Tag: WeWork

Nevermind the Kombucha Jokes: WeWork Bankruptcy shows the power of 11 USC § 365

When WeWork filed bankruptcy last year, the reactions fell into two general buckets.

On a business level, the commercial real estate folks brought a “told you so” energy, calling this the end of flexible office space. On twitter, it was mostly jokes about former CEO/guru-preneur, Adam Neumann, poking fun at the company’s unchecked growth, sustained by freely flowing investor money, and boozy office vibes.

The bankruptcy lawyers had a different take. If current operations were struggling with past bad decisions, there was an obvious path for the company to right-size, by selective assumption and rejection of leases under 11 U.S.C. § 365.

That’s exactly what happened, as WeWork expects to emerge from the chapter 11 having negotiated approximately $8 billion (more than 40%) in reductions in rent obligations.

In a typical bankruptcy, a tenant usually is presented a “take it or leave it” choice on leases. Not WeWork. Whether it was a function of a bad CRE market or the scope of their leases, WeWork used chapter 11 to negotiate lots of concessions from its landlords.

A survey of recent “assumption” orders shows rent reductions, premise and term reductions, conversions to “gross” lease terms, and modifications to guarantees.

Sure, landlords can say “no” to changes like this, but these landlords aren’t.

It’s a smart move, and an indication that serious business people are in charge.

As a tenant of WeWork, I can confirm that the days of booze and debauchery are long gone. In fact, I’d say that they’ve over-corrected. (Ask me about the short-lived decision a few years ago to remove trash cans from individual offices.)

What is in store for the Nashville locations? We don’t know yet. My review of the Bankruptcy Court docket suggests that the debtor has taken no action on the four locations in Nashville.

Pursuant to an Order signed by the Bankruptcy Court on April 29, 2024, the current deadline for these decisions is June 3, 2024. So far, they’ve dealt with only a fraction of the landlords, but I expect lots of activity over the next month.

We’ll know the future of the Nashville locations soon.

The Future of Law Office Space? You Can Keep your 5 Year Lease, I’ll be at WeWork

I really love my office space, but I don’t talk about it much.

I have space in a brand new building, right off Music Row. The office has every modern amenity you can dream of. Free wireless internet and utilities. 10 conference rooms, all set up for hi-tech video and audio. A variety of free coffee and drinks, in a modern and luxuriously decorated common area. Three full time staff to welcome guests, handle packages, and greet me in the morning. An outdoor patio that overlooks midtown Nashville. A few times a week, the landlord throws a party with free drinks, cookies, and networking with the other tenants.

When I was recognized as an Attorney for Justice last month by the Supreme Court, guess who was the first to congratulate me? (Spoiler-Alert: My landlords).

So, why don’t I talk about it much?

My office is in the Midtown Nashville WeWork, and, for a long time, I was worried that Big Fancy Lawyers did not have offices at flexible office spaces.

Why’d I think that?

In general, The Law is a profession governed by tradition and slow to embrace innovation.

Ask most managing partners, and you’ll find a distinct preference toward the “Ways Things Have Always Been Done.” With that mindset, then, the typical law firm office features fancy marble foyers, libraries with leather bound books, and spacious corner offices where the partners can enjoy a whiskey drink at 9pm (when all the associates are starting to leave for the day).

I’m exaggerating a bit, but it remains a world where a lawyer’s self-worth is often defined by the comparative size of his or her office.

This summer, at our neighborhood swimming pool, I was talking to a Big Law Firm lawyer, who was a little bitter about a large group of lawyers leaving her law firm to start the local branch of a Giant Law Firm.

You know what her most damning insult about the new venture was? “I heard their offices are in a co-working space.”

The suggestion being, of course, that, unless you have way too much space in a way too expensive building on a way too long lease, well, what’s the point?

For decades, law firms have focused on opulent physical spaces to suggest, indirectly, success and prestige, which they hope will result in more work from clients.

Hopefully, the newer generation of lawyers (and cost-conscious clients) will see all this for what it is and realize that the best way to impress clients is high-value, efficient billing and timely, good work.

Maybe COVID-19 and the success of working-from-home will be a watershed moment for the profession, with so many lawyers abandoning skyscrapers for our guest bedrooms. We won’t stay at home forever, of course, but will it be so easy to return to the Old Way, now that we’ve seen that billable hours aren’t necessarily worth more from the 26th Floor?

I’m not holding out hope. A few months ago, the Nashville Bar Association presented a “Future of Commercial Real Estate” seminar, which was held at a Big Law Firm’s brand new office spaces, in the most expensive building in town.

Maybe old habits are hard to break.

For me, when I left my Old Big Law Firm, I talked to my commercial broker clients about finding office space, and the conversations were always about 5 or 7 year leases, for a new venture that I had no idea where it would take me (and, boy-oh-boy, has it ever taken me a bunch of places).

I needed something flexible and that would facilitate my work, but that wouldn’t force me to work more just to pay my monthly rent.

My office set-up has been good for me. It’s a gorgeous space, with every amenity I need, and I have the ability to grow or to shut it all down, without navigating the intricacies of a 7 year lease.

Also, I’m neighbors with Amazon, ML Rose, Bethel College, and dozens of tech companies whose names I can’t pronounce.

I can’t say enough positive things about my space. I’d say more, but, as I’ve been typing this, I got Katie’s email about the Christmas gift wrapping/hot cocoa party…