WeWork emerged from bankruptcy proceedings in mid-June after a seven-month sprint to right its balance sheet.
By the co-working firm’s account, the effort was a success. WeWork slashed $4 billion in debt, gained an equity partner in Yardi Systems and exited Chapter 11 with a revamped C-suite headed by Cushman & Wakefield veteran John Santora.
When it came to cutting costs, much of the legwork was in conversations with landlords. The co-working firm’s top brass spoke with 500 office owners worldwide to hash out new lease terms.
“What we had built up over the past decade was a very large portfolio of leases, many of which were very costly and inflexible,” Peter Greenspan, WeWork’s global head of real estate, said.
“We were able to fix that,” he added.
On the The Real Deal’s podcast Deconstruct, Greenspan explained how those negotiations played out — the biggest challenges, WeWork’s leverage and what happened when emotions ran high.
This conversation has been condensed and edited for print. Listen to the full interview on Deconstruct.
WeWork emerged from bankruptcy proceedings a few weeks ago. Take us back to the beginning. How did you start to evaluate all those leases?
Back in September, we started looking very seriously at the portfolio, reaching out to roughly 500 landlords around the world. The goal was to keep as many buildings as we could. We love our buildings, we’ve put a lot of heart into the design and the sale to members.
Regrettably, we left some. We left about 170 of the buildings. But we did amend 190 buildings and we were able to reduce our overall rent obligation by $12 billion. That’s $800 million in savings a year.
We’re able to emerge now in a position of real strength with really great locations.
I imagine the amendments required the most creativity. What were some of the outcomes?
We saw everything from lowered fixed rents and upside sharing, [meaning] some kind of a revenue share or a profit share. We did a bunch of management agreements where we really just became the manager of the co-working business, but the landlord funds the operating expenses and gives us a fee.
We have one building in Long Island City where we had a beautiful fit out with Tishman Speyer. That building did not work for us. Tishman Speyer has their own co-working company called Studio. But we had this really great all-access and on-demand product that was bringing WeWork members to that building when they were in that part of town.
We don’t have another building in Long Island City at the moment. So we said to Tishman, “why don’t we let the WeWork members continue to come to the building, and we’ll have a revenue share?” So that’s a way that we left the building but continue to provide the members with access to the building and to work with the landlord to bring them additional revenue.
When you were identifying which leases you wanted to stay in, was there any sort of template you followed?
We have a decade of information on how people want to work flexibly because we’ve been out there. We were able to look at each location and decide — what do we need here based upon what we know today?
Let’s say that there is a one-building sub-market. In many cases, we did keep those buildings because it made sense. It was a profitable business and we knew the demand was there and growing.
Different markets also have different demand for office sizes.
We had to look at those locations and say, well, we built too many small [sizes] for this market or we built too many large. Do we want to reinvest in the building today or do we have enough as it is? For the most part, we really tried to downsize where we didn’t need as much.
Can you put us in the room for one of those negotiations on an amendment? You spoke to 500 landlords. That sounds grueling.
It’s not as grueling as you think.
The first thing that we had to do was sit with the landlords and say, “Okay, here’s the business in this building that we have.”
It was totally transparent: “This is our membership. This is what our revenues look like. These are the services we provide. These are the ways we can stay in the building. You can reduce the rent by some amount so that we can at least make a moderate, modest margin. Or if you want to take a little bit more risk with us, we’re willing to share that margin with you.”
They had to sit back for a little while and say, “What do we want to do? What is the value of our building today? What is the demand in the market? If WeWork leaves, how can I backfill them?” They had a lot of thinking to do. “How does this work with my loan?”
Most did decide that their best solution was to keep WeWork in the building.
There were other folks knocking at the door for some of the space. We feel very humbled actually that most landlords said, “No, we believe in you.”
You had to educate. You had to explain the risk and the costs and the expenses, the revenue of our business. But once you were past that, it was just a math exercise to get to the right structure.
Let’s talk about the lenders. What role did they play in these conversations?
In some cases, buildings had a very good relationship with their lender and they were able to bring their lender through the process. There was a lot of trust there. In other instances — by the way, I’m not judging — in other instances, there was distrust. Why should we agree to let you do this deal, landlord? How does this affect my collateral, my valuation?
