Beijing (PingWest)—Due to the collapse of cash flow, Danke Apartment, a long-term apartment leasing company in China, is on the brink of bankruptcy, causing hundreds of thousands of tenants to face homelessness.

To solve this problem, Chinese regulators held talks with two long-term apartment leasing giants, namely Ziroom.com and 5i5j.com, and a state-owned company, hoping that they can take over Danke's business. However, considering the company's huge cash flow gap, as high as 9.6 billion yuan, no agreement has been reached so far.

Hu Jinghui, the former vice president of 5i5j.com, believes that the company had to reject the offer because it could not afford such a large cash flow gap to save Danke from bankruptcy.

According to financial news outlet Caijing.com, Ziroom showed the motivation of taking over but hopes that the government can loosen supervision, allowing it to create more bedrooms in regular apartments for subletting. However, experts believe that the regulatory authorities will not give a green light on this, considering that it may cause safety hazards.

In China, long-term apartment rental business runs in a similar business model to WeWork's: they rent apartments from the individual or corporate landlords, then sublease to the tenants, and make money via a combination of raised price, other value-added services such as housekeeping and maintenance, as well as the interest from rent financing. For example, Danke said in its prospectus that about 68% of its tenants are financing.

But as COVID-19 drastically changed many aspects of society, the long-term apartment rental industry was dealt a heavy blow as occupancy rate dropped due to reasons such as many tenants working in higher-tier cities left for their hometown, as well as people cutting their living cost in general, resulting in these companies' cash flow collapsing.