Court Approves Newmark’s Acquisition of Bankrupt Knotel
By Nicholas Rizzi March 18, 2021 5:23 pm
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A Delaware bankruptcy court approved Newmark’s acquisition of flexible workspace provider Knotel on Thursday, with the brokerage anticipating the sale to “close shortly,” Newmark announced.
After Knotel filed for bankruptcy in January, Newmark provided about $20 million in financing to the coworking operator and made a $70 million stalking-horse bid to acquire the company. Newmark inched closer to closing the deal last week when no other bidders stepped in.
“Flexible workspace has been one of the fastest-growing areas of commercial real estate, and we expect this adaptive model will play an important role in the future of our industry,” Newmark CEO Barry Gosin said in a statement. “As a global commercial real estate leader, Newmark believes that our nimble integrated platform, combined with Knotel’s capabilities, will provide superior management and consulting services to corporations and owners around the world. We look forward to completing our purchase of Knotel and welcoming so many of their talented professionals to Newmark.”
Newmark said it would provide an update on the financials for the Knotel acquisition during its first-quarter earnings call, and it’s not clear how many Knotel locations will remain open. In a filing with the New York State Department of Labor last month, Newmark said it plans to continue to employ “many, if not most” of the 106 Knotel staffers in New York City.
(Disclosure: Observer Capital, led by Observer Media Chairman and Publisher Joseph Meyer, is a Knotel investor.)
Knotel was founded in 2016 by Amol Sarva and Edward Shendorvich to offer mid-size and enterprise companies private workspaces with their own branding managed by Knotel that carried flexible lease terms.
It was crowned a unicorn in 2019, but it had a money-burning business model. Leaked financials obtained by Business Insider showed Knotel had $225 million of net losses in 2019. And the pandemic exacerbated Knotel’s problems.
Despite Sarva publicly stating he expected Knotel to become profitable by the end of 2020, it still lost about $49 million in the first half of that year and owed vendors $84 million, according to Business Insider.
The company had two rounds of layoffs during the pandemic, started to give back huge chunks of its portfolio to landlords, and is facing a growing number of lawsuits from owners over unpaid rent.
Those lawsuits didn’t stop after the bankruptcy filing either. Y&H Realty Corporation hit Sarva with a suit this week to get back $644,443 in missed rent from Knotel at its 116 West Houston Street location.
But, even with Knotel’s problems, experts previously told Commercial Observer that Newmark’s acquisition makes perfect sense. It allows the brokerage to salvage its earlier investment into Knotel, and gives Newmark a flex office platform to meet the expected surge in demand for the market.
“It’s now becoming very common for the big landlords to have their own coworking facilities,” Ruth Colp-Haber, president and CEO of brokerage Wharton Property Advisors, previously told CO. “There’s just a lot of need for easy and short-term space, and Newmark, they’re talking to tenants and they hear it.”
