WeWork's CEO Makes Millions as Landlord to WeWork .
Adam Neumann has bought properties and leased them to his co-working startup, sparking conflict of interest concerns .
WeWork was recently valued at $47 billion by investor SoftBank Group.
WeWork was recently valued at $47 billion by investor SoftBank Group. PHOTO: RICHARD B. LEVINE/ZUMA PRESS
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By Eliot Brown
Updated Jan. 16, 2019 10:01 p.m. ET
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. .

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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.

Adam Neumann, CEO of WeWork, speaks to guests at the TechCrunch Disrupt event in New York in 2017.
Adam Neumann, CEO of WeWork, speaks to guests at the TechCrunch Disrupt event in New York in 2017. PHOTO: EDUARDO MUNOZ/REUTERS
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.

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Corporate governance experts say Mr. Neumann's ownership of buildings he leases to WeWork is unusual for a large company. Corporations typically bar executives from similar arrangements, given that companies risk paying too much in rent or leasing buildings they ordinarily wouldn't, they said.

"In a public company, that would be considered highly controversial," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "Usually human beings tend to think of themselves over the company itself when they're on the other side of the transaction.".

In New York, the deal at 88 University came together in 2015 after Mr. Neumann joined with fashion designer Elie Tahari to buy the building for $70 million. The pair planned a renovation that included an overhaul of at least one of the elevators, said a person involved with the deal.

The owners leased the building to WeWork. In turn, WeWork struck a deal with IBM, which needed space quickly and moved there in spring 2017. Mr. Neumann's interest in the building was revealed last year by real-estate publication the Real Deal.

Soon after IBM arrived, one of the two elevators was out while the other was frequently breaking, causing lengthy waits and long slogs up the building's narrow stairs. .

IBM executives, frustrated about their working conditions, complained to WeWork about the broken elevators, said people familiar with the matter. While landlords typically are responsible for elevators, WeWork had signed a so-called triple-net lease with Messrs. Tahari and Neumann, in which WeWork was responsible for fixing issues like elevators. As part of that deal, the landlord set aside funds to WeWork to pay for such renovations, a WeWork spokesman said.

An IBM spokeswoman declined to comment.

The building's value, meanwhile, has gone up, and the owners have been able to borrow more money by refinancing the property's debt. Late last year, Messrs. Neumann and Tahari took out a $77.5 million loan, according to loan adviser Meridian Capital Group, $7.5 million more than the prior loan to buy the building.

Mr. Neumann owes his personal wealth largely to sales of WeWork stock. It is unclear how much WeWork stock he has sold, but he has told some friends it is in the hundreds of millions of dollars.