In some cases, we did speak directly to lenders with the permission of the landlords and with the landlords. It was never a case of going around the back. A lender shouldn’t speak to a tenant without it being very structured.
There’s a third level. Some of our buildings, although not that many of them, had gone into foreclosure, default. In those cases, we did start speaking to special servicers and even receivers to find out the win-win solution.
In some of these buildings, it’s going to be very hard to recreate the business that these buildings had 20, 25 years ago, even 10 years ago. So a lot of this was an education for everyone involved: the lenders, the landlords and WeWork as to what does the future demand look like? How do we understand flexible space?
I’ve heard that there’s hesitancy around leasing when a building is having financial difficulties. Were you concerned about that when you were making the decision to stay?
All of the WeWork leases, certainly in the United States, are protected from foreclosure by agreements that we have with the lenders. So there is no risk of WeWork or a WeWork member being kicked out of a building in the United States because the owner of the building forecloses.
WeWork did exit leases. I can imagine those were challenging discussions. Did they ever get emotional?
it’s really hard to say that you’re going to leave a building that somebody underwrote, borrowed money [on], provided us with a tenant improvement allowance, with free rent, like somebody invested in this lease with us. And for us to say it doesn’t work is a real hit. No one took any joy in those moments.
So, did it get emotional? Sometimes. But again, necessity was the mother of invention. So there wasn’t that much time for anyone to get emotional. Most of the time spent was trying to find solutions. And we really found a lot of solutions.
I’ll give you an example: We did leave 620 Avenue of the Americas, which is an amazing RXR building here in Manhattan. We had some enterprise members in that space. We couldn’t keep it for the long term. It didn’t work for RXR. But what did we do?
Us and RXR held hands. We figured out a way to transfer the members, which were larger enterprise members anyway, to RXR. We set them up for success. We made sure all the systems work and the transition was as smooth as anything. And we left the building. So there are ways to have nothing left with the landlord once you’ve left, but at least to have spent the time and the effort to help the landlord partners do the best they can with what’s left over.
WeWork revamped its C-Suite, brough on Yardi executives, Cushman and Wakefield’s John Santora. What strengths do you see in that refreshed team?
I’ll start with Yardi. Yardi has been with the company for a couple of years now. He [Anant Yardi] had lent some money to the company. He had also invested in the company. But in my mind, most importantly, he had brought along with him a veteran’s understanding of real estate technology and how real estate data is most efficiently used.
The real estate industry has to meet the 21st century. Nobody wants to pick up the phone and order space. People want to be on their app just like they want to do everything else in life. They want to understand the data. They want to have all the choices.
John [Santora] is likewise a veteran. He’s a veteran in real estate. He has incredible relationships over many decades, tight operational excellence. He knows how to run a company. He knows how to get things done. He knows everyone in the industry and he’s incredibly excited to be here and believes in the brand and the company.
The future of co-working, given the persistence of remote work, looks bright. How are you looking at your next steps and tapping into that demand?
We’re only three weeks out of bankruptcy. John only started two weeks ago. So we are at the very, very beginning of that discussion.
Ultimately, we have always put ourselves through the lens of the members. How do members like to work? Where do they want to work? What technologies can we give them to help them work?
We’re at the point now where we are looking at those things. And I have no doubt that we will be addressing the growth in demand because the market wants us to, members want us to. In terms of how we do that, it’s just a little premature, obviously.
There could be growth through additional leases and management agreements. But also there’s lots of ways to partner in the industry to provide our services and our technology to others. There may be markets that we do want to be in — the traditional gateway cities, some other cities — and there may be markets that we don’t need to be in, but we can still find ways to partner in those markets with others to provide our members with the best options for what they need to do and when they need to do it. So we’ll be there, we’ll be on the forefront, and we will be innovating when it comes to the growth of co-working and flex.
But in terms of our specific phase one, phase two, phase three, we’re just not ready to discuss it yet.
WeWork has changed some of its membership structures, providing more flexibility. Is that your continued focus or are you looking at ways to change?
We’re not looking to change it. We know that members sometimes need to stop in London because they’re there on business and need a WeWork conference room and they wanna get that vibe or they wanna pull a meeting. We know that somebody could be in Chicago and want it for six months. You have to provide a service that the members need.
We will never be just one thing to one member. We’re going to be as many things as we can to all the members. And if we can’t, we’re going to partner with those who can.
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