WeWork, Knotel Skip Some Rent Payments, Look To Reduce Portfolios
Two billion-dollar flexible office rivals haven't paid some April rents while they plan next steps after a month filled with layoffs and financial fallouts amid the coronavirus crisis.
WeWork and Knotel were financially strained before the coronavirus hit, but as large portions of the economy shut down nationally to prevent the virus from spreading, missed rent payments show their situations may be becoming more dire.
WeWork failed to pay April rent at several of its locations and has recruited debt brokers JLL and Newmark Knight Frank to help renegotiate the terms of its leases in order to lower its costs, a plan it has been pursuing since before the outbreak, The Wall Street Journal reported.
WeWork recently cut rent up to 50% for tenants that were willing to sign long-term leases amid the uncertainty of the current situation. It continues to charge its tenants rent despite the stay-at-home orders in place in New York City and its other markets around the country. The company is also suing SoftBank after the Tokyo investment giant, which has a controlling interest in WeWork, pulled out of a $3B stock purchase agreement amid the pandemic.
Knotel had several overdue payments left outstanding before the global crisis in addition to skipping this month’s rent for at least three New York City locations, Business Insider reported. CEO Amol Sarva told Commercial Observer that Knotel planned to give back the space for roughly 20% of its portfolio, including many of its Manhattan locations, which equates to 1M SF of killed deals.
"There’s a certain percentage of properties that are geared toward small business, and usually those buildings are smaller and older construction-type properties, and the consequences of the crisis are going to be very severe for small business, unfortunately," Sarva said on Bisnow's "Make Yourself At Home" podcast Thursday.
"They just aren’t going to work as Knotels. Knotel is overwhelmingly about corporates and enterprises, and we’re not going to be much help to these buildings," he said. "Truthfully, there’s another problem with these buildings. Because they’re older, their ventilation systems are worse. They’re less likely to be healthy buildings."
Coworking and flexible office providers have been hit hard by the economic pause. The missed payments come after Knotel cut half its staff and Convene furloughed more than 400 in March as the companies braced for the shutdown’s financial impact.
The pandemic will be a test of the emerging sector's strength as most office workers are forced to work from home. Sarva said that while Knotel might be the first company to openly discuss reducing its portfolio, he doesn't think it will be the last.
"We’re not going to be the last one to take a position [like this]," he said. "I guess we’re somewhat early in that process in the context of what others are doing, but we just want to be clear, and it’s consistent with the rather sharp judgments we’ve made in order to make sure we know where we’re going."