Newmark Receives Approval for Knotel Acquisition

Newmark Group announced that it has received approval from the US Bankruptcy Court for the District of Delaware to acquire flexible workspace platform Knotel.

Newmark expects the transaction, an asset sale under Section 363 of the US Bankruptcy Code, to close soon.

“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,” said Newmark Chief Executive Officer Barry Gosin in a prepared 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.”

In early February, Knotel and its US subsidiaries filed for bankruptcy relief under Chapter 11, with plans to be acquired by an affiliate of Newmark Group. It also planned to exit multiple locations in the US.

At the time, the company also filed a motion requesting approval of a stalking horse asset purchase agreement with Newmark. An affiliate of Newmark gave Knotel a $20 million commitment for debtor-in-possession financing that is subject to court approval.

The pandemic had a significant impact on the company, according to CEO and co-founder Amol Sarva. “The pandemic created a uniquely challenging operating environment, with significant impacts on leasing velocity and the rate of renewals in key markets, particularly New York and San Francisco,” he said in prepared remarks.

Indeed, many of these providers have struggled in the past year to meet the obligations of the long-term leases they signed when it appeared this office niche was poised for strong growth. The  business case for flex space, though, is quite alive. In a late 2020 report, CBRE noted that in its recent survey of 77 major international companies, 86% anticipate using flex space as a critical part of real estate strategies in the future. Additionally, 82% favor buildings that include flex-space offerings.

Companies such as Newmark are positioning themselves for this demand. 

As another example, CBRE acquired a 35% stake in flexible workplace provider Industrious last month, making CBRE the company’s largest shareholder and significantly increasing the broker’s footprint in the flex workplace sector.

IWG, as another example, is moving forward with a model in which it is converting some businesses into franchises, according to The Wall Street Journal, following its bankruptcy.