Historically, post its failed public debut in 2019, WeWork has been canceling leases and trying to renegotiate rental agreements to control costs, causing substantial issues for landlords like SL Green Realty (NYSE:SLG) Corp. If WeWork collapses, it could flood the office market with empty spaces and exacerbate the problems for an office sector that has been struggling due to the rise of remote work and an unfavorable economic climate.
WeWork’s stock plummeted by nearly 40% following its recent announcement, marking a 91% decline so far in 2021. The company is also one of the major tenants in Dock 72, a Brooklyn-based office complex, among others. Across the United States, WeWork occupies approximately 16.8 million square feet. Any disruption with the company could adversely affect the recovery of the already vulnerable US office sector.
Financial institutions are also potentially exposed to WeWork’s problems. Estimates by Barclays (LON:BARC) Plc show that nearly $7.5 billion of commercial mortgage-backed securities might be at risk due to WeWork, with about 38% of that concentrated in New York. WeWork’s efforts to reinvent its business come at a challenging time for the commercial-property domain, with an increase in remote work and higher borrowing costs affecting the viability of physical offices.
In addition to its financial woes, WeWork is in search of a permanent CEO after the sudden departure of Sandeep Mathrani in May. While the coworking business model has its critics, competitors like IWG (IWG) are poised to benefit if WeWork dissolves. Barclays analysts suggest that WeWork’s potential lease renegotiations or terminations can cause short-term difficulties for landlords.
This article was originally published on Quiver Quantitative
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