WeWork (WE)’s having a bad year.
The coworking company kicked off 2023 by laying off 300 people. Then the New York Stock Exchange threatened to delist its stock after it fell below $1 per share for more than a month; S&P downgraded its credit rating; and Sandeep Mithrani, its CEO and a turnaround expert considered its best hope for staying alive, suddenly left.
Things came to a head last week when the company disclosed in its second-quarter filing that it had “substantial doubt” over its ability to stay afloat.
“As a result of the company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern,” WeWork wrote in the financial filing.
While WeWork pushed that it had a plan to turn things around within the next year, others weren’t so sure, and the news left many wondering what effects a WeWork bankruptcy could have on an already ailing office market.
“WeWork dwarfs everybody else in scale,” said David Lipson, president of Savills North America. “Other [coworking operators] have failed, but WeWork dwarfs them.”
To Lipson’s point, WeWork leases 6.9 million square feet in Manhattan alone and represents 61.4 percent of all coworking space in the borough, a far cry from second-place IWG, which has a 13.9 percent share.
The commercial mortgage-backed securities (CMBS) market also has plenty of exposure to WeWork, with about $7.5 billion of CMBS loans backed by office properties that have WeWork as a tenant, according to a Barclays report. New York City, where WeWork is headquartered, faced the brunt of that with 38 percent.
“Given the current, weak market fundamentals of the office market in New York, we believe these locations might be at particular risk of closure due to over-concentration,” Barclays’ Lea Overby and Anuj Jain wrote in the report.
Lipson argued that if WeWork went bust, its impact would be on a case-by-case basis: Owners of high-quality buildings would welcome getting that block of space back from WeWork, while ones with lower-quality offices might have trouble refilling the space.
There was some good news for the WeWork camp, though. The coworking company joined the illustrious ranks of Tupperware Brands, Revlon, Hertz Global Holdings and GameStop in becoming a “meme stock,” with a surge bringing WeWork’s price to as high as 33 cents per share on Thursday.
Despite WeWork’s troubles, it’s not like the flexible office market is dying. Most experts agree that the fundamental idea is sound, just not the business model of many operators, and guessed that more commercial real estate firms would get into the fray themselves.
CBRE, Cushman & Wakefield and Newmark have all either invested or acquired coworking operators. JLL launched its own brand, Orchard Workspace by JLL, which opened its third location last week.
The rent is too damn high
Political activist Jimmy McMillan’s motto about the high price of New York City’s rent has never rung more true, with the monthly cost of apartments reaching an all-time high last month.
Average rent in Manhattan reached $5,588 per month in July, a 9 percent increase compared to a year ago. Brooklyn hit $4,347 a month, a 12 percent jump, while northwestern Queens grew by 17 percent to $4,003 per month, according to a Douglas Elliman report.
Jonathan Miller of Miller Samuel, who authored the report for Douglas Elliman, said that the high prices have started to impact new leases and that July, typically the second-busiest month for the rental market each year, saw new leasing volume drop by 38 percent in Brooklyn, 52 percent in Queens and 6 percent in Manhattan compared to last year.
“Leasing activity is declining because I think we’re reaching some kind of affordability threshold,” said Miller. “Landlords are pushing prices higher and people are not accepting them.”
Part of the issue for New Yorkers has been a lack of new affordable housing coming onto the market, and the federal government has started to step in to help churches fill in the gap.
The Department of Housing and Urban Development (HUD) held a roundtable with pastors and developers in Brooklyn to kick-start housing developments on church properties, and started an $85 million federal grant program to help churches pay for the expertise needed to get these projects off the ground.
“Churches have relationships that go back decades,” HUD regional administrator Alicka Ampry-Samuel told Commercial Observer. “Now that we’re in a housing crisis, it makes sense to liaise with the faith-based community to address these needs.”
At least we got some deals
The dog days usually lead to a dearth of deals to write about, but last week was a welcome exception.
The week kicked off with news of Empire State Development signing on for 117,181 square feet to move its headquarters to 655 Third Avenue.
Then it was Municipal Credit Union renewing its 93,500-square-foot headquarters at 22 Cortlandt Street. The Soloviev Group also nailed down three new office leases at 9 West 57th Street — the largest being Mousse Partners’ 33,000-square-foot deal — while Circle Realty Group inked eight deals in the last four weeks at 14 Penn Plaza, with law firm Capell Barnett Matalon & Schoenfeld topping the list with its 15,000-square-foot lease.
On the sales end, Pacific Urban Investors and the California Public Employees Retirement System picked up Related Companies’ multifamily building at 130 West 15th Street for “north of $180 million,” according to a source.
It wasn’t just New York getting in on the action. The City of Angels saw one of its biggest office leases so far this year with Verve Talent & Literary Agency inking a deal for 53,000 square feet on the BA/SE campus in Hollywood. And Los Angeles-based Preylock Real Estate Holdings is set to land a $1.1 billion loan package to refinance a portfolio of Amazon warehouses spread across 10 states.
In Florida, OnBoard Logistics expanded its base near Miami International Airport by 26,733 square feet, while Procacci Development Corporation offloaded a development parcel in Sweetwater, Fla., to Coastland Residential for $38 million.
Cheers to the weekend
For those who can’t drink, or want to cut down on their booze intake, a number of nonalcoholic beverages have been popping up to offer similar-tasting substitutes for weekend activities.
That growth has led to an intoxicating amount of booze-free options and a number of retail spaces in New York City to help customers easily sample the goods without ordering over the internet.
“For a customer that wants to give something a try, it’s a real longshot to get them to say, ‘I’m going to buy a case of it,’” said Nick Bodkins, co-founder of nonalcoholic retailer Boisson. “Asking customers to change what they were drinking and how they bought it were two steps, and that would slow down adoption in a significant way.”
But, while many of these stores have cropped up, many are wondering if the market has already topped out.
“Maybe this is the alternative to drinking alcohol. I’m a little skeptical,” Adelaide Polsinelli, a real estate broker at Compass, said. “It seems well intentioned. But does it make money? Is it going to be profitable? Why would you go to a nonbar to drink nonalcohol that tastes like alcohol unless you’re a recovering alcoholic?”
Finally, if your weekend plans include chowing down on a bagel, why not read this profile of H&H Bagels — which you may remember as Cosmo Kramer’s former employer — between bites. The bagel shop was revived after one of its co-founders was indicted for tax fraud and, with new leadership, is on the way to becoming a national brand.