Adam Neumann (the WeWork landlord) is going to find out out how much a building mostly leased to Adam Neumann (the WeWork CEO) is worth.
In an effort to avoid potential conflicts of interest ahead of parent firm the We Company’s debut on Wall Street, Neumann is putting a property that he owns as a personal investment in Greenwich Village up for sale on the open market, sources told The Real Deal.
The 11-story building at 88 University is place is almost fully leased to WeWork and is about to come to market with an asking price north of $110 million.
Representatives for Neumann declined to comment. The WeWork CEO owns the building through an investment group controlled by fashion designer Elie Tahari, which hired a team at Cushman & Wakefield led by Adam Spies, Doug Harmon, Kevin Donner and Adam Doneger to market the property. The brokers declined to comment.
Earlier this spring, WeWork reportedly said that its real-estate acquisition unit would buy a handful of properties Neuman holds interests in at cost in order to eliminate potential conflicts of interests ahead of the $47 billion company’s initial public offering, which could come as early as September.
A source familiar with talks said it was Tahari’s decision to put the property up for sale on the market, instead of selling it in a direct deal to the WeWork affiliate. It’s not clear if Neumann’s other properties – which include an office building in downtown San Jose – will also be offered up for sale to outside investors.
Neumann owns 50 percent in the roughly 90,000-square-foot building in between Washington Square and Union Square parks. He and his partners paid $70 million for the property in 2015.
WeWork occupies almost all of the building, which it manages as office space for IBM under its enterprise program.
A source familiar with the property said WeWork pays below-market rents that step up throughout the life of the lease, which has 12 years remaining on its term. The investors are targeting a capitalization rate of roughly 4 percent through a sale, and the marketing effort will focus on the dearth of office space in the Greenwich Village submarket.
Neumann, meanwhile, has made millions as a landlord leasing space back to WeWork — a relationship that has stirred concerns from investors about potentially conflicting motives.
The 88 University offering is one of the rare cases where a building that’s nearly entirely leased to WeWork comes to the market. And real estate pros are hungry for data points that show how the co-working company (which has yet to turn a profit and lacks the highly rated credit status landlords prefer) impacts property values.
The investor community paid much attention earlier this year when Rudin Management put a building up for sale in the Financial District that it leases entirely to WeWork and WeLive.
Marketing materials for the tower at 110 Wall Street pointed out one of the risks of owning such a property: that WeWork could default and the owner would not have the security of a diversified tenant roster.
But a clear picture of the asset’s value never really emerged, as Rudin decided to pull the building from the market last month. Bill Rudin told TRD that his company decided it did not need to sell the property and that decision had nothing to do with WeWork.
At 88 University, meanwhile, Neumann’s position on both sides of the negotiating table when setting up leases may make the waters muddier than if there had been true arm’s-length lease negotiations.
Cushman & Wakefield conducted a study last year of 17 office buildings across the country that had high exposures to WeWork. The study found that properties where WeWork occupies a large portion of the space generally trade at high capitalization rates – an indication that buyers viewed them as risky investments.