WeWork's CEO Makes Millions as Landlord To WeWork (wsj.com) 131
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.
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.
Oldest trick in the book (Score:5, Insightful)
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What is your hate against Startups?
Do you just want to keep the big heartless corporations, and oppose all new ideas and products. Where thousands of people can get fired off because their unit has slightly less profit then the other?
The startup and small business is really the heart and sole of most economies. While the big companies may get all the political attention, because if they go out of business thousands of people would effect the community, that they are in. But the small business and startups
Re: Oldest trick in the book (Score:5, Insightful)
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.
Re: Oldest trick in the book (Score:2)
Regardless of the qualities of your business proposal, if it requires large up front capital expenditures, it's going to be a startup. Apple was a startup.
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It's the way unrestrained capitalism works.
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"Siphon". He owns the building, he owns controlling interest in WeWork. He's allowed to take as much profit out as he wants.
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Except for the whole fiduciary thing.
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So my sympathy is somewhat blunted by this being a private company, but yes, he does still need to act in the interests of the other stockholders. If he's shirking that responsibility that is another thing, but it being private I have pretty much zero ability to make that call.
Re:Oldest trick in the book (Score:5, Informative)
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.
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Does the tech guy own the company?
For me the problem is (Score:3)
What we have here is a company that isn't structured to grow jobs but instead to divert profit into the CEO's hands. This runs contrary to the narrative I'm told.
When I see this there's a moment of cognitive dissonance that borders on physical pain. There's two ways to reconcile this
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Well, I got angry, but so much makes me angry these days that I just can't be bothered to post a comment about every little thing.
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You should be angry. The whole system is rigged, and by both major parties. The whole concept of limited liability protects guys like Neumann at your expense. The profits "pass through" but the liability does not. Limited liability corporations are the single largest direct government intervention in the free market, and not necessarily an intervention to your advantage. What started out as a great way to get high-risk infrastructure projects built with private dollars has morphed into an asset-protection s
Re: Oldest trick in the book (Score:4, Insightful)
Re: Oldest trick in the book (Score:4, Interesting)
Exactly my thoughts. It could be an elaborate tax dodge - or he could be a crook. I have no idea without details, and there is no way to get that kind of detail about a private company. This is firmly in the realm of "somebody else's problem".
Re: Oldest trick in the book (Score:2)
Nope. That is stealing. Even if you own 99% of something someone else owns that 1%. If you want to use it as your piggy bank fine, go private and buy back the shares.
If you want sweet investor free cash for your company tough. That money wasn't free and belongs to the shareholders
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To be fair, you don't know what agreements are in place between the owners. This is not a public company, so our knowledge is quite limited. For instance, the CEO has special 10-to-1 voting shares of the company. He certainly cannot use his position to fleece the other owners, but there is nothing inherently unethical about using one entity to lease to another entity. The motivation could be to reduce taxes or it could be to achieve a goal without tying up capital in a way that makes the business more valua
Re: Oldest trick in the book (Score:2)
Ethics to me is whose money and resources is he using? If someone elses money is used it's stealing. He didn't own it.
Also he is leveraging his position to get away with things other tennets could not and abusing his power. If you or I were landlords we would get the boot etc. Also if we used the company credit card to fund things we would get fired even if we did pay back!
CEO is no different. I hope he gets caught and gets the boot.
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Well, no. He has a duty to all shareholders, not just himself. If he owned 100%, it would be different. He's fleecing the other shareholders. Greedy capitalist.
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Do you know he's fleecing them, or because it's a private company are you just guessing like the rest of us?
Re:Oldest trick in the book (Score:5, Insightful)
McDonald's corp isn't in the Hamburger business (Score:3)
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Maybe, but it's traditionally been held to be a quality control measure, especially when the chain was starting up and their greasy spoon competition's food safety was iffy. I mean, prior to their creation of the Egg McMuffin, it wasn't a place you went to because their food was great, but because it was dependable and you were likely to have good to at least OK options.
Re:McDonald's corp isn't in the Hamburger business (Score:5, Informative)
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Maybe, but it's traditionally been held to be a quality control measure, especially when the chain was starting up and their greasy spoon competition's food safety was iffy. I mean, prior to their creation of the Egg McMuffin, it wasn't a place you went to because their food was great, but because it was dependable and you were likely to have good to at least OK options.
Yep, the main draw of chains is consistency between locations.
Re: McDonald's corp isn't in the Hamburger busines (Score:2)
There is a difference in ethics between a corporation owning a McDonald's vs the CEO.
Not to say McDonald's is a saint. They have been known to take a few mom and pop ones
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This arrangement is typical, and it's more about tax avoidance than anything else.
It's so common that I wonder why this arrangement merits an article.
You want to see a master at work? Look at Ikea's corporate structure.
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This arrangement is typical, and it's more about tax avoidance than anything else.
It's so common that I wonder why this arrangement merits an article. You want to see a master at work? Look at Ikea's corporate structure.
Yes Ikea is an absolute scam in terms of its tax situation. However one way to help fix it is to keep bringing it up and to try and force change. Want to make your country better? Start tackling scams like Ikea by forcing the government to actually do its job on the big guys and not just us peons. If only there was a party for the working class in the US.
