How long can capital play with Eggshell?

On January 17, 2020, Eggshell Apartments landed on the New York Stock Exchange for a while, but now it is in a crisis of life and death. On November 16, the news of “Eggshell Apartments is about to declare bankruptcy” appeared on the hot search. Although Eggshell Apartments quickly clarified on the official Weibo, “We are not bankrupt, and we will not run away”, but this did not dispel public doubts.

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Image source: Eggshell Apartment official Weibo

In contrast, the share price of Eggshell Apartments skyrocketed in the next two days. First, the stock price suddenly rebounded on November 17 with an increase of 75%, and then on the 18th, the stock price continued to rise. The increase was once close to 108%, and the turnover rate exceeded 518%.

The reason for such a dramatic scene is mainly because the market has spread freely, I love my house or will take over the eggshell apartment.

Regrettably, Ziru officially gave a categorically negative answer in the first place. As for the rumors that I love my family, the relevant person in charge of my family denied the acquisition on the evening of November 18. Under the influence of this news, the share price of Eggshell Apartments has dropped significantly, but speculation remains strong.

The eggshell apartment with a broken capital chain is like a squid caught on an iron plate. On the one hand, it is a supplier, cleaning and decoration worker waiting for the payment, and on the other hand, it is the owner who cannot receive the rent, but has no house to live in. Tenant.

But now, how long can the eggshell apartment on the edge of despair last?

The life and death of the eggshell apartment

Since its listing, this parent apartment brand has been in constant disputes.

In particular, the recent mass complaints made Eggshell Apartments even more devastated. On October 16, the Eggshell headquarters located in Chaoyangmennei Street, Dongcheng District, Beijing, was crowded with hundreds of people from all over the country who came to defend their rights. The rights protection site includes suppliers, cleaning workers, renovation workers, landlords, tenants, and all people upstream and downstream of long-term rental apartments.

According to many on-site decoration suppliers, Eggshell Apartments has been in arrears with the project payment for a year, ranging from hundreds of thousands to millions of yuan. In order to attract attention, some suppliers even beat the gong to ask for salary, with “civilized asking for salary” written on the gong.

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Image source: Sina Finance

Many local landlords came here on leave. They claimed that Eggshell had not paid the rent for more than two consecutive months, and the penalty for unilateral termination of the contract was delayed. In addition, the eggshell cleaning and maintenance workers were also owed months of wages.

In addition to Beijing, eggshell companies in Shanghai, Shenzhen, Wuhan and other places have experienced door-to-door rights protection incidents. The fuse of this incident originated from the fact that since October, some landlords discovered that the rent had not been paid on time. Some tenants also discovered that the cleaning lady did not come to clean the house on time for several weeks, and the tenants received the landlord. Want to take back information about the house.

When they tried to solve the problem, they found that many eggshell butlers had long been lost, and the customer service calls were often unreachable.

Since then, rumors of “eggshell going bankrupt and running away” have spread widely on social media. Eggshell Apartment has repeatedly refuted rumors to the outside world and promised that it “has established a dispute resolution team,” but the fundamental liquidity problem has not been alleviated.

In fact, the liquidity crisis of eggshells has already emerged. In January 2020, Eggshell Apartments was successfully listed on the New York Stock Exchange. As the second listed long-term rental apartment brand, Eggshell was sought after by many investors at the time, and the US stock market was valued at US$2.74 billion.

But shortly after listing, eggshells began to fall into troublesome times.

During the epidemic, many parents renting apartments, including Eggshell, were exposed by the media due to the emergency of the funding chain. On the grounds of the epidemic, Eggshell freely asked the landlord to reduce rent, otherwise the contract would be “violently” terminated; on the other hand, the rent was not granted. The rent reduction of customers and even the service fees for the inability to provide cleaning services due to the epidemic are still collected. This is in sharp contrast with the previous large-scale premium housing.

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Hu Jinghui, chief economist of Jinghui Think Tank, said in an interview with the International Finance News, “After the first stock of long-term rental apartments broke out in May this year, Shanghai’s CCB’s Shanghai Jianxin Housing Service Co. After the eggshell crisis emerged in June, the relevant departments in Beijing also led the head office of China Construction Bank to communicate, but because of the excessive debt of the eggshell, this negotiation ended in failure a month later.”

According to Hu Jinghui, Eggshell then took the initiative to find Freedom, and only after the negotiation ended did he contact me and love my home. However, the debt of eggshell is as high as more than 6 billion yuan, and it is unlikely that I love my family to take over. “I love that as a listed company, my family needs to be responsible for performance. They can figure this out.”

In addition, the crisis mentioned by Hu Jinghui was the investigation of Eggshell CEO Gao Jing.

On June 18, Eggshell Apartments issued an announcement stating that the co-founder, director and president Cui Yan was appointed as acting CEO. At the same time, it explained that the original Eggshell CEO Gao Jing “is under investigation by local government departments.”

