WeWork Looks To Reject More Leases After Judge Approves First Batch Of Closures
WeWork won approval to reject dozens of leases in the United States and Canada, but the coworking firm isn’t done shedding locations.
U.S. Bankruptcy Judge John Sherwood approved the firm’s plan last week to walk away from 67 leases, nearly all of the locations the firm had requested to leave, CoStar reported. But in a new filing, the coworking firm asked Sherwood to reject six additional leases.
Four of the locations added to the chopping block are in New York — 130 Fifth Ave. and 880 Third Ave. in Manhattan, 245 Livingston St. in Brooklyn and 35-367 36th St. in Queens — and WeWork is also looking to walk away from a Boston location at 75 Arlington St. and a Dallas lease at 1623 North Hall St.
The additional leases it is seeking to reject, like those on the original list of 69 locations, are no longer operational, a WeWork spokesperson said. The company could add more properties to the rejection list, the spokesperson added, but declined to provide any details.
WeWork’s initial rejection list included 69 leases, mostly for properties in New York, but the firm removed two locations after it found that the leases had already expired before it filed for Chapter 11 restructuring on Nov. 6 in the U.S. Bankruptcy Court for the District of New Jersey.
WeWork has previously said that it would save $563M per year in rent and $184M in other costs by rejecting the 69 leases for locations that generated about $537M in revenue.
“This was an initial motion, probably only consisting of the locations that they knew they needed to shed,” Robert Sasloff, a bankruptcy attorney at the New York-based law firm Jacobs PC, said in an email. “One should expect as they get deeper in, they would probably look at all the leases and make determinations as to whether to assume (including whether to assume and assign) or reject as necessary.”
WeWork had 509 global locations as of Oct. 12, including 292 locations in the U.S. and Canada, excluding joint ventures in Latin America and Japan, according to a regulatory filing.
The coworking firm’s restructuring plan, filed with the Securities and Exchange Commission, outlines a scenario where it would walk away from 163 locations in total, leaving it with 172 North American leases and 174 in the rest of the world.
The firm has said that it has been negotiating with more than 400 landlords to amend its leases and a WeWork spokesperson said the SEC plan was presented to shareholders to help them understand WeWork's portfolio optimization strategy and doesn't reflect the firm's overall plan to shed space.
The first batch of leases WeWork is walking away from is tied to nearly $1.9B in CMBS loans, according to KBRA Analytics, while the CMBS market has $8.2B in total exposure to WeWork across all of its locations, according to Trepp.
“We continue to proactively engage with our real estate partners to better align our long-term financial interests and find mutually beneficial lease agreements,” WeWork's spokesperson said in an email. “We plan to stay in the vast majority of markets as we move into the future and we always work to minimize our member impact through our ongoing optimization efforts.”
Landlords at properties with WeWork leases have been closely watching the lease rejection process, with several filing objections or requests for clarification with the court in November.
Walter & Samuels, which owns three Manhattan buildings WeWork has abandoned, has sought assurances that WeWork is liable for rent until a property is surrendered rather than the date it filed to reject a lease.
Kato International, the owner of Tower 49 in Manhattan, where WeWork occupies 20 floors, said in a filing that the five-day period given to landlords to respond to a lease rejection was “infinitesimally too short.” WeWork hasn’t sought to reject its lease at Tower 49, but the landlord asked Sherwood to extend the notice period for lease rejections in the future.
Both Kato and Walter & Samuels later withdrew their objections after WeWork amended its proposed order to reject, which was approved by Sherwood.
WeWork’s court filings indicate that the success of the firm’s restructuring will largely rely on obtaining concessions from landlords regarding arrears and lease terms, Sasloff said.
“These are also fairly common, but the case may hinge on whether they can get enough concessions,” he said. “Much may depend on how good their real estate consultants are.”
UPDATE, DEC. 4, 4:05 P.M. ET: The story has been updated to reflect further comments from a WeWork spokesperson about the company's restructuring plan.