Re: Oldest trick in the book (Score:2)
Guess what? Outside conservative US theology as I consider this trickle down a cult, a corporation uses government services.
The government creates free trade, infrastructure for power and roads to distribute product. Government funds courts to protect IP and prosecute theives and keep crime in control. Government provides an educated work force.
I am sorry but business uses government more than we do as citizens. They should pay more. Waahh let's fund republican politicians and convince Joe the Plumber that
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Works for old companies going bankrupt, too. Look at Sears.
Potential conflict of interest? (Score:1)
It's not a potential conflict of interest, it's a blatant conflict of interest.
From the Wolf of Wall Street:
"Mark Hanna : The name of the game, moving the money from the client's pocket to your pocket.
Jordan Belfort : But if you can make your clients money at the same time it's advantageous to everyone, correct?
Mark Hanna : No."
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He's both the client and the manager, though. He owns both the building and controlling interest in WeWork. It's not a conflict at all - it's all his interest.
Re: Potential conflict of interest? (Score:1)
That might be the case if it was a sole proprietorship, but it is not.
You fail basic ethics.
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Fair enough - let me rephrase: it's not necessarily a conflict at all. It's not like the Wolf of Wall Street scenario where there is a client relationship. For example, sure - he could be buying the buildings with his other entities in order to siphon money away from the other owners of WeWork. Alternately, he could be using the capital in his other entities to protect WeWork from rent increases.
It's a private company. If this were a public company, this kind of thing would be highly unusual and probably in
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Fair enough - let me rephrase: it's not necessarily a conflict at all. It's not like the Wolf of Wall Street scenario where there is a client relationship. For example, sure - he could be buying the buildings with his other entities in order to siphon money away from the other owners of WeWork. Alternately, he could be using the capital in his other entities to protect WeWork from rent increases.
It's a private company. If this were a public company, this kind of thing would be highly unusual and probably inappropriate.
Like the relationship of Eddie Lampert and Sears, perhaps?
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We have an interest only when it affects us. We don't have any interest whatsoever in what goes on at WeWork unless there is a contract dispute that involves the courts. Then all of the sudden we have discovery and everything becomes an open book.
Hess (Score:5, Interesting)
Is WeWork profitable at those Properties? (Score:2)
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Or that guy who charges his companies a license fee for the use of his name, which is plastered all over his buildings...
Predicting a great future to this young man! (Score:4, Insightful)
Self dealing and raiding public company to fill private coffers? Check
Corrupt? Check
I see a future presidential candidate from a major political party.
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New York real estate? Check
Self dealing and raiding public company to fill private coffers? Check
Corrupt? Check
I see a future presidential candidate from a major political party.
He needs a bankruptcy or six to fully qualify.
What a wasted opportunity (Score:4, Insightful)
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.
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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
And that's a problem for the investors in the company. He's the largest investor. If the other investors, such as SoftBank, don't like how he's managing the company:
1. If they are nice about it, they can sue him in court
2. If they want to be mean, they can complain to the SEC - if he's even close to violating an SEC rule, he could wind up in prison (it can be difficult to get the SEC to investigate something, but once they get going they can be pretty harsh. You don't hear about it much because people who t
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That's not really a fair judgement, and depending on the situation I'd do nearly the same thing.
A building like that isn't bought in cash, but financed. You buy a building as an individual, and you get some deduction on your taxes based on the interest you had to pay. You then rent the space to a company you also own. This ensures that (a) you have enough income guarantee to pay your mortgage, (b) you have income to write your mortgage expenses off against, (c) your company has a front page deduction on it'
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Thanks for clearing it up, now it looks like a dodgy tax scheme! The startup, unless it is profitable, likely has no tax liability, so reaps little benefit from a front line deduction. Therefore this is only benefiting an already wealthy individual by reducing his tax liability with a captive tenant. Even at discounted rent (which isn't assured), there is a blindly obvious conflict of interest here since the company isn't free to select property that has features and amenities it wants/needs or a property t
Re: What a wasted opportunity (Score:2)
Are you assuming the startup would get free rent somehow if the builing they rent was owned independently? There is clearly conflict of interest here, however without details such as how their rent compares to market value (similar office space in the same area), you cannot state that the startup would have any more money if they rented from someone else.
Wow, sounds like sears (Score:1)
and how Eddie hoovered up on the backs for Kmart/Sears employees and investors.
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Self-dealing at its best (Score:4, Interesting)
I wonder if the whole Millenial hipster open-space preschool workplace thing will survive this latest tech bubble...but WeWork is guaranteed to profit. Apparently they're one of the largest commercial landlords in the world and they seem to specialize in this free-flowing startup space. It's akin to selling prospectors supplies on their way to the gold fields.
Whenever I see self-dealing like this, I simultaneously think that it's totally unfair that things can be set up this way, and wonder why I don't take advantage and profit from it. :-) Most business owners structure their affairs in such a way that their company is buying everything they own to offset any profits that pass to the owner. And then they complain bitterly about taxes. It seems ludicrous that I can set up Bob Smith LLC, have Bob Smith LLC purchase a car in the company's name, rent houses and offices, etc. and I would work for Bob Smith LLC as the CEO paying myself a salary of $1/year. This happens all the time with small business owners. I know that the "corporate veil" can be pierced if the IRS or someone suspects this is going on, but the reality is there are way too many ways to avoid it.
