As WeWork hustled to secure a rescue package, its former CEO was under intense pressure to shore up his own finances.
Last week Adam Neumann paid a $150,000 deposit to secure a $100 million loan to refinance his interest in a Chelsea development site, people familiar with the matter told The Real Deal.
The move came as lenders, chief among them JPMorgan, were pressuring him to repay hundreds of millions of dollars that he had borrowed against his WeWork stock and his properties.
Churchill Real Estate Holdings, a landlord and lender known to provide loans to those in need of quick, expensive capital, agreed to a rapid turnaround for Neumann. Less than a week after receiving the deposit it prepared the capital for release Monday, according to people with knowledge of the matter.
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123-131 West 23rd Street (Credit: Google Maps)
Churchill’s loan would have refinanced Neumann’s debt in the property, a $65 million mortgage he acquired from Bank of America in 2017. The Chelsea assemblage, which includes 123-131 West 23rd Street and 116-120 West 24th Street, is slated for a 342,000-square-foot, mixed-use development, according to Neumann’s partner on the property, Jeff Dagowitz. At one point, the site was considered as a future WeLive location.
Softbank CEO Masayoshi Son (Credit: Getty Images)
But in the past day, the closing of the loan stalled. At the same time, reports Tuesday said that SoftBank had committed to taking over the company at a valuation of $8 billion, and, as part of the deal, would issue as much as $1.7 billion to Neumann — enough to cover what he owed his lenders.
The episode may shed light on Neumann’s efforts to get his finances in order as uncertainty mounted about his ability to repay loans. He had a number of them outstanding, including $97.5 million in mortgages from JPMorgan secured by Neumann’s personal property, according to the We Company’s amended S-1 filing to the U.S. Securities and Exchange Commission in September.
At the end of July, Neumann also had $380 million outstanding of a $500 million credit line issued by a syndicate of banks, including JPMorgan, UBS and Credit Suisse, according to the SEC filing.
Those loans largely were backed by his ownership in WeWork and his role at the company. But once Neumann stepped down as CEO last month it voided a clause in his contracts for the loans and gave the banks the right to foreclose on him immediately, according to the Wall Street Journal. JPMorgan reportedly gave him 45 days to pay back his loans.
As the banks put pressure on Neumann to repay hundreds of millions of dollars, he turned to Churchill last week to release his own capital from the Chelsea property.
At the same time, WeWork’s board was finalizing a deal with its largest investor, SoftBank, to be taken over at a valuation of $8 billion. On Tuesday, the terms of that deal became clear, including an almost $1.7 billion sum it would provide to Neumann.
As part of the deal, Neumann is expected to step down as non-executive chairman and will receive a roughly $500 million credit line from SoftBank —replacing the credit line provided by the banks — a $185 million consulting fee, and $1 billion to buy out his stock in the company, the Journal reported.
At press time it was unclear if Neumann will go ahead with the loan from Churchill. Dagowitz would not confirm that his partnership had paid a deposit to Churchill, but said “there’s interest from a lot of lenders to provide senior debt financing,” and added that “everything is very early stage and we are evaluating options.” He said he has been negotiating financing for the site for several weeks.
Neumann did not respond to requests for comment, and his spokesperson declined to comment.
Mark Lapidus, a cousin of Neumann’s wife, Rebekah, helped arrange the deal with Churchill. He declined to comment. Churchill, which is led by Justin Ehrlich and Sorabh Maheshwari, also declined to comment.
The Chelsea site is among a suite of properties Neumann purchased as his net worth soared. He held ownership stakes in commercial properties including 88 University Place in Manhattan, which he leased back to WeWork, a move that raised concerns about conflicts of interest. Many of these properties have since been purchased by WeWork.
In addition, the 40-year-old WeWork co-founder owns a significant residential portfolio, including two Manhattan homes, a sprawling estate in Westchester, two properties in the Hamptons and another property north of San Francisco.
At the Chelsea assemblage, Dagowitz, who is president of the real estate firm JHG Holdings, had assembled the site in recent years and in 2017 purchased air rights to use with it. Neumann and Dagowitz, who both have equity in the site, planned to build an office and retail building, perhaps with a hotel portion. The site is comprised of four parcels, including the Church of St. Vincent de Paul.
“The property is really a special property,” said Dagowitz, who is also a principal of Actium, which is developing the site. “We have been very careful to keep this quiet because it is a unique property.”