WeWork was once valued at $47.5 billion. The company had to merge 40 shares into one on Friday to maintain its stock above $1 in order to avoid delisting from the New York Stock Exchange.
Experts suggest that the fall and rise of WeWork is well documented. However, as the company warned, there was ” substantial uncertainty”, it would remain in business.
WeWork was the biggest commercial tenant in New York, London and New York City. Crains reports that despite its efforts to reduce leases, WeWork still has contracts for about 6.4m square feet in 70 buildings, all in New York. Theoretically, a WeWork bankruptcies could dump these back onto a market that is struggling with low occupancy records and has difficulty refinancing its debt as interest rates increase.
According to Cushman & Wakefield, the US office vacancy rate reached an all-time high of 13.1% in the third quarter of 2018. There are 128 buildings that have more than 52m square feet of space available, which is more than 40 skyscrapers larger than the Chrysler Building.
If WeWork was placed in Chapter 11 bankruptcy, they could delay payments for old debts and rent, as well as have the right of terminating their leases. This would be a blow to landlords.
Anthony Sabino is a bankruptcy expert and law professor at St John’s University’s Tobin College of Business. He said a collapse of WeWork would worsen a bad situation, but he also said crises can be opportunities.
Sabino stated that “Covid shook the foundations of commercial real estate, which has made a slight comeback but not yet returned to pre Covid levels.” It would be a very damaging and troubling situation if WeWork went bankrupt. This would have a negative impact on the commercial real estate market in New York, but it could also create opportunities for other actors who are more adventurous.
He continued: “There’s a movement among the business leaders to get people to come back to work.” Someone will pick up the slack.
Even so, adding WeWork-leased property to the list of vacant properties would only compound the commercial real estate’s distress at a moment when many wonder whether we should fundamentally rethink office building use in the post-Covid era, where people work from home.
Sabino explains that the distress in the commercial sector is also attracting Wall Street companies, which are raising billions to target distressed assets. Rents in New York have increased about 25% since the pandemic, and developers are turning more vacant offices into apartments.
He said, “It is like what Baron Rothschild told us 300 years ago: ‘the best time to invest in real estate is when the streets are rife with blood.'” Real estate has been a good investment ever since the days when the pyramids were built. “There’s always someone saying, Let’s make a Deal.”
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