WeWork-Neumann Game of Chicken & Landlords Find Leverage in Debt

Can WeWork Resist Adam Neumann?

First, the good news for WeWork: The bankrupt co-working firm has made big strides in its quest to cut its crippling lease costs – the company had 44M sf as of Dec. ‘22 but expects to be down to 20M sf by the time it gets out of Chapter 11. It’s already chopped off over $8B in lease obligations, per the FT, by canceling and renegotiating leases. One tactic it employed was withholding post-partition rent, an unusual gambit in bankruptcy.

“It’s aggressive, but it was really do-or-die for WeWork,” DGIM litigator Daniel Gielchinsky told the publication. “If you get a critical mass of landlords who want to make it work, that puts pressure on the other landlords to also negotiate.”

Now, the rub: Adam Neumann continues to breathe down its neck with a takeover offer it really doesn’t want.

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WeWork (cont.)

WeWork is scrambling to raise funds ($400M-ish) in an attempt to stave off its founder and former frontman: it has had talks with its biggest backer SoftBank as well as real estate data provider Yardi, which controls about 35M shares of the firm through an entity known as Cupar Grimmond 🤔. Whoever does the new cash infusion stands to take an outsized stake in the post-bankruptcy company, per the FT, so existing creditors who want to maintain their stakes might be pressured to cough up more funds.

Meanwhile, Neumann and his new entity Flow are putting the heat on, holding talks with everyone from Len Blavatnik (primer on him here) and Rithm Capital. Flow’s attorney Alex Spiro (who previously repped Aaron Hernandez 🏈 and Elon 🚀 ) says that Flow will better any offer WeWork receives by 10%. It has already made a $600M conditional offer, but what would be classic Neumann is a scenario in which WeWork fails to raise its funds and Neumann then comes back with a lower number. 🍿 

Blame Canada

"Peace, order and Manhattan trophy towers” was the longtime guiding principle of our Northern neighbors. The Canadians have for decades had an outsized presence on the New York skyline, be it through private investment groups like the Reichmanns or public entities like CPP and the Caisse (Ivanhoe Cambridge parent). But a couple of big recent retreats in Midtown make one think.

In February, CPP, which has a $30B+ global RE portfolio, sold its 29% stake in 360 Park Ave South for $1 to its partner Boston Properties. The deal released it from future funding obligations and interest payments – “clearly was more of a change in strategy” is how Boston Properties CEO Owen Thomas described it at the time. Now, CPP has sold its 45% stake in the 37-story 10 E. 53rd St. to partner SL Green for $7M in cash + $99M in assumed debt. CPP bought its stake for $57M in ‘12.

Is this the time for local players to consolidate their ownership by buying out their foreign partners for a song? Another dramatic example is 2 Herald Square: In Jan., SLG assumed its Israeli partner’s 44% stake in the tower for nothing, and also struck a deal to pay just $7M to settle the $183M debt on the property 👏 . “It’s a great outcome for SL Green but a head scratcher for us,” is how Evercore’s Steve Sakwa described the deal.

“Forget About the Original Money, it’s Gone.”

Vanbarton owed BofA $54M on a downtown SF building and couldn’t (or didn’t) pay. It ended up buying the property back at auction for $35M – a nearly 40% discount on the debt and 60% under its original $83M purchase price. It now owns the property free and clear.

BofA gave the auction its blessing, per the SF Standard. “The figures that borrowers and owners got [before the pandemic] are not as relevant anymore as the facts on the ground,” restructuring attorney Gary Kaplan told the publication. “Forget about the original money, it’s gone.” 👏

Many such cases of developer math playing out in SF, the hairiest of office markets. Jamestown bought a property in ‘15 for $111M, and took out $61M in debt (Capital One) that came due in March. When Jamestown refused to pay up, the lender moved to foreclose, but before that happened, the parties cut a deal “whereby the outstanding loan balance was satisfied.” Per Kaplan, here’s how the game’s playing out: a lender will do a cavity search of how the borrower is running the asset, while a borrower’s main job is to convince the lender that the market has changed so much that the original terms aren’t relevant. 

Quickies

• Pensions are pulling hundreds of billions from stocks and shifting those funds into bonds, PE, private credit & RE

• Attention developers: Cheap steel is coming your way from China 🇨🇳 

• 📽️ :How did a lone wolf 🐺 from Borough Park become one of Manhattan’s biggest RE trophy hunters?

• Don’t really see Bank of Montreal in the mix much: Lender funds $117M refi of Harlem tower for Eli & Isaac Chetrit, Jay Group

• Something strange happening at Wendy Cai-Lee’s Piermont Bank, a NY-based RE lender. FDIC hit it w a consent decree in Feb. for “unsafe and unsound” lending practices. Borrowers are saying all hell’s breaking loose.

• Victor Sigoura keeps going: Developer snaps up Chelsea site out of bankruptcy for $87M 

• Tilman Fertitta keeps eating Houston: Billionaire closed on a 3.4-acre site near River Paks, plus an office building near Post Oak Hotel

We’re Cookin’ on Insta

If you want quick, sharp video breakdowns of some of the hottest trends & stories, look no further than ten31’s Instagram: We just went live, and we’ve already looked at Frum-friendly EB-5, Blackstone’s megadeal for AIR, special servicers taking heat and Ralph Herzka’s take on the Meridian situation. If you’re into the voice of The Promote, it’s a great companion 📹️ 

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