Should Potential CMBS Borrowers Rent to Co-Working Spaces?
If you own one or more office properties, and you want to get CMBS financing in the near future, should you rent space to co-working companies like WeWork? The answer is complex; while co-working has been growing at a breakneck pace, with approximately 23% industry growth for the last several years, it still presents certain risks that landlords should consider.
Why Co-Working Spaces Present Risks to CMBS Borrowers
On paper, co-working spaces seem like fantastic tenants— and right now, the market is hot. However, since co-working spaces themselves are in the business of subleasing office space to tenants, usually on a short-term basis, the co-working business model carries with it an inherent instability.
In general, CMBS lenders aren’t opposed to co-working spaces— but in general, they prefer that co-working space occupies no more than 20-25% of an office property’s total square footage. This helps limit risk in the case that a co-working space’s clients don’t renew their leases— as that could affect the co-working space’s ability to pay rent to a potential CMBS borrower, increasing the chance of a potential loan default.