Highest and Best Use Assessment Lake Barrington Commons Lake Barrington, Illinois

Final Report Highest and Best Use Assessment Lake Barrington Commons Lake Barrington, Illinois

Submitted to: Mr. Alex Ulyanov

Submitted by: Market & Feasibility Advisors, LLC

Monday, November 12, 2018

MFA Project Number: 641

55 East Monroe Street, Suite 3800 Chicago IL 60603 312.212.4451 www.mfallc.com Chicago Austin

Table of Contents

Table of Contents ______2 Executive Summary ______3 Retail, Storefront Services, and Restaurants 3 Office 4 Hotel 5 Market Assessment ______6 Key Findings 8 Retail, Storefront Services, and Restaurants 11 Retail Gap Analysis 11 Retail Gap Drive Time Markets: Total Market 0-15 Minute Drive Time 13 Retail Opportunity 15 Types of Retail Shopping Centers 18 Restaurant Opportunity 20 Office Market 24 Current Trends 24 Key Office Market Indicators 25 Medical Office Potential 27 Hotel Market 28 Hotel Market Overview 28 Hotel Demand Estimates 32 Appendix ______34 Site Plan and Local Traffic Counts (Q2 2018) 34 Drive Time Markets: 0-5 Minute Drive Time 37 Summary & Trends 37 Income 37 Population Age 38 Household Spending 39 Drive Time Markets: 5-10 Minute Drive Time 39 Summary & Trends 39 Income 40 Population Age 41 Household Spending 41 Drive Time Markets: 10-15 Minute Drive Time 42 Summary & Trends 42 Income 42 Population Age 43 Household Spending 44 Selected Definitions 44 General Limiting Conditions ______45

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Executive Summary

The premise of this assessment is to identify the highest and best uses, from the perspective of the client, for the specific site of the study area.

This report will address the following uses:

 Retail, Storefront Services, and Restaurants  Office  Hotel

The project site is located along West Northwest Highway (Highway 14) in the Village of Lake Barrington, Lake County, Illinois. Fox River Grove is a mile to the northwest while Barrington is 4 miles to the southeast. Interstate 90 is 10 miles to the south, Interstate 290 is 10 miles to the east connecting the area to Chicago.

One of the key attributes of the site which impacts its potential use is its shape. It has good frontage along Highway 14, and the depth of the site is in ratio to this frontage. This results in very good visibility from Northwest Highway into the site and to potential uses retailers, restaurants, hotel, and offices despite the fast-moving traffic on Highway 14. With further development in the area and increased traffic, a future traffic light at the intersection of Highway 14 and North Kelsey Road may become necessary which would slow down traffic in the area, thus increasing the visibility of the project site. Any distracting/competing development across Highway 14 is barred by the Metra UP Northwest line which runs parallel to Highway 14 at that point.

In other words, the frontage offers good visibility to vehicles passing by along Highway 14 to a reasonable depth for commercial uses -- sufficient for retail, restaurant and storefront services as well as office space with parking in front for users.

Other positive attributes are that the site is in a very affluent area with median household income well above the national average and that the retail gap analysis shows opportunities across the board especially for restaurants.

There are several hotel demand drives close by that are currently somewhat underserved by the existing hotels in the area, which indicates an opportunity for a limited service hotel development on the site in combination with a restaurant to maximize return

The site currently has two existing buildings; one is an office building, retail and restaurant businesses occupy the other one.

Retail, Storefront Services, and Restaurants

The retail gap analysis shows potential demand for retail space in the following identified underserved retail sectors. A retail gap represents the difference between household spending and retail sales in a given defined trade area. It shows whether a trade area is underserved and spending (demand) is leaking, or whether sales (supply) is drawing in demand from outside the trade area. For the following retail/restaurant categories spending is leaking out of the area.

 Auto Parts, Accessories & Tire Stores  Bldg. Material & Supplies Dealers  Beer, Wine & Liquor Stores  Gasoline Stations  Shoe Stores

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 Jewelry, Luggage & Leather Goods Stores  Book, Periodical & Music Stores  Department Stores Excluding Leased Depts.  Florists  Other Miscellaneous Store Retailers  Special Food Services  Drinking Places - Alcoholic Beverages  Restaurants/Other Eating Places

Factoring in the existing retail centers, that are dated in their appearance and show some anchor vacancies, there are some opportunities in the above-listed categories. The site could support the developments of a restaurant, tavern and a neighborhood/convenience store. This center would also support the development of a limited service hotel.

The gap analysis shows a household spending potential of $283.0 million annually in the restaurant segment in the 15-minute drive-time market. Of that $69.9 is leaking out of the market area. This translates into roughly 127,000 square feet of restaurant space that the household spending could support if this leakage is captured by 100% in the market area.

The majority of the local population visits a fast food restaurant once every 6 months. Those numbers and the likelihood that consumers will exhibit this behavior is close to the national average. What is different in a positive way, is the likelihood of consumers spending up to 16% more money at a fast food restaurant than the national average.

In the other two categories, fine dining and family restaurant/steakhouse, it illustrates an especially high likelihood for adults in the area with preferences to enjoy/visit a fine dining restaurant (75% higher) and a willingness to spend an adequate amount of money for this experience (80% higher than the national average). This is partly because, in general, the cost of living is higher in large metro areas, but it also shows a market demand for fine dining restaurants in the upper price point segment. The same pattern -- although not as pronounced, emerges in the family restaurant/steakhouse market segment with a 15% higher likelihood to visit such a restaurant and an almost 50% higher likelihood to spend more money there compared to the national average. This indicates there could be enough market support for a restaurant in those categories.

In general the budget per household for dining out is between 48% and 69% higher than the national average.

Office

Potential office space users on the site include:

 A medical office is the most likely use e.g. a radiologist, medical support services for the assisted living facility, or satellite offices for the local/regional healthcare systems,  A office sharing agency such as Hub83, Regus or WeWork could potentially utilize the existing space,  A back-office user such as an insurance company, credit card processor, and  Locally oriented businesses like financial services company offices, insurance offices, accountants, real estate offices, and some independent small space medical users such as dentists.

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A small medical office building, as it exists on site, could be affiliated with a hospital or healthcare system, in this case, Advocate Heath (Advocate Good Shepherd Hospital). There are several medical offices in the immediate area with different specialties in medicine, creating a synergy effect. The site has good visibility and is easily accessible, together with the adjacent senior living facility this could create demand for some modest medical office space.

Hotel

There are 7 hotels within 7 miles of the project site. The largest has 197 rooms, but it also has its own conference and meeting facilities. The other 6 facilities vary between 22 and 86 rooms and are dated, the newest opened in June 2001.

There are main five demand generators for room nights in the immediate area around the project site:

 Avante Banquet Hall and Conference Center  Canlan Sportsplex  Advocate Good Shepherd Hospital  Wandering Tree Estate Event Center  D'Andrea Banquets & Conference Center

Based on assumptions and estimates in table 20, they could generate an annual demand of 29,700 room nights per year. In addition to the above discussed demand drivers, “Visiting Friends and Relatives” (VFR) has to be added to the demand source for a potential hotel development on the project site. Furthermore, Advocate Good Shepherd Hospital will create demand through meetings, seminars and relatives visiting patients in the hospital.

Given the easy access, good visibility, good connectivity to the surrounding areas offering recreation and leisure opportunities, the nearby Metra connection to downtown Chicago, and with the addition of a restaurant or tavern, a limited service hotel with 80 to 100 rooms could be a viable development for the project site.

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Market Assessment

For the purpose of this analysis, MFA established three market areas to determine demand for various types of developments that would be the highest and best uses to the project site. Lake Barrington is primarily composed of low-density, single family home developments, where the primary means of transportation is a car. Therefore, instead of driving distance, MFA chose driving time to create the following three market areas.

 Local (Primary) Market 0-5-minute drive time from the project site,  Secondary Market 5-10-minute drive time from the project site,  Tertiary Market 10-15-minute drive time from the project site

This segmentation allows for better demand analysis and projections than using mileage to identify the highest and best uses for the project site.

