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M.F.D. Technological Convergence

     This packet of information details a plan to take technology and make it an intricate part of the Multi - Family Dwelling - Industry. Before now, technology had no practical application in the form of being offered as an amenity. Coupling the fact that technology was not cost effective, with little or no return on investment, computers have never been introduced to the Multi - Family Dwelling.

     “M.F.D. Technological Convergence”, ( M.F.D), represents the Multi - Family Dwelling Industry and Technology conveying the use of the Internet and the devices used for its access. “Convergence” is a buzzword introduced to the world at Winter Comdex. It is appropriately used in the name of this project. To converge is to: “to tend toward a common result or conclusion;” Webster’s Dictionary, Random House -1995.

     Converging technology with Multi - Family Dwellings is at this time in history one of the most profitable applications of the Information Super Highway. Our entire economy is tending toward the use of the Internet for every day living. Our society is sculpting its Children to use it, every major business in the world is exploring it and our Government is driving its expansion.

     “ Just as 100 years ago our economy transitioned from an agrarian society to an Industrial economy, today we confront the transition from an industrial to global, Technological economy. Technology – the World Wide Web, computer aided design, word Processing, data processing, electronic transfers has become an engine of our economic growth and has fundamentally changed the ways we learn and how we do business.”

     The following project outlines the implementation of that technology to an untapped demographic of an estimated 34,000,000 households in the United States.

     Defining a Telecomm Based Amenity was at first very difficult because the amenity never existed before 1996. Telecom Based Amenities, or for the sake of this project, T.B.A.’s; will have many interpretations. The most generic available to date is by definition,

     “Any amenity providing comfort, convenience or pleasure that is taken advantage of through telecommunications.”

     T.B.A.’s have been in existence since the creation of the telephone. This amenity is not necessarily “new”. Scottish-born American created the telephone in 1876 Inventor Alexander Graham Bell 1 . It was first used as an amenity in middle to upper end Hotels on the heels of the phones creation. Offering telephone service was an exceptional tool for filling rooms.

     The phone was so revolutionary, people embraced the technology almost immediately. The technology was still considered to expensive for most families. As useful as the phone may have been, the Telecommunications Industry grew very slowly.

     The biggest contributing factor to Telco’s explosive growth came when the United States Government used the technology to help aid the move from an agricultural economy to an industrial economy. To ensure that telephone wire systems and radio airwave systems were set up and run in the most efficient way, Congress passed the Communications Act in 1934 and created the Federal Communications Commission (FCC 2)

     Why is it important you? Currently, a similar course of events is taking place that will radically change the way every industry does business, not just Multi - Family Dwellings.

     2 "Communication," Microsoft® Encarta® 98 Encyclopedia. © 1993-1997
     Microsoft Corporation. All rights reserved.
The “Telecom Phenomena” – Relived

     Think for a minute of the Telecommunications Industry’s impact on the world. One could fill page after page of ways it changed day to day living. One of the most immeasurable impacts took place in businesses and the economy.

For the first time Businesses were able to expand nationally and still react overnight to changes in their market places. Competitive strategy moved from “door to door” selling tactics to “telemarketing”.

     How many jobs were created? How much revenue was generated in supporting the expansion and service of Telecom? How did this resource effective science and medicine? It is mind-boggling.

     What is even more mind boggling is that the next generation of telecommunications will impact the entire world on an even greater level. The key ingredients for this “Telecom Phenomena” the United States experienced in the late 1930’s are taking place today.

     Adding a few minor changes to Table 1, “The Telecom Explosion”; this is the model today.

     The first three events in Table 2 have little to no effect on M.F.D.'s. The Internet was invented and very little commerce actually takes place on it. Eventually everyone sees the potential, but even if Internet Commerce were to hit an all time high it would still have little or no effect on the Owners of commercial properties. Right? - Wrong!

     Look at the last three events in the series in Table 2. Two of the three blocks have already taken place. The United States is overhauling the Educational Branch. Why? To teach our children how to compete in a Technological/Global Market place. Our economic base is taking the same transition it took when the U.S. went from Agrarian to Industrial.

     Is this a significant change? How many people still make a living from growing crops as compared to the early 1900’s? When the economic base of a major country changes, the ramifications are incalculable.

     The Clinton Administration realizes the education of the youth of America must adapt much like it did when The United States Educational branch altered its curriculum when Teachers had to teach children skills that would prepare them for working in factories and not on farms. The Clinton Administration has already budgeted 2 billion dollars and launched four major programs for the “High - Tech” classrooms of the future.

     The Tenant of the future will use on average two phone lines per household. One of the two lines will be a high-speed data connection. Every tenant unit will need to be equipped with high-speed lines as a standard feature.
Future Tenants will be Net friendly and Net dependent.

