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As Bankruptcy Looms Over WeWork, Attention Turns To Its Massive Real Estate Footprint

A WeWork office at 125 South 25th St. in the Flatiron District in New York.

After WeWork's disastrous second quarter that saw its CEO and chief financial officer resign, it may be heading for bankruptcy.

The coworking firm appointed four new independent board members this week, all of whom are specialists in corporate bankruptcy and restructuring, The Wall Street Journal reports. The new directors were named to replace three board members who resigned over disagreements regarding WeWork's strategy and governance: Vivek Ranadivé, Daniel Hurwitz and Véronique Laury.

The board reshuffling came on the heels of WeWork's Q2 report, in which the company reported "substantial doubt" about its ability to stay in business. If WeWork indeed goes bankrupt, it gives the company more legal means to back out of its leases, many of which are in the types of buildings losing out in the office flight to quality, per The Real Deal.

A WeWork exit and the associated loss in cash flow could be catastrophic for an office building in the current environment of reduced office demand and virtually no hope of debt refinancing. Office CMBS delinquency rose to 5% in July.

WeWork stopped paying rent earlier this year at a nearly 100-year-old building in New York's Garment District where it had leased the entirety of a nine-story office condo. The landlord defaulted on its loan soon after.

WeWork has spent years trimming its portfolio of leases to cut costs since Sandeep Mathrani took the CEO post in February 2020. That was before his surprise resignation in May shook what little investor confidence remained in the company. Yet what is still on the books is still considerable enough to constitute a sizable risk to the office market.

About $7.5B worth of CMBS loans is tied to office buildings where WeWork is a tenant, according to a June Barclays research note reported by Bloomberg. New York, which contains by far the highest concentration of WeWork offices of any market, accounts for 38% of that loan exposure.

separate analysis by Trepp found 112 CMBS loans with a total balance of $9.5B with exposure to WeWork, with several individual loans worth $100M or more. 

Ranadivé held a seat on WeWork's board since his special-purpose acquisition company, BowX Acquisition Corp., took WeWork public in late 2021. Its initial public stock price was $13 per share, but had sunk all the way to 16 cents per share as trading opened Thursday. In April, the New York Stock Exchange gave WeWork six months to get its stock price back above $1 in order to avoid being delisted.

Though WeWork has suffered from the same slumping office market that has bedeviled many of its landlords, not all coworking operators are feeling the same pain. IWG, which primarily relies on a franchise model, reported record-high revenue and a 154% profit increase in Q2.