- WeWork has taken a more aggressive stance toward nonpaying members than at the start of the pandemic, Business Insider has learned.
- The company, which recently had a credit downgrade from Fitch Ratings, has sent hundreds of letters to members with outstanding payments.
- Since WeWork sells “memberships” and not leases, the company can skirt local eviction moratoriums, like New York state’s measure halting COVID-19-related commercial evictions until January 1.
- The embattled office company sent about 700 letters last month to nonpaying members in the US and Canada from in-house lawyers, a source with knowledge of the situation said.
- For more WeWork news, click here.
WeWork is increasing pressure on its nonpaying customers, a change in strategy from the beginning of the COVID-19 crisis.
Because WeWork doesn’t offer traditional commercial real-estate leases — instead, customers sign monthly or yearly membership agreements — the company can skirt eviction moratoriums, like one in New York prohibiting COVID-19-related evictions until January 1. Under WeWork’s membership agreement, the company can relocate members and terminate agreements for any reason.
When the pandemic shut down offices across the country, some small businesses said they were frustrated when they saw WeWork attempting to negotiate rent breaks for itself from landlords that it didn’t offer to pass on to members. WeWork then chose not to boot members for nonpayment in the spring and offered payment plans that sometimes included rent discounts.
As the virus crisis has dragged on, office tenants have remained slow to return to the workplace, and demand for offices has plummeted — market conditions that have put an increasing strain on WeWork’s business model. The situation has prompted the flexible-workspace giant to take a harder stance toward tenants who are in arrears.
The embattled office company, which received a credit downgrade last week from Fitch Ratings, sent about 700 letters last month to nonpaying members in the US and Canada from in-house lawyers, said a WeWork source with knowledge of the situation who spoke on the condition of anonymity because they were not authorized to speak with the media. Another 100 or so tenants with higher outstanding balances received letters from external lawyers.
Two New York WeWork members, who spoke with Business Insider on the condition of anonymity to discuss ongoing negotiations, said they received the letters. Their identities are known to Business Insider.
One letter, dated from late September, tells a member with an outstanding balance of over 45 days to pay within 14 days or they could be sent to debt collection and/or arbitration.
A tenant who had worked at a WeWork space in Brooklyn until June told Business Insider the workspace firm recently hired a collections company to try to recoup rent owed.
An executive at the company, which had the WeWork office for about a dozen employees since 2017, said it had declined to pay the final three months of its rent in April, May, and June because it was unable to use the space during that period amid lockdowns that were instituted by the state to combat the pandemic. WeWork seized a security deposit from the firm that the executive said nearly amounted to the rent that was owed, and the executive said he thought the matter was settled.
“After several months of silence, WeWork sent a notice to us that they had put us into collections,” the person said, speaking on the condition that neither he nor his firm be named because they were still attempting to negotiate a settlement with WeWork. “It’s an imposition. You have to deal with the fact that there is an agency that can come after you that can take you to court and damage your credit.”
“We thought that WeWork would be more accommodative, but they weren’t,” he added.
A WeWork spokesman declined to comment.
Seven months into the pandemic, many small businesses are struggling — more than 163,000 small businesses closed between March and the end of August, according to Yelp data. Many have looked to cut costs, which have disproportionately hit WeWork: from January 2019 to September, startups cut their overall office costs by under 40% but lowered WeWork expenses by 80%, according to data from the tax advisory firm Kruze Consulting. In the second quarter, WeWork’s membership dropped by more than 81,000.
Overall, WeWork has about 600,000 members, and the company does not break out membership by geography.
The majority of the customers who received the letters were businesses with fewer than 50 people, the WeWork source said. The company is working with Rauch-Milliken International on debt collection. Rauch-Milliken did not respond to requests for comment.
As the coworking giant looks to downsize its footprint, it’s also telling members to move to new locations, the WeWork source said.
Businesses across industries have rethought their pandemic playbooks as the coronavirus shutdowns drag on. Companies like Goldman Sachs that said they would not cut staff during the pandemic or 2020, for example, have scrapped those promises and resumed layoffs.
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