WeWork's Biggest Landlords Balk At SoftBank's Proposed Bankruptcy Financing Plan

Some of WeWork's most prominent landlords are objecting to the way the coworking company's majority owner has laid out plans to fund its bankruptcy proceedings.

In a wave of objections filed Thursday afternoon, attorneys for office giants including Boston Properties, Brookfield Properties and Starwood Capital asked a judge to reject WeWork's motion for debtor-in-possession financing. The attorneys argue that SoftBank Group, as the proposed DIP lender, is leaving landlords too exposed in the event that WeWork's Chapter 11 restructuring falls apart.

Landlords of more than 50 WeWork locations across the country filed the objections to the bankrupt firm's proposal, which would allow SoftBank Group's Vision Fund to use letters of credit it bankrolled for WeWork's leases as funds during the Chapter 11 restructuring.

"While Objecting Landlords, along with … other landlord groups, have attempted to negotiate a consensual resolution of the issues presented by the Motions, to date, such efforts have not resulted in an agreement, necessitating this Objection," attorneys at Kelley Drye & Warren, representing Brookfield and Starwood, among other landlords, wrote in a court filing.

Douglas Rosner, a bankruptcy attorney at Goulston & Storrs, is representing Boston Properties, Beacon Capital Partners, Columbia Property Trust, WS Development and Manulife Investment Management in the proceedings — companies that own a combined 18 buildings with WeWork leases, according to court documents. He told Bisnow in an interview Thursday that there are several issues with SoftBank's proposed DIP financing, but the largest comes down to the lack of new cash the Japanese investment giant is putting up to fund the case while seeking greater control over WeWork's spaces.

"They shouldn’t get all of the benefits and protections of a debtor-in-possession lender without advancing any new money," Rosner said. "If they want to propose a package that’s more all-inclusive with new money, then there’s something to talk about."

A WeWork spokesperson didn't immediately respond to Bisnow's request for comment.

WeWork's bankruptcy is one of the most closely watched in recent memory, as the company, which was once valued at $47B, seeks to reorganize and shed its enormous lease obligations to emerge as a viable business.

Some landlords mentioned in their objections that WeWork stopped paying November rent following the bankruptcy, which was filed Nov. 6. Landlords have asked U.S. Bankruptcy Judge John Sherwood to reject WeWork's motion or ensure they have greater certainty that unpaid rent for the remainder of the month, known as "stub rent," would be paid out. Nuveen's filing indicated it was owed $1.8M in stub rent across three locations.

Other landlords that have filed objections to the financing motion include The Irvine Co., Hudson Pacific Properties, L&L Holding Co., Monday Properties, Kennedy Wilson and IQHQ. 

"From a landlord perspective, we want some assurances that, to the extent November rent was not paid, then some assurances as to when and how it will be," Rosner said.

WeWork's DIP financing motion seeks a Section 506(c) waiver that would allow SoftBank to skirt paying maintenance expenses if the proposed restructuring falls apart and the company is forced to liquidate, another bone of contention with landlords. 

"Foisting the economic burden and risk of these cases onto unsecured creditors, particularly Debtors’ landlords, in the event Debtors’ restructuring effort stalls or fails, contravenes the essential purpose of Section 506(c)," Kelley Drye & Warren attorneys wrote.

Many of the institutional landlords that signed leases with WeWork secured letters of credit, which are a source of payment for landlords in the event of a tenant in distress. In the Chapter 11 financing motion, the bankrupt entity is seeking to access those letters of credit to help fund the restructuring, which landlords' attorneys say is a misuse of those funds. 

The financing motion also would grant SoftBank liens against WeWork's leaseholds, which violates the terms of many deals the landlords signed, according to the objections.

SoftBank has lost more than $14B to date from its investment in WeWork, The Wall Street Journal reported.

The landlords that are objecting to the bankruptcy financing proposal are separate entities from the owners of the 67 leases that Sherwood rejected last week, nor are they owners of the six other locations WeWork asked the judge to reject in a subsequent motion. WeWork had 292 locations in the U.S. and Canada as of Oct. 12, according to regulatory filings.

WeWork is still operating at many of the locations where landlords are objecting to its restructuring financing proposal, including at 725 Ponce in Atlanta, 75 East Santa Clara St. in Santa Clara, California, 33 Arch St. in Boston and 11 Park Place in Manhattan.

A hearing on the financing motion is scheduled for Dec. 11.

"We would like to see WeWork reorganize, but we have issues and concerns with this stage of the process as far as the letter of credit financing arrangement," Rosner said.