- Despite recent fundraising, Knotel has filed for chapter 11 bankruptcy.
- Newmark Group Inc. is set to take over the company and provide $20 million in debtor-in-possession financing.
- It is reported that Knotel has filed for bankruptcy in order to reorganize and enable the sale to go through.
Several news sources reported Monday February 1st that Knotel had filed for chapter 11 bankruptcy for its U.S. businesses. The news came only a couple of weeks after Knotel reportedly raised funds.
Newmark Group Inc. will take over the flexible workspace company. It is providing Knotel with $20 million in debtor-in-possession financing to allow it to continue operations during the bankruptcy process.
The Wall Street Journal reported that Knotel has filed for bankruptcy in order to “reorganize its real-estate footprint and enable the sale to go through.”
Founded in 2016, Knotel was able to raise millions of dollars from investors. However, their business was hard-hit by the coronavirus pandemic and the flexible workspace company has been struggling since then.
“The pandemic created a uniquely challenging operating environment, with significant impacts on leasing velocity and the rate of renewals in key markets, particularly New York and San Francisco. We must address this now to position our business for sustainable growth and a successful future.” – Amol Sarva, the WSJ
Last year (2020) Knotel was unable to pay rent in several of its locations. By the end of the year, Knotel was facing over 20 lawsuits over unpaid rent in New York, Atlanta, San Francisco, and Los Angeles. In Manhattan alone, the company skipped out on roughly $2 million in rent, according to court records.
And while the pandemic has dealt a heavy blow for the company, it is not entirely at fault for the company’s financial woes.
In late 2019, before the pandemic hit, Knotel was already struggling.
Knotel’s leasing activity dropped roughly 80% in the last quarter of 2019; the company was also experiencing high vacancy rates. According to leaked financials, in 2019 Knotel had net losses of $225 million.
In early 2020 (before lockdowns and restrictions), Knotel laid off roughly one-third of its staff. At the same time, CEO Amol Sarva expected the company to break-even last year; stating that “profitability was very much in sight”.
Fast-forward to October of last year (2020), and the company wasn’t facing such a bright future. In October, Knotel announced that it had plans to cut its real estate footprint by as much as 60%. The goal was to lower the company’s rent obligations and increase its North American revenue.
Flexible Workspaces Are Struggling
The coronavirus pandemic has undoubtedly hit the flexible workspace industry. Knotel isn’t the first flexible workspace company to close locations or file for chapter 11 bankruptcy in the last year.
Serendipity Labs, subsidiaries of International Workplace Group, Inc. (IWG), Breather, WeWork, and The Riveter are all too familiar with the struggles brought forth by the pandemic.
Despite this, the flexible workspace industry does have a bright future ahead, as these types of spaces are poised to experience significant growth in the post-pandemic world.
On the downside, investors may become more wary of the flexible workspace industry; Knotel is the second “unicorn” of the flexible space industry to experience such a dramatic fall.