CRE Yield Business Plan The Problem All Commercial Real Estate - - PDF document

CRE Yield Business Plan

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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

• n 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:

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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

• ne 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

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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

• perating 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

• perator 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

• f 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.

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CRE Yield Go-to-Market Strategy In 2020, CRE Yield will collaborate with early adopters by offering the technology at no charge with the commitment to utilize the SaaS solution in 2021. The sales effort will be mostly direct and executed by the principals, who have extensive industry contacts and have been participating in key industry associations. Additionally, CRE Yield will pursue technology and consulting company joint venture selling opportunities. The marketing effort will be driven by content marketing. In 2021, CRE Yield expects to i) have 100MM square feet of diversified CRE in the system, ii) establish name brand customer references, and iii) build a proof-of-concept CRE risk monitoring solution. CRE Yield Business Model During 2020-2022, the business model is a combination of consulting and SaaS. The objective is to convert the customers to a SaaS model by 2023. CRE Yield Competition The competition consists of a consultant industry which provides services in the current paradigm – a paradigm that is dominated by excessive and unnecessary consultant fees. This consultant industry consists of hundreds of fragmented providers. There are a handful of national consulting firms, some of which have revenue in excess of $100 million. There is no direct technology competitor, which is building auto-valuation for evidence development. However, several large balance sheet companies have the wherewithal to enter the space – if one entered, it would likely mean that the others would become very interested in acquiring CRE Yield. CRE Yield Technology Overview The CRE Yield technology is built using a combination of database technologies: structured SQL (MS SQL) and unstructured graph (Neo4j). For the initial target application – CRE tax appeal valuations – the system contains the business rules for the top 50 U.S. investment

• markets. All CRE properties for five states have been ingested into the system. Software code

has been written to automate the business process of CRE tax appeals, to auto-ingest financial data files from CRE owners, and to auto-produce income and sales evidence. The attached slides include details around the CRE Yield technology. CRE Yield Sustainable Competitive Advantages The replication of CRE Yield’s initial product would be very difficult and expensive. It involves the business process automation of a not well understood embedded industry process as well as expert knowledge of valuation. It involves the arduous collection of hundreds of rules from hundreds of assessing jurisdictions – itself not an easily replicable database. This may be akin, but not at the same scale, to replicating IBM’s AI Medical Watson system. It arguably could be replicated but the cost is high, and the risk of failure is also high, due to its complexity. If the

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CRE Yield initial product were replicated, it would drive up acquisition demand as larger balance sheet companies would need to add it to achieve “one-stop shop” status. As CRE Yield adds artificial intelligence and evolves further its auto-valuation technology, it will become almost impossible to replicate. CRE Yield Disruption CRE Yield is disrupting a CRE consulting service for which itself is an expert. It is disrupting

• itself. The value proposition is that it offers CRE owners a roadmap to completely eliminate

external consulting fees over time and greatly reduce internal labor. When CRE Yield is able to perfect an artificial intelligence driven auto-valuation and predictive analytics technology solution (it’s product roadmap), it will be one of a kind and the market

• pportunity will be vast.

CRE Yield Key Accomplishments CRE Yield’s key accomplishments to date are as follows:

• Invested principal funds of over $1.2MM to produce a commercial ready SaaS product

(none of these funds went toward compensation for any of the principals)

• Established several key technology partnerships including IBM and Neo4j
• Established early client relationships to begin trials in summer 2020
• Have one large portfolio client (8MM square feet) for consulting in 2020-2021
• Established candidates for Series A funding

CRE Yield Financial Discussion Since the company was recently formed, there are no material items to discuss for the beginning income statement and balance sheet, which is free of any debt. The attached slides show a SaaS revenue forecast and an Operating Statement proforma, which presumes a $1.5MM investment during 2020-2021. The principals are currently self-funding the

• perations and plan for the monthly burn to be around $11,000 – until the current financial crisis

is over. Loudoun County Specific Please describe how your product or service is truly unique and innovative, and how it can create value for existing or potential customers: Commercial Real Estate (CRE) owners spend an exorbitant amount of non-regulatory valuations via internal labor and external fees. One such example is the CRE tax appeal fees, which are unnecessary and excessively high. One study revealed that a $10B CRE owner could save $10MM over 5-7 years by cutting the external tax appeal fees in half. The CRE Yield technology

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cuts fees in-half and provides a roadmap to eliminate fees altogether over time. The typical time saved per property is from 14 to 3 hours – and will be reduced further as the artificial intelligence technology is evolved. Please describe how your product or service has the potential to scale to realize ongoing and growing benefits to Loudoun County: CRE Yield’s Director of Engineering (Gordie Harkins) lives in Loudoun County. The only

• rganizational department that shouldn’t be geographically dispersed is the engineering
• department. CRE Yield wishes to build-out its largest department (i.e., the engineering

department) in Loudoun County. This department will include expertise in software coding and artificial intelligence applications. The CRE Yield revenue forecast for 2022 is $22MM and for 2025 is in excess of $100MM. One would expect the internal engineering department head count to increase significantly with the revenue growth. Please provide a realistic and clearly-articulated plan for the allocated funds: The funds will go toward internal engineering personnel salaries.

