Cornerstone Property Management

Specialized in small and medium sized multi-unit properties

BUSINESS PLAN
M AY 2006

Presented by:
Mr Shakir Akbari
Mr Ed Fee
Ms Cathy Gentry
Mr Mauricio Ikegami
Ms Kathy Scharko
Mr Alex Stoykov
Mr Samir Sundar

Contact Information:
Cornerstone Property Management, LLLP (http://www.cornerstonepropertymanagement.com)
One East Jackson Blvd suite 8003
Chicago, IL 60604-2287
Phone: (312) 362-8433
Fax: (312) 362-8432
Email: contactus@cornerstonepropertymanagement.com

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Executive Summary
A young woman in her 20s was apartment shopping when she felt she had found the
perfect two bedroom apartment to share with a friend. The woman took an application from the
harried landlord and called her mother on the drive home, excited by her find. Days later, the
young woman walked through the apartment again with her mother, and with a more practical
eye, had to admit the apartment was too small for two friends to share comfortably. She returned
home and thought about it, then called the landlord the next day to decline the apartment. The
landlord requested that the woman return the blank rental application. The woman scheduled an
appointment with the landlord to drop off the document. The day of the appointment the
landlord had to cancel, and they re-scheduled. Over the next several days, random emergencies
and responsibilities at the landlord’s various properties left her unable to meet the woman time
and again. One evening, as the landlord called to schedule yet another meeting, the young
woman’s mother answered. The landlord, exasperated by all the effort and frustration of trying
to do something so simple but not being able to get it accomplished, expressed, “I have so much
to do! If only I had someone to do everything for me!”
The young woman’s mother who answered the phone happened to be a founding partner
and CFA of Cornerstone Property Management, Ms. Kathy Scharko, and she had just found our
ideal client.

Cornerstone Property Management was founded in 2006 and is currently in the

development and planning stages. We are a full-service property management partnership with a
vision 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 on
their 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 relax
and enjoy their surroundings. Cornerstone Property Management seeks to fulfill all these needs
and 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 offer
quick and easy service for the use of prospects, tenants, and clients. We will create value for the
property owner with superb total maintenance of rental properties, as well as serving as a
facilitator between the tenant and the landlord, all coordinated through our proprietary website
application. 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 our
tenants a better rental experience by creating open and effective lines of communication between
themselves and the property owner, as well as courteous, prompt, and professional service to
their home and the property grounds. Our focus is on continual improvement of the value we
bring to stakeholders, such as tenants, and especially property owners. We will also strategically
grow the business by forging relationships and networking to the fullest extent, as this is the
basis of the real estate industry. Our founders have a true understanding of what it takes to stand
out in the industry.

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 Cornerstone Property Management brings over 15 years of property management and real
estate experience to the table, as well as in-depth knowledge in the area of e-commerce and web
technologies. 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 key
personnel are:

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

Ms. Cathy Gentry, MBA and Partner/Operations Manager: Bringing over 7 years of
property 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-run
home restoration business later diversifying into property management. In both
endeavors, she excelled with her ability to understand and manage the needs and
expectations of all stakeholders.

Mr. Shakir Akbari, MS and Partner/Technology Manager: Bringing vast e-business

experience as the former director of e-business of a very successful bank. Mr. Akbari
was 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 venture
registered over 10,000 users, leading Mr. Akbari to be subsequently nominated as one of
the most influential leaders in real estate by “VAR E-Biz magazine” (2000).

Ms. Kathy Scharko PHD, CFA, and Financial Advisor: Ms. Scharko, formerly an
analyst with Venture Capital Corporation, specialized in e-business firms. She also has
immeasurable experience in banking, start-up financing, IPOs, and other market
capitalizations. Ms. Scharko is published, most recently a highly regarded white paper on
the 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 a
reduction in cost or service. We request a Letter of Credit for $150,000 at a rate of 7.5%, to be
repaid in 3 years. This will match the partners’ individual contributions of $50,000 each. The
level of real estate industry expertise our partners bring to the table, coupled with our sound
business concept and desire to succeed make Cornerstone Property Management a worthy
investment for your portfolio.

Thank you for your time.

