WeWork Forerunner IWG/Regus Restructures its Business, Unleashing Mayhem on Landlords and Investors

Regus’ U.S. subsidiary, RGN Holdings, has already filed for Chapter 11 bankruptcy.

By Nick Corbishley, for WOLF STREET:

IWG — for “International Workplace Group,” previously known as Regus, the serviced-offices and coworking giant whose business model served as inspiration for WeWork — announced plans this week to close some of its city-based locations in Australia, in order to refocus its attention on the suburbs and rural areas. The move forms part of an aggressive global restructuring program that is causing all kinds of headaches for its landlords and investors.

IWG accounts for roughly 11% of the entire global flexible workspace market, around six and a half times times more than WeWork. In 2019, it had revenues of £2.7 billion. It operates 3,392 centers globally, including over 1,000 in the United States. Those US offices are operated by RGN-Group Holdings, LLC (RGN), a U.S. subsidiary of Regus Corporation, which operates the brands Regus, Spaces, HQ, and Signature by Regus, is a subsidiary of IWG.

In the US, RGN Holdings has already filed for Chapter 11 bankruptcy protection. The bankruptcy filing means that Regus can seek to have its rents dismissed. This affords it a great deal of leverage in its negotiations with landlords, from whom it hopes to extract deferred rent payments and improved lease terms, including in some cases a turnover-based model.

US commercial mortgage-backed securities (CMBS) have considerable exposure to Regus. Kroll Bond Rating Agency found 157 properties that served as collateral for $13 billion in loans with exposure to an affiliate or franchise of Regus. Regus is the largest tenant in 30 of these properties and is the sole tenant in three properties. Due to the corporate structure of Regus, RGN’s bankruptcy does not involve all Regus locations.

The Kroll analysts warn that although IWG has sought to extract rent deferrals and lease modifications from its landlords, the bankruptcy filing means the company can walk away from its rental obligations. IWG tends to sign leases and file bankruptcy petitions through single-purpose limited liability companies. That means that part of its portfolio can enter bankruptcy and tear into landlords without impacting other locations.

In the UK, the company has threatened to plunge Jersey-based Regus plc into insolvency. As a result, up to £790 million of lease guarantees could be dissolved, leaving landlords in the lurch. The only way for the landlords to avoid such a dire outcome, IWG says, is to agree to sharp rent cuts across 500 centers.

Unlike WeWork, IWG made a profit last year. But in the first half, IWG booked a pre-tax loss of £176 million, compared to the £145 million profit in first half of 2019. IWG has already warned that it expects to lose substantially more in the second half, despite slashing costs by £300 million. Its shares are currently down 43% year-to-date.

The shift to work-from-home (WFH), sparked by the pandemic, has taken a big toll on the flexible workplace market.

The crisis has also exposed the deep-seated flaws of its business model, which hinges on signing long-term leases on buildings and then sub-letting the space in smaller sections on shorter terms. Now, many of its tenants want out while many of its landlords still want to be paid.

As the ongoing virus crisis sows mayhem and uncertainty in office rental markets across the globe, IGW is seeking to downsize its global network. New York, for instance, stands to lose 20% of all of its IWG-leased locations.

Many operators are hoping that that the so-called “new normal” economy being ushered in by governments’ pandemic response will create a surge in demand for flexible workplace spaces, particularly in the suburbs, as workers seek out spaces that offer alternatives to large crowded office buildings, while providing employees a simple, cost-effective solution to their work-home boundary dilemmas.

For the moment, though, the sector remains in a state of limbo, as countries across Europe and in North America announce new lockdowns amid a resurgence of Covid-19 cases. Some co-working members are taking advantage of the advertised contractual flexibility of co-working spaces to cancel their contracts, in a last-ditch effort to control their cashflow and reduce liabilities.

