110 Wall St Contemplates Scenario where WeWork Could Default in a Downturn

By: Ilana Siyance

Rudin Management’s 27-story Financial District office building at 110 Wall Street has only one single tenant. While the situation obviously bears multiple merits, in the unanticipated event of an economic downturn, it poses an enormous risk, even if that single tenant is WeWork, the office-sharing giant.

Rudin’s CEO, Bill Rudin, considered selling the 205-unit high rise office building this spring, asking $200 million. At the sales meeting, brokers cited the possibility of a WeWork default if a recession should hit.

Mr. Rudin has since decided not to sell the building after all. He said his change of heart had nothing to do with WeWork, but he just determined that he did not need to sell the property. “It’s a great asset,” he said. He had only praise for WeWork and their revolutionary business model. “What they’ve done is make everybody up their game in terms of what [landlords] need to do to attract and retain tenant in terms of infrastructure, amenities and quality of the building,” said Rudin. “It’s a different world today. You have to be that much more competitive and that much more attentive to what your clients need.”

As reported by the Real Deal, Mr. Rudin first met WeWork CEO and co-founder Israeli-born Adam Neumann in 2012. The shared-workspace company was only two years young at the time, and Rudin’s building was debris-strewn after hurricane Sandy. The two men made a deal, to rebuild the building and to make a combined effort to revitalize downtown Manhattan together at 110 Wall Street. “We were taking a chance on WeWork back then, we were spending significant capital and needed to protect ourselves,” Rudin said. “Everyone tries to protect their downside, even with Triple A companies you have corporate guarantees.”

Now, WeWork has proved itself a stable tenant, with 562 locations worldwide, a total of 5,000 employees, 466,000 members, $886 million in revenue in 2017, and $47 billion of backing from SoftBank. In 2019, WeWork announced it would be rebranding to The We Company, and now the company is getting ready to issue its Initial Public Offering.

Still, critics were jittery during the building’s sales meeting. The main reason was the single tenant, which still has 22-years left on its lease. “Given the single-tenant nature of 110 Wall Street, the outcomes of the asset are binary,” said a memo circulated by brokerage Eastdil Secured during the building’s offering. “The landlord is almost at the mercy of WeWork if they’re the single tenant. To some extent, they’re the ones holding the cards,” explained Timothy King, managing partner at CPEX Real Estate.

Another caveat critics point to is that WeWork’s novel business is still untested in a downturn. “The question I hear most often is, ‘What happens if we through a protracted downturn?’” said King. “A bootstrapping startup that moved from the kitchen table to a shared space is still in an embryonic state and can either flame out overnight or take off like a rocket.”

Mr. Rudin is a seasoned businessman, and it seems he has confidence that the later of the two scenarios would prove true in the event of an economic slump.