WeWork could file for bankruptcy as early as next week, reports the Wall Street Journal.
WeWork, which leases office space and sells it to companies and individuals who use it on a shared basis, might be the ultimate zero-interest-rate phenomenon. There are business ideas that make sense when you can borrow money for free that no longer make sense when money has a price. For a decade, the Federal Reserve held interest rates near zero, and businesses such as WeWork sprang up. These businesses never had clear plans to actually make a profit. Such businesses could exist when borrowing was essentially costless, but now reality has reemerged, and interest rates are positive again.
How much money was WeWork spending? The Journal reports:
As of June, WeWork maintained 777 locations across 39 countries, including 229 locations in the U.S., according to securities filings. WeWork has an estimated $10 billion in lease obligations due starting from the second half of this year through the end of 2027 and an additional $15 billion starting in 2028, according to public filings.
Interest rates are normal again, so you have to actually make money now. You can’t just spend billions and expect investors to give you cash anyway because they have no better options. Better options abound in a world where interest rates are positive.
WeWork’s demise is a sign that monetary policy is working. We’re leaving the zero-interest-rate world that some thought was permanent. Higher interest rates are needed right now to reduce inflation, but they’ll also have positive long-term effects to discipline investors and corporations to make smarter decisions.