Apartment rental specialist Danke is rapidly coming undone, with landlords and tenants protesting on the streets of China’s biggest cities and unpaid employees threatening to sue. After starting the year on a high following a Nasdaq IPO, the 5-year-old company is bidding farewell to 2020 on a more somber note, with shuttered offices and a loan partnership with Tencent-backed WeBank in tatters.

Danke manages rental apartments across 13 cities in China. Financial stress for the 415,000-apartment managing company started to show as Covid-19 cooled the rental market, but escalated dramatically after CEO Gao Jing was detained in June on unrelated grounds, and investors grew more disenchanted.

At the root of the company’s collapse was a business model that encouraged tenants to take out loans from WeBank to pay a year’s rent up front. From mid-2018 to the end of 2019, the percentage of Danke’s tenants who paid up with these risky loans grew to at least 91%. The loans allowed Danke to expand but increased its leverage to an unsustainable level.

WeBank, which also works with Danke rivals Ziroom and Beijing 5i5j, tried to salvage its partnership with the company by working out a plan to reduce loan-backed rent payments to 40% by the end of this year and meet a government-mandated 30% target by the end of 2021. But as Danke’s financial crisis intensified last month, WeBank terminated the partnership and Danke’s fate took a dive.

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Contact editor Yang Ge (geyang@caixin.com)

Related: WeBank Waives Interest for 160,000 in Danke Loan Disputes

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