WeWork is putting a hold on some of its leases in order to recuperate after its failed initial public offering last month.”
Two landlords of WeWork locations in London are hitting the brakes on signing new leases with the company and prepping for Plan B for their existing offices in case the company restructures.
WeWork’s rapid expansion model has led them to take on $47 billion in lease liabilities, which has fueled about $2.3 billion in cash obligations next year. Due to its massive scale, the firm has been able to demand favorable leasing terms. For example, it sought out 15 months rent-free on an eight-year lease and £100 per square foot for outfitting offices.
Now, there is a chance that WeWork will be unable to pay its rent. In fact, if it continues burning through cash at the same rate it did in the first half of 2019, it could run out of money next year.
“WeWork has structured many of its leases so that they can simply collapse the special purpose entity it’s trapped in and walk away,” said Alex Snyder, an assistant portfolio manager at CenterSquare Investment Management. “This vacancy pressure on the market [would] be painful.”
With so many WeWork’s within close distance to each other, the company could consolidate its tenants and leave a landlord with empty space. This could lead it to face even more scrutiny over its business model and make it harder to raise more money.