28 Sep WeWork reining in expansion plans
It’s an unnerving development for Chicago office landlords that have leased large amounts of space to WeWork, which put its plans to go public on ice last week as investors feared instability and huge losses on its balance sheet. It also raises questions about the shared office provider’s recent negotiations for new or expanded locations in Chicago, including at the Old Post Office, 2 N. LaSalle St. and 515 N. State St., according to sources familiar with those properties.
“WeWork continues to sign new lease agreements with our landlord partners,” a company spokesman said in a statement. “We expect the pace of entering new lease agreements to slow over the next several quarters as we pursue more strategic growth and focus on accelerating our path to profitability.”
Spokesmen for buildings that WeWork has been eyeing declined to comment or couldn’t be reached.
GLOBAL LAND GRAB
WeWork has been on a global leasing land grab for years as large corporations and small businesses alike have flocked to low-risk workspace they can lease by the month, day or even hour. Landlords have enjoyed co-working as a big demand driver to fill vacancy and use it to help other tenants in a building add more workspace without having to renegotiate a lease or relocate.
Some landlords are all in on it as a seal of approval from a forward-thinking brand embracing their building. WeWork is slated to open a new location in the 750,000-square-foot office building under construction at 167 N. Green St. in the Fulton Market District and anchor an entire 90,000-square-foot office building at 1155 W. Fulton Market a few blocks away—its fourth new Chicago location announced in the past six months. The company has opened or signed leases for 13 locations downtown.
But skeptics have been wary of WeWork’s mounting losses and the risk of its long-term liabilities combined with short-term revenue streams. WeWork’s parent company, formally known as We, reported losses of $1.6 billion last year, according to the Financial Times, which first reported yesterday that the company was halting all new leasing activity. The publication reported today that leasing activity had resumed but will happen at a slower pace.
WeWork Chief Real Estate Development Officer Granit Gjonbalaj, who oversaw the company’s real estate operations, confirmed today he is departing the company, according to industry publication the Real Deal.
Credit rating agency S&P reduced WeWork’s credit rating by one notch after its IPO delay to B-, just above the lowest tier for borrowers, according to Bloomberg.
Investment research company Morningstar recently authored a report on how it underwrites buildings where WeWork is a tenant, classifying the company as a traditional tenant with below-investment-grade credit, meaning it is a higher risk to the building’s owner and a knock on the building’s value if it has a big enough footprint.
Landlords typically get a letter of credit from We guaranteeing a lease for only a year or so, sheltering it from big losses if that location goes belly-up and leaving the landlord with co-working space that is costly to renovate for a new single user. That’s why many investors seek a credit enhancement when signing a big co-working tenant, pressing operators to guarantee a lease for longer than they normally would for a more traditional tenant.
WeWork isn’t the only co-working provider snapping up space. Rivals like Industrious, Spaces and Convene have also been expanding throughout the city.
Downtown Chicago is projected to have 3.2 million square feet of co-working space by the end of this year and 4.2 million square feet by the end of 2020—almost twice the amount it had at the end of last year, according to data from brokerage Newmark Knight Frank.