WeWork Files Bankruptcy Rejecting 40 New York City Leases, Seeking to Amend or Exit Substantially All Leases, and Seeking to Reduce Debt by $3 Billion
Between November 6th and 7th, the co-working office space giant, WeWork Inc. and over 500 of its affiliates, all filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey, seeking to reduce their funded debt by approximately $3 billion and seeking to reject 69 “unprofitable leases,” 40 of which are leased properties in New York City. WeWork also seeks to approve procedures to streamline the process of rejecting even more leases. WeWork reportedly has hundreds of U.S. locations, many of which are located in New York, that would be impacted by this bankruptcy filing. In its filings, WeWork claims it has been engaging with hundreds of its landlords seeking to amend for rent abatements/deferrals or to outright exit “substantially all of the Company’s real estate leases.” WeWork had to file bankruptcy to continue that effort because liquidity became too “finite.” In its filings, WeWork claimed, “[a]s the effects of COVID-19 recede and its impact on how people work continues to evolve, flexible workspace is projected to take up as much as 30 percent of total office supply in the United States in the long term (compared to just 2 percent today)” and, therefore, WeWork will be well-positioned to capitalize on such commercial real estate market changes after WeWork effectuates the above changes to “right-size” its debt and lease portfolio and emerges from bankruptcy. WeWork claims that, to date, it has already successfully amended over 590 leases, reducing future rent obligations by over $12 billion.
This all comes after recent analysts’ reports claiming that approximately 20% of U.S. offices are vacant, and that billions of dollars of losses in office building value could be attributable to WeWork if it is unable to recover, with New York City, San Francisco and Boston to be impacted more than any other cities. Analysts also reported that approximately $270 billion in commercial real estate loans held by banks will become due in 2023. As office building owners consider converting them to alternative uses, the Biden Administration is launching an effort to encourage states and cities to convert more empty office buildings into residential units, with potentially billions of federal dollars of below-market rate loans to assist that effort.
A searchable list of all WeWork entities that filed bankruptcy can be found here.
Citizens Bank (based out of Iowa) Becomes the Fifth U.S. Bank to Collapse in 2023
State banking officials closed Citizens Bank (based out of Iowa) due to financial instability, marking the fifth U.S. bank failure reported in 2023.
How to Protect Yourself
R&E frequently represents landlords, lenders and other parties in such major retail bankruptcies, as well as middle market size bankruptcies across various industries, to assess their risks and rights and to formulate strategies for recovery and liquidity concerns, including how best to access and apply security deposits or letters of credit, as well as other businesses concerned about the present and potential future impact of the unique challenges faced in the current economic climate. Accordingly, now would be a good time for you to conduct a review of any contract, loan and/or security agreements with any potentially troubled counterparties. Feel free to contact your trusted R&E attorney or John D. Giampolo, Member & Head of the firm’s Bankruptcy & Reorganization Department, to assess your risks and rights, to assist with any lease review and to formulate strategies to best serve you.