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Table of Contents
Executive Summary.........................................................................................................................2
Table of Contents.............................................................................................................................4
Business Description........................................................................................................................6
The Industry.................................................................................................................................6
Our Company...............................................................................................................................7
Services Offered...........................................................................................................................8
Unique Selling Proposition..........................................................................................................8
Positioning...................................................................................................................................9
Pricing........................................................................................................................................10
The Market.....................................................................................................................................11
Customers..................................................................................................................................11
Market Size and Trends.............................................................................................................11
Competition................................................................................................................................12
Indirect Competition..............................................................................................................12
Direct Competition.................................................................................................................12
Estimated Sales......................................................................................................................13
Development & Production...........................................................................................................15
Development status....................................................................................................................15
Service process...........................................................................................................................16
Capital Requirements.................................................................................................................19
Method of Sales.........................................................................................................................21
Advertising and Promotion........................................................................................................22
Management...................................................................................................................................23
Description.................................................................................................................................23
Ownership..................................................................................................................................23
Organization Structure...............................................................................................................23
Support Services........................................................................................................................24
Financials.......................................................................................................................................25
Risks...........................................................................................................................................25
Break-Even Analysis.............................................................................................................25
Cash Flow Statement.................................................................................................................25
Balance Sheet.............................................................................................................................25
Income Statement.......................................................................................................................25
Funding Request and Return......................................................................................................26
Appendix A – Web Site Screenshots.............................................................................................27
Home Page.................................................................................................................................27
About Us....................................................................................................................................27
Tenant Portal - Payment.............................................................................................................28
Tenant Portal – Help Desk.........................................................................................................28
Landlord Portal – Home Page....................................................................................................29
Landlord Portal – Sample Report..............................................................................................29
Appendix B – Cash Flow...............................................................................................................30

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Appendix C – Balance Sheet.........................................................................................................32
Appendix 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 things
that are critically important for real estate, location, location, location! The reasons may be
many; proximity to your work, friends, or family, importance of life style choices, or simply
investment potential.

The city of Chicago has the distinct advantage of having a robust multi-industry
economy. 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 city
limits. 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 of
people postponing purchasing and choosing to rent their next property.

Real estate investors desire both upwards appreciation and steady positive cash flows
from 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 astute
or 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 of
Chicago market. This is the market segment we are choosing to enter.

Though investing in rental properties can be a healthy, long term investment opportunity
there can be some downsides. The distraction and costs of administering all the details and issues
that 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 between

the owner/landlords and the renters/tenants. These small companies are usually non-automated
and labor intensive type firms. Consisting primarily of handymen and administrators, their main
service has been to maintain and repair the rental properties when required. Automation of
business processes was not a primary concern and therefore bookkeeping, accounting, and other
business 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 as
Motorola, Sun Microsystems, and Dell Computers. These large property owners expect and
demand superior service and quick availability of information from their property management
professionals and they get what they demand. Small property owners, however, have had little to
choice in who they might choose as managers for their investment properties. This lack of
competition has resulted in slow rent forwarding capabilities, in slow reporting on property
issues, and in low investment in business processing optimization.

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

Our Company
For the discerning, multi-tenant, real estate investor, Cornerstone Property Management
offers quick, easy, and trustworthy property management services in order to remove the
challenges associated with those investments.
Cornerstone Property Management will provide full service management of real estate
properties. Our service is to remove all the headaches and problems associated with property
management and thus allow the owners streamlined access to the financial rewards of their
investments.

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

Those challenges to real estate property management are numerous and Cornerstone
Property Management will concentrate on automating most of the mundane paperwork required
to properly manage the myriad of details required by investors, tenants, tax authorities, and local
and 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 of
Accountants, 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 every
service required in order to minimize distractions and costs associated with real estate
investments.

Cornerstone Property Management will be set up as a limited partnership with our three
founding 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 rent
monies. Unmatched by our competitors, we will offer a worry free business relationship that
improves 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 when
beneficial. We will ensure that repairs and maintenance work be done in a professional and
timely manor. We will screen applicants for credit worthiness and then subsequently periodically
inspect rental units for compliance with rental agreements. Politics are a way of life in Chicago
and 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 quick
remediation of property issues, easy methods of rent payments, and act as a spokesperson for the
owners. We will confirm the requirement for repairs in a timely manor, and keep the tenants
informed as the status of their requests.

