How WeWork’s demise could affect banks and major cities

WeWork, the office coworking company once valued at $47 billion, filed for bankruptcy this week. And, much like tossing a rock covered with zebra mussels into a lake, this move could have a negative ripple effect on the commercial real estate and banking industries, as well as municipal revenues.

The problem: More than 20% of offices across the US remain vacant, according to commercial real estate giant JLL.

WeWork’s woes will only add to that number; the company, once New York City’s largest corporate tenant, is seeking court approval to reject 69 commercial real-estate leases it says are underperforming. It also owes ~$100 million in unpaid rent and lease termination fees, and is in active negotiations with 400+ landlords to amend existing leases.

The commercial real estate industry was already struggling. Rising vacancies and interest rates are causing commercial mortgage delinquencies to increase. ~$270 billion in commercial real estate loans held by banks are slated to come due this year, per Trepp, a commercial real estate data provider.

And here’s where the banking industry comes into play: Goldman Sachs estimates 55% of US office loans sit on bank balance sheets, and any defaults/delinquencies could negatively impact banks holding this debt (smaller and mid-sized ones especially).

🤔 What about municipalities?... Many city governments rely on commercial property taxes to provide services – for example, office properties comprise 21% of New York City’s tax revenue – and less money coming in from that sector may lead to budget cuts (or higher taxes).