WeWork's announcement of its intent to terminate 65 leases across the US and Canada as part of its Chapter 11 bankruptcy filing has sent ripples through the real estate industry.
According to a Fitch Ratings report, this move notably affects a range of properties within 11 Fitch-rated Commercial mortgage-backed securities (CMBS) transactions.
The decision underscores the challenging landscape that the company, a major tenant across various properties, is navigating.
In a breakdown of the impacted leases and loan details, it's evident that several CMBS transactions are affected.
For instance, the property at 222 Kearny Street San Francisco, California, represents 12 per cent of the collateral square footage, and its associated loan is currently 60+ days delinquent after transferring to special servicing in July 2023.
Similarly, 57 East 11th Street, Greenwich Village, Manhattan, NY accounting for 100 per cent of the collateral square footage, remains a current loan set to mature in around five years.
The Down Under the Manhattan Bridge Overpass (DUMBO) Heights Portfolio has witnessed two WeWork leases impacting 21 per cent of the collateral for the four-building portfolio.
This property's loan matured and was transferred to special servicing in September 2023 due to non-payment issues.
Moreover, 315 West 36th Street, Hudson Yards, NY saw WeWork leasing occupying 93 per cent of the collateral square footage, prompting its transfer to special servicing in June 2023 due to payment defaults, compounded by a reported appraisal value significantly below the total debt amount.
Fitch Ratings' evaluation underscores the challenges faced by WeWork's spaces, particularly those with rejected leases or vacancies, especially in areas marked by high market vacancy rates.
The analysis factors in several parameters, including sustainable property cash flow, collateral specifics, leverage, and loan structure.
As WeWork navigates reorganization, the organization continues to maintain its operations. WeWork's significant presence is felt in 39 loans within Fitch-rated US CMBS portfolios, totalling USD 4.5 billion distributed across 69 transactions.
Besides the three loans in special servicing that contain the aforementioned rejected leases, four loans, totalling USD 102 million, were with the special servicer as of the October 2023 remittance, primarily due to payment or maturity defaults.
The announcement in the August 2023 newsletter highlighted the most substantial 10 exposures within Fitch-rated loan balances exceeding USD 100 million.
The impacts are substantial across various locations and real estate portfolios, indicating a complex scenario for WeWork's relationships with these spaces.