Unique Selling Proposition

The Cornerstone of our business model will be a proprietary web portal that will offer
quick and easy service for the use for prospects, tenants, and clients. This portal will both lower
our business process costs while improving our service levels. The website infrastructure will
maintain 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 financial
status of his investments. He wants an easy to understand presentation of his revenues
and 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 or
down-loading HTML formatted reports. The backend financial applications will generate
quarterly reports and forward them to our clients, or their designated agents, within the
format 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 bank
account by the 10th of every month.
The portal will help us create a relationship of worry free, trustworthiness with our client
base that will be hard to match by our competition. The industry average for forwarding
rents 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

8
 transfers or paypal accounts for their monthly obligations. Readily available information
on building policies, emergency contacts, and utilities will be shown. Finally, if they have
any 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 as
automating our book keeping functions for further cost reductions. Automating our help
desk functions will enable faster and less costly tracking of job order status and
completion times.

Prospects – The public facing side of the portal will be shown to potential clients to
illustrate 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 can
quickly show the value proposition of working with our firm. Specific key word coding
will 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 in
sales efforts, an online sales tool will be a necessary but inexpensive method of
promoting our service. Additionally, placing a presence on the web may generate some
interest in our services.

Enterprise – The portal will collect all the service requests from the tenants and facilitate
the printing of the reports for distribution to the appropriate servicemen to remedy. Status
of those requests will be maintained for follow up if needed. Current status of rent
payments, vacancies, deposits, and other cumulative financial data will be presented in an
easy to view graphical and line item format for reporting functions.
All tenant and client data will be readily available for quick access by authorized
company staff.
This is the corner stone of our business process, automating as many functions as
possible in order reduce complexity and costs, speed up process times, and improve
services levels to our clients and tenants.

Positioning
For absentee owners and remote investors in Chicago area rental properties, we offer
worry free, trustworthy property management services. By web enabling our reporting functions
we allow our clients unlimited availability to their property’s financial and physical status. The
automation of reporting functions and maintaining current investment status dramatically reduces
the investor’s worries over problems that may arise. The investors not only receive their rent
monies earlier in the month, they now do not have the worry of tenant or building problems
being handled in a less than optimal fashion.

We want our customers to view us as trustworthy partners who will manage all the
multiple 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 to
understand reports, instant delivery of those reports, and rapid forwarding of rent monies to the
clients.
Our clients are high net worth individuals who are only interested in receiving monies
without any issues interrupting their cash flows. Lowering our fee structure would only hurt our
bottom 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 high
levels of customer service with appreciation. We expect to win over our target client market by
offering much superior service at the same price as our competition. By reducing our business
processes 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 scalability
and larger operating profits, if competition starts to copy our methods, we will be better able to
reduce 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 without
experience in building management. A client of ours can own as few as one and as many
properties as mutually agreed, as long as the number of units per building does not exceed eight
units.

Our customers can be broadly identified in two categories: first, those who have jumped
into real estate investment because of self-identified opportunities in gentrifying neighborhoods,
and second, longtime, and in many cases, multi-generational, property owners whose properties
have 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 the
high appreciation trend in a developing neighborhood. He wants to acquire properties at a
reasonable cost, economically rehabilitate them, and enjoy the increasing rental rates that such
neighborhoods provide. As he enjoys his success and invests in more buildings, he will typically
find himself to be incapable of the maintenance issues at the beginning and those frustrations
will multiply when coupled with rent collection issues and other service expectations by their
tenants. This will be our least challenging customer type to win over of the two types cited
above. They will be cost conscious and that will be a first concern, even given the challenge of
trying to do the handling of their investments themselves. These are generally very successful
people 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 benefits
that Cornerstone will provide as far as timely rent collection and that their maintenance issues
will 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 are
owned by second, third, or even fourth generation owners. This will be an entirely different type
of customer: one accustomed to the demands of property ownership. Our opportunity lies with
the large number of such property owners who no longer rely on apartment rentals as their single
source of income and who find themselves stretched for time to properly attend to their real
estate holdings. These customers, though, will be more quality conscious when they decide to do
business with us, wanting to “protect the family name” and their reputation as responsible
landlords. Also, this type of customer will tend to be more concerned with the upkeep of their
buildings 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-unit
buildings with less than 8 units per building. We will develop a strategy to attract the property
owners who have invested in buildings in addition to their other employment circumstances, but
have not accumulated a large enough number of properties to have their own property
management firms.

