WeWork Cuts Costs By $3.7B Via Lease Restructuring
Two and a half months after filing for bankruptcy, WeWork has made progress on restructuring the hundreds of leases it remains on the hook for, though it remains far from its goal.
The beleaguered coworking company has trimmed at least $3.7B of its lease expenses via rejections or amendments, The Wall Street Journal reported. That encompasses 16% of its lease burden as of its bankruptcy filing.
WeWork has gone through three batches of lease rejection proposals since filing for bankruptcy Nov. 6. Its request to terminate 67 leases was approved, providing $2.2B in savings. The company offered up six more leases in November and added eight to the pile in early January, 13 of which a judge allowed the company to end. WeWork could walk away from 163 total leases, per its bankruptcy filing.
WeWork said it has been talking to about 500 global landlords and has changed 38 leases and saved an additional $1.5B in long-term savings through reduced rent, shortened leases, less leased space or early termination, The WSJ reported. The company said it "has been taking the time to talk to the landlords to discuss the performance of their locations and the necessary cost adjustments to make the leases more sustainable for the company."
These negotiations have been tense and difficult. Attorneys for the official committee of unsecured creditors said in a court filing that WeWork's restructuring team has been "opaque and antagonistic."
And even in cases where WeWork wants to stay, some landlords are taking advantage of the moment to renegotiate, including asking WeWork to share a detailed restructuring plan to decide if they should put in additional equity investments and keep the loan.
WeWork has not returned Bisnow's request for comment.
Some landlords say losing WeWork has actually been beneficial. One of the leases rejected was for 39K SF at The Interlock in Atlanta, a location opened by WeWork in November 2022. Since WeWork terminated its lease on Dec. 31, The Interlock has reported seeing a surge in interest from prospective tenants.
"We were not interested in a significantly discounted lease and therefore decided to part ways with WeWork, allowing us to take full advantage of an impressive amount of interest,” Lou Haddad, president and CEO of Armada Hoffler, said in a press release.
But other landlords say finding a tenant in today's rough-and-tumble office market is more of a headache than it's worth, and they would rather keep WeWork's tenancy even at a lower price point. This is especially the case in downtowns, where most WeWork offices, and high vacancy rates, are.
Even so, lower rent drives down property value, so restructured leases have to be approved by the mortgage lenders. This adds an extra hurdle for WeWork and landlords trying to come to new terms.
As of Oct. 12, WeWork had 509 locations globally, with 292 in North America. Its ultimate goal is to cut annual rent payments by $500M and negotiate terms for at least 400 locations. In court filings, it said it hopes to be done with these talks by March, but the company could run out of money before then.
