WeWork is shorting Michael Alter, according to a lawsuit brought by his firm that owns a River North office building, which the struggling co-working firm ditched a decade ahead of its scheduled lease termination.
Wilmette-based Alter Group, whose head owns the WNBA’s Chicago Sky, filed a lawsuit late last month that alleges WeWork agreed to but has since fallen behind the monthly payments for a hefty lease termination fee to get out of renting eight floors at 20 West Kinzie Street.
In 2015, WeWork agreed to lease — and made a corporate guarantee to pay for, according to the suit — about 175,000 square feet, or 80 percent, of the 258,000-square-foot office portion of Alter Group’s 17-story property at 20 West Kinzie Street. All but two floors were set to be occupied through 2033, with the other two expiring in 2028. But WeWork stopped paying rent in 2020 when the coworking firm pulled back on real estate as the pandemic shut down office attendance.
It took six months for WeWork to default on its lease termination agreement with Alter: the deal, for an unknown amount, was struck in March with the landlord. The coworking firm’s problems are far broader than Chicago — in August, as it faced a floundering valuation by investors, WeWork had to turn to a 1-for-40 reverse stock split to stay listed on the New York Stock Exchange.
WeWork missed a payment of the fee that was due Sept. 5, Alter Group alleges. The amount of the fee is unknown, and Alter Group has asked a judge to keep its motions shielded from public access so far. Its complaint only says the dispute exceeds $30,000.
WeWork declined to comment and Alter Group and its attorneys didn’t return requests for comment.
Meanwhile, the fact WeWork hasn’t come through on the fee is likely to impact the building’s valuation as Alter looks to sell it for at least the second time since 2018. The fee was touted by Alter as a potential benefit a new owner could capture when the landlord began shopping the office building for sale this summer. It had hired a Cushman & Wakefield team to test the market, whose brokers didn’t return requests for comment.
When the building hit the market, it was, at 80 percent vacant, thought to be worth far less than the balance of a $60 million loan that Alter had taken out against the property from Bank of America in 2019. Alter had previously explored selling the building in 2018, but held onto it.
Now, Alter is trying to claw back some cash in Chicago’s rough office scene. It has a separate lawsuit pending in Cook County court that seeks to get a property tax refund of more than $1 million from local governments, arguing the building was overcharged by about 50 percent when the Cook County Assessor set its 2020 evaluations that resulted in a tax bill of about $3 million for the property.
Alter claims the fair market value of the property was about $38 million in 2020, down from the assessor’s estimate of more than $55.8 million. The assessor has since valued the property at more than $83 million for taxing purposes in subsequent years, but the landlord has appealed to the Cook County Board of Review and got its valuation lowered to about $68 million to limit the tax hike, records show.
An attorney representing the landlord in the 2020 property tax dispute did not respond to a request for comment. The Cook County Board of Review previously rejected an appeal of the assessor’s 2020 valuation the landlord had submitted, forcing Alter into court to continue its dispute.
Alter Group developed the building, completing it in 2000, and landed Google as a tenant, and the tech firm grew to occupy most of it until departing to Fulton Market in 2015. That’s when WeWork came in to fill a big hole in the building.
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