San Francisco Landlord Sues WeWork for Breach of Lease

Kennedy Wilson and Japanese real estate firm Takenaka Corp. have filed a lawsuit claiming WeWork owes them hundreds of millions of dollars in “unpaid and future” rent after bailing on its lease at 430 California Street.

According to a complaint filed Monday in San Francisco Superior Court, WeWork informed the building owners that it had surrendered and vacated the 250K SF it was occupying in the building, the San Francisco Business Times reported.

Kennedy Wilson and Takenaka are suing WeWork for alleged breach of lease, accusing the coworking company of failing to pay base rent and other related expenses for the months of July and August of this year. The building owners also allege in the lawsuit that WeWork owns them more than $250M in unpaid rent, future rent and other fees.

In a statement provided to Globe St., a WeWork spokesperson said “we strongly disagree with the allegations in this lawsuit. We continue to be in active negotiations with the landlord about WeWork’s future at this location.”

In a lease signed in 2018 that does not expire until 2036, WeWork leased 19 floors plus three basement floors at 430 California Street. Kennedy Wilson and Takenaka bought 430 California in 2016 for $135M, about $475 per SF.

In August, WeWork warned in an SEC filing that it may be on the verge if going bankrupt. Earlier this month, the company disclosed that it would not make two sets of interest payments totaling about $95M, a move it said was meant to jump-start negotiations with lenders, The New York Times reported.

A WeWork bankruptcy would create a g gigantic crater in NYC’s struggling office market. 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 have estimated $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.

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.