Whatâs Going On Here?Speak now, WeWork, or forever hold your lease: the coworking office space company has skipped some of its rental payments, and thatâs had knock-on effects for bond investors. What Does This Mean?Rental and mortgage payments are similar to bonds in that they both pay a regular income (in rent or interest) for a specific amount of time. Investors, then, might want to benefit by buying into âcommercial mortgage-backed securitiesâ, or CMBSs: these bonds-of-sorts combine mortgage payments from multiple payers into something investors can buy, sell, and earn their own income from.
Clearly, stay-at-home orders mean there arenât many (if any) people paying WeWork to rent office space. So when the company decided not to pay its rent on some properties and renegotiate terms on others, other payments reliant on that income â like CMBSs' â suddenly found themselves at risk. Why Should I Care?For markets: Stand together, fall together.
Given the companyâs sheer size, investors havenât been able to ignore the bigger-than-normal ripples in the bond market WeWorkâs caused. According to Bloomberg, one particularly risky CMBS â based on the income from an office thatâs more than 50% rented by WeWork â has lost almost 30% of its value since March. Thatâs likely down to the often short-term nature of WeWorkâs leases: the company is now more at risk of rising vacancies than traditional office buildings, which tend to lock in tenants for longer.
The bigger picture: Great views, purgatorial location.
Investing in real estate is often thought to be a relatively safe haven, even in a downturn. And thatâs even truer of physical properties now that potential buyers canât view them, locking their prices in limbo. But since real estate stocks and bonds are more liquid markets that quickly reflect property firmsâ changing fortunes, those investments are much more at risk of dips in value. Investors in mall operator Intu, for one, probably started sweating when the mall operator only received 30% of the rent it was owed in March. | 