The roof economy
Adrian Salamunovic thinks the explosion of 5G infrastructure will usher in a new wave of innovative startups aimed at tapping into the $1.5 trillion market
About Adrian
Adrian Salamunovic is a Canadian technology entrepreneur, investor, philanthropist and best-selling author. He is the co-founder of MILLIONS.co and former founder of CanvasPop, which he bootstrapped to 8-figure sales and was acquired by Circle Graphics / H.I.G Capital.
Special Thanks
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The Setup
👀 It’s a bird 🦅… it’s a plane ✈️…it’s………a rooftop? Next time you’re casually sipping on your no-foam, extra hot, 3-pumps of sugar free vanilla syrup, and a dash of cinnamon Starbuck’s Grande late ☕️ while power walking to your next meeting and jamming to the Biebs just look up.
Do you see what I see? If you said millions of sq/ft of alternating layers of bitumen (asphalt) and fabrics reinforced with either fiberglass mats or ply-sheets that join to form a durable roofing membrane, then you guessed it correctly! Or as Adrian Salamunovic puts it:
Rooftops are everywhere and present a golden ✨ opportunity for the budding entrepreneur.”
What do rooftops have to do with anything you ask? And no I’m not talking about the MTV Too Hot to Handle rooftop with the pool, grill, DJ booth and scantily clad college students partying on spring break. I’m talking about the ones you rarely notice, you know that hang over the strip malls, commercial office buildings, and the church down the street. Just Look Up 👀☝🏿.
Maybe I can best explain it with this analogy. If the roof is the peanut butter 🥜 in a PB&J sandwich, 5G would be the jelly 🥪. Mobile Network Operators (MNOs) wouldn’t be able to bring breakneck internet speeds to the market without abundant and secure docking access for their pricey 5G equipment. Enter the commercial real estate (CRE) market.
5G’s promise of ultra-low latency (lightning fast response times in transmitting data) will open the door to a wide array of new and innovative software applications ranging from telemedicine, robotics, virtual reality, entertainment, IOT, to autonomous vehicles and more.
Imagine a patient having surgery in a remote village, but the surgeon is thousands of miles away operating from a control room in London. Or autonomous vehicles pinging real-time data to a mesh 5G network that is used to predict and prevent collisions with other vehicles and pedestrians. Or untethered robots conducting a perfect symphony of redundant tasks while simultaneously roaming around a factory floor transmitting commands to other robots and machines and receiving large data sets in real time. * Quote from IEEE Spectrum
5G will pave the way for massive machine-type communications, which could support one million devices in a single square kilometer.*
The Biden administration has made 5G a national priority to the tune of a $65B allocation to expand broadband coverage to rural and underserved communities. Despite its speed 5G has a shorter range of about 1,500 feet. If you pay close attention to your phone’s network symbols it often fluctuates from 5G to LTE to 4G to 3G depending on where you are at any given time.
At scale 5G is expected to deliver speeds at 100 times current levels. The transformation to 5G in the U.S. is only in year 3 of a 10-year rollout and will require an investment of more than $300B in equipment alone in order to get a robust national network up and running. The U.S.’ largest carrier AT&T is committing $48B through the end of 2023 to expand their fiber internet and 5G wireless services. Because 5G operates on a much higher spectrum and frequency than 4G LTE, it will require hundreds of thousands of new cell towers across the U.S. over the next decade and existing infrastructure upgrades. You guessed it Sherlock 🕵🏾, this kind of transformation requires full cooperation from the commercial real estate industry (CRE). Property owners are expected to not only cash in on the race to 5G, but can expect a multitude of added value including: quality wireless improvement for tenants, increased building cybersecurity, charging higher rent costs and reducing operating costs based on added efficiencies (Forbes).
