Knotel Hit With Two More Lawsuits for Unpaid Rent

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Flexible workspace provider Knotel’s legal troubles keep piling up and the company is facing another pair of lawsuits for skipping out on a combined nearly $2 million in rent in Manhattan, court records show.

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In the larger of the two suits, BEB Capital accused Knotel of not ponying up $1.5 million in rent since April for its six-floor outpost at 22 West 38th Street, according to the complaint filed in Manhattan Supreme Court this week. Knotel signed a 15-year lease for the Midtown space in 2016, as Commercial Observer previously reported.

On Tuesday, Winter Properties filed a suit against Knotel claiming the flexible workspace provider owes $424,000 in missed rent since April for the three-floor space at 3 East 28th Street Knotel took in 2018, according to court documents. Winter Properties canceled Knotel’s lease for the property in October after months of no rent.

Spokespeople for BEB and Knotel declined to comment. Representatives for Winter Properties did not immediately respond to a request for comment.

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

Knotel was crowned a unicorn last year after it closed on a $400 million funding round, but has faced a difficult 2020 as the coronavirus pandemic emptied office buildings around the world.

In March, the company cut half of its 400 employees, and the next month announced plans to give back 20 percent of its 5 million-square-foot portfolio to landlords.

Knotel laid off more staff in October with plans to give back even more space in the United States, as it shifts its focus to the European and Japanese markets.

“The business globally — everywhere outside of the U.S. — is flat or slightly up; in the U.S., it’s been a tough environment,” Amol Sarva, Knotel co-founder and CEO, previously told CO. “We’re going to continue exiting more properties because we anticipate more recovery time.”

Sarva declined to say how much space Knotel looked to give back, but Business Insider reported the plans call for it to cut its portfolio by more than 60 percent.

While Sarva told CO that landlords have been “really good partners and we’re trying to be a really good partner to them” as it sheds the space, the company is facing a growing number of lawsuits from property owners.

Knotel started December with 21 lawsuits filed against it in New York for nearly $10 million in damages, the majority of which are for unpaid rent, The Real Deal reported.

Knotel isn’t the only flexible workspace provider facing strain during the pandemic, tussling with landlords in courts and shuttering locations. The United States and Canada have lost nearly 6 percent of their coworking locations so far this year.

Regus parent company IWG put more than 100 locations around the U.S. in bankruptcy and threatened to dump 500 leases worldwide if landlords didn’t agree to rent cuts. Industrious was hit with a $4 million lawsuit for rent payments after it closed its outpost at 600 West Jackson Boulevard in Chicago, Crain’s reported.

Last week, IGS Realty sued Breather for missing nearly $91,000 in rent at 334 West 37th Street, while Breather laid off the majority of its staff. 

Breather started insolvency processes in the United States and Great Britain with plans to shutter all of its more than 400 locations and switch to an online-only platform. CEO Bryan Murphy told The Globe and Mail that the company’s current business model “doesn’t make sense.”

Despite the grim outlook for the coworking market, operators have become more and more optimistic in recent months about the sector’s future, as they expect an increase in the need for flexible spaces as companies will be wary about signing long-term deals post-pandemic.