The rise and fall of members-only coworking operator NeueHouse is leaving landlords in New York and Los Angeles with sudden office vacancies.
NeueHouse once catered to celebrities such as actress Meg Ryan and designer Diane von Furstenberg across three office locations; it has since shuttered those outposts totaling roughly 150,000 square feet after filing for Chapter 7 bankruptcy.
That has meant property owners such as Kilroy Realty have quickly relisted the space in an effort to avoid any major hits to its portfolio occupancy rate.
The social club's former location at the Los Angeles-based landlord's Columbia Square complex in Hollywood recently hit the market, just a few weeks after NeueHouse told its members it would be permanently closing the spot at 6121 West Sunset Blvd. as well as two others in Venice, California, and Manhattan.
The Kilroy listing totals about 93,400 square feet, accounting for the entirety of the building that NeueHouse initially signed on for back in June 2014.
The club also leased the entire building at 73 Market St. in Venice, California, as well as about 50,000 square feet in the century-old manufacturing building at 104 East 25th St. in Manhattan’s Flatiron District.
Coworking consolidation
Membership costs listed on the operator's website before it closed ranged from $3,600 per year for an individual to $8,000 a month for a private office, an amount that shakes out to $96,000 annually.
The club's days of hosting celebrity-filled premieres, art exhibitions, concerts and other events evolved into a tenuous financial position stressed by overspending, expensive leases, failed restaurant ventures and debt that ballooned to nearly $84 million by the earlier months of this year, filings indicate. Former executives pointed to mismanagement issues, including spending $40 million over budget on expansion plans that never materialized.
“Although NeueHouse has created an extremely valuable business that is prized by members and event hosts, unfortunately, it has been burdened by legacy liabilities,” the company told members last month. “While this is certainly not the outcome we envisioned for our business, we believe it is the most responsible path for all our stakeholders."
NeueHouse's financial challenges echo those of other well-known operators such as WeWork, the coworking giant that filed for bankruptcy in late 2023 and managed to restructure its business by exiting or renegotiating dozens of unprofitable lease agreements scattered across the country.
Much of that turmoil was due to impacts of the pandemic, during which shutdowns deepened existing financial challenges and ultimately resulted in the downfall of names such as Breather, Knotel, among others. That demise also loaded up the national office market with available space at a point when vacancy was already spiking to record highs and tenant demand was all but arrested by widespread uncertainty.
The landscape now is a bit different, however, meaning landlords such as Kilroy have a broadening pool of options when it comes to plans to backfill large blocks of space.
Returning demand
Kilroy, which did not immediately respond to requests for comment, has become increasingly optimistic about the outlook for its West Coast markets since the start of the year. Executives have been pointing to a gradual resurgence of tour activity and spatial requirements as tenants, especially those in the artificial intelligence industry, have returned to high-profile dealmaking in order to bolster aggressive growth spurts.
After four years of steady losses, tenants across the country collectively took over more space than they offloaded throughout the third quarter ended Sept. 30, according to CoStar data. While that activity remains largely bifurcated depending on individual markets and properties, all told, roughly 12 million more square feet of office space was occupied than given up through the three-month period, the first positive figure since late 2021.
That has also opened up demand for flexible work options that some coworking operators are stepping up to provide.
Industrious, the global coworking operator acquired by brokerage CBRE earlier this year, has signed myriad deals in recent months for new outposts across the country, most recently with lease to occupy the entire office portion of the 190 Bowery building in Manhattan's NoLita neighborhood. It also finalized agreements earlier this month for space in Chicago and California's Silicon Valley.
Convene, a New York-based coworking company, has already reopened in the shuttered NeueHouse outpost in Manhattan. The operator, which has created a niche for itself by focusing on offerings such as event planning and hosting large conferences, told former members earlier this month that the Flatiron location would be reopening.
While Convene plans to take over "a majority" of NeueHouse's previous footprint, it "may consolidate certain floors depending on overall member demand."
"We will do our best to put you back where you were prior to the closure," Convene wrote.