After months of impasse, office space retailer WeWork has finally come to a resolution with a group of 18 landlords who have insisted that the company pay the rents to its abandoned leases in full.
As part of the agreement overseen by U.S. Bankruptcy Judge John Sherwood, WeWork’s majority shareholder SoftBank, the Japanese investment company, will redirect up to $682.5 million into new credit facilities to act as a backstop for WeWork’s rent obligations. According to Sherwood’s order, landlords cannot draw from those letters of credit en masse at the end of the month, an option they likely would have taken if WeWork defaulted.
WeWork’s landlords had previously objected to this plan, worrying that debtor-in-possession financing would leave them empty-handed should WeWork’s Chapter 11 restructuring go awry. Attorneys representing the landlord insisted that SoftBank should advance new money as part of the agreement. But earlier in the week, Douglas Rosner, an attorney representing the 18 of those landlords, told Reuters that WeWork and Softbank revised the package to address their concerns.
The group, which includes Beacon Capital Partners LLC, Boston Properties, Nuveen, and other backers, continued to express concerns about how they might stay in control in a volatile situation. “The debtor’s landlords and other general unsecured creditors still face uncertainty and risks that need to be monitored and addressed,” said a statement filed by the group’s attorneys. “The Committee also remains concerned about the [landlords’] ability to dictate important aspects of these cases and put themselves in a better position than other administrative creditors in the event that the cases take a turn for the worse.” Nevertheless, the statement also acknowledged, the deal now in place was the least worst option available for them.
WeWork was once valued at $47 billion value from subleasing sleek co-working spaces in major cities across the world, but organizational challenges and internal turmoil led to heavy losses that forced it to go public in 2021. When that failed to slow WeWork’s precipitous fall, the company filed for bankruptcy on November 7 this year, with plans to abandon 1.57 million square feet of underperforming office space across New York City. The question of whether or not WeWork was obliged to pay the remaining rent until the 70 cancelled leases ended or not put them and its landlords on a legal and financial collision course that has been, for now, partially averted.
Buoyed by the recent Softbank agreement, WeWork is continuing to file requests for more lease cancellations and/or seek terms with the remaining holdouts, even as attorneys representing the 18 landlords have complained that the tone and structure of the lease negotiation process has been opaque and antagonistic. WeWork reaped some rewards earlier this week; on Monday, they renegotiated its lease for 300,000 square feet of office space across ten floors on 1440 Broadway, most of which is occupied by Amazon. According to the new terms, WeWork will continue to operate the space on a shortened term and with reduced rent. The deal is subject to court approval.
The 1440 Broadway space is one of 292 U.S. and Canada locations WeWork was operating as of October; to save its finances and avoid disaster, they will likely need to renegotiate friendlier terms on nearly all of them. When WeWork filed for bankruptcy on November 8, the company had only $164 million of cash on hand, down from $460 million in September; by February next year, that number is expected to shrink to a mere $45 million.
