WeWork resumes lease signings but at much slowed pace
WeWork has resumed signing a limited number of new leases with landlords after a halt this week sent shockwaves through the global real estate market.
A deal in Tokyo on Friday came hours after senior executives at a Thursday meeting in New York ended a suspension of new lease signings, according to people briefed on the matter. The halt had been in place since Monday.
While it has approved a resumption of some deals, the heavily lossmaking company confirmed it would slow its aggressive pace of property expansion — a move that will cut into demand in several urban real estate markets.
Current and former employees have described to the FT an atmosphere filled with chaos as they wait to see how the two men who replaced co-founder Adam Neumann as co-chief executives will rein in its losses. Several have talked of decisions being made and reversed within hours of each other.
WeWork has faced a deluge of calls from landlords in the hours since the Financial Times reported on Thursday that the company had put a halt to new lease signings. Several property groups told the FT their negotiations had been thrown into doubt.
Some of those talks have resumed after the company, which has become the largest commercial tenant in New York, decided to proceed with certain deals and told property owners it was committed to contracts that had already been agreed.
“WeWork continues to sign new lease agreements with our landlord partners,” the company said on Friday. “We expect the pace of entering new lease agreements to slow over the next several quarters as we pursue more strategic growth and focus on accelerating our path to profitability.”
The slowing of new deals will rob several cities of a leading source of real estate demand. WeWork accounted for about 1 in 10 sq ft leased in central London in the first eight months of 2019, and about one in 20 in Manhattan, according to Cushman & Wakefield.
Property owners have been braced for the possibility that WeWork could slash its growth since its initial public offering collapsed. Two landlords with large WeWork sites said they would not make further deals with the group until the company had stabilised. “No one will take on more at the moment,” one landlord said. “They need to calm down and show that the business model works.”
Peter Papadakos, managing director at research firm Green Street Advisors in London, said landlords were concerned about building values. “We hear that there is a repricing of risk with regard to buildings dominated by WeWork,” he said.
Among those deals the company still wants to push forward is one to lease the former headquarters of Goldman Sachs on London’s Fleet Street, according to people briefed on the deal.
Hundreds of landlords are exposed to WeWork, which has racked up $47.2bn of lease commitments it must pay in the future. Property owners and asset managers including TIAA-CREF, Boston Properties and Beacon Capital Partners are among WeWork’s largest landlords, according to real estate data firm CoStar.
WeWork has expanded aggressively since its founding in New York nine years ago, and now operates more than 500 offices in 111 cities. But that pace of growth has meant it has burnt through capital, with more than $2.5bn of cash used in the first half of 2019 to invest and operate the business. The company has just under $2.5bn of cash on its balance sheet at the end of June.
The group’s parent, the We Company, is planning to lay off thousands of employees as early as next week to cut costs. Artie Minson and Sebastian Gunningham, who were promoted to be co-chief executives, have also moved to push employees with ties to Mr Neumann and his wife Rebekah out of the company.
Creditors are nonetheless nervous over the WeWork executive team’s ability to steer the company through this crisis. The company’s credit rating was downgraded deeper into junk territory on Thursday, sending its debt below 90 cents on the dollar on Friday.