     If you own or manage M.F.D.’s, you already have one of the hottest commodities in recent history. Refer back to the fifth block in Table 2, “Government Telecom Act 1996”. This is where a M.F.D. owner will capture more revenue then ever imaginable.

     Before the Telecom Act of 1996 the revenue stream for telecommunications was monopolistic and no one benefited from that industry except the government and the Telephone Companies.

     For the first time in the history of the United States phone lines are not geographically monopolized. You now own the gateway to the entire global economy. The phone companies now have to compete for everyone’s business.

     Will phone companies compete for my business? Yes, of course. The M.F.D. owner holds the keys to thousands of households.

The Only Event That Has Not Taken Place Yet Is “Telecom Explodes”, Why?

     The final series of events in Table 2 ”Telecom Phenomena” is the block described as “Telecom Explodes”. It is best to understand how Industries begin or evolve before ascertaining why the T.B.A. Industry has not yet come.

     There are two reasons why the T.B.A. Industry has not “exploded” yet. The first reason is the way this industry came into existence. Normally when an industry is born it happens one of three ways as seen in Table 5, item 1; A - B or C. When one of those three options occur it is relatively easy for a Business Analyst to forecast the upcoming trend. What if all three happen at once? How easy is it to forecast then?

     The T.B.A. Industry is virtually invisible right now because its inception was so abnormal. The T.B.A. Industry could potentially be attributed to all three of the options.  T.B.A.’s are a product that stem from the invention of the Internet. So, it may be classified as an Innovative Industry Inception.

     The T.B.A. Industry may also be a product of Evolutionary Industry Inception. The Multi - Family Dwelling Owners have for years offered features that would keep  vacancy percentages down, increase public perception of value and drive the Net Operating Income of their facilities up. Given this example a T.B.A. could also be the product of the evolutionary process.

     Finally, one could argue this Industry was created by circumstance. Before President Clinton’s Telecom Act of ’96, a M.F.D. Owner could not make money on the telecommunications their tenants consumed. Without this circumstance taking place this Industry could have never been an Industry at all.

     The T.B.A.’s themselves are even harder to categorize. There are thousands of companies that can provide goods and services over the Net to your tenants so that must make this a Broad Venture Market? Not necessarily. To access the mass population of people a Company would have to sell to the M.F.D. Owner the benefits of their product. That would then make this a Niche Venture.

     As you have probably gathered by now, even trying classify the existence of this opportunity is not easily done.

     The second reason that Telecom Based Amenities have not been realized is not shocking at all. All the places that phone companies are currently “sharing” revenue, but just are not talking about it.

     A September of 1997 announcement on Oregon Public Broadcasting about the City Of Hillsboro charging Sprint a 3.5% franchising fee on revenue is one such example. The City of Hillsboro realized their rights on the Easement to the property the City held and didn’t just charge Sprint a monthly fixed dollar amount for using the land to drop cables, they were charging Sprint 3.5% of the total revenue created by those lines.

     Another example is Oregon State University and the Oregon Health Sciences University which have realized the same rights on their properties and are creating revenue streams from their phone bills. The only commitment that they made was to service contracts for a number of years with a clause by the telecommunications provider stating that the rates, when increased would not exceed 3% of the most affordable local rate. This was to be recalculated on an annual basis to determine the following years service charges.

     If that document had not been made public, who knows when the information would have broke? There are a lot of businesses out there today that are keeping this very quite.

     To generate revenue with the various T.B.A.’s, the most important step is to “realize” your right to hold and grant access to other parties to the property or properties that are currently in your name. The specific easement is referred to as a commercial easement in gross.

     “A commercial easement in gross(that is one created for profit) is alienable. It can be mortgaged or sold”.
      Kloek, Assignability and Divisibility of Easement in Gross,
22 Chi. Kent l. Rev. 239 (1944); 3 Powell, The Law of Real Property, 419 (1981).

     Once the easement is realized the right to select a phone service provider to attach lines is your building is at the sole discretion of the property owner. It is important to remember people have the right to choose the long distance provider. The local services and high-speed bandwidth are to be determined by the owner of the building.

     This is very easily answered. The more an M.F.D. owner can put through the pipeline to His or Her tenants, the more profit that comes out on the other end in the form of Net Operating Income.

     Compare the way products get consumed by your tenants today verses how they will be consumed in the future in a High-Tech Global Economy.

     Currently our country operates its economy through distribution and “storing” in local markets to make it easy to consume. The more consumption, the better the economy. The primary reason the U.S. Government is fueling the deregulation of phone companies for faster more competitive growth of high speed data lines and the sculpting of America’s youth is to teach the future tax payers of our country how to exist in a “Global Economy”.

     A Global Economy is a consumption model that spans from production of product to consumption of product from any region of the earth to another.

