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WeWork Could Shed Big Spectrum Location

Troubled coworking operator WeWork could pull out of one of its largest and highest profile Orange County locations, a full building at the Spectrum Terrace office development that’s yet to open, sources tell the Business Journal.

Such a move would be the biggest reported giveback of space by the New York-based company on the West Coast.

The website of the shared space firm, which has been in a retrenching mode since a botched initial public offering last year, no longer lists the 116,000-square-foot building among its portfolio of open and soon-to-open locations in OC; as of a few months ago it was still listed as being in the works.

Multiple sources tell the Business Journal that it’s unlikely the WeWork spot will open at Spectrum Terrace at all, as interior work and tenant improvements for the space have largely ground to a halt.

It’s unclear whether the decision to terminate the lease is a move being prompted by WeWork, or the development’s owner, Irvine Co.

Irvine Co.’s website and brokerage data still lists the building at 17300 Laguna Canyon as being leased. Representatives of the Newport Beach landlord declined to comment on the status of the lease.

WeWork has two additional Spectrum-area locations that are open, at the 200 and 400 Spectrum Center office towers. Both towers are owned by Irvine Co.

WeWork’s space at those two spots runs some 90,000 square feet, and were said to be outperforming expectations pre-pandemic, in terms of users.

Record Deal in ’19

The Business Journal was first to report on the Spectrum Terrace lease being inked a year ago. At the time, the deal was the largest office lease struck in OC for the year.

It was also the first reported full-building lease for WeWork on the West Coast; it has since leased and subsequently opened another full-building spot at Irvine’s Lakeshore office complex close to John Wayne Airport, running nearly the same amount of space.

WeWork was initially expected to move into the four-story Spectrum Terrace location—next to the San Diego (405) Freeway—around the start of 2020, sources told the Business Journal.

The company has faced mounting problems since then, including a scuttled IPO whose regulatory disclosures of steep losses raised numerous financial alarm bells that ultimately caused a major cash injection by its largest investor, Softbank.

Issues for the company and many of its peers in the shared space sector have only since grown during the COVID-19 pandemic, a time when coworking has fallen out of vogue due to social distancing-related safety concerns and work-from-home edicts.

A JLL brokerage report issued after the COVID-19 pandemic said commercial real estate landlords with exposure to short-term leases are the most vulnerable at this time, while “coworking operators in particular may be at risk if members decide to cut short-term contracts.”

Orange County has close to 3 million square feet of coworking space; most of that has opened in the past three years.

There have been no other reports across OC of a large coworking location shuttering for good. WeWork still has nine other locations in the area, totaling more than half a million square feet of space.

East Coast Closures

WeWork has already confirmed it is shrinking its coworking footprint on the East Coast.

The cancellation swing began last month, when WeWork gave up plans to move into a large Manhattan office that’s roughly the same size as the firm’s planned Spectrum location.

The company was slated to move into the location by the end of the year, and its decision to back out could cost WeWork millions of dollars, according to local news reports.

More recently, the firm pulled out of a 69,000-square-foot space near Baltimore’s Inner Harbor. The deal to end the Baltimore location was mutually agreed on by the company and its landlord, reports indicate.

Additional cancellations are expected to follow, company watchers note, as financial impacts of the virus continue to play out nationwide.

Despite the givebacks, the firm’s chairman, Marcelo Claure, has optimistic goals for the company’s future. He said last week the company could be able to have positive cash flow by the end of 2021, thanks to aggressive cost-cutting measures that have included significant layoffs, and selling several of its businesses (see story, this page).

Spectrum Terrace

Brokers expect Irvine Co. to have a relatively easy job of re-leasing the 17300 Laguna Canyon building, if the WeWork lease is terminated.

The landlord is now working on the second phase of development for the complex, whose tenant roster will soon include Irvine-based data analytics software maker Alteryx Inc. (NYSE: AYX), which is leasing 183,000 square feet for two buildings at the site.

Other tenants include TGS Management LLC, a successful quantitative finance hedge fund with headquarters in Irvine that plans to occupy the entirety of the under-construction office at 17500 Laguna Canyon Road, which will run about 115,000 square feet.

The new location marks a major boost to the local real estate presence of TGS, whose founding team includes local billionaire Fred Taylor; see more on Taylor and Orange County’s other wealthiest businesspeople in the July 27 print edition of the Business Journal.

Irvine Co. has its own version of coworking that could fill a portion of WeWork’s space. Last year, it launched Flex Workspace, a flexible office product of its own that expands and replaces its ReadyNow suites program.

It’s started to roll out the pool of turnkey workspaces with shorter-than-normal lease terms at its large pool of office holdings across California and Chicago.

Local Investor Sees Gain from WeWork

WeWork’s rapid office expansion—and expected retreat—is not the only part of the company that connects the New York-based firm to Orange County.

One local investor is taking advantage of one of WeWork’s many affiliated companies, this one in the education realm.

Newport Beach-based Carrick Capital Partners, a private equity investment firm focused on software, said last month it will acquire Flatiron School from WeWork.

Carrick Capital did not disclose the price it would pay for Flatiron, which teaches software and coding skills.

WeWork’s prospectus for a planned IPO last August revealed details about the company’s finances and resulted in its valuation dropping from $47 billion to under $8 billion in a matter of weeks.

The prospectus also showed the company paid about $28 million to buy Flatiron in 2017.

Flatiron School co-founder Adam Enbar will remain chief executive of the company, which currently has about 400 employees; cuts were made in May. As part of the transaction, Flatiron School will also continue to operate its headquarters and most of its campus programs out of existing locations as a WeWork member.

Flatiron uses a combination of online and in-person classes, Carrick co-founder and Managing Director Jim Madden told the Business Journal.

The 16-week courses teach students on subjects such as software engineering, data analytics or cybersecurity, which are industries that have 2 million open positions in the U.S., he said.

The students “are typically adult learners in their late 20s and 30s who already have college degrees,” Madden said. “They take the course and go from making $55,000 a year to $75,000 a year. It has a real meaningful impact on people.”

—Katie Murar

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