Bill Rudin spent time this summer at the Brooklyn Navy Yard — not exactly one of his haunting grounds. In its 94 years, his family real estate firm had never done a project in Brooklyn, let alone in an out-of-the-way industrial campus — and with an anchor tenant about to plunge into crisis.
The CEO of Rudin Management was overseeing the finishing touches at Dock 72, a 675,000-square-foot building overlooking the East River. Complete with a basketball court and a rooftop conference center, it was billed as the city’s first “agile” office building with varying lease terms and a 21st-century workplace.
To help attract tenants, WeWork would anchor the site and manage its amenities. But by the time the building opened in October, the hip office-space company had imploded.
After WeWork pulled its plans to go public, hundreds of its landlords — holding lease commitments totaling as much as $47 billion — were facing the reality that WeWork could be bankrupt within weeks.
For Rudin, who co-developed Dock 72 with Boston Properties, the uncertainty was acute. Three years ago, he took another leap with WeWork, filling his firm’s 110 Wall Street entirely with the young, fast-growing company.
Since late October, when WeWork received a $9.5 billion lifeline from its largest investor, SoftBank, the co-working company has continued to make lease payments. But it lost $1.25 billion in the third quarter and is now facing investigations by the New York State attorney general and the U.S. Securities and Exchange Commission, clouding its prospects.
Even with the benefit of hindsight, though, Rudin said he has no regrets about doubling down on the office-space company.
“I don’t think we would have done anything different,” he said in an interview.
Heavy exposure
Rudin is hardly the only major New York landlord who opened his doors to WeWork. Others include a partnership led by Kushner Companies that signed a 90,000-square-foot lease with the company to take over 81 Prospect Street in Dumbo. SL Green made a deal with WeWork for all of its office space at 609 Fifth Avenue. And Walter & Samuels inked a 100,000-square-foot lease with the company at 214 West 29th Street.
But while dozens of New York landlords were lured by WeWork’s talk of culture and community, as well as its rapid growth and open checkbook, few have made such a concentrated bet on the company.
Some fellow developers raised an eyebrow at Rudin’s exposure to WeWork, which, including Dock 72, totals about half a million square feet. But they stopped short of saying the office-space company’s possible demise threatens the fourth-generation Rudin family business, which encompasses 36 properties across 15 million square feet.
“Knowing the Rudins, can it hurt a little bit financially? Yeah,” said Jerry Wolkoff, founder of the family development firm G&M Realty. “But they’re not going to go into bankruptcy.”
John Catsimatidis, CEO of the Red Apple Group, said he walked away from a deal with WeWork at 5 Columbus Circle but was not worried about the company inflicting lasting damage on the Rudins, even if it ends up filing for bankruptcy.
“The Rudins will be fine no matter what happens to WeWork,” said the billionaire grocer and developer.
As the WeWork saga has played out with a drumbeat of losses, lawsuits and layoffs, Rudin has frequently faced questions about why he put so many eggs in a thinly woven basket. When asked on CNBC’s “Squawk Box” how he would respond if the company filed for bankruptcy or defaulted on a lease payment, Rudin dismissed the idea, but then said he would consider taking over the office space and hiring another co-working company to manage it.
He has also said that WeWork’s impact on the New York City commercial real estate market is minimal — its footprint amounts to about 1 percent — and that if the company did go bust, the city could absorb the vacant spaces.
During a panel at the annual NYU Schack Institute Capital Markets in Real Estate conference last month, moderator Richard Blumenthal asked Rudin what he would do in the event of a potential decline of his major tenant.
Rudin responded, “I’m not worried.” But, he said, “WeWork is going to have to work through their issues.”
To cut costs and focus on its core business of office space, WeWork’s new leaders have said they will unload ancillary ventures and product offerings, including an elementary school, digital marketing platform, wave-pool builder and various software entities.
However, a WeWork representative said it is committed to its residential offering, WeLive, whose two locations include the majority of Rudin’s 110 Wall Street. The embattled subsidiary recently abandoned plans for a location in Seattle.
As for Dock 72, just getting there is a challenge. Located at the former ship-repair yard, it is — by New York standards — light years from the nearest subway station. Instead, tenants reach the site by car, bicycle, ferry or shuttle buses that travel to and from Dumbo and Atlantic Terminal every 10 or 15 minutes.
John Kim, an analyst at BMO Capital who covers Boston Properties, said Dock 72 has posed a challenge for its owners to attract tenants, particularly because of its isolated location.
“It’s been sort of a glaring development project that hasn’t leased,” Kim said, contrasting its high vacancy rate with the lower rates at other Boston Properties assets.