According to Deloitte, initial 5G capacity in an urban environment will be about double that of 4G LTE. In three years, that will grow to 10 or 20 times and then to 50 to 100 times in five years; although, 50 times current performance is likely to be the ultimate max capacity, notes Dan Littmann, a principal and national sector leader of telecommunications at Deloitte. Coverage will depend on a variety of location-specific variables, such as the number of cell towers and density of users.
Rooftop and ground leases for network equipment will help Raise the Roof 🙌….I mean revenue for property owners. Average docking leases for cell tower/infrastructure range from $1,200-$3,300 monthly, with an average 10-year advance payment ranging from $144,000 to $400,000 of additional revenue for qualified CRE buildings (Source). My back of the envelope ✉️ calculation gives me an annual lease value of around $1.8B/year (100K leases at an average lease of $1500 a month). Before some of you 💩🚽🧻 on me that my back of the envelope logic doesn’t withstand a McKinsey Analyst’s 100 slide powerpoint market assessments filled with all sorts of fancy charts and words, just hold onto your damn horses 🐎 and read to the end.
The Challenges
The nerds 🤓 fulfilled their promise of delivering game changing hardware (mobile and network) that will make 5G a reality, but without an efficient and comprehensive plan to roll out 5G equipment across the 4M square miles of the United States 🇺🇸 and the 10 million square KM of Canada 🇨🇦 🍁 the reality of a ubiquitous Next Generation mobile network that works anytime, anyplace, anywhere is still a ways away from a reality. That is until carriers establish enough 5G penetration through massive networks of rooftops, parking decks, as well as light poles and other structures. Even when 5G hits peak coverage there will always be a need for upgrades, maintenance and security enhancements.
Establishing network coverage outside and inside buildings creates a lucrative revenue stream for commercial and multifamily real estate. Today landlords and real estate developers put their faith in independent consulting/engineering firms that act as a broker who provides a feasibility/assessment report of the roof for telecommunication equipment, runs a tender bidding process with carriers for leasing rights, establishes pricing and multi-year terms, and manages the permitting/construction and instillation of 5G equipment.
Here is a “How it Works” of one such engineering firm
Sign the ETS Marketing Agreement.
Learn if your property is viable within 10 business days.
We contact carriers for immediate interest. If there is none, we keep your property in our system so carriers can recognize you as an ongoing site location opportunity and part of our portfolio.
We negotiate Carrier Lease deals on your behalf to maximize cash flow and the most advantageous terms.
We present the lease to you for approval.
We manage the permitting, construction, and execution for rooftop equipment.
We manage your cash flow monthly in an ETS trust account and distribute it within 14 days of receipt from carriers.
We continually market your property to additional carriers and work on up-selling carriers for additional rooftop equipment leases.
Property owners are required to conduct an engineering report prior to submitting a leasing proposal to mobile carriers. This work is expensive, time consuming and requires capturing dozens of variables ranging from building height, roof weight, building materials, and more. Thanks to new and emerging companies like Toric (my firm Real Ventures is an investor) that can take raw building data and plans and translate them into no-code valuable data sets for property owners or Roofr a startup that can take satellite images of roofs for evaluation and repairs, it’s more than possible to circumvent the incumbents. If these engineering reports aren’t done in advance it can take months of collecting data and details before a carrier can determine the eligibility of a property and whether it’s worth proceeding from an engineering standpoint (Source).
One would think 🤔 for such a rapidly growing market there would be a far more efficient, transparent and economically beneficial way for carriers and property owners to do business directly. Property developers are known for being sharks 🦈, but if you ask me they are being SHARTS 💩🦈 when it comes to 5G leasing rights. Property owners rely on a “middleman” that are incentivized to rack up project consulting fees and because they don’t get a cut of that sweet, smooth, and silky multi-year high margin leasing revenue they might not be aligned with longer term revenue opportunities achieved from such leasing rights. Meanwhile, owners of smaller property portfolios aren’t going to go out of their way to maximize a couple thousand extra bucks of monthly revenue if means disrupting their daily operations, but would probably become a customer of a service/platform that could give them transparency and negotiating power with carriers if there was one.
