WeWork Withholding Millions In Rent From Landlords Who Won't Negotiate
WeWork is delinquent on January rent payments at locations across the country, according to a new court filing from a group of its landlords, which claims the coworking giant's failure to pay violates bankruptcy law.
WeWork didn't pay approximately $33M in January rent, attorneys for the committee of the company's unsecured creditors wrote in a statement filed Tuesday with the U.S. Bankruptcy Court for the District of New Jersey.
The rent is owed at locations where the company hasn't rejected its leases, and the lack of payment constitutes a violation of the restructuring plan that was approved by a judge in November, according to the filing.
WeWork appears "to be pursuing a strategy where unilaterally, in an effort to strong-arm negotiations with certain landlords, they can receive all the benefits of their leases, including receiving fees from their members, without any payment on account of the administrative rent claims," the statement says.
"It is improper for the Debtors to use the bankruptcy process to have it both ways."
The statement was filed in support of several recent motions from landlords asking Judge John Sherwood, who is overseeing the restructuring, to force WeWork to either reject the leases at their buildings or pay January rent.
WeWork withheld January rent payments from landlords who haven't been receptive to its renegotiation efforts, a WeWork spokesperson told Bisnow.
"Our temporary actions are intended to expedite conversations to reach resolutions that are in the best interests of our entire ecosystem," the company said in a statement. "We remain committed to finding mutually beneficial solutions that are better aligned with today’s market conditions, and that will enable us to successfully move forward in our restructuring process."
One of the landlords asking Sherwood to compel WeWork to either reject or assume its lease is the receiver appointed to manage 600 California St. in San Francisco. WeWork operates 186K SF at the property on a lease that runs through 2025. The receiver was appointed last year after the building's owners, a joint venture in which WeWork holds a minority stake, defaulted on a $140M loan after WeWork stopped paying rent, Bisnow previously reported.
The dispute over January rent is the latest salvo in WeWork's ongoing negotiations with hundreds of landlords across the country as it works to reduce its rent burden.
The company has already saved more than $1.5B in annualized rent payments through its renegotiations, WeWork's spokesperson said.
"We have had numerous, productive conversations with our global landlords over the course of the last several months," the spokesperson said in a statement. "More than 40 of those have resulted in mutually beneficial agreements and we are extremely grateful to those landlords for their constructive engagement."
The tactic hasn't sat well with landlords, who argued in their statement that the company is funding its restructuring by improperly withholding January rent, even though its Chapter 11 budget provided for the payment of those obligations.
"The failure to make these payments calls into question the nature of these chapter 11 cases and the ability of the Debtors to manage their business going forward," attorneys for the committee of unsecured creditors wrote. "Simply put, the Debtors cannot violate their statutory requirements in an effort to exert leverage over one of their most important creditor constituencies, and this Court should not sanction these acts."
The next hearing in the case is scheduled for February. WeWork hopes to finalize a restructuring plan the following month.