Trepp Research: A Dive into WeWork's $3.8 Billion CMBS Exposure

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Trepp examined WeWork's CMBS exposure as news continues to stream in after the co-working giant’s recent IPO postponement. WeWork is a top-five tenant at 41 office facilities behind more than $3.8 billion in CMBS debt across 55 deals.

The biggest issue is not the pulling of the IPO per se, but the broader concerns about the firm’s viability. The worst-case scenario would be that the firm continues to burn through cash and can no longer support all of its lease obligations.

Trepp, LLC, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, has released its WeWork CMBS Exposure Report US. The full report can be accessed here: https://info.trepp.com/trepptalk/wework-cmbs-exposure.

*Note: Trepp's research was updated on 10/07/2019 to reflect CMBS deals newly issued in late September/October that were previously excluded from Trepp’s original CMBS exposure estimate of $3.3 billion.*

Worrisome news surrounding WeWork continues to stream in after the co-working giant’s recent IPO postponement, with the firm’s roster of high-profile staff departures growing by the day and S&P executing a downgrade of its credit status to below junk bond territory.

With there being some uncertainty about the firm’s profitability prospects, its ability to raise capital for future growth, as well as other liquidity concerns, the new CEO is reportedly exploring cost-cutting measures. This includes the shedding of some of its assets, such as the potential sale of three of its latest business acquisitions.

WeWork is a top-five tenant at 41 office facilities behind more than $3.8 billion in CMBS debt across 55 deals, with the brunt of these leases scheduled to expire between 2024 and 2035. In terms of state concentration, New York contains the largest WeWork CMBS footprint with total debt amounting to $1.73 billion across 31 notes. California and Massachusetts carry the next two largest loan exposures at $1.0 billion across 17 notes and $230.0 million across three notes, respectively.

Roughly 78% of the WeWork-backed CMBS loans were recently issued from 2016 onward and have fairly minimal seasoning – so all of the loans are current on payment at the moment. In fact, 25% of this outstanding exposure balance consists of new vintage loans that were securitized in 2019. From a credit perspective, the loans have a weighted-average LTV of 56.18% and a weighted-average DSCR of 1.97x. With a lot of the knowledge and investor jitters surrounding WeWork as a tenant already baked into new issue pricing, it will take some time for the distress to play out.

The biggest issue is not the pulling of the IPO per se, but the broader concerns about the firm’s viability. The worst-case scenario would be that the firm continues to burn through cash and can no longer support all of its lease obligations.

For additional details, such as an overview of WeWork’s CMBS footprint by city/state, details on specific loans and properties backed by WeWork as a top-ve tenant, and information on the rm’s leases, read our full WeWork research: https://info.trepp.com/trepptalk/wework-cmbs-exposure. For daily CMBS and CRE commentary, follow @TreppWire on Twitter.

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Manus Clancy
Trepp
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Catherine Liu
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