It has been about two years since brokerage Newmark saved coworking startup Knotel after it filed for bankruptcy. Now it finds itself tangled in litigation by a downtown San Francisco landlord that the flexible space provider failed to pay millions of dollars in rent.
Clint Reilly Landmark Properties, the owner of the Merchants Exchange Building, filed a lawsuit late last month alleging Knotel has failed to make payments for roughly a half year on its 15,000-square-foot lease at the 465 California St. building.
The newly public suit, filed in San Francisco Superior Court, appears to be the first against Knotel since it was acquired by Newmark. The filing claims Knotel and Newmark abandoned the office space in October last year and has since skipped out on about $7 million in rent.
The coworking company leased the space in 2019 as part of a deal that isn't set to expire until 2027, according to the lawsuit. The landlord is looking to recoup the millions in unpaid rent plus interest, as well as all associated attorney expenses.
Clint Reilly Properties said in a statement that it plans to “vigorously pursue all our legal remedies to be made whole on this lease.”
Neither Newmark nor Knotel immediately responded to CoStar News' requests for comments.
The lawsuit echoes the slew of legal challenges Knotel faced prior to its Chapter 11 bankruptcy filing in early 2021. Many of the coworking company's landlords, from New York to San Francisco, sued the coworking space operator for tens of millions of dollars in unpaid rent and damages in the early months of the pandemic when companies across the industry were struggling as workers stayed at home.
Business fell sharply. At the beginning of 2020, Knotel said in a court filing that it had more than 4 million square feet of leased work space under management, more than 300 tenants subleasing that space and the financing available to invest in expanded international operations. A year later, however, the company asked the bankruptcy court to to reject almost 200 lease and contractual agreements with tenants and landlords as part of its restructuring plan.
As part of that plan, Knotel struck a deal with Newmark in which the brokerage agreed to assume ownership over Knotel and its assets as well as to provide about $20 million in debt financing to the work-space provider. Its bid — which was finalized in March 2021 — was largely viewed as a boon for property owners who may have otherwise been burned by Knotel's inability to pay its rent.
The brokerage said in its year-end 2022 report that its Knotel acquisition helped it expand internationally after decades of focusing solely on North American growth. However, Newmark acknowledged that it could face “uncertainties related to integrating certain assets of Knotel Inc.” into its existing business.
At its height, Knotel leased about 1 million square feet across several San Francisco locations. The coworking operator appears to have offloaded its entire Bay Area footprint since its bankruptcy filing. Its North American footprint now focuses on four locations: Austin, Toronto, Miami and White Plains, New York, according to its website.