Fitch Ratings: WeWork Bankruptcy Unlikely to Pressure Office REIT Occupancies

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WeWork’s recent bankruptcy filing should have little or no direct credit effect for U.S. equity real estate investment trusts, given minimal, or no, exposure in rated issuers’ portfolios, according to Fitch Ratings, New York.

“Rejected leases could pressure market occupancy rates, primarily in New York; however, we believe the quality and location of the space that will return to the market is less directly competitive to that owned by the larger, Manhattan focused office REITs, such as SL Green and Vornado,” Fitch said in a non-ratings commentary, WeWork Bankruptcy Unlikely to Pressure U.S. Office REIT Occupancies.

Fitch downgraded WeWork Companies LLC and WeWork Inc.’s Long-Term Issuer Default Rating to ‘D’ from ‘RD’ following WeWork’s Chapter 11 bankruptcy protection filing on Nov. 6, 2023.

The Fitch commentary noted WeWork wants to reject 69 office leases in the U.S. and Canada under Chapter 11 bankruptcy protection. Most of the rejected leases are in New York, including 38 in Manhattan and two in Brooklyn. WeWork’s assumptions for its portfolio would decrease its footprint by 51 more properties after the restructuring.

“Within New York, WeWork’s property locations are generally more mid-block or downtown locations, compared to the more modern, Class A, transient-oriented space that dominates office REIT portfolios,” the commentary said. “Moreover, we believe that nearly all the of the leases WeWork plans to reject are ‘non-operational’ and mostly vacated. Space is typically built-out, turn-key space; therefore, not necessarily in direct competition with more traditional longer-term office leasing.”