(Adds 60 new locations expected to open next year in last paragraph, adds byline)
By Herbert Lash
NEW YORK, Aug 22 (Reuters) - Industrious, one of the largest U.S. coworking rivals of We Company’s WeWork, said on Thursday it raised $80 million from investors and expects to turn a profit next year.
The announcement came a day after Knotel, another large flex-space operator, announced the completion of $400 million in financing.
Both investments reflect investor interest in operators of flexible workspace other than workspace provider WeWork, which is valued at $47 billion. Last week WeWork filed with regulators to go public, perhaps as early as next month.
WeWork could raise several billion dollars in its IPO, a key test of investor appetite for the fast-growing company, which operates in 528 locations in 29 countries but after nine years in business has yet to turn a profit.
Demand has steadily grown for flexible office providers as they offer companies the ability to sign shorter-term leases than landlords typically are willing to provide. The model has been criticized for exposing flex-space operators to a mismatch of short-term revenue with long-term liability.
Industrious has now raised just over $220 million after the Series D round of investment from a retail unit of Brookfield Property Partners, fitness operator Equinox and Canada Pension Plan, a major component of Canada’s retirement system.
“In a few months we’ll be a profitable business,” Jamie Hodari, co-founder and chief executive of Industrious, told Reuters.
He said that Industrious realizes a 30% profit margin when it signs a direct lease with a landlord but that when it enters into a partnership with a landlord its profit margin rises to 90%, albeit on less revenue.
New York developer TF Cornerstone and Plano, Texas-based Granite Properties also participated in the fund-raising round.
Cash flow in the first six months of this year covered 90% of Industrious’ overhead and by the first quarter of 2020 should cover all of it, Hodari said.
The company has turned to revenue-sharing agreements in which landlords invest the majority of money for new locations. A more capital-efficient model will allow Industrious to speed up growth of its nationwide network, it said in a statement.
Industrious now has more than 80 locations in 45 U.S. cities, more than double the number of sites since it raised $80 million in February last year in a Series C round, the company said. The company expects to launch around 60 new locations next year, Hodari said.
Reporting by Herbert Lash, Editing by Howard Goller and Steve Orlofsky