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 During the past five years mortgage rates have hit historic lows. Unemployment rates
have 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 previously
afford to buy now had a chance to get a mortgage and buy their own home. These events slowed
things down on the rental side of the real estate market. Vacancy rates for residential properties
were historically high and rents were fairly low for any given market. As interest rates began to
rise again and an economic slowdown, many people are renting again. This has already inversed
vacancy 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 of
them target real estate investors who own larger residential multi-family buildings with more
than 20 units per building and/or commercial properties. The fees that they charge vary between
4% and 8% based on location, type and especially size of a given property. Logically, based on
economies of scale, the higher fees are paid by landlords who own smaller properties. These
larger firms are not our direct competitors because of the higher fees they charge for small
buildings.

Direct Competition
One of the more established firms in our territory that we will be competing against is
Key Management. A ten-year veteran in the industry, they are currently managing about 300
properties 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 that
was promised their customers. It is not clear if Key Management is unwilling to hire additional
staff in an effort to keep overhead expenses low, or if they feel that the numbers are adequate and
are unaware of simmering customer dissatisfaction. Further, they do not maintain a website that
can function as both a communication portal and as a means to conduct financial transactions. It
is simply an informational site with property locations and office phone numbers provided. Our
interactive website will impress our prospects and make customers more satisfied with our
property management operation.

A second competitor in the territory, J.P. MacDonald and Sons, has been operating in the
Ravenswood neighborhood for forty years. This family-run business has long provided
management services as well as real estate and insurance services. At one time, it was also the
Western Union office in the neighborhood. Now being managed by the two sons, there is no
perpetuation plan in place, no website being maintained and no innovation being entertained
regarding faster collection of rents. They do, however, manage about 100 properties all over the
North side of the city and so enjoy monthly sales of about $1.7 million. Their main customer is
the 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 for
Cornerstone Property Management, by convincing their existing customers of our increased
capabilities.

Estimated Sales
Based on estimates, Cornerstone Property Management will rapidly grow during the first
year of operations. We project a startup property level of 18 properties (six clients with three
properties each), and we project an initial growth of 18 additional properties on average every
three months.
Projected First Year Sales

$600,000.00

$500,000.00

$400,000.00
Sales in Dollars

$300,000.00

$200,000.00

$100,000.00

$0.00

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 of
our 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. We’ll collect 5% of that amount in the form of
management fees; therefore, our income before expenses will be (.05 x 2,825,400) $141,270 per
month.

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 Projected Second & Third Year Sales

$3,000,000

$2,500,000

$2,000,000
Sales in Dollars

$1,500,000

$1,000,000

$500,000

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

Sales Growth Projections - 3 years

60

50

40
Growth %

30

20

10

0
Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar
Quarter

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Development & Production
Development status
There 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. The
information technology will facilitate our business processes, while the business network is
needed to create the growth needed to sustain our company.
Before development can begin, we will first need a fully functional office. This includes
staffing as well as physical goods such as computers. We have evaluated several available
software packages but have decided that building our own fully tailored solution to meet our
client’s needs would be a stronger long term product. Developing our own software package
will enable us to create the documentation needed for future training, attain a complete
understanding 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 capital
2 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 using
Microsoft Access and will provide bare bone functionality to evaluate
use cases and our business processes’ capabilities)
6 August 3, 2006 Create performance metrics and acceptance criteria
7 August 5, 2006 Design user interface
8 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 store
10 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 application
development
13 November 15, 2006 Soft launch of the application to run stress tests
14 November 17, 2006 Full software launch with kick-off dinner for prospective clients

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

15
much as 6 months, this will not cause a delay the core functionality we will provide. A “drafted
system” will be in place, enabling the company to operate while awaiting the completion of the
implementation of the fully automated system.