Investor Presentation

www.creyield.ai

Current Issues/Problems

U.S. Commercial Real Estate (CRE) spends unnecessary excessive cost: $10.3 billion

• n non-regulatory valuation,

from internal labor and external fees

Internal Labor & External Fees

$ 8 B

Tax Appeal External Fees

$ 1.5 B

Total Existing Spending

$ 10.3 billion

Tax Appeal Internal Labor

$ 0.8 B

The CREyield.ai Solution

Automated Tax Appeal Management

Phase I in production in a secured cloud environment Using our proprietary database of government rules for the top 50 domestic CRE markets, our AI is automating government filing requirements and reducing the tax appeal work load and external fees By offering a SaaS product for all owners no matter how small their properties, we are democratizing the appeal process and eliminating consulting fees altogether

Auto Valuation

Automatic ingestion of income and expenses and rent rolls Incorporation of key factors to customize accuracy of AVM for tax appeal context

Immediate Adjudication Owners Machine Ensures Transparency & Fairness Automated Appeals

The CREyield.ai Solution continued

Predictive Analytics

Using unique predictive analytic tools, CREyield.ai accurately identifies tenant rollover probability, increasing return to risk and decreasing underwriting guesswork (e.g., a 50% or 70% probability of tenant retention/departure is used when neither is accurate) Providing auto valuation to asset managers identifies granular actionable performance elements

Total addressable market - $ 1.7 B + $ 4.4 B = $ 6.1 B*

Addressable Market: $6.1 Billion

Existing Spending $ 10.3 billion

Internal Labor & External Fees

$ 1 B

Tax Appeal External Fees

$ 0.5 B Total Transformed Spending

$ 1.7 billion

Tax Appeal Internal Labor

$ 0.2 B

Tier 3 Value

$ 1.8 B

Tier 1 Monitoring

$ 1 B Total New Market Opportunity

$ 4.4 billion

Tier 3 Monitoring

$ 0.9 B

Tier 3 Appeal

$ 0.7 B

*Excludes the gains that could be attained by state and local governments

Note A = State & local governments spend billions on this same problem and with a supportive investor, we’d like to help government deliver services at a much-reduced cost

Go-to-Market Strategy Product Trajectory / B2B Subscription Model

Tier 1 & 2 Early Adopters

Technology Joint Selling Consulting Joint Ventures

Version 1 available in IBM Cloud Add Auto Valuation + Tax Appeal

Scale Tier 1 & 2 Targeted Marketing Execution

Perfect Self Service MVP Risk Monitoring Perfect Auto Valuation

Scale Tier 3 Mass Marketing Execution

Perfect Risk Monitoring (See Note A)

2020 2021 2022

Targets

Tier 1 & 2 - National & Regional CRE Owners & Corporate Users Tier 3 - 90% of U.S. CRE is 50,000 square feet or less

AEW Blackstone Brookfield DWS Hines Invesco JP Morgan Asset MetLife PGIM Principal TH Real Estate/Nuveen AIG AIMCO AvalonBay Barings Equity Residential Goldman Sachs Asset Health Care REIT JBG Smith PS Business Simon UBS IBM Lockheed Martin National Law Firm Amazon AMR Centura Health Pfizer AT&T Target Stores Tricon Bank of America

