- WeWork Executive Director Adam Neumann and his wife, Rebekah Neumann, fought with contractors over bills related to the renovation of their $ 10.5 million City Hall in Manhattan.
- Between 2017 and 2018, four of the contractors stopped applying for legal claims on allegedly unpaid bills, and one even sued the couple – even when Neumann paid in its WeWork share for $ 700 million.
- Together, the contractors claimed that Neumanns owed them more than $ 1.1 million.
- Neumanns appears to have settled at least two of the disputes in March, just as WeWork was preparing for a planned first public offer.
- Read full Business Insiders WeWork coverage here.
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The couple soon had to work on redeveloping the property and hired contractors for a $ 6.5 million project to extensively renovate it. However, within a few years, work on Neumann's dream house became embedded in bitter kind, with contractors complaining about unpaid bills.
The disagreements became so bad that four different entrepreneurs collectively filed legal documents, or mortgage rights, which charged that Neumanns owed them money and placed a claim on the value of the town hall. All in all, the contractors claimed that Neumanns owed them a total of $ 1.1 million.
At least two of the disputes, with more than $ 1 million of that amount, have either been settled or appear to have been. It is unclear what happened to the other two disputes.
The lawyer who represented Neumann's in at least one of their legal battles with contractors did not return a call seeking comment. WeWork reps did not respond to an email seeking comment.
The breach of contract occurred when Adam Neumann paid his WeWork share to achieve a reported $ 700 million through stock sales and raise loans using his shares in the company as collateral.
The existence of the pension rights, which has not been previously reported, comes as questions about Neumann's character and assessment have confused investors and obscured WeWork's IPO outlook. Neumann's history of paying out its WeWork shares as well as controversial transactions and the company paid Neumann $ 6 million to buy the "we" brand from him, has become red flags for critics of WeWork, which at one time was valued by private investors at 47 billions of dollars.
WeWork has since announced a number of changes to the Board, including reducing Neumann's power and repaying the $ 6 million that we are processing, but it still ended up delaying its IPO earlier this week.
Neumanns wanted to turn his city hall into $ 10.5 million
Neumann's struggles with contractors revolved around all the renovation work done on their townhome, a four-story building built in 1847, whose purchase was major news in the New York real estate world at that time . The list for the building, which was published online before the couple was sold, describes and shows an elegant home with large living rooms, a blown sun room and a small patio in the back.
How big the townhouse 5,186 square feet might have been when they bought it, Neumann decided to completely transform it. Their plan was to combine its two units in a jumbo size, expand, the footprint of the building and raise the height, according to a response the couple filed into a lawsuit over alleged unpaid bills. They also planned to replace a staircase, add touch as new fireplaces and upgrade the electrical and plumbing systems, according to court documents.
The cost of all this work, which seems to have begun in 2014, soon became subject to some bitter fighting. Four different entrepreneurs stopped taking legal action to try to force Neumann's to pay their alleged outstanding bills.
The disputed amounts included:
- $ 659,818 which is alleged to be owed Iridium Development, which served as the main contractor on the renovation project, according to court records. Iridium filed a legal claim for the amount in April 2017 and a plea two months later that was not resolved until March, at the same time as WeWork went up for its IPO.
- $ 385,399.35 claimed Mimar Construction, which rebuilt the townhouse's roof, walls and chimney and made masonry and stucco on the building, according to the New York County Clerk's Office. Mimar filed a legal claim for the amount in November last year, which was also resolved in March.
- $ 37,309.56 claimed Pinnacle Contracting, which provided concrete for the renovation project. Pinnacle claimed the amount in August 2017 but did not renew the claim after it expired a year later.
- $ 2,893.16 was allegedly alleged to Cardella Trucking, which was hired by Iridium as a subcontractor for the renovation project to remove and dispose of building debris, according to a document filed with the County Council's office. Cardella filed a claim for that amount in June 2017 and renewed it the following year.
The pension rights were filed against the City Hall, not by Neumann's name. Iridium's lawsuit was filed against a company called Residence 72 LLC. In 2016, the Neumannans transferred the deed and mortgage to Housing 72, according to the New York City Property Register. The New York State Secretary's Office does not list a homeowner for property 72 but lists a WeWork lawyer as its contact person. In his suit, Iridium claimed that Residence 72 was essentially Neumann's with a different name; The suit says that Neumanns transferred money to Residence 72 for the renovation project.
According to Iridium, the contract with Neummans specified a budget of approximately $ 6.5 million for the renovation project.
Neumanns repeatedly changed the size, scope and sequencing of the project, the contractor claimed in his suit. The plans they submitted were also inadequate or defective, Iridium said in its legal complaint. Such factors increased the cost of the renovation project, it said.
At some point, Neumann's compensation for Iridium ended for his work, according to the lawsuit.
Neumanns estimated, via the Residence 72 unit, that Iridium performed "substandard work." As part of the construction work, the city hall's interior was exposed to the elements and damaged in the process, they said in their calculator. The result was peeling and chipped paint at the entrance to the house, unspecified damage to building materials and other parts of the house. Neumanns also accused Iridium of failing to complete any work, failing to follow their architect's plans or doing a poor job of working in other areas.
The entrepreneurs sent Neumanns a "message"
In all four disputes, the entrepreneurs thought of something called a mechanic. In New York and some other states, contractors and construction companies that have not been paid for the work they have done can file a pension right, essentially a claim, against the property on which they have worked.
The mere existence of a pension right does not prove that a property owner has made a mistake. It just means that a contractor is in a type of dispute with the property owner and claims he owes something. But it does allow the contractor to place a claim on all values that can be seen from selling the property. The credit can even be used to force a sale of the property to pay the outstanding debt, says Neal Eiseman, a building permit expert and partner at Goetz Fitzpatrick in New York.
Filing a pension right sends a "message" to the property owner, Eiseman said.
Entrepreneurs usually use mortgages as a way to pressure property owners to pay outstanding bills, he said. Mortgages often have clauses in them that prohibit owners from having any outstanding mechanic's mortgage on the property, he said.
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It is not uncommon for construction work to lead to disputes over bills and to contractors who file the mechanic's mortgage rights over unpaid bills, especially in advanced housing construction, he said.
"People demand, because they have the right to be," he said.
Nevertheless, most disputes that lead to retirement rights or even settlements in settlements end, he said.
It seems to be the result of the two largest contract disputes that Neumann's was involved in over their town hall projects.
Iridium and Neumanns both agreed to dismiss a lawsuit and legal certainty over their disputed amount, presumably because they filed out of court. Court records do not indicate whether or how much money was exchanged between the two.
Meanwhile, Mimar's owner Ambel Durdia told Business Insider that his company had reached a settlement with Neumann over their alleged unpaid bill. He said he could not discuss the details of the dispute or the settlement.
"We make a solution," he said. "I'm very happy with" Neumann.
It is unclear what happened to the other two disputed contract bills.
An Iridium representative declined to comment. Representatives for Pinnacle and Cardella did not return calls or emails for comment.
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