DOWNTOWN HOSPITALITY ADVISORS
DOWNTOWN RACINE HOTEL MARKET ANALYSIS
PHASE I - PRELIMINARY FINDINGS
SEPTEMBER 2010 (DRAFT 9/1/10)
1123 Boundary Road, Middleton, WI 53562 608-334-7735 [email protected]
CONTENTS PHASE I - PRELIMINARY FINDINGS
SEPTEMBER 2010 (DRAFT 9/1/10)
Introduction and Summary of Key Findings – p1
1. Downtown Racine as a Hotel Location – p4
2. Site Analysis – p6
3. Local Economic Conditions – p12
4. Lodging Supply Analysis – p14
5. Overview of Lodging Demand Segments - p20
6. Detailed Analysis of Corporate Demand Generators – p23
7. Market Operating Performance – p27
8. Proposed Hotel Projected Operating Performance – p31
Study Limitations and Use– p34
Acknowledgments – p35
Phase I - Preliminary Findings
DOWNTOWN RACINE HOTEL MARKET ANALYSI S PHASE I - PRELIMINARY FINDINGS
SEPTEMBER 2010 (DRAFT 9/1/10)
The following is an initial report on the feasibility of a new downtown hotel being considered in Racine, Wisconsin. This portion (Phase I) of the study reports on our primary and secondary data collection, and is intended to provide essential information needed to determine whether the project could achieve satisfactory operating performance.
This study examines the viability of Downtown Racine as a location for a new hotel and the suitability of selected sites. Economic and market conditions in the Racine lodging market area are analyzed with particular emphasis on the dynamics of Downtown. Supply and demand conditions specific to the local lodging industry are studied in detail. In this first phase report, estimates of operating performance as measured by revenue per available room (RevPar) are provided.
Phase II would continue the analysis, developing recommendations to refine the proposed lodging concept and position the property to maximize its impact on the downtown district. Phase II would also include more precise estimates of operating performance in terms of occupancy and average daily room rate.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 1 Summary of Key Findings
1. Downtown Racine is an attractive hotel development location given the success of its revitalization efforts, existing hospitality amenities, and the sense of place that has developed around the Lake Michigan lakefront. A Downtown location could outperform a typical highway hotel because of its unique location.
2. Both the YMCA and Walker sites benefit from their proximity to Lake Michigan. However, both locations are challenged by accessibility, pedestrian-connectivity and surrounding land use issues. However, there are other possible sites that if available, could optimize operating performance of a new hotel.
3. Racine has a substantial and diverse business and commercial base. While the City currently struggles with high unemployment, there remains a diverse mix of hotel demand generators. Most have reported a decrease in overnight travel as a result of recent economic conditions.
4. Hotel competitors in Racine are aging. The only two primary competitors are the Radisson Hotel Racine Harbourwalk (121-rooms) and the Marriott Racine (222- rooms). Both have served the community well, but there now appears to be demand for a newer first-class lodging alternative downtown.
5. Unlike other cities, Racine has had no additions to the room supply in recent years.
6. Lodging demand in Downtown Racine is primarily business related. However, the leisure/other travel sector is important given Downtown’s hospitality related amenities and proximity to Lake Michigan. Group meeting demand is more limited due to market competition and lack of hotel conference facilities.
7. Local companies frequently use the Marriott and Radisson. Many business leaders are open to the idea of guaranteeing room nights as a way to incentivize development of a new Downtown hotel. Downtown would provide a preferred location for many corporate visitors as it offers a favorable and authentic experience within the community.
8. The U.S. and Racine lodging markets have been experiencing similar patterns in occupancy and average daily room rate since 2007. Significant declines in performance have occurred due to economic conditions. The 2009 occupancy in the Racine lodging market (competitive sample of six hotels) was 54.2% with an average daily room rate of $92.99. Performance in 2010 has stabilized with local and national data pointing to a slow recovery in the hotel industry.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 2 9. We believe the most appropriate lodging concept for Downtown Racine would be an upscale select-service brand with 100-120 guest rooms (including suites), limited food and beverage service, and limited meeting space. Examples include Hyatt Place, Hilton Garden Inn, and Courtyard by Marriott hotels.
10. We believe such a hotel, located at an alternative and more optimal location, could achieve a 30-percent premium in revenue per available room over the current competitive hotel sample. The resulting performance would be consistent with the performance of other U.S hotels in this industry sector.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 3 1. Downtown Racine as a Hotel Location
Downtown Racine is recognized regionally and nationally as a revitalization success story. Unlike other cities of similar size in the Midwest, Downtown Racine has enjoyed significant reinvestment and community support. While the City is centrally located between Milwaukee and Chicago, it has clearly defined an identity of its own.
