Ever since co-working company WeWork announced it was going public, questions about its actual value have been swirling around the CRE world. Those questions recently prompted a landlord to file a lawsuit in order to get out of its lease agreement with WeWork according to The Real Deal and other news outlets. The landlord, identified as Belvedere Management Co. in property records, claimed that when WeWork signed is lease at 21-33 Irving Place in Manhattan in 2016, the co-working giant also signed a guaranty that its holding company was worth more than $150 million.
Today, the landlord is concerned Wework can’t support its lease. When the landlord filed the lawsuit in the New York State Supreme Court on August 20, it alleged in June it received a notice from WeWork. The notice stated its holding company had undergone a, “reorganization” that created a new entity called WeWork Companies LLC that would now back the lease. Belvedere Management Co. stated it had no assurances the new holding company had a net worth of “at least” $150 million.
After receiving the notice, The We Company’s S-1 disclosure to the U.S. Securities and Exchange Commission was met with significant pushback—unflattering media coverage and questions about WeWork’s accounting methods and corporate governance. This information gave the landlord pause about the company’s ability to fulfill the lease.
“Recent financial reports in the media, however, cast great doubt on the financial viability of WWC LLC,” the complaint read. “Defendants are effectively foisting on the Landlord a guarantor not of its choosing, without the required prior notice and prior proof that the substitute guarantor has a net worth of at least $150 million.”
A WeWork spokesperson denied the accusations in the suit. “Earlier this year, WeWork completed a corporate reorganization to become The We Company,” the spokesperson said in a statement. “This process had no material impact on the guarantees we provide to landlords. Landlords are critical partners to our business, and we highly value our relationships and our mutual success.”
The landlord’s lawsuit highlights the growing unease that sits with WeWork stakeholders as the co-working company looks to go public. Landlords and investors have been split on how WeWork’s business model will perform during an economic downturn.
However, WeWork’s recent disclosure offered some clarity on the company’s financial standing and business practices. One revelation was the company has issued significant loans to its CEO Adam Neumann and other senior employees. Plus, WeWork said it would not comply with traditional corporate governance guidelines. After reviewing the disclosure, an analyst told Bloomberg the S-1 filing was a, “masterpiece of obfuscation.”