IN THE UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE
In re:
KNOTEL, INC., et al.,1
Debtors.
Chapter 11
Case No.: 21-10146 (MFW) (Jointly Administered)
Re: Docket Nos. 16 & 162
DECLARATION OF ALAN TANTLEFF IN SUPPORT OF THE OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO THE DEBTORS’ BID
PROCEDURES MOTION
Alan Tantleff, pursuant to 28 U.S.C. section 1746, declares as follows:
This declaration (this “Declaration”) is submitted in support of the objection [Docket No. 162] (the “Objection”) of the Official Committee of Unsecured Creditors (the “Committee”) appointed in the bankruptcy cases of the above-captioned debtors and debtors-in-possession (the “Debtors”) to the Debtors’ Motion For Entry of An Order Approving (I)(A) the Debtors’ Entry into Stalking Horse Agreement and Related Bid Protections, (B) the Bidding Procedures in Connection with the Sale of Substantially All of the Debtors’ Assets, (C) the Procedures for Assumption and Assignment of Executory Contracts and Unexpired Leases, (D) the Form and Manner of Notice of the Sale Hearing, Assumption Procedures, and Auction Results, and (E) Dates for an Auction and Sale Hearing; (II)(A) the Sale of Substantially All of the Debtors’ Assets Free and Clear of All Claims, Liens, Liabilities, Rights, Interests, and Encumbrances and
1 A complete list of each of the Debtors in these chapter 11 cases may be obtained on the website of the Debtors’
(B) the Debtors’ Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (III) Granting Related Relief (the “Motion”) [Docket No. 16].2
PROFESSIONAL BACKGROUND
1. Since September 2010, I have been employed in the New York City office of FTI Consulting, Inc. (“FTI”). I am currently a Senior Managing Director, where I am part of FTI’s Real Estate Solutions practice. I also lead FTI’s Hospitality, Gaming, and Leisure practice. FTI has been selected as the financial advisors to the Committee.
2. I have a Bachelor of Science in Hotel Management from the School of Hotel Administration at Cornell University, and a Master of Science in Real Estate Investment and Development from New York University.
3. I am a licensed real estate broker in the State of New York.
4. I am approved by the New York State court system as a Part 36 Certified Real Estate Receiver.
5. Prior to joining FTI in 2010, I was a Managing Director at Hotel Asset Value Enhancement, a boutique asset-management and advisory practice dedicated to the hospitality industry. Before that, I worked at BlackRock Financial Services, leading the efforts in hospitality workouts and restructuring of the financial manager’s $6 billion sub debt portfolio.
6. Before then, I was employed for approximately ten years at Jones Lang LaSalle Hotels responsible for the sale and financing of hospitality real estate. Jones Lang LaSalle (“JLL”) is the second largest commercial real estate brokerage and service provider in the world with annual revenue of $18 billion (as of 2019).
7. I previously worked for the Prudential Insurance Company of America managing the Prudential’s debt and equity investments in the United States.
8. In my approximately 30 years as a real estate finance professional, I have had diverse, hands-on experience in real estate investment and development, workouts and restructuring, asset management, foreclosures, structured debt and equity financing, brokerage and acquisitions and dispositions. In addition to working on hotel and hospitality investments and company assignments, I have frequently been asked to work on matters involving operational real estate - those forms of real estate that have an active business component like co-working. In that regard, I have sold or financed more than $5 billion of real estate primarily in the United States.
9. I have also been involved in numerous real estate sales, including 363 sale processes conducted under the purview of the bankruptcy court, UCC foreclosure sales in the States of New York and Florida, judicial and non-judicial foreclosure sales, and traditionally marketed real estate sales that often employ the auction format or modified auction format.
10. Based on my review of the Debtors’ proposed Bid Procedures and 30 years’ experience in the real estate industry, the Bid Procedures set forth fall woefully short of the process required to achieve the highest and best offer for the Debtors’ assets and business. This primarily arises from the extremely compressed timetable for the sale, which does not allow sufficient time for prospective bidders to evaluate the assets and submit a qualified bid, especially given the complexity and size of the Debtors. This highly aggressive timeline will chill interest in the auction and thus chill competitive bidding.
engaged in no prepetition marketing. As set forth in the Bid Procedures, the Bid Deadline is Sunday, February 28. If counted from the Petition Date, the sale process as proposed is only 28 days from commencement of the Chapter 11 Cases to bid submission.
12. From there, the pace accelerates with the Auction scheduled several days later, on March 4. The sale objection deadline is proposed by the Debtors to be February 22. Objections to the auction itself are due by March 3, the day after the proposed March 2 auction. Likewise, objections to adequate assurance are shortened.
13. Based on the Declaration of John M. Jureller in Support of First Day Relief (the “First Day Declaration”) [Docket No. 3], the Debtors had over 4 million square feet of leased workspace, over 300 customers, and operations in major cities in the US and abroad. While the Debtors are seeking to reject a number of their non-residential real property leases, they still have numerous leases left to market. The Debtors also operate the commercial real estate search engine 42Floors, which they acquired in 2018, with plans to build a blockchain platform.3 I understand that 42Floors is a separate corporate entity wholly owned by the Debtors.
