WeWork was doomed to fail by taking on huge buildings, rival says

• WeWork was famous for huge coworking spaces with amenities like climbing walls and swimming pools.
• Industrious CEO Jamie Hodari said they saddled the company with big liabilities and weren't viable.
• WeWork, once valued at $47 billion, has declared bankruptcy after years of financial difficulties.

WeWork's collapse has ended the era of enormous coworking spaces filled with amenities like climbing walls, live DJs, and swimming pools, according to the boss of one of its main rivals.

Industrious CEO Jamie Hodari told Insider that while many WeWork locations will simply change hands following the company's bankruptcy, the huge office blocks with luxurious amenities will become a thing of the past — and the cost of renting them likely contributed to the company's downfall.

WeWork filed for bankruptcy on Monday after years of financial problems. The company has cut locations and renegotiated leases in recent years, but still had a real estate portfolio that spanned 777 locations as of June 30.

In "the vast majority of situations, the assets simply change flags —another provider will come in and run the space or the landlord will run it themselves," Hodari told Insider.

But the "really enormous WeWork spaces, the 300,000 to 400,000 square foot WeWorks, those are simply too large," for other companies to take on. "They're the only provider in the sector that ever took spaces that large," he said.

For Hodari, leasing these huge office buildings in their entirety was a major flaw in WeWork's strategy during its high-spending heyday, saddling the company with significant liabilities.

"I think the extremely large spaces are probably not going to be viable moving forward, and the sheer scale of their liabilities overall, are a symptom of a go-go era where people were running companies for revenue growth rather than with an eye to profitability," he said.

"Lots of companies, WeWork included, made decisions that spiked revenue in the short run, but probably weren't prudent in the long run," he added.

Luxurious coworking spaces may be a thing of the past

Huge coworking spaces filled with yoga rooms, beer taps, and swimming pools were the hallmark of WeWork's operation at its height.

Briggs Elwell, cofounder and CEO of real estate finance company RLTY Capital, told Insider that as impressive as these locations were, they were not helpful for the company as it attempted to become profitable.

"If you looked at the financials of WeWork even before this downfall, back in the days of [Adam] Neumann, the reality is that it was pretty clear that a lot of those luxuries were actually the differentiating factor between profitability and not," he said. Neumann was a cofounder and former CEO of WeWork.

"The reality is regrettably that you're probably not going to have as nice a finish in the future," Elwell added. "I think you're going to see a leaner product."

Hodari told Insider that Industrious, which has over 165 coworking locations across the globe, would probably end up taking over a number of WeWork sites.

But he said the company would not be able to take on its largest office spaces in their entirety, and that these coworking spaces will likely vanish from city centers as companies can't afford them and landlords are reluctant to rent out entire buildings for flexible working.

"If someone like Industrious came to manage a space like that, we would probably insist on taking one-third to half of it, and then the landlord would need to figure out what to do with the other half," he said.

Once valued at $47 billion, WeWork has suffered a dramatic fall from grace since its failed IPO in 2019. With a sizeable presence in many city centers, experts have warned that its collapse could have dire consequences for commercial real estate.

Hodari said that, despite WeWork's implosion, the broader coworking industry is healthy and has been boosted by companies seeking flexible working arrangements as employees increasingly embrace hybrid working.

"I think the chaos of WeWork in its really dramatic years was not good for the sector. It was not good for the reputation of the sector," he said.

"My hope is that this bankruptcy is the end of an era, that it helps get rid of all the noise around WeWork so people can focus on an industry that is really moving forward, versus losing sight of that in all of the WeWork turmoil," he added.

WeWork did not immediately respond to a request for comment from Insider.