WeWork Inc. WE-N, the office-sharing company once valued at tens of billions of dollars, wants to shutter four of its Canadian co-working spaces as part of its plans to restructure, after filing for U.S. bankruptcy protection at the beginning of this week.
The spaces in Toronto, Vancouver and Burnaby are on the chopping block along with 65 other WeWork locations in New York, Boston and other U.S. cities, according to a Tuesday filing with the U.S. Bankruptcy Court for the District of New Jersey.
In the filing, WeWork says the cost of maintaining the leases on those properties “outweighs any revenues that such locations or premises currently generate or that they are likely to generate in the near future.” The filing requests that the bankruptcy judge approve WeWork’s plan to exit the 69 locations immediately.
Separately, WeWork began insolvency proceedings in Canada. It filed late Tuesday afternoon for creditor protection under the Companies’ Creditors Arrangement Act.
The New York-based company currently has co-working spaces in 750 locations, in 37 countries. Its Canadian business represents less than 3 per cent of its total revenue, the company says in the Canadian filing.
WeWork operates, essentially, as a rent arbitrage company. It takes out long-term leases in buildings, chops up the spaces and sublets them at a premium, often in units as small as individual desks, booked a day at a time. If the company can’t find enough subtenants to cover its costs, it doesn’t earn a profit and can’t pay its bills. This is what happened to WeWork as it expanded over the past decade.
WeWork’s “lease portfolio has been, and continues to be, a significant contributing factor to their current financial challenges,” the U.S. court documents say.
The company’s bankruptcy is a blow to office landlords in business hubs such as Toronto, which have struggled to fill their office buildings after the pandemic’s shift to remote work. The office vacancy rate in downtown Toronto has quadrupled since 2019, prior to the start of the pandemic.
In 2019, WeWork was part of a new wave of office tenants trying to get space in Toronto and Vancouver. The company used to say Canada was one of its strongest office markets. It had ambitious plans to expand here.
WeWork has already deleted the four Canadian locations from its website. They are 171 East Liberty St. in Toronto, 1045 Howe St. and 1090 West Pender St. in Vancouver, and 4635 Lougheed Hwy. in Burnaby, B.C.
Currently, the website lists 19 Canadian locations, most of which are in Toronto. Others are in Vancouver and Montreal. There is also one in Burnaby and another in Calgary.
Mitch Gillin, vice-president of asset management at Hullmark, which was WeWork’s first Toronto landlord, said the company was a good tenant. Hullmark’s location is not one of the leases WeWork wants to exit. “We still believe in their ability to execute,” Mr. Gillin said. He added that up to 20 per cent of Hullmark’s office spaces are dedicated to co-working tenants, including WeWork.
But with the uncertainty surrounding WeWork’s bankruptcy proceedings, real estate brokers were less sure of the company’s future.
“It’s unlikely I’ll be directing my clients to WeWork space – at least not until the dust settles,” said Ross Moore, a Vancouver leasing broker with commercial real estate firm Cresa. “There are other options, so why take the risk?”