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BlingBling22947 11/10/23 2:05:03 PM #1: |
https://fortune.com/2023/11/07/how-big-wework-bankruptcy-offices-commercial-real-estate
--- When was the last time you heard your boy Nas rhyme? Never on schedule but always on time ... Copied to Clipboard!
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BlingBling22947 11/12/23 12:20:36 PM #2: |
They always find a way to pass expenses down and savings up.
--- When was the last time you heard your boy Nas rhyme? Never on schedule but always on time ... Copied to Clipboard!
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BlingBling22947 11/14/23 3:50:47 AM #3: |
WeWork founder Adam Neumann.
SHAHAR AZRANGETTY IMAGES Since the pandemic emptied out Americas downtowns and central business districts, the whole world of work has been waiting for years for the other shoe to drop. Office vacancy rates are at nearly 1.5 times the amount than at the end of 2019and there may be as much as one billion square feet of unused U.S. office space by the end of the decade, according to a report early this year by real estate firm Cushman & Wakefield. New York University and Columbia University researchers have estimated a $49 billion wipeout in New York City commercial property values by 2029, as part of a nationwide $500 billion Office real estate apocalypse. A huge chunk of this crackup just fell to earth in New Jersey Bankruptcy Court on Monday night. In pre-pandemic times, shared office space seemed like a great ideaeven world-changing in the eyes of Adam Neumann, the founder and former chief executive of WeWork. But the seismic shift to a remote work environment changed office demand as we once knew it. Moodys Analytics calls the office vacancy rate of 19.2% this quarter perilously close to the 19.3% record-high vacancy rate in 1986 and 1991, and that was before most of New Yorks offices fell into Chapter 11 with WeWorks filing. As of the first quarter of 2023, WeWork leased nearly 7 million square feet of office space in NYC, representing 61.4% of the coworking market, Gabe Marans, vice chairman of property advisory Savills, told Fortune. (WeWork cited Savills data in court documents associated with its bankruptcy.) And, in a predictable yet worrying sign for New York landlords, WeWorks first move in bankruptcy was to start shedding unprofitable, largely non-operational leases. As part of the companys plan moving beyond bankruptcy, court documents reveal a list of nearly 70 leases WeWork plans to terminate35 of which are in New York City alone. As of June, the co-working space provider had 700 locations worldwide, while WeWork listed over $15 billion of assets and over $18 billion of liabilities. WeWork CEO David Tolley revealed in court documents this is just the tip of the iceberg. In a declaration filed with the court, Tolley said the companys retained real-estate advisor is actively negotiating with over 400 landlords to amend leases on office buildings. He also revealed that WeWork has already amended more than 590 of its current leases, unloading $12 billion in future rent obligations. Why WeWork collapsed into bankruptcy WeWork blames its downfall on a historically rapid rise in interest rates and a slower-than-expected return to office. As a result of the distress in the commercial real estate market, it said, landlords have been more willing to reduce rent and offer flexible leasing terms. Plus, companies globally have made a shift toward hybrid work, in turn downsizing their office space. In Tolleys words, WeWork lacks the necessary financial flexibility to adjust to the rapidly shifting commercial real estate market, saying that unsustainable leases are behind the companys existing business model, which must be repriced, in his view. He added that despite extraordinary efforts, the company could not overcome legacy real estate coasts and industry headwinds. As a result, commercial office space, especially in the large cities where WeWork operates, has become available and accessible at unprecedented prices and in significant volume, Tolley writes in the bankruptcy declaration. This amounts to much greater competition in WeWorks target market. In other words, tenants have more options than just WeWork, which has had an impact on their vacancy rates. WeWorks vacancy rates are significantly higher than the national average. As of the second quarter of 2023, WeWork had a 28% vacancy and a 72% occupancy rate. Its no surprise in light of the fallen unicorns well-documented struggles, dating back to before its first attempt to go public failed as Wall Street balked at its unorthodox accounting. (WeWork has still never reported a profitable quarter despite being about 13 years old and peaking at a whopping $47 billion valuation.) In July 2023, Neumann appeared at Fortune Brainstorm Tech, speaking publicly about his new startup Flowwhich sounded a lot like WeWork 2.0, as Fortunes senior writer, Jessica Mathews, put it. Not to mention, Flow had already raised $350 million from a16z, a venture capital firm founded by Marc Andreessen and Ben Horowitz. From the stage, Neumann said that Flow, a consumer-facing residential brand, had two options at the time given his noncompete and nonsolicit agreements were set to expire later this year. Those choices, as he put it, were either to partner or compete with WeWork. Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet, WeWork CEO David Tolley said in a statement. There is much work to be done: WeWorks bankruptcy filing lists over 100,000 creditors. A coming wave of commercial real-estate collapses? Technology made the rise and permanence of remote and hybrid work schedules possible, Ermengarde Jabir, Moodys Analytics senior economist wrote in a Tuesday report. Office propertiesalready facing financing hardships and an evolution in valuesnow face a potential new wave of unexpected vacancies. If WeWork fails, there may not be room for all of their tenants in other spaces, Savills Marans said. He added that the coworking business model is not going away, but WeWorks bankruptcy is a blow for the third-party model, in which businesses or individuals share common office spaces. Moodys Analytics commercial real estate industry practice lead, Jeffrey Havsy, told Fortune in a statement that the bankruptcy of WeWork will certainly have a negative impact on the market and the ability to finance those buildings, but that pain will not be equally distributed. Its a negative event, he added, but its not a complete lossand it shouldnt be regarded as one for an entire sector, in his view. Taking one data point from a single firm that has struggled for a decade and using that to write off the entire sector is a mistake, Havsy said, adding that the flexible office space may not survive in our current economic environment, but theres still a need for it. WeWork is primarily Class A and A+ office space, Jabir said in a report, and the sudden availability of quality office space presents a flight-to-quality opportunity for would-be office tenants looking to upgrade their space at more competitive prices. This could shift the balance even further away from older, less modernized Class B/C offices to the trophy office properties held by WeWork. That said, Class B property will still be in demand for some swathes of office tenants, Jabir added. For locations where WeWork has stable quality tenants in place (e.g. large international consulting firms), office owners can take some comfort in knowing that such subletters are likely unwilling to vacate that space due to the costs associated with a move. --- When was the last time you heard your boy Nas rhyme? Never on schedule but always on time ... Copied to Clipboard!
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