Flexible office space provider Knotel recently announced it and its U.S. subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. The company also agreed to sell its business to an affiliate of commercial real estate firm Newmark Group. Knotel’s plans were put in place to transform it, “into a more capital efficient business and reorganize its operations and capital structure under new ownership.” The company will also exit multiple U.S. locations as part of this process.
“After a thorough review of strategic alternatives, we have determined that a process to sell our business and reshape our U.S. footprint is the best path forward to maximize value for our stakeholders,” Knotel co-founder and CEO Amol Sarva said in a statement. “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.”
Knotel also obtained a commitment for debtor-in-possession financing from a Newmark affiliate of approximately $20 million in cash. The company believes this financing will give it enough liquidity to support its day-to-day operations during the process, such as paying employees, continuation of benefits and dealings with customers and vendors.
“We look forward to supporting Knotel through this transitional period,” Newmark Chief Executive Officer Barry Gosin said in a statement. “We are providing capital to Knotel so it can right-size its business for the path forward.”
Newmark provides Knotel with much-needed relief
Knotel’s bankruptcy filing was a long time coming, Commercial Observer reports. Like many companies, it suffered during the COVID-19 pandemic as workers opted to stay home and avoid the virus. During that time, Knotel went through two rounds of layoffs, began to return parts of its portfolio and faced multiple lawsuits over unpaid rent. The flexible office space provider is currently facing more than 20 lawsuits in New York alone for $12 million in damages. Knotel had net losses of $225 million in 2019 and lost approximately $49 million in the first half of last year, according to financial documents obtained by Business Insider.
Despite Knotel’s more recent struggles, Newmark’s acquisition has given Sarva an optimistic view of his company’s future in the co-working space.
“Our restructuring will enable us to strengthen our balance sheet, focus on a right-sized portfolio of locations, and maintain relationships with our customer base while continuing to build on Knotel’s differentiated service offering,” he said. “We continue to believe in Knotel’s potential in the growing flex market. We thank our talented team members for their continued hard work and dedication toward fulfilling our vision of tailoring flexible workspaces on a global scale so companies and their people are empowered to do their best work.”
Joe Dyton can be reached at email@example.com.