WeWork’s NYC landlords owe $2.6B in CMBS debt. Can they repay it?
NYC owners with most-exposed buildings include Walter & Samuels, Winter Properties, CIM
Since WeWork broke the news that staggering losses would force it to rework “nearly all” of its leases, the co-working firm’s New York landlords have braced for the worst.
WeWork’s exit from their buildings would exacerbate the owners’ struggles with vacancy and falling valuations as their mortgages come due.
Landlords that count WeWork as a top five tenant owe about $2.6 billion in CMBS debt, an analysis of Trepp data shows. About half of those loans come due within 12 months and nearly 80 percent are either watchlisted, delinquent or in default.
Kushner Companies and Aby Rosen’s RFR are already weathering the fallout of a WeWork departure. The landlords failed to refinance their Dumbo office complex and landed in maturity default last month. WeWork had ditched a majority leasehold in one of the portfolio’s four buildings.
Other WeWork-exposed buildings have still-performing debt, but would be hit hard if the co-working firm quit its leases — something it could freely do if it enters bankruptcy protection.
Highest vacancy risk
When WeWork was still in growth mode, a handful of bullish landlords went all in on the startup.
Winter Properties, led by David Winter and David Millstone, leased the entirety of 57 East 11th Street to the coworking firm in 2018, then scored $55 million in financing on the property.
With such heavy exposure, a WeWork exit would be devastating. The foreclosure on Walter & Samuels’ 315 West 36th Street serves as evidence.
The landlord acquired the Garment District office building in 2015, a few months after WeWork had leased 93 percent of the building. This year, WeWork quit paying rent. The landlord defaulted on the building’s $77 million debt in June. In September, its lender filed to foreclose and this month, the building’s valuation was cut by two-thirds, according to Trepp.
WeWork did not comment for this article.
The firm’s cost-cutting strategy does not rely solely on exits. The company is also trying to amend lease terms to reduce rents, using the implied threat of bankruptcy — leaving landlords with nothing — as leverage.
But rent reductions are no panacea. Winter Properties has been down that road. It proved a rough one.
In 2020, servicers watchlisted the $55 million loan backed by 56 East 11th after WeWork botched its initial public offering. In June 2021, the firm modified its lease with Winter, securing rent abatements and credits from August through November of that year.
By the end of 2021, the cash flow at 57 East 11th Street was only covering about 80 percent of the monthly debt service.
The lease amendments burned off in January 2022, and at the end of the year, the debt service coverage ratio had rebounded to 1.33, meaning revenue exceeded debt costs. Still, the drop in 2021 signals how drastically a few months of rent cuts can hurt a building.
Winter Properties co-CEO David Millstone did not return a request for comment.
Another Walter & Samuels’ property, 214 West 29th Street, is in similar straits. At the end of last year, its revenue couldn’t cover debt service on its $45 million loan.
When WeWork first rented the space in 2018, its lease comprised a little over half of the building’s square footage. But the property’s total occupancy fell to 65 percent in December, according to Morningstar, suggesting the firm and perhaps other tenants downsized.
Walter & Samuels did not respond to a request for comment.
The good news for both sponsors is they have some time. The debt collateralizing both buildings does not come due until 2029, affording them a chance to fill space should WeWork cut and run.
For other top landlords, looming maturities create a time crunch.
In March, the Midtown building’s revenue was covering just 75 percent of debt payments. The loan has a floating rate, meaning monthly debt service swelled as interest rates shot up.
When the loan was made in 2021, ratings agency DBRS Morningstar flagged the heavy exposure to WeWork, noting it had “shuttered many of its facilities.” But WeWork did have a reliable tenant subleasing 210,000 square feet at 1440 Broadway: Amazon. And yet the loan still went bad.
The $399 million mortgage, due next May, was sent to special servicing this month, according to Trepp, which noted that WeWork is “no longer listed as a tenant.” The property — valued at $540 million only two years ago — will be deeded back to the lender, according to the analytics firm.
A spokesperson for WeWork contested that it had vacated, stating that WeWork is still a tenant and a change in building ownership would not affect that.
CIM declined to comment and QSuper did not return a request for comment.
Of the WeWork landlords with CMBS debt, Tishman Speyer has the most skin in the game.
In 2021, the property giant nabbed $425 million to refinance Long Island City’s The Jacx.
Tishman Speyer borrowed at a floating rate and, like CIM, suffered as the Federal Reserve hiked interest rates. A little over a year after the refi, the DSCR had fallen by 38 percent, from a robust 2.51 to a still-healthy 1.56. But the loan has been watchlisted since May, although it is still marked performing by Morningstar.
The loan came due in September. Tishman Speyer had options for three one-year extensions. A spokesperson for the firm said it had exercised one of them.
Fifth Avenue debts
Loan extensions may offer temporary reprieves for landlords grappling with a WeWork tenancy. At two watchlisted properties along Fifth Avenue, owners are trying to kick the can.
Beacon Capital Partners is finalizing a long-term extension at 575 Fifth Avenue where WeWork holds the largest lease: 19 percent of the building’s rentable area.
And after the Schwalbe family saw 385 Fifth Avenue sent to specially servicing in April for imminent maturity default, the owner signed “a pre-negotiation agreement” in May to modify the loan, according to Morningstar. WeWork holds the property’s largest lease there as well, with nearly 22 percent of the square footage.
Beacon did not respond to a request for comment. The Schwalbe family could not be reached.
The details of the workouts have yet to hit Morningstar. To modify a loan, the borrower has to meet certain covenants. Office landlords must report a healthy DSCR, for one, typically between 1.25 and 1.4.
Last December, 385 Fifth Avenue had a DSCR of 1.3. But a June reappraisal showed the property’s valuation had slipped 31 percent from when the loan was made in 2013.
On 575 Fifth Avenue’s floating-rate debt, updated financials were not available.
This story has been updated with new information about 1440 Broadway and The Jacx.