WeWork: Most played-out story in CRE.
But also, WeWork: It's bigger than you think.
Will WeWork file for bankruptcy?
Maybe. Probably. We've been calling for bankruptcy for more than a year. But the reality is, it doesn't matter. With or without bankruptcy, WeWork cannot sustain its leases, and its landlords won't likely see the rent they're owed. WeWork has already been restructuring its leases for the last 18 months, but is running out of cash and remains far from sustainable operations.
What is WeWork's biggest liability?
Rent, by far. It owes nearly $25 billion in rent over the next 10 ish years. We think about $10 billion of this is owed to U.S. landlords. WeWork currently pays U.S. landlords $800+ million a year, which is more than all of the rent that some of the largest office landlords (e.g., SLG) collect each year.
What about debt?
Immaterial. The big liability here is WeWork's leases. It's all about the leases. Landlords will restructure their leases and/or WeWork will file for bankruptcy as a way to force landlords to restructure.
How many leases would be amended or rejected in bankruptcy?
WeWork's closest peer (Regus) filed for bankruptcy during Covid, and only about a third of its leases were affected. However, a key difference: Regus was operating at a profit (pre-Covid), while WeWork continues to burn $350M in losses a quarter.
How would a WeWork bankruptcy compare to other big real estate-oriented restructures?
Ascena (Ann Taylor, Loft, etc.) also filed for bankruptcy during Covid and, at the time, was one of the largest retail bankruptcies in history. Ascena's total annual rent was about $700 million. WeWork's is $2.2 billion.
Where are WeWork's leases?
NYC is WeWork's largest U.S. market by 4x, followed by San Fran and LA.
Bottom line...
The scale of WeWork's continued right-sizing will likely surprise many market participants.
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