Downtown in particular has developed a “sense of place” over the past 20 years, building on its Lake Michigan lakefront (beaches, extensive boating facilities, and recreational amenities), museums, public art, restaurants, unique shops, and outdoor activities and events.1
Also making Racine unique are its prominent industry partners. Samuel Johnson, the late chairman emeritus of SC Johnson and lifelong resident of Racine, led downtown revitalization efforts by funding a major planning effort in the mid-1990's.
The successful Downtown Racine Plan completed in 1999 has resulted in an estimated $200 million of new investment. Much has been accomplished since the completion of the plan:
Sam Johnson Parkway and Park Blocks Main Street reconstruction New downtown Transit Center New arts facilities, including the new building for the Racine Art Museum Many new downtown businesses Renovations, rehabs and façade improvements for existing buildings New downtown housing – renovations, artist’s lofts Johnson Building Corporate Headquarters and new parking garage Source: Racine Downtown Plan, 2005
Currently, hospitality related amenities Downtown include: 50 restaurants, pubs and coffee houses, including good ethnic eateries 40 retail stores 15 galleries, studios and workshops Two museums Marinas and yacht clubs 11 places of worship
1 While difficult to define, a sense of place is what draws people to a successful downtown. It impacts economics as more people downtown results in improved business activity, increased property values and expanded local tax base. Elements might include multi-uses, historical preservation, local heritage, pedestrian-friendliness, a feeling of community ownership and overall uniqueness.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 4
Both public and private organizations continue to work together to build on Downtown Racine’s accomplishments. This is captured well in the Downtown Racine Corporation’s Vision Statement that echoes Downtown’s uniqueness and welcoming attitude toward visitors. “Downtown Racine will be one of the Midwest's most unique and vibrant lakefront community centers, welcoming a diverse population of residents and visitors for daily experiences that span the spectrum from the arts to outdoor recreation.”
Sense of place is becoming more important to lodging consumers as more travelers are seeking new lodging concepts in an authentic community environment. Accordingly, many new lodging concepts are more fitting in a vibrant downtown environment like Racine and can enjoy occupancy and room rate advantages over traditional, “placeless,” highway locations.
While Downtown Racine offers a unique and attractive environment for a new hotel, it is still essential that the particular site chosen is convenient, visible, accessible, safe and aesthetically attractive. These attributes are especially important in a competitive lodging environment.
Conclusions – The Downtown Racine Location
Downtown Racine is widely recognized as a success story in downtown revitalization. Over the past 20 years, new investment has occurred and a “sense of place” has developed Downtown and around the Lake Michigan lakefront. It already contains many of the hospitality related amenities including restaurants, specialty retail, museums, public art, and outdoor activities and events. Accordingly, Downtown Racine is an attractive location for new hotel development and provides travelers with an alternative to the traditional suburban or highway hotel location.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 5 2. Site Analysis
The site for a hotel is a critical consideration as it affects a hotel’s ability to draw customers and penetrate the local lodging market. It is important that a location be convenient, visible, accessible, safe and attractive. Hotels benefit from high visibility and proximity to generators of room night demand and support services such as restaurants and retail stores.
This section examines two specific sites as possibilities for the facility. These include the YMCA site on Lake Avenue near 8th Street and the Walker site near the corner of Michigan Boulevard and Dodge Street. Both sites are identified and overlaid on the following maps (as illustrated in the 2004 Racine Downtown Plan). Additional sites are also discussed in an attempt to identify an optimal location that would maximize the operating performance of a new hotel.
Map Illustrating Locations of Two Possible Hotel Sites and Surrounding Land Uses per Plan
Walker Site
YMCA Site
Map Source: Racine Downtown Plan- The “Land Use Framework” is an assembly of distinct and varied districts that create a unified and coherent whole – a place where people will want to live, work, shop and play.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 6
Map Illustrating Locations of Two Possible Hotel Sites and Pedestrian and Retail Streets per Plan
Walker Site
YMCA Site
Map Source: Racine Downtown Plan - The pedestrian emphasis streets are intended to provide an organized and connected downtown pedestrian loop. This pedestrian-friendly loop is augmented by both primary retail and secondary retail streets as well, each of which are by definition pedestrian in their emphasis.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 7 YMCA Site
The YMCA site is located at 725 Lake Ave. at 8th Street. Access to the site from Monument Square (central downtown node) requires traveling south on South Main Street for two blocks, then east on 8th Street for one block, then north on Lake Avenue (one way street) to site. The existing facility currently includes the actively operating Racine Family YMCA and non-operating YMCA lodging facility (tower). Characteristics of the site are as follows:
Access and Visibility – The site is not visible from the primary gateways to Downtown (South Main Street or 7th Street). Driving to the site is difficult due to the one-way orientation of Lake Avenue.
