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Oct. 14, 2019, 4:03 p.m. EDT

Here’s a look at how WeWork’s $50 billion pile of office leases could unravel

Details emerge on proposed funding

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By Joy Wiltermuth

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To help get a better picture of any fallout from WeWork’s large lease exposures, analysts at Cantor combed through financing documents on nearly $3.5 billion of property bonds linked to the office-sharing company.

They found more than a dozen buildings in New York and San Francisco that listed WeWork as a tenant on more than 50% of the property and where “liquidity could loom large” if WeWork doesn’t raise additional equity during 2020, wrote a team of Cantor analysts led by Darrell Wheeler.

Here’s a chart of those properties.

Properties betting big on WeWork

Of the group, New York-based landlord Winter Properties has the largest exposure to WeWork at 57 E. 11th Street, an 11-story building near New York’s Greenwich Village. The owner took out $55 million of mortgage debt through Citigroup this summer, with financing documents showing it gave WeWork $6.1 million toward tenant improvements and about five months of free rent worth roughly $2.3 million.

WeWork was slated to occupy the entire building’s office space this fall. Calls and emails to the borrower and the building’s broker for an update on the property weren’t returned. WeWork didn’t respond to a request for information about its plans at the property.

Are WeWork leases a problem?

They certainly could be a problem. WeWork racked up almost $50 billion of long-term lease liabilities against what is essentially monthly memberships by its tenants. Last year it reported a near $2 billion loss and in the run-up to its IPO provided no clear path to profitability.

Because the company failed to raise at least $3 billion through its IPO, banks that had committed to providing WeWork with another $6 billion via the loan market, no longer were bound to provide it with debt financing.

Over the weekend, details of SoftBank Group Corp.’s plans for a financing package that could give it control of the office-sharing startup emerged, while a group of banks led by JP Morgan are working on a separate plan to raise billions of debt for the cash-burning company.

WeWork’s high-yield bonds were trading at about 87 cents on the dollar Friday, up from an all-time low of 81.74 cents earlier last week, according to MarketAxess. The U.S. Treasury bond market was closed Monday for the Columbus Day holiday.

However, without a longer-term funding strategy, Fitch Ratings said it thinks WeWork could run out of liquidity in about four quarters.

Check out : Here’s what savvy bond investors are saying about the failed WeWork IPO

Last month saw WeWork’s controversial co-founder Adam Neumann stepped down and its incoming co-CEOs vow to cut costs, while reports suggest the venture could potentially purge up to 25% of its workforce.

Meanwhile, some New York City landlords have been shunning WeWork as a new tenant while it shores up funding, according to a Wall Street Journal report .

Although other landlords appear less rattled by WeWork’s funding uncertainties, including Texas-based Lincoln Property Co., which despite the pulled IPO, signed a 50,000 square-foot lease with WeWork in Newport Beach, Calif.

Are there any silver linings to WeWork’s stumbles?

Landlords, themselves, have caught the flex-office bug too.

SL Green Realty Corp /zigman2/quotes/208985878/composite SLG -2.36% , New York City’s biggest office landlord, had about a 3% exposure to co-working at the end of the fourth-quarter, including to WeWork and through its own affiliate that offers “virtual offices” in Manhattan with a receptionist, a physical mailing address and pay-as-you-go conference rooms.

“We look at co-working as something that’s good for our market. It takes space up. It’s improving the space to a very high degree, so we like that,” said SL Green CEO Marc Holliday on a January earnings call.

Developers Boston Properties /zigman2/quotes/203540753/composite BXP +0.99%  has launched Flex by BXP, while Tishman Speyer has its Studio platform.

Meanwhile, U.S. stocks have been volatile ahead of highly-anticipated Sino-American trade talks but the S&P 500 index /zigman2/quotes/210599714/realtime SPX -3.37%  is still up 17.4% on the year. Also, it rarely has been a better time to be a real estate borrower, with yields on 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%  still well below 2%.

And Daniel Lisser, senior director at real-estate brokerage Marcus & Millichap Capital Corporation, pointed out that many of the spaces created for WeWork have become desirable real estate.

“I think a lot of landlords will step in to manage the space if WeWork exits,” he told MarketWatch. “They will try to be WeWork without the drama.”

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Joy Wiltermuth is a MarketWatch markets reporter and editor based in New York.

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