WeWork CEO and founder Adam Neumann allegedly made millions off of leasing buildings he owns a stake in, to the very company where he serves as chief executive officer, according to a report in the Wall Street Journal.
WeWork, which provides co-working spaces, is a privately held company. Neumann is the majority shareholder in the company, which was recently valued at $47 billion after a $6 billion funding round lead by SoftBank. SoftBank has also invested in Compass and Opendoor in the real estate sector.
A number of the startup’s backers privately expressed to the Journal that the arrangement in which Neumann profited by leasing properties he has an ownership stake in could be a potential conflict of interest.
Dominic McMullan, WeWork’s head of corporate communications, told Inman he thought what the Journal wrote was “bullshit.”
“We are a private company,” McMullan told Inman. “We have absolutely no obligation to make these sorts of transactions public, but we do anyway.”
WeWork did make the transactions public in a bond prospectus released last year, McMullan said, and which the Journal confirmed. McMullan also explained that all of the transactions were reviewed by and approved by WeWork’s board of directors.
“Not a single interaction with a debt or equity investor has indicated to us that they have a problem with the disclosures or the transactions,” McMullan said.
At the center of the controversy are three properties, one in New York and two in San Jose, California, in which Neumann has a stake. The New York property in question is located at 88 University Place where International Business Machines Corp. (IBM) rents a co-working space from WeWork. After frequent issues with the elevator, IBM employees complained to WeWork only to find out that Neumann was one of the landlords, according to the Journal. The Real Deal first reported Neumann’s purchase of the building as a private investor alongside fashion designer Elie Tahari in March.
Neumann owns a 50 percent stake – the largest stake he has in any building that he leases to WeWork – in the building, and McMullan said the deal they struck included an incredibly favorable tenant improvement package which helped WeWork underwrite the checks to repair the elevators.
“[IBM] wanted the space and they were well aware of the issues with the elevators,” McMullan said.
“These are three transactions that we’re talking about out of a global network of about 400 buildings,” McMullan added. “These are minuscule of a small fraction of percentage of ownership that we’re talking about for our offices. It is not full ownership or outright ownership.”
Despite the company’s insistence Neumann’s stake in these properties is small and few, compared to the company’s portfolio, Neumann still stands to make a big profit from his prior investments. In the debt prospectus, WeWork disclosed it paid more than $12 million in rent to buildings partially owned by officers of the company from 2016-17 and future payments would total more than $110 million over the life of the leases, according to the Journal.
The specific buildings were not disclosed.