Demographic Summary

Table 1.: Demographic Summary Market Area 2018 Indicator Market Area by Drive Time (Minutes) 0-5 5-10 10-15 Population 2018 5,464 34,271 94,533 Households 2018 2,091 12,750 33,843 Families 2018 1,531 9,578 25,205 Average Household Size 2018 2.61 2.68 2.78 Owner Occupied Housing Units 2018 1,633 10,650 27,731 Renter Occupied Housing Units 2018 459 2,100 6,112 Median Age 2018 45.6 44.9 40.5 Hispanic Population of Total 2018 5.4% 7.6% 14.0% African-American Population Total 2018 0.9% 0.9% 1.5% Population Annual Growth 2018-2023 0.05% 0.10% 0.13% Households Annual Growth 2018-2023 0.14% 0.20% 0.19% Families Annual Growth 2018-2023 0.05% 0.12% 0.11% Owner HHs Annual Growth 2018-2023 0.43% 0.33% 0.40% Median Household Income Annual Growth 2018-2023 1.48% 1.05% 1.06% Median Household Income 2018 $94,891 $110,011 $100,603 Average Household Income 2018 $130,239 $149,356 $130,791 Per Capita Income 2018 $49,959 $55,112 $47,048 Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023 MFA

Table 2. Trend Comparison, Annual Growth 2018-2023 by Drive Time Market (Minutes) Indicator 0-5 5-10 10-15 Illinois USA Population 0.05% 0.10% 0.13% 0.10% 0.83% Households 0.14% 0.20% 0.19% 0.12% 0.79% Families 0.05% 0.12% 0.11% 0.01% 0.71% Home Owner HHs 0.43% 0.33% 0.40% 0.37% 1.16% Median Household Income 1.48% 1.05% 1.06% 1.96% 2.50% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023 MFA

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Table 3. Day Time Population by Drive Time Market (Minutes) Indicator 0-5 5-10 10-15 2018 Total Daytime Population 9,965 35,396 82,323 Workers 7,558 19,228 39,444 Residents 2,407 16,168 42,879 Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023 MFA

Household Spending

Table 4.: Aggregated Total Summary Market Area 2018 Indicator Market Area by Drive Time (Minutes) 0-5 5-10 10-15 Apparel and Services $6,789,729 $47,366,018 $113,335,556 Computer $5,088,315 $35,809,638 $81,607,841 Entertainment & Recreation $10,242,722 $71,427,543 $166,482,800 Food $14,957,185 $103,830,099 $248,617,414 Financial $10,863,761 $75,626,576 $181,358,972 Health $18,122,706 $126,136,845 $289,843,234 Home $6,736,141 $46,876,445 $109,815,522 Household Furnishings and Equipment $2,656,266 $18,507,366 $43,514,265 Household Operations $52,751,412 $367,484,019 $863,748,230 Insurance $8,337,794 $59,251,563 $131,373,278 Transportation $7,515,955 $52,627,359 $119,270,719 Travel $3,330,100 $23,098,734 $54,518,580 Source: 2015 and 2016 Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, ESRI BIS, MFA

Table 5.: Annual Average per Household Summary Market Area 2018 Indicator Market Area by Drive Time (Minutes) 0-5 5-10 10-15 Apparel and Services $3,247 $3,715 $3,349 Computer $2,433 $2,809 $2,411 Entertainment & Recreation $4,898 $5,602 $4,919 Food $7,153 $8,144 $7,346 Financial $5,195 $5,932 $5,359 Health $8,667 $9,893 $8,564 Home $3,221 $3,677 $3,245 Household Furnishings and Equipment $1,270 $1,452 $1,286 Household Operations $25,228 $28,822 $25,522 Insurance $3,987 $4,647 $3,882 Transportation $3,594 $4,128 $3,524 Travel $1,593 $1,812 $1,611 Source: 2015 and 2016 Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, ESRI BIS, MFA

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Table 6.: Spending Potential Index Summary Market Area 2018 Indicator Market Area by Drive Time (Minutes) 0-5 5-10 10-15 Apparel and Services 149 171 154 Computer 168 194 167 Entertainment & Recreation 152 174 153 Food 143 162 146 Financial 148 169 153 Health 151 173 150 Home 154 176 155 Household Furnishings and Equipment 153 175 155 Household Operations 150 172 152 Insurance 160 187 156 Transportation 167 192 164 Travel 148 168 150 Source: 2015 and 2016 Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, ESRI BIS, MFA

Household/Consumer spending shows the amount spent on a variety of goods and services by households that reside in the area. Expenditures are shown by broad budget categories that are not mutually exclusive. Consumer spending does not equal business revenue. Total and Average Amount Spent Per Household represent annual figures. The Spending Potential Index (SPI) represents the amount spent in the area relative to the national average of 100.

Table 7.: Demographic Summary Market Area 2018 Household Income Bracket Market Area by Drive Time (Minutes) 0-5 5-10 10-15 <$15,000 7.6% 4.2% 4.7% $15,000 - $24,999 5.1% 4.4% 4.8% $25,000 - $34,999 5.1% 4.6% 5.4% $35,000 - $49,999 8.0% 7.0% 8.6% $50,000 - $74,999 12.6% 11.3% 13.0% $75,000 - $99,999 13.9% 12.3% 13.1% $100,000 - $149,999 15.6% 21.8% 21.4% $150,000 - $199,999 14.5% 13.8% 12.9% $200,000+ 17.6% 20.6% 16.1% Median Household Income 2018 $94,891 $110,011 $100,603 Average Household Income 2018 $130,239 $149,356 $130,791 Per Capita Income 2018 $49,959 $55,112 $47,048 Median Disposable Income $71,143 $82,400 $75,087 Average Disposable Income $90,236 $101,023 $91,032 Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023 MFA

Key Findings

Population The annual population growth in all three market areas is steady, but at a low level. The market areas population growth is in sync with the State level, but much lower compared to the US as a whole over the next 5 years.

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In the whole market area, the current year population is 134,269. In 2010, the Census count in the area was 133,718. The rate of change since 2010 was 0.05% annually. The five-year projection for the population in the area is 135,065, representing a change of 0.12% annually from 2018 to 2023. Currently, the population is 49.6% male and 50.4% female

Households and Families Annual growth in the number of households in the market areas is almost identical to the population growth trends but overall at a low level. The market areas population growth is comparable with the statewide growth although it is at a marginally higher level, but much lower compared to the US as a whole over the next 5 years. Household growth rate outpaces population growth, indicating a trend to smaller one or two- person households.

The household count in this area has changed from 47,939 in 2010 to 48,685 in the current year, a change of 0.19% annually. The five-year projection of households is 49,149, a continued change of 0.19% annually from the current year total. Average household size is currently 2.74, compared to 2.77 in the year 2010. The number of families in the current year is 36,314 in the specified area.

Median Income All three market area show an average medium household income that is almost twice as high as the national average. Despite the higher cost of living in a large metro area like Chicago this is an indication of an increased spending ability throughout the three market areas. Median income is projected to grow at a smaller rate compared to the State and the Nation as a whole, but on a much higher level of annual income.

Current median household income in the 0-5-minute drive time market is $94,891 compared to $58,100 for all U.S. households. Median household income is projected to be $102,113 in five years, compared to $65,727 for all U.S. households which indicates an annual growth of 1.48% compared to 2.50% on the National level. The income bracket with the largest number of households is the $200,000+ income bracket with 17.3% of all households indicating a very affluent primary market. 60% of all households have an annual income of $75,000 or more.

Current median household income in the 5-10-minute drive time market is $110,011 compared to $58,100 for all U.S. households. Median household income is projected to be $115,886 in five years, compared to $65,727 for all U.S. households which indicates an annual growth of 1.05% compared to 2.50% on the National level. The income bracket with the largest number of households is the $100,000 - $149,999 income bracket with 21.8% of all households, indicating a very affluent secondary market. 68% of all households have an annual income of $75,000 or more.

Current median household income in the 10-15-minute drive time market is $100,603 compared to $58,100 for all U.S. households. Median household income is projected to be $106,050 in five years, compared to $65,727 for all U.S. households which indicates an annual growth of 1.06% compared to 2.50% on the National level. The income bracket with the largest number of households is the $100,000 - $149,999 income bracket with 21.4% of all households, indicating a very affluent tertiary market. 63.5% of all households have an annual income of $75,000 or more.

Housing Currently, 77.4% of the 51,710 housing units in the 15-minute drive time market area are owner occupied; 16.8%, renter occupied; and 5.8% are vacant. In comparison, in the U.S., 56.0% of the housing units in the area are owner occupied; 32.8% are renter occupied; and 11.2% are vacant. In 2010, there were 50,907 housing units in the area - 80.2% owner occupied, 14.0% renter occupied, and 5.8% vacant. The annual growth rate in housing units since 2010 is 0.70%. Median home value in the area is $334,928, compared to a median home value of $218,492 for the U.S. In five years, median value is projected to grow by 2.28% annually to $374,890.

The map on the following page show the project site with the three drive time market areas.

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Retail, Storefront Services, and Restaurants

Retail Gap Analysis

A retail gap represents the difference between household spending and retail sales in a given defined trade area. It shows whether a trade area is underserved and spending (demand) is leaking, or whether sales (supply) is drawing in demand from outside the trade area.

 Supply (retail sales): Estimates sales to consumers by establishments. Sales to businesses are excluded.

 Demand (retail potential): Estimates the expected amount spent by consumers at retail establishments. Supply and demand estimates are in current dollars.

 Leakage/Surplus: A snapshot of retail opportunity. This is a measure of the relationship between supply and demand. A negative value represents ‘leakage’ of retail opportunity outside the trade area. A positive value represents a surplus of retail sales, a market where customers are drawn in from outside the trade (county) area.

 The Retail Gap: The difference between Retail Potential and Retail Sales.

Methodology

Market Supply (Retail Sales)

Estimates of retail sales generally begin with the Census of Retail Trade (CRT) from the U.S. Census Bureau. Trends from the economic census are used along with demographic and business databases including commercial and government sources such as the Infogroup business database and the Bureau of Labor Statistics. Supply estimates also incorporate data from the Census Bureau's Non-employer Statistics (NES) division.

