Where WeWork’s Left-Behind Landlords Now Stand

A $55 million loan backed by Winter Properties’ Greenwich Village office building has gone to special servicing after months of nonpayment.

The 10-story property at 57 East 11th Street was one of a handful rented entirely to WeWork, and its New York lease was one of 40 that the coworking firm rejected after its November bankruptcy filing.

Winter then failed to make January’s loan payment — or any since. The firm did not comment in time for publication.

Winter is not alone. Weeks before WeWork laid out which leases would get the ax, The Real Deal published an analysis of New York office buildings that listed the coworking firm as a top-five tenant, leaving them vulnerable should WeWork end those leases.

Of the $2.6 billion in CMBS debt those properties secured, 80 percent was watchlisted, delinquent or distressed. Ultimately, five buildings with publicly available loan data, including 57 East 11th Street, were named in WeWork’s lease termination plans, according to Trepp. They back about half a billion dollars in debt.

Here’s how they’ve fared:

Damage done

At 315 West 36th Street in the Garment District and 81 Prospect Street in Dumbo, WeWork had already wreaked havoc before it went bust.

In early 2023, the coworking firm quit paying the rent at Walter & Samuel’s 315 West 36th Street, where it had leased 93 percent of the building’s square footage. By June, the landlord was in default on the building’s $77 million loan; it faced foreclosure three months later.

Similarly, WeWork abandoned its space at 81 Prospect Street before it claimed bankruptcy, leaving the nine-story building entirely vacant. The property comprises a four-building campus owned by RFR and Kushner Companies.

The two prominent landlords defaulted on the buildings’ $180 million loan when it matured in September. They had been gunning to refinance but failed to lock down new debt.

Still, neither owner seems ready to throw in the towel.

As its special servicer pursues foreclosure, Walter & Samuel is in talks with the city about signing a three-year lease to house migrants at its office building, according to servicer commentary. The terms would include two extension options, which could mean a five-year tenancy.

The firm did not respond to a request for comment.

Soon after the maturity default, Kushner and RFR’s Dumbo portfolio suffered a brutal reappraisal which cut its value to $255 million, down 60 percent from its $640 million valuation in 2018. Occupancy stands at 73 percent and cash flow is barely covering debt service, according to Morningstar’s most recent data.

The duo have so far avoided foreclosure and as of February were in negotiations with Green Loan Servicers, according to Trepp. Kushner did not respond to a request for comment.

Wiggle room

ABC Management’s 599 Broadway, where WeWork leased a quarter of the building, is in much better shape.

The building’s $20 million loan was watchlisted last year after WeWork first floated the possibility of bankruptcy. But in January, Morningstar removed the loan from its watchlist, and the property’s DSCR – a measure of financial health – clocked in at 2.66 for 2023, showing it could cover 250 percent of debt service.

It’s unclear whether ABC Management has found another tenant to fill the WeWork gap. The firm could not be reached for comment.

Similarly, the $180 million loan backed by APF Properties’ Club Row Building at 28 West 44th Street appears poised to emerge from the shadow of WeWork.

Servicers in September watchlisted the loan, citing an elevated default risk given that the building listed WeWork as its second-largest tenant with 8 percent of its square footage, according to Morningstar. APF’s Kenneth Aschendorf declined to comment.

At the time, occupancy was only 70 percent and 13 tenants holding 13 percent of the building’s available area had leases that had rolled or were set to expire in the next year.

But better news came a few months later. APF reported in January that all the building’s tenants had renewed their leases or were negotiating renewals, including its top tenant, technology standards organization ANSI.

The landlord also projected a $2.5 million bump in rental income as a result of expense reimbursements.

Sublease dreams, lender demands

A strengthening office sublease market could prove a boon for dozens of abandoned WeWork landlords.

By the end of 2023, sublease vacancies in the city dropped to the lowest level in two years — signaling growing demand for second-hand space, according to a recent report by Avison Young.

“I think there’s great opportunities right now,” James Nelson, who heads tri-state investment sales at Avison Young said on The Real Deal’s Deconstruct podcast in December.

But a quick lease-up isn’t a cure-all for WeWork’s rejected landlords.

More lenders, responding to the coworking giant’s vanishing act, are asking exposed borrowers to pay down loans if they make concessions, the Wall Street Journal reported. Some may not have the equity on hand.

“Landlords are caught between a rock and a hard place, because on the one hand, you have this lease that went away,” Paul Aloe, a lawyer representing four WeWork landlords, told the Wall Street Journal. “On the other hand, you’ve got your lender.”