We'll see what happens when Dotcom Bubble 2.0 crashes in the next year or two and the VC funds used to rent these offices dry up. I'm assuming WeWork will be just fine though...here in NYC people will give you their life savings for a closet and a hot plate.
Tax form makes it obvious - go to jail (Score:3)
> I can set up Bob Smith LLC, have Bob Smith LLC purchase a car in the company's name, rent houses and offices, etc. and I would work for Bob Smith LLC as the CEO paying myself a salary of $1/year. This happens all the time with small business owners. I know that the "corporate veil" can be pierced if the IRS or someone suspects this is going on
The thing about that is you have to report your salary on the tax forms, as well as revenue, etc. A $1 salary isn't going to be "if the IRS suspects", that's pret
Re:Tax form makes it obvious - go to jail (Score:4, Informative)
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.
Yep. Compare what other employees are paid (Score:2)
That's right. It must be reasonable compared to what other people are paid for the same job in other companies, and they can look at what other people in the same company are paid. If the owner / CEO makes less than other employees, that's suspicious and they better be able to defend that.
I owned a company that I quit working for. I worked full time at a different company, while also going to school full time. Somebody else ran the company. They got paid for their full time work, my pay was commensurate wi
It's got nothing to do with babying Millennials (Score:2)
They're not going anywhere unless there's a change in that.
As for why you need face to face: body language. It's tough to read it even over an HD video feed. If you don't trust somebody (
Bigger fish (Score:5, Interesting)
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And the emoluments clause case was about to reach the stage where it would draw a lot of media attention before the shutdown started, but now the government shutdown is delaying the case, giving Trump another incentive to keep it going for as long as possible.
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Choosing to buy services from someone you normally wouldn't can be a favor...especially if you also buy more service than you normally would, and apparently that's exactly what's been happening. It's hilarious and informative to hear the same Trumpkins that screeched about Hilary's charity foundation and Obama's post-term paid appearances simply whistle and look the other way from Trump's almost historically unprecedented self-dealing and bald-faced bribe-taking. It shows that any outrage they display based
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...And at the same moment, this news story comes out:
https://www.vox.com/2019/1/16/... [vox.com]
https://www.washingtonpost.com... [washingtonpost.com]
I think this one's actually important (Score:2)
Yes, We Work creates some jobs, but very few. They're just fancy landlords after all. Here we've got a CEO who our gut tells us should be investing in his people and instead is plundering the company's largess.
The question to ask is: why does our "gut" tell us this and the answer is we're hammered with the Job Creator narrative day aft
Debt structuring (Score:5, Interesting)
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?
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He knows how much he can get away with increasing rent. He's also using access to internal secrets & research of WeWork about how they choose locations, building size, timing, etc. in order to benefit himself.
Try another scenario - what if Tim Cook were to use his knowledge about Apple's supply chain to purchase companies before Apple signed supply contracts with them?
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And the debt liability is still his. He's structured it so that the company doesn't take on a tremendous debt while attempting to grow.
If Cook used insider knowledge from Apple (publicly traded, not closely held) to buy other companies, that is already covered by laws. That is that, and this is this.
This seems to be a damn sweet deal for WeWork!
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If Cook used insider knowledge from Apple (publicly traded, not closely held) to buy other companies, that is already covered by laws. That is that, and this is this.
Companies not publicly traded are still held to various investment laws, they just don't need public filings.
Such Debt structuring can be a scam (like Mervyns) (Score:3)
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Isn't one major problem pointed out in the summary? The tenants can't hold the actual landlord accountable because WeWork is really just an intermediary. This is like you sue your landlord to get them to fix the pipes and they spend months or years saying it's not their fault and actually there is some other landlord that isn't doing what they agreed to. Then you finally get a case against that higher-level landlord and first landlord walks out and then walks back in as the supposedly deadbeat landlord.
Sadly common and hard to stop (Score:2)
The dream was a lie (Score:1)
The idea that your hard work and preseverance makes you wealthy is a lie. I bet 90% of the people here work harder every day than this clown ever has in his life but will never see the millions he has. We see this all the time. The rich get richer by running scans and pay no consequences. But let some poor fool try to run a game and they end up in court. This is what America has become, land owned by the rich, home of the scammers. We only to look at our dear leader who speaks with impunity only becau
Limited liability (Score:2)
OK so the shoddy maintenance I get is a problem. But leasing space in a building you own, to a company you control...what's wrong with that exactly, unless the rates are not market rates?
This is a technique used by many businesses to limit their losses should they suffer hard times. If a company owns its own building, and the company goes broke, they lose the building too. But if the building is owned by a separately-held LLC, and the company goes broke, the lenders can't take the building away. Most accoun
Caveat emptor (Score:2)
The question here is why anyone would continue to fund/invest in such an obviously conflicted arrangement?
People like this are only successful as long as others tolerate this behavior.
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