Some major investors do. And that could be a good sign for Boston’s struggling office market.
The coworking giant, which two years ago was gobbling up space in downtown towers, said Friday that it will go public in a deal that provides $1.3 billion in cash to help WeWork emerge from its own troubles and a public health crisis that has crushed demand for the densely-packed downtown offices that are WeWork’s stock in trade.
The deal, a merger with a special acquisition company called BowX, values WeWork at $9 billion and is expected to close later this year. That’s a far cry from the $47 billion valuation the company received in September 2019, before it launched a disastrous stock offering that led to the ouster of eccentric founder Adam Neumann, and before COVID-19 shuttered offices across the globe.
But company executives said Friday that WeWork is a far more stable company.
They’ve ended Neumann’s various side projects, such as the WeGrow elementary school the company launched in New York City, and shuttered 106 of its roughly 950 locations worldwide. They’ve renegotiated about 100 other leases with landlords, to save $4 billion in future rent, and eliminated about two-thirds of the jobs the company had at its peak in 2019.
What’s left is a more straightforward operation that takes long-term leases in big towers and offers shorter-term leases to companies that want flexibility, and someone else to manage the day-to-day operations of running an office.
“WeWork has spent the past year transforming the business and refocusing its core,” said new CEO Sandeep Mathrani. “As a result, WeWork has emerged as the global leader in flexible space with a value proposition that is stronger than ever.”
And it’s still big in Boston.
WeWork operates 16 locations here — mostly in the Financial District, Back Bay and Seaport — with 1.5 million square feet of space in all, ranking it among the largest users of office space in the city. In 2019, according to company data released Friday, Boston was the second-most profitable of WeWork’s five largest markets around the world, with profit margins that far exceeded the company as a whole.
Aaron Jodka, research director for capital markets at real estate firm Colliers, noted that WeWork — despite its roots as a home to freelancers and solo entrepreneurs — now rents the majority of its space to mid-sized and large companies who’d rather not be tied down by long-term leases. As more companies try to plot their office space needs coming out of the pandemic, the flexibility WeWork offers may look even more appealing.
“The concept of flexible office is here to stay. And one could argue it will be even more in demand post-pandemic,” Jodka said. “Companies are adjusting their work environments right now, and there are no hard and fast rules for what office space will look like in, say, September of 2022.”
Indeed, the coworking industry — which exploded along with WeWork in the mid-to-late 2010s — is retrenching, but not going away.
WeWork rival Industrious, which operates four locations in Boston, has begun partnering more closely with the landlords that own its buildings. Last month, it drew a $200 million investment from brokerage firm CBRE. Another big office broker, Newmark, recently bought coworking operator Knotel out of bankruptcy with plans to meet what it considers a growing demand for more flexible office space after the pandemic.
The boom days of WeWork signing leases all over town may be over, Jodka said, but the industry they became synonymous with will likely stick around.
“There’s definitely a willingness, and an interest on the part of tenants, in keeping these places going,” he said.