September 12, 2019 / 3:46 PM / 9 days ago

CommonGrounds raises $40 million more to expand flexible workspace network in the U.S.

FILE PHOTO: Jacob Bates, chief executive of CommonGrounds, is seen during an interview in New York City, U.S., November 28, 2018. REUTERS/Herbert Lash/File Photo

NEW YORK (Reuters) - CommonGrounds Workplace has raised an additional $40 million from existing investors as it bets on a proprietary movable-wall system it hopes will reduce costs as it builds out a national flexible workspace network, the company said Thursday.

The San Diego-based company has eight locations after raising $100 million in January, and expects to open 21 by March 2020 as part of a two-year plan to have 50 locations and become one of the biggest flexible workspace operators in the country.

Plans call for a 2 million square feet (186,000 square meters) footprint, which today would put it on par with Knotel, the third-largest U.S. flex space operator after industry leaders, The We Company’s WeWork and IWG Plc (IWG.L).

With the new, reusable alternative to drywall that it says will be an industry game-changer, CommonGrounds expects to cut operating costs, which have been under scrutiny because of rival WeWork's massive losses here ahead of an initial public offering.

“It’s definitely a very sustainable product. We’re not going to get to zero drywall, but we’re going to get to a place where we’ll have a lot less drywall than we have today,” Bates said.

The walls, developed with Italy’s Tecno SpA, have built-in electricity and internet cable, connect to heating, ventilation and air conditioning systems and will reduce future demolition and construction costs of building offices, the company said.

The trend is for companies to reduce leasing terms to two or three years from a typical 10-year contract, leading to the steady demolition of gypsum-based “drywall” panels, Chief Executive Jacob Bates told Reuters.

CommonGrounds, which has exclusive rights for Tecno’s product in flexible workspaces, is seeking a U.S. patent for the movable walls.

The installation of two 12-foot (3.66-meter) sections of its wall system took four hours at its Denver site, instead of at least a week using drywall, the company said.

Reporting by Herbert Lash; Editing by Bernadette Baum

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