The Real Deal New York

Knotel is WeWork’s fiercest rival. Here are its internal numbers.

Flexible office startup had heavy losses amid rapid expansion
By Konrad Putzier | October 24, 2018 07:00AM

Amol Sarva (Credit: Jhila Farzaneh, iStock)

Rapid expansion comes at a price. Knotel, one of WeWork’s biggest threats, racked up an EBITDA loss of $24.1 million on $17.6 million in revenues between January and July, according to internal numbers obtained by The Real Deal. The company’s operating loss stood at $11.6 million.

Founded in 2016, Knotel expanded from just 200,000 square feet of office space under management at the beginning of 2017 to 1.7 million square feet today. At the end of the third quarter it had 86 locations, including 71 in New York City.

The company’s weighted average occupancy rate stood at just 58 percent in July, in part because newly opened locations take time to lease up. Knotel declined to comment on the figures.

In April, following a $70 million funding round, the co-working company was valued at $500 million. On Tuesday, the Wall Street Journal reported that Knotel raised $60 million in venture funding, including $50 million from Norwest Venture Partners, bringing its total fundraising to $160 million.

It’s not unusual for early-stage real estate services companies to lose a lot of money. Knotel’s losses (and revenues) pale in comparison to WeWork’s, which recorded a net loss of $723 million on $764 million in revenues in the first half of the year, according to Recode.

Like its bigger rival, Knotel hopes to become profitable soon. Once it has grown to 2.5 million square feet of “mature” spaces with an average occupancy rate of 90 percent and income of $88 per square foot (it made $73.30 in July, but claims to have averaged $86 on mature spaces), the company expects to turn its EBITDA loss into a $43.1 million profit on $198 million in revenues. The documents claim that Knotel’s current revenue run rate is close to $100 million. (WeWork said in August that its run rate was projected to hit $2.3 billion by the end of 2018.)

Founded by Amol Sarva and Edward Shenderovich in 2016, Knotel’s backers include Newmark Knight Frank, the Sapir Organization, the Wolfson Group, Bloomberg Beta and Invest AG.

The company leases office space, builds it out, furnishes it and leases it to companies under flexible terms for a markup. Unlike WeWork, the company doesn’t cater to freelancers. It also claims to spend less on build-outs than some if its peers, with average expenditures of $30 per square foot.

Like other flexible office companies, Knotel has been trying to switch from leases with landlords to hotel-style management agreements. These deals accounted for 13 percent of its spaces that were open or about to open in the third quarter.

Earlier this month, Knotel announced it would open a new location at CIM Group’s 5 Hanover Square.