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For more than two months after employees at International Business Machines Corp. moved into a Manhattan building managed by office-space giant WeWork Cos., frequent elevator problems forced workers to climb the stairs of the 11-story building and prompted complaints to the company.
One of the landlords behind the building was no ordinary owner: It was Adam Neumann, WeWork’s chief executive, who leased the property to WeWork after buying it, according to people familiar with the situation.
Mr. Neumann has made millions of dollars by leasing multiple properties in which he has an ownership stake back to WeWork, one of the country’s most valuable startups. Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company.
A WeWork spokesman said all related-party deals are reviewed and approved by the board or an independent committee and disclosed to investors. Mr. Neumann declined to comment through a spokesman.
WeWork, which was recently valued at $47 billion by investor SoftBank Group Corp. , signs long-term leases for office space with landlords, then subleases the space on a short-term basis to companies. Mr. Neumann, the 39-year-old executive who founded WeWork in 2010, is WeWork’s largest individual shareholder and has voting control over the company.
In at least one instance before he secured voting control over the company, Mr. Neumann wasn’t able to complete a similar deal. When WeWork was negotiating a lease on a Chicago building in 2013, he tried to buy a stake of up to 5% in the building-210-220 N. Green St.-as part of the deal, people familiar with the negotiation said. WeWork’s board raised concerns about the deal, citing a potential conflict of interest, and WeWork paid for the stake instead, one of the people said.
The next year, Mr. Neumann effectively gained control over the company. As part of an investment round for WeWork in 2014, he was granted Class B shares that gave him 10 votes per share, and now he has more than 65% of the overall share vote, according to WeWork corporate filings.
Mr. Neumann has since bought up several properties through investor groups and leased some of them to WeWork.
In a prospectus related to a debt offering last year, WeWork said it had leases with multiple properties owned in part by Mr. Neumann. It also said WeWork paid more than $12 million in rent to buildings “partially owned by officers” of WeWork between 2016 and 2017, and future payments total more than $110 million over the life of the leases. The specific properties weren’t listed.
In addition to the IBM building at 88 University Place, in which Mr. Neumann owns a 50% stake, he has invested in properties in San Jose, Calif., where WeWork is the tenant or expected to lease in the future, multiple people familiar with the deals said.
There, he is a main investor in a group that has been buying up numerous properties in the downtown over the past year-and-a-half, including a 14-story tower built for the Bank of Italy in 1925, these people said.
Mr. Neumann’s plan is for the San Jose portfolio to host an urban campus of sorts-full of WeWork offices and related properties, including a residential building called WeLive, these people said. The developments would require some new construction, and WeWork has tapped famed architect Bjarke Ingels to design a master plan, these people said.
Otto Lee, an intellectual-property lawyer who sold his offices in the Bank of Italy building to the investor group, said he wasn’t aware Mr. Neumann was one of the buyers. “They have been quite tight-lipped about exactly who the people funding it are,” he said.
Another of the San Jose properties, St. James Plaza, which the group bought for $40 million in the summer, has signed a lease with WeWork.
By Eliot Brown.
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