WeWork's Bankruptcy Sends NYC Office Market Into Scramble Mode

No city has been hit harder than New York in WeWork’s bankruptcy filing, with scores of landlords cut loose from their leases and several firms chasing millions in unpaid rent.

In filing for Chapter 11 protection late Monday night, WeWork asked the U.S. Bankruptcy Court for the District of New Jersey to immediately reject 69 of its U.S. and Canada leases. Of that total, 38 rejected leases are spread across 36 buildings in New York City.

Major landlords populate the list of those with the biggest unsecured claims against the company, with firms like RFR, Nuveen and Chetrit Group all owed millions.

WeWork leased 7.4M SF across the entirety of New York City as of Oct. 15, according to JLL, but it is still unclear how much would remain after the rejected leases are tallied. The company anticipates it could exit nearly 100 additional U.S. and Canada locations as part of the restructuring process.

“This has been a long time coming, and it's the last thing that’s needed for the market,” Wharton Property Advisors CEO Ruth Colp Haber said in an interview. “The landlords are going to be the losers.”

Bankruptcy seemed an inevitability for some time, but the Monday night Chapter 11 filing is only the next chapter in the saga of WeWork's attempts to dig itself out of its massive financial hole.

The solidifying of the lease rejections brings with it something of a cold comfort for the dozens of landlords with buildings on the list, said Rosenberg & Estis partner John Giampolo, a bankruptcy and restructuring specialist.

“At least now you have clarity. You know your lease is being rejected and the premises surrendered back to you so you can try to re-lease it to a replacement tenant,” he told Bisnow.

But WeWork's list of its biggest unsecured creditors helped to generate more confusion Tuesday morning.

The contact listed for William Gottlieb Real Estate in WeWork's filing, tied to a $4.3M claim, said he wasn't the right William Gottlieb and told Bisnow Tuesday afternoon he had been receiving calls and emails all day. He is, in fact, a project manager.

“It’s been a nightmare,” Gottlieb said.

Adam Henick, co-founder of Current Real Estate Advisors, had his cellphone listed in the filing as the contact info for a separate unsecured claim, but he said he isn't a creditor and was misidentified, possibly because his office is in one of the buildings in the filing. He even received one email from someone offering to buy the credit from him.

The biggest unsecured claim of an NYC landlord in the filing is $8.7M owed to Westfield Fulton Center, from whom WeWork leased space at 200 Broadway, and more than $8M owed to Aby Rosen's RFR, from whom WeWork leased multiple buildings.

The lawyer for Unibail-Rodamco-Westfield listed in the filing didn't respond to a request for comment. An RFR spokesperson declined to comment.

The Sapir Organization, which sued WeWork for terminating its lease at 260-261 Madison Ave., is listed as a creditor of $4.5M for unpaid rent and litigation. A representative for that company couldn't immediately be reached for comment.

Brookfield is listed as owed $3M for unpaid rent and a lease termination fee, Cohen Brothers is owed nearly $3M in unpaid rent and lease termination, and Nuveen is owed $2.8M for unpaid rent at 730 Fifth Ave. Cohen didn't respond by press time, and Nuveen declined to comment.  

While WeWork made up less than 2% of the overall office market in Manhattan, its leases are concentrated in a particularly strained area: Class-B and C buildings. More than 60% of WeWork’s leases were in those kinds of buildings, Bisnow previously reported, marking this particularly bitter pill for many owners.

“The real estate market in New York is in a delicate place at the moment, and further headwinds and noise are likely not welcome,” Henick said. “The hope is they are able to use this process to springboard to restructure.”

While the rejected leases already span more than 1M SF WeWork is letting go of immediately, the list of spaces that will close is likely to grow in the coming months, Rosenberg & Estis' Giampolo said.

“In a bankruptcy of this size and scale, where the debtors are tenants under so many commercial leases that they supposedly can no longer support, often there are a couple of rounds of lease rejections,” he said. “So landlords may be wondering, ‘I may not be having my lease rejected today, but I may be having it rejected in the coming weeks, and if I’m not immediately slated for lease rejection, am I going to be engaged in negotiations?’”

Those landlords are reckoning with their role in the coworking giant’s pre-pandemic leasing tear, during which it would often lock down multiple leases spanning hundreds of thousands of square feet in a month's time.

In recent weeks, several spaces have been quietly returned to the market, and most of the leases WeWork has rejected had already been vacated and members already had been informed of the building closures, it said in court filings.

Landlords whose properties are on the list include a who's who of New York real estate leaders and foreign-owned investors like Kushner Cos., Jack Resnick & Sons, Vanbarton Group, Artemis Real Estate Partners, Unibail-Rodamco-Westfield, Investcorp, Norges Bank and Trinity Church Wall Street.

The full list of rejected NYC leases from court records is below. All addresses are in Manhattan unless otherwise indicated:

• 1 Little West 12th St.
• 1 Union Square W
• 10 East 38th St.
• 10 East 40th St.
• 1156 Sixth Ave.
• 130 Madison Ave.
• 161 Avenue of the Americas
• 1619 Broadway, 11th Floor
• 183 Madison Ave.
• 200 Broadway
• 205 Hudson St.
• 22 Cortlandt St.
• 229 West 36th St.
• 255 Greenwich St.
• 261 Madison Ave.
• 28 West 44th St.
• 311 West 43rd St.
• 315 West 36th St.
• 38 West 21st St.
• 419 Park Avenue S
• 437 Fifth Ave.
• 437 Madison Ave.
• 44 Wall St.
• 483 Broadway
• 500 Fifth Ave.
• 505 Park Ave.
• 511 West 25th St.
• 54 West 40th St.
• 57 East 11th St.
• 599 Broadway
• 6 East 32nd St. 
• 7 West 18th St.
• 8 West 40th St.
• 81 Prospect St., Brooklyn
• 980 Sixth Ave.
• 77 Sands St., Brooklyn
  • From the filing: “For the avoidance of doubt, Debtor occupies the 6th-9th floor Premises at 77 Sands pursuant to a separate lease agreement that is not being rejected as part of this motion.”

WeWork has also stopped paying rent at some locations that it didn't ask the court to reject, including at its 200K SF at Dock 72 in Brooklyn, landlord Boston Properties disclosed in an earnings call last week.

Colp Haber said other coworking companies are circling the spaces WeWork is letting go. But while WeWork was signing long-term leases often at above-market rents, its potential replacements like IWG and Industrious are likely looking to sign a management deal, which has more risk for the landlords.

“The problem from the landlord's standpoint is that whatever the situation the coworking operator steps into, it's not going to be anywhere near as attractive,” Colp Haber said. “With WeWork, they didn’t have to worry about it. [Landlords] would do a 15-year lease. The space would be WeWork's headache. Now if another coworking operator takes it, it will still be the landlord’s headache, but at least they’ll be getting some rent in.”

Ciara Long contributed reporting to this story.