The model captures economic change by first differentiating employer and non-employer sales growth. The sales estimates are recalibrated against the Monthly Retail Trade (MRT) survey and independent sources to address the disparities that can exist among independent data sources and thus better align with retail potential. This methodological improvement yields a more precise estimate of the retail sales attributable only to domestic households. In addition to Infogroup, data from both the CRT and MRT were incorporated to improve the estimation of industry sales for small areas.

Smaller establishments without payrolls, such as self-employed individuals and unincorporated businesses, account for a small portion of overall sales. However, these businesses represent more than half of all retailers in the United States and their inclusion completes the report of industry sales.

All estimates of market supply are in nominal terms and derived from receipts (net of sales taxes, refunds, and returns) of businesses that are primarily engaged in the retailing of merchandise. Excise taxes paid by the retailer or the remuneration of services are also included -- for example, installation and delivery charges that are incidental to the transaction.

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Market Demand (Retail Potential)

To complete the profile of a retail market, the consumer demand, or retail potential, is estimated. Consumer demand is the amount expected to be spent by consumers on products in the retail market. The 2010 consumer spending data provides expenditure estimates for more than 700 products and services consumed by U.S. households. These estimates of consumer spending are drawn from the Bureau of Labor Statistics' annual Consumer Expenditure Surveys which provide consumer spending information for hundreds of goods and services by households.

The product line sales from the Census of Retail Trade are the basis for the crosswalk to market demand by establishment from the consumer expenditure data. The impact of the economic downturn on business activity in recent years has shifted the structure of the retail market in small areas. Spending habits of consumers have changed drastically in many areas, with consumers preferring to shop at discount stores or local shops and even more online sources such as Amazon. New assumptions and additional modeling were implemented in 2010 to the Census of Retail Trade to capture some of these market transformations.

Leakage/Surplus Factor (Supply and Demand)

The comparison of supply and demand is shown in one measure, the Leakage/Surplus Factor. Leakage/Surplus conveniently measures the balance between the volume of supply (retail sales) generated by the retail industry and the demand (spending by households, i.e. retail potential) on goods within the same industry.

Market Potential Index

An MPI (Market Potential Index) measures the relative likelihood of the adults in the specified trade area to exhibit specific consumer behavior or purchasing patterns compared to the U.S. An MPI of 100 represents the U.S. average.

To identify retail opportunities for the project site, in this analysis indicated by leakage (demand > supply), MFA examined each sector in detail. The tables on the following pages show the leakage and surplus in consumer spending by retail sectors for the primary 5-minute drive time market and the total 15-minute drive time market. The “retail opportunity” is to minimize the leakage and keep consumer spending inside the market area. Retail categories found in malls are highlighted green in the table.

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Retail Gap Drive Time Markets: Total Market 0-15 Minute Drive Time

Table 8.: Retail Gap Drive Time Market 0-15 Minutes– Mall Store Categories Highlighted Retail Potential Retail Category Spending Retail Sales Retail Gap Motor Vehicle & Parts Dealers $545,349,717 $629,441,026 $84,091,309 Automobile Dealers $450,129,833 $507,375,680 $57,245,847 Other Motor Vehicle Dealers $45,676,697 $74,251,591 $28,574,894 Auto Parts, Accessories & Tire Stores $49,543,187 $47,813,755 -$1,729,432 Furniture & Home Furnishings Stores $90,231,983 $93,591,256 $3,359,273 Furniture Stores $51,582,466 $46,421,927 -$5,160,539 Home Furnishings Stores $38,649,516 $47,169,329 $8,519,813 Electronics & Appliance Stores $102,853,648 $134,667,543 $31,813,895 Bldg. Materials, Garden Equip. & Supply $193,868,425 $170,048,152 -$23,820,273 Stores Bldg. Material & Supplies Dealers $175,669,413 $151,077,357 -$24,592,056 Lawn & Garden Equip & Supply Stores $18,199,012 $18,970,796 $771,784 Food & Beverage Stores $422,808,325 $471,983,488 $49,175,163 Grocery Stores $369,566,904 $420,398,864 $50,831,960 Specialty Food Stores $21,685,940 $22,981,774 $1,295,834 Beer, Wine & Liquor Stores $31,555,481 $28,602,849 -$2,952,632 Health & Personal Care Stores $170,390,649 $100,127,615 -$70,263,034 Gasoline Stations $262,075,635 $146,051,489 -$116,024,146 Clothing & Clothing Accessories Stores $148,568,033 $163,223,839 $14,655,806 Clothing Stores $98,921,566 $139,546,015 $40,624,449 Shoe Stores $21,028,919 $7,002,635 -$14,026,284 Jewelry, Luggage & Leather Goods Stores $28,617,548 $16,675,189 -$11,942,359 Sporting Goods, Hobby, Book & Music Stores $70,745,054 $83,490,580 $12,745,526 Sporting Goods/Hobby/Musical Instr Stores $58,723,990 $74,025,332 $15,301,342 Book, Periodical & Music Stores $12,021,064 $9,465,249 -$2,555,815 General Merchandise Stores $452,953,631 $490,103,824 $37,150,193 Department Stores Excluding Leased Depts. $326,413,622 $240,873,317 -$85,540,305 Other General Merchandise Stores $126,540,009 $249,230,507 $122,690,498 Miscellaneous Store Retailers $93,814,058 $72,070,598 -$21,743,460 Florists $7,499,316 $3,760,233 -$3,739,083 Office Supplies, Stationery & Gift Stores $17,282,289 $21,635,719 $4,353,430 Used Merchandise Stores $9,311,108 $10,808,432 $1,497,324 Other Miscellaneous Store Retailers $59,721,345 $35,866,215 -$23,855,130 Nonstore Retailers $73,319,918 $185,204,180 $111,884,262 Electronic Shopping & Mail-Order Houses $57,778,866 $178,357,154 $120,578,288 Vending Machine Operators $1,964,583 $0 -$1,964,583 Direct Selling Establishments $13,576,468 $6,847,026 -$6,729,442 Food Services & Drinking Places $300,126,006 $223,593,244 -$76,532,762 Special Food Services $7,319,163 $4,150,823 -$3,168,340 Drinking Places - Alcoholic Beverages $9,766,061 $6,251,751 -$3,514,310 Restaurants/Other Eating Places $283,040,782 $213,190,670 -$69,850,112 Total $2,824,251,434 $2,828,929,291 $4,677,857 Source: MFA, BLS, ESRI, Infogroup

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Retail Gap Results Summary

Overall, the market area draws consumer/customer spending from the surrounding areas. This is an indication that an attractive retail mix is in place; however some retail sectors leak spending potential. Those sectors hold the opportunity to capture some of the leakages with new retail inside the market area—retail that is specifically targeted at the categories that show leakage. Based on the retail gap analysis, the following sectors show an opportunity in the 15-minute drive time market, meaning that demand (spending) is larger than the supply (sales). The opportunity for retail and restaurant development to increase supply and capture leaking spending exists in the following sectors:

Table 9.: Retail Opportunity Drive Time Market 0-30 Minutes– Mall Store Categories Retail Sector Opportunity/Leakage Potential Auto Parts, Accessories & Tire Stores $1,729,432 Bldg. Material & Supplies Dealers $24,592,056 Beer, Wine & Liquor Stores $2,952,632 Gasoline Stations $116,024,146 Shoe Stores $14,026,284 Jewelry, Luggage & Leather Goods Stores $11,942,359 Book, Periodical & Music Stores $2,555,815 Department Stores Excluding Leased Depts. $85,540,305 Florists $3,739,083 Other Miscellaneous Store Retailers $23,855,130 Special Food Services $3,168,340 Drinking Places - Alcoholic Beverages $3,514,310 Restaurants/Other Eating Places $69,850,112 Total $363,490,004 Source: MFA, BLS, ESRI, Infogroup

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Retail Opportunity

Focusing on the retail categories shown above and applying the average sales per square foot for those categories to the amount of spending that leaks out of the market area, we can estimate the amount of retail space that could be supported in the project market area.

Table 10. Potential Average Retail Space 15-Minute Drive Time Market Retail Sector Spending Average Potential Retail Sector Leakage Sales Retail Space Example per Sqf Demand Sqf Auto Parts, Accessories & Tire Stores $1,729,432 $266 6,502 O'Reilly Auto Parts Bldg. Material & Supplies Dealers $24,592,056 $319 77,091 Lowe's, The Tile Shop Beer, Wine & Liquor Stores $2,952,632 $468 6,309 Binny's Gasoline Stations $116,024,146 $1,092 106,249 Casey's Shoe Stores $14,026,284 $377 37,205 DSW, Foot Locker Jewelry, Luggage & Leather Goods Zales $11,942,359 $1,385 8,623 Stores Book, Periodical & Music Stores $2,555,815 $251 10,183 Barnes & Noble Department Stores Excluding Leased Kohl's, JC Penny $85,540,305 $171 500,236 Depts. Florists $3,739,083 $80 46,739 Other Miscellaneous Store Retailers Staples, Rent-a- $23,855,130 $237 100,655 Center Special Food Services $3,168,340 $400 7,921 Drinking Places - Alcoholic Beverages $3,514,310 $350 10,041 Restaurants/Other Eating Places $69,850,112 $550 127,000 Total $363,490,004 1,044,752 Source: Dollars & Cents of Shopping Malls, Dun & Bradstreet, Inc, US Census Bureau, ESRI, MFA, Individual SEC Fillings

The retail gap analysis of the local 15-minute drive time market revealed $363.5 million leaked household retail spending that, if captured at 100%, would support 1.04 million square feet in retail space.

