WeWork’s finances have grabbed all the headlines, but while the U.S. giant was trying and failing to raise money in an IPO, two smaller UK coworking companies entered insolvency proceedings.
One of them, The Clubhouse, has been bought by global giant IWG, which has taken over its four London sites. But the report by administrators at RSM into its demise paints a picture of how the company ended up in administration, and can serve as a cautionary tale for landlords when assessing the financial strength of coworking operators looking to lease their space.
IWG is also in talks to take over the operations of the other firm in administration, Central Working.
The Clubhouse was set up in 2011 by Director Adam Blaskey, and launched its first site, in Mayfair, in 2012. Over the past three years it expanded significantly, opening new sites in Bank, Holborn and St James’s.
But that expansion was partly funded by debt. The Clubhouse borrowed £3.5M in 2017 from a fund managed by Boost & Co., a lender that specialises in debt for small and midsize UK businesses.
The growth in income from taking on the new sites did not match the growth in costs necessary to run them. RSM said in its administrators’ report that the company had forecast a 55% increase in memberships in the 12 months to March 2020, but it was operating at a loss.
The report shows that in 2017 it made a £1.3M loss, in 2018 a £2.1M loss, and in the two months of 2019 during which it traded it made a £3.2M loss. Its Bank and Mayfair sites made the largest earnings before interest, depreciation, tax and amortisation, but also had the highest rent and overheads. The company paid £2.6M of rent in 2018.
Because of the losses, it was unable to keep up the interest payments on its loan and to other creditors.