This is not an option for many clients of IWG, which has proven to be a lot less flexible than its marketing may suggest. Whereas many of its rivals, including WeWork, have offered rent reductions to many struggling tenants during the lockdown period, IWG has allowed its 7 million tenants only to defer rather than reduce their rent payments. It has also been far from flexible regarding downsizing or termination of contracts.

Around half of the landlords have agreed to renegotiate, but not everyone has buckled. Legal & General, one of the UK’s largest insurance firms, has decided to stop leasing buildings to Regus altogether. Many landlords are incensed at the fact that IWG extracted a £635 million dividend last year from Regus plc, leaving the subsidiary with just £14.6 million in assets after the value of its guarantees quadrupled to £758 million in a single year.

“Any well-capitalized company using insolvency rules to simply walk away from lease commitments is abusing the system at the expense of property owners and the millions of people whose savings and pensions are invested in commercial property,” said Melanie Leech, chief executive of the British Property Federation.

While IWG uses bankruptcy proceedings to renege on rental contracts or the threat of non-payment of rents to pressure landlords to slash the rents it pays, it has refused to treat its own tenants in kind.

But some of its tenants are fighting back: 26 tenants, represented by UK law firm Aria Grace, are taking a leaf out of IWG’s book. Instead of continuing to pay their rent, these businesses, on the verge of financial ruin, have been counseled to run down the assets in their companies and then set up new trading companies to continue their businesses, much as IWG has done with its landlords.

Lindsay Healy, founder of Aria Grace Law, told the Times of London: “Our clients want to be released from their leases, otherwise they are exposed to financial ruin. Regus, on the other hand, won’t allow it. Regus wants to be insulated from any risk so that they can pay their exorbitant salaries and shareholders — and they want these small businesses to do the insulation.” By Nick Corbishley, for WOLF STREET.

Land Securities, a Giant UK REIT, announced that it would try to sell a large portion of its properties. No buyers identified yet. Read… Amid Eviction Moratorium, Wiggle Room Tightens for Retail Landlords & Tenants in the UK

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  24 comments for “WeWork Forerunner IWG/Regus Restructures its Business, Unleashing Mayhem on Landlords and Investors

  1. Cas127 says:

    Very nice article.

    Executive suite companies (Regus, WeWork, etc.) are an excellent example of how chained, multi-party transactions (LL rents large block to Regus long term, which turns around and sorta sublets smaller, shorter term blocks to SMBs) can effectively obscure true long term demand for the essential underlying product…office space.

    My sense is that a lot of office building landlords in a lot of metros have had a lot of space that could not be leased at posted (vs. effective) per square ft prices.

    But rather than drop their asking prices to lease the space to normal long term lessees (and take a hit to building valuation…against which cash out refi’s may have already been taken!!) the landlords can lease those idle blocks of space in hazy, thinly secured deals to the Reguses (Regusi?) of the world.

    The space gets filled, illusory asking prices get propped up, the LL’s creditors get f*ckery-pokeried, and all is well/normal/standard op procedure in the Western World of the 21st Century.

    • Thomas Roberts says:

      Regus is a legitimate company that makes money and has been around since the 80s. Wework is a failed idea that bringing Regus’s model to much smaller and poorer companies could also work. Wework sold the idea of those silicon valley like workplaces to young entrepreneurs and freelancers who can’t afford it. It always lost money but as long as money keeps flowing into it, Wework can make money to whoever owns it, until it crashes.

      After the pandemic, Wework will probably crash, because it always lost money, but, Regis might go either way. The reason Regis might succeed, is that work from home will cause many companies to hire cheaper workers across the country, in theory, Regis could open up offices in cheaper metropolitan areas across the country, especially with the fall in commercial real estate prices and increased vacancies. Some people need an office to be productive and some companies might favor those in such an office. A real demand could exist. With regus if you are remote working for a single company, they might pay for all or part of your office rental fee and it might make you more productive or fit their interest/image.

