A contractor lawsuit against a company tied to WeWork co-founder and former CEO Adam Neumann could force the sale of a 130,700-square-foot office building in Downtown San Jose.
San Francisco-based Build Group has taken an affiliate controlled by New York-based Nazare Capital Management to court for allegedly not paying for more than $12 million in construction work at the troubled building at 152 North Third Street, the San Jose Mercury News reported.
In the suit, the general contractor accuses the building owner, 152 North Third Street Owner LLC, of refusing to pay invoices for its work “on numerous occasions.” The Nazare Capital affiliate is led by Neumann.
Build Group has asked that a “judgment be made for the sale of the property” and that the proceeds apply to “amounts due, including interest,” according to the complaint.
The Newmann-led affiliate bought the nine-story building in 2018 for $44 million. Three years later, it obtained a $45 million loan tied to the building from an affiliate of New York City-based Rialto Capital Management, according to the Mercury News.
The landlord then signed two construction agreements in 2018 and 2022 with the Build Group, according to the lawsuit.
The 2018 agreement called for “core and shell improvements” from floors one through five for $8.7 million, court papers show. The 2022 contract outlined ground-floor tenant improvements, for $2.6 million.
After these projects began, Build Group and the Neumann affiliate agreed to expand the scope of the construction by adding $998,000 in work, court papers show.
Nearly half the building has been converted into co-working offices, according to CBRE.
In March last year, Build Group sued the Neumann affiliate for nonpayment. The dispute remains unresolved with further court hearings slated for June, according to the Mercury News.
At the same time, the landlord also ran into financial trouble when it missed at least one monthly loan payment. The loan to the Neumann-led affiliate then went into special servicing, according to Morningstar.
In July, the Nazare affiliate defaulted on a $31 million loan, which was securitized into a collateralized loan obligation, on the building at 152 North 3rd Street, according to The Real Deal. The loan is set to mature this August.
A signatory on the LLC that owns the property is Max Fink, head of strategy for Neumann’s company Flow, and Neumann’s family office, according to LinkedIn and state business records.
Neumann co-founded WeWork, a hip co-working company, in 2010. The company experienced meteoric growth, but suffered major cutbacks during the pandemic. By the end of last year, it had accumulated losses of $16.2 billion. In November, the firm filed for bankruptcy, which led to the likely termination of seven office leases in San Francisco and Oakland.
In 2022, Neumann announced he was starting a company similar to WeWork, but for residential real estate, called Flow, with a unit that bought apartment complexes across the country.
— Dana Bartholomew
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