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Landlords Push Back On WeWork's Lease Rejections

As WeWork's high-profile bankruptcy proceedings get out of the starting gate, a select few landlords have filed objections to the coworking company's request to reject dozens of leases.

Kato International, the landlord of Tower 49, has asked a judge for changes to Chapter 11 bankruptcy proceedings as WeWork's case unfolds.

WeWork filed for Chapter 11 bankruptcy protection earlier this month, asking to reject 69 leases in total. Tuesday was the deadline for landlords to object to WeWork's rejection requests, and the owners of several locations have pushed back against that motion, claiming landlords may not have enough time to respond and that they should have full access to letters of credit WeWork signed as a tenant.

Walter & Samuels, which owns three Manhattan buildings WeWork has abandoned — 419 Park Ave. S, 130 Madison Ave. and 315 West 36th St. — said WeWork's restructuring adviser, Hilco Real Estate, notified it that it was abandoning its space eight days after it sought to reject the lease.

Walter & Samuels is asking the judge overseeing the case in the U.S. Bankruptcy Court for the District of New Jersey to confirm that WeWork is liable for rent until the date it surrenders properties to landlords rather than the date that it requests to reject the lease.

An owner of a building not on the rejection list, Kato International, asked the judge for clarity on how WeWork’s Chapter 11 bankruptcy proceedings will unfold, filing objections that ask for explicit protections on behalf of WeWork's hundreds of landlords. 

WeWork occupies 20 floors at Kato’s Tower 49, located at 12 East 49th St. in Midtown Manhattan, Kato wrote in its objection.

Kato's attorneys wrote that the five-day period WeWork gave landlords to respond to a lease rejection is “infinitesimally too short” and is instead asking Judge John Sherwood to make WeWork give a longer notice period for additional leases that it plans to reject during the Chapter 11 restructuring.  

What unfolds in court over the coming weeks will set a precedent for WeWork to reject future leases, bankruptcy attorney Rocco Cavaliere, a partner at law firm Tarter Krinsky & Drogin LLP, told Bisnow.

“There's hundreds and hundreds of leases left,” said Cavaliere, who represents a separate WeWork landlord. “In big cases where you have hundreds and hundreds of leases, it's very common to, early on in the bankruptcy process, file a motion to establish procedures for the future rejection or assumption of leases.”

Kato’s filing also contains a request to ensure that landlords are provided the opportunity to agree or disagree with new terms proposed by WeWork as it renegotiates its remaining leases. Kato's attorneys wrote that landlords should be free to draw on letters of credit WeWork signed with its leases, warning that restricting landlords' use of those deposits could “send shockwaves through the commercial real estate market.”

WeWork “appears to be trying to play a game of ‘Gotcha’ with unsuspecting mom and pop landlords in order to force them into what are effectively new leases that WeWork would otherwise be unable to obtain in any legal or consensual manner,” lawyers for Kato wrote in the objection.

A second landlord filed a joinder in support of Kato’s objection.

Landlords on the rejected leases list are already configuring plans for when they get their buildings back. Some are looking to residential conversions, while others are planning to operate their own coworking spaces.

But the implications for landlords are likely to extend for some time, with consequences for CMBS loans tied to some buildings and landlords and question marks over the future of Class-B and C properties that counted the coworking company as a tenant.

WeWork said in previous filings it could exit more than 100 additional leases and is negotiating with roughly 400 landlords on new terms. 

Walter & Samuels withdrew its objection on Wednesday, while Kato also withdrew its objection on Sunday. A court hearing regarding WeWork’s lease rejection agreements that was scheduled for Nov. 28 has been postponed until Dec. 6.

UPDATE, NOV. 27, 4:15 P.M. ET: This story has been updated to include information about landlords withdrawing objections filed with the court. This is a developing story.