WeWork's Size Gives Startup Public Responsibilities, Sam Zell Says

(Bloomberg) -- WeWork Cos. Chief Executive Officer Adam Neumann wouldn’t have been able to lease properties he owns to the office-sharing startup if it were a public company, real estate investor Sam Zell said.

Zell’s comment, in a Bloomberg Television interview Thursday, was sparked by a Wall Street Journal report this week that said Neumann had purchased real estate and then leased it to WeWork, reaping millions of dollars. Several investors were concerned about the potential for conflicts of interest, the newspaper reported.

The arrangement probably wouldn’t have been allowed if WeWork were subject to all the governance requirements that go along with being a publicly traded company, said Zell, founder of Equity Group Investments.

“This is just an example of the negative side of creating unicorns because this is a private company that’s become so big that it has public responsibilities, including governance,” Zell said. Those transactions “would never have occurred if WeWork was a public company and scrutinized accordingly.”

A WeWork spokesman didn’t immediately respond to a request for comment on Zell’s remarks. On Wednesday, the company defended its process for reviewing transactions, saying they are approved by the board and disclosed to investors.

Neumann is WeWork’s biggest individual shareholder and has voting control over the company he co-founded in 2010 in New York. Backed by Japan’s SoftBank Group Corp., WeWork has built itself into one of the world’s most valuable startups, last valued at as much as $42 billion, through a global leasing spree. It has 400 locations in 100 cities, and says it’s the biggest private office user in Manhattan, London and Washington, D.C.

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