WeWork’s Abandoned Leases Tied to $1.85B in CMBS Debt: KBRA
By Andrew Coen November 9, 2023 5:58 pm
reprints
WeWork (WE)’s bankruptcy is adding increased pressure on an already distressed commercial mortgage-backed securities (CMBS) market.
The 69 total leases WeWork wants to abandon in North America as part of its Chapter 11 filing are tied to roughly $1.85 billion of CMBS loans, according to data from KBRA Analytics. More than 70 percent of the CMBS loans with WeWork exposure are concentrated in New York — where WeWork is looking to sever leases at 40 locations — with Los Angeles, San Francisco and Atlanta also impacted.
The largest impacted loan is $785 million for One SoHo Square in New York City including $316 million in the SOHO 2021-SOHO deal, which has an August 2028 maturity date, KBRA data shows. Another major one is the $212.5 million GSMS 2018-TWR deal, secured by Tower Place in Atlanta, that matured on July 9 and is now nonperforming, according to KBRA.
In addition to CMBS having significant WeWork exposure, two properties where WeWork intends to break leases represent $251.7 million of collateralized loan obligation exposure: 183 Madison Avenue in Manhattan and Lake Shore Towers in Irvine, Calif., according to KBRA.
While some of the affected CMBS loans don’t mature for a few years, the WeWork bankruptcy could expedite borrowers’ decisions to hand back the keys to lenders, given the challenges in finding a replacement tenant, according to KBRA analysts. Much of the space WeWork is slated to give up would need to be retrofitted for traditional office use unless occupied by another coworking company, KBRA analysts said.
The WeWork bankruptcy will also likely exacerbate the rising CMBS office delinquency rate, which has jumped from 1.2 percent at the end of 2022 to 5.6 percent now, according to KBRA.
Andrew Coen can be reached at acoen@commercialobserver.com