Once the information technology support system has been enabled, we can continue to
our 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 an
ongoing business activity. To build our first set of clients we will draw upon our current contacts
in the real estate industry. These contacts will offer the services of Cornerstone Property
Management to the landlords which they work with. Current contacts include real estate
brokerages and apartment finders; in time we will garner additional industry contacts and will
seek to create strategic relationships with these entities to better support both of our businesses
goals. While we will make full use of our network assets to gain customers, we will also pursue
customers 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 services
begin is when we acquire a new client, after that client has agreed to the terms of our service we
can the initialize the client’s account. Our first task is to give the client our information packet
and walk them through our service structure. This packet will inform the client of our services in
detail, our business processes, and other resources they can utilize. After the client feels at home
with our business, we will create their account in our information technology system; this entails
creating the customer's profile, profiles on their properties that we will manage, and finding and
logging the maintenance personnel whom we will call to service their properties. After the
client's account has been created the initialization phase will be complete and we can start our
service to landlords and their tenants.

There are five stakeholders in the daily procedures of our business; the landlords, the
tenants, the maintenance companies, banks, and apartment finders. To maintain our
responsibilities to all of the stakeholders, we will have redundant systems for insured business
continuity. In order of “failure severity” these systems are; a cold backup of the application and
the 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 setup
our 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 monitor
activities, to generate contracts, for emergency issue resolution, and to manage our business
partnerships with a personal touch.

Tenants
The 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

16
complete scheduled check-ups. To collect the rent we will give the tenants a number of payment
options; they can use automated check withdrawal, credit/debit payment online or via an
automated 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 comfortable
using our online payment services, however the tenant will be incur the increased cost of using a
third party system. When we have not received a payment from the tenant, automated alerts are
sent via email, phone and letter. These alerts are sent to the tenant, our office personnel, and to
the landlord (in the case of extreme delinquency). We will also enable the tenants to report
maintenance 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 the
proper maintenance company assigned to that property. After we have a confirmed timeframe to
complete the work order, a notice is sent to the tenant with the maintenance company’s
information and the timeframe for completion. When maintenance personnel have completed
the 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 for
immediate resolution. Properties will also have a 6 month check-up which will follow this same
procedure, with the exception that we will initialize the process by contacting the tenant about
the check-up visit.

Property Owners/Investors
Our 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 will
include the results from a health check; a full check-list on the condition of the units, any
required building maintenance, as well as recommendations for improvements that would allow
them 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 their
properties. While reports will be disseminated to the landlords on a bi-annual basis, our clients
will be able to login to our web portal at any time and see the current condition of their
properties, any outstanding maintenance issues, and full historical data, including tenant history,
rent payment history, maintenance histories, who found the tenant, and their account
information.

However, our main value to the property owner/investor is the hassle-free maintenance
provided. When a property owner enlists our services, all day to day operations, scheduled
upkeep, 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 will
enable the property owner to enjoy the benefits of their investment without the worries.

Labor Requirements
The 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 internal
resources will consist of the three initial partners; a marketing partner, a real estate partner, and a
technical partner, as well as two office personnel; an operations manager, and an administrative

17
assistant, their skill requirements are summarized in the following table. Each skill requirement
is ranked on a scale of 1; little or no development of the skill, to 5; the skill has been highly
developed.

Marketing Brokage Technical Operations Administrative

Advisor Manager Manager Manager Assistant
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 estate 3 5 1 1 1
brokers
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 management 2 3 2 5 1
knowledge
Has basic computer skills 5 5 5 5 5
Can maintain a website 2 2 5 4 2
Can design a “model-view- 1 1 5 1 1
controller” application
Can write programs in ASP.net 1 1 5 2 2
Can write queries to a database 1 1 5 3 2
(SQL)
Has knowledge of 1 1 5 3 1
telecommunications systems
Can write test scripts 3 3 5 2 1
Can write technical 5 5 5 3 2
documentation

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 computer
programmers. Our technical partner will lead the development of the information system by
creating the system diagrams and code structures for the consultants to implement. After all
systems development is finished, hired consultants will no longer be needed. The technical
partner will assume the responsibility of maintaining the technology system. If, in the future,

18
new features and expansion are needed for the system, Cornerstone Property Management may
again hire outside consultants to implement code that is designed in house.

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

The administrative assistant should have a minimum of high-school education; the

Operations Manager should have a bachelor’s degree, preferably in Management Information
Systems. The partner and acting Operations Manager is an MBA. When either position is hired
onto 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 professional
development efforts to make our employees industry experts, and to take responsibilities off of
the partners.

Capital Requirements
The cost to setup and develop the software to launch our business will fall into a small
number 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 themselves
until the business creates a positive cash flow.

