WeWork Collapse Looms Over NYC Office Market

WeWork, which warned in an SEC filing this week that it may be on the verge if going bankrupt, will create a gigantic crater in NYC’s struggling office market if it goes under.

The coworking company, once one of the largest private-sector tenants in New York and London, still occupies nearly 7M SF of offices in Manhattan, according to first-quarter data from Savills.

The company’s US national office footprint is more than twice as large, about 16.8M SF, according to CoStar data. Square footage alone doesn’t measure the exposure to a WeWork collapse:

Analysts at Barclays estimated this week that $7.5B of CMBS are backed by office buildings that are “potentially exposed” to WeWork—with 38% of that total concentrated in NYC, Bloomberg reported.

“Given the current weak fundamentals of the office market in New York, we believe these locations might be at particular risk of closure due to overconcentration,” said Barclays’ analysis, written by Lea Overby and Anuj Jain.

In its SEC filing WeWork said it posted a net loss of nearly $700M in the first six months of 2023, after recording $10.7B in net losses over the previous three years.

“Our losses and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern,” the company said in the filing, adding that it has about $2.9B in long-term debt as of June 30.

WeWork’s stock has been trading below $1 for several months and closed at about 21 cents on Tuesday. The New York-based firm said in its filing that if the situation does not improve, it will have to consider selling assets, reducing business activities and filing for bankruptcy protection.

In a statement, the company tried to express some optimism, noting that its 777 worldwide locations are occupied at pre-pandemic levels, and it was able to grow its Q2 2023 revenue by 4% YOY. WeWork said it is focused on increasing memberships, but it also indicated it is “optimizing the terms” of its real estate portfolio.

WeWork’s turnaround plan involves reducing rent and tenancy costs by negotiating more-favorable lease terms, Bloomberg reported.

In April, a joint venture started by WeWork and Rhone Group in 2019 defaulted on a $240M loan for an office tower at 600 California Street in San Francisco’s Financial District.

WeWork coworking offices are an anchor tenant in the 20-story building, which is owned by funds that were formed in a venture aiming to buy and oversee real estate, Bloomberg reported. When it formed the venture in 2019, WeWork had 25K members across 26 Bay Area locations as well as a large office at the Bishop Ranch complex in San Ramon.