MARKET STUDY with FINANCIAL PROJECTIONS Hilton Convention Center Hotel

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MARKET STUDY with FINANCIAL PROJECTIONS Hilton Convention Center Hotel MARKET STUDY WITH FINANCIAL PROJECTIONS Hilton Convention Center Hotel 901 FLORIDA AVENUE WEST PALM BEACH, FLORIDA SUBMITTED TO:PROPOSED PREPARED BY: Shannon R. LaRocque, PE HVS Consulting & Valuation Assistant County Administrator Division of CHR Consulting Services, Inc. Palm Beach County 8925 SW 148th Street, Suite 216 301 N. Olive Avenue Miami, Florida 33176 West Palm Beach, FL 33401 (561) 355‐2428 (305) 378‐0404 July‐2012 July 13, 2012 Shannon R. LaRocque, PE Assistant County Administrator Palm Beach County 301 N. Olive Avenue West Palm Beach, FL 33401 HVS MIAMI Re: Proposed Hilton Convention Center Hotel 8925 SW 148th Street, Suite 216 West Palm Beach, Florida Miami, Florida 33176 HVS Reference: 2012060023 +1 305 378‐0404 +1 305 378‐4484 FAX www.hvs.com Dear Ms. LaRocque: Pursuant to your request, we herewith submit our market study pertaining to the Atlanta above‐captioned property. We have inspected the site and analyzed the hotel Boston market conditions in the West Palm Beach, Florida area. Boulder Chicago We hereby certify that we have no undisclosed interest in the property, and our Dallas employment and compensation are not contingent upon our findings. This study is Denver subject to the comments made throughout this report and to all assumptions and Las Vegas limiting conditions set forth herein. Mexico City Miami Minneapolis Sincerely, Nassau New York Newport San Francisco Toronto Vancouver Washington N. Taylor Gray Athens Associate Buenos Aires HVS Consulting & Valuation ‐ Miami Dubai [email protected], +1 305 378‐0404 ext. 1021 Hong Kong Lima State of Florida Registered Trainee Appraiser #RZ‐23657 London Madrid Mumbai New Delhi Sao Paulo Shanghai Singapore John P. Lancet, MAI Director/Partner Specialists in Hotel Consulting and Appraisal Worldwide HVS Consulting & Valuation ‐ Miami [email protected], +1 305 378‐0404 ext. 1014 State‐certified General Real Estate Appraiser (FL) #RZ‐2554 Table of Contents SECTION TITLE PAGE 1. Executive Summary 1 2. Description of the Site and Neighborhood 10 3. Market Area Analysis 18 4. Supply and Demand Analysis 31 5. Description of the Proposed Project 61 6. Projection of Occupancy and Average Rate 66 7. Projection of Income and Expense 76 8. Statement of Assumptions and Limiting Conditions 91 9. Certification 94 Addenda Penetration Explanation i Qualifications 1. Executive Summary Subject of the The subject of the market study is the proposed development of a 400‐room, Market Study Hilton convention headquarters hotel that is located adjacent to the Palm Beach County Convention Center and within walking distance of the CityPlace entertainment complex and West Palm Beach’s Clematis District. The proposed hotel is projected to open in April 2015. In addition to guestrooms, the proposed full‐service hotel is expected to contain ±36,000 square feet of meeting and banquet space; a three‐meal restaurant and a lobby lounge; an outdoor pool, a fitness room, a business center, a retail/sundries outlet, and an appropriate complement of back‐of‐the‐house facilities. The subject site is located at the northwest corner of Rosemary Avenue and Okeechobee Boulevard in West Palm Beach, Florida. According to the Palm Beach County Property Appraiser, the subject site is located at 901 Florida Avenue, West Palm Beach, Florida, 33401. Pertinent Dates The effective date of this report is July 13, 2012. The subject site was inspected by Taylor Gray on May 26, 2011, as part of a previous HVS assignment. John P. Lancet, MAI participated in the analysis and reviewed the findings, but did not personally inspect the property. Ownership, Ground Ownership Lease, Management/Franchise The developer of the proposed subject property is The Related Companies, L.P., Assumptions, Reserve for which is based in New York. The subject land that is being considered for Replacement development is owned by Palm Beach County, and as such, the proposed subject property will be subject to a ground lease. Ground Lease At the time of this report, the terms of the ground lease agreement were being negotiated between Palm Beach County and The Related Group. Our forecasted ground rent expenses are based upon calculations provided by Anthony P. Marshall of Harris Beach, PLLC. July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 1 Management Company and Franchise Assumptions The proposed subject property will operate as a Hilton Hotel, under its upper upscale chain (as defined by STR). At the writing of this report, the