Software Development:
Expense # Cost per
Server Hardware 4 10,000
Microsoft Windows 2003 2 500
Standard Edition
Linux Red Hat Enterprise 2 -
Server
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

19
Office Expenses:
Expense # Cost per
Computers 5 2500
Phones 5 500
Fax machine 1 1000
Printer 2 800
Total cost 17,600
Administrative Fees:
Expense Cost per
Cost to create the firm 3000
Real estate license 100
Various account creation 1000
Domain name registration 250
Web hosting initialization fee 650
Total cost 5,000
Software Licenses:
Expense # Cost per
Microsoft 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

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
Sales and Marketing Strategy
There is no substitute for talent when coupled with experience and a strong desire to
succeed. We are determined to provide our clients with a high level of quality and effectiveness
in 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 market
reach. We will work in conjunction with real estate brokerages as additional resources for
clients. We will utilize a sales force, which will aggressively pursue the leads generated through
networking; they will educate prospects about our value proposition and our service offerings by
using the marketing kit we have developed. We will draw in clients by accentuating our vendor
resource 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 emphasize
our ability to provide better pricing through economies of scope, by focusing on our core
competency - property management - and by having an in-depth understanding of all aspects in
that industry.
Our ability to offer our clients better pricing through economies of scale will also be
realized by avoiding adverse markets. We will leverage our industry networks, property
management knowledge base, expert systems, and top shelf customer service, to bring a low
bottom line price to our clients.

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

Method of Sales
Our sales methods will be based on direct sales to property owners. Leads will be
obtained 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 the
networking opportunities presented by real estate trade shows, the chamber of commerce, and

21
other industry players such as tax accountants and real estate attorneys. We strive to forge
symbiotic 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
we’re 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 at
trade shows.

Making appearances at real estate conventions, where we will set up a promotional
booth with staff on hand to get our prospective clients acquainted with our name and
brand 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, and
promotional services.

22
Management
Description
In order to deliver a cost effective and high quality work, Cornerstone Property
Management requires experienced managers in every aspect of the business.
Property management services and operations expertise, real estate law and regulation
knowledge, 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-business
property management firm.
Our General Partners and Board of Advisors (see details in the next sections) have
excelled on all requirements during their careers. We have total confidence that the synergy
created 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 partners
that share the profits of the firm in equal proportion.
Initially there is no limited partner but it can be considered as a possible alternative for
funds.

Organization Structure

General Partners:
• Brokerage Manager: Mr. Alex Stoykov, MBA
Mr. Stoykov brings more than 8 years of experience in real estate, mortgage advisory,
and property management to Cornerstone Property Management
He once headed the corporate property management division of a top 50 real estate
company and was responsible for an annual budget of more than US $ 5 million. He
leaded the department from an underperformer to the most profitable activity of that
company within 4 years.
• Operations Manager: Ms. Cathy Gentry, MBA
Ms. Gentry has over 7 years of experience in property management, having more than 50
properties at one time under her care. She has several contacts in an extensive network of
people 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 decided
to diversify her family’s investments in real estate, leading her to deal with property
management.
• Technology Manager: Mr. Shakir Akbari, MS
Mr. Akbari has vast experience working in Internet e-business, being the former director
of e-business for a very successful bank.
Founder and CEO of e-rentals.com, a B2C portal that connected hundreds of rental
communities with prospective customers, reaching at one point more than 10,000

23
 registered users, he was nominated one of the most influential leaders in real estate
business by the “VAR E-Biz” magazine in 2000.

Board of Advisors:
• Financial Advisor: Ms. Kathy Scharko, PHD, CFA
Former analyst in Venture Capital Corp, specialized in e-business firms, with experience
in 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 contribution
of CFOs in the Internet boom and subsequent downfall.
• Marketing Advisor: Mr. Samir Sundar, MBA
Mr. Sundar has been part of several marketing agencies, leading e-marketing campaigns
for many S&P 500 companies. One of his most visible works is the e-marketing of a
leading news portal that targeted a very well defined segment, with great success and
worldwide stir.
• Real Estate Legislation & Regulations Advisor: Mr. Ed Fee, Attorney at Law
Nominated one of the top 20 real estate attorneys in Chicago by the Illinois State Bar
Association in 2005, Mr. Fee represented many real estate investors during negotiations
with state and local government bodies, having a major role in some very visible high rise
ventures in downtown Chicago.

