Entrepreneurship

Real-Estate Startup Knotel Files for Chapter 11 Bankruptcy

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Real-estate startup Knotel Inc. filed for chapter 11 bankruptcy for its U.S. business on Saturday, agreeing for the company to be taken over by real-estate services firm Newmark Group Inc.

Knotel said Sunday that it filed for bankruptcy to reorganize its real-estate footprint and enable the sale to go through.

The moves are the latest sign that the Covid-19 pandemic has upended the once-booming co-working industry.

New York-based Knotel, founded in 2016, raised hundreds of millions of dollars from investors. It expanded rapidly for years and was one of the more aggressive competitors in the co-working and flexible office space sector, becoming one of WeWork’s fiercest rivals.

In August 2019, Knotel said it had reached a valuation of more than $1 billion thanks to a funding round led by Wafra Inc., an affiliate of a Kuwaiti sovereign-wealth fund. But its revenue dropped significantly during the pandemic, and Knotel has faced lawsuits over unpaid rent from landlords.

“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,” co-founder

Amol Sarva

said in a statement. “We must address this now to position our business for sustainable growth and a successful future.”

Newmark is providing Knotel with $20 million in debtor-in-possession financing to allow it to continue operations during the bankruptcy process, Knotel said.

Like other flexible-office companies, Knotel leases office space long-term and effectively sublets it to companies through short-term deals. That becomes a problem when demand for office space falls, because customers can easily get out of their contracts but the company continues to be on the hook for rent.

Flexible-office companies have struggled to retain customers at a time when most American office users are working remotely and many don’t plan to return to the office soon.

Knotel isn’t the only flexible-office company to face headwinds. A number of entities tied to

IWG

PLC’s office-suites locations have filed for bankruptcy, and the company is shutting down numerous locations in a bid 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 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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Appeared in the February 1, 2021, print edition as ‘Co-Work Firm Knotel Files for Bankruptcy.’

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