Fears grow for real estate sector as WeWork scrambles to stay afloat | We work

WeWork, the struggling office stock giant, was once valued at $47 billion. On Friday, the company was forced to combine 40 of its shares into one in a bid to keep its share price above $1 and avoid being delisted from the New York Stock Exchange.

WeWork’s dramatic rise and fall has been well documented, but as the company warned there was “substantial doubt” it would remain in business, experts suggest the impact on the healthcare industry struggling commercial real estate could be disastrous.

In 2019, WeWork was the largest commercial tenant in New York and London. Despite efforts to remove the leases, he still has contracts on about 6.4 million square feet in 70 buildings in New York City alone, according to Crains. In theory, a WeWork bankruptcy could now send them back to a market struggling with record occupancy and difficulty refinancing property debt as interest rates rise.

The office vacancy rate in the United States hit a record high of 13.1% at the end of the last quarter, according to data from the National Association of Realtors. In Manhattan, vacancy rates are about 22% the highest on record since market tracking began in 1984, according to Cushman & Wakefield. Some 128 buildings list the availability of more than 52 square feet, or more than 40 skyscrapers the size of the Chrysler Building.

If WeWork is placed in Chapter 11 bankruptcy, it could defer payments on old debts and rent arrears, and have the right to terminate its leases — and that would hit landlords.

Anthony Sabino, bankruptcy expert at law firm Sabino & Sabino and professor of law at St John’s University Tobin College of Business, said a WeWork collapse would make a bad situation worse – but he said crises also offered opportunities.

“Covid has knocked down the foundations of commercial real estate in major cities, and while there’s been some kind of a comeback, it hasn’t returned to pre-Covid levels,” Sabino said. “So it would be a troubling and detrimental situation if WeWork went into the tank: it would pull back commercial real estate in New York a bit, but there will also be opportunities for more adventurous players in the sector.”

He added: “There is a movement among business leaders to bring people back into the office. Someone will be there to take over. »

Yet adding WeWork-leased properties to the list of vacancies would only add to the plight of commercial real estate, at a time when many are questioning whether there is a need for a fundamental rethinking of the use of office buildings. offices in the post-Covid era of working from home.

Last week, New York City announced a plan to convert vacant office space into as many as 20,000 new homes by helping developers cut red tape and rezone a section of downtown under Times Square for a residential use.

But, as Sabino points out, the distress in the commercial sector is also attracting Wall Street firms raising billions of dollars to target distressed assets. In New York, residential rents have risen about 25% since the pandemic and developers are converting more empty offices into apartments.

“It’s like what Baron Rothschild said 300 years ago – ‘the time to buy is when there’s blood in the streets,'” he said. “Real estate has been an investment since the days of the pyramids. There will always be someone who will say: “Let’s make a deal”. »