Explanation

Christie's International Real Estate, LLC (CIRE LLC) explicitly flags its financial condition as a special risk. Financials are not provided for the franchisor, but for a guarantor, Christie's International Real Estate Management, LLC. The guarantor's audited financials show no business activity other than initial capitalization. This structure and the explicit warning raise questions about the franchisor's ability to support you, as it appears to rely on a minimally capitalized and non-operating entity for its financial backing.

Potential Mitigations

• Your accountant must review the guarantor's financial statements and the explicit risk warning to assess the potential impact on your business.
• In discussions with your attorney, clarify the strength and enforceability of the parent company's guarantee.
• A business advisor should help you evaluate if the franchisor's support structure is viable given its disclosed financial condition.

Explanation

The franchisee turnover rates disclosed in Item 20 are concerning. In 2022, the system experienced a cessation rate (terminations plus non-renewals) of approximately 41% of its starting outlets. The rate in 2024 was over 19%. These figures are substantially higher than typical industry averages and may indicate significant franchisee dissatisfaction, lack of profitability, or other systemic problems. This level of churn represents a critical risk to the stability and health of the franchise system.

Potential Mitigations

• It is imperative to contact a significant number of former franchisees from the list in Exhibit G to understand why they left the system.
• Your accountant should perform a detailed analysis of the year-over-year turnover data presented in the Item 20 tables.
• Discuss the implications of this high turnover rate on system stability and brand value with your business advisor.

Explanation

CIRE LLC only began offering franchises in March 2022 and states it has never operated a similar business itself. While its executives have extensive real estate experience, this specific franchise system is relatively new. The high franchisee turnover disclosed in Item 20 further underscores the risks associated with an unproven franchise model. Investing in a newer system carries inherent risks related to underdeveloped support, unproven operational models, and lower brand recognition for the franchise concept.

Potential Mitigations

• A thorough review of the management team's specific experience in franchising, not just real estate, should be conducted with a business advisor.
• Speaking with the earliest franchisees listed in Item 20 is crucial to understand their experience with the evolving system.
• Your accountant should carefully assess the franchisor's capitalization and financial stability given its limited operating history as a franchisor.

Explanation

In January 2025, the franchisor's ultimate parent was acquired by Compass, Inc., a major real estate brokerage firm. This introduces a private equity-like risk where decisions may prioritize the parent company's interests over the long-term health of the Christie's franchise system. Item 12 explicitly notes that Compass agents may compete in your area. This change in ultimate ownership creates uncertainty regarding future strategy, support levels, and potential conflicts of interest.

Potential Mitigations

• Researching Compass, Inc.'s history and its management of other brands or subsidiaries can be undertaken with a business advisor.
• It is important to discuss with your attorney the implications of the new parent company being a direct competitor.
• Questioning the franchisor about the long-term vision for the Christie's brand under this new ownership is a key due diligence step.

Explanation

Item 3 discloses several antitrust class action lawsuits filed in late 2023 and early 2024 against national real estate brokerage companies, including the franchisor's parent. While some cases were dismissed or are stayed, this pattern of litigation relates to industry-wide commission policies and represents a significant legal and reputational risk for the industry and, by extension, its franchisees. This could lead to changes in business practices and potential legal challenges affecting your operation.

Potential Mitigations

• A thorough review of all litigation details in Item 3 with your attorney is crucial to understand the potential impact on the business model.
• Conducting independent research on the status of these industry-wide lawsuits should be done with your attorney's guidance.
• Discuss the potential long-term impact of this litigation on real estate commission structures with a business advisor.