An article by the CCIM Institute (Certified Commercial Investment Manager) put it best:
Commercial real estate professionals need to be forward-looking when it comes to 5G and the implications for both landlords and tenants. What strategies do landlords and developers need to put in place now to future-proof buildings and be able to monetize 5G technology? How will 5G change a building experience and drive location decisions for space users? These are critical questions even though the U.S. is still in the early stages of its 5G rollout.
The Run
Adrian Salamunovic envisions a world where the roof becomes a multi-faceted platform for economic and technological enablement. If you think of a roof as a platform the number of applications you can adapt to run on that platform are endless. For any naysayers 🤷🏻♀️ and the natural born skeptics 🧐 out there I want you to keep in mind that some of the biggest ideas seem either bit too far out there or overtly obvious at the get go. Overtime these big bets become new standards that transform society in unimaginable ways. I simply cant imagine how hundreds of millions of sq/ft of under-utilized space (sure not all of it is usable but there is just so much of it who friggen cares) in a world where space requirements are harder and harder to come by wont be a major source for new business creation.
What types of applications can run on Roof as a Platform you ask? Here is a starter list of applications that can be built on the roof:
5G docking 🗼
Drone Landing for E-commerce & Food Delivery 🛸 —> Amazon/Doordash Deliveries
Greenhouses/vertical farms 🪴 —> Ensures sustainable food supply chain
Ghost Kitchens 🔪 —> Lower leasing costs
Storage 📦 —> incremental tenant revenue
Apiculture 🐝 —> Not as crazy as you think there are Cos making millions doing
Solar Harvesting 🌞 🔋 —> Could be use for carbon of setting, grid management
Carbon sequestration 💨🚫 —> Eventually new technologies can be added on roofs to capture carbon
Food 🍔 and Entertainment 🤡 —> Who wouldn’t want Shake Shack on a roof?
I believe there is enormous value in creating the world’s 🌍 largest and most accurate data set for roofs of commercial buildings. This data set can provide value for a myriad of constituents and ultimately has the potential to spur the creation of a new micro-economy that empowers small business creation and sustainability. Could Airbnb copy this idea and compete? Or maybe a multi billion dollar CRE company that catches wind of this post and goes out and builds a walled version of this for only their clients? Of course, anything is possible, including your grandma 👵🏼 learning how to code, recruiting exceptional A-talent with no money and raising startup capital. Fortunately, as a VC I am in the business of making decisions based on exceptions, not the rules. Executing this idea requires a number of core competencies and areas of focus that I think incumbents simply won’t get right.
For simplicity sake let’s call this idea Raise the Roof (RTR). Play with the idea that RTR is a marketplace where property owners can upload their CRE data and photos onto the platform or request an evaluation from a certified parter that creates a new building data set for the client. On the backend RTR combines multiple data sources, satellite data, leasing values, and anonymized data sets to build a real time estimation and matching engine that gives property owners a recommendation of what their vacant real estate is worth and what types of use cases it could be used. Mobile Carriers would get a recommendation of which locations, based on their requirements (location, technology, security) match their needs,
Because RTR is the first mover in this growing market, with the best team that attracts tens of millions in funding from well connected VCs that convince their multi-billion real estate family office LPs to upload their inventory on RTR, RTR can scale quickly across multiple cities.
Mobile carriers can effectively place a bid request directly through the RTR platform based on their technology requirements, budget, and lease length and then schedule instillation through a certified network of partner engineering firms. RTR can also use the various data sets to create upsell opportunities for property owners and carriers.
As the matching rate improves overtime and the number of successful transactions hit a critical value RTR can begin to expand their categories for use cases and expand their customer base. Over time, RTR will build a unique data set that can combine pricing, value and performance that ultimately becomes a major moat. What are you waiting for, if I give you any more specifics on this idea I may as well start teaching grandmas how to code! Get to it!
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