WeWork used a complex offshore structure to purchase properties in London and marked up the value of two office properties by double-digit margins months after purchasing them, a Property Week investigation has revealed.

WeWork

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During the summer of 2017, WeWork acquired two office buildings that by the end of that year recorded a jump in value of 19% and 37% respectively, according to company filings in Luxembourg seen by this magazine.

The 86,000 sq ft block at 51 Eastcheap in the City of London was acquired on 27 July for £47m, while the 156,000 sq ft building at 120 Moorgate, Finsbury Square, was acquired on 6 September for £43m.

The Luxembourg accounts stated that, by the end of the year “the management of the [companies]” estimated “the fair value of the land and building” to be £56m and £59m respectively.

Roger Isaacs, a forensic accountant at Milsted Langdon and national technical director of the Network of Independent Forensic Accountants, said: “One of the things that might justify this huge hike in value would be if the buildings had been vacant when they were initially acquired and they subsequently secured a good quality tenant after the acquisition.”

In this case, the two buildings were let out to two special purpose vehicles (SPVs) set up by WeWork in the UK.

However, Isaacs said that the leases would not justify an increase in value because “it would be like lifting oneself by one’s own bootstraps”. He added: “If you own a property and then you enter into a lease with a shell company that you own and have incorporated for the purpose, that would almost certainly not justify a large increase in value because the shell company would have no financial standing to meet the lease commitments on its own.”

A source close to WeWork said that the valuation was done by an independent third party.

The two offices were purchased by WeWork in partnership with US private equity firm Rhone Group and are currently owned by two companies registered in Luxembourg, Eastcheap SA and 120 Moorgate SA.

These are ultimately owned by a third company registered in the Cayman Islands, WeWork Property Investors Operating Partnership III.

Ronen Palan, a professor of international politics at City, University of London and an expert of offshore jurisdictions told Property Week that these company structures are usually set up for tax and confidentiality purposes.

A source close to WeWork said that “this is a compliant structure that is commonly used by funds that have investors from various countries.”

WeWork declined to comment.