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The Engine That Could

The founders of the real estate industry's newest Internet venture were well aware of the many commercial real estate portals popping up on the Internet. While surfing the Net, however, they didn't find a centralized site where industry professionals could pick and choose the services they wanted.

Enter The Realm. The New York-based company, which launched in May, wants to be nothing less than the real estate industry's only one-stop, business-to-business (B2B) hub where customers can conduct nearly all of their day-to-day business.

By entering The Realm, company executives say customers will be able to choose from a smorgasbord of services to help run their businesses, including rent collection, financial analysis, property management, loan originations, supply procurement, and an information network offering everything from industry news to financial benchmarks.

The Realm is being introduced in North America in several phases. A rent collection program and other transaction services are up and running. The e-procurement service will be launched in the third and fourth quarters of this year, and the loan program in early 2001.

Realm CEO Alfred Apps and company president Donald J. MacKinnon realize the company has an ambitious agenda. "This is an enormous challenge," says MacKinnon. "It's a look toward the future, but I think it is very exciting because it is new and requires a tremendous amount of thought and work."

MacKinnon joined The Realm after working in the commercial mortgage backed securities arena as the co-head and co-founder of New York-based Donaldson, Lufkin & Jenrette's Commercial Mortgage Group and manager of its European Asset Securitization Group. While MacKinnon offers capital markets expertise to The Realm, Apps brings experience as a provider of real estate management services as the former CEO of Toronto-based Newstar Solutions. He also was the president and CEO of Toronto-based The Lehndorff Group, now called The L&B Group, which owns and manages commercial real estate

Apps says The Realm is a service the real estate industry has needed for years. "The real estate industry hasn't been well-served by technology over the last 20 years, and that's largely been because the technology industry for real estate has been fragmented, small, self-funding and not properly capitalized," says Apps. "The Internet changes all of that, and the formation of The Realm changes all of that."

Starting up The Realm evolved from an idea to an Internet site thanks to big-league financial backing - $140 million in equity financing from an investment group. It was also made possible by the acquisition of four major real estate technology firms that provide many of the products The Realm will place on its website: Houston-based ARGUS Financial Software specializes in cash-flow analysis software, while North Hills, N.Y.-based BJ Murray Inc., Dallas-based CTI Limited and Toronto-based Newstar Solutions offer a variety of property management services.

"We are not really a startup. We're a, but we already have a significant amount of revenue," says Apps. "Each of the companies we put together is profitable. So we actually have an existing business, a business that is transforming itself because of the Internet."

The Realm also has recruited top Wall Street and technology talent to build a strong management team. "We are going everywhere we can in the industry to find a specific specialty or talent we need," says Apps.

As for the name of the company, Apps says it is the product of a classic Madison Avenue-style marketing exercise. The name partly refers to the clients and companies that have come together to form The Realm. "I think it also is designed to point out to people the fact that this is a whole new realm of possibilities to the commercial real estate industry as a result of the Internet and other new emerging technologies."

The Realm cafeteria With the Realm, customers won't be required to buy into a package. They'll be able to choose whatever services they decide will best benefit their business.

"It's a cafeteria approach," says Apps. "So, for example a multifamily landlord may find real value in electronic rent collection. An office landlord may find real value in electronic bill payment or procurement services."

To pay for the services, customers will be charged a percentage of their savings. And Apps says Internet technology has evolved to the point where the various programs customers use for their day-to-day business, such as accounting and financial software, can be linked to the Realm's Internet services.

"The Internet opens up a whole other set of processes that can now be automated that couldn't be automated before," says Apps. "Technology has evolved to the point where systems that are different either in their architecture or in their database back engine, can now be made to talk to each other in a high-performance, seamless way."

Accessible to the 'average Joe' The services in The Realm are designed to appeal to both real estate giants and family-run businesses. Many of the services on the Website will be provided by the four acquired companies, which formerly offered their products via computer software programs.

ARGUS offers Lease by Lease, a service that helps landlords keep track of property revenue and expenses, estimate the value of their property, prepare budgets, and evaluate construction and development costs. Its Dyna program enables owners and developers to manage real estate portfolios through financial reporting, performance measurements, construction data, and other functions.

In CTI's Contact Management System, leasing agents can track data about prospective renters, including their names, addresses, phone numbers and space requirements. The program's Singlestep Lease Entry System enables the user to detail various phases of the leasing process, from negotiations to lease terms.

NewStar's rBuilder system helps owners and developers manage the construction process. NewStar also offers management programs for commercial, retail and residential properties. BJ Murray offers several property management systems, including electronic payment processing, purchase orders and payroll reporting.