Employees:
• Administrative Assistant.

Support Services
Initially all maintenance will be outsourced, implying that a wide range of support
services will be required.
• Accounting services: provided by Grant Thornton (www.gt.com), one of the top
accounting firms in the United States – initial contact thanks to our financial advisor
Ms Scharko (she mentored some of their current top employees and worked with
some of the partners).
• Maintenance services: we are partnering with www.servicemagic.com (the nation's
leading online marketplace connecting homeowners with prescreened and customer-
rated home service professionals, founded in 1998 and ranked 60th in the list of fast
growing 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, and
handyman services that will be used to quote estimates and perform the job.

24
Financials

Risks
A key business driver and therefore a risk to Cornerstone Property is the rental market in
Chicago. If there is a major downturn in this market there is risk of high vacancies. Chicago has
a strong rental market and our partner in this area is cognizant of the communities and trends in
this 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 proper
service is necessary to protect their investment and maintain their trust in us. Our partner in
operations 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. If
tenants are unable to pay rents via the web portal for any length of time, cash flows impacts
could be substantial. Redundant systems and contingency plans are in place to mitigate this risk.

Break-Even Analysis

Average number of units per property 6

Average monthly rent per unit 1,170
Average monthly income per property 7,020
Average net income per property (5%) 351
Average 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

25
Funding Request and Return

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

This request is built on the following cost projections:

Software development $200,000

Marketing and branding $ 50,000
Legal/Accounting startup $ 5,000
Operating costs (6 months) $ 45,000
Total 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 be
needed during the first year and timing for payoff over years two and three.

26
Appendix A – Web Site Screenshots
Home Page

About Us

27
Tenant Portal - Payment

Tenant Portal – Help Desk

28
Landlord Portal – Home Page

Landlord Portal – Sample Report

29
Cash Flow : Year One

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Beginning Cash $ - 13,287 12,688 14,215 26,441 25,719 24,997 36,530 40,317 41,041 53,140 56,044
Cash from operations:
Cash retained from collections 12,635 12,635 12,715 14,195
Cash from management and other fees 6,502 6,502 6,502 13,003 13,003 13,003 19,543 19,543 19,543 26,786 26,786 26,786
Subtotal Cash from 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

Additional Cash received:

New Current borrowing
New Long term borrowings 70,000 50,000 5,000 10,000 10,000 5,000
Sale of other current assets
Sale of Long-term assets
New investment received 32,000 95,000 23,000
32,000 95,000 93,000 50,000 0 0 5,000 10,000 10,000 0 5,000 0
Expenditures:
Cash spending 37,850 25,350 20,350 10,350 10,350 10,350 10,350 10,350 10,350 10,350 10,350 10,350
Payment of Accounts Payable 1,750 2,625 3,063 3,375 3,375 3,375 3,406 3,469 3,531 3,531 3,563
Subtotal Spent on Operations 37,850 27,100 22,975 13,413 13,725 13,725 13,725 13,756 13,819 13,881 13,881 13,913

Additional Cash Spent:

Principal Repayment of Current Borrowing
Long-term liabilities principal repayment
Purchase other current assets
Purchase Long-term assets 75,000 75,000 50,000
Distribution to partners 12,000 12,000 15,000 15,000 15,000 15,000
0 75,000 75,000 50,000 0 0 12,000 12,000 15,000 15,000 15,000 15,000

Ending Balance Cash 13,287 12,688 14,215 26,441 25,719 24,997 36,530 40,317 41,041 53,140 56,044 53,917

Retain 10% cash for repair reserves 12,635 12,635 12,635 25,270 25,270 25,270 37,985 37,985 37,985 52,180 52,180 52,180

Appendix B – Cash Flow

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Cash Flow : Year Two- Year Three
Year 2 Year 3
Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun
Beginning Cash 53,917 59,439 68,575 75,561 84,897 97,857 104,964 96,446

Cash from operations:

Cash retained from collections 7,000 7,000 7,000 7,000 7,000 7,000
Cash from management and other
fees 93,332 104,307 115,282 126,257 137,232 147,207 147,207 147,207
Subtotal Cash from Operations 100,332 111,307 122,282 133,257 144,232 154,207 147,207 147,207

Additional Cash received:

New Current borrowing
New Long term borrowings
New investment received
Subtotal Additional cash received 0