     In this Global Model of consumption, where does the Manufacturer have to be to participate in selling of goods and services to the Consumer? On the Internet. Who in this model has the consumer base? The Multi - Family Dwelling owner! The M.F.D. owner is the store! In the Global economy one of the largest demographics is the 34,000,000 million people in the United States who live in Multi - Family Dwellings and everyone wants their log In! It is now possible for the owners of these Multi - Family Dwelling ‘s to generate revenue from all the purchasing done over the Internet in their buildings. The Multi – Family Dwelling owner owns the phone lines that the tenant leases.

     This allows the M.F.D. owner to generate revenue from everything from soap to groceries to movie rentals.

     Why do you think Microsoft is fighting so hard to keep their browser, MS Explorer, on the computer systems sold with Windows 95? It is not because they have a bunch of software engineers with hurt feelings. It is because of the new method by which products are being marketed and sold, Browsers.

     A new form of advertising will mutate from the old Advertising Industry to achieve mind share on the Internet. This advertising is seamless to the consumer. It is called a Browser. The Browser selects what Web sites get listed when you query or search for a subject you are interested in. The Manufacturers pay per hit. This means that every time someone logs on to look at their goods and services the Manufacturer pays a small fee. If a sale transpires a commission is also paid.

     As you can see, if a M.F.D. owner were to bring the consumer to the Internet Web Site provider then Internet Service provider could use the browser to target the Tenant Demographic and share the revenue from all sales created.

     Of course, imagine if you were to walk into a store and ask to see some ski’s. How many skis would ABC Ski Company sell if that month they purchased that entire section of the store? The only ski’s you would be shown in this scenario is the ABC branded ski.

     Browsers dictate what a consumer sees in the way of Web listings for products. These listings, or Internet addresses link you directly to your that Companies Web Site. The more people a Web Site logs the greater the volume of business. Logged hits a month currently hold the largest conglomerate of consumers in America. to a Web Site are the equivalent grading system a Retail Facility using Foot Traffic a month. M.F.D.’s currently hold the largest conglomerate of consumers in America.

     The Companies that control the Browsers will control the “shelf space” of the Global Economy. The people that have access to the Consumers will own the entry into the store?

     For the Multi - Family Dwelling Owner to generate Net Operating Income over the Web He or She needs to partner on several levels to set up a virtual market place. The real effort in this project is in identifying a business service and delivery model. A M.F.D. needs all of the following provisionary groups.

     To set up the provisionary groups you must first determine what everyone involved needs to participate or wants. Essentially, one has to have a Consumer to sell to, a M.F.D. Owner that leases living space to that Consumer, a phone company providing bandwidth, a logistical manager for product and the accounting, a service provider for equipment, a Internet service provider, a browser provider, a content for goods and services provider, manufacturers that are interested in the Tenant demographics. The model would look like this.
                       
     This is one of he key reasons T.B.A.’s have not exploded yet. In looking at the current model you can see that most M.F.D.’s wouldn’t want the task of managing all these groups. The only other option before now would have been learning each business yourself. That would still not be worth the return. Radix, INC. has made it their business to solving the issues of making T.B.A.’s profitable for M.F.D. Owners.

     With a Radix as a Central Manager, The matrix would resemble a much more manageable flow of business for the M.F.D. Owner. It also allows for the leveraging of the partners for the optimal return on investment.

     In the previous model if one partner didn’t perform, what happened to the other partners that supplied them? If the two companies signed non-competes the rest of the chain would be isolated from the delivery process.

     When there is a problem in the delivery of goods and services, who addresses it in the previous model? How do you know by the time the Goods & Services make it the Tenant in the previous model, after being marked up 5 times, the goods and services are so expensive that the tenants won’t use the Internet to buy? That would defeat the purpose an M.F.D. owner would use T.B.A.’s.

     Radix solves these issues with a centralized management model as seen below. Not to mention sharing revenue with one partner provides more profit for the Central Manager and the M.F.D. owner as opposed to the previous model sharing revenue between four partners.
         
     What are the Projected Revenues Radix Assemble with the Resources Market Profile Radix has one goal, to drive the Net Operating Income of the Multi - Family Dwelling Owner up as high as possible. Being fully aware of how real estate is appraised the more N.O.I. Radix creates for the M.F.D. owner the greater the property is valued at with the Cap Rate.

     To set goals in a market place, it is important to understand its capacity first. Currently in the United States there are approximately 34,000,000 apartment units. 

     Of those units the spending habits of the Tenant must be evaluated. There are two types of spending. The first is Fixed spending. Fixed spending are expenditures that cannot be done without. Rent for instance is a Fixed Expense.  You have got to pay for shelter. The next type of spending is Discretionary. Discretionary is the type of spending you don’t need to exist. Tickets to the movies are discretionary spending.

     The evaluation sheets, which follow, demonstrate how Radix is able to add considerable value to M.F.D.’s owners N.O.I. and in turn the CAP rate for their properties.