A gap analysis is useful, but it can only go so far. Whether a retailer/restaurant decides to enter a market doesn’t depend solely on the results of the retail gap analysis. Other factors have to be considered, such as:  Accessibility  Demand (market size)  Competition  Sector-specific trade area – a dry cleaner has a different size trade area than a household appliance retailer  Necessary sales per square foot to be profitable  Taxes  Lease rates

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The following table shows retailers and their average store size. Due to the limited size of the project site only retailers up to 11,000 square feet average store size are listed.

Table 11. Retailer by Average Store Size in Square Feet Retailer SQF Retailer SQF Retailer SQF Claire’s Stores 1,000 Bath & Body Works 3,200 New York & Company 6,300 SmartStyle Family Hair 1,000 Levi Strauss & Co. 3,300 Tailored Brands, Inc. 6,300 Salons Regis Corp. 1,200 Oxford Industries 3,500 Destination XL Group 6,400 Crocs 1,400 Vitamin Shoppe 3,500 AutoZone 6,600 francesca's 1,400 Tandy Leather Factory 3,600 Famous Footwear 6,600 GNC 1,400 G-III Apparel Group 3,700 Lumber Liquidators 6,600 Perfumania 1,400 Birks Group 3,800 Hollister 7,200 Supercuts 1,400 Christopher & Banks 3,800 O'Reilly Auto Parts 7,400 Fossil 1,700 Tommy Bahama 3,800 Tilly's 7,500 GameStop 1,700 OshKosh B'gosh 4,000 Abercrombie & Fitch Co. 7,700 Genesco 1,700 Foot Locker 4,100 Five Below 7,700 Movado 1,700 Justice 4,100 Lands' End 7,700 Kate Spade & Co. 1,800 Tiffany & Co. 4,200 Ralph Lauren 7,800 Johnston & Murphy 1,900 Catherines 4,300 dressbarn 7,900 Journeys 1,900 Carter's 4,400 Kirkland's 7,900 Sally Beauty 1,900 Sherwin-Williams 4,500 Advance Auto Parts 8,100 Steve Madden 1,900 Skechers 4,500 Banana Republic 8,100 Joe's Jeans 2,000 The Cato Corp. 4,500 Victoria's Secret 8,200 Signet Jewelers 2,000 Rent-A-Center 4,700 Express 8,500 The Gymboree Corp. 2,100 The Children's Place 4,700 Dollar General 9,100 Build-A-Bear Workshop 2,200 Hanesbrands 4,800 Aaron's 9,600 Destination Maternity 2,200 Reitmans 4,800 Dollar Tree 9,700 Perry Ellis 2,200 Guess 5,000 Anthropologie 9,900 Vera Bradley 2,400 Liquor Stores N.A. 5,000 Gap 9,900 Vince 2,400 maurices 5,100 Pier 1 Imports 9,900 CST Brands 2,600 The Buckle 5,100 Dollarama 10,100 Lilly Pulitzer 2,600 L Brands 5,200 The Jean Coutu Group 10,200 Deckers Outdoor 2,700 Men's Wearhouse 5,400 West Marine 10,200 Free People 2,700 Ascena Retail Group 5,500 CVS 10,300 Select Comfort 2,700 J.Crew 5,500 Williams-Sonoma 10,300 Michael Kors 2,800 Lane Bryant 5,500 Indigo Books & Music 10,500 White House|Black Market 2,800 Finish Line 5,600 Ulta Beauty 10,600 Chico’s FAS, Inc. 2,900 Trans World Entertainment 5,600 Walgreens Boots Alliance 10,700 Zumiez 2,900 Caleres 5,700 Shoe Carnival 10,800 Chico's/Soma Intimates 3,000 Hibbett Sports 5,700 Hamilton Beach Brands 3,000 Under Armour 6,100 Casey's General Stores 3,100 American Eagle Outfitters 6,300 lululemon athletica 3,100 Moores 6,300 Source: Dollars & Cents of Shopping Malls, Dun & Bradstreet, Inc, eMarketer Inc., ESRI, MFA, Individual SEC Fillings

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Table 12. Shopping Centers Closest to Project Site Name Street City Number Distance Year GLA in Anchors of in Miles Open SF Stores Village Square S. Rand Rd. & Lake Zurich, 47 4.40 NE 1989 225,000. T.J.Maxx, OfficeMax, Shopping Rte. 22 IL 60047 Petco Center Deerpath S. Rand Rd. Lake Zurich, 30 5.39 NE 1991 268,052. Walmart, Jo-Ann Fabric Court IL 60047 & Craft, Sears Shopping Appliance/Hardware Center Crystal Court Rt. 14 & Main St. Crystal Lake, 16 6.39 NW 1989 279,000. Two Vacant, Big Lots IL 60014 Crystal Point Rt. 14 Crystal Lake, 19 6.79 NW 1976 357,914. One Vacant, Best Buy, (Northwest Hwy) IL 60014 Bed Bath & Beyond & Main St. Deer Park N. Rand Rd. & W Deer Park, IL 79 7.38 SE 2000 406,304. Century Theatres, Town Center Long Grove Rd. 60010 Barnes & Noble, Crate & Barrel, Gap/Gap Kids/Baby Gap Source: Directory of Major Malls, Inc. (June 2018).

Types of Retail Shopping Centers

According to New Urban News, there are six types of retail shopping centers that correspond to distinct market segments. As shown in the table below, each commercial center has a specific size, tenants, and trade area. Corner stores and convenience centers do not offer a great deal of variety, but they do provide essential goods and services to meet daily needs. Approximately 1,000 households are needed in a given trade area to support a corner store and 2,000 for a convenience center.

Table 13. Types of Retail Shopping Centers Retail Center Size Trade Area Anchor Tenant Goods and Services (sq. ft.) Food, drinks, sundries, beer, Corner Stores 1,500-3,000 Local n/a cigarettes, gas Convenience Specialty food market or Food, personal services and 10-30,000 1.5 miles Center pharmacy local offices Neighborhood Food, personal services and 70-90,000 1-2 miles Supermarket or drugstore Center local offices Community Discount dept. store, super Apparel, toys, electronics, 250-350,000 4-6 miles Center drug store or supermarket sporting goods General merchandise, Regional Center 900,000+ 10-12 miles Department store(s) apparel, furniture Upscale fashion, home Lifestyle Center 300,000 4-6 miles n/a furnishings and restaurants Source: New Urban News

A neighborhood center typically has 10 to 15 smaller retailers providing convenience goods (food, drugs, bakery, fast food, etc.) and personal services (laundry, dry cleaning, etc.) in addition to the anchor tenant, which is often a supermarket. Some 6,000 to 8,000 households are required to support a neighborhood center, most of which will visit the center once or twice a week.

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Community centers pull from a 4- to 6-mile trade area with populations of 50,000 residents or more. Tenants generally include discount department stores; home improvement, sporting goods, and apparel stores; booksellers; restaurants; and supermarkets.

Regional centers are malls built around anchor tenants, usually department stores. Consumers can find apparel, furniture, and home furnishings in regional centers. The trade areas for these destination retail centers are more substantial than convenience, neighborhood, or community centers, with 150,000 residents or more.

A lifestyle center is a form of shopping center in the regional segment. It was created to offer upscale fashion and home furnishing without department store anchors. Lifestyle centers are often open-air centers designed with a main street concept, with restaurants and entertainment. Most retailers in these centers seek access to at least 75,000 households earning a minimum of $75,000 annually. However, the line between lifestyle centers and regional centers has begun to blur in recent years, with regional centers becoming essentially large lifestyle centers by adding upscale stores and restaurants to their mix.

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Restaurant Opportunity

The following table shows the market potential for the subject area by restaurant type. It also indicates the amount of spending at three different levels/types of restaurants (fine dining, family restaurant/steakhouse, and fast food).