In order to clarify the relationship, Eggshell Apartment added that “Gao Jing’s investigation is a personal issue, which is related to his personal business investment before the creation of Eggshell Apartment, and has nothing to do with Eggshell Apartment.”

But does all this really have nothing to do with the eggshell apartment?

According to Southern Weekend, eggshell CEO Gao Jing may be involved in a state-owned asset of 600 million yuan behind the investigation. On March 18, 2020, Eggshell Apartment announced that it had received a local government investment. The partner was Jiangsu Kunshan Huaqiao Economic Development Zone Management Committee, and the funder was Kunshan Yinqiao wholly-owned by Kunshan State-owned Assets Supervision and Administration Commission. Holding Group Co., Ltd.

However, Eggshell did not fulfill its promise, but embezzled the state-owned assets for other purposes. In this regard, the eggshell denied it. But what is indisputable is that Gao Jing, the original eggshell CEO, has been investigated by the local government.

Cui Yan, the acting CEO who took office urgently, failed to alleviate the mess left by his predecessor. Gu Guodong, who resigned from Baidu in May and took over the responsibility of Eggshell COO, also resigned in October for personal reasons.

After that, the eggshells continued to slide into the abyss of death in the condemnation of hundreds of thousands of tenants, landlords, and suppliers.

The red and black of the long-term rental model

Many of the young people who have lived in the first-tier cities feel bitter about renting a house.

They have either been squandered by the renting agency or the landlord has made it difficult for them to withhold money. Even some cities have policies to improve the rental environment, and these people will eventually be affected for no reason.

Since 2010, housing prices in first-tier cities have climbed to desperate levels. Even if most families emptied the “six wallets”, it is difficult to buy a living room, and renting a house becomes a rational choice.

Whether it is a newcomer to the workplace or a worker who has worked for many years, what they want most is to rent a cost-effective house. However, the personal renting experience of various black intermediaries and unscrupulous landlords makes them yearn for a transparent and fair renting platform.

At this time, the state launched a policy of “simultaneous rent and purchase”, which brought warmth to the rental market.

In 2014, Gao Jing, who had worked at, received 2.5 million in start-up capital to establish Eggshell Apartment. The investor was CEO Shen Boyang, and he has since become the chairman of Eggshell Apartments.

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Image source: Eggshell official website (Shen Boyang is the fourth from the left in the front row, Gao Jing is the fifth from the left)

What Eggshell caught was the pain point of the rental market at that time—the information was opaque and filled with black intermediaries. Although Gao Jing is also doing a “second landlord business”-renting out the owner’s house to young people and providing corresponding services.

However, in terms of service experience, Eggshell has already dealt a dimensionality reduction blow to rental intermediary companies that are still reckless. When young people see rooms with transparent prices and neat decoration, they would rather choose an eggshell apartment for a few hundred dollars.

Entrepreneurship is not only a business model, but also the scale of capital, which is inseparable from the support of capital.

Over the years, Shen Boyang has been doing trust endorsement for Eggshell Apartments. The investment lineup brought by Eggshell is also getting stronger and stronger, ranging from Joy Capital, Youke Workshop, Global Tiger Fund, to Ant Financial.

In the four to five years since its establishment, Eggshell Apartments has repeatedly raised funds. The number of houses has expanded from more than 8,000 to 500,000 rooms. It has become the top three long-term rental apartment brand in the domestic market and successfully listed on the New York Stock Exchange. .

In fact, long-term renting an apartment is a good way to solve the difficulties of young people in renting. At present, the model of long-term rental apartments is mainly divided into two types: one is decentralized long-term rental apartments, which are intermediary platforms for renting houses represented by eggshell, living together, and free; the second is centralized long-term rental apartments, such as Vanke Park and Longhuguan. Real estate companies represented by Yu Yu and Xuhui Ling Yu.

However, in terms of the number of houses, centralized long-term rental apartments and decentralized long-term rental apartments cannot be compared at all.

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Image source: “China’s long-term rental apartment scale rankings for the third quarter of 2020”

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Last year, the number of distributed long-term rental apartments was several times more than this year’s centralized housing

Image source: “China’s long-term rental apartment scale rankings in the first half of 2019”

Generally speaking, a centralized long-term rental apartment will contract the entire building, uniformly decorate the rooms, and then rent it out. The initial cost of this model is high, operators are often real estate companies, and rents are relatively high.

And behind the decentralized long-term rental apartments are more third-party platforms, which can flexibly sign a large number of idle houses from various districts and expand the scale faster.

In the short term, decentralized long-term rental apartments are more in line with the needs of young people. These rented houses are scattered in every corner of the city, and tenants can choose the most suitable house according to attendance time and traffic route. However, due to the large initial investment in centralized long-term rental apartments, the number of houses in the short term is small, and tenants do not have much choice.