Dock 72’s owners say its occupancy figure isn’t unusual for a building at this early stage, and both WeWork and Rudin said the plan remains unchanged. The development is 30 percent occupied by WeWork, which has agreed to a 20-year lease at the building.
“WeWork remains committed to providing our members with an incredible experience at Dock 72,” the WeWork representative said.
A plan comes together
Following the financial crisis of 2008, the titans of Wall Street receded and Downtown Manhattan struggled to find its groove. It had never truly recovered from 9/11 to begin with.
But the area had been revitalized before. In the early 1990s it would shut down when the markets closed each day. “At 5 o’clock, you could roll a bowling ball down the street and not hit anyone,” Rudin recalled.
As the owner of four downtown towers and a board member of the Downtown Alliance, Rudin had played a key role in shaping the area. It was during an encounter with then-WeWork CEO Adam Neumann at a cocktail party in 2012 that he saw an opportunity to bring life back to the neighborhood.
Rudin already knew that catering to tech firms and startups had its advantages. In the 1990s, his firm refurbished 55 Broad Street for the digital age, fully wiring the building to enable satellite access, high-speed internet and video conferencing.
But when Hurricane Sandy hit, 110 Wall Street was rendered inoperable when the storm surge destroyed its mechanical room. Rudin was left with stark options: Convert the office building to residential or keep 25 percent of the structure and build a taller tower on the site.
Rudin invited Neumann to tour the darkened building. “Adam called me up and said, ‘I’ve got an idea,’” Rudin recalled. They would create a work-and-live utopia where people could occupy shared residential units and head downstairs to work on floors devoted to WeWork’s traditional office space.
To close the deal, WeWork committed to partially funding the $100 million conversion of part of the building to residential use.
“At that moment in time, it was very dark out,” said Rudin, who later made a modest personal investment in WeWork. “That deal was a strong ray of light and excitement and energy.”
The buildout ultimately included a cocktail bar in the basement, adding play to the work-live mix. The property opened to tenants in 2016 and was immediately seen as a popular, hip place among residents. Time magazine dubbed it “vaguely reminiscent of a college dorm” but with networking and brainstorming instead of beer pong. Neumann later said WeLive came from a desire to reduce suicide rates by ensuring that “no one ever feels alone.”
The building also played into WeWork’s vision of becoming a “physical social network.”
By then, talks between WeWork and Rudin were well underway for another project, at the Brooklyn Navy Yard, which had undergone a transformation to become a bustling business park with views of Manhattan. The campus’ leadership approached WeWork to develop a building and help the area attain a younger and more energized vibe.
Without the means to develop its own building, WeWork reached out to Rudin.
“We thought that it was unique because for WeWork, it would be their first ground-up development,” Rudin said. “This was a clean palette.”
Rudin turned to Mort Zuckerman, the chairman of Boston Properties and an early believer in WeWork. They agreed to co-develop the $410 million project and in 2017 secured a $250 million construction loan. Asking rents in the building would be between $55 and $70 per square foot.
Once completed, the building would signal a step into the 21st century for Rudin. But by the time it opened, WeWork’s many problems had poured into the public sphere, as even its co-CEO Sebastian Gunningham acknowledged at the official opening ceremony in October.
“You may have heard we’ve been in the news lately,” he said, “not all of it that flattering.”
Departure from conservatism
For more than a century, the mantra of the Rudin family had been “never sell.” But after the death of Jack Rudin, Bill’s uncle, in 2016, the family was forced to settle estate taxes and put two Downtown buildings on the market: One Whitehall and 110 Wall Street.
One Whitehall sold quickly, for $182 million. But the second property, wholly occupied by WeWork, drew less interest. WeWork had committed to paying $210 million in rent, and its business model had yet to be tested in a downturn. After Eastdil Secured circulated materials spelling out the potential impact of a WeWork default, Rudin pulled the building off the market.
Despite the about-face — and uncertainty for residents — Rudin said he intends to keep WeWork and its residential offering.
“The building is no different from where they were three months ago,” Rudin said. “The WeLive is doing well.”
At Dock 72, WeWork is still the only tenant Rudin and Boston Properties have announced. Boston Properties CEO Owen Thomas predicted it would be easier for them to find additional tenants now that the building has officially opened and prospective occupants can more easily come see it. Thomas described it as a “show me” property.
“We’ve got to get it open and have all the amenities open and all the transportation running to be more effective in the leasing,” he said. In the meantime, WeWork has been “successfully filling” its space at the property, Thomas said.
For Rudin, the relationship with WeWork has amounted to a turbulent experiment with a 21st-century tenant. His firm, founded by his grandfather Samuel Rudin in 1925, has since turned to other office-space providers, including Knotel.
“We’re entrepreneurs ourselves,” Rudin said. “Sometimes we take risks.”