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Weeks after the SoftBank-backed office space group warned there were “significant doubts” about its ability to continue as a going concern, WeWork is seeking to renegotiate nearly all of its leases around the world.
The New York-based company’s efforts to cut rental costs have been described as “severely out of touch with current market conditions,” posing a threat to a commercial real estate industry already suffering from overcapacity due to a surge in work-from-home due to the coronavirus pandemic. bitter. .
As of June, WeWork had 777 locations in 39 countries, with more than $13 billion in long-term lease obligations, most of which expire in 2028 or later.
WeWork announced the plan after telling landlords they were “strongly encouraged” to participate in a listen-only conference call Wednesday morning New York time, in which WeWork will share important business updates.
Chief executive David Tolley told landlords that WeWork expected to exit some “unsuitable and underperforming locations,” but would retain most of its buildings.
He said in a statement after the call that WeWork is “taking immediate action to permanently fix our inflexible and costly leasing portfolio,” which he described as a holdover from an “unsustainable period of hypergrowth.”
WeWork has spent years seeking to cut its long-term lease liabilities, which were more than $18 billion when Adam Neumann stepped down as CEO in 2019 after a failed first attempt to go public.
Meanwhile, landlords have been seeking to reduce their exposure to the company, which has a large share of office markets in cities from New York to London, and has appointed a string of insolvency experts in recent weeks.
“Since 2020, about 70 landlords have approached us, and ended up taking over eight or nine (WeWork spaces). Now this practice is accelerating.” Jamie Ho, CEO of another flexible office space company Industrious Jamie Hodari said.
Hodari said his company has also been “inundated” with calls from WeWork customers since the going-continue warning was issued in August.
Many of WeWork’s New York locations are in lower-quality buildings, so its problems could lead to a widening gap between the most modern properties and older ones, real estate executives said.
As recently as the first quarter of this year, WeWork accounted for nearly a quarter of new leasing activity in New York, but some industry members have sought to downplay the impact of a potential bankruptcy.
“It’s only a small part of the market,” one person said. The company occupies approximately 6.4 million square feet of the Manhattan office market of 414 million square feet.
Even so, some landlords have taken action to protect themselves. Last year, for example, Spanish bank Santander took up 160,000 square feet of space at 437 Madison Avenue, which previously belonged to WeWork. The rent is slightly lower, but that has allowed the building’s owner, Sage Realty, to reduce its investment in the co-working company, according to a person familiar with the matter.
WeWork, whose shares have fallen 98% in the past year, will eventually go public in 2021 by merging with a blank-check company. Its private market valuation was once as high as $47 billion, and its current valuation is less than $200 million. WeWork shares were down 3% as of midday Wednesday.
Tolley said the lease renegotiation would have “no impact” on WeWork’s day-to-day operations. “Finally, let me clarify one thing,” his statement said. “WeWork is here to stay.”
Additional reporting by Akila Quinio in London
Svlook
