cornerstone property management business plan

8/9/2019 Cornerstone Property Management Business Plan

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CCornerstoneornerstonePPropertyropertyMManagementanagementCCornerstoneornerstonePPropertyropertyMManagementanagementSpecializedinsmallandmediumsizedmulti-unitproperties

BBBBUSINESSUSINESSUSINESSUSINESS PPPPLANLANLANLAN

MMMMAYAYAYAY 2006200620062006

Presentedby:Presentedby:Presentedby:Presentedby:MrShakirAkbariMrEdFeeMsCathyGentryMrMauricioIkegamiMsKathyScharkoMrAlexStoykovMrSamirSundar

ContactInformation:ContactInformation:ContactInformation:ContactInformation:CornerstonePropertyManagement,LLLP(http://www.cornerstonepropertymanagement.com)OneEastJacksonBlvdsuite8003Chicago,IL60604-2287Phone:(312)362-8433Fax:(312)362-8432Email:[email protected]

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Executive Summary

A young woman in her 20s was apartment shopping when she felt she had found theperfect two bedroom apartment to share with a friend. The woman took an application from theharried landlord and called her mother on the drive home, excited by her find. Days later, theyoung woman walked through the apartment again with her mother, and with a more practicaleye, had to admit the apartment was too small for two friends to share comfortably. She returnedhome and thought about it, then called the landlord the next day to decline the apartment. Thelandlord requested that the woman return the blank rental application. The woman scheduled anappointment with the landlord to drop off the document. The day of the appointment thelandlord had to cancel, and they re-scheduled. Over the next several days, random emergenciesand responsibilities at the landlords various properties left her unable to meet the woman time

and again. One evening, as the landlord called to schedule yet another meeting, the youngwomans mother answered. The landlord, exasperated by all the effort and frustration of tryingto do something so simple but not being able to get it accomplished, expressed, I have so muchto do! If only I had someone to do everything for me!

The young womans mother who answered the phone happened to be a founding partnerand CFA of Cornerstone Property Management, Ms. Kathy Scharko, and she had just found ourideal client.

Cornerstone Property Management was founded in 2006 and is currently in thedevelopment and planning stages. We are a full-service property management partnership with avision to profitably and ethically provide high quality property management services to real

estate investors, with a focus on personal attention. Real estate investors want the best return ontheir investment with low-turnover, on-time rent collection, and smoothly running and well-maintained properties. Tenants want a place they are proud to call home, where they can relaxand enjoy their surroundings. Cornerstone Property Management seeks to fulfill all these needsand more with efficiency and dedication. We can do this simply, timely, and cost-effectively.

The cornerstone of our business model will be a proprietary web portal that will offerquick and easy service for the use of prospects, tenants, and clients. We will create value for theproperty owner with superb total maintenance of rental properties, as well as serving as afacilitator between the tenant and the landlord, all coordinated through our proprietary websiteapplication. We will leverage the use of technology to automate many manual processes,reducing costs for the property owner. Our refined processes will also allow us to give ourtenants a better rental experience by creating open and effective lines of communication betweenthemselves and the property owner, as well as courteous, prompt, and professional service totheir home and the property grounds. Our focus is on continual improvement of the value webring to stakeholders, such as tenants, and especially property owners. We will also strategicallygrow the business by forging relationships and networking to the fullest extent, as this is thebasis of the real estate industry. Our founders have a true understanding of what it takes to standout in the industry.

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Cornerstone Property Management brings over 15 years of property management and realestate experience to the table, as well as in-depth knowledge in the area of e-commerce and webtechnologies. Our founding partners are astute professionals who are driven, motivated, and

personally involved in the growth and success of this venture. Principal owners and other keypersonnel are:

Mr. Alex Stoykov, MBA and Partner/Brokerage Manager: Bringing over 8 years ofreal estate experience, including mortgage advisory and property management. Mr.Stoykov previously heading the property management division of a Top 50 real estatecompany, he managed an annual budget of over 5 million dollars, while simultaneouslyproviding strong leadership for the division. Through his strong sales, management, andleadership skills, within a 4 year time period he was able to raise the divisionsperformance level from under-performing to the most profitable in the organization.

Ms. Cathy Gentry, MBA and Partner/Operations Manager: Bringing over 7 years ofproperty management experience, as well as a vast network of maintenance vendors, Ms.Gentry has personally and successfully managed more than 50 properties at one time.She also brings to the table business operations experience, stemming from a family-runhome restoration business later diversifying into property management. In bothendeavors, she excelled with her ability to understand and manage the needs andexpectations of all stakeholders.

Mr. Shakir Akbari, MS and Partner/Technology Manager: Bringing vast e-businessexperience as the former director of e-business of a very successful bank. Mr. Akbariwas also the founder and CEO of e-rentals.com, a B2C portal, connecting hundreds of

rental communities with prospective customers. At one point this e-business ventureregistered over 10,000 users, leading Mr. Akbari to be subsequently nominated as one ofthe most influential leaders in real estate by VAR E-Biz magazine (2000).

Ms. Kathy Scharko PHD, CFA, and Financial Advisor: Ms. Scharko, formerly ananalyst with Venture Capital Corporation, specialized in e-business firms. She also hasimmeasurable experience in banking, start-up financing, IPOs, and other marketcapitalizations. Ms. Scharko is published, most recently a highly regarded white paper onthe role and contribution of the CFO in the internet dot.com boom and subsequent bust.

Through automation, our web portal is designed to provide a superior quality service to

investors while at the same time enable Cornerstone Property Management to achieve areduction in cost or service. We request a Letter of Credit for $150,000 at a rate of 7.5%, to berepaid in 3 years. This will match the partners individual contributions of $50,000 each. Thelevel of real estate industry expertise our partners bring to the table, coupled with our soundbusiness concept and desire to succeed make Cornerstone Property Management a worthyinvestment for your portfolio.

Thank you for your time.

