Inside the failed crypto auction of a WeWork-leased office tower
Inveniam Partners planned to pay $65M for Miami’s historic Security Building in part through cryptocurrency investors. WeWork was a draw, then things got complicated
UPDATED, Feb. 28, 2020, 11:43 a.m.: Pat O’Meara found success structuring deals for the Catholic Church, but early last year he found a new calling: Raising millions of dollars from cryptocurrency investors for real estate and infrastructure acquisitions.
O’Meara, CEO and founder of finance and tech firm Inveniam Capital Partners, targeted $260 million of property acquisitions throughout the U.S. A centerpiece of the project would be the $65 million purchase of a historic downtown Miami building fully leased to WeWork.
Inveniam would acquire the nearly 100,000-square-foot Security Building at 117 Northeast First Avenue in part with money raised in an auction from cryptocurrency investors, with a minimum investment of $500,000. Those investors would have a stake in the property and could collect rent from WeWork using cryptocurrency — allowing the volatile currency to be pegged to a hard asset.
The sale was set to close last May. But two days before, O’Meara claimed his senior lender changed the language of the agreed-upon loan and O’Meara was forced to walk away from the deal. Unable to secure another senior lender with reasonable terms, the sale never went through and the planned auction was canceled.
What exactly happened and why has become a parlor game among real estate pros in Miami. Some have speculated it was linked to WeWork’s volatility — though the co-working giant’s implosion happened months later. Others maintain the deal itself was too ambitious for O’Meara, and should serve as a cautionary tale for future real estate investors who want to use cryptocurrency.
O’Meara firmly believes the co-working giant gave his lender pause.
The senior lender changed the language of the Security Building loan “because they could see what was happening inside the WeWork deal,” O’Meara said in an interview with The Real Deal. “They had more exposure to WeWork.” But O’Meara refused to identify the lender and TRD could not verify the claim.
While O’Meara’s WeWork theory is a convenient one, the co-working company has experienced a massive unraveling, spooking investors. In late September, WeWork scrapped its planned IPO after disclosing mounting losses that were twice revenue, along with information about questionable loans and transactions with its founder and ex-CEO Adam Neumann. The company’s valuation plummeted from $47 billion to $8 billion, and it received a huge bailout from its chief investor Softbank. Experts say the company’s sharp drop has sliced into property values on WeWork-leased buildings.
The WeWork effect
In the 15-story Security Building, O’Meara targeted a property in a part of downtown that has remained largely neglected but appears poised for redevelopment. Designed for the Dade-County Security Company in 1926, the striking building is made of granite, brick and terracotta and was designated on the list of National Register of Historic Places in 1989.
In 2015, a group of investors led by Daniel Gohari, Rory Greenberg, Turnbridge Equities founder Andrew Joblon paid $23.5 million for the property. The group converted the building — at the time residential condos — back to office space. It then secured WeWork as the main tenant, locking in the co-working firm to a 15-year lease.
Neumann even flew to Miami, claiming he “fell in love” with the building, according to a report at the time. Under the group’s ownership, the building went through some renovations in typical WeWork fashion, which included transforming the historic bank vault into a “quiet room.”
Greenberg previously told TRD that he was comfortable with signing WeWork in part because it would make its own tenant improvements and space buildouts.
There was another element to the WeWork lease deal.
The co-working company inked the Security Building lease about two months after Daniel Gohari’s brother, Arash, joined as a real estate executive at WeWork. Daniel and Arash are also partners at the real estate investment firm Xerxes Group.
The brothers did not return requests for comment.
Their arrangement was not entirely uncommon at WeWork. Adam Neumann had also personally owned or held stakes in several buildings that WeWork leased. Last year, WeWork reportedly said it would buy a handful of those properties, and Neumann in August listed another Manhattan building he owned, which the co-working firm nearly fully leases.
A spokesperson for WeWork declined to comment.
Catholic Church to cryptocurrency
In WeWork, O’Meara initially saw an innovative company that was on the rise. And like WeWork, O’Meara was seeking to be a disruptor in real estate.
A charismatic personality with a salesman’s charm, O’Meara spent time at investment banks Raymond James and Bear Stearns, but also has a background in theology. He went on to start his consulting firm O’Meara, Ferguson, Whelan & Conway where he led “the structuring and execution of transactions of 42 Catholic dioceses,” according to his Inveniam bio page.
At the New York-based Inveniam, O’Meara sought to create a software platform that tracks financial and operational information such as rent payments and the monthly and weekly pricing of real estate. The goal was to allow investors, including cryptocurrency investors, to possess real-time data on specific properties to help them make more informed decisions. The software is operational, according to O’Meara.
“We are making sure that the data about the asset that you are relying on is true,” O’Meara said.
O’Meara was so confident in the technology that he wanted to take ownership in three property deals and an infrastructure project, and use the firm’s software to do so.
One of the deals involved student housing for North Dakota State University, which is now under contract, he said. Another was a partnership developing multifamily housing projects in Southwest Florida, which O’Meara said has closed. A third was an infrastructure project to invest in a North Dakota water pipeline, which has encountered problems, he added.
And then there is the Security Building deal. For the acquisition, Inveniam would put up part of the money, and would get another portion from the shares auctioned off to crypto investors. Those investors would retain a minority stake as limited partners. O’Meara would finance the rest with a mix of senior and mezzanine loans.
“Blessing in disguise”
Despite the questions swirling around WeWork, the Security Building’s main tenant has been a reliable one, according to Rory Greenberg. Following the failed crypto auction, he said the ownership team is no longer listing the property for sale.
“Unfortunately they [Inveniam] couldn’t get it done,” he said. “From our perspective, it’s a blessing in disguise to have a Softbank-run company as a tenant.”
But Jaime Sturgis of Fort Lauderdale-based Native Realty said investors are growing wary of WeWork.
“The assets where WeWork is a tenant will certainly depress the perceived value of what people are willing to pay,” he said.
O’Meara agreed, saying he would have an even tougher time closing the same deal today. And he has tried.
“We have gone to Ackman-Ziff and asked them, and no one will lend a senior loan with WeWork as the occupant,” he said. “No one will. To buy it, we would have to use equity and bridge financing, which people will do but that will slowly eat your equity up.”
Simon Ziff, president of the New York-based commercial debt brokerage, said in an e-mailed statement: “we are engaged by Inveniam to evaluate financing and have been asked to provide no further comment.”
While WeWork has slammed the brakes on much of its new lease deals — and is seeking to exit from others — not all lenders have backed away. Justin Ehrlich of New York-based Churchill Real Estate Holdings, owns a WeWork-leased building, and is also a lender.
“We would lend to a building 100-percent leased to WeWork,” Ehrlich said. But, he added, “we would need a letter of credit.”
Meanwhile, nine months after the failed Security Building deal, O’Meara has moved on but is keeping his options open.
“We would love to take a look at it in the same deal,” he said. But, he added, “my businesses moved forward. We are probably not going to make another run at it, probably.”
Correction: A previous version of the story incorrectly identified Turnbridge Equities as part of the Security Building’s ownership group
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