Minimal Exposure to WeWork Rejected Leases in DBRS Morningstar’s Rated CMBS Book

Given recent events affecting WeWork, DBRS Morningstar identified eight loans across 10 rated North American commercial mortgage-backed securities (CMBS) transactions with an aggregate balance of $680.2 million that have exposure to rejected WeWork leases. DBRS Morningstar also notes additional exposure of $4.7 billion across its rated North American CMBS book to properties with nonrejected WeWork leases representing 10.0% or more of the net rentable area that could be at increased risk.

Highlights include:
-- Largest exposures by loan balance and leased square footage;
-- Analytical adjustments to reflect WeWork concerns; and
-- DBRS Morningstar outlook.

“We continue to view large tenant exposures in the office sector with caution. While structural features help to mitigate some of these concerns, the timing of these mechanisms does not always result in a monetary hedge,” said Hatim Jivanjee, Assistant Vice President of North American CMBS Ratings at DBRS Morningstar. “The list of rejected WeWork leases represents a small portion of DBRS Morningstar’s rated portfolio; however, we expect that WeWork’s ongoing negotiations for nonrejected leases may include term amendments, such as downsizing of space, rental rate adjustments, and added termination options, that could have significant cash flow impacts over the near to medium term.”