The fault lines in the crumbling real-estate empire of formerly high-flying coworking startup WeWork have reached Seattle.
WeWork’s first local casualty: a mixed-use project in Belltown, due to be occupied by WeWork and its residential subsidiary, WeLive.
Martin Selig Real Estate owns the 36-story project at Third Avenue and Lenora Street, which had been slated to be the third WeLive location in the country.
The Selig-WeWork deal launched in 2017 to general acclaim: Twenty-three floors were slated to be WeLive rentals, envisioned as a vertical neighborhood where communal dinners and shared activities would thaw the ‘Seattle Freeze.’ The rest would be WeWork office space for startups or large companies seeking some flexible room for expansion.
On Friday, the deal was dissolved by mutual agreement between We Co., WeWork’s parent company, and Martin Selig Real Estate, the parties confirmed.
Until this summer, WeWork seemingly could do no wrong. In January, the last time it raised funds, the startup was valued at $47 billion.
Since its founding in 2010, the New York-based startup expanded into child care, fitness and — by acquiring scheduling website Meetup — the basic desire for face-to-face connection. Simultaneously, its messaging grew more ambitious, shifting from envisioning the future of work to shaping the future of human interaction.
But revelations contained in WeWork’s initial public offering documents in August, including that the company expected to continue losing money for years to come, have cast a recent pall over the company’s former star status.
CEO Adam Neumann stepped down three weeks ago, and the company has said it will let thousands of employees go. On Sept. 30, WeWork canceled its stock offering.
In 2017, WeWork and Selig agreed to share construction costs to redevelop the building. WeWork signed a multiyear lease for all floors.
Now, that’s off the table. Selig, one of Seattle’s top commercial developers, will keep the building, which is still under construction — but it won’t be occupied by WeWork or WeLive. The Puget Sound Business Journal first reported the deal’s demise.
In the past days, revelations have emerged that throw WeLive’s viability into question. In Manhattan, units in another WeLive building were put up for lease on Airbnb and Orbitz, The New York Times reported Sunday. Nevertheless, WeWork has signaled it is committed to continue operating its two WeLive locations, in New York and Virginia.
And as WeWork is rocked by turmoil, the company has put on the back burner any new leases, meaning hundreds of thousands of square feet it was considering in Seattle could be up for grabs.
WeWork, already one of the Seattle area’s largest office landlords, previously planned to scale up further by subleasing from Amazon close to 400,000 square feet at the Rainier Square skyscraper now under construction. The slowdown throws that deal into question. So far, the company hasn’t inked a contract on the space.
“WeWork continues to sign new lease agreements with our landlord partners,” a spokesperson said late last month. “We expect the pace of entering new lease agreements to slow over the next several quarters as we pursue more strategic growth and focus on accelerating our path to profitability.”
Around the country, the string of revelations about WeWork’s corporate troubles have made some landlords at locations leased by WeWork queasy.
Here in Seattle, the prevailing attitude is more wait-and-see, according to four landlords and property managers for local WeWork locations, none of whom were authorized to speak to the press. They said the company is still valued highly, especially for a startup, and that it made sense the company would slow-walk expansion as it reoriented.
The Seattle commercial real-estate market has been growing tighter since 2014, with vacancy rates falling and rents rising. That gives building owners plenty of options: Martin Selig said his phone had been “ringing off the hook” with tenants interested in the Third and Lenora building now that WeWork is out.
Commercial real-estate broker Chris Kagi said he’s heard from several Seattle landlords that if WeWork came knocking with the offer of a lease in the future, they’d likely pass.
“There are enough tenants with strong credit and sustainable long-term business plans that landlords can back off from doing deals with a tenant who has so much turmoil,” he said.
But as companies like Amazon — which hopes to hire 10,000 more people in the Seattle area — continue to rapidly scale up, demand for WeWork’s services may continue to stay high.
In the past several years, WeWork has transitioned toward a business model fueled largely by short-term leases with large companies in search of immediate office space for hundreds or thousands of new employees. Amazon has taken nearly one-third of WeWork space in Seattle and Bellevue, according to commercial real-estate firm Newmark Knight Frank.
The Seattle area is the second-fastest-growing market for flexible office space in the country, according to a report released last week by CBRE, which found that nearly 1.7 million square feet downtown is devoted to flexible office space. WeWork holds nearly all of that.
A new WeWork location also opened late last month at 2401 Elliott Ave., a building owned by the Port of Seattle and managed by Unico.
And even though the Belltown deal is off, WeWork and Selig are still partnering on a 1,500-desk coworking space in Ballard, at 1448 N.W. Market St., slated to open later this year.
“We’re absolutely not worried. I think WeWork will be successful,” Selig said. “WeLive, that’s another story.”
This story has been updated. An earlier version incorrectly said the site was the former Federal Reserve building, which is a different Martin Selig project. It also misstated the number of stories in the new Rainier Square tower.