BAM Key Details:

  • On Monday, WeWork filed for Chapter 11 bankruptcy, affecting its leased office spaces in the United States and Canada. The company reported total debts of $18.65 billion.
  • WeWork’s bankruptcy is expected to increase office vacancies in the U.S., with more than one-fifth of offices already vacant. 
  • WeWork’s restructuring strategy includes a lease rejection plan to optimize its lease portfolio and achieve financial stability while maintaining business continuity. 

The recent Chapter 11 bankruptcy filing by WeWork, a major player in the co-working and office space industry, could add to the surplus of empty office space in the U.S. 

With more than 600 locations in major cities across the country, WeWork’s financial troubles are poised to have consequences for the commercial real estate sector. 

WeWork’s Bankruptcy Filing

WeWork’s bankruptcy announcement on Monday cast a shadow of uncertainty over its numerous leased office spaces in the United States and Canada. The bankruptcy will not affect spaces in other countries. 

WeWork reported total debts of $18.65 billion against total assets of $15.06 billion. Despite this, the company’s CEO, David Tolley, expressed gratitude for the support of financial stakeholders and their commitment to restructuring in a press release. 

“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.”

David Tolley

CEO, WeWork

WeWork’s Impact on Office Vacancies

As WeWork files for bankruptcy, the U.S. office space market faces additional challenges. According to commercial real estate giant JLL, more than one-fifth of offices across the United States remain vacant. WeWork’s bankruptcy is expected to increase these vacancies, potentially leading to lower rent prices for tenants. This could mean less income for landlords already struggling to meet their debt obligations.

In a report this week, Moody’s Analytics economist Ermengarde Jabir points out the impact this has on the office sector. 

“Office properties – already facing financing hardships and [lower] values – now face a potential new wave of unexpected vacancies.”

Ermengarde Jabir

Economist, Moody's Analytics

The repercussions of WeWork’s bankruptcy are not evenly distributed across the United States. New York City, San Francisco, and Boston are expected to be the hardest hit, with around 42% of WeWork’s occupancies located in these three cities, according to CoStar. 

WeWork’s Restructuring Strategy

Under Chapter 11 of the U.S. Bankruptcy Code, WeWork Inc. has initiated a comprehensive reorganization aimed at strengthening its capital structure and financial performance. The company seeks to reduce its existing funded debt and position itself for future success. Key financial stakeholders have shown their support by entering into a Restructuring Support Agreement (RSA), representing approximately 92% of the company’s secured notes. This move reflects a commitment to achieving financial stability while maintaining business continuity.

One of the central elements of WeWork’s restructuring strategy is a lease rejection plan. The company aims to optimize its lease portfolio by rejecting certain non-operational leases. Advanced notice has been provided to all affected members. This move is expected to streamline the company’s operational and financial structure, making it more agile and resilient in the face of evolving market conditions.

Challenges for Commercial Real Estate

On Tuesday’s Hot Sheet, Byron Lazine spoke about how this could impact the industry. 

“I do believe this will impact commercial real estate….this is one of those big things that can pull down the economy—if we have a crisis on commercial real estate. Because that could mean a crisis on regional banking as well.”

Byron Lazine

WeWork’s Chapter 11 bankruptcy and subsequent restructuring signify a pivotal moment in the commercial real estate landscape. Real estate agents must adapt to the changing market conditions, leveraging their expertise to help landlords, property owners, and investors navigate the challenges and capitalize on the opportunities presented by WeWork’s transformation. By staying informed, real estate agents can play a vital role in reshaping the office space market in the post-WeWork era.