Default and eviction actions: understand the WeWork crisis in Brazil

Shared office space company WeWork has been the target of eviction lawsuits filed by different investment funds. Rio Bravo Renda Corporativa, HBR Realty and Vinci Offices have gone to court in recent days to recover buildings leased to WeWork, claiming that rent has not been paid since June.

The company’s financial situation in Brazil has worried investors and tenants and is particularly noteworthy because WeWork’s headquarters, located in New York, has already filed for bankruptcy protection in the United States, which was approved in May 2024. Experts consulted by the website This Is Money believe that a similar process may be close here too.

+Fifth Floor headquarters building managed by WeWork is the target of eviction action

When contacted, WeWork reaffirmed that it was unaware of the eviction proceedings announced by its creditors. “The company continues to operate in its entirety in all buildings in Brazil. Our temporary actions are intended to accelerate discussions to reach resolutions that are in the best interest of our entire ecosystem, mutually beneficial and that are better aligned with current market conditions,” it said in a statement, without giving further details.

What is happening?

The first reports of WeWork’s default began to emerge in June. At the time, real estate funds Vinci Offices, Santander Renda de Aluguéis, Torre Norte, Rio Bravo Renda Corporativa and Valora Renda Imobiliária warned their shareholders about possible impacts on their income.

At the end of August, eviction proceedings against the company began to be reported for non-payment of rent. The period of non-payment of the actions corresponds to three months after June, a standard interval in many rental contracts for the initiation of such actions.

The legal process consultation platform JusBrasil reports that there are at least six attempts to evacuate the property against WeWork, in addition to three other actions to collect overdue rent without eviction.

“When debts start to pile up and eviction requests become public, it seems like a natural path,” says economist Gilberto Braga, a professor at Ibmec. “It is worth noting that she hired Alvarez e Marçal as an advisor, a company that specializes in bankruptcies and judicial recovery.”

WeWok is the industry leader in Brazil

Despite the crisis, WeWork remains the leader in the shared office segment in Brazil. A survey produced by SiilA, a data platform that gathers information and analyses on the real estate market, shows that the company still has the largest occupied area in relation to its competitors: more than 153 thousand square meters, a quantity greater than the sum of its four main competitors (Regus, Cubo Coworking, VIP Office and GoWork), which is around 110 thousand.

Siila CEO Giancarlo Nicastro believes that the company’s growth model was precisely one of the reasons for the current crisis. According to the executive, WeWork arrived “with a very strong aggressive approach to consolidating the market, not only in Brazil but worldwide”. The first Brazilian office was a unit in São Paulo, in 2017.

Before the pandemic, the company rented a large number of locations around the world to establish its shared offices. Many of them belonged to the “premium segment”, that is, they had rents considered high in valued locations. In addition, the contracts signed were long, lasting ten, fifteen or even twenty years.

“It was the golden age of the corporate office market. [O ano de 2019] It was the time when we had the lowest vacancy rate in history,” says Nicastro. The booming market turned into a trap: the following year, in 2020, the pandemic would bring down rents and property occupancy, directly affecting WeWork.

“If I signed a contract in 2019 and I were to sign that same contract in 2021, surely 2021 would be a much better contract?”, explains Nicastro, referring to the drop in rental prices during the period.

Market changes and low adaptability

“WeWork has been operating since 2010 under very favorable conditions in terms of recruitment and commercial facilities. But the winds have changed,” explains Professor Braga.

The long-term contract model hampered WeWork at a time when flexibility was needed. Even after the pandemic, corporate office occupancy has slowly recovered and has not yet returned to the same level as in 2019, according to data presented by SiiLA.

“Now, [a WeWork] faces competition from companies that have been able to adapt their business models more quickly,” says investment analyst Gianluca Di Mattina of Hike Capital. “The company is struggling to meet its financial obligations, which raises uncertainty about its operational sustainability.”

Are you going to file for bankruptcy protection?

Di Mattina believes that WeWork is likely to file for bankruptcy protection to deal with its financial difficulties and debts, which according to the analyst already amount to US$19 billion. He also highlights that the eviction actions, in addition to compromising liquidity, impact the confidence of investors and partners and put the company’s operating revenue at risk.

Siila’s CEO also considers judicial recovery to be a more obvious path, especially since it is already the path chosen by the US parent company. “In the United States, they lost some space, but they are still strong,” he says. “They have very strong tenants, there is no reason why they cannot get out of the crisis.”

By the end of last year, WeWork reported having 32 of its own locations in eight cities – São Paulo, Alphaville, São Bernardo do Campo, Osasco, São José dos Campos, Rio de Janeiro, Belo Horizonte and Porto Alegre. With its Station platform, it had a network of approximately 500 partners, offering office space in 120 cities.