Real estate start-up Knotel Inc. filed for Chapter 11 bankruptcy on Saturday for its US operations and agreed to be acquired by real estate company Newmark Group Inc.
Knotel said on Sunday that it had filed for bankruptcy to reorganize its real estate footprint and enable the sale.
The moves are the latest sign that the Covid-19 pandemic has turned the once thriving co-working industry on its head.
Founded in 2016, New York-based Knotel has raised hundreds of millions of dollars from investors. It grew rapidly for years and was one of the more aggressive competitors in the co-working and flexible office space industry, becoming one of WeWork’s biggest rivals.
In August 2019, Knotel said it had reached a valuation of more than $ 1 billion thanks to a round of funding led by Wafra Inc., a subsidiary of a Kuwaiti state investment fund. But revenues dropped significantly during the pandemic, and Knotel has faced lawsuits over unpaid rent from landlords.
“The pandemic created a uniquely challenging business environment, with significant implications for lease speed and the pace of innovation in key markets, particularly New York and San Francisco,” said co-founder Amol Sarva in a statement. “We need to address this now to position our company for sustainable growth and a successful future.”
Newmark is providing Knotel with $ 20 million in financing held by the debtor so that it can continue its operations during the bankruptcy process, Knotel said.
Like other flexible office companies, Knotel rents long-term office space and effectively subleases it to companies through short-term agreements. That becomes a problem when the demand for office space falls, as customers can easily get out of their contract, but the company lingers for rental.
Flexible office companies are struggling to retain clients at a time when most US office users are working remotely and many have no plans to return to the office anytime soon.
Knotel is not the only flexible office company facing headwinds. A number of entities associated with the locations of IWG PLC’s office suites have filed for bankruptcy and the company is closing numerous locations to cut costs. WeWork, meanwhile, continues to lose money despite aggressive cost-cutting measures, but had more than $ 3 billion in cash on its balance sheet as of Q3, thanks to massive investment from SoftBank Group Corp.
The company is in talks to go public by merging with a special takeover company.
Write to Konrad Putzier at [email protected]
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Appeared in the February 1, 2021 print edition as ‘Co-Work Firm Knotel Files for Bankruptcy.’