Bankrupt WeWork Wants To Back Out Of 7 SoCal Leases, Owes LA Landlords At Least $9.9M

Seven Southern California office leases were among the 69 earmarked for rejection by WeWork in documents connected with its Monday Chapter 11 bankruptcy filing.

The company also owes Los Angeles-based landlords at least $9.9M. 

At 3000 South Robertson Blvd. in Mid-City, WeWork said it signed a termination agreement with the landlord, but at the other six properties where it seeks to vacate, the company wants out of unexpired leases. 

Those properties include locations at the Third Street Promenade and 808 Wilshire, both in Santa Monica; 18191 Von Karman Ave. in Irvine; 8305 Sunset Blvd.; the Green Building at the Pacific Design Center near West Hollywood; and Onni’s Manhattan Beach Towers. The leases total more than 200K SF. 

“It's going to exacerbate the already-weak fundamentals in the office sector,” Savills Senior Director and Head of Office Research Michael Soto said.

Soto said most landlords that had WeWork as a tenant were likely aware, at least because of the turbulence at the company since the beginning of the year, that bankruptcy and lease rejections were on the horizon. 

“I think everyone knew this was an issue, but now it’s here,” he said. 

Soto said that at its pre-pandemic peak, WeWork occupied about 3M SF in the LA area and about 1M SF in Orange County. Now, WeWork locations take up just under 1M SF in LA and around 250K SF in Orange County. 

The filing called the rejection of these leases “critical for the Debtors to administer their estates efficiently during the pendency of these chapter 11 cases,” noting that the financial weight of WeWork’s leases “has been, and continues to be, a significant contributing factor to their current financial challenges.” 

WeWork had been in discussions with landlords to renegotiate leases for months, but it was also working to determine which leases were worth saving. 

“A key component of the Company’s go-forward business plan is the continuation and completion of the Debtors’ ongoing effort to rationalize their lease portfolio,” WeWork’s bankruptcy filing says. “This effort entails, among other things, the closure of certain underperforming locations following a comprehensive cost-benefit analysis.” 

A WeWork spokesperson told Bisnow Tuesday that the company continues “to proactively engage with our real estate partners to better align our long-term financial interests and find mutually beneficial lease agreements.”

WeWork has engaged Hilco Real Estate as its restructuring adviser. WeWork said Hilco is in negotiations with more than 400 landlords on the company's leases. The amount of rent it can shave off its existing leases will likely correspond to how many additional locations it will have to leave behind.  

WeWork’s bankruptcy filing also named the company’s top 30 creditors. The list includes CIM Group, which is owed $2.1M, and the entity that owns 400-430 California in San Francisco, which includes Beverly Hills-based Kennedy Wilson. 

The bankruptcy filing shows that ownership of 400-430 California is owed $7.8M for back rent and “related litigation” at the San Francisco location, in which Kennedy Wilson has an investment interest.

WeWork once occupied 250K SF at the property but vacated that space at the end of August, the San Francisco Business Times reported. Ownership, which also includes Japanese firm Takenaka Corp., is suing WeWork for the money owed. A spokesperson for Kennedy Wilson declined to comment, citing KW’s 10% investment interest in the property. 

It is unclear on which property or properties CIM Group is owed money. CIM’s portfolio includes a New York property, 1440 Broadway, that until recently counted WeWork as a major tenant. The coworking company once leased 236K SF at the building, which was acquired by CIM and Australian pension fund QSuper. About 210K SF of WeWork’s space is subleased to Amazon. The investors have a single-asset, $399M loan on the property, which was transferred to special servicing in October and could ultimately be handed back to lenders. Representatives for CIM didn't respond to Bisnow’s requests for comment. 

The fate of 1440 Broadway in New York could be coming to some LA buildings as these proceedings unfold, Soto said. 

“The main issue is how some of this will affect buildings that are already believed to be in distress or that are distressed currently,” Soto said.

In some buildings, WeWork is the biggest or among the biggest tenants and may account for a disproportionate share of the net operating income. 

“I think people are watching those WeWork locations and those buildings very closely,” Soto said. “Any kind of closure of those locations could exacerbate some of the underlying distress that we're seeing in the office property sector, both here in Los Angeles and nationally.”