      Wework is currently based around being a scam and will have a harder time adjusting to the new market. Of course, a new rival to Regus, which doesn’t have their current, now overpriced leases and property, could swoop in and take them and Wework out pretty easily.

      • Thomas Roberts says:

        Apparently Regus has its own unsavory business practices, I’ll take Will DeMarco word for that.

  2. Joe Saba says:

    Instead of continuing to pay their rent, these businesses, on the verge of financial ruin, have been counseled to run down the assets in their companies and then set up new trading companies to continue their businesses, much as IWG has done with its landlords.

    welcome to corporate paper shuffle at its best

  3. 2banana says:

    WeWork is making a comeback!!!!

    According to The Telegraph (29 OCT 2020)…

    WeWork on track to turn a profit and revist IPO.

    • MonkeyBusiness says:

      I thought this could happen. Office space as a service can work under the current situation. Heck, I am surprised AirBnb has not taken advantage.

      Rent a room for a day for business meetings. That’s not such a stretch. After all AirBnb is now the exclusive purveyor of houses for parties.

  4. Beardawg says:

    If I am an IWG/Regus Landlord and my tenant is pulling this executive/shareholder protection scheme, as questionable as it may be, is it not beneficial to simply call IWGs bluff? Let them file BK, get a judgment for 100% of the contractual rent and take the 20-30 Cents/Dollar as IWGs assets are distributed while actively working to find new tenants and/or re-purpose the asset. In other words, control what you can and remain productive.

  5. Javert Chip says:

    Ahhhh, WeWork!

    The gift that keeps on giving.

  6. nick kelly says:

    Bottom line: deflation, unlike inflation is almost instantaneous. One second collateral is there, next it isn’t.

  7. Aussie Andy says:

    The last comment by Aria Grace Law sums it up – in business someone always wants more than their fair share of the pie. Many just call this capitalism, but it’s a better world when many can have a touch/taste of some of the money.

    • Javert Chip says:

      Aussie Andy

      There is no such thing as “fair share”. There never has been, there isn’t now, and there never will be.

      Capitalist markets have exactly zero to do with the fairy-tale called “fair share”. Fairly managed,, “markets”, on the other hand, only determine “market price”, and they do this based upon numbers of arms-length transactions.

      Guys who sell stuff want a high price; guys who buy stuff want a low price. Commerce meets somewhere in the middle at a market-determined “clearing price’.

      Of course it’s possible for price-fixing or macro events (US Fed intervention) to distort prices, but “markets” work somewhat even in the grimmest shit-hole socialist countries (looking at you, Venezuela) – where oppressive governments call it the “black market”.

      • Happy1 says:


        So many people including commenters on this site don’t understand this

        • Javert Chip says:

          The definition of “woke”

          When a 40-ish millennial finally realizes they’re both stupid & broke, and therefore, wants socialism so they can take other people’s money.

          Nota Bene to Aussi Andy: There’s no such thing as “other people’s money” in socialism; what was so carefully earned under capitalism literally rots away under socialism.

  8. Minutes says:

    WeWorkFromHome the only company making a comeback

  9. CreditGB says:

    When the ponzi becomes unstable, they have to dismantle it before it consumes the top investors or “first ins”. To that end, these steps:
    1 Liquidate all Urban properties
    2 Liquidate all near Urban properties
    3 Liquidate all Suburban properties
    4 Distribute any cash to “first ins” as it is collected

    To kick off the PR campaign, announce that step #1 is “just to allow us to refocus on the other priorities”….(steps 2 through 4). The rabble that invested after the first ins will defend them to the end.

  10. CreditGB says:

    Sort of related in a way….applies to almost all businesses. Most have hundreds of steps all somehow justified, but these serve to illustrate the point I think.

    Inflation’s full circle:
    1. I cut my own lawn
    2. I then hired a guy to cut my lawn
    3. He then hired a guy to go get gas for the mowers
    4. He then hired a guy to sharpen the mower blades
    5. He then hired a catering service to bring meals to the crew
    6. He hired a safety director to develop elaborate safety plans
    7. He hired a Human Resource manager
    8. He gave me his latest lawn care bill.
    9. I cut my own lawn.

