After Breakneck Expansion, WeWork Stumbles as It Nears I.P.O.

In the cutthroat world of real estate, WeWork drew envy and admiration as it built an empire of sleek work spaces for freelancers, start-ups and Fortune 500 companies alike.

The company planned to cash in on its breakneck expansion with an initial public offering of stock as soon as this month that was expected to give WeWork’s parent company a value that other real estate companies could only dream of.

But those plans now appear to be in jeopardy.

WeWork’s parent, the We Company, is considering selling its shares at a more than 50 percent discount to its valuation from earlier this year, according to two people familiar with the matter. And in recent days, the company has discussed having one of its biggest backers, the Japanese technology giant SoftBank, provide yet more cash and delaying the offering.

If the public offering stumbles or is delayed indefinitely, it would be a big turning point for the often-frothy world of private companies backed by venture capitalists. Skeptics of WeWork who looked on in disbelief at the We Company’s rapid growth — the business is the largest tenant in the Manhattan office space market — would surely feel vindicated.

And investors, many of whom have already grown wary of prominent companies like Uber and Lyft that have racked up billions of dollars in losses and do not appear to be close to turning a profit, may become even more cautious. Other unprofitable start-ups are also planning to go public soon, including Peloton, the fitness company, and SmileDirectClub, which makes teeth aligners.

“For real estate insiders, it is unsurprising to see the pushback on valuation,” said John Arenas, chief executive of Serendipity Labs, a rival of WeWork. He contended that WeWork’s financial statements, made public for the first time in August as part of the company’s regulatory filings, show that the company does not have any significant advantages over its competitors.

The We Company and its financial advisers are in talks to value the business at $20 billion to $30 billion, said three people, who spoke on the condition of anonymity because of the sensitivity of the topic. The figure is well below the $47 billion valuation at which the company raised money as recently as January. Ultimately, the company could sell shares at a price that pegs its value closer to $20 billion, two of the people said.

“I can’t think of another I.P.O. where they halved the valuation,” said Reena Aggarwal, a finance and business professor at Georgetown University. “This certainly shakes up confidence and makes people pause.”

The We Company’s chief executive, Adam Neumann, met in Tokyo last week with executives at SoftBank, two of the people familiar with the matter said. They discussed how SoftBank could help by making an investment beyond the $10.5 billion it has already poured into the business.

Under one proposal, SoftBank would be a major buyer of shares sold in the public offering, which We Company has hoped would raise $3 billion to $4 billion. Under another, SoftBank would invest another large sum directly into the company, allowing it to delay the offering.

The people familiar with the matter said that the discussions were continuing and that nothing had been decided.

Analysts say WeWork deserves credit for moving aggressively to capitalize on an important shift taking place in the office space market. The company attracted customers, including big corporations like IBM and Microsoft, with cleanly designed modern office spaces. It has used enticements like free beer and salons and other social events to create a sense of community.

“We are a community company committed to maximum global impact,” the We Company said in a regulatory filing. “Our mission is to elevate the world’s consciousness.”

Instead of signing leases for several years, some businesses and professionals prefer shorter deals that offer them more flexibility. WeWork has established a reputation for quickly converting drab spaces into attractive locations.

But that costs money. The company and others are spending billions converting office buildings. The We Company has also made itself vulnerable to substantial financial risks that could be magnified in a recession.

The company leases space from landlords for an average of 15 years, then usually rents it out under contracts that run for less than two years on average. If WeWork were to lose a lot of customers, it would still have to make payments on the longer leases.

Last year, WeWork had an operating loss of $1.7 billion on $1.8 billion in revenue, partly because of the steep costs associated with outfitting the spaces it operates.

WeWork’s losses and the financial risk of its leases has led some real estate players to conclude that WeWork is worth even less than the reduced valuation it might now go public at.

“Why is it even worth $20 billion?” said Anthony E. Malkin, chairman and chief executive of the Empire State Realty Trust, which owns the Empire State Building, among other properties. His company has not leased space to WeWork.

The International Workplace Group, a large WeWork rival, has a stock market value of about $4.5 billion, even though it is profitable with roughly the same revenue as the We Company in the first half of this year. International Workplace, whose stock trades in London, also provides investors with important details about its operations that WeWork has not made available so far.

A botched I.P.O. could frustrate WeWork’s expansion plans and jeopardize its ability to borrow money. Banks have agreed to lend the company as much as $6 billion, but that commitment rests on the We Company raising at least $3 billion in the public offering.

“If they did not complete the I.P.O., we would need to potentially reconsider their credit profile,” said Kevin McNeil, an analyst at Fitch Ratings.

The company’s corporate governance has also faced criticism, in part because Mr. Neumann, the chief executive, has voting control. He also invested in properties that leased space to WeWork, creating a potential conflict of interest. Mr. Neumann later sold his stakes in the properties to an investment arm of WeWork.

In a move that underscored Mr. Neumann’s outsize role, WeWork said this week that he had given back $5.9 million he received from the company for the trademarks for the word “we.” In addition, Mr. Neumann’s wife, Rebekah Neumann, would have considerable influence over the choice of a new chief should he die or become permanently disabled.

“It’s not We Company, it’s the I company,” said Ken Bertsch, the executive director of the Council of Institutional Investors, which represents pension funds, endowments and other investors.

The We Company’s troubles could cause new headaches for SoftBank, which has invested in the company from its own coffers and through its nearly $100 billion Vision Fund. The value of SoftBank’s stake in Uber has fallen because of the ride-hailing company’s flagging stock price.

SoftBank is in the middle of raising money for a second Vision Fund.

Within SoftBank, opinions about WeWork appear to be split. Over the last two years, some executives argued in internal discussions that SoftBank should not invest more money in the company, according to two people familiar with those deliberations.

Some analysts said it would make sense for We Company to go public at a lower valuation. Such a move might increase the chances that the shares would perform well after the offering.

“WeWork is going to have to play nice with the equity markets if it wants to come back and get more equity in a year or two,” said Alex Snyder, a senior analyst at CenterSquare, a real estate investment firm.

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