Real estate developer and owner DivcoWest is suing WeWork and seeking at least $30 million in damages as it said the global flexible workspace provider defaulted on its rent payment, breached a lease contract, and vacated a New York office property near Times Square without written consent.
In a lawsuit filed last week with the New York State Supreme Court in Manhattan, San Francisco-based DivcoWest, known for a portfolio in major U.S. cities that includes its home market as well as Boston, Los Angeles and Washington, D.C., said WeWork first failed to pay $399,514.63 in fixed monthly rent and $74,378.01 in additional rent, for a total of $473,892.64 that was due Dec. 1 for its lease at 311 W. 43rd St. in midtown Manhattan. WeWork had about 72,000 square feet at the building, according to the lawsuit.
WeWork has warned that its lease obligations represent its biggest turnaround obstacle and said last month that “substantial doubt exists" about its ability to continue as a going concern. The New York-based company this month said it plans to exit underperforming locations as it renegotiates nearly all its leases.
Critics have offered skepticism that those moves may not be enough to solve WeWork's financial challenges. A spokesperson for DivcoWest declined to comment beyond what’s in the lawsuit. WeWork declined to comment.
DivcoWest bought the 186,000-square-foot building, opened in 1903 and renovated in 2016, for $131.3 million in 2018, CoStar data shows.
Long-Term Lease
WeWork first leased the entire rentable area of the building in October 2016, spanning floors 10 to 14 and including the building penthouse in a lease originally set to expire in September 2032, the lawsuit said.
Damages as a result of an early lease termination would amount to about $30 million throughout the lifetime of the original agreement, DivcoWest told WeWork in March, according to the lawsuit.
While WeWork in the following month told DivcoWest it had vacated the property and not occupied it since at least December, DivcoWest said the lease terms prohibited WeWork from “early surrender” or “abandonment” without its written consent, the lawsuit said.
Besides the roughly $30 million in termination damages, DivcoWest, with about $18 billion in assets under management, said it’s also seeking other damages such as repair costs.
It gave an example of a water tank leak at the 43rd St. WeWork space that led to “extensive damages from water infiltration that necessitated the removal of flooring and other finishes in the affected areas,” according to the lawsuit.