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Market Demand Study and Statement of Estimated Annual Operating Results

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Market Demand Study and Statement of Estimated Annual Operating Results MARKET DEMAND STUDY AND STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS THE PROPOSED HOTEL AND CONFERENCE CENTER TO BE LOCATED AT THE UNIVERSITY OF ARKANSAS FAYETTEVILLE, WASHINGTON COUNTY ARKANSAS PREPARED FOR: University of Arkansas Fayetteville, Arkansas PREPARED BY: PKF Consulting Philadelphia, Pennsylvania DATE OF THE REPORT: March 2012 March 28, 2012 Mr. David G. Davies University of Arkansas Assistant Vice Provost for Student Affairs Finance and Administration 325 Administration Building Fayetteville, Arkansas 72701 Dear Mr. Davies: We have completed our analysis of the potential market demand and projected five-year operating performance for a recommended 125-room university conference center, with 13,600 square feet of conference space, to be located on the University of Arkansas Fayetteville campus. Further, we recommend the project be developed on a site located east of the Donald W. Reynolds Center for Enterprise Development and be connected to it. Our recommendation would create synergies with a combined total of approximately 25,000 square feet of conference space, representing 200 square feet of conference space per guestroom. This recommended development is contingent upon the availability of adequate and proximate parking for the combined facilities. The market study and conclusions reached are based on our current knowledge of the conference center industry and area lodging market as of the completion of our fieldwork as of March 16, 2012. During our fieldwork we toured the campus of the University of Arkansas and selected campus facilities, meet with a number of university representatives, toured the surrounding area, visited selected hotels and met with those familiar with the hotel industry and area economy. As in all studies of this type, the estimated results are based upon competent and efficient management and presume no significant changes in the university conference center and area lodging markets in the immediate area from that as set forth in this report. Since our results are based on estimates and assumptions which are subject to uncertainty and variation, we do not represent them as results which will actually be achieved. The terms of our engagement are such that we have no obligation to revise this report to reflect events or conditions, which occur subsequent to the date of the completion of our fieldwork. However, we are available to discuss the necessity for revision in view of changes in the economic or market factors affecting the proposed project. PKF Consulting USA | 8 Penn Center Plaza, 19th Floor | Philadelphia, Pennsylvania 19103 TEL: 215-563-5300 | FAX: 215-563-1977| www.pkfc.com University of Arkansas -2- March 28, 2012 This report has been prepared for your use in evaluating the recommended university conference center development opportunity. As is customary in assignments of this type, neither our name nor the material submitted may be included in any prospectus or as part of any printed material, or used in offerings or representations in connection with the sale of securities or participation interests to the public, without prior written consent. We appreciate the cooperation extended to us during the course of our engagement and would be pleased to hear from you if we could be of further assistance in the interpretation of our findings and recommendations. PKF Consulting TABLE OF CONTENTS SECTION I: EXECUTIVE SUMMARY Introduction ............................................................................................................. I-1 Scope and Methodology ........................................................................................ I-2 Summary of Conclusions ...................................................................................... I-4 Summary of Operating Results............................................................................. I-8 SECTION II: MARKET AREA REVIEW AND SITE DESCRIPTION Overview ................................................................................................................. II-1 Economic and Demographic Indicators ............................................................. II-2 Employment ........................................................................................................... II-3 Real Estate Markets ............................................................................................... II-6 University of Arkansas ........................................................................................ II-10 Transportation ...................................................................................................... II-16 Tourism and Visitation................................................................................... ..... II-18 Market Area Conclusions ................................................................................. ..II-22 Proposed Sites ..................................................................................................... II-25 Accessibility ......................................................................................................... II-28 Visibility................................................................................................................. II-28 Size, Shape and Topography ............................................................................. II-28 Relationship to Demand Generators ................................................................. II-28 Advantages of the Site/Project Versus Major Competitors ............................ II-29 SECTION III: CONFERENCE CENTER AND LODGING MARKET ANALYSIS Introduction ........................................................................................................... III-1 Conference Center Industry Overview ............................................................... III-1 The Meetings Market ............................................................................................ III-8 National Hotel Market Overview ........................................................................ III-14 Area Hotel Supply and Demand ........................................................................ III-15 Conclusion .......................................................................................................... III-26 SECTION IV: DEMAND, RECOMMENDED DEVELOPMENT AND MARKET POSTION Introduction ...........................................................................................................IV-1 Summary of the University of Arkansas Demand ............................................ IV-1 Demand Conclusion ...........................................................................................IV-19 Recommended Hotel and Conference Center and Market Position ............ IV-19 Conclusion ..........................................................................................................IV-27 SECTION IV: STATEMENT OF ESTIMATED OPERATING RESULTS Bases for Income and Expense Assumptions .................................................. IV-1 Departmental Revenues and Expenses ............................................................. IV-2 Undistributed Operating Expenses .................................................................... IV-6 i TABLE OF CONTENTS Fixed Charges .......................................................................................................IV-9 Statement of Estimated Annual Operating Results .......................................IV-12 Addendum Statement of Limiting Conditions ii SECTION I: EXECUTIVE SUMMARY PROPOSED HOTEL AND CONFERENCE CENTER AT THE UNIVERSITY OF ARKANSAS FAYETTEVILLE, WASHINGTON COUNTY, ARKANSAS MARCH 2012 PKF CONSULTING Section I: Executive Summary I-1 Introduction PKF Consulting has been retained by the University of Arkansas to conduct a market study for a university conference center on the main campus in Fayetteville. Three possible sites on the campus were identified during the course of our fieldwork for this development. Our study concludes with a recommended 125-room university conference center with 13,600 square feet of conference space, on a site east of the Donald W. Reynolds Center for Enterprise Business Development. Our recommended site has two distinct advantages in that it is proximate to both the Reynolds Center and the Harmon Avenue Parking Garage. This site would make possible the recommended development to be connected with the 41,000 square foot Reynolds Center, for a combined total of approximately 25,000 square feet of conference and event space, equaling 200 square feet per guest unit. Based on our recommendations, we have made projections of operating performance for the 125 room university conference center for the first five years of operation, estimated to commence on January 1, 2015. The Reynolds Center, as currently operated, has a number of limitations to meeting the needs of existing and potential users. Our recommendations are contingent upon sufficient parking to support the envisioned new development as combined with the Reynolds Center, which has no parking provision. The Harmon Avenue Parking Garage has 2,149 parking spaces and is well located across Harmon Avenue from the recommended site which could accommodate the required parking for the hotel and conference center. Based on a review of local zoning, the combined project could require as many as 500 parking spaces. It is recommended the entire project be positioned as International Association of Conference Center (IACC) affiliated university conference
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