Commerz Files Lawsuit Against WeWork

Add another lawsuit to downtown Chicago’s beleaguered office sector.

Commerz Real AG, which owns the 25-story National building at 125 South Clark Street, is filing an eviction suit against WeWork, seeking more than $360,000 in rent and other damages, Crain’s reported. WeWork, one of the largest providers of coworking space, had been leasing roughly 112,000 square feet across four floors at the site since 2015 and is under contract through 2033.

With the lawsuit, Commerz aims to formally retake possession of the space. WeWork shut down operations at 125 South Clark and 39 other locations nationwide as part of a company effort to cut costs.

“WeWork is in a valid lease agreement with a term ending in 2033,” a Commerz spokesman said in a statement. “Several rental payments are outstanding — which WeWork says it will not pay, nor continue to comply with their contractual obligations going forward. As a trustee, we act in the interests of the funds’ investors — private individuals — by filing the eviction lawsuit.”

The legal battle highlights the risk landlords face when leasing to coworking space providers. Such companies who rent on a monthly basis attest that tenants who use its space, which is optimal for hybrid work or shared offices, are deemed responsible for upholding lease agreements rather than the coworking company itself.

WeWork and similar businesses are able to walk away from their contracts and are not accountable for millions of dollars, while landlords are left to fill a huge void.

Commerz now faces the challenge of replacing its largest tenant at the 600,000 square foot building — an especially tricky task given the divided, plug-and-play offices typically associated with coworking space. Plus, Chicago’s office market is already struggling, with vacancy rates rising to a record high this past quarter.

However, coworking space offers greater flexibility that might be more appealing to tenants in a post-pandemic world as companies lean into hybrid work. According to a survey by CBRE, 17 percent of respondents had a significant amount of flexible workspace in their office portfolio, but 51 percent of respondents expected to fit into that category over the next couple years.

WeWork CEO Andre Fernandez said the handful of closures has caused demand to surge at separate locations where it currently operates. In Chicago, WeWork also vacated 50,000 square feet at 332 South Michigan Avenue, boosting occupancy at other buildings simultaneously.

“We’re starting to see that . . . as our supply is getting minimal, people are not staying by the sidelines. They’re actually reacting to get space,” Fernandez said in a conference call, according to the outlet.

—Quinn Donoghue