14. A sale of a major and complex business such as this requires a significant amount of investigation to satisfy prospective bidders (and their lenders). A reasonable investor would investigate real property leases, customer contracts, books and records regarding the financial performance of the Debtors, intellectual property and other intangible assets, employee matters, taxes, and other assets and liabilities that would be assumed or left behind as part of a transaction. There also are significant complexities owing to the international footprint (the numerous non-debtor wholly owned foreign subsidiaries) and arrangements of the Debtors’ business that need to be understood and evaluated by any prospective bidder.
https://techcrunch.com/2018/07/18/knotel-acquires-42floors-in-order-to-build-the-blockchain-of-15. The same is true for the Debtors’ PropTech company, 42Floors.
16. While there are no strict guidelines for the length of a “reasonable” sales process, the timetable here is inadequate for a sale of this type. In my experience, bidders should have at least 60 to 90 days to conduct diligence. For these reasons and the reasons discussed throughout this Declaration and the Committee’s Objection, this compressed timetable is wholly unreasonable.
17. An extension of the timeline will promote a more competitive process and increase the potential for a robust auction which would result in a value-maximizing transaction. The rushed process currently contemplated only serves to chill bidding and reduce competition.
18. The Debtors engaged Moelis in November 2020 to serve as their financial advisor, capital markets advisor, and investment banker to assist the Debtors in pursuing strategic alternatives. Moelis focused its efforts on obtaining debtor-in-possession (“DIP”) financing and began a solicitation process for a DIP prior to the Petition Date.
19. Moelis’ sale marketing efforts did not commence until after the Petition Date, when the sale timeline had already commenced. Moelis has provided FTI with the names of the potential buyers contacted as of February 12, 2021. We have identified additional strategic and financial buyers that are not included on Moelis’ list, and have provided those names to Moelis and will continue to provide additional names to them.
21. PropTechs use technology to disrupt the real estate industry and improve the way people buy, rent, sell, design, construct, and manage residential and commercial property.
22. Investment in PropTechs is “hot.” PropTech start-ups have raised over $43 billion in funding (as of 2018) worldwide since 2012, with a year-over-year increase of 82% in 2018.4 While the amount of venture capital invested in PropTech start-ups decreased 25% worldwide in 2020, largely due to the pandemic, investments in PropTechs still managed to exceed $23 billion.5
23. Large real estate companies are funneling significant resources into this business. For example, JLL recently started a venture fund, JLL Spark, to invest in commercial real estate technology startups.
24. In addition to PropTech investment activity, the real estate M&A market is booming. In December, Thoma Bravo purchased property management software company RealPage, for $9.6 billion. Recently, JLL purchased HFF, a capital markets service provider, for $1.8 billion, Costar bought several rivals, including Ten-X for $190 million, and two prominent real estate companies, CBRE and Tishman Speyer, announced plans to form their own SPACs (special purpose acquisition companies) to pursue acquisitions, just to name a few.
25. The Debtors’ business model is not only confined to selecting, building, and maintaining workspace for enterprise customers through traditional means. The Debtors own and employ a powerful tool, 42Floors, which is a commercial real estate search engine, to obtain
4 Doron Gibor, Amit Harel & Maya Madar Trajtenberg, Real Estate Predictions 2020, Proptech on the Move, Deloitte, https://www2.deloitte.com/content/dam/Deloitte/pt/Documents/RealEstate/repredictions2020/deloitte-re-predictions-2020-5.pdf (last visited Feb. 15, 2021).
“access to data and technology on over 10 billion square feet of office space.”6 They also employ a custom workflow software program to coordinate a tech-enabled global supply chain.
26. These are the types of assets that would be very attractive to PropTech and other potential bidders and positions the Debtors to command a premium compared with traditional real estate companies given their scalability and comparably higher growth potential. The Debtors’ marketing process needs to take full advantage of these assets and current dynamic in the PropTechs.
27. Despite only being retained by the Committee to serve as its financial advisor on February 10, 2021, I and my colleagues at FTI have received in-bound investor inquiries. These parties either have not been contacted or declined to participate in prior fund raising efforts of the Debtors for fear of not being able to act within the compressed timetable, suggesting that additional bidders would come forward if the sale process is lengthened to a more reasonable timeframe.
I declare under penalty of perjury that the foregoing is true and correct based on my knowledge, information and belief.
Dated: February 15, 2021 /s/ Alan Tantleff Alan Tantleff
CERTIFICATE OF SERVICE
I, Christopher M. Samis, do hereby certify that on February 15, 2021, a copy of the foregoing
Declaration of Alan Tantleff in Support of the Objection of the Official Committee of Unsecured Creditors to the Debtors’ Bid Procedures Motion was served on the parties listed on the attached
service list via email.
/s/ Christopher M. Samis
2
SERVICE LIST
MORRIS, NICHOLS, ARSHT & TUNNELL LLP
Robert J. Dehney, Esq. Matthew B. Harvey, Esq.
Matthew O. Talmo, Esq. Andrew R. Workman, Esq. 1201 N. Market Street, 16th Floor P.O. Box 1347 Wilmington, DE 19899 Email: rdehney@morrisnichols.com mharvey@morrisnichols.com mtalmo@morrisnichols.com aworkman@morrisnichols.com Delaware Counsel for the Debtors
MILBANK LLP
Mark Shinderman, Esq. Daniel B. Denny, Esq.
2029 Century Park East, 33rd Floor Los Angeles, CA 90067
Email: mshinderman@millbank.com ddenny@millbank.com Counsel for the Debtors
Joseph James McMahon, Jr., Esq. United States Department of Justice Office of the United States Trustee 844 King Street, Suite 2207 Lockbox #35
Wilmington, DE 19801
