Boston Properties just made one of the most damning statements a major landlord has given on the co-working industry: It took a big write-off in recognition that flex tenants will struggle to pay rents.
“This industry is just simply facing revenue challenges,” Boston Properties president Doug Linde said on the company’s first-quarter earnings call Wednesday. “We just looked at the world and said, These guys are going to have a really rough time.”
The company posted net income for the fourth quarter of $24.9 million, down 86 percent from $176 million during the same period last year.
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The real estate investment trust took the $38 million write-off on rent income from its co-working tenants, company executives said.
It also switched its accounting method from recognizing future rent payments under the accrual basis to only recording current rents on the cash accounting basis.
Boston Properties executives said nearly all their flexible-space tenants have sought some kind of rent relief, and the company has concluded that their difficulty paying rent will continue.
It’s a sharp turnaround for the REIT, which had been one of the more vocal supporters of co-working during the industry’s rapid expansion. WeWork, for instance, leases about 220,000 square feet at Dock 72, the 675,000-square-foot office building in Brooklyn that Boston Properties is co-developing with Rudin Management.
Linde said the company will be more hesitant to do leases with co-working firms in the future, though will look to do flexible space itself.
“This makes it clear we don’t have a lot of appetite for doing these leases with other people on a going-forward basis,” he said.
Boston Properties also took a $60 million write-off on Dock 72, citing an extension of the timeline to fully lease up the project.