Knotel to Offer Its Space to Governments for Coronavirus Needs

The flexible workspace provider has started a “total change” to its business that includes top management taking pay cuts and offering up its now empty space to governments.

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Flexible workspace provider Knotel has started to offer up its now mostly empty portfolio of office space to governments around the world for COVID-19 emergency needs, including potential conversions to medical use or housing National Guard operations, CEO Amol Sarva told Commercial Observer.

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The company has started to “restructure the entire company” as the novel coronavirus outbreak forced more than 80 percent of its customers to work remotely and new ones to stop moving in. As part of the efforts, Sarva has switched his team’s focus to using the 5-million-square-feet it leases around the world for emergency needs.

“Everything’s empty right now,” Sarva said. “But there are emergency services that are desperately looking for places to put beds, places to do screenings, places to do testing. When the National Guard is in a city, it’s going to need a place to be. We are in discussions and showing different governments what we can do for them.”

To help the company survive this time, ten people on its management team have decided to take pay cuts — with Sarva himself slashing his salary in half — and the company is planning another round of layoffs in the future.

“It’s much more important that Knotel be in a good position so that it can serve everybody,” he said.

(Disclosure: Observer Capital, led by Observer Media Chairman and Publisher Joseph Meyer, is a Knotel investor.)

Even though Knotel had more than 20 deals in the works before the coronavirus outbreak wreaked havoc on the global economy, Sarva said his team is “pencils down” on them as they switch the focus to reaching out to local governments to see what they need.

“Knotel used to be about something, for the foreseeable future what it’s about is making flexibility a resource for the community around us,” Sarva said. “Once upon a time we were thinking ‘Oh, Let’s make a big business. Let’s serve all these corporates and growth plans.’ No. We serve cities and corporates and we’ve got to find a way to make flexibility a thing that helps them get through this.”

Knotel is calling its new push “Spaces for Cities” and has reached out to organizations like the Real Estate Board of New York and the Partnership for New York City to join its efforts, Sarva said. The company has just started these talks and has not finalized any agreements with local governments yet.

Hospital beds have been needed around the country to treat coronavirus patients, with recent data from the Organization for Economic Co-Operation and Development finding the U.S. has 2.8 hospital beds per 1,000 people. In comparison, South Korea has 12 beds per 1,000 people, China 4.3 beds and Italy 3.2 beds.

The government has rushed to add more and New York Gov. Andrew Cuomo issued an emergency order yesterday for hospitals throughout the state to increase their capacity by 50 percent. The Army Corps of Engineers and the Federal Emergency Management Agency have started to convert the Jacob K. Javits Center into 1,000 temporary hospital beds.

The U.S. Department of Housing and Urban Development is also mulling over a preliminary plan from multifamily fancier Walker & Dunlop to convert off-campus student housing into medical use, as CO previously reported.

The highly infectious coronavirus disease originated in China last year and has since spread to 190 countries, according to the most recent numbers from the World Health Organization (WHO). As of Monday, WHO has found 334,981 confirmed cases and 14,652 deaths from COVID-19, the disease caused by the coronavirus. In the United States, New York has been the epicenter of the coronavirus with 25,665 confirmed cases, Cuomo said today. 

The pandemic has led many governments and cities to shut down all nonessential businesses in an effort to stop the spread of the disease and caused many companies to layoff workers. On Friday, flexible meeting, event and office operator Convene laid off nearly 150 employees, close to a fifth of its staff, as CO previously reported.

Sarva said Knotel also plans to lay off workers amidst an entire restructuring of the company during this time, but the management team has not finalized the number of employees. This will be the second round of layoffs for Knotel this year, as the company let go of 24 employees that focused on the New York City market, about one-third of its staffers at its 22 West 38th Street office.

Before the coronavirus hit, Knotel has faced a series of negative headlines in recent months with Crain’s New York Business reporting in November 2019 that nearly one-third of Knotel’s New York City portfolio is sitting vacant. (Sarva previously told CO that a certain level of vacancies was par for the course for flex office companies.)

In January, a CBRE report found that Knotel signed 80 percent fewer leases in the fourth quarter of 2019 compared to the third quarter, but Sarva previously said it added about 1.1 million square feet to its portfolio in the second half of the year.