from its botched IPO and move forward with an entirely new corporate leadership. During the first three quarters of 2019, WeWork lost $2.6B on revenue of $2.4B. WeWork hasn't released more recent financial information than that.
“They did just take on a huge influx of cash,” General Assembly CEO Jake Schwartz told Forbes, referring to bailout money from WeWork's largest investor, SoftBank, which took over the coworking giant last fall. "They probably didn’t want to spend it burning through a couple of months where people aren’t there and don’t pay their rent.”
SoftBank Group, long a major investor in WeWork, reportedly wants out of part of its bailout deal with the coworking company, particularly buying shares from existing holders. It already spent $5B as part of the takeover to help WeWork cover costs, but the remaining $3B promised to buy out investors — including ousted CEO Adam Neumann — appears in doubt.
A special committee of the WeWork Board of Directors reportedly has insisted that the bailout, including a tender offer for WeWork shares, go forward, CNBC reports.
While not commenting on WeWork or its situation, Global Workspace Association Executive Director Jamie Russo said that the flexible nature of membership agreements leaves the industry vulnerable to cash flow crunches in an economic catastrophe, such as the one that has only just started.
"Operators without significant cash reserves will be looking for rent relief from landlords as they weather member cancellations," said Russo, who leads the coworking industry lobbying group. "Business owners that aren't being told by a government entity to close down are likely battling the keep-you-up-at-night debate over self-preservation versus support of the greater good."
The coworking industry is fragmented, despite the size of WeWork and a few other large players, and responding to the coronavirus pandemic in a variety of ways. WeWork's largest rival, Regus, hasn't shut its locations either.
Some smaller coworking companies are also still open. In Denver, the two-location Shift Workspaces is keeping its locations opened and ramping up disinfection, but it has also announced that it isn't charging its tenants rent in April.
By contrast, The Cove, with locations in Boston and Washington, D.C., has shut temporarily, and so have female-focused coworking spaces The Wing and Her.HQ, which closed its doors in Dallas last week. Convene closed all of its 28 locations nationwide last week and laid off 20% of its workforce.
"Many coworking companies have closed either because of a shelter-in-place mandate, or because they feel that it's the right thing to do to help contain the virus," Russo said.
On the other hand, Russo said, many coworking spaces are registered Commercial Mail Receiving Agencies and thus considered "essential businesses."
"Those spaces are sending minimal staff into the office to process the mail to play their part in supporting the businesses of their physical and virtual members," Russo said. "Because there may be businesses operating inside of coworking spaces that are deemed essential, most spaces have not locked their doors to members, but have encouraged members to stay home if they can."
Operators are also generally closing their kitchens to reduce the risk of spreading germs and are asking their staff to work minimal hours, Russo said. Based on what she is hearing from GWA members, most coworking spaces are also closed to nonmembers, she added.
But while many coworking firms are dependent on monthly rent payments to cover expenses, none have experienced the dramatic growth and consequent losses of WeWork, which has tens of billions of dollars of commitments in long-terms leases.
“From all directions, WeWork looks dark,” Vicki Bryan, chief executive of research firm Bond Angle told the New York Times. “This was true before we had this historic pandemic crisis. But now those levers it could have pulled, to at least buy some time, have gone.”