developer was considering two scenarios, which included (1) entering into a management agreement with Hilton Worldwide to manage the hotel or (2) operating the hotel under a franchise agreement with Hilton while utilizing a second‐tier management company, which provides management services alone but without a brand name affiliation. For the purposes of this study, we assume that a professional management company that has considerable experience operating convention center hotels will manage the proposed hotel. We have assumed a market‐ appropriate total management fee of 3.0% of total revenues in our study. Please refer to the income capitalization approach chapter for additional discussion pertaining to our management fee assumptions. Reserve for Replacement As stipulated in the draft ground lease agreement between Palm Beach County and The Related Group, we have deducted annual reserves for replacement from our forecast of income and expense to account for the ongoing cost of maintaining the facilities. In year one, the reserve for replacement is equal to 1.0% of total revenue, increasing to 2.0% of total revenue in the second projection year, and 3.0% of total revenue in third projection year, until stabilizing at 4.0% of total revenue thereafter. Summary of Hotel Corporate and leisure travelers, the Palm Beach International Airport, and PBC Market Trends Convention Center continue to provide consistent sources of demand for the West Palm Beach market, which is favorably located along Florida's Atlantic Coast. According to the STR data presented on the following page, the competitive market has typically operated between the high‐60% and the low‐70% range over the last nine years, with the lone exception occurring in 2009 when marketwide occupancy was 64.8%, down 6.2 percentage points from the 2008 marketwide occupancy of 71.0%. The opening of the Hyatt Place (165 rooms) in February 2009, coupled with depressed demand levels caused occupancy to dip below historical levels. However, over the twelve‐year period (2000‐2011) reviewed the market has consistently absorbed new additions to supply, while demand has grown by an average annual compounded rate of 3.8%. In 2011, the competitive market registered a 2.6% increase in hotel demand and a 2.4% increase in ADR, resulting in a 5.0% increase in marketwide RevPAR. Year 2011 marked the first time in six years that the competitive market recorded ADR growth (this feat was not accomplished from 2006‐2010), which suggests that the market is poised for further gains in ADR over the next two to three years as it climbs back to historical levels. July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 2 The following table provides a long‐term perspective on the supply and demand trends for a selected set of hotels, as provided by Smith Travel Research. FIGURE 1‐1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) Average Daily Available Room Occupied Room Average Year Room Count Nights Change Nights Change Occupancy Rate Change RevPAR Change 2000 1,191 434,715 — 285,840 — 65.8 % $80.40 — $52.87 — 2001 1,234 450,474 3.6 % 298,668 4.5 % 66.3 82.19 2.2 % 54.49 3.1 % 2002 1,294 472,310 4.8 298,939 0.1 63.3 80.14 (2.5) 50.72 (6.9) 2003 1,294 472,310 0.0 314,924 5.3 66.7 82.03 2.4 54.69 7.8 2004 1,143 417,097 (11.7) 299,511 (4.9) 71.8 95.31 16.2 68.44 25.1 2005 1,021 372,567 (10.7) 270,212 (9.8) 72.5 134.63 41.3 97.64 42.7 2006 1,398 510,270 37.0 355,752 31.7 69.7 131.14 (2.6) 91.43 (6.4) 2007 1,498 546,770 7.2 400,543 12.6 73.3 129.43 (1.3) 94.82 3.7 2008 1,498 546,770 0.0 388,262 (3.1) 71.0 124.37 (3.9) 88.32 (6.9) 2009 1,649 601,880 10.1 389,999 0.4 64.8 102.04 (18.0) 66.12 (25.1) 2010 1,663 606,995 0.8 419,562 7.6 69.1 95.64 (6.3) 66.11 (0.0) 2011 1,663 606,995 0.0 430,374 2.6 70.9 97.90 2.4 69.41 5.0 Average Annual Compounded Change: 2000‐2011 3.1 % 3.8 % 1.8 % 2.5 % Year‐to‐Date Through May 2011 1,663 251,113 — 204,380 — 81.4 % $111.79 — $90.98 — 2012 1,638 247,338 (1.5) % 204,191 (0.1) % 82.6 122.27 9.4 % 100.94 10.9 % Number Year Year Hotels Included in Sample of Rooms Affiliated Opened Marriott West Palm Beach 352 Jun‐03 Jun 1981 Embassy Suites West Palm Beach Central 194 Jan‐12 Jun 1983 Converted from a Crowne Plaza and re‐opened as an Embassy Suites in Jan. 2012, following a property‐wide renovation; lowered room count from 219 rooms to 194 rooms. Hilton Palm Beach Airport 245 Oct‐04 Jun 1984 Doubletree Hotel West Palm Beach Airport 175 Mar‐08 Feb 1987 Holiday Inn Palm Beach Airport 199 Nov‐05 Mar 1987 Courtyard West Palm Beach Airport 103 Aug‐01 Aug 2001 Guestrooms and lobby spaces were renovated in 2011.
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