WeWork went bankrupt, but these companies vow to succeed where it failed

In August, soon after the troubled coworking company WeWork announced that its ability to “continue as a going concern” was in question, blue-shirted employees of rival flexible office startup Codi set up shop outside a number of WeWork locations in San Francisco and New York. 

“Office shutting down? #WeWont,” Codi’s signs read.

The ploy was a bit of opportunistic marketing to nab tenants worried about WeWork’s prospects after a failed IPO, a series of scandals and an Apple TV series tracking its rise and fall. It also pissed off the company. A WeWork lawyer sent a cease-and-desist to Codi in October, citing false advertising and misappropriation of intellectual property.

A few weeks later, WeWork filed for bankruptcy, capping a long downward spiral for a company once valued at $47 billion. Currently, WeWork is wending its way through the legal process to get dozens of unexpired leases off its books and presumably emerge as a smaller, leaner and less debt-laden company.

The diminishment of the dominant brand in the flexible workplace industry leaves room for a new generation of upstarts to claim the space that WeWork helped to define in the popular consciousness. Companies like San Francisco-based Codi hope to do so without the baggage of WeWork’s complicated history and with the benefit of hindsight.  

Codi CEO Christelle Rohaut is unapologetic about the WeWont campaign, saying its fair play in a competitive business world. She does, however, credit the company for changing perceptions of co-working, which had previously been a seriously uncool segment of the office market.

“They created an innovative model that made it trendy to have a WeWork space, which is kind of mind-blowing when you look at the history of co-working,” Rohaut said.

But Rohaut noted that WeWork’s misfortune has been a boon for Codi. The 5-year-old startup saw a tenfold increase this year in customers coming from other co-working operators. When WeWork started to shut down its underperforming locations and shift tenants into a smaller number of locations, Rohaut said her company received an influx of inquiries from WeWork customers unhappy with increasingly cramped and crowded conditions

Codi offers fully serviced offices for a price that includes rent, furniture and utilities under lease terms as short as six months. The options come in two main flavors: a hybrid shared office model that puts multiple tenants in the same office on different days and a private standalone model for single companies.  

Outside of a stream of prospective tenants, the collapse of WeWork has also led to new interest in Codi from landlords. Codi works directly with landlords on a revenue-share model that brings in money when tenants sign a lease and shares the risk between the landlord and the startup. 

Rohaut said the company signed up a handful of former WeWork locations on the Codi platform. Currently, the company lists around 300 spaces on its marketplace, totaling more than 1 million square feet, and has around 150,000 square feet under direct management.

“I think we are done with that first generation of operators that democratized this kind of co-working model,” Rohaut said. “We want to bring the ease and the convenience of having fully serviced space to the rest of real estate.”

One WeWork customer Codi was able to bring on board was Patch, a San Francisco startup focused on improving infrastructure around carbon credits. The company started remotely in 2020 before migrating to WeWork a year later.

Patch eventually ended up at a WeWork private office at 600 California St., but the space wasn’t large enough to contain all of its local employees. And, as WeWork’s financial situation worsened, service and maintenance became less frequent.  

“They used to clean two to three times a day; then it was once a day," said Patch CEO Brennan Spellacy. "Now, it's every other day.”

In the fall, Patch started looking for new workspace options to help bring employees into the office more consistently. The company went through a broker and checked out some sublease spaces, but Spellacy said he was turned off by the headache of handling logistics. 

A common investor introduced Patch to Codi, which was able to find a Hayes Valley office that was a good fit. The company signed a 25-month lease term for the 4,000-square-foot space starting in February after its current WeWork arrangement ends. 

“I think it’s very positive and healthy for the industry to bridge the gap between what companies need, which is ease and flexibility, and what’s being currently offered,” Rohaut said. 

The decision by traditional office operators to move into flexible workplace offerings is a sign of the staying power of what WeWork helped popularize, according to Rafi Sands, the CEO of San Francisco startup Tandem. Tandem matches companies that have a surplus of office space with smaller firms looking for a managed office experience.

Sands pointed to old-school real estate firms such as Boston Properties and Tishman Speyer spinning up flexible workplace divisions as proof that the segment is here to stay. In the aftermath of the WeWork bankruptcy, Sands said Tandem received dozens of inquiries from companies looking for another option. 

“Some people want to make sure there is never going to be a day when they go into the bathroom and there isn’t the perfect soap,” Sands said. “The pitch is, ‘WeWork is the Marriott. So if you want the Marriott, go to WeWork. … If you want the Airbnb, come to us.’”

One of WeWork’s longtime competitors is Industrious, a New York-based company founded in 2012. The company, which operates around the globe, counts publicly traded real estate giant CBRE Group as one of its main equity investors. 

Industrious started out with much the same model as WeWork, taking long-term leases that it would then parcel out to its members. 

But beginning in 2017, the company made a strategic shift toward shared-revenue management agreements in which landlords continue to act as leaseholders, while the operator takes control of marketing and building the community of members. 

Landlords became more open to these risk-sharing models as the pandemic shifted the economics of commercial real estate. 

Industrious also has transitioned some of its older leases into management agreements, although CEO Jamie Hodari said a few legacy leases remain in effect.

“WeWork went bankrupt because the scale of their fixed liabilities are insurmountable,” Hodari said. “But, in general, everything that has happened in the world in terms of the way people work has essentially benefited the flex industry and led to increased demand.”

Industrious currently operates three locations in San Francisco, with another scheduled to open in the Downtown Ikea building early next year.

In aggregate, Hodari said San Francisco is the company’s highest-performing West Coast market. But the vast contrasts in the city’s office market mean it “required more art than science.”

“One thing about San Francisco is that you can have a unit that’s among the highest-performing, highest-priced Industrious anywhere in the world three blocks from an Industrious that is really sucking wind and is going to struggle to fill over time,” Hodari said.

The post-pandemic struggle of central business districts in comparison to surrounding neighborhoods means that spaces in areas like Walnut Creek and Palo Alto have leapfrogged Downtown San Francisco locations in terms of performance. 

But one benefit he’s seen is members taking advantage of the company’s offerings as a network. For example, some split their time across the Industrious’s East Bay and Downtown San Francisco locations throughout the week.

Recently, Industrious announced it would help manage the seventh floor at 525 Market St., which is getting a $20 million overhaul to turn it into the Cove, a luxury amenity space for the building’s tenants. It will be operated in partnership with Cushman & Wakefield and also function as a flexible meeting and office space with access sold to outside members.

Hodari said WeWork helped open the door for the evolution of the industry where tenants can buy a workplace experience as a subscription and where management contracts, not leases, become the dominant business model. 

Part of WeWork’s challenges, according to Hodari, was timing. A bulk of the company’s growth came as investors were rewarding revenue growth at all costs and worrying about the risks later.

“It was a more painful strategy for a physical network business with big liability than for some digital businesses,” Hodari said. “It is kind of ironic and a bit strange. It’s like Blackberry going bankrupt just as smartphones were becoming an essential part of everyday life.”