However, in the long run, many hidden worries in decentralized long-term rental apartments have emerged. For example, in order to compete with each other, many brands of long-term rental apartments have signed a large number of houses from the landlord at a premium, while on the other hand they have subsidized the tenants.

The “high-in, low-out” model is inevitably unsustainable. Short-term financing can be used to burn money for expansion, but long-term financial pressure will sooner or later crush corporate cash flow. This is the case with Eggshell Apartments, which has suffered huge losses since its establishment.

According to statistics from the Shell Research Institute, as of the first half of 2020, as many as 84 long-term rental apartments have been publicly reported by the media that they are in business difficulties; before that, in 2019, 52 parents renting apartments faced varying degrees of financial chain breaks, runaways or bankruptcies.

As the first long-term rental apartment brand to be listed, Qingke Apartments had a thunderstorm half a year earlier than Eggshell Apartments, and the long-term rental apartment market fell into continuous turbulence.

Crime and Punishment of Rent Loan

On November 17, the Shenzhen Municipal Bureau of Housing and Construction issued an emergency notice stating that housing leasing companies should not use methods such as “high-in-low-out”, “long-term income and short-term payment” to increase the risk of corporate capital breakage and infringe upon housing rights holders and tenants. The legitimate rights and interests of the tenants shall not be induced to use housing rental consumption loans in the name of rent installment, rent concessions, etc.

The “long-term receipt and short-payment” model is a typical feature of rental loans. If the “high-in, low-out” model has crushed corporate cash flow, the “long-term receipt and short-term payment” model has created a four-loss situation for landlords, platforms, banks, and tenants.

The so-called “rental loan” means that the tenant signs a house lease contract with the long-term rental apartment. The operator of the long-term rental apartment cooperates with financial institutions to guide the tenant to apply for the loan and pay a one-year rent and deposit in advance. Rent is paid monthly, and the tenant repays the loan from the financial institution every month.

This model was originally regarded as a good way to solve the pain point of tenants paying a large amount of rent at one time, but unfortunately, with the intervention of long-term rental apartments to form a pool of funds, it has become a financial weapon for excessive leverage and expansion.

Chen Wen, an associate professor at the School of Finance of Southwest University, explained to Hu Xiu that through the “rental loan” model, long-term apartment operators can often get a large amount of rent prepaid by the tenant from the bank at one time, and they take the prepaid funds. To increase leverage, to acquire more listings to complete the scale expansion.

Correspondingly, Chen Wen emphasized that if there is a problem in one of the links, such as the decline in rental income and the failure of the acquired house to be rented out on schedule, it will lead to the failure of the’rental loan’ model and the breakdown of funds.

Specifically, a former employee of Eggshell told Hu Xiu, “If Eggshell receives the landlord’s house and pays 2,000 yuan, he rents it to the tenant for only 1,800 yuan. The tenant has to pay through the APP he designated. This APP Eggshell I will borrow a year’s rent from it, all rooms are like this, and then use the money to invest. The eggshell is mainly to make investment money.”

According to him, but this year encountered the epidemic, eggshell investment income was not good, and there was no way to pay the landlord the annual rent, so the landlord would rush the tenant if he did not get the money. Some landlords demand quarterly payments, but if the eggshells cannot be paid, the landlord will rush the tenants.

In other words, once the cash flow of a long-term rental apartment becomes tight, the rent cannot be paid to the landlord, and even basic living services such as water, electricity and heating cannot be guaranteed. Then, if the landlord cannot collect the rent, the tenant will naturally be cleared out. Not only do they face the situation of no house to live, but they are also burdened with a personal loan. If they fail to repay the loan on time, it will even affect their personal credit.

In addition, the turmoil of Eggshell Apartments has also put on hot searches along with WeBank, which cooperates with rental loans.

On November 16, Weizhong Bank issued an announcement in response, stating that it has noticed the relevant situation of Eggshell Apartment, and for the “rental loan” tenants who are forced to move out of the apartment, credit reporting will not be affected at least until March 31, 2021 .

In August 2018, Hu Jinghui, who was the vice president of I Love My Family at the time, blasted long-term rental apartment operators such as Freedom and Eggshell to compete for housing at a price 20%-40% higher than the market price. He warned against this that the explosion of long-term rental apartments must be more severe than P2P thunderstorms.

Two years later, long-term rental apartments still thundered one after another. If these violations are not further regulated, the long-term rental apartment thunder will continue to ferment.

Why does the eggshell crisis break out and competitor Freedom still seems stable? Chen Wen said that in addition to the freedom, the profitability of Shell House Search in the Lianjia system is also very dismal, but Lianjia has a very strong fund-raising ability behind it. For Internet companies, whether they die or not mainly depends on whether capital expenditures support it.

As for how long the eggshell apartment can last? Chen Wen believes that if later capital still accompanies it to play, the eggshell will not die for a while. If capital has abandoned it, then the eggshell has no other choice but to go bankrupt.