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Airbnb and RXR Realty are scrapping a partnership at Rockefeller Center that the home-sharing giant had touted as a '21st-century hospitality model'

Brian Chesky, CEO and Co-founder of Airbnb, speaks to the Economic Club of New York at a luncheon at the New York Stock Exchange (NYSE) in New York, U.S. March 13, 2017. REUTERS/Mike Segar

  • Airbnb and RXR Realty have mutually agreed to cancel a 10-floor, 130,000-square-foot deal at Rockefeller Plaza, where the pair planned to install luxury apartments for rent on the home-sharing site's platform.
  • Airbnb CEO Brian Chesky had imagined the concept as a "21st-century hospitality model."
  • The project was seen as a potential pathway for Airbnb's growth in the city, which has hemmed in its expansion with regulations and increased scrutiny in recent years.
  • Investment in hospitality projects has become impossible as the industry experiences a major contraction due to the coronavirus pandemic.   
  • RXR Realty will repurpose a portion of the space for offices designed to accommodate the post-Covid-19 workplace, where cleanliness, health, and social distancing will be paramount.  
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Airbnb and a major New York City landlord have called off a deal to bring the home-sharing platform to 75 Rockefeller Plaza, where the brand had envisioned expanding its multi-billion-dollar business into the world of big-city office skyscrapers.

RXR Realty and Airbnb last year announced their plans to convert about 130,000 square feet across 10 floors at the top of the 33-story Rockefeller Plaza office building into about 200 apartment spaces they said would create a new category in the city's once-thriving hospitality sector and that would be listed on the home-sharing site.

"I think it's a completely new model, a 21st-century hospitality model," Brian Chesky, Airbnb's CEO, said during an interview on CNBC last year to announce the partnership with RXR Realty.

Similar to extended-stay apartments, the units were imagined as home-like luxury dwellings with the amenities and services of a high-end hotel that would cater to business travelers and upscale overnight guests.

Scott Rechler, the chairman and CEO of RXR Realty, which controls 75 Rockefeller Plaza, said that RXR Realty and Airbnb had mutually decided in recent weeks to cancel the deal. Investing in new hospitality offerings, he said, had become impossible amid the coronavirus pandemic and the crisis it has spurred in the city's hotel sector.

The pandemic has forced the city's once-thriving hotel industry into a virtual shutdown, sending revenues plunging and threatening many hotels with the prospect of financial ruin.

"Airbnb and RXR mutually agreed that under the circumstances it didn't make sense to proceed with the project," Rechler said. "It's going to take some time for the industry's occupancy rates to rebound enough where it justifies new supply."

Rechler said that RXR Realty and Airbnb could still partner on the project at 75 Rockefeller Plaza or other properties in the future.

When RXR Realty and Airbnb announced the deal at 75 Rockefeller Plaza last year, the two also floated the idea of expanding the concept to another RXR property in Brooklyn.

A person familiar with Airbnb's decision process for the project agreed with Rechler's description that both parties had retreated and that the companies had left open the possibility of partnering again.

According to short-term rental analytics provider AirDNA, Airbnb's New York City revenue dropped by 62% over the two-month period to the week beginning April 19 and new bookings dropped by 72%. Globally, Airbnb saw a 32% decline in revenue from February to March, and a 25% year-over-year drop for March.

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Terms of the planned deal

A person with direct knowledge of the economic terms of the agreement said that although Airbnb had not planned to pour any money into the deal at 75 Rockefeller Plaza up front, it had agreed to financially backstop the project, using the company's credit to borrow the tens of millions of dollars it would have likely cost to convert the office floors into luxury apartments.

Airbnb also provided a guarantee that RXR Realty yield a return on the space, meaning that if the apartment units didn't produce enough revenue to cover the rent for the floors, Airbnb would make up the difference.

Taking on such financial exposure has become an impossibility for the company as it has tried to bolster its balance sheet while its revenue has plummeted amid the virus crisis.

Airbnb had said last year that it was planning to go public in 2020, but media reports have indicated that the pandemic would likely force that timeline to be pushed back. 

According to a March report from The Information, Airbnb has curbed most hiring and paused marketing spending as it grapples with the fallout from the coronavirus. 

Earlier this month, the company raised $2 billion in two rounds of debt financing to give it a cash cushion to help ride out the crisis.

"Every hospitality company right now is focused on conserving cash and that means cutting back on capital expenses," said Sean Hennessy a hospitality consultant and assistant professor at the Jonathan Tisch Center of Hospitality at New York University. "That's the first thing any well run company would do."

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A setback for Airbnb's NYC growth strategy

Abandoning the deal at 75 Rockefeller Plaza could be a setback to Airbnb's strategy for growth in New York City, a metropolis that has challenged Airbnb's expansion through increasingly tight regulation and that has cast scrutiny over the company's potential role in contributing to the city's affordable housing crisis.

Many homeowners or renters who list apartments on the platform or other homesharing sites are required to be present during a guest's stay, a step meant to dissuade real estate investors from snapping up properties with an aim of renting them out to short-term guests rather conventional tenants in need of housing.

Setting up locations in New York City office buildings, where hotel-like use is legal under the city's zoning rules offered a potential avenue for growth.

"Certainly this was a path for expansion in the city," Hennessy said. "The city has taken a posture that does not help their growth here and has prevented them from expanding."

Rechler said that RXR Realty already had a plan for a portion of the floors that had been reserved for the Airbnb concept. The company will maintain the space for office use and construct workspaces in about half of the space that are designed for the post-Covid-19 workplace.

The spaces will feature anti-microbial finishes and materials, a layout and density sensors designed to promote social distancing and have other health-focused features and technology such as special air filtration systems, regular cleaning, and surface testing and temperature scanning devices to check workers for fever.

"We're going to have a period that I like to call the 'new abnormal' where you need to get people comfortable again to be in the office," Rechler said. "There's going to be a demand for this kind of space in the new in-between stage where we start to return to work but don't yet have a cure or vaccine for the virus."

Have a tip? Contact Daniel Geiger at dgeiger@businessinsider.com or via encrypted messaging app Signal at +1 (646) 352-2884, or Twitter DM at @dangeiger79.

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