WeWork's CEO Makes Millions as Landlord To WeWork (wsj.com)

An anonymous reader shares a report: For more than two months after employees at IBM moved into a Manhattan building managed by office space giant WeWork, 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 [Editor's note: the link may be paywalled; alternative source], 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. [...] WeWork, which was recently valued at $47 billion by investor SoftBank, 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.

Comments

Oldest trick in the book

[JaredOfEuropa]

That’s how you siphon off money from startups, struggling companies or even foundations into your own pocket.

Re:Oldest trick in the book

[MightyYar]

No, look, this is a private company. Thar be dragons. We have very little visibility into the goings-on. We don't know who the other stockholders are or what their agreements are with one another. The CEO has special 10-to-1 voting shares, so we already know hijinks is afoot.

Does he have a "fiduciary responsibility"? Sure. Is that a squishy, ambiguous term? Yeah. Short of a lawsuit by the other owners, though, we aren't going to have any idea what is going on aside from a partial picture painted by people with competing interests.

Don't spend to much of your outrage on this company, that's all. Save it for public companies, criminal behavior, and by extension politicians.

Re: Oldest trick in the book

[FuzzyDaddy2]

It is not an unusual arrangement, I know a small business owner who leases his own space to himself. What doesnâ(TM)t make sense is why anyone would agree to invest in WeWork with this sort of arrangement.

Re:Oldest trick in the book

[Gilgaron]

Sears may well have died anyway, but this sort of thing was also used to drain it of money as well.

Re: Oldest trick in the book

[Darinbob]

Small business maybe. But startup as a term refers to a particular type of new small business. Funded by venture capitalists based on flimsy proposals, business plans that focus on getting bought out soon rather than on long term profitability, workers given valueless equity to offset their lower than average pay, etc.

Most small businesses plan to stay in business, yet the majority of startups fail without any analysis by the investors of why they failed or how to improve in the future.

Hess

[ArhcAngel]

I was told a yarn when I worked at Hess about how all the artwork in the building in Houston was owned by Hess himself and when he retired he leased all the artwork back to the company. He allegedly made more after he retired then when he ran the company.

What a wasted opportunity

[Anonymous Coward]

Money that could be used to grow the start-up to make it thrive and prosper is just lining the pockets of an already wealthy individual. Can I just say, we don't hate on the rich enough. At least not this type of rich. They're the ones killing jobs, not those pesky immigrants or regulations.

Bigger fish

[fluffernutter]

The president of the United States makes billions sending dignitaries with deep pockets to his own resorts and hotels; perhaps that is the bigger issue.

Debt structuring

[WoodstockJeff]

So, Neumann takes on the debt of buying the building, rather than WeWork, while providing the stability that WeWork won't lose their lease because the building owners don't like them, or get a better offer.

What's the problem?

Re:Tax form makes it obvious - go to jail

[Anonymous Coward]

You are correct! I forget the exact language, but it is something like the salary must be normal for the industry. I have an S corp and you even pay unemployment taxes on the salary you pay yourself even though as an officer of the company you cannot collect unemployment.

Re:McDonald's corp isn't in the Hamburger business

[cordovaCon83]

Very much so. Ray Croc discovered that the McDonald's brothers had created a kitchen that optimized workflow efficiency and pumped out consistent quality food. He struck a deal with the McDonald's brothers where he went around the country franchising out the McDonald's business model. However, Ray was not profiting as handsomely as he'd like from franchising. He eventually added a clause that McDonald's franchises had to be built on land leased from a second realty company that he created. After that, Ray did a hostile takeover of the McDonald's brothers, who had never been a part of the realty company. One of the stipulations of the buyout was that the McDonald's brothers were gagged about telling people that Ray Croc was not the actual found of McDonald's, and the McDonald's brothers are slowly forgotten from the franchise's history. I do not discredit the McDonald's brothers for running a good business, I simply note that Ray Croc may very well have invented the move that the WeWork CEO is using - using realty to buy out the whole the business from those that really built it.