Real estate startup Knotel Inc. filed for Chapter 11 bankruptcy for its US business on Saturday, agreeing that the company will be acquired by real estate services firm Newmark Group Inc.
Knotel said on Sunday that it had filed for bankruptcy to reorganize its real estate footprint and allow the sale.
The changes are the latest sign that the Covid-19 pandemic has brought down the once thriving co-working industry.
New York-based Knotel, founded in 2016, has raised hundreds of millions of dollars from investors. It has expanded rapidly for years and has been one of the most aggressive competitors in the flexible and collaborative office space industry, becoming one of WeWork’s fiercest rivals.
In August 2019, Knotel said it had achieved a valuation of more than $ 1 billion thanks to a round of financing led by Wafra Inc., an affiliate of a Kuwait sovereign wealth fund. But its revenue dropped significantly during the pandemic, and Knotel faced lawsuits for unpaid homeowners’ rent.
“The pandemic has created a unique challenging operating environment, with significant impacts on leasing speed and renewal rates in major markets, particularly New York and San Francisco,” said co-founder Amol Sarva in a statement. “We must resolve this now to position our business for sustainable growth and a successful future.”
Newmark is providing Knotel with $ 20 million in borrower financing to allow it to continue operations during the bankruptcy process, said Knotel.
Like other flexible office companies, Knotel leases office space on a long-term basis and effectively subleases them to companies through short-term businesses. This becomes a problem when the demand for office space decreases, because customers can easily terminate their contracts, but the company remains at risk of rent.
Flexible office companies have been struggling to retain customers at a time when most American office users are working remotely and many do not plan to return to the office any time soon.
Knotel is not the only flexible office company to face headwinds. A number of entities linked to the IWG PLC office units have filed for bankruptcy, and the company is closing several units in an attempt to cut costs. Meanwhile, WeWork continues to lose money, despite aggressive cost-cutting measures, but had more than $ 3 billion in cash on its balance sheet in the third quarter, thanks to a massive investment from SoftBank Group Corp.
The company is in talks to go public by merging with a special purpose acquisition company.
Write to Konrad Putzier at [email protected]
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Published in the February 1, 2021 print edition as ‘Co-Work Firm Knotel Files for Bankruptcy.’