Shared office star falls! WeWork files for bankruptcy, SoftBank's Masayoshi Son leaves behind a massive $11.5 billion loss, a black mark in history.

The shift in office trends catalyzed by the COVID-19 pandemic has ultimately led to the downfall of the once-famous shared office star, WeWork, leaving SoftBank CEO Masayoshi Son with a black history of billions of dollars in losses.

On the evening of Monday, November 6th, Eastern Time, WeWork filed for Chapter 11 bankruptcy in the federal court of New Jersey, United States, in accordance with the U.S. Bankruptcy Code. Bankruptcy documents show that WeWork currently has a total debt of $18.65 billion and assets of $15.06 billion.

When SoftBank led a round of financing in 2019, WeWork reached a peak valuation of $47 billion and claimed to be the second-largest IPO in the U.S. stock market after Uber. However, five years later, it has fallen into such a state of insolvency.

Before the stock trading was suspended on Monday, WeWork's stock price was trading at around $0.83, with a market value of less than $45 million. Since its merger with a special purpose acquisition company (SPAC) in 2021, its market value has shrunk by approximately 98%.

Chapter 11 of the Bankruptcy Code stipulates that a debtor company applying for bankruptcy protection can continue to operate while formulating repayment conditions for creditors. After entering the bankruptcy protection process, unless approved by the court in advance, all creditors are prohibited from taking any action against the company.

The media pointed out that WeWork entered the bankruptcy process only after reaching a temporary restructuring agreement with long-term investors SoftBank and existing creditors, in order to reduce its debt of over $3 billion.

When applying for bankruptcy, WeWork stated that it had reached agreements with the majority of holders of its guaranteed bonds and planned to reduce "non-operational" leases.

After the COVID-19 pandemic, due to the surge in remote work, the demand for office space has decreased, and WeWork's business has been struggling. The rental of office spaces around the world has become the company's main source of liabilities.

As of June this year, WeWork had 777 office locations in 39 countries, with long-term lease liabilities exceeding $13 billion, most of which will expire in 2028 or later.

Chapter 11 of the Bankruptcy Code allows companies applying for bankruptcy protection to terminate contracts that burden the company, including leases. If approved by the court, WeWork can terminate its leases.

Court documents related to the bankruptcy application show that WeWork CEO David Tolley stated that the company is seeking to exit more than 60 office space lease contracts across North America and will use the court process to renegotiate other leases.

The documents also show that among the more than 60 leases that WeWork intends to terminate, most of the office spaces are located in New York, with about 40 of them in New York City, including locations near Union Square and the transportation hub Fulton Center.

WeWork has ceased operations and vacated most of the co-working spaces where it hopes to exit leases. The company stated in the documents that the revenue generated from these locations is "limited or even of no benefit" to the company.As the heavyweight investment unicorn under SoftBank's Vision Fund, WeWork's bankruptcy has left SoftBank with an expected loss of over $11.5 billion in equity and $2.2 billion in uncertain debt repayment prospects.

Some commentators have said that Sun Zhengyi, who successfully bet on Alibaba early on, became a legendary figure in the venture capital circle. However, WeWork's downfall, as well as the Vision Fund's record-breaking $32 billion loss last year, have undermined Sun Zhengyi's reputation as a savvy investor. The WeWork case has exposed astonishing flaws in Sun Zhengyi's investment style, with the damage to his professional reputation far exceeding the monetary losses.

Aswath Damodaran, a professor at New York University's Stern School of Business, commented that Sun Zhengyi's actions are equivalent to saying, "I am arrogant." His successful investments, such as Alibaba, managed to escape the impact of the bursting of the dot-com bubble in the early 21st century, and this experience may have influenced his judgment.

Damodaran said that before investing in WeWork, people believed that SoftBank, led by Sun Zhengyi, was an extremely cautious, astute, and visionary organization. However, success can sometimes cloud one's judgment, making them overly confident and thinking they are superior, which actually sets the stage for investment failures.