In late 2013, WeWork CEO Adam Neumann and his wife made a splashy purchase befitting his rising 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 remaking the property, hiring contractors for a $6.5 million project to extensively renovate it. Within a few years, though, the work on the Neumann's dream home became embroiled in bitter battles, with contractors complaining about unpaid bills.
The disagreements got so bad that four different contractors collectively filed legal documents, or liens, charging that the Neumanns owed them money and staking a claim to the value of the townhome. All told, the contractors alleged the Neumanns owed them a combined $1.1 million.
At least two of the disputes, involving more than $1 million of that amount, have either been settled or appear to have been. It's unclear what happened with the other two disputes.
The attorney that represented the Neumanns in at least one of their legal battles with contractors did not return a call seeking comment. WeWork representatives did not respond to an email seeking comment.
The contractor disputes occurred as Adam Neumann was cashing in on his WeWork stake to the tune of a reported $700 million through stock sales and taking out loans, using his shares in the company as collateral.
The existence of the liens, which has not previously been reported, comes as questions around Neumann's character and judgement have unnerved investors and clouded WeWork's IPO prospects. Neumann's history of cashing out his WeWork shares as well as controversial transactions such as the company paying Neumann $6 million to buy the "We" brand from him, have become red flags to critics of WeWork, which at one point was valued by private investors at $47 billion.
WeWork has since announced a series of governance changes, including curtailing some of Neumann's power and reimbursing the $6 million We deal, but it still ended up delaying its IPO earlier this week.
The Neumanns wanted to transform their $10.5 million townhome
The Neumanns' battles with contractors all revolved renovation work done to their townhome, a four-story edifice built in 1847, the purchase of which was big news in the New York real estate world at the time. The listing for the building, posted online prior to the sale to the couple, describes and shows an elegant home, with large sitting rooms, a glassed-in sun room, and a small patio in back.
However grand the 5,186 square foot townhome may have been when they purchased it, the Neumanns decided to completely transform it. Their plan was to combine its two units into one jumbo-sized one, expand, the footprint of the building, and raise its height, according to a response the couple filed to a lawsuit over alleged unpaid bills. They also planned to replace a staircase, adding touches such as new fireplaces, and upgrade the electrical and plumbing systems, according to the court documents.
The cost of all that work, which appears to have started in 2014, soon became the subject of some bitter battles. Four different contractors ended up taking legal action to try to compel the Neumanns to pay their alleged outstanding bills.
The disputed amounts included:
- $659,818 allegedly owed to Iridium Development, which served as the general contractor on the renovation project, according to court records. Iridium filed a legal claim to the amount in April 2017 and a lawsuit two months later that wasn't resolved until this past March, at the same time that WeWork was gearing up for its IPO.
- $385,399.35 allegedly owed to Mimar Construction, which rebuilt the townhouse's roof, walls, and chimney, and did masonry and stucco work on the building, according to the New York County Clerk's office. Mimar filed a legal claim to the amount last November that was also resolved this March.
- $37,309.56 allegedly owed to Pinnacle Contracting, which provided concrete for the renovation project. Pinnacle made a claim to the amount in August 2017 but didn't renew that claim after it expired a year later.
- $2,893.16 allegedly owed to Cardella Trucking, which was hired by Iridium as a subcontractor on the renovation project to haul away and dispose of construction debris, according to a document filed with the county clerk's office. Cardella placed a claim on that amount in June 2017 and renewed it the following year.
The liens were filed against the townhome, not the Neumanns by name. Iridium's lawsuit was filed against an entity called Residence 72 LLC. In 2016, the Neumanns transferred the deed and mortgage to Residence 72, according to New York City property records. The New York Secretary of State's office doesn't list an owner for Residence 72, but lists as its contact person a WeWork attorney. In its suit, Iridium alleged that Residence 72 was essentially the Neumanns by another name; the suit says that the Neumanns transferred money to Residence 72 for the renovation project.
According to Iridium's lawsuit, the contract with the Neummans specified a budget of roughly $6.5 million for the renovation project.
The Neumanns repeatedly changed the size, scope, and sequencing of the project, the contractor claimed in its suit. The plans they provided were also insufficient or defective, Iridium said in its legal complaint. Such factors increased the cost of the renovation project, it said.
At some point, the Neumanns stopped reimbursing Iridium for its work, according to the lawsuit.
The Neumanns countersued, via the Residence 72 entity, charging that Iridium performed "substandard work." As part of the construction work, the interior of the townhome was exposed to the elements and was damaged in the process, they said in their countersuit. The result was peeling and chipped paint in the house's entrance, unspecified damage to construction materials and other parts of the house. The Neumanns also charged that Iridium failed to complete some work, didn't follow their architect's plans, or did a poor job working on other areas.
The contractors were sending the Neumanns a "message"
In all four disputes, the contractors resorted to something called a mechanic's lien. In New York and some other states, contractors and construction companies that haven't been paid for the work they've done can file a lien, essentially a claim, against the property on which they've been working.
The mere existence of a lien does not prove that a property owner has done anything wrong. It just means that a contractor is in a dispute of some sort with the property owner and is claiming to be owed something. But it allows the contractor to stake a claim to any value seen from selling the property. The lien can even be used to force a sale of the property to pay the outstanding debt, said Neal Eiseman, a construction law expert and a partner at Goetz Fitzpatrick in New York.
Filing a lien sends a "message" to the property owner, Eiseman said.
Contractors typically use the liens as a way to pressure property owners to pay outstanding bills, he said. Mortgages often have clauses in them that forbid owners from having any outstanding mechanic's liens on the property, he said.
It's not uncommon for construction work to lead to disputes over bills and to contractors filing mechanic's liens over unpaid bills, especially in high-end residential construction, he said.
"People are demanding, as they have a right to be," he said.
Even so, most disputes that lead to liens or even lawsuits end in settlements, he said.
That appears to be the outcome with the two biggest contractor disputes the Neumanns were involved in over their townhome project.
Iridium and the Neumanns both agreed to dismiss a lawsuit and countersuit over their disputed amount, presumably because they settled out of court. Court records don't indicate if or how much money changed hands between the two.
Meanwhile, Mimar owner Ambel Durdia told Business Insider his company had reached a settlement with the Neumanns over their alleged unpaid bill. He said he couldn't discuss the details of the dispute or the settlement.
"We make a settlement," he said. "I'm very happy with" Neumann.
It's unclear what happened with the other two disputed contractor bills.
A representative for Iridium declined to comment. Representatives of Pinnacle and Cardella did not return calls or email seeking comment.
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