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Table of ContentsExecutive Summary .........................................................................................................................2

Table of Contents .............................................................................................................................4Business Description ........................................................................................................................6

The Industry .................................................................................................................................6Our Company ...............................................................................................................................7Services Offered ...........................................................................................................................8Unique Selling Proposition ..........................................................................................................8Positioning ...................................................................................................................................9Pricing ........................................................................................................................................10

The Market .....................................................................................................................................11Customers ..................................................................................................................................11Market Size and Trends .............................................................................................................11

Competition ................................................................................................................................12Indirect Competition ..............................................................................................................12Direct Competition .................................................................................................................12Estimated Sales ......................................................................................................................13

Development & Production ...........................................................................................................15Development status ....................................................................................................................15Service process ...........................................................................................................................16Capital Requirements .................................................................................................................19Method of Sales .........................................................................................................................21Advertising and Promotion ........................................................................................................22

Management ...................................................................................................................................23

Description .................................................................................................................................23Ownership ..................................................................................................................................23Organization Structure ...............................................................................................................23Support Services ........................................................................................................................24

Financials .......................................................................................................................................25Risks ...........................................................................................................................................25

Break-Even Analysis .............................................................................................................25Cash Flow Statement .................................................................................................................25Balance Sheet .............................................................................................................................25Income Statement .......................................................................................................................25Funding Request and Return ......................................................................................................26

Appendix A Web Site Screenshots .............................................................................................27Home Page .................................................................................................................................27About Us ....................................................................................................................................27Tenant Portal - Payment .............................................................................................................28Tenant Portal Help Desk .........................................................................................................28Landlord Portal Home Page ....................................................................................................29Landlord Portal Sample Report ..............................................................................................29

Appendix B Cash Flow ...............................................................................................................30

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Appendix C Balance Sheet .........................................................................................................32Appendix D Income Statement ...................................................................................................33

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Business Description

The Industry

Real Estate has always been a local phenomenon. The old adage is there are three thingsthat are critically important for real estate, location, location, location! The reasons may bemany; proximity to your work, friends, or family, importance of life style choices, or simplyinvestment potential.

The city of Chicago has the distinct advantage of having a robust multi-industryeconomy. Whenever one business leaves it always seems that another new business moves in.The local Chicago economy supports millions of employees who live primarily within the citylimits. Having chosen the area they wish to live, the next question becomes one of affordability;

do they rent or do they purchase? Recent interest rate trends point to increasing numbers ofpeople postponing purchasing and choosing to rent their next property.

Real estate investors desire both upwards appreciation and steady positive cash flowsfrom their investments. The City of Chicago has offered a modest though consistent 6.5%appreciation on property investments though out the national boom and bust real estate cycles.Additionally, the gentrification of older regions of the city has allowed some of the more astuteor aggressive investors with the opportunity for even higher rates of appreciation.Therefore Chicago is a prime area for conservative, long term investors in real estate.

The City of Chicago rental properties can be broken down into three primary areas.

Large multi-tenant buildings and towers with in-house management services. Medium sized buildings with eight or less units with absentee landlord ownership. Small sized buildings with 3 or less units with local landlord provided services.

The medium sized buildings, with absentee landlords, dominate with 80% of the City ofChicago market. This is the market segment we are choosing to enter.

Though investing in rental properties can be a healthy, long term investment opportunitythere can be some downsides. The distraction and costs of administering all the details and issuesthat inevitably arise in rental properties can be both tiresome and in some cases overwhelming.Paperwork, phone calls, meetings, and irate tenants are all part of investing in rental properties.

Property management companies have formed in order to act as intermediaries betweenthe owner/landlords and the renters/tenants. These small companies are usually non-automatedand labor intensive type firms. Consisting primarily of handymen and administrators, their mainservice has been to maintain and repair the rental properties when required. Automation ofbusiness processes was not a primary concern and therefore bookkeeping, accounting, and otherbusiness processes were slow and prone to error.

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In contrast, large full service, property management companies such as Jones, Lang,LaSalle have streamlined and automated business processes for large property owners such asMotorola, Sun Microsystems, and Dell Computers. These large property owners expect and

demand superior service and quick availability of information from their property managementprofessionals and they get what they demand. Small property owners, however, have had little tochoice in who they might choose as managers for their investment properties. This lack ofcompetition has resulted in slow rent forwarding capabilities, in slow reporting on propertyissues, and in low investment in business processing optimization.

This creates an opportunity for Cornerstone Property Management to enter into theChicago rental real estate market and expand quickly by offering superior service and superiorinformation processing to an underserved market segment.

Our Company

For the discerning, multi-tenant, real estate investor, Cornerstone Property Managementoffers quick, easy, and trustworthy property management services in order to remove thechallenges associated with those investments.

Cornerstone Property Management will provide full service management of real estateproperties. Our service is to remove all the headaches and problems associated with propertymanagement and thus allow the owners streamlined access to the financial rewards of theirinvestments.

The market segment we are seeking to enter has for too long been denied a modern, fullservice management company. Most of our competitors do not enjoy a web presence, and if theyhave launched such a presence, it has limited functionality and no actual business processingcapabilities. Cornerstone Property Management will focus on a specific market segment ofabsentee landlords who own property in certain segments of Chicago. Though these owners maybe located anywhere on the planet, they will still be able to quickly ascertain the exact status oftheir investments at any given moment.

Those challenges to real estate property management are numerous and CornerstoneProperty Management will concentrate on automating most of the mundane paperwork requiredto properly manage the myriad of details required by investors, tenants, tax authorities, and localand federal government regulations. However, automation will gain us only so much, high touch,personal interaction will be required for building and maintaining close personal networks ofAccountants, Lawyers, Service Contractors, Local Officials, and County Clerks. Trust is earned

not given and we will prove to our property owners that we have the capabilities to provide everyservice required in order to minimize distractions and costs associated with real estateinvestments.

Cornerstone Property Management will be set up as a limited partnership with our threefounding partners having extensive experience in real estate, finance, and property management.

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Services Offered

Property owners Through our web portal, e-mail, and over the phone, Cornerstone Property

Management will provide complete property management services and quick forwarding of rentmonies. Unmatched by our competitors, we will offer a worry free business relationship thatimproves the benefits of real estate investment while reducing the hassles to almost nothing.

Our experienced management team will assist the owners in maintaining their investments,filling vacancies, and providing relevant market data on local rents and property values whenbeneficial. We will ensure that repairs and maintenance work be done in a professional andtimely manor. We will screen applicants for credit worthiness and then subsequently periodicallyinspect rental units for compliance with rental agreements. Politics are a way of life in Chicagoand local Aldermen carry a lot clout with regards to property issues and local regulations.Cornerstone will act as a local spokesperson for our absentee owners.

