Knotel has filed for Chapter 11 bankruptcy and is in the process of being bought by Newmark Group.
In recent months, the flex-office provider has faced mounting lawsuits filed by landlords who claimed that the startup stopped paying rent when the pandemic emptied out offices.
The bankruptcy filing aims to aid the sale of business to an affiliate of Newmark Group, while Knotel exits some locations in the U.S., the company announced Sunday night.
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“After a thorough review of strategic alternatives, we have determined that a process to sell our business and reshape our U.S. footprint is the best path forward to maximize value for our stakeholders,” said Amol Sarva, Knotel’s co-founder and CEO.
Sarva blamed the pandemic major drops in new leases and renewals in key markets, especially New York and San Francisco. “We must address this now to position our business for sustainable growth and a successful future,” he said.
But problems were emerging at Knotel before the pandemic, as its leasing fell and vacancies rose.
Knotel estimated its number of creditors at between 200 and 999, with liabilities between $1 billion and $10 billion, according to the bankruptcy petition filed with the U.S. Bankruptcy Court for the District of Delaware on Sunday. The company’s estimated assets were also listed as between $1 billion and $10 billion.
The company has obtained a $20 million commitment for debtor-in-possession financing from Newmark, Knotel said. The financing, which is subject to approval by the court, will provide liquidity to support Knotel’s day-to-day operations during the reorganization, the company said.
“We look forward to supporting Knotel through this transitional period,” said Newmark CEO Barry Gosin. “We are providing capital to Knotel so it can rightsize its business for the path forward.”
In August 2019, Knotel was valued at $1.6 billion, but is thought to be worth much less in the pandemic-ravaged market.