Table 14.: Estimated Market Potential by Restaurant Type and Spending Amount Market 0-5 Minutes 5-10 Minutes 10-15 Minutes 2018 Population 18+ 4,314 34,271 94,533 Activity # MPI # MPI # MPI Fine dining restaurant last month 16.3% 151 18.6% 172 15.8% 146 Fine dining restaurant 3+ times last month 4.7% 145 5.7% 176 4.6% 141 Family restaurant/steak house in last 6 month 80.9% 107 80.5% 107 80.7% 107 Family restaurant/steak house 4+ times/month 30.7% 114 29.7% 111 29.4% 109 Fast food/drive-in restaurant in last 6 month 91.0% 101 90.9% 101 91.7% 102 Fast food/drive-in restaurant 9+ times/month 39.7% 100 38.4% 97 40.7% 103 Market Area Spending Potential Spending on Fine Dining per Month Amount # MPI # MPI # MPI <$51 1.7% 104 1.8% 111 1.6% 95 $51-$100 4.7% 142 5.1% 154 4.5% 137 $101-$200 4.2% 159 4.9% 184 4.1% 157 Spending Family Restaurant/Steakhouse per Month Amount # MPI # MPI # MPI <$31 8.8% 101 8.2% 94 8.0% 92 $31-50 10.1% 101 9.9% 99 10.1% 101 $51-100 16.7% 108 16.9% 109 17.0% 110 $101-200 12.3% 132 13.1% 141 12.8% 138 $201-300 3.7% 148 3.5% 139 3.5% 142 Spending on Fast Food per Month Amount # MPI # MPI # MPI <$11 5.5% 106 5.4% 105 4.9% 96 $11-$20 11.3% 106 10.7% 101 10.3% 97 $21-$40 16.7% 102 16.5% 101 16.3% 99 $41-$50 9.3% 104 9.8% 109 9.8% 109 $51-$100 17.2% 103 17.2% 103 18.4% 110 $101-$200 8.3% 104 8.1% 102 9.3% 116 $201+ 2.6% 95 3.0% 108 3.1% 112 Source: GfK MRI US Bureau of the Census, BLS, ESRI, MFA

An MPI (Market Potential Index) measures the relative likelihood of the adults in a specified market area to exhibit certain consumer behavior or purchasing patterns compared to the U.S as a whole. An MPI of 100 represents the U.S. average.

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The majority of the local population visit a fast food restaurant at least once every six months. Those figures and the likelihood that consumers exhibit this behavior is close to the national average. What is different in a positive way, is the likelihood of consumers spending more money, approximately 16% higher than the national average, at a fast food restaurant.

Table 15. Consumer Behavior (Adults 18+) – Fast Food Restaurants by Drive Time Market (Minutes) Market Area 0-5 5-10 10-15 Adult Population 18+ 4,314 26,383 71,545 Frequency Went to Fast Food Restaurant during the last 6 Months 91.0% 90.9% 91.7% Went to Fast Food Restaurant 9+ times per Month 39.7% 38.4% 40.7% Spending Monthly Purchase <$11 5.5% 5.4% 4.9% Monthly Purchase: $11-$20 11.3% 10.7% 10.3% Monthly Purchase: $21-$40 16.7% 16.5% 16.3% Monthly Purchase: $41-$50 9.3% 9.8% 9.8% Monthly Purchase: $51-$100 17.2% 17.2% 18.4% Monthly Purchase: $101-$200 8.3% 8.1% 9.3% Monthly Purchases: $201+ 2.6% 3.0% 3.1% Source: MFA, BLS, ESRI, GfK MRI

Table 16. Brand Preference & Recognition for Selected Fast Food Restaurants by Drive Time Market (Minutes) Market Area 0-5 5-10 10-15 Adult Population 18+ 4,314 26,383 71,545 Arby`s 16.1% 14.7% 16.4% Burger King 25.6% 24.9% 26.9% Carl`s Jr. 5.0% 4.8% 5.5% Five Guys 13.8% 13.3% 12.9% Hardee`s 3.7% 3.6% 4.0% Jack in the Box 6.2% 6.4% 7.8% KFC 16.5% 15.6% 17.2% McDonald`s 50.4% 49.8% 51.9% Sonic Drive-In 9.9% 9.3% 10.5% Wendy`s 26.4% 24.5% 26.0% Whataburger 4.5% 4.1% 5.1% White Castle 2.4% 2.5% 2.7% Source: MFA, BLS, ESRI, GfK MRI

Focusing on the remaining two categories, fine dining and family restaurant/steakhouse, Table 14 shows an exceptionally high likelihood for adults in the area with preferences to enjoy/visit a fine dining restaurant (up to 75% higher) and a willingness to spend an adequate amount of money for this experience (up to 80% higher than the national average). In part, this is due to the cost of living. Generally speaking, the cost of living is higher in large metro areas, but it also shows a market demand for fine dining restaurants in the upper price point segment. The same pattern -- although not as strong and pronounced -- emerges in the family restaurant/steakhouse market segment with a 15% higher likelihood to visit such a restaurant and an almost 50% higher probability to spend more money there compared to the national average. This indicates there could be enough market support for such a restaurant in either of those categories.

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Table 17. Consumer Behavior (Adults 18+) – Family Restaurants by Drive Time Market (Minutes) Market Area 0-5 5-10 10-15 Adult Population 18+ 4,314 26,383 71,545 Frequency Went to family restaurant in last 6 month 80.9% 80.5% 80.7% Went to family restaurant 4+ times per month 30.7% 29.7% 29.4% Spending Monthly Purchase <$31 8.8% 8.2% 8.0% Monthly Purchase: $31-$50 10.1% 9.9% 10.1% Monthly Purchase: $51-$100 16.7% 16.9% 17.0% Monthly Purchase: $101-$200 12.3% 13.1% 12.8% Monthly Purchase: $201-$300 3.7% 3.5% 3.5% Source: MFA, BLS, ESRI, GfK MRI

Table 18. Brand Preference & Recognition for Selected Family Restaurants by Drive Time Market (Minutes) Market Area 0-5 5-10 10-15 Adult Population 18+ 4,314 26,383 71,545 Applebee's 21.7% 20.6% 21.7% Chili's Bar and Grille 12.1% 11.7% 12.3% IHOP 12.1% 11.6% 11.8% Olive Garden 19.3% 18.2% 19.0% Outback Steakhouse 12.7% 11.7% 11.3% Red Lobster 9.4% 9.0% 9.9% Red Robin 9.2% 8.6% 9.4% Texas Roadhouse 9.9% 9.8% 10.4% T.G.I. Friday`s 7.7% 7.3% 7.3% Source: MFA, BLS, ESRI, GfK MRI

In general, the budget per household for dining out is higher between 48% and 69% than the national average.

Table 19. Household Budget for Dining Out by Drive Time Market (Minutes) Market Area 0-5 5-10 10-15 Total (All Households) $10,863,761 $75,626,576 $181,358,972 Average per Household $5,195 $5,932 $5,359 Compared to National Average (= 100) 148 169 153 Source: MFA, BLS, ESRI, GfK MRI

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The following table shows some example restaurants by size and sales per square foot.

Table 20. Selected Restaurants - Average Size and Sales per Square Foot Company/Restaurant Average Restaurant Average Sales per SF Average Total Sales Gross SF Applebee's 5,000 $417.13 $2,085,650 Brick House Tavern + Tap 8,500 $399.19 $3,393,115 Buffalo Wild Wings 5,900 $526.91 $3,108,769 Carrabba's Italian Grill 6,500 $454.78 $2,956,070 Chili's Grill & Bar 6,000 $404.57 $2,427,420 Chipotle Mexican Grill 2,500 $780.73 $1,951,825 Chuck E. Cheese's 12,300 $121.96 $1,500,108 Dave & Buster's 41,600 $270.11 $11,236,576 Denny's 4,500 $375.80 $1,691,100 Dunkin' Donuts 1,600 $469.91 $751,856 Granite City Food & Brewery 9,800 $370.09 $3,626,882 IHOP 4,500 $415.47 $1,869,615 Jack In The Box 2,600 $601.35 $1,563,510 Joe's Crab Shack 8,000 $375.56 $3,004,480 KFC 2,300 $522.72 $1,202,256 LongHorn Steakhouse 5,900 $587.57 $3,466,663 Maggiano's Little Italy 18,900 $433.93 $8,201,277 McDonald's 4,000 $641.30 $2,565,200 Olive Garden 8,300 $577.73 $4,795,159 Outback Steakhouse 6,300 $539.90 $3,401,370 Papa John's 1,300 $567.78 $738,114 Pizza Hut 1,800 $396.52 $713,736 Potbelly Sandwich Works 2,300 $430.33 $989,759 Red Robin Gourmet Burgers 6,100 $469.53 $2,864,133 Ruby Tuesday 5,900 $290.41 $1,713,419 Ruth's Chris Steak House 9,300 $543.00 $5,049,900 Shake Shack 3,100 $1,448.87 $4,491,497 Sonic 1,500 $818.08 $1,227,120 Starbucks 1,700 $758.31 $1,289,127 Taco Bell 2,100 $682.19 $1,432,599 Texas Roadhouse 6,900 $968.26 $6,680,994 The Cheesecake Factory 10,600 $1,000.31 $10,603,286 Wendy's 3,000 $526.95 $1,580,850 Source: Dollars & Cents of Shopping Malls, Dun & Bradstreet, Inc, eMarketer Inc., ESRI, MFA, Individual SEC Fillings

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Office Market

MFA reviewed and summarized current office market reports and relevant data from outlets such as Colliers, MB Real Estate and Cushman & Wakefield.