Expenditures:
Cash spending 26,247 26,247 26,247 26,247 33,972 33,972 33,972 33,972
Payment of Accounts Payable 3,563 10,924 10,549 10,174 9,799 12,128 11,753 11,378
Subtotal Spent on Operations 29,810 37,171 36,796 36,421 43,771 46,100 45,725 45,350

Additional Cash Spent:

Principal Repayment of Current
Borrowing 20,000 20,000 20,000 20,000 20,000 20,000 20,000 10,000
Long-term liabilities principal repayment
Purchase other current assets
Purchase Long-term assets
Distribution to partners 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
Ending Balance 59,439 68,575 75,561 84,897 97,857 104,964 96,446 98,303

Retain 10% cash for repair reserves 59,180 66,180 73,180 80,180 87,180 94,180 94,180 94,180

31
Appendix C – Balance Sheet
Balance Sheet of Individual Partners at April 30, 2006

Assets Stoykov Gentry Akbari

Cash 5,000 8,000 7,500
Other Current Assets 175,000 75,000 85,000
Total Current Assets 180,000 83,000 92,500

Long Term Assets 5,000,000 1,500,000 1,350,000

Accumulated Depreciation (1,500,000) (150,000)
Total Long Term Assets 3,500,000 1,350,000 1,350,000

Total Assets 3,680,000 1,433,000 1,442,500

Liabilities and Net Worth

Current Borrowings 100,000 10,000 22,000
Other Current Liabilities 2,500 1,500 2,200
Subtotal Current Liabilities 102,500 11,500 24,200

Long term liabilities 2,500,000 1,200,000 1,050,000

Total Liabilities 2,602,500 1,211,500 1,074,200

Net worth 1,077,500 221,500 368,300

Total Liabilities and Net worth 3,680,000 1,433,000 1,442,500

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 Appendix D – Income Statement
Income Statement: Year One

Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun
Income
Management fees on rent collected 6,002 6,002 6,002 12,003 12,003 12,003 18,043 18,043 18,043 24,786 24,786 24,786
Other fees 500 500 500 1,000 1,000 1,000 1,500 1,500 1,500 2,000 2,000 2,000
Total Income 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
Payroll Expenses 5,000 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500
Payroll taxes and other benefits 1,750 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625
Sales and marketing expenses 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350
Office Expenses 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
Office rent 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
Professional Services 200 200 200 200 200 200 200 200 200 200 200 200
Start Up Costs 30,000 15,000 10,000
Total Expenses 39,600 27,975 22,975 12,975 12,975 12,975 12,975 12,975 12,975 12,975 12,975 12,975

Income From Operations (33,098) (21,473) (16,473) 28 28 28 6,568 6,568 6,568 13,811 13,811 13,811

Interest expense 438 750 750 750 781 844 906 906 938 938

Net profit (33,098) (21,473) (16,911) (722) (722) (722) 5,787 5,724 5,662 12,904 12,873 12,873

33
Income Statement: Year Two - Year Three
Year 2 Year 3
Jan-
Mar Apr-Jun Jul-Sept Oct-Dec Jan-Mar Apr-Jun Jul-Sept Oct-Dec

Management fees on rent collected 84,332 94,307 104,282 114,257 124,232 134,207 134,207 134,207
Other 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

Payroll Expenses 23,175 23,175 23,175 23,175 30,900 30,900 30,900 30,900
Payroll taxes and other benefits 8,111 8,111 8,111 8,111 10,815 10,815 10,815 10,815
Sales and marketing expenses 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Leased Equipment and software 200 200 200 200 200 200 200 200
Utilities 210 210 210 210 210 210 210 210
Office rent 750 750 750 750 750 750 750 750
Insurance 206 206 206 206 206 206 206 206
Professional Services 206 206 206 206 206 206 206 206
Total Expenses 34,358 34,358 34,358 34,358 44,787 44,787 44,787 44,787

Income From Operations 49,973 59,948 69,923 79,898 79,445 89,420 89,420 89,420

Interest Expense 2,813 2,438 2,063 1,688 1,313 938 563 188

Net Income 47,161 57,511 67,861 78,211 78,132 88,482 88,857 89,232

Vacancy Rate 95%

Management fee rate 5%
Inflation rate 3%

34