WeWork claims the Chetrit Group is threatening to illegally draw down on a multimillion-dollar letter of credit at its Midtown Manhattan location.
In a complaint filed in NewYork State Supreme Court, the flexible-office provider claims that its lease at 404 Fifth Avenue requires the landlord to first provide WeWork with a notice of default. Even if those conditions were met, the state’s eviction moratorium precludes the default notice from being served, WeWork claims.
And it wouldn’t be the first time: WeWork also alleges Chetrit wrongfully drew down a letter of credit for another lease at 428 Broadway, also known as “The Suspenders Building,” last month.
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WeWork signed a 13-year lease for the third through seventh floors of the office building at 404 Fifth Avenue in 2015. WeWork spent about $10.2 million to build out the space, the court filing states. In a separate allegation, the company claims Chetrit owes WeWork $697,000 for its contribution to the build-out that it never paid.
Though Chetrit has not formally sought to draw down on the letter of credit, the suit claims the landlord threatened to do so in a telephone conversation on Dec. 16. According to the complaint, WeWork provided the landlord with a $2.4 million letter of credit on Aug. 14, issued by Goldman Sachs International Bank, in addition to a personal guarantee.
WeWork also says in its complaint that Chetrit is “likely to resort to self-help” with regards the draw-down.
WeWork declined to comment on the lawsuit. Lucas Ferrara of Newman Ferrara who is representing WeWork’s affiliate, 404 Fifth Tenant LLC, declined to comment.
The Chetrit Group did not immediately return a request to comment.
WeWork has experienced some hardships since the pandemic, as have many of its competitors. Demand for office space has tanked as workers have been slow to return and more companies are embracing working from home permanently. In August, SoftBank poured $1.1 billion into WeWork after membership plummeted. In the second quarter, the company’s membership reportedly fell 12 percent from the first quarter to 612,000.
The office giant had become Manhattan’s biggest occupier of office space, but since the pandemic has said it may exit one in five leases as it looks to cut costs and achieve profitability.