Tenants Through our web portal and through telephone support, we will provide quickremediation of property issues, easy methods of rent payments, and act as a spokesperson for theowners. We will confirm the requirement for repairs in a timely manor, and keep the tenantsinformed as the status of their requests.

Unique Selling Proposition

The Cornerstone of our business model will be a proprietary web portal that will offerquick and easy service for the use for prospects, tenants, and clients. This portal will both lowerour business process costs while improving our service levels. The website infrastructure willmaintain the absolute security of all confidential information.

The portal will have four main views or sections.

Clients Our target customer wants secure, quick and easy access to the current financialstatus of his investments. He wants an easy to understand presentation of his revenuesand expenses. We will provide such information as rent collections, contractor fees,taxes, and utility bills in an easy to understand graphical and line item format. In addition,at all times the client will be able to view his exact financial status by quickly viewing ordown-loading HTML formatted reports. The backend financial applications will generatequarterly reports and forward them to our clients, or their designated agents, within theformat of their choice. The portal will facilitate our clearing the rent payments in a timely

manor and facilitate our ability quickly forward those monies to a designated bankaccount by the 10th of every month.The portal will help us create a relationship of worry free, trustworthiness with our clientbase that will be hard to match by our competition. The industry average for forwardingrents is three weeks; we will deliver in half the time while reducing our transaction costs.

Tenants Our renters will be presented with an easy to use tool to pay their rents online.Though we will accept checks, we will actively promote using online banking, cash

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transfers or paypal accounts for their monthly obligations. Readily available informationon building policies, emergency contacts, and utilities will be shown. Finally, if they haveany problems with their apartment they will be directed to an easy to fill out request-for-

service web form.The portal will assist us in lowering our processing time for collections as well asautomating our book keeping functions for further cost reductions. Automating our helpdesk functions will enable faster and less costly tracking of job order status andcompletion times.

Prospects The public facing side of the portal will be shown to potential clients toillustrate the ease of working with Corner Stone as your property manager.Simulated reports and activities will be shown such a fashion that our sales staff canquickly show the value proposition of working with our firm. Specific key word codingwill enhance our visibility for anyone searching for northern Chicago area property

management services.Though the primary sales method will be word of mouth and direct contact, to assist insales efforts, an online sales tool will be a necessary but inexpensive method ofpromoting our service. Additionally, placing a presence on the web may generate someinterest in our services.

Enterprise The portal will collect all the service requests from the tenants and facilitatethe printing of the reports for distribution to the appropriate servicemen to remedy. Statusof those requests will be maintained for follow up if needed. Current status of rentpayments, vacancies, deposits, and other cumulative financial data will be presented in aneasy to view graphical and line item format for reporting functions.

All tenant and client data will be readily available for quick access by authorizedcompany staff.This is the corner stone of our business process, automating as many functions aspossible in order reduce complexity and costs, speed up process times, and improveservices levels to our clients and tenants.

Positioning

For absentee owners and remote investors in Chicago area rental properties, we offerworry free, trustworthy property management services. By web enabling our reporting functionswe allow our clients unlimited availability to their propertys financial and physical status. Theautomation of reporting functions and maintaining current investment status dramatically reduces

the investors worries over problems that may arise. The investors not only receive their rentmonies earlier in the month, they now do not have the worry of tenant or building problemsbeing handled in a less than optimal fashion.

We want our customers to view us as trustworthy partners who will manage all themultiple demands of the investment properties as if they were their own.

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Pricing

The industry standard for management services fees are five percent of rent payments.

We propose to maintain that fee structure and also charge five percent of rent monies.Our additional value proposition for those monies will be in our offering easy tounderstand reports, instant delivery of those reports, and rapid forwarding of rent monies to theclients.

Our clients are high net worth individuals who are only interested in receiving monieswithout any issues interrupting their cash flows. Lowering our fee structure would only hurt ourbottom line, while raising our service fees may make it difficult for us to acquire new clients.These high net worth clients are accustomed to paying for good service and should view our highlevels of customer service with appreciation. We expect to win over our target client market byoffering much superior service at the same price as our competition. By reducing our businessprocesses costs through automation, we will be able to realize better operating margins as we

scale up and add additional properties into our management portfolio. Because of our scalabilityand larger operating profits, if competition starts to copy our methods, we will be better able toreduce our fees while maintaining our return on equity.

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The Market

Customers

A typical client sought by our company would be a real estate investor with or withoutexperience in building management. A client of ours can own as few as one and as manyproperties as mutually agreed, as long as the number of units per building does not exceed eightunits.

Our customers can be broadly identified in two categories: first, those who have jumpedinto real estate investment because of self-identified opportunities in gentrifying neighborhoods,and second, longtime, and in many cases, multi-generational, property owners whose propertieshave passed down from parents, to children, and subsequently to grandchildren.

The former category may be viewed as a high-income wage earner who hopes to ride thehigh appreciation trend in a developing neighborhood. He wants to acquire properties at areasonable cost, economically rehabilitate them, and enjoy the increasing rental rates that suchneighborhoods provide. As he enjoys his success and invests in more buildings, he will typicallyfind himself to be incapable of the maintenance issues at the beginning and those frustrationswill multiply when coupled with rent collection issues and other service expectations by theirtenants. This will be our least challenging customer type to win over of the two types citedabove. They will be cost conscious and that will be a first concern, even given the challenge oftrying to do the handling of their investments themselves. These are generally very successfulpeople who successfully face a number of professional challenges and may have initially thought

that running buildings could be done on a part-time basis. Once shown the cash flow benefitsthat Cornerstone will provide as far as timely rent collection and that their maintenance issueswill evaporate, this should be a lucrative type of customer for us.

In the second instance, our marketing territory is rife with multi-family buildings that areowned by second, third, or even fourth generation owners. This will be an entirely different typeof customer: one accustomed to the demands of property ownership. Our opportunity lies withthe large number of such property owners who no longer rely on apartment rentals as their singlesource of income and who find themselves stretched for time to properly attend to their realestate holdings. These customers, though, will be more quality conscious when they decide to dobusiness with us, wanting to protect the family name and their reputation as responsiblelandlords. Also, this type of customer will tend to be more concerned with the upkeep of theirbuildings and we can easily allay their concerns in this area.

