KBRA Releases Research—KBRA-Rated CMBS and CRE CLO WeWork Exposure

KBRA releases research regarding WeWork Inc.'s (WeWork) exposure in KBRA-rated CMBS and commercial real estate collateralized loan obligation (CRE CLO) transactions.

The largest global provider of coworking space released its Q2 2023 report on August 8. While the company reported a smaller net loss for the six months ended June 30 compared to a year earlier (-$696 million versus -$1.14 billion), the notable news was a statement regarding its ability to continue as a going concern.

The company indicated that its survival depends on its ability to, among other things, reduce rent and tenancy costs by restructuring leases and negotiating more favorable lease terms. Such actions will inevitably affect CMBS collateral performance, particularly in locations where WeWork has a substantial presence and vacates or significantly reduces its space.

Across KBRA's universe of 461 rated conduit, single-asset single borrower, and CRE CLO transactions, there are approximately 15,000 loans, of which 29 loans are secured by properties that are tenanted by WeWork. Of these, seven are participated across multiple securitizations. As a result, tenant exposure was identified in 51 KBRA-rated deals, of which nine have loan exposure exceeding 10% of the transaction balance.

KBRA will continue to monitor the performance of the loans with WeWork exposure in conjunction with its ongoing monitoring effort and effectuate Watch Placements and/or rating actions where necessary. On many of the office properties with WeWork exposure, KBRA had previously considered the company's status as a distressed tenant and adjusted cash flows, accordingly, depending on exposure and lease term.

The outcome of WeWork's efforts to renegotiate and modify leases could pose additional risks for the affected office buildings that are already facing challenges. KBRA previously effectuated Performance Outlook (KPO) revisions for nine of 37 office SASB transactions to Underperform from Perform and placed ratings of 46 classes across 11 CMBS conduit transactions on Watch Downgrade due to concerns regarding the performance of certain office properties, owing to weakening demand, rising interest rates, and liquidity constraints.

Click here to view the report.

Related Publications

• KBRA Places Ratings of 46 Classes Across 11 CMBS Conduit Transactions on Watch Downgrade
• Loan KPOs Revised to Underperform for Nine CMBS Single-Borrower Office Transactions
• CD 2016-CD2 November 2022 Surveillance Report
• MSC 2019-NUGS March 2023 Surveillance Report

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA's ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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