CRE Yield Business Plan The Problem All Commercial Real Estate (CRE) is periodically valued throughout each year for non- regulatory purposes. It is estimated the U.S. internal labor and external fees expended annually on non-regulatory CRE valuations is $10.3B. The problem is this annual expenditure is unnecessarily high, because there is no technology platform that is used to automate these valuations – reducing labor and external fees. Using spreadsheets and third-party software is part of the current paradigm and problem. These do not meet the standard of automation that is required to reduce labor and fees. One of the non-regulatory valuation applications is the valuations that take place for real property tax – this is the initial target market. Property tax is determined by the mathematical product of a local government’s opinion of value and a real estate tax rate. The resulting real estate tax is typically the highest or second highest line item expense on a property’s operating statement. Consultants and law firms typically charge contingency fees for appealing the government’s value assertion. The typical fee is equal to 25% of the tax savings. These same consultants and law firms flood the government appeal process with unwarranted appeals, which drive up government costs and turn-around time. Unnecessarily high contingency fees and unnecessary appeals are part of the problem. The tax appeal contingency fees can be very large and could be cut in half, and eliminated altogether over time, by CRE Yield technology. Reducing a government value from $40MM to $35MM with a tax rate of 2% could result in a current paradigm consultant fee of $32,000. The total time spent on that case by the consultant or attorney would typically be 10 hours. The fee amounts to $3,200 per hour – a ridiculously high fee, which is part of the problem with the current paradigm. The CRE Yield Solution CRE Yield has assembled into a database all of the business rules related to managing the real estate tax appeals for the top 50 U.S. investment markets and has taught the computer to manage the rules – enabling an owner to self-service if warranted. CRE Yield has built a Turbo-Tax like solution for the CRE valuation – which automates the collection of evidence and population of the income and sales valuation models. These two components together deliver compelling internal labor and external fee savings for CRE owners. The CRE Yield product roadmap includes leveraging the data it collects along with unstructured data available across the Internet to provide a level of predictable analytics that does not exist currently for CRE owners. The CRE Yield Value Proposition In the current paradigm for the initial target market (i.e., real property tax appeal valuations), the typical hours expended per property by the owner and consultant is 13 hours apportioned as follows: 1
CRE Yield Business Plan Ø Administrative/valuation preparation: 8 hours Ø Appeal-level one: 3 hours Ø Appeal-level two: 3 hours Ø Appeal-level three: 4 hours The CRE Yield initial product solution reduces the typical hours (typically appeals are for level one and two and not three) from 14 to 3 hours and passes on the gain in efficiency to the owner by either allowing the owner to avoid hiring an outside consultant and self-service using a software-as-a-service (SaaS) or use an outside consultant at one-half the fee. The new paradigm hours expended are as follows: Ø Administrative/valuation preparation: 1 hour Ø Appeal-level one: 1 hours Ø Appeal-level two: 1 hours Ø Appeal-level three: 3 hours For one prospective client, CRE Yield found that for a portfolio of $10 billion if external consulting fees were cut in half, the owner would save $10 million over a 5-7 year period. CRE Yield offers CRE owners a roadmap to immediately cut in-half their external consulting fees and eliminate those external fees altogether over time. The CRE Yield Addressable Market It is estimated the U.S. internal labor and external fees expended annually on non-regulatory CRE valuations is $10.3B. A portion of this market is the CRE tax appeal external fees of $1.5B and internal labor of $0.8B. With the adoption of the CRE Yield technology this market is transformed to a $1.7B size – a ten to one gain. It breaks down as follows: Ø Tax Appeal external fees: $0.5B Ø Tax Appeal internal labor: $0.2B Ø Remaining internal labor and external fees for non-regulatory valuations: $1B The CRE Yield technology, however, opens up new markets (i.e., markets that do not currently exist) as follows: Ø Tax Appeal external fees to a new market segment: $0.7B Ø CRE monitoring for predictive analytics: $1.9B Ø Non-regulatory valuations to a new market segment: $1.8B The CRE Yield total addressable market is $6.1B. For the initial product, the addressable market is $1.2B. CRE Yield Management Team 2
CRE Yield Business Plan The CRE Yield management team has a track record of success and is led by these three individuals: Bill Quinn has the domain expertise. He is CEO and the chief product designer. In his career, he has saved CRE owners over $100 million in the exact space to which the technology applies. He has serviced many notable clients throughout his career, which include for instance: AIMCO, AOL, Citibank, CVS, GE, Giant Food, Invesco, Lehman Brothers, Marriott, MetLife, Peterson Companies, TA Realty, and Safeway Stores. Bill built a CRE valuation consulting company, which made the INC 500 and was sold to PricewaterhouseCoopers (PwC) – where he was an operating partner helping to manage one hundred professionals. He has also worked for Hewlett Packard and Alliance Bernstein. He holds a BS Electrical Engineering from Johns Hopkins University and an MBA Finance from George Washington University. Richard Grohol is COO. He has had three successful exits from various venture capital and private equity backed start-ups, while holding officer and senior leadership positions. For example, as COO of Roamware (now Mobileum) he led the company from zero to 650 mobile operator customers globally. He holds a BS Electrical Engineering from Johns Hopkins University. Gordie Harkins is Director of Engineering. He had a stellar engineering leadership career at Verizon (Loudoun County location). He has managed teams of over one hundred in size and has supported systems, which provided over $100MM in annual revenue. He holds a MS Civil Engineering and BS Geophysics from the University of Delaware. The CRE Yield Company History CRE Yield, Inc. was incorporated in March 2020 and is owned by three individuals: Richard Grohol, Gordie Harkins, and Bill Quinn. The principals contributed the technology, which was developed by them while delivering CRE valuation consulting services for an aggregate portfolio of 8MM square feet of diversified commercial real estate. The principals spent over $1.2MM of their own money to develop the technology while foregoing salaries. The technology has just now been made available for production and use – it resides in the IBM cloud. CRE Yield Target Market The target market consists of CRE owners, which segment into three groups: Tier 1 – national owners and investors such as AIMCO, Brookfield, Invesco, CALPERS Tier 2 – regional owners and investors such as Berman Enterprises and JBG/Smith Tier 3 – every owner not Tier 1 and 2 – 90% of all CRE is 50,000 square feet or less in size The target market consists of tens of thousands of CRE owners. 3
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