Market Size and Trends

Currently on the north side of Chicago there are approximately 500,000 multi-unitbuildings with less than 8 units per building. We will develop a strategy to attract the propertyowners who have invested in buildings in addition to their other employment circumstances, buthave not accumulated a large enough number of properties to have their own propertymanagement firms.

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During the past five years mortgage rates have hit historic lows. Unemployment rateshave been down and personal income rose. All of these factors combined contributed to

increased sales of new and existing homes. Large numbers of people who could not previouslyafford to buy now had a chance to get a mortgage and buy their own home. These events slowedthings down on the rental side of the real estate market. Vacancy rates for residential propertieswere historically high and rents were fairly low for any given market. As interest rates began torise again and an economic slowdown, many people are renting again. This has already inversedvacancy rates and rents in positive direction for the real estate investor.

Competition

Indirect Competition

There are thousands of large real estate property management firms in Chicago. Most ofthem target real estate investors who own larger residential multi-family buildings with morethan 20 units per building and/or commercial properties. The fees that they charge vary between4% and 8% based on location, type and especially size of a given property. Logically, based oneconomies of scale, the higher fees are paid by landlords who own smaller properties. Theselarger firms are not our direct competitors because of the higher fees they charge for smallbuildings.

Direct Competition

One of the more established firms in our territory that we will be competing against isKey Management. A ten-year veteran in the industry, they are currently managing about 300properties and, like Cornerstone, have focused on the eight-or-fewer units per building market;Their sales are just under $5,3 million per month, which makes them a major player in this arena.However, staffing issues have caused some properties they manage to not get the attention thatwas promised their customers. It is not clear if Key Management is unwilling to hire additionalstaff in an effort to keep overhead expenses low, or if they feel that the numbers are adequate andare unaware of simmering customer dissatisfaction. Further, they do not maintain a website thatcan function as both a communication portal and as a means to conduct financial transactions. Itis simply an informational site with property locations and office phone numbers provided. Ourinteractive website will impress our prospects and make customers more satisfied with ourproperty management operation.

A second competitor in the territory, J.P. MacDonald and Sons, has been operating in theRavenswood neighborhood for forty years. This family-run business has long providedmanagement services as well as real estate and insurance services. At one time, it was also theWestern Union office in the neighborhood. Now being managed by the two sons, there is noperpetuation plan in place, no website being maintained and no innovation being entertainedregarding faster collection of rents. They do, however, manage about 100 properties all over theNorth side of the city and so enjoy monthly sales of about $1.7 million. Their main customer isthe second (or third) generation property owner discussed above, a quaint business leftover from

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the time when neighbors did business with neighbors. This should be a prime opportunity forCornerstone Property Management, by convincing their existing customers of our increasedcapabilities.

Estimated Sales

Based on estimates, Cornerstone Property Management will rapidly grow during the firstyear of operations. We project a startup property level of 18 properties (six clients with threeproperties each), and we project an initial growth of 18 additional properties on average everythree months.

$0.00

$100,000.00

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$300,000.00

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$600,000.00

Sales

in

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Projected First Year Sales

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

During the second and third years of operations, our growth will slow due to the limits ofour geographical region. We project adding 11 properties per quarter. At the end of year three,our net sales will be $2,825,400 per month. Well collect 5% of that amount in the form ofmanagement fees; therefore, our income before expenses will be (.05 x 2,825,400) $141,270 permonth.

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$-

$500,000

$1,000,000

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$2,000,000

$2,500,000

$3,000,000

Salesin

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Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun

Quarter

Projected Second & Third Year Sales

Sales Growth Projections - 3 years

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J ul -Se p Oc t-D ec J an -Mar Ap r- Jun J ul- Sep O ct- Dec J an -Mar A pr- Jun J ul -Se p Oc t-Dec J an-Mar

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Development & Production

Development statusThere are two areas that need to be developed before we can fully deploy the enterprise;we need the information technology and the business network to support our enterprise. Theinformation technology will facilitate our business processes, while the business network isneeded to create the growth needed to sustain our company.

Before development can begin, we will first need a fully functional office. This includesstaffing as well as physical goods such as computers. We have evaluated several availablesoftware packages but have decided that building our own fully tailored solution to meet ourclients needs would be a stronger long term product. Developing our own software packagewill enable us to create the documentation needed for future training, attain a completeunderstanding of the software system, and easily be able to extend the software to create value

added services in the future.Our current phase of development is the Prototype Phase.

Timeline of Events:1 July 1, 2006 Raise capital2 July 5, 2006 Formation of business entity

3 July 10, 2006 Setup office with equipment, software, and furniture

4 July 15, 2006 Start development of software system

5 August 1, 2006 Complete a drafted system (this system will be implemented usingMicrosoft Access and will provide bare bone functionality to evaluateuse cases and our business processes capabilities)

6 August 3, 2006 Create performance metrics and acceptance criteria

7 August 5, 2006 Design user interface8 August 7, 2006 Create system architecture, entity-relationship, data-flow, and class

diagrams.9 August 10, 2006 Divide software development into three modules and find contingencies

within the modules: presentation, application, and data store10 August 15, 2006 Hire consultants to implement the software solution we have designed

11 October 15, 2006 Iterative testing and validation of each module in the application

12 September 15, 2006 Create documentation for training and for future applicationdevelopment

13 November 15, 2006 Soft launch of the application to run stress tests14 November 17, 2006 Full software launch with kick-off dinner for prospective clients

Assuming the development goes smoothly we can expect to have development completedwithin 3 months. This is an aggressive time frame, but being well prepared with systemdiagrams and solid requirements criteria, and, assuming few issues concerning other aspects ofthe business, we can successfully meet the 3 month deadline. We understand there are potentialobstacles to meeting our deadline. Internal delays could include scope creep, unplannedchanges, or programming errors. External delays could include challenges with serviceproviders. While these obstacles do have the potential to push our development time line to as

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much as 6 months, this will not cause a delay the core functionality we will provide. A draftedsystem will be in place, enabling the company to operate while awaiting the completion of theimplementation of the fully automated system.

Once the information technology support system has been enabled, we can continue toour launch plan. The goal of the launch plan is to build a base of clients to support the business'operations. This phase of the enterprise's growth is its network development and will be anongoing business activity. To build our first set of clients we will draw upon our current contactsin the real estate industry. These contacts will offer the services of Cornerstone PropertyManagement to the landlords which they work with. Current contacts include real estatebrokerages and apartment finders; in time we will garner additional industry contacts and willseek to create strategic relationships with these entities to better support both of our businessesgoals. While we will make full use of our network assets to gain customers, we will also pursuecustomers through targeted marketing efforts; refer to the marketing section for details.

