- Airbnb-backed apartment rental company Zeus Living has been asking landlords to renegotiate leases into revenue-share agreements or cancel their contracts, according to documents viewed by Business Insider.
- Zeus has also told landlords that they wouldn’t be paid their April or May rent without signing the new revenue-share agreements, according to an email viewed by Business Insider.
- Last Monday, CEO Kulveer Taggar hosted a Zoom conference for landlords, where he said that the company had $2.5 million in cancellations in March.
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Airbnb-backed corporate home rental company Zeus Living has been asking landlords who let their homes to the company to renegotiate or cancel their leases to protect the company’s dwindling cash reserves.
According to documents viewed by Business Insider, up to 404 landlords have been asked to renegotiate their leases to a revenue-sharing model that doesn’t guarantee payment unless the spaces are occupied.
Additionally, the company told landlords that if they didn’t sign the new contracts, they wouldn’t be paid April and May rent, according to a separate email viewed by Business Insider.
A representative for Zeus confirmed that the company has asked for rent abatements and to swap leases for revenue-share agreements.
Zeus rents furnished properties for stays of longer than 30 days in six metro areas around the country, catering specifically to business travelers. Like many hospitality businesses, the company has been heavily impacted by the coronavirus pandemic. The company laid off 30% of its staff at the end of March.
The company raised a $55 million Series B round at a $205 million valuation in December of last year from a range of backers, including Airbnb and Comcast.
$2.5 million worth of cancellations in March
Zeus CEO Kulveer Taggar hosted a Zoom conference with 130 landlords last Monday to explain the decision, according to a source who attended the meeting.
He told landlords that those who have a resident in their home will be paid. He also said that the company had $2.5 million worth of cancellations in March, and was already looking to raise money this year.
A representative for Zeus confirmed the details of the Zoom meeting, and noted that the company has experienced more cancellations since March.
“This has been a surreal time and everyone is hurting in this crisis,” Taggar wrote to Business Insider in a statement. “Like so much of the country, we’re experiencing liquidity challenges and have made difficult choices to adapt so our company and community can make it through.”
Typically, Zeus signed leases with landlords that guaranteed payment every month, regardless of occupancy. The company brought in furniture to make the space move-in ready, and then charged their clients a premium over the rent that they were paying for the homes.
The new revenue-sharing model splits revenues between the landlord and Zeus. The exact splits depend on the contract and the amount of money that Zeus is getting paid to rent the space out, but generally Zeus gets a larger share of the profit as the property brings in more money.
Business Insider reviewed the terms of one new contract. If the property receives 0-50% in revenue of the previous rate Zeus was leasing the property at, Zeus receives 4% of revenue, at 50-100% of the lease rate, Zeus gets 10% of revenue, and above 100%, Zeus gets 55% of revenue. Zeus confirmed these rates to Business Insider.
Business Insider also reviewed the force majeure clauses in a pre- and post-coronavirus contract. Before coronavirus, potential events that trigger force majeure (such as strikes and natural disasters) would allow the company to delay payment without penalty. After coronavirus, these same events would allow Zeus to cancel the lease agreement if events make it “commercially unreasonable” to pay rent.
A Zeus spokesperson told Business Insider that “every company is adapting in real-time to a new and volatile business environment, and our industry is no different but we don’t comment on contract terms.”
Coronavirus continues to cripple the hospitality industry
This mirrors a change happening in the flex-office world, where companies looking to reduce their financial obligations have moved away from leasing space from a landlord to entering a revenue-sharing partnership. While this can mean the company takes in less profit when spaces are full, it also protects them if profits dip.
On the call last Monday, Taggar explained that the company has applied for a PPP loan to deal with the short-term cash crunch, which the firm has confirmed it had been approved for.
On the call, Taggar said that the company had plans to fundraise in the second quarter of this year. A spokesperson for Zeus confirmed that the company is still fundraising. Taggar also said on the call that 52 of the 390 landlords that work with the company have agreed to sign the revenue-share agreement. A spokesperson for the company said that the company has 404 single-family owners, and that nearly two-thirds of owners have decided to continue working with Zeus so far.
“The pandemic was a hard blow to our business and meant we had to adapt quickly,” Taggar said in a statement to Business Insider.
“But Zeus has always been nimble and I’m proud of how quickly the team shifted gears to attract new types of residents such as displaced students, healthcare professionals, government employees, grounded tech workers, and early responders. Since March there has been positive traction across marketing campaigns, we’re booking more six and twelve-month leases, many residents are extending their stays, and we are beginning to see bookings pick up significantly.”
While the pandemic accelerated the adoption of revenue share contracts, the move was in the works before the pandemic. The company signed its first revenue-share agreement in Washington, DC earlier this year.
Short-term apartment rental companies have been hit hard by coronavirus, as many of them continue to carry lease obligations while business and leisure travel has slowed to a halt, stifling almost all demand for their inventory.
Lyric, another hospitality company that has raised money from Airbnb, cut 20% of its staff in March, according to a report from The Real Deal. Sonder, a venture-backed hospitality and rental company, laid off or furloughed more than 400 people or one third of their staff in March as well, The Information reported. Even Airbnb, on the eve of its likely IPO this year, has had to raise a $1 billion in cash to keep its operation running.