In news that surprised no one, on November 6, WeWork Inc. filed for Chapter 11 bankruptcy protection as part of what it called “a comprehensive reorganization to strengthen its capital structure and financial performance and best position the company for future success.”
The co-working giant has entered into a restructuring agreement with key financial stakeholders representing 92% of its secured notes to reduce debt while it re-sizes its commercial real estate portfolio in the U.S. and Canada. As part of the filing, it is requesting the ability to reject leases of certain locations.
The result could have wide-ranging effects, especially in New York City. Landlords could be compelled to make major concessions, which could affect their own loans, said Ross Yustein, chair of Kleinberg Kaplan’s real estate department.
“WeWork is the largest corporate tenant in New York City, leasing millions of square feet, which is more than the entire office market of some cities,” Yustein said. “Its bankruptcy could put a lot of increased pressure on the market, which already faces a high level of vacancy and subleasing availability due to the post-pandemic increase in remote and hybrid work.”
Locations outside the U.S. and Canada and franchisees remain unaffected.
“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” said David Tolley, CEO of WeWork. “We defined a new category of working, and these steps will enable us to remain the global leader in flexible work. I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the Restructuring Support Agreement. We remain committed to investing in our products, services, and world-class team of employees to support our community.”
The company said it will continue servicing its existing members, vendors, partners, and other stakeholders in the ordinary course of business. WeWork expects to have the financial liquidity to execute these proceedings and continue business in the ordinary course.
In addition, “landlords should assess WeWork’s business plan and strategize on how they can increase their revenue streams with a different model as part of the negotiations given today’s environment. For example, one landlord I know is focusing on making more event space available as opposed to office space,” said Dean Artenosi, co-owner of Coldwell Banker The Real Estate Centre and author of “Onwards And Upwards: Discover The Reality Of Building Real Estate Success.”
Kirkland & Ellis LLP and Cole Schotz P.C. are serving as legal counsel, PJT Partners LP is serving as investment banker, Alvarez & Marsal North America LLC is serving as financial and restructuring advisor. Goodmans LLP is serving as Canadian legal counsel, C Street Advisory Group is serving as strategic communications advisor and Epiq Corporate Restructuring LLC is serving as claims and noticing agent to the Company. WeWork has retained Hilco Real Estate to assist with lease renegotiations.
