WeWork running out of cash has derailed the company's plan for massive expansion worldwide. JPMorgan Chase and SoftBank/Vision Fund are preparing to offer the company financial lifelines to avoid bankruptcy in the coming months.
As Bloomberg reports, SoftBank is assembling a rescue financing plan for WeWork that may value the office-sharing company below $8 billion, according to people familiar with the discussions.
The new figure is a fraction of the $47 billion valuation the startup commanded as recently as January. The talks are fluid and the terms could change, said the people, who requested anonymity because the discussions are private.
WeWork's woes could threaten many office space markets across the world, but the Financial Times has determined that Hong Kong could be the first domino to drop.
The demise of WeWork could be devastating for Hong Kong's office space market, already dealing with tremendous stress from social unrest and an overall economy that has been thrown into a technical recession.
Keith Hemshall, Cushman & Wakefield's head of office services in Hong Kong, said WeWork was "one of the key pillars of demand in the past one to two years."
WeWork's footprint of shared office spaces in Hong Kong has jumped 700% since 2016, from 112,000 square feet to 821,300 square feet in 2H19.
While WeWork's S1 SEC filing never told investors that the sole reason for an IPO was to remain solvent (great job Goldman), the failed IPO attempt last month, suggests that its growth in Hong Kong will level off shortly.
WeWork has been regarded as the savior of Hong Kong's office space market.
So if there's a deceleration in new leases and or other acquisitions, it could be disastrous for the city, real estate firm Savills told FT.
Hemshall said WeWork's quick expansion across Hong Kong led to the boom of shared office spaces. He said, "Everyone really depended on WeWork."
WeWork accounts for a little under half of all shared office space in Hong Kong and is about 66% of grade-A shared office space in the city.
Cushman & Wakefield said shared office spaces represent about 3% of the overall grade A market, but in the last several years, shared office spaces have been a significant contributor to new leases and development in the commercial area. WeWork accounted for 86% of that.
Henry Chin, head of research for Asia Pacific at CBRE, said that WeWork "took long leases at the top of the market, then the market turned."
Hong Kong is now in a recession as social unrest is accelerating in mid-October. WeWork is expected to run out of cash by mid-November. A perfect storm could be inevitable, one where WeWork starts missing rent payments and could cause a scare in the city's office space market.