After the explosion of one of China’s largest long term rental apartments, Eggshell Apartments, another long term rental apartment service platform, Mushroom Rentals, has also been rumored to have a broken capital chain, and many landlords around the country have reported cash withdrawal difficulties. Ma Xiaojun, the founder of Mushroom Rentals, responded to the company’s recent turmoil in a long article on Feb. 4, admitting that the company was having financial difficulties, but that it was a rumor that the company had run off with the money and transferred its assets, hoping that people would give the company some Time.
On Feb. 3, dozens of landlords came to Mushroom’s headquarters in Shanghai’s Jing’an district to claim their rent arrears, according to comprehensive mainland media reports. Ms. Feng, a landlord from Beijing, said she signed an agreement with Mushroom the year before to take care of an apartment building in Daxing District to the platform. According to the agreement, Ms. Feng could withdraw cash through the platform after the tenant deposited the rent into the platform’s account. However, since the 12th of last month, the platform cash has been unable to be transferred, and the amount she has not withdrawn so far has reached more than 350,000 yuan.
Mr. Fan, a landlord from Dongguan, also said that Mr. Mushroom previously promised that tenants could withdraw cash one day after paying rent to the platform, but received a notice on the 2nd that the platform payment channel would be closed, and the branches in Shenzhen and Beijing had been written off, and he had not withdrawn cash from the platform accumulated more than 400,000 yuan.
The company headquarters on the morning of the 3rd has been empty, there are back to the office to get personal belongings of the staff said that the company originally said that the bankruptcy announcement will be issued at 10 am, but there has been no news. According to a collection of more than 200 landlords from the country’s WeChat group rough statistics, the amount of unwithdrawn cash involving landlords up to millions of yuan. The local police station said the police had intervened in the investigation; the local municipal supervisory bureau staff said they had no regulatory authority over the incident and should consult the Housing and Construction Commission.
In the early morning of the 4th, Mushroom founder Ma Xiaojun issued an announcement, stating that the company was in an operational crisis due to unfunded financing in early 2019, combined with strategic mistakes and a surge in labor costs. To support operations, the company’s founding team has borrowed ten million yuan through loans from banks, friends and institutional shareholders. The company was going to bring in strategic investors, but the landlord’s door-to-door recovery caused panic and made investors lose confidence. However, he stressed that the company’s top management will not leave Shanghai and will cooperate with the relevant authorities in the investigation at any time, hoping that the landlord will give time for the company to discuss M&A restructuring with potential investors to tide over the difficulties.
The scope of the explosion is not smaller than eggshells
In a complaint platform, the number of complaints about mushroom rentals has reached nearly 1,000, increasing sharply from late January to early February 2021, with landlords not refunding deposits at the end of their leases and tenants claiming the whereabouts of their rentals are unknown.
When it comes to rentals, eggshell, which just burst into flames, is much more famous than mushroom. However, the scale of mushroom’s explosion is not necessarily smaller than that of eggshell. Because eggshell is facing the C-side (individual consumers), while mushroom is facing the B-side (enterprise-level) apartment operators, not only providing the flow of housing, but also using SaaS management system to help enterprises manage housing and complete electronic contracts, finance, payment and other services. This explains why Mushroom is not as famous as Eggshell in the eyes of the public, but it is not a lightning rod.
Mushroom has more than 30,000 apartment rental agencies in nearly 20 cities, with more than 4 million listings. One media outlet quoted a Mushroom partner as saying that the money involved in just one operator in Shenzhen was more than 30 million, and the nationwide ripple effect would be hundreds of millions of dollars.
Zhang Ke (a pseudonym), the head of π Guest Apartments at Xi’an House Multi real estate Brokerage Co. has been working with Mushroom for 5 or 6 years, using Mushroom’s service system to connect landlords and tenants, collect tenants’ rent and submit it to landlords.
From July and August of last year, Zhang Ke seemed to perceive an anomaly in Mushroom Rentals. “Last year when withdrawals were made in seconds, then it became every other day, then it became two or three days, then a week, and in July and August, you had to rush to withdraw.”
Guangzhou landlord Ah Mai (a pseudonym) was in the same similar situation. She signed an e-contracting service with Mushroom Rentals a few years ago because it docked to the Alipay platform, which allows for real-name authentication and high trustworthiness. The tenant uses the system to deliver the rent, and a service fee of three thousandths of a cent is deducted for each payment, which she then withdraws on the Mushroom Rentals platform.
Before October 2020, Ah Mak’s cash withdrawals using Mushroom Rentals arrived the next day. After that, the arrival period began to be extended, from three or four days to about nine days at the end of the year.
“It wasn’t until early January 2021 that the difficulty in withdrawing cash to the account came into play.” She said.
Shanghai landlord Jincheng (a pseudonym) was in the same situation, withdrawing his last payment on Jan. 12, 2021, and after 10 business days to reach his account, he found it impossible to reach his account when he withdrew again.
Not only them, including other landlords and apartments, have successively experienced delays in arrival, as much as nearly 2 months or more.
In a WeChat group called Mushroom Rentals, more than 200 landlords from all over the country posted their unaccounted money that had not been withdrawn from Mushroom Rentals.
Landlords posting their rent arrears (Photo source: Internet)
It was only in recent days that the office of Mushroom Rentals in Shanghai was besieged by landlords who were questioning the whereabouts of their funds, pushing the suspected explosion of Mushroom Rentals to the climax of public opinion.
The company said it has more than 100,000 unwithdrawn funds in Mushroom Rentals and 170,000 unwithdrawn funds from landlord Ah Mak, but AI Finance reports that it is understood that there is much more than that.
The current situation is that the apartment is unable to withdraw cash, pay rent to the landlord, renew the tenant’s lease, or refund the deposit.
Founded in Shanghai in 2014, the entity behind Mushroom Rentals is Shanghai Shuo Envy Network Technology Co., Ltd, which has received hundreds of millions of yuan of venture capital investment in the past few years, with contributors including Ping An Venture Capital, IDG, Ant, Yunfeng and other star capitals.
On January 8 and January 12, 2021, the company was also listed as an executor by the Shanghai Jing’an District Court.
On January 6, 2021, the business change showed that the company’s founder Ma Xiaojun withdrew, and the current legal representative is Xu Tigen.
Long-term rental apartments have been hit by mines one after another
Long-term rental apartments have emerged in China only a few years ago, but they are already full of mines. Behind these explosions is the chaos of the operators’ irregular operating funds and the “ludicrous” promotion of consumer loans. The brand and valuation of the platform is bigger, but the losers are the landlords and tenants.
The first wave of large scale and bad impact of the mine-breaking occurred in the middle of 2020, when a number of regional apartment brands broke their capital chains under the influence of the Epidemic. Soon after, the offices of Shanghai-based brand “Arashiyoshi” also disappeared overnight.
In November 2020, a second wave of thunderstorms hit eggshell apartments, a well-known brand and already listed in the US. Eggshell signed escrow agreements and leases with landlords and tenants respectively. They first take the properties at above-market prices and then rent them out at lower rates, paying the rent to the landlord on a monthly or quarterly basis after receiving a year’s rent from the tenant.
Under this business model, eggshells can only keep expanding to maintain its capital chain with a time difference, while regulating rents by hoarding properties. In other words, it kept borrowing new debts to pay off old ones to keep running, and eventually burst into flames. In fact, the company has been in a loss-making situation since its establishment in 2015.
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