- Knotel’s CEO sent an email to staff on Tuesday announcing that the company would continue cutting its real estate footprint with a move toward master partnerships.
- The embattled flex-space company has been hit by myriad landlord lawsuits alleging nonpayment, including two filed in New York City this past week.
- In late October, Knotel cut about 20 members of its staff. Those who left included the company’s head of people, its head of product and marketing, and the VP of growth.
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Knotel, like many of its peers in the flex-space industry, is rethinking its real estate footprint.
In an email sent to staff on Tuesday, Knotel’s cofounder and chief executive, Amol Sarva, told staff the company would reduce its office space further – an ongoing effort since the start of the pandemic.
Sarva also said in the email, which Business Insider has viewed, that Knotel would move to more partnership agreements, in which the company shares a slice of the profits or revenue with the landlord and doesn’t pay a fixed lease payment, similar to hotels.
“For the moment, the imperative is to wind down spaces that are waiting on demand. This is not unique to Knotel, but widespread across the industry,” Sarva wrote in Tuesday’s email, noting that demand has been well below the company’s expectations as the pandemic continues to dampen appetite for offices.
Knotel’s continued reduction in its office space since March is the latest sign of the contraction in the flex-space industry, which continues to struggle with tepid demand for urban offices during the pandemic. Peers, including WeWork, Convene, and Industrious, went through layoffs at the start of the pandemic and have spent recent months renegotiating leases. Knotel, too, reduced its headcount by about 20 last month after big cuts in the spring.
It’s unclear whether Knotel can successfully negotiate partnership agreements, given myriad lawsuits spanning multiple cities that allege Knotel hasn’t paid millions in rent. The company did not respond to a request for comment.
Some companies, like Convene and Industrious, have always largely focused on partnership agreements. The agreements are considered more stable, with less upside and downside for the flex-office company.
For Knotel, Sarva wrote that the partnership agreement change is “a rare moment to transform our portfolio and emerge with a more asset-lite business.”
In addition to Knotel’s recent layoffs, which included a number of executives, the company was hit with two more lawsuits from New York City landlords that alleged the company hadn’t paid more than $1 million in rent. Recent Knotel departures, both voluntary and because of layoffs, include the head of real estate, the head of people, the head of product and marketing, and the VP of growth.
Even before the onset of the COVID-19 crisis, Knotel had fallen far short of ambitious financial targets. It achieved unicorn status in 2019 with a funding round that valued it at around $1.3 billion.
The company lost $223 million in 2019 and at the end of the first quarter of 2020 had $238 million of outstanding liabilities against $110 million in assets, according to internal documents viewed by Business Insider.
Since then, the pandemic has dramatically diminished customer demand as employees across office-using sectors of the economy have embraced remote work. To try to buttress its financial position and weather the downturn, Knotel, in recent months, has looked to raise up to $100 million in a fundraising effort that it told employees would wrap up at the end of August.
Multiple sources said the company has made no recent internal reference to that $100 million raise. In Tuesday’s email, Sarva said he and his cofounder would focus on fundraising.
“We have innovated under immense pressure to stretch services and meter costs, and we’ll continue to exercise this muscle as a best practice that endures long after the pandemic subsides,” Sarva wrote.
Some of those practices, Business Insider found, included not paying landlords and vendors for months, even before the pandemic. At the end of the first quarter, Knotel had nearly $84 million in accounts payable.
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