WeWork CEO Adam Neumann and 21-33 Irving Place (Credit: Getty Images and Google Maps)
A landlord is suing to get out of a lease agreement with WeWork amid fears the co-working company can’t support its lease.
The office space giant, whose parent the We Company is expected to go public next month, currently occupies multiple floors at 21-33 Irving Place in Manhattan. The landlord — identified as Belvedere Management Co. in property records — claims that when WeWork signed its lease in 2016 with a special purpose entity, it signed a guaranty that its holding company was worth more than $150 million.
In the lawsuit filed Tuesday in New York State Supreme Court, the landlord alleges that in June it received a notice from WeWork stating the holding company had undergone a “reorganization,” which created a new entity known as WeWork Companies LLC that would now back the lease.
The landlord states that it has no proof that the new holding company has a net worth of “at least” $150 million.
But after the We Company’s S-1 disclosure last week to the U.S. Securities and Exchange Commission, which was met with a media storm and serious questions about the startup’s accounting methods and corporate governance, the landlord became concerned about WeWork’s ability to fulfill the lease.
“Recent financial reports in the media, however, cast great doubt on the financial viability of WWC LLC,” the complaint reads. “Defendants are effectively foisting on the Landlord a guarantor not of its choosing, without the required prior notice and prior proof that the substitute guarantor has a net worth of at least $150 million.”
A spokesperson for WeWork denied the accusations in the suit.
“Earlier this year, WeWork completed a corporate reorganization to become The We Company,” the spokesperson said in a statement. “This process had no material impact on the guarantees we provide to landlords. Landlords are critical partners to our business, and we highly value our relationships and our mutual success.”
A representative for Belvedere did not immediately respond to a request for comment.
The lawsuit signals growing unease from WeWork stakeholders as the company marches toward a much-hyped IPO. Landlords, some who have leased entire buildings to the startup, and investors have been divided on how its business model — leasing office space and subletting it at a premium — will perform in the face of an economic downturn.
But last week’s disclosure provided some clarity on the company’s financial wherewithal and its business practices. Among them, the company has issued massive loans to its CEO Adam Neumann and other senior employees, and the company said it would not comply with traditional corporate governance guidelines. In summarizing the disclosure, one analyst told Bloomberg that the S-1 filling was a “masterpiece of obfuscation.”