Entrepreneurs claim WeWork CEO Adam Neumann owed them $ 1 million

• Adm. Director, Adam Neumann and his wife, Rebekah Neumann, fought with contractors for bills related to the renovation of their $ 10.5 million townhouse in Manhattan.
• Between 2017 and 2018, four of the contractors ended up filing legal claims over alleged unpaid bills, and one even sued the couple – even as Neumann cashed in its WeWork stake worth $ 700 million.
• Together, the contractors claimed that Neumanns owed them more than $ 1.1 million.
• It appears that Neumanns had settled at least two of the disputes in March, just as WeWork was preparing for a planned public offer.
• Read full Business Insiders WeWork coverage here.

In late 201[ads1]3, WeWork CEO Adam Neumann and his wife made a crazy purchase that matched his growing status as a major player in the New York real estate market – a $ 10.5 million townhouse in Manhattan's Greenwich Village.

The couple soon got to work on redeveloping the property and hiring contractors for a $ 6.5 million project to extensively renovate it. Within a few years, however, work on Neumann's dream house was surrounded by bitter struggles, with contractors complaining about unpaid bills.

The disagreements became so bad that four different contractors collected legal documents, or mortgages, which charged that Neumanns owed them money and claimed the value of the townhouse. All in all, the contractors pointed out that Neumanns owed them a total of $ 1.1 million.

At least two of the disputes, involving more than $ 1 million of this amount, have either been settled or appear to have been. It is unclear what happened to the other two disputes.

The lawyer who represented Neumann's in at least one of their legal battles with contractors did not return a call seeking comment. WeWork reps did not respond to an email seeking comment.

The contractor's disputes occurred when Adam Neumann cashed his WeWork stake to the value of a reported $ 700 million through stock sales and loans, using his shares in the company as collateral.

The existence of collateral rights, not previously reported, comes as questions surrounding Neumann's character and judgment have irritated investors and vanished WeWork's IPO outlook. Neumann's history of redeeming WeWork shares as well as controversial transactions as the company that paid Neumann $ 6 million to buy the "We" brand from him has become the red flag for critics of WeWork, which was at one time valued by private investors at $ 47 billion.

WeWork has since announced a number of governance changes, including limiting some of Neumann's power and repaying the $ 6 million we have agreed, but it still ended up delaying the IPO earlier this week.

Neumanns wanted to transform their $ 10.5 million townhouse.

Neumann's struggles with contractors revolved around the renovation work being done to their townhouse, a four-story building built in 1847, where the acquisition was major news in New York real estate at the time. The listing for the building, posted online before the sale to the couple, describes and depicts an elegant home, with large living rooms, a glazed sunroom and a small patio at the back.

No matter how big the city may have been 5,186 square feet when they bought it, the Neumans decided to completely transform it. Their plan was to combine the two units in a jumbo size, expand, the footprint of the building and raise the height, according to a response the couple made to a case about alleged unpaid bills. They also planned to replace a staircase, add touches like new fireplaces, and upgrade the electrical and plumbing systems, according to court documents.

The cost of all this work, which seems to have started in 2014, soon became the subject of some bitter fighting. Four different contractors ended up taking legal action to try to force Neumanns to pay their alleged outstanding bills.

The disputed amounts include:

• $ 659,818 allegedly owed to Iridium Development, which served as the main contractor on the renovation project, according to court records. Iridium filed a legal claim for the amount in April 2017 and a lawsuit two months later that was not resolved until last March, at the same time as WeWork lined up its IPO.
• $ 385,399 was due to Mimar Construction, which rebuilt the townhouse roof, walls and chimney, and did brickwork and building work on the building, according to the New York County Clerk's office. Mimar filed a legal claim for the amount in November last year, which was also resolved in March.
• $ 37,309.56 was due to Pinnacle Contracting, which provided concrete for the renovation project. Pinnacle claimed the amount in August 2017, but did not renew the claim after it expired a year later.
• $ 2,893.16 was reportedly due to Cardella Trucking, which was hired by Iridium as a subcontractor on the renovation project to collect and dispose of construction debris, according to a document filed with the county attorney's office. Cardella filed a claim for this amount in June 2017 and renewed it the following year.

The mortgages were brought against the townhouse, not Neumann's by name. Iridium's lawsuit was brought against a unit called Residence 72 LLC. In 2016, Neumanns transferred the deed and mortgage loan to Residence 72, according to New York City real estate records. The Secretary of State in New York does not list an owner for residence 72, but states as a WeWork attorney as his contact person. In its case, Iridium asserted that Residence 72 was actually Neumanns by another name; The suit states that Neumanns transferred money to housing 72 for the renovation project.

According to Iridium's lawsuit, the contract with Neummans specified a budget of approximately $ 6.5 million for the renovation project.

Neumanns repeatedly changed the size, scope and sequencing of the project, the contractor claimed in his suit. The plans they provided were also inadequate or deficient, Iridium said in its legal complaint. Such factors increased the cost of the renovation project, it says.

At one point, Neumanns stopped paying Iridium for its work, according to the lawsuit.

Neumanns underestimated via the Residence 72 unit that Iridium was performing "substandard work." As part of the construction work, the interior of the townhouse was exposed to the elements and damaged in the process, they said in their attire. The result was peeling and tiled paint at the entrance to the house, unspecified damage to building materials and other parts of the house. Neumanns also charged that Iridium failed to complete any work, did not follow the architects' plans or did a poor job of working in other areas.

The contractors sent Neumanns a "message"

In all four disputes, the contractors used something called the mechanic's pledge. In New York and some other states, contractors and construction companies that have not been paid for the work they have done can actually lend a claim against the property they have been working on.

The mere existence of a mortgage does not prove that a property owner has done anything wrong. It just means that a contractor is in some sort of dispute with the landlord and claims to be owed something. But it does allow the contractor to place a claim on any value from the sale of the property. The mortgage loan can even be used to force a sale of the property to pay the outstanding debt, says Neal Eiseman, a construction law expert and a partner at Goetz Fitzpatrick in New York.

Submitting mortgage loans sends a "message" to the homeowner, Eiseman said.

Entrepreneurs usually use mortgages as a way to pressure property owners to pay outstanding bills, he said. Mortgages often have clauses in them that prohibit owners from having any outstanding mechanic's mortgages on the property, he said.

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It's not uncommon for construction work to lead to disputes over bills and to contractors who file the mechanics' mortgage over unpaid bills, especially in high-end housing construction, he said.

"People demand, as they have the right to be," he said.

Still, most disputes that lead to pledge or even litigation end up in settlement, he said.

It appears to be the outcome of the two biggest entrepreneur disputes Neumanns was involved in over their townhouse project.

Iridium and Neumanns both agreed to dismiss a lawsuit and neglect over their disputed amounts, presumably because they settled out of court. Court records do not indicate whether or how much money changed hands between the two.

Meanwhile, Mimar's owner Ambel Durdia told Business Insider that his company had reached a settlement with the Neumannans about their alleged unpaid bill. He said he could not discuss the details of the dispute or settlement.

"We're making a settlement," he said. "I'm very happy with" Neumann.

It is unclear what happened to the other two disputed contractor bills.

An Iridium representative declined to comment. Representatives for Pinnacle and Cardella did not return calls or emails for comment.

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