The Realm has selected New York-based Intelisys Electronic Commerce Inc. to set up an e-commerce site. Called ConnectTrade, the system will enable customers to buy and sell various products online.

Apps is particularly excited about the information database called rPulse that will provide market data he says was previously unavailable to owners and operators. Customers will be able to pour over the latest industry data on lease rates, procurement transactions, capitalization rates and other statistics.

"At the end of the day, probably the most exciting thing we're doing is making real estate accessible to the average Joe or Jane," says Apps. "I think this kind of data transparency creates a marketplace where, all of a sudden, anybody can be a player."

For the capital markets arena, the Realm will launch a loan underwriting template that will store information in one format to ensure more reliable data.

Currently, many loan holders keep information on loans in a variety of places and formats, creating the possibility of record-keeping errors. In The Realm, loan data will be inputted directly from an office's general ledger into The Realm's template, says MacKinnon.

"With this system, you can provide the holder of the loan with information in the same format under which it was underwritten," says MacKinnon. "If they're looking at that loan on monthly or quarterly basis, that loan is now as transparent as a corporate bond."

There are areas The Realm does not plan to enter. For instance, it won't be a listing service or an online lender, says Apps.

"In the battle over who's going to win all these different parts of the Internet space, we're very much playing the role of Switzerland," he says. "We are really building the infrastructure and the pipes that integrate all of what is happening on the Internet into the back office and front office systems of the industry."

The bottom line The Realm is betting that the real estate industry will want to sign up to their Website for a simple reason - it can help improve a company's bottom line by increasing efficiency and reducing costs.

"If you have a demonstrable value proposition for your client that helps their business model and reduces costs, they're quite happy to pay for it, because [the real estate industry] is as bottom line driven as you get," says Apps.

The Realm's e-commerce rent collection system called rPay is designed to reduce payroll and transaction costs. With the electronic imaging of checks, companies can reduce the number of employees needed for data entry, says MacKinnon. And the rent collector can approve rejected checks online, instead of waiting to review checks returned from the bank in the mail.

"We are just providing a more efficient way for them to transact business. That efficiency is something that will lower operating costs for an owner-operator of real estate," says MacKinnon.

The rBuilder program aims to reduce costs by enabling an owner or developer to provide architects, buyers, vendors, general contractors and accounting departments real-time data on the Internet.

"It's not particularly glamorous stuff, but it's the nuts and bolts of the business," adds Apps.

The customers The Realm enters the Internet arena with a sizeable pre-existing client base - the customers who are already using the software provided by ARGUS, BJ Murray, CTI and Newstar. The company expects to keep its existing clients and win over a new generation of customers.

"They think of what we're providing them as the next generation - the enhancement of the existing systems they're using," says Apps. "This is about taking a very broad customer base, which represents a huge portion of the industry in North America and moving [the services] to the Internet world."

The Realm's Internet systems will be compatible with the systems these existing customers are using. "The e-commerce solutions will be hooked to their existing systems. We're not only supporting those existing systems, we're enhancing them," says Apps.

Looking to the future In addition to launching simultaneously in the United States and Canada this year, The Realm will be introduced in Europe in early 2001. Although The Realm already has a big client base, it isn't taking these customers for granted. MacKinnon says the company feels an obligation to exceed customers' expectations.

"We have a tremendous customer base, a tremendous team. We have tremendous backing," he says. "Now we need to execute for our customers, and shame on us if we don't."

The company introduced The during a tour of eight North American cities earlier this summer. Based on the reaction of attendees, Apps thinks the real estate world is ready for The Realm. The profusion of sites on the Internet can be confusing, and many customers are looking for a one-stop site, he says.

"They have been looking to us to chart through the territory that's pretty novel territory for a typical real estate guy or gal," says Apps. "It's like a spring garden, and up pops some flowers and a lot of weeds. And sorting out the weeds from the flowers takes not only big real estate sense, but good technology sense. I think they see this entire initiative as a big value added to their businesses."

In a world as competitive as the Internet, The Realm plans to remain aggressive. It will continue to pursue acquisitions and seek strategic partnerships in an effort to continually improve its Internet offerings. And although The Realm stakes its claim as the real estate industry's only B2B Internet site, it knows that status could be short-lived.

"A wonderful thing is we're in a space all to ourselves. No one else has articulated a desire to occupy this role," says Apps. "In the fast world of the Internet, somebody may show up next week. But this week we feel very good ab out our position."

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