Service process

Our service processes are divided into two categories; service to our client (the landlord)and service to their tenants, excluding the initialization process. The moment that our servicesbegin is when we acquire a new client, after that client has agreed to the terms of our service wecan the initialize the clients account. Our first task is to give the client our information packetand walk them through our service structure. This packet will inform the client of our services indetail, our business processes, and other resources they can utilize. After the client feels at homewith our business, we will create their account in our information technology system; this entailscreating the customer's profile, profiles on their properties that we will manage, and finding andlogging the maintenance personnel whom we will call to service their properties. After theclient's account has been created the initialization phase will be complete and we can start ourservice to landlords and their tenants.

There are five stakeholders in the daily procedures of our business; the landlords, thetenants, the maintenance companies, banks, and apartment finders. To maintain ourresponsibilities to all of the stakeholders, we will have redundant systems for insured businesscontinuity. In order of failure severity these systems are; a cold backup of the application andthe database on a separate server, a semi-automated process using the drafted system, and, lastly,a full manual process. Since we will be launching our business in Chicago we will have to setupour offices there. Geographic location is a major factor in servicing our clients: we must have a

local presence to the properties that we will be managing for a number of reasons; to monitoractivities, to generate contracts, for emergency issue resolution, and to manage our businesspartnerships with a personal touch.

TenantsThe services we provide to the landlords and tenants will be the ongoing business

practices that make up our daily activities. Our interactions with the tenants will include;collecting rent, responding to and resolving any maintenance issues that are reported, and also

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complete scheduled check-ups. To collect the rent we will give the tenants a number of paymentoptions; they can use automated check withdrawal, credit/debit payment online or via anautomated phone system, and, the option will still exist to pay by check. We can utilize payment

via third party systems, such as PayPal, if situations arise in which the tenant is not comfortableusing our online payment services, however the tenant will be incur the increased cost of using athird party system. When we have not received a payment from the tenant, automated alerts aresent via email, phone and letter. These alerts are sent to the tenant, our office personnel, and tothe landlord (in the case of extreme delinquency). We will also enable the tenants to reportmaintenance issues through our web portal, as well as through an automated phone system.After the tenant has created the maintenance request, a work order will be created and sent to theproper maintenance company assigned to that property. After we have a confirmed timeframe tocomplete the work order, a notice is sent to the tenant with the maintenance companysinformation and the timeframe for completion. When maintenance personnel have completedthe work order they must contact us and report the issue resolution and give us their bill of work.

The tenant can prioritize their issue as an emergency issue which will flag the request forimmediate resolution. Properties will also have a 6 month check-up which will follow this sameprocedure, with the exception that we will initialize the process by contacting the tenant aboutthe check-up visit.

Property Owners/InvestorsOur other area of service is our service to our direct clients, the landlords. Every six

months we will give the landlord a full report on the condition of their property. This willinclude the results from a health check; a full check-list on the condition of the units, anyrequired building maintenance, as well as recommendations for improvements that would allowthem to charge more rent. This six month report will also capture other areas of their real estate

investment including financial performance and information on neighborhood developments.Lastly this report will give the landlord a summary of all issues that have occurred with theirproperties. While reports will be disseminated to the landlords on a bi-annual basis, our clientswill be able to login to our web portal at any time and see the current condition of theirproperties, any outstanding maintenance issues, and full historical data, including tenant history,rent payment history, maintenance histories, who found the tenant, and their accountinformation.

However, our main value to the property owner/investor is the hassle-free maintenanceprovided. When a property owner enlists our services, all day to day operations, scheduledupkeep, and emergency maintenance of properties will be coordinated via our web portal. In this

way, the investor is relieved of headaches associated with their investment. Our services willenable the property owner to enjoy the benefits of their investment without the worries.

Labor RequirementsThe labor required for the execution of our development plans will come from internal

resources as well as a number of external sources which will be contracted. The internalresources will consist of the three initial partners; a marketing partner, a real estate partner, and atechnical partner, as well as two office personnel; an operations manager, and an administrative

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assistant, their skill requirements are summarized in the following table. Each skill requirementis ranked on a scale of 1; little or no development of the skill, to 5; the skill has been highlydeveloped.

MarketingAdvisor

BrokageManager

TechnicalManager

OperationsManager

AdministrativeAssistant

Has marketing knowledge 5 4 2 3 1

Has graphics skills 5 4 2 1 1

Can create a marketing kit 5 3 1 1 1

Has sales knowledge 5 4 1 3 1

Can create sales packets 5 3 1 2 2

Has people skills 5 5 2 4 4

Has a network of real estatebrokers

3 5 1 1 1

Understands real estate trends 3 5 2 2 1

Is a licensed real estate broker 1 5 1 1 1

Has accounting skills 3 4 2 2 1

Has property managementknowledge

2 3 2 5 1

Has basic computer skills 5 5 5 5 5

Can maintain a website 2 2 5 4 2

Can design a model-view-controller application

1 1 5 1 1

Can write programs in ASP.net 1 1 5 2 2

Can write queries to a database(SQL)

1 1 5 3 2

Has knowledge oftelecommunications systems

1 1 5 3 1

Can write test scripts 3 3 5 2 1

Can write technical

documentation

5 5 5 3 2

To create the information system which will automate the traditional business processes,we will require services from external sources. We plan to contract two freelance computerprogrammers. Our technical partner will lead the development of the information system bycreating the system diagrams and code structures for the consultants to implement. After allsystems development is finished, hired consultants will no longer be needed. The technicalpartner will assume the responsibility of maintaining the technology system. If, in the future,

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new features and expansion are needed for the system, Cornerstone Property Management mayagain hire outside consultants to implement code that is designed in house.

For business beyond the initial development, all partners will continue to monitor thefirm. The only partner who will be actively hands-on in day to day operations will be theOperations Manager. However all partners will be highly utilized only in times of expansion ofthe firm, or in the case of the technical partner, when the system malfunctions or needsmaintenance. All non-automated business processes will be handled by the administrativeassistant and the Operations Manager.

