WeWork Seeks To Reject 65 Direct Leases in US, Canada



WeWork is seeking to reject 65 direct unprofitable office leases in the United States and Canada, including more than half in its home market of New York, as part of its filing for Chapter 11 bankruptcy protection.

The struggling global flexible workplace provider, credited with popularizing coworking space, listed the locations at a time when fewer workers are going into the office than before the pandemic and companies are looking to cut costs with higher interest rates and are unsure about their space needs.

WeWork’s “lease portfolio has been, and continues to be, a significant contributing factor to [the company’s] current financial challenges,” WeWork said Tuesday in a court document.

Started in 2010 by its charismatic co-founder Adam Neumann, WeWork gained a high profile with fast growth, including at the cost of paying above-market rents, in the years following its founding. At different times, it became the largest private office tenant in cities including New York and London, WeWork’s newly appointed chief executive, David Tolley, said in a court filing.

All the leases being rejected are “nonoperational” and mostly vacated, a WeWork spokesperson told CoStar News, adding the locations won’t have any new impact on its members. The lease rejections only affect locations in the United States and Canada. WeWork said its bankruptcy filing applies only to its U.S. operation while Canada is set to make its own equivalent of a bankruptcy filing.

In addition to New York, the North American leases are located in downtown urban markets including Boston, Chicago, Toronto, Phoenix, San Francisco, Seattle and Los Angeles.

WeWork locations outside the United States and Canada, its franchised and joint-venture locations, and its acquired Common Desk coworking space business aren’t part of the bankruptcy filings, the spokesperson told CoStar.

The company operates over 750 locations in 37 countries worldwide, according to court papers. It has more than 230 leased locations in the United States, CoStar data shows, and about 20 in Canada.

WeWork has said occupancy in both the United States and Canada has trailed far behind other markets.

No job cuts are planned as a result of the bankruptcy filing, the WeWork spokesperson said.

WeWork’s filing and what it characterized as its “meticulous, well-considered” lease rejection plan comes after it warned in August that “substantial doubt exists” about its ability to continue as a going concern unless it can improve liquidity and profitability. With the help of Hilco Real Estate, WeWork in September began to renegotiate leases with nearly all its landlords worldwide, and it’s still in active talks “with over 400 landlords,” the company said Tuesday in a court document. That came after it already exited or amended 590 leases since the fourth quarter of 2019 and cut $12.7 billion in future lease payments.

WeWork has said its lease liabilities totaled over two-thirds of its operating expenses and 74% of its revenue in the second quarter. It’s a percentage that’s higher than rivals such as Industrious, where rent takes up a percentage of its total revenue in the “low 30s.”

Lease renegotiation and other moves “could not overcome the legacy real estate costs and industry headwinds WeWork faced,” Tolley said in a court filing. “Ultimately, however, the deliberate pace of that process together with the company’s finite liquidity did not provide [WeWork] with sufficient runway to complete an out-of-court rationalization of its lease portfolio.”

All except one of the leases WeWork said it wants to reject Tuesday are unexpired. The company also is seeking to reject four other unexpired agreements, including two subleases and two licensing-related agreements, WeWork said in court documents. The company filed for Chapter 11 bankruptcy protection Monday in the U.S. Bankruptcy Court for the District of New Jersey.

While corporate governance concerns eventually led to a failed attempt at an initial public offering and the ouster of Neumann in 2019 before WeWork finally became public in October 2021, many of the leases that had been signed during Neumann’s reign proved to be too costly, especially in a pandemic-upended office market.

“The historically rapid rise in interest rates, in combination with slower than expected post-COVID return to office … has pressured liquidity and driven increasing economic distress in the commercial real estate sector,” Tolley, a former Blackstone Group executive, said in the court document. “As a direct result of this distress, landlords are more willing than in the past to reduce rent and offer flexible leasing terms. … Many office tenants are adjusting to the global shift to hybrid work by consolidating their footprints and attempting to sublease their excess space, often at a rent significantly discounted to their original cost. As a result, commercial office space, especially in the large cities where WeWork operates, has become available and accessible at unprecedented prices and in significant volume. This amounts to much greater competition in WeWork’s target market.”

With WeWork’s rent payments its “single most significant” expense, “right-sizing” its lease portfolio and rejecting unprofitable leases is “essential” to the company’s profitability and long-term business plan, Tolley said.

He said WeWork, once it emerges from bankruptcy, will be poised to benefit from a forecast issued by real estate firm JLL that said the flexible workspace market is expected to rise to as much as 30% of the total U.S. office supply in the long term, up from just 2%. Other studies have also said flexible workspace will be a beneficiary of hybrid work patterns and an uncertain economic outlook.

Industry professionals are skeptical, though, as WeWork is still faced with record high office vacancies in markets such as New York and competition from the likes of Industrious and Regus parent IWG, as well as from a growing number of landlords providing their own prebuilt suites and other flexible offerings.

In a CoStar study of some U.S. locations that WeWork has removed from its website in recent months, three-fifths were in lower-tier Class B buildings while only 6% were in top-tier trophy towers. That reflects WeWork’s attempt to “maximize the competitive quality of their locations,” Phil Mobley, CoStar’s national director of office analytics for the United States, said Monday before the bankruptcy filing.

While WeWork’s lease rejections are a sliver of the office market, it threatens to hurt some individual office landlords and markets such as New York that are already hurting from record-high office vacancies. Its lease rejections and renegotiations further threaten to hurt landlords with loans backed by some of those buildings housing WeWork.

“WeWork is the largest corporate tenant in New York City, leasing millions of square feet, which is more than the entire office market of some cities,” Ross Yustein, chair of law firm Kleinberg Kaplan’s real estate department, said Tuesday in an emailed statement to CoStar News. “Its bankruptcy could put a lot of increased pressure on the market, which already faces a high level of vacancy and subleasing availability due to the post-pandemic increase in remote and hybrid work. … As WeWork negotiates with its landlords to lower its rents, the landlords will have to factor in the effect on their loans.”

He added that “the reduced rental income could cause the landlords to fail certain financial covenants, to be unable to make debt service payments, and to be unable to find refinancing when their debt matures, thus triggering more distressed loans, which are already under increased pressure from rising interest rates.”

As part of its bankruptcy filing, WeWork said the creditors with the 30 largest unsecured claims are not insiders but New York landlords such as:

Westfield Fulton Center with a claim of $8.2 million.RFR Realty, two claims totaling more than $8 million. Sapir, one claim of nearly $4.6 million. Brookfield Properties with a claim of nearly $3.1 million.Cohen Brothers Realty, a claim of nearly $3 million.Nuveen Real Estate, one claim of $2.9 million.Walter & Samuels, $2.6 million.

Outside of New York, Alter Group, based in Wilmette, Illinois, has an unsecured claim totaling nearly $12 million, while Kennedy-Wilson has a claim of more than $7.8 million.

WeWork said it also entered into a restructuring agreement with holders representing about 92% of its secured notes that reduces the company’s existing funded debt by about $3 billion in exchange for equity in the company after it emerges from bankruptcy. They include majority shareholder SoftBank, Cupar Grimmond, and an ad hoc group that includes BlackRock, King Street Capital Management and Brigade Capital Management.

The remaining 8% represents public and other bondholders, the WeWork spokesperson said.


​See a Map and List of Sites the Firm Calls Unprofitable and Contributing to Financial Challenges See a Map and List of Sites the Firm Calls Unprofitable and Contributing to Financial Challenges 

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