Sunday Summary: The Bell Finally Tolls for WeWork


We can’t say that we were surprised, exactly.

Those of us in the media who have followed WeWork (WE) over its highs and lows have known for months that the end was nigh.

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The end (or bankruptcy, to be more specific) turned out to be last Monday night when the coworking giant — once the largest private tenant in New York and a number of other cities around the globe, with a valuation of $47 billion — filed for Chapter 11. This was hours after WeWork trading on the stock exchange had been suspended.

Weeks earlier, Commercial Observer had set to wondering what a pending WeWork bankruptcy would do to New York’s already struggling office owners, and the answer wasn’t pretty. Landlords who counted WeWork among their biggest tenants owe some $2.6 billion in debt related to commercial mortgage-backed securities, about half of which is due to mature in the next year. Four out of five of these landlords are delinquent with their loans, in default, or on special service watchlists.

“In the case of landlords, there are going to be a lot of heads that go through the windshield as that business comes to a screeching stop,” Anthony Malkin, the CEO of Empire State Realty Trust, put it bluntly.

Immediately after the bankruptcy, WeWork put out a list of 40 “underperforming locations” in New York, plus another 29 in the rest of the country and Canada, that it intends to close. (These leases alone are tied to $1.85 billion in CMBS debt, as per KBRA Analytics.) And it revealed that it owes $98.6 million in back rent to various landlords.

It is, not to put too fine a point on it, an unholy mess.

Of course, the very biggest loser in all this was Japan-based SoftBank Group which has lost $14.3 billion on WeWork.

“As a company, we need to accept this reality and also need to learn the lesson from this for our future investment activity,” a resigned Yoshimitsu Goto, SoftBank’s Chief Financial Officer, said during an earnings call.

But you know who didn’t lose? WeWork co-founder Adam Neumann.

Neumann took a personal loan of $430 million from SoftBank and used his WeWork shares as collateral. Now that the shares have lost almost all of their value, he could conceivably walk away, leaving his former benefactors holding the bag.

Meridian meltdown

On just about any other week, the major story would have been the fact that Meridian Capital Group got slapped hard (in ways that we don’t yet fully know) by Freddie Mac, which suspended the brokerage from doing any business with its lenders — and also announced an investigation was underway.

While it’s still very murky what transpired, one source told CO that Freddie, a government-sponsored entity, began inquiring whether loan information provided by a Meridian broker during underwriting was false or manipulated.

Hot on the heels of this, Freddie’s GSE rival, Fannie Mae, announced that it was subjecting all agency-backed loans that included a broker to pre-review.

By Thursday, Freddie said it was tightening its underwriting requirements and essentially bypassing brokers by demanding that all loan documentation be provided by borrowers directly to lenders.

This cannot be good news for Meridian. Back in 2022, it did more business with Fannie and Freddie than any other brokerage, originating some 4,266 loans. But it is a story that has not come close to being fully played out yet, so CO is going to be keeping a close eye on it.

And now for something completely different

With all the drama going on and the big, big hole that a defunct WeWork will open up in New York (as well as other urban markets), there were actually some hefty leases signed last week.

At Rudin’s 1675 Broadway, the law firm Davis & Gilbert added an extra 12,022 square feet to its existing footprint, raising its total at the Midtown office building to 98,125 square feet.

Davis & Gilbert weren’t the only ones in expansion mode. Energy Capital Partners, an energy investment firm, took 15,400 square feet at 1 World Trade Center, more than doubling its existing presence in the building and bringing its total to 26,292 square feet.

And while it wasn’t office, the South Bronx Overall Economic Development Corporation renewed its monster 137,605-square-foot lease at 131 Walnut Avenue in the Bronx.

Things that could have led Sunday Summary on a normal week

Yes, if not for WeWork and Meridian doings, there was plenty in the news that we normally would have been happy to highlight.

First up, Mets owner Steve Cohen (who still valiantly chucks his money away on a team that will disappoint anyone who ever loved it) announced that he would be partnering with Hard Rock International, Field Operations and SHoP Architects to build an $8 billion casino, park, live music venue and food hall called Metropolitan Park in his bid for a casino license in Queens. (Only three available licenses will be granted to downstate operators, and Cohen and others are vying hard to win one.)

Another bit of news that would have normally astounded us was that a CMBS loan on one of New York’s great icons, the Helmsley Building, has gone into special servicing.

The two-year floating-rate loan expires Dec. 8 and the building’s largest tenant, RELX, Inc., declined to renew its lease in October, according to a report by the Kroll Bond Rating Agency.

“We’re in discussions with lenders about restructuring the loan,” David Garten, senior adviser at RXR which sponsored the loan, told CO.

Another story which finally came to a conclusion after months (actually, make that years) of uncertainty was the fate of the new FBI HQ. (No spoilers in this particular newsletter. But if you want some background on this, check out this story CO wrote back in March.)

Oh, and did we mention that CO sat down for a one-on-one with David Martin, one of the most prolific (and most luxurious) developers in South Florida? Well, read on!

Sunday reading

While all this was unfolding, CO had spent the last couple of months assembling our yearly Owners Magazine, which published on Tuesday,

This involved tapping some of the top owners and developers in the city, including Douglas Durst, Tony Malkin, Ben Brown and more, where we asked them their take on the market.

Specifically, we asked them for their big-picture plan. What’s their company going to be working on in the next couple of years? How about the next five years? What about the next 10?

The answers were interesting. (The big-picture stuff we compiled here, but it never hurts to go directly to the source and leaf through what all the owners had to say individually.)

Likewise, we asked about Jerome Powell, who they’re supporting in the 2024 presidential election, and their favorite type of frankfurter.

The issue also includes stories affecting ownership, like the worrying level of turnover in commercial real estate; the biggest real estate prize in 2023, i.e., data centers; and the new entrants to the market.

But our favorite question that we posed to owners was who they were most like from the HBO mega-hit “Succession.” (Any answer was acceptable, except for Tom Wambsgans.)

Now, if you’ll excuse us, we need to rest up for the coming week.