Current Trends

The Chicago suburban office market (see map below) did not show a great deal of activity in the third quarter of 2018. The market also reflects an overall negative absorption rate. Absorption represents the demand over a specified period, contrasted with supply. When supply is less than demand, vacancy decreases and absorption is positive. When supply is greater than demand, vacancy increases and absorption is negative.

Suburban Office Markets Map

The following graphs illustrate recent trends in the office market of the Chicago Metro area.

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Office Market

MFA reviewed and summarized current office market reports and relevant data from outlets such as Colliers, MB Real Estate and Cushman & Wakefield.

Current Trends

The Chicago suburban office market (see map below) did not show a great deal of activity in the third quarter of 2018. The market also showed an overall negative absorption rate. Absorption represents the demand over a specified period, contrasted with supply. When supply is less than demand, vacancy decreases and absorption is positive. When supply is greater than demand, vacancy increases and absorption is negative.

Suburban Office Markets Map

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The recent trend of companies and businesses moving back to the city has somewhat receded, although it is unlikely that it will invert anytime soon. This, combined with slightly increasing vacancies, negative absorption rates, and the continuing slow growth of the economy, does not indicate enough market support for a sustainable new office development on the project site.

Using the existing office building space, if possible, seems the most viable option if this modest space is to be used for back offices to retail such as medical offices or services such as accounting, tax prep or legal services on this project site.

Source: MBRE

Office space on the site will likely follow behind the redevelopment of the site with retail, restaurant and hospitality uses. These on-site uses could trigger some demand for office space. In return, office uses could draw customers to the site which could, in turn, support additional on-site retail.

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Potential office space users on the site include:

 A medical office building,  A back-office user such as an insurance company, credit card processor, and  Locally oriented businesses like financial services company offices, insurance offices, accountants, real estate offices, and some independent small space medical users such as dentists.

Medical Office Potential

A small medical office building, as it exists on site, could be affiliated with a hospital or healthcare system, in this case, Advocate Heath (Advocate Good Shepherd Hospital). There are several medical offices in the immediate area with different specialties in medicine, creating a synergy effect. The site has good visibility and is easily accessible, and together with the adjacent senior living facility this could create demand for some modest medical office space.

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Hotel Market

Hotel Market Overview

The Chicago metro area hotel supply has been growing in discrete areas near demand generators for years as brands expand and new ones enter the market seeking market presence near all of the major demand generators. Region-wide occupancy levels have been strong, and average daily rate growth has been good but most robust in downtown Chicago. Some sectors like suites and three and four-star hotels have grown faster than others.

Downtown Chicago has generated most of the development and rate growth for the region and appears to be finally slowing down. Industry consolidation - Marriott acquiring Starwood (Sheraton, Westin, Four Points, and W), plus a successful introduction to the market by major hotel groups is likely to lead to some rationalization (decrease in the rate of development). Development will continue but at this point in the development cycle will mostly consist of backfilling to areas missed in recent years.

MFA obtained a list of 50 hotels that are closest to the project site from Smith Travel Research (STR), a recognized leader in providing hotel and resort data in the U.S. Based on this dataset; those hotels currently offer 6,165 hotel rooms or 2.25 million room nights. The properties are listed in the table below.

Table 21. Hotel Properties Closest to Project Site Property Name Distance Rooms Chain Scale Open Date River Inn Motel 0.7 22 Independent N/A Americas Best Value Inn Barrington Chicago West 3.1 57 Economy Jun-56 Holiday Inn Express & Suites Lake Zurich Barrington 4.2 86 Upper Midscale Mar-09 Holiday Inn Chicago Northwest Crystal Lake 5.3 197 Upper Midscale Nov-88 Convention Center Comfort Inn Crystal Lake 6.1 57 Upper Midscale Jun-01 Country Inn & Suites Crystal Lake 6.1 80 Upper Midscale Aug-00 Super 8 Crystal Lake 6.7 57 Economy Oct-83 Hampton Inn Suites Chicago Deer Park 7.3 104 Upper Midscale Jul-09 Holiday Inn Express & Suites Chicago Algonquin 7.6 86 Upper Midscale Jan-01 Marriott Chicago Northwest 7.9 295 Upper Upscale Sep-02 Crystal Lake Motel 8.3 43 Independent Jun-73 Hilton Garden Inn Hoffman Estates 8.5 184 Upscale Dec-00 Hawthorn Suites by Wyndham Chicago Hoffman 8.6 120 Midscale Apr-99 Estates Hampton Inn Suites Chicago Hoffman Estates 8.6 139 Upper Midscale Oct-97 Hyatt Place Chicago Hoffman Estates 8.8 126 Upscale Sep-97 Red Roof Inn Chicago Schaumburg 8.9 118 Economy Jul-89 Country Inn & Suites Hoffman Estates 8.9 116 Upper Midscale Sep-89 Lexington Inn & Suites Northwest Chicago Elgin 8.9 96 Upper Midscale Jun-63 Quality Inn Hoffman Estates Schaumburg 8.9 96 Midscale Jun-85 TownePlace Suites Chicago Elgin West Dundee 9.1 141 Upper Midscale May-99 Courtyard Chicago Elgin West Dundee 9.1 126 Upscale Oct-99 Holiday Inn & Suites Chicago Northwest Elgin 9.3 243 Upper Midscale Oct-98 Super 8 Elgin Airport 9.3 63 Economy May-90 Quality Inn Elgin 9.3 78 Midscale Jun-95 Hampton Inn Chicago Elgin I 90 9.4 107 Upper Midscale Jul-94 Source: Smith Travel Research (STR),MFA

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Hotel Properties Closest to Project Site - continued Hampton Inn McHenry 9.6 117 Upper Midscale Mar-03 Comfort Suites Elgin 9.8 78 Upper Midscale Jul-06 Motel 6 Chicago Palatine 9.9 123 Economy Nov-85 Holiday Inn Express Chicago Palatine Arlington 10 181 Upper Midscale Jun-80 Heights Courtyard Chicago Arlington Heights North 10.1 152 Upscale Apr-90 Country Inn & Suites Elgin 10.1 98 Upper Midscale Oct-00 Extended Stay America Chicago Schaumburg I 90 10.2 128 Economy Feb-02 Radisson Hotel Schaumburg 10.2 137 Upscale Mar-16 Red Carpet Inn Palatine 10.3 60 Economy Oct-96 Days Inn & Suites Arlington Heights 10.4 121 Economy Dec-89 Candlewood Suites Elgin Northwest Chicago 10.5 83 Midscale Jun-09 Motel 6 Chicago Northwest Rolling Meadows 10.6 130 Economy Oct-89 Super 8 McHenry 10.7 48 Economy May-97 Baymont Inn & Suites Mundelein Libertyville Area 10.7 84 Midscale May-89 Holiday Inn Express Chicago Schaumburg 10.7 143 Upper Midscale Nov-88 Doubletree Libertyville Mundelein 10.7 183 Upscale Jun-73 Wingate by Wyndham Schaumburg Convention 10.8 81 Midscale Apr-02 Center Super 8 Mundelein Libertyville Area 10.8 71 Economy Apr-87 Extended Stay America Chicago Schaumberg 10.8 136 Economy Dec-97 Country Inn & Suites Schaumburg 10.8 73 Upper Midscale Jul-98 Four Points by Sheraton Buffalo Grove 11.3 152 Upscale Oct-89 Embassy Suites Chicago Schaumburg Woodfield 11.3 209 Upper Upscale Jan-84 Colonial Lodge Motel 11.4 40 Independent Jun-41 Wyndham Garden Hotel Schaumburg Chicago 11.6 200 Upper Midscale Jun-73 Northwest Renaissance Schaumburg Convention Center Hotel 11.6 500 Upper Upscale Jul-06 Source: Smith Travel Research (STR),MFA

The majority of all rooms, 87% or 5,387 were added almost equally spread over 3 decades, the 1980s, 1990s and 2000s, indicating a somewhat dated hotel inventory. Prior to the 1980s only 6 of the 50 hotels listed opened providing 10% or 619 room of the currently available rooms.

Since 2010 only one facility opened, the Radisson Hotel Schaumburg providing 137 rooms in March 2016. One hotel was listed without opening date.

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Hotels Closest to the Project Site

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 The economy category has 12 properties with 1,112 rooms, a 18% share of all rooms  The independent category has 3 properties with 105 rooms, a 2% share of all rooms  The midscale category has 6 properties with 542 rooms, a 9% share of all rooms  The upper midscale category has 19 properties with 2,342 rooms, a 38% share of all rooms  The upscale category has 7 properties with 1,060 rooms, a 17% share of all rooms  The upper upscale category has 3 properties with 1,004 rooms, a 16% share of all rooms  There is no property in the luxury category within the 50 closest hotels to the project site

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Currently hotels in the upper midscale segment provide a bit more ⅓ of all rooms with 19 properties, followed by the upscale and upper upscale segments. It should be noted that hotels in the upper upscale segment have a total room count of 1,004, accounting for 16% of all rooms with only three properties in this segment.