The administrative assistant should have a minimum of high-school education; theOperations Manager should have a bachelors degree, preferably in Management InformationSystems. The partner and acting Operations Manager is an MBA. When either position is hiredonto the firm in the future, they will need training for use of our web application. The new-hire

training materials will come from the documentation produced in the development of the system,and from sales/marketing materials. We will also have ongoing training and professionaldevelopment efforts to make our employees industry experts, and to take responsibilities off ofthe partners.

Capital Requirements

The cost to setup and develop the software to launch our business will fall into a smallnumber of categories: office expenses, administrative fees, software licenses, and labor hours.All partners in this enterprise will take equal shares of the profit, but will support themselvesuntil the business creates a positive cash flow.

Software Development:Expense # Cost perServer Hardware 4 10,000

Microsoft Windows 2003Standard Edition

2 500

Linux Red Hat EnterpriseServer

2 -

MySql 2 -

Development 51,500

Presentation module 80 100

Application module 180 100

Data store module 80 100

Testing 100 100

Documentation 100 75

Reports 100 75

Total 140,000

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Office Expenses:Expense # Cost perComputers 5 2500

Phones 5 500

Fax machine 1 1000

Printer 2 800

Total cost 17,600Administrative Fees:

Expense Cost perCost to create the firm 3000

Real estate license 100

Various account creation 1000

Domain name registration 250

Web hosting initialization fee 650Total cost 5,000Software Licenses:

Operating Expenses:Our operating expenses are either fixed costs or variable costs, and we must be able to

pay for these expenses with current cash flow, and not start-up financing.Fixed expenses:

Payroll Office space Web connection Web space (x2 for redundancy) Utilities bill (for office) Office supplies

Variable expenses: Travel Marketing expenses

o Marketing materials

o Wine and dine money

Sales expenses Phone bill Tax

20

Expense # Cost perMicrosoft XP operating system 5 199

Adobe Photoshop 1 99

Macromedia Homesite 3 99

Microsoft Visual Studio .NET 3 299

Microsoft Office Suite 5 199

Intuit Accounting Package 1 10,000

Total Cost 13,283


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Sales and Marketing Strategy

There is no substitute for talent when coupled with experience and a strong desire tosucceed. We are determined to provide our clients with a high level of quality and effectivenessin all of our business processes. We value the creation of a strong relationship with every client;all of our relationships are built on a foundation of trust and personal attention.

We plan to locate prospective customers using several methods, including networking,market research and building alliances with strategic partners, which will further our marketreach. We will work in conjunction with real estate brokerages as additional resources forclients. We will utilize a sales force, which will aggressively pursue the leads generated throughnetworking; they will educate prospects about our value proposition and our service offerings byusing the marketing kit we have developed. We will draw in clients by accentuating our vendorresource network, cost effectiveness for property owners, high quality service, and above all,personal attention and trust, which form the basis of our organization. We will also emphasizeour ability to provide better pricing through economies of scope, by focusing on our corecompetency - property management - and by having an in-depth understanding of all aspects inthat industry.

Our ability to offer our clients better pricing through economies of scale will also berealized by avoiding adverse markets. We will leverage our industry networks, propertymanagement knowledge base, expert systems, and top shelf customer service, to bring a lowbottom line price to our clients.

Our initial focus will be on local real-estate markets and buildings which have up to 8units and are owned by private investors. We will target these small to medium-sized rentalproperties, owned by high-income wage earners who want a hassle-free investment, and ownersof properties handed down through generations, both of which are an under-served segment ofthe market. We will seek to grow a network of vendor resources in each geographical areawhere we establish our service, utilizing the extensive resources brought in by our talented andwell-connected partners.

Method of Sales

Our sales methods will be based on direct sales to property owners. Leads will beobtained through market research, including (among other sources of real-estate data):

Local newspapers Classified ad websites MLS listings Strategic partners

We will also create and leverage strategic networks by taking advantage of thenetworking opportunities presented by real estate trade shows, the chamber of commerce, and

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other industry players such as tax accountants and real estate attorneys. We strive to forgesymbiotic relationships with area suppliers, developing a referral strategy.

Advertising and Promotion

We will employ various methods to advertise our services, including: Printed brochures Online brochure website Advertisements in the real-estate section of local newspapers (local to the area market

were entering). Utilization of free classified services, such as www.craigslist.org and other such

services, for additional promotion of our services. Utilization of website banner advertising by placing our advertisements at the

websites where our potential clients will visit (real-estate oriented sites). Giving away of promotional items (magnets, pens, golf balls, stress balls, etc) to

industry players, as well as property owners that we meet while doing business and attrade shows.

Making appearances at real estate conventions, where we will set up a promotionalbooth with staff on hand to get our prospective clients acquainted with our name andbrand as well as to educate the industry and potential clients of our services.

Utilization of an outside agency to assist in building a brand, advertising, andpromotional services.

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Management

Description

In order to deliver a cost effective and high quality work, Cornerstone PropertyManagement requires experienced managers in every aspect of the business.

Property management services and operations expertise, real estate law and regulationknowledge, real estate and property management market experience, Internet marketing and e-business expertise they are all core requirements to build a solid and successful e-businessproperty management firm.

Our General Partners and Board of Advisors (see details in the next sections) haveexcelled on all requirements during their careers. We have total confidence that the synergycreated by their experience and knowledge will provide the foundation for our ultimate

competitive advantage: we know the business and how to do it well in a cost effective way.

Ownership

Legal entity: Limited Liability Limited Partnership (LLLP) founded by 3 general partnersthat share the profits of the firm in equal proportion.

Initially there is no limited partner but it can be considered as a possible alternative forfunds.

Organization Structure

General Partners:

Brokerage Manager: Mr. Alex Stoykov, MBAMr. Stoykov brings more than 8 years of experience in real estate, mortgage advisory,and property management to Cornerstone Property ManagementHe once headed the corporate property management division of a top 50 real estatecompany and was responsible for an annual budget of more than US $ 5 million. Heleaded the department from an underperformer to the most profitable activity of thatcompany within 4 years.

Operations Manager: Ms. Cathy Gentry, MBAMs. Gentry has over 7 years of experience in property management, having more than 50properties at one time under her care. She has several contacts in an extensive network ofpeople related to property maintenance (electricians, plumbers, general contractors,

cleaning companies, architects, civil engineers, snow removal etc).She used to work in a home restoration business that her family owned, and later decidedto diversify her familys investments in real estate, leading her to deal with propertymanagement.