Financial Forecast > Subscription Revenue Model

CREyield - Revenue Projections

2020 adoption year - minimal revenue ($180K) from consulting / training fees Fee per Property Review Appeal Review Appeal Review Appeal Review Appeal $400 $5,000 $400 $3,500 $400 $2,500 $400 $1,500 $100 $200 $100 $100 $100 $100 $100 $100 Review Appeal % Appeal # Review Appeal % Appeal # Review Appeal % Appeal # Review Appeal % Appeal # Tier 1/2 2,000 25% 500 10,000 35% 3,500 30,000 40% 12,000 50,000 40% 20,000 Tier 3 100 25% 25 1,000 35% 350 20,000 40% 8,000 200,000 40% 80,000 Review Appeal Review Appeal Review Appeal Review Appeal Tier 1/2 $800,000 $2,500,000 $4,000,000 $12,250,000 $12,000,000 $30,000,000 $20,000,000 $30,000,000 Tier 3 $10,000 $5,000 $100,000 $35,000 $2,000,000 $800,000 $20,000,000 $8,000,000 $3,315,000 $16,385,000 $44,800,000 $78,000,000 10% 20% 30% 30% $400 $400 $400 $400 $200 $200 $200 $200 Tier 1/2 200 2,000 9,000 15,000 Tier 3 10 200 6,000 60,000 Tier 1/2 $80,000 $800,000 $3,600,000 $6,000,000 Tier 3 $2,000 $40,000 $1,200,000 $12,000,000 $82,000 $840,000 $4,800,000 $18,000,000 10% 20% 30% 30% $2,000 $2,000 $1,000 $1,000 $300 $300 $300 $300 Tier 1/2 200 2,000 9,000 15,000 Tier 3 10 200 6,000 60,000 Tier 1/2 $400,000 $4,000,000 $9,000,000 $15,000,000 Tier 3 $3,000 $60,000 $1,800,000 $18,000,000 $403,000 $4,060,000 $10,800,000 $33,000,000 Total $3,800,000 $21,285,000 $60,400,000 $129,000,000 Revenue-Risk Monitoring Revenue Property Count Tier 3 Revenue-Internal Valuations Risk Monitoring Adoption Tier 1/2 Tier 3 Revenue-Tax Appeal Internal Valuations Adoption Tier 1/2 Tier 1/2 Tier 3 2021 2022 2023 2024 Property Count Revenue Revenue Property Count Product Tax Appeal

Yr 2020 Yr 2021 Yr 2022

Revenues: Subscription services

$0 $3,800,000 $21,285,000

Costs of subscription services

$0 $190,000 $1,079,250

Net Subscription services

$0 $3,610,000 $20,205,750

Professional services

$180,000 $1,000,000 $2,000,000

Costs of professional services

$10,000 $25,000 $50,000

Net Professional services

$170,000 $975,000 $1,950,000

Total revenues

$170,000 $4,585,000 $22,155,750

Cost and expenses Product Dev

$840,274 $2,235,856 $10,248,808

Customer Support

$0 $0 $803,460

Sales and marketing

$188,401 $1,281,269 $3,070,422

General and administrative

$188,596 $662,398 $1,132,449

Service Delivery

$163,642 $706,596 $1,123,317

Total costs and expenses

$1,380,913 $4,886,118 $16,378,455

Operating Income (Loss)

($1,210,913) ($301,118) $5,777,295

Operating Statement

($5,000,000) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 Yr 2020 Yr 2021 Yr 2022 Revenues Cost and Expenses Operating Income (Loss)

CREyield.ai is Building

New analytics - driven by AI Improved analytics via auto generation Business process automation Client proprietary data (5% of 155 million total properties) Government business rules (1,000+ jurisdictions) Data (155 million records)

Unstructured Data Structured Data

Core Data Fields

Owner Name Owner Address Property Address Jurisdiction Unique Property Identifier Current Valuation Year Assessed

SQL Graph Hadoop AI Engine

Catalog Data Refinery

User’s Web Browser

CREyield Architecture

IBM Cloud

User Interface Layer Business Logic and Database Access Layer Virtual Machine(VM) hosting Neo4J Enterprise Edition Microsoft SQL Server in Kubernetes Container

Security

Application and Database Servers hosted on IBM Cloud Leveraging IBM Security Features Identity and Access Management Network Security Advanced Fraud Detection

High Availability

Cloud Foundry is designed not to be impacted by a single server failure Deploy to 3-availability zones IBM’s SLA is 99.95% up-time Database’s Selected for High Availability and Redundancy

Database Optimization

Graph Database – Neo4j Speed of Querying AI/Machine Learning utilizing Graph Algorithms Relational Database – SQL Server Storing Jurisdiction Data Easy of ingesting data

Security, High Availability and Database Optimization

Excel Property Onboarding File Provided by Client

CREyield - Client and Property Onboarding

IBM Cloud

CREyield’s Proprietary Onboarding Application Business Logic and Database Access Layer Virtual Machine(VM) hosting Neo4J Enterprise Edition

Microsoft Native Excel Drivers – Easily Customizable for Client Formats

• 100’s of Properties

can be onboarded in minutes

• Application

threading and

• ptimization allows

for speed of ingestion

The system is in production and is available for demonstration

Management Team: Credentials

Bill Quinn (CEO):

CEO INC 500 tax appeal firm & PwC operating partner – Director of Tax & Legal Services Hewlett Packard & Alliance Bernstein $100 million tax savings achieved

Gordie Harkins (Director Engineering):

Managed development teams over one hundred developers in size Supported systems that provided annual income in excess of $100 million

Rich Grohol (COO):

CEO/COO/CCO of various venture capital and private equity back startups - 3 exits COO of software company (Roamware – now Mobileum) from zero to 650 mobile

• perators globally - sold in 2016

www.creyield.ai info@creyield.ai

Thank You!