The Daily Dirt: The We Company is expected to go public next month. A lot of people are betting big on its success.

By Kathryn Brenzel | August 07, 2019 11:40AM

From left: Rudin Management CEO Bill Rudin, SL Green CEO Marc Holliday, WeWork CEO Adam Neumann, and Zar Properties’ Dario Zar (Credit: Getty Images, SL Green, and iStock)

From left: Rudin Management CEO Bill Rudin, SL Green CEO Marc Holliday, WeWork CEO Adam Neumann, and Zar Properties’ Dario Zar (Credit: Getty Images, SL Green, and iStock)

The We Company is expected to go public next month. A lot of people are betting big on its success.

WeWork, the We Company’s co-working arm, makes up more than half of the rentable office space in 18 of its 61 buildings in New York. In at least five of those properties, WeWork rents all of the available office space, David Jeans reports.

Office landlords, of course, have traditionally signed on anchor tenants — but WeWork as a standalone is a bit of a gamble. The company, valued at $47 billion, lost nearly $2 billion last year and hasn’t been recession tested. And according to prior reporting from the Wall Street Journal, the unicorn only guarantees 11 percent of its overall lease obligations.      

Still, WeWork is the anchor tenant in buildings owned by some of the city’s biggest landlords, including SL Green Realty, Zar Properties, L&L Holding Company, PGIM Real Estate and Rudin Management. In Rudin’s case, WeWork’s risk profile was highlighted when the landlord started marketing 110 Wall Street. Though a representative for Rudin said the fact that WeWork occupies the entire building adds value to the property, marketing materials indicated that the co-working giant could possibly default on its leases. Rudin ultimately decided against selling. 

Lenders are also taking a bit of a risk on WeWork. JPMorgan & Chase is helping the company line up $6 billion in debt financing that will depend on its IPO raising at least $3 billion, Bloomberg reports. The bank is contributing the most to this package: $800 million in loans. There’s also a slightly more personal connection: JPMorgan has provided $40 million in mortgages to CEO Adam Neumann for his luxury homes. 

It was a big day for ground leases. That’s not something you hear every day. 

Jay Sugarman’s Safehold Inc. agreed to buy the ground lease at 425 Park Avenue — where L&L Holding Company is currently building a $1 billion office tower — for $620 million. Safehold, which bills itself as the first public company to focus exclusively on ground leases, also inked a letter of intent with an unnamed sovereign wealth fund to form a joint venture for the ground lease. As part of the deal, Safehold would retain a 55 percent interest in the lease. Nuveen, formerly TIAA, which acquired the ground lease for $315 million in 2011, is the seller. 

Ground leases are central to iStar’s overall strategy. In February, the company — which manages Safehold — announced plans to sell off nearly $500 million in assets over the next two years to help grow its ground-lease business. 

Also in the ground-lease world, ABS, AEW and East End Capital inked a contract for a 99-year ground lease for 136 East 57th Street. They paid $4 million to a partnership controlled by Richard Halpern of Silk & Halpern Realty Associates. The buyers are also required to pump another $15 million into the building through renovations and upgrades as part of the deal.  

What we’re thinking about next: Due to the changes to the rent laws, will we soon see more rent overcharge cases? Know of any cases we should be following? Send a note or docket number to [email protected].

CLOSING TIME
Residential: The priciest residential closing recorded on Tuesday was for a condo unit at 45 East 22nd Street in the Flatiron District, at $7.5 million.
Commercial: The most expensive commercial closing of the day was for a hotel at 129 West 46th Street in Midtown, at $24 million. 

BREAKING GROUND
The largest new building filing of the day was for a 14,830-square-foot residential building at 3055 Sedgwick Avenue in Kingsbridge Heights. Moshe Zlicha filed the permit application. 

NEW TO THE MARKET
The priciest residential listing to hit the market was for a condo unit at 1 Avenue B in the East Village, at $10 million. Douglas Elliman’s Andrew Azoulay has the listing. — Research by Mary Diduch

A thing we’ve learned…
City Council Speaker Corey-olanus, er, Corey Johnson saw Shakespeare in the Park for the first time last night. Johnson gave a speech on the Central Park stage for the opening night of “Coriolanus.” For those who don’t remember, the play is about a boastful leader who is elected by a confused populace. They immediately regret putting him in office. Vick Been, deputy mayor of Housing and Economic Development, was also in attendance. Thank you to Kevin Sun, who was also in the audience and provided the Corey-olanus joke. 

Top stories from our other markets:

NATIONAL
Play “six degrees of separation” with Middle Eastern investors active in the U.S. real estate market, and chances are Tom Barrack’s name would pop up. The founder of Colony Capital is under scrutiny for his ties to the wealthy Middle Eastern nations of Saudi Arabia and the United Arab Emirates. Federal prosecutors are looking at whether Barrack sought to sway President Trump’s campaign and later the administration when it came to foreign-policy decisions.

CHICAGO
North Wells Capital is bullish on River North. The asset management arm of Chicago-based developer Urban Innovations wants to build a 24-story office complex at 300-324 West Huron St., according to Crain’s. North Wells acquired the property in March for $16 million, following JFJ Development’s failed condo project there. The tower could be up to 260,000 square feet, which would bring its development pipeline in River North to nearly half a million square feet.

LOS ANGELES
A Beverly Hills home reportedly built for late business tycoon Howard Hughes is headed for auction after several price cuts, the latest evidence of a luxury slowdown that has crept through the Los Angeles real estate market. The 4,600-square-foot home on Haynes Avenue has been lingering on the market for two years. Its asking price has been slashed four times, dropping roughly 34 percent to $10.9 million.

MIAMI
Real estate agents across the Sunshine State may have to think twice before hitting send on a mass text. La Rosa Realty, a Celebration-based brokerage with four offices in South Florida, was sued in Miami federal court for allegedly spamming Aventura real estate agent Alexander de la Cruz with an offer to make commissions of 33 percent. In March, separate federal lawsuits were filed against Coldwell Banker and Naples-based Marzucco Real Estate alleging similar instances of unsolicited spamming via text messages.— Compiled by Alexi Friedman