How a co-working firm’s bankruptcy endangers CMBS loans

Properties’ cash-flow risks would trickle up the chain, report warns

TRD NATIONAL TRD INSIGHTS /
Sep.September 04, 2020 04:00 PM
(iStock)
(iStock)

Hit hard by its subtenants’ inability to pay on time, an affiliate of executive suites and co-working company International Workplace Group has filed for Chapter 11 bankruptcy protection.

The bankruptcy filing, by RGN-Group Holdings, does not augur well for properties where IWG, the company behind Regus and Spaces, is the biggest tenant. The sites’ cash flow risk will likely also spread to CMBS loans backed by IWG-leased properties, according to a recent report from Kroll Bond Ratings Agency.

Nearly $13 billion across 151 CMBS loans is backed in part by offices where IWG is a tenant, according to the Kroll report. The Kroll analysts warn that even though IWG has proactively sought rent deferrals and lease modifications from its landlords, the bankruptcy filing means the company can seek to have rents dismissed.

IWG is the largest tenant at 30 properties backing $493 million in CMBS debt and is the sole tenant at three properties backing $69.4 million in CMBS debt, according to the report. The biggest loan secured by a property where an IWG affiliate is the only tenant is 1800 Vine Street, a recently renovated 60,000-square-foot office owned by Archway Holdings in Los Angeles.

Still, the late-August bankruptcy filing does not spell doom for all loans backed by Regus or Spaces locations. IWG also tends to sign leases and file bankruptcy petitions through single-purpose limited liability companies. That allows part of IWG’s portfolio to enter bankruptcy without affecting other, financially stable locations.

Bankruptcy filings also show that Regus, the executive suites arm of IWG, is one of the biggest creditors of RGN-Group Holdings and the dozens of other single-location companies tied to IWG that have filed for bankruptcy in the last few months, according to the report.

The coronavirus pandemic and subsequent shutdowns have raised concerns about the coworking industry’s immediate future, with some industry experts speculating about what a WeWork bankruptcy would mean for commercial real estate. But WeWork Chairman Marcelo Claure said the coworking giant is on track to be profitable (as he defines the term) by the end of 2021.


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