The average room count per hotel in the market area is 123. Assuming a hotel development with 120 rooms and an occupancy rate of 65%, the hotel would have to sell about 28,470 room nights annually to be a feasible development.

Assuming an Average Daily Rate of (ADR) of $120 would result in an annual total revenue of $3.42 million.

Table 22. Local Hotel Demand Drives within the 15-Minute Drive Time Market Name Street City State Zip Code Avante Banquet Hall and Conference 1050 Northwest Hwy Fox River Grove IL 60021 Center Canlan Sportsplex 28156 W Northpointe Pkwy Barrington IL 60010 Advocate Good Shepherd Hospital 450 IL-22 Barrington IL 60010 Wandering Tree Estate 830 W State Rte 22 #137 Lake Zurich IL 60047 D'Andrea Banquets & Conference 4419 US-14 Crystal Lake IL 60014 Center Source: Individual Facilities

Hotel Demand Estimates

The following table describes a demand scenario based on the main demand drivers in the market area, the three meeting and event facilities and the sports tournament facility. Based on the assumptions made, the four facilities could create demand for 29,700 room nights per year.

Table 23. Hotel Demand Assumption and Estimates Event and Meeting Facilities Sports Tournament Facility Annual Event Days 120 Annual Events 30 Number of Events per Event Day 1.5 Number of Events per Event Day 1 Total Events 180 Total Events 30 Number of Event Facilities 3 Number of Event Facilities 1 Total Area Events 540 Total Area Events 30 Average Number of Attendees 150 Average Number of Participants 300 Total Attendees 81,000 Total Participants 9,000 Attendees from out of Town (%) 30% Attendees from out of Town (%) 40% Total Attendees from Out-of-Town 24,300 Total Participants from Out-of-Town 3,600 Length of Stay (Nights) 2 Length of Stay (Nights) 3 Room Nights 48,600 Room Nights 10,800 Assuming Double Occupancy 2 Assuming Double Occupancy 2 Total Room Nights Demanded 24,300 Total Room Nights Demanded 5,400 Source: Comparable Facilities, MFA

In addition to the above discussed demand drivers, “Visiting Friends and Relatives” (VFR) has to be added to the demand source for a potential hotel development on the project site. Furthermore, the Advocate Good Shepherd Hospital will create demand through meetings, seminars and relatives visiting patients in the hospital.

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Hotels Closet to the Project Site & Location of Potential Demand Sources

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A p p e n d i x

Site Plan and Local Traffic Counts (Q2 2018)

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Drive Time Markets: 0-5 Minute Drive Time

Summary & Trends

Table 24.: Demographic Summary Market Area 0-5 Minute Drive Time Indicator Year 2018 2023 Population 5,464 5,477 Households 2,091 2,106 Families 1,531 1,535 Average Household Size 2.61 2.60 Population Annual Growth 2018-2023 0.05% Households Annual Growth 2018-2023 0.14% Families Annual Growth 2018-2023 0.05% Median Age 45.6 46.1 Housing Units 2,234 2,279 Owner Occupied Housing Units 73.1% 73.2% Renter Occupied Housing Units 20.5% 19.2% Owner HHs Annual Growth 2018-2023 0.43% Hispanic Population of Total 5.4% 6.3% African-American Population of Total 0.9% 1.1% Median Household Income $74,374 $80,509 Average Household Income $107,868 $116,421 Per Capita Income $49,723 $53,644 Median Household Income Annual Growth 2018-2023 1.48% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Table 25. Trend Comparison, Annual Growth 2018-2023 by Drive Time Market (Minutes) Indicator 0-5 Minutes Illinois USA Population 0.05% 0.10% 0.83% Households 0.14% 0.12% 0.79% Families 0.05% 0.01% 0.71% Owner HHs 0.43% 0.37% 1.16% Median Household Income 1.48% 1.96% 2.50% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Income

Table 26. Household Income - Summary Year 2018 2023 Median Household Income $94,891 $102,113 Average Household Income $130,239 $143,184 Per Capita Income $49,959 $55,148 Median Disposable HH Income $71,143 Average Disposable HH Income $90,236 Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

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Table 27. Household Income – Detailed by Income Bracket Income Brackets Household Income Disposable Income 2018 2023 2018 Number Percent Number Percent Number Percent <$15,000 159 7.6% 154 7.3% 189 9.0% $15,000-$24,999 107 5.1% 98 4.7% 128 6.1% $25,000-$34,999 106 5.1% 98 4.7% 151 7.2% $35,000-$49,999 168 8.0% 160 7.6% 225 10.8% $50,000-$74,999 263 12.6% 245 11.6% 397 19.0% $75,000-$99,999 290 13.9% 278 13.2% 250 12.0% $100,000-$149,999 326 15.6% 328 15.6% 427 20.4% $150,000-$199,999 304 14.5% 325 15.4% 185 8.8% $200,000+ 368 17.6% 420 19.9% 139 6.6% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Population Age

Table 28. Population – Detailed by Age Bracket Age Brackets Population by Age 2018 2023 Number Percent Number Percent 0 - 4 244 4.5% 247 4.5% 5 - 9 287 5.3% 284 5.2% 10 - 14 385 7.0% 326 6.0% 15 - 19 374 6.8% 326 6.0% 20 - 24 281 5.1% 240 4.4% 25 - 34 563 10.3% 576 10.5% 35 - 44 557 10.2% 672 12.3% 45 - 54 859 15.7% 686 12.5% 55 - 64 997 18.2% 959 17.5% 65 - 74 556 10.2% 717 13.1% 75 - 84 231 4.2% 322 5.9% 85+ 131 2.4% 123 2.2% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Table 29. Population by Generation Indicator/Year 2018 2023 Generation Alpha Population 1.7% 6.4% Generation Z Population 21.9% 19.6% Millennial Population 18.4% 20.4% Generation X Population 21.1% 21.3% Baby Boomer Population 28.8% 26.6% Silent & Greatest Generations Population 8.1% 5.7% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023, American Community Survey, MFA

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Household Spending

Table 30. Household Spending Analysis – Amount per Household Category Aggregated Total Average Annual SPI Apparel and Services $6,789,729 $3,247 149 Computer $5,088,315 $2,433 168 Entertainment & Recreation $10,242,722 $4,898 152 Food $14,957,185 $7,153 143 Financial $10,863,761 $5,195 148 Health $18,122,706 $8,667 151 Home $6,736,141 $3,221 154 Household Furnishings and Equipment $2,656,266 $1,270 153 Household Operations $52,751,412 $25,228 150 Insurance $8,337,794 $3,987 160 Transportation $7,515,955 $3,594 167 Travel $3,330,100 $1,593 148 Source: 2015 and 2016 Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, ESRI BIS, MFA

The Spending Potential Index (SPI) is household-based, and represents the amount spent for a product or service relative to a national average of 100.

Drive Time Markets: 5-10 Minute Drive Time

Summary & Trends

Table 31.: Demographic Summary Market Area 5-10 Minute Drive Time Indicator Year 2018 2023 Population 34,271 34,437 Households 12,750 12,875 Families 9,578 9,634 Average Household Size 2.68 2.67 Population Annual Growth 2018-2023 0.10% Households Annual Growth 2018-2023 0.20% Families Annual Growth 2018-2023 0.12% Median Age 44.9 45.5 Housing Units 13,710 14,041 Owner Occupied Housing Units 77.7% 77.1% Renter Occupied Housing Units 15.3% 14.6% Owner HHs Annual Growth 2018-2023 0.33% Hispanic Population of Total 7.6% 8.7% African-American Population of Total 0.9% 1.1% Median Household Income $110,011 $115,886 Average Household Income $149,356 $162,658 Per Capita Income $55,112 $60,303 Median Household Income Annual Growth 2018-2023 1.05% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

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Table 32. Trend Comparison, Annual Growth 2018-2023 by Drive Time Market (Minutes) Indicator 5-10 Minutes Illinois USA Population 0.10% 0.10% 0.83% Households 0.20% 0.12% 0.79% Families 0.12% 0.01% 0.71% Owner HHs 0.33% 0.37% 1.16% Median Household Income 1.05% 1.96% 2.50% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Income

Table 33. Household Income - Summary Year 2018 2023 Median Household Income $110,011 $115,886 Average Household Income $149,356 $162,658 Per Capita Income $55,112 $60,303 Median Disposable HH Income $82,400 Average Disposable HH Income $101,023 Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Table 34. Household Income – Detailed by Income Bracket Income Brackets Household Income Disposable Income 2018 2023 2018 Number Percent Number Percent Number Percent <$15,000 541 4.2% 527 4.1% 694 5.4% $15,000-$24,999 566 4.4% 515 4.0% 700 5.5% $25,000-$34,999 592 4.6% 550 4.3% 807 6.3% $35,000-$49,999 887 7.0% 843 6.5% 1,216 9.5% $50,000-$74,999 1,443 11.3% 1,345 10.4% 2,219 17.4% $75,000-$99,999 1,566 12.3% 1,492 11.6% 2,028 15.9% $100,000-$149,999 2,774 21.8% 2,793 21.7% 2,753 21.6% $150,000-$199,999 1,758 13.8% 1,875 14.6% 1,326 10.4% $200,000+ 2,623 20.6% 2,936 22.8% 1,008 7.9% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