    • Javert Chip says:

      You’ve conveniently chosen a distorted scenario to support your probably pre-selected conclusion, and chosen to ignore:

      o Consumers buy things for other than economic reasons (eg: status, convenience, perceived quality, emotions, group pressure, et al)

      ps: try building your own car, or laptop PC, or email software

    • Aussie Andy says:

      Reminds me of the 1990’s Tom Peters – outsource everything. Where is he know?

  11. Will DeMarco says:

    My small business is a tenant of Regus.

    The hypocrisy of these moves over the last couple months is astounding. Many businesses have not been able to use their Regus offices, either because of local law, drops in business, or even local building or Regus shutdowns. There are thousands of stories (check Regus’ BBB page for an idea) of reports of Regus demanding their rent with exorbitant late fees and no aid, assistance, or forgiveness while Regus itself does everything it can to avoid paying their own rent. They claimed to have has COVID relief, which was just a PR move as they refused to actually grant it to any of the tenants here who had every reason to need it.

    Regus’ unsavory and often legally fraudulent practices are well-documented and they have lost many court cases due to their policies. Bait-and-switch, hidden fees, fees for services either not provided or not requested and an “oh, we’ll turn that off but not credit you for it” approach are extremely common. Even a look at their Glassdoor page is filled with their own employees either quitting or getting fired for moral objections to stealing from their own tenants. Getting your security deposit and “retainer” back (they bill months in advance and require 2 or 3 months worth of rent ahead of time even for just a 6-month lease) is as unlikely as getting an invoice without hidden fees on it. This isn’t to mention their complete clusterhump of an invoice system that makes it often impossible to even tell if you’re being charged appropriately or not.

    Regus is as evil, greedy, and hypocritical as they come. They are constantly in the news and never for good reasons. If you’re considering an office for your business, save yourself months of headaches and arguments and go elsewhere.

  12. CreditGB says:

    “Rent a room for a day for business meetings. That’s not such a stretch. After all AirBnb is now the exclusive purveyor of houses for parties.”

    No Thanks!

    As a small to medium business, I can use any of the video meeting sites as effectively, without paying any travel costs, no meals, no hotels, no cab fares, almost zero lost productive time. Huge cost savings!!

    In the 10 years leading up to the CCP Pandemic, this was gaining momentum fast due to the cost of meetings.

  13. Stephen C says:

    Many here on Wolfstreet think that WFH will devolve to gig work. If that happens, we’ll see more and more people do what I’ve been doing for the last 6 months. I park next to the library or somewhere similar for internet access, and get some online work done while I sit in my car. Luckily I only have to do this when I get stir crazy at home, and I have the leisure to mix it in with a good hike in the hills and running some errands on the way home. I also rediscovered the joy of reading hard cover books. Thing is, every single time I’ve ever parked and worked, I spot at least one other person doing the same, often in a converted van. I worry that if this gets too popular the cops will start harassing us. Perhaps in the future the parking lots at malls can repurpose, providing internet access and food/coffee trucks/ porta-potties, and whatever else people will a bit of money for. But I do look forward to the day when there is once again a price for money, and all this nonsense stops, and middlemen like Regus/Wework can go away. Or at least people can go back to work at Starbucks again, although that never appealed to me. Too noisy and I make the best espresso in town for cents on the dollar.

  14. stan6565 says:

    Aria Grace approach is the only possible approach in dealing with a shifty outfit like Regus (or any of its iterations), or any other firm taking Regus’ approach. – BK benefits for me, but none for thee.

    It is technically correct and it is morally right.

    Eat that, big borg.

  15. Nik says:

    IWG/Regus..reminds me a lot of Matthew 18:21..on lolol aloha amigos

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