Technology Manager: Mr. Shakir Akbari, MSMr. Akbari has vast experience working in Internet e-business, being the former directorof e-business for a very successful bank.Founder and CEO of e-rentals.com, a B2C portal that connected hundreds of rentalcommunities with prospective customers, reaching at one point more than 10,000

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registered users, he was nominated one of the most influential leaders in real estatebusiness by the VAR E-Biz magazine in 2000.

Board of Advisors: Financial Advisor: Ms. Kathy Scharko, PHD, CFAFormer analyst in Venture Capital Corp, specialized in e-business firms, with experiencein banking, start-ups finance, IPOs and other market capitalizations.Ms Scharko has been analyzing many e-business failures and recently released a highly-regarded white-paper where she provides an insightful view of the role and contributionof CFOs in the Internet boom and subsequent downfall.

Marketing Advisor: Mr. Samir Sundar, MBAMr. Sundar has been part of several marketing agencies, leading e-marketing campaignsfor many S&P 500 companies. One of his most visible works is the e-marketing of aleading news portal that targeted a very well defined segment, with great success andworldwide stir.

Real Estate Legislation & Regulations Advisor: Mr. Ed Fee, Attorney at LawNominated one of the top 20 real estate attorneys in Chicago by the Illinois State BarAssociation in 2005, Mr. Fee represented many real estate investors during negotiationswith state and local government bodies, having a major role in some very visible high riseventures in downtown Chicago.

Employees:

Administrative Assistant.

Support Services

Initially all maintenance will be outsourced, implying that a wide range of supportservices will be required.

Accounting services: provided by Grant Thornton (www.gt.com), one of the topaccounting firms in the United States initial contact thanks to our financial advisorMs Scharko (she mentored some of their current top employees and worked withsome of the partners).

Maintenance services: we are partnering with www.servicemagic.com (the nation'sleading online marketplace connecting homeowners with prescreened and customer-rated home service professionals, founded in 1998 and ranked 60th in the list of fastgrowing privately held companies from Inc 500 magazine in 2004) in order to

provide a list of prescreened (properly licensed and insured) local plumbing,landscaping, painting, electrical, heating, cooling, cleaning, pest control, andhandyman services that will be used to quote estimates and perform the job.

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Financials

Risks

A key business driver and therefore a risk to Cornerstone Property is the rental market inChicago. If there is a major downturn in this market there is risk of high vacancies. Chicago hasa strong rental market and our partner in this area is cognizant of the communities and trends inthis market and has an excellent track record of projecting industry trends.

Our clients depend on us to maintain and manage their properties, so timely and properservice is necessary to protect their investment and maintain their trust in us. Our partner inoperations management has built the relationships with a wide network of vendors and extensive

knowledge about building maintenance.

System failure is a risk that can cause operational issues and cash flow concerns. Iftenants are unable to pay rents via the web portal for any length of time, cash flows impactscould be substantial. Redundant systems and contingency plans are in place to mitigate this risk.

Break-Even Analysis

Average number of units per property 6Average monthly rent per unit 1,170

Average monthly income per property 7,020

Average net income per property (5%) 351Average net income per property (95% occupancy rate) 333.45

Monthly expenses 12,975

Break-even # of properties 12,975/333 = 39 properties

Cash Flow Statement

See Appendix B

Balance Sheet

See Appendix C

Income Statement

See Appendix D

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Funding Request and Return

The request is for a letter of credit in the amount of $150,000. The interest rate we arerequesting is 7.5%.

This request is built on the following cost projections:

Software development $200,000Marketing and branding $ 50,000

Legal/Accounting startup $ 5,000

Operating costs (6 months) $ 45,000Total Startup Cost $300,000

Each partner is planning to contribute $50,000.

The cash flow statement displays the timing of when the money is anticipated to beneeded during the first year and timing for payoff over years two and three.

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Appendix A Web Site Screenshots

Home Page

About Us

27


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Tenant Portal - Payment

Tenant Portal Help Desk

28


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Landlord Portal Home Page

Landlord Portal Sample Report

29


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Appendix

BCashFlow

30

CashFlow:YearOne

Jul

Aug

S

ep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

BeginningCash

$

-

13,287

1

2,688

14,215

26,441

25,719

24,997

36,530

40,317

41,041

53,140

56,044

Cashfromoperations:

Cashretainedfrom

collections

12,635

12,635

12,715

14,195

Cashfrom

managementandotherfees

6,502

6,502

6,502

13,003

13,003

13,003

19,543

19,543

19,543

26,786

26,786

26,786

SubtotalCashfrom

Operations

19,137

6,502

6,502

25,638

13,003

13,003

32,258

19,543

19,543

40,981

26,786

26,786

AdditionalCashreceived:

NewCurrentborrowing

NewLongterm

borrowings

7

0,000

50,000

5,000

10,000

10,000

5,000

Saleofothercurrentassets

SaleofLong-term

assets

Newinvestmentreceived

32,000

95,000

2

3,000

32,000

95,000

9

3,000

50,000

0

0

5,000

10,000

10,000

0

5,000

0

Expenditures:

Cashspending

37,850

25,350

2

0,350

10,350

10,350

10,350

10,350

10,350

10,350

10,350

10,350

10,350

PaymentofAccountsPayable

1,750

2,625

3,063

3,375

3,375

3,375

3,406

3,469

3,531

3,531

3,563

SubtotalSpentonOperations

37,850

27,100

2

2,975

13,413

13,725

13,725

13,725

13,756

13,819

13,881

13,881

13,913

AdditionalCashSpent:

PrincipalRepaymentofCurrentB

orrowing

Long-term

liabilitiesprincipalrepa

yment

Purchaseothercurrentassets

PurchaseLong-term

assets

75,000

7

5,000

50,000

Distributiontopartners

12,000

12,000

15,000

15,000

15,000

15,000

0

75,000

7

5,000

50,000

0

0

12,000

12,000

15,000

15,000

15,000

15,000

EndingBalanceCash

13,287

12,688

1

4,215

26,441

25,719

24,997

36,530

40,317

41,041

53,140

56,044

53,917

Retain10%cashforrepairreserves

12,635

12,635

1

2,635

25,270

25,270

25,270

37,985

37,985

37,985

52,180

52,180

52,180


31/34

CashFlow:YearTwo-YearThree

Year2

Year3

Jul-Sept

Oct-Dec

Jan-Mar

Apr-Jun

Jul-Sep

t

Oct-Dec

Jan-Mar

Apr-Jun

BeginningCash

53,917

59,439

68,575

75,561

84,897

97,857

104,964

96,446

Cashfromoperations:

Cashretainedfrom

collectio

ns

7,000

7,000

7,000

7,000

7,000

7,000

Cashfrom

managementandother

fees

93,332

104,307

115,282

126,257

137,23

2

147,207

147,207

147,207

SubtotalCashfrom

Operation

s

100,332

111,307

122,282

133,257

144,23

2

154,207

147,207

147,207

AdditionalCashreceived:

NewCurrentborrowing

NewLongterm

borrowings

Newinvestmentreceived

SubtotalAdditionalcashrece

ived

0

Expenditures:

Cashspending

26,247

26,247

26,247

26,247

33,972

33,972

33,972

33,972

PaymentofAccountsPayable

3,563

10,924

10,549

10,174

9,799

12,128

11,753

11,378

SubtotalSpentonOperations

29,810

37,171

36,796

36,421

43,771

46,100

45,725

45,350

AdditionalCashSpent:

PrincipalRepaymentofCurre

nt

Borrowing

20,000

20,000

20,000

20,000

20,000

20,000

20,000

10,000

Long-term

liabilitiesprincipal

repayment

Purchaseothercurrentassets

PurchaseLong-term

assets

Distributiontopartners

45,000

45,000

58,500

67,500

67,500

81,000

90,000

90,000

65,000

65,000

78,500

87,500

87,500

101,000

110,000

100,000

EndingBalance

59,439

68,575

75,561

84,897

97,857

104,964

96,446

98,303

Retain10%cashforrepairre

serves

59,180

66,180

73,180

80,180

87,180

94,180

94,180

94,180

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Appendix

CBalanceSheet

BalanceSheet

ofIndividualPartnersatApril30,2006

Assets

Stoykov

Gentry

Akbari

Cash

5,000

8,000

7

,500

OtherCurrentA

ssets

175,000

75,000

85

,000

TotalCurrentAs

sets

180,000

83,000

92

,500

LongTerm

Asse

ts

5,000,000

1,500,000

1,350

,000

AccumulatedDe

preciation

(1,500,000)

(150,000)

TotalLongTerm

Assets

3,500,000

1,350,000

1,350

,000

TotalAssets

3,680,000

1,433,000

1,442

,500

LiabilitiesandNetWorth

CurrentBorrowings

100,000

10,000

22

,000

OtherCurrentLiabilities

2,500

1,500

2

,200

SubtotalCurrentLiabilities

102,500

11,500

24

,200

Longterm

liabilities

2,500,000

1,200,000

1,050

,000

TotalLiabilities

2,602,500

1,211,500

1,074

,200

Networth

1,077,500

221,500

368

,300

TotalLiabilitiesandNetworth

3,680,000

1,433,000

1,442

,500

32


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Appendix

DIncomeStatement

IncomeStatement:YearOne

Jul

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Income

Managementfeesonrentcollected

6,002

6,002

6,002

12,003

12,003

12,003

18,043

18,043

18,043

24,786

24,786

24,786

Otherfees

500

500

500

1,000

1,000

1,000

1,500

1,500

1,500

2,000

2,000

2,000

TotalIncome

6,502

6,502

6,502

13,003

13,003

13,003

19,543

19,543

19,543

26,786

26,786

26,786

Expenses

PayrollExpenses

5,000

7,500

7,500

7,500

7,500

7,500

7,500

7,500

7,500

7,500

7,500

7,500

Payrolltaxesandotherbenefits

1,750

2,625

2,625

2,625

2,625

2,625

2,625

2,625

2,625

2,625

2,625

2,625

Salesandmarketingexpenses

1,350

1,350

1,350

1,350

1,350

1,350

1,350

1,350

1,350

1,350

1,350

1,350

OfficeExpenses

200

200

200

200

200

200

200

200

200

200

200

200

Utilities

200

200

200

200

200

200

200

200

200

200

200

200

Officerent

700

700

700

700

700

700

700

700

700

700

700

700

Insurance

200

200

200

200

200

200

200

200

200

200

200

200

ProfessionalServices

200

200

200

200

200

200

200

200

200

200

200

200

StartUpCosts

30,000

15,000

10,000

TotalExpenses

39,600

27,975

22,975

12,975

12,975

12,975

12,975

12,975

12,975

12,975

12,975

12,975

IncomeFromOperations

(33,098)

(21,473)

(16,473)

28

28

28

6,568

6,568

6,568

13,811

13,811

13,811

Interestexpense

438

750

750

750

781

844

906

906

938

938

Netprofit

(33,098)

(21,473)

(16,911)

(722)

(722)

(722)

5,787

5,724

5,662

12,904

12,873

12,873

33


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meStatement:YearTw

o-YearThree

Yea

r2

Year3

Jan-

Mar

Apr-Jun

Jul-Sept

Oct-Dec

Jan-Mar

Apr-Jun

Jul-Sept

Oct-Dec

gementfeesonrentcollected

84,332

94,307

104,282

114,257

124,232

134,207

134,207

134,207

fees

9,000

10,000

11,000

12,000

13,000

13,000

13,000

13,000

93,332

104,307

115,282

126,257

137,232

147,207

147,207

147,207

llExpenses

23,175

23,175

23,175

23,175

30,900

30,900

30,900

30,900

lltaxesandotherbenefits

8,111

8,111

8,111

8,111

10,815

10,815

10,815

10,815

andmarketingexpense

s

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

dEquipmentandsoftware

200

200

200

200

200

200

200

200

s

210

210

210

210

210

210

210

210

rent

750

750

750

750

750

750

750

750

ance

206

206

206

206

206

206

206

206

ssionalServices

206

206

206

206

206

206

206

206

Expenses

34,358

34,358

34,358

34,358

44,787

44,787

44,787

44,787

meFromOperations

49,973

59,948

69,923

79,898

79,445

89,420

89,420

89,420

stExpense

2,813

2,438

2,063

1,688

1,313

938

563

188

come

47,161

57,511

67,861

78,211

78,132

88,482

88,857

89,232

ncyRate

95%

gementfeerate

5%

onrate

3%

34

cornerstone property management business plan

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