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Population Age

Table 35. Population – Detailed by Age Bracket Age Brackets Population by Age 2018 2023 Number Percent Number Percent 0 - 4 1,599 4.7% 1,606 4.7% 5 - 9 2,091 6.1% 2,030 5.9% 10 - 14 2,549 7.4% 2,294 6.7% 15 - 19 2,498 7.3% 2,279 6.6% 20 - 24 1,660 4.8% 1,420 4.1% 25 - 34 3,124 9.1% 3,274 9.5% 35 - 44 3,672 10.7% 4,091 11.9% 45 - 54 5,415 15.8% 4,761 13.8% 55 - 64 5,798 16.9% 5,631 16.4% 65 - 74 3,556 10.4% 4,232 12.3% 75 - 84 1,619 4.7% 2,084 6.1% 85+ 690 2.0% 735 2.1% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Table 36. Population by Generation Indicator/Year 2018 2023 Generation Alpha Population 1.7% 6.9% Generation Z Population 23.8% 21.1% Millennial Population 16.8% 18.9% Generation X Population 21.9% 22.9% Baby Boomer Population 27.6% 24.5% Silent & Greatest Generations Population 8.2% 5.7% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023, American Community Survey, MFA

Household Spending

Table 37. Household Spending Analysis – Amount per Household Category Aggregated Total Average Annual SPI Apparel and Services $47,366,018 $3,715 171 Computer $35,809,638 $2,809 194 Entertainment & Recreation $71,427,543 $5,602 174 Food $103,830,099 $8,144 162 Financial $75,626,576 $5,932 169 Health $126,136,845 $9,893 173 Home $46,876,445 $3,677 176 Household Furnishings and Equipment $18,507,366 $1,452 175 Household Operations $367,484,019 $28,822 172 Insurance $59,251,563 $4,647 187 Transportation $52,627,359 $4,128 192 Travel $23,098,734 $1,812 168 Source: 2015 and 2016 Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, ESRI BIS, MFA

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Drive Time Markets: 10-15 Minute Drive Time

Summary & Trends

Table 38.: Demographic Summary Market Area 10-15 Minute Drive Time Indicator Year 2018 2023 Population 94,533 95,152 Households 33,843 34,169 Families 25,205 25,348 Average Household Size 2.78 2.77 Population Annual Growth 2018-2023 0.13% Households Annual Growth 2018-2023 0.19% Families Annual Growth 2018-2023 0.11% Median Age 40.5 41.4 Housing Units 35,766 36,403 Owner Occupied Housing Units 77.5% 77.7% Renter Occupied Housing Units 17.1% 16.1% Owner HHs Annual Growth 2018-2023 0.40% Hispanic Population of Total 14.0% 15.6% African-American Population of Total 1.5% 1.6% Median Household Income $100,603 $106,050 Average Household Income $130,791 $143,555 Per Capita Income $47,048 $51,763 Median Household Income Annual Growth 2018-2023 1.06% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Table 39. Trend Comparison, Annual Growth 2018-2023 by Drive Time Market (Minutes) Indicator 10-15 Minutes Illinois USA Population 0.13% 0.10% 0.83% Households 0.19% 0.12% 0.79% Families 0.11% 0.01% 0.71% Owner HHs 0.40% 0.37% 1.16% Median Household Income 1.06% 1.96% 2.50% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Income

Table 40. Household Income - Summary Year 2018 2023 Median Household Income $100,603 $106,050 Average Household Income $130,791 $143,555 Per Capita Income $47,048 $51,763 Median Disposable HH Income $75,087 Average Disposable HH Income $91,032 Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

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Table 41. Household Income – Detailed by Income Bracket Income Brackets Household Income Disposable Income 2018 2023 2018 Number Percent Number Percent Number Percent <$15,000 1,606 4.7% 1,548 4.5% 2,041 6.0% $15,000-$24,999 1,626 4.8% 1,487 4.4% 2,106 6.2% $25,000-$34,999 1,812 5.4% 1,667 4.9% 2,569 7.6% $35,000-$49,999 2,904 8.6% 2,739 8.0% 3,737 11.0% $50,000-$74,999 4,400 13.0% 4,060 11.9% 6,443 19.0% $75,000-$99,999 4,435 13.1% 4,261 12.5% 5,370 15.9% $100,000-$149,999 7,239 21.4% 7,405 21.7% 6,772 20.0% $150,000-$199,999 4,375 12.9% 4,765 13.9% 2,751 8.1% $200,000+ 5,447 16.1% 6,237 18.3% 2,055 6.1% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Population Age

Table 42. Population – Detailed by Age Bracket Age Brackets Population by Age 2018 2023 Number Percent Number Percent 0 - 4 5,323 5.6% 5,316 5.6% 5 - 9 6,352 6.7% 6,032 6.3% 10 - 14 7,144 7.6% 6,754 7.1% 15 - 19 6,383 6.8% 6,251 6.6% 20 - 24 4,751 5.0% 4,215 4.4% 25 - 34 10,513 11.1% 10,596 11.1% 35 - 44 12,634 13.4% 13,330 14.0% 45 - 54 14,600 15.4% 13,369 14.1% 55 - 64 13,996 14.8% 13,759 14.5% 65 - 74 8,294 8.8% 9,876 10.4% 75 - 84 3,207 3.4% 4,251 4.5% 85+ 1,336 1.4% 1,402 1.5% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2028 MFA

Table 43. Population by Generation Indicator/Year 2018 2023 Generation Alpha Population 2.1% 8.1% Generation Z Population 24.5% 22.0% Millennial Population 20.0% 22.3% Generation X Population 23.4% 22.7% Baby Boomer Population 24.0% 20.9% Silent & Greatest Generations Population 6.0% 4.1% Source: U.S. Bureau of the Census, 2010 Census, ESRI BIS forecasts for 2018 and 2023, American Community Survey, MFA

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Household Spending

Table 44. Household Spending Analysis – Amount per Household Category Aggregated Total Average Annual SPI Apparel and Services $113,335,556 $3,349 154 Computer $81,607,841 $2,411 167 Entertainment & Recreation $166,482,800 $4,919 153 Food $248,617,414 $7,346 146 Financial $181,358,972 $5,359 153 Health $289,843,234 $8,564 150 Home $109,815,522 $3,245 155 Household Furnishings and Equipment $43,514,265 $1,286 155 Household Operations $863,748,230 $25,522 152 Insurance $131,373,278 $3,882 156 Transportation $119,270,719 $3,524 164 Travel $54,518,580 $1,611 150 Source: 2015 and 2016 Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, ESRI BIS, MFA

Selected Definitions

Household A household is an occupied housing unit. Household type is identified by the presence of relatives and the number of persons living in the household. Family households, with or without children, include married couples and other families—a male or female householder with no spouse present. Non-family households may be a group of unrelated persons or a single person living alone.

Families Households in which one or more persons in the household are related to the householder (formerly, the head of the household) by birth, marriage, or adoption. The census tabulates only one family per household.

Disposable Income Disposable income represents money income after taxes—an estimate of a household's purchasing power. The proportion of household income left after taxes is estimated from special studies conducted by the Census Bureau to simulate household taxes. 2018 disposable income incorporates data from the 2017 Annual Social and Economic Supplement of the Current Population Survey (ASEC).

American Community Survey (ACS) In 2010, the Census Bureau changed how it collects decennial census data. The Census Bureau has eliminated the traditional long form and opted to only release decennial census data collected from the short form. The American Community Survey (ACS) is the replacement for census sample data, or long form. Data on income, education, employment, language, migration, citizenship, marital status, and housing characteristics, such as value and rent, is now obtained from the ACS rather than the decennial census sample.

The ACS provides data that is updated more frequently than the decennial census data. The ACS collects and produces population and housing information every year instead of every 10 years. ACS represents continuous measurement or a rolling sample design. A small percent of the population is sampled every month. The monthly samples are combined and averaged to produce one-, three- or five-year databases. The Census 2000 sample represented approximately 1 in 6 households and one point in time, April 1, 2000. ACS represents approximately 1 in 40 households. ACS' much smaller sample sizes affect data reporting and produce much larger sampling errors.

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General Limiting Conditions

Every reasonable effort has been made to ensure that the data contained in this study reflect the most accurate and timely information possible and they are believed to be reliable. This study is based on estimates, assumptions and other information developed by Market & Feasibility Advisors LLC from its independent research effort, general knowledge of the industry, and consultations with the Client and the Client’s representatives. No responsibility is assumed for inaccuracies in reporting by the Client, the Client’s agent, and representatives or any other data source used in preparing or presenting this study. No warranty or representation is made by Market & Feasibility Advisors LLC that any of the project values or results contained in this study will actually be achieved.

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