SL Green Realty Corp.'s leadership said the trouble surrounding The We Co.'s initial public offering will likely prompt a slowdown in the expansion of coworking business in New York City but will not significantly drag on, or interrupt, SL Green's operations.
"I think we are going to see a little bit of pullback from that industry as they sort of find their way going forward," Steven Durels, director of leasing and real property for the New York City landlord, said Oct. 17 on a third-quarter earnings call. "But you've seen other drivers in the market take up the stock, with the big tech tenants in particular."
The We Co. postponed its IPO last month after investors, citing concerns about the company's private market valuation, lack of profitability, unusual corporate governance structure and perceived conflicts of interest, soured on the deal. The WeWork Cos. Inc. parent pushed co-founder Adam Neumann out of his role as CEO in a bid to salvage investor confidence, and SoftBank Group Corp., WeWork's early backer, is set to make another cash infusion, but it is not certain when, or if, the deal will happen. WeWork will reportedly run out of cash by November if it does not secure additional funding.
WeWork in 2018 became the largest tenant by square footage in the New York City, but Durels on the earnings call cited the coworking company's relatively low presence in the Midtown Manhattan submarket, where the bulk of SL Green's properties are located. WeWork leases account for about 1.5% of Midtown leasing overall, Durels said.
WeWork and other coworking players also have distanced themselves from "true coworking" in recent quarters, Durels said, as their enterprise business has grown to represent a larger proportion of their leasing volume.
"What that means is leasing large blocks of space to companies that have 1,000 employees or more," he said. "So if WeWork were to fail — which we don't believe they're going to, but if they were to fail — the enterprise tenants are easily converted over to a direct tenancy with the landlord."