Surrounding Land Uses – The site is adjacent and south of the Racine Public library. Just beyond the library is Memorial Hall which is operated as part of the Racine Civic Centre. The entrance to the site faces west and Lake Avenue. The Women’s Club of Racine and the Racine Literacy Council buildings are across Lake Avenue facing the YMCA site. Further to the north and south on Lake Avenue are various residential buildings including the 10-floor McMynn Tower Apartments. The YMCA site is removed from the retail and employment areas of the Downtown Land Use Plan (see land use map from the Racine Downtown Plan). Overall, surrounding land uses do not contribute to the attractiveness of the site as a lodging destination.
Proximity to Demand Generators – The site would be within six blocks of demand generators including Johnson Financial, Johnson Outdoors and various offices of SC Johnson. The site is one block from Memorial Hall (but not contiguous) and approximately four blocks from Festival Hall. Gateway Technical college is two blocks to the south on Lake Avenue.
Connectivity to Downtown – It is a three-block walk to the central business district (Monument Square). This route is off of the “Pedestrian Emphasis Streets” per Plan (see pedestrian and retail map from the Racine Downtown Plan). The route along Lake Avenue would offer little pedestrian interest for visitors (i.e. no retail and restaurant businesses). In addition, based on input we received, there may be some perceived safety concerns regarding this walk- route to downtown. Overall, Lake Avenue can be described as an unusual street for a hotel.
Site Aesthetics - The site and its elevation offer unmatched lake visibility. With the exception of Pershing Park light poles, the lake views are unobstructed.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 8 Walker Site
The Walker site is located near the corner of Michigan Blvd. and Dodge Street on the north side of the Root River. Access to the site from Monument Square (central downtown node) requires travel north on South Main Street for approximately five blocks, then east on Dodge Street for two blocks, then north on Michigan Avenue for one block to the site. The site is currently vacant. Characteristics of the site are as follows:
Access and Visibility – The site is easy to access by car via Dodge or Hamilton Streets. However, the site as it now exists is not visible from the primary gateways to Downtown (North or South Main Street).
Surrounding Land Uses – The site is adjacent and north of the Pugh Marina facility. The site is removed from the retail and employment areas of the Downtown Land Use Plan (see land use map from the Racine Downtown Plan). Overall, current land uses do not contribute to the attractiveness of the site as a lodging destination. The suitability of the site would be contingent on entire redevelopment of the Pugh Marina area. The site and surrounding area would need to become a stand-alone destination with mixed uses including residential (per the Downtown Plan) recreation, retail, dining and lodging.
Proximity to Demand Generators – The site would be six to eight blocks from demand generators including offices of SC Johnson, Case New Holland, and Case Financial. The site is further removed from Memorial Hall and Festival Hall.
Connectivity to Downtown – It is an eight-block walk to the central Downtown node (Monument Square). This route is off of the Pedestrian and Retail Streets per Plan (see pedestrian and retail map from the Racine Downtown Plan). The site is removed from downtown due to its separation by the Root River. It will not be walkable for some guests. Overall, a hotel at this site would be isolated. A redevelopment effort to open up the riverfront (Pugh Marina area) with a pedestrian oriented connection to North Main Street would be needed.
Site Aesthetics - The site and its elevation offer excellent harbor, marina and beach access assuming redevelopment of surrounding land uses.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 9 Alternative Locations for Discussion
While beyond the scope of this study, it may be useful to consider attributes of alternative sites in Downtown Racine. While these sites may or may not be available for development, they overcome some of the issues hindering the other two subject sites.
Map Illustrating Locations of Possible Alternative Hotel Sites
S. Main and Gas Light Dr.
Lake Ave and Gas Light Drive
Columbus Causeway and Lake Ave
6th St and Lake Ave
Map Source: Racine Downtown Plan
6th Street and Lake Avenue o Unobstructed lake views o Proximity to Memorial Hall and Festival Hall o Proximity to “pedestrian emphasis streets and retail streets o Attractive frontage on Sam Johnson Parkway and 6th Street o Visible connection and pedestrian stroll to Monument Square
Columbus Causeway and Lake Avenue (west portion of Festival Park) o Adjacent to Festival Hall, allowing the hotel and facility to cooperatively attract new group meeting business
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 10 o Proximity to “pedestrian emphasis streets and retail streets o Within 2 blocks of Monument Square
Lake Avenue and Gas Light Drive (southeast corner) o With the nearby Radisson, a new hotel here would contribute to the creation of a hospitality district with ancillary businesses o Proximity to “pedestrian emphasis streets and retail streets o Within three blocks of Festival Hall
South Main Street at Gas Light Drive (southeast corner) o Gateway location on South Main Street and northern anchor to downtown o Proximity to CNH and various SC Johnson offices o One Main Centre a 41,544-square-foot, three-story mixed use building is located across Gas Light Drive from the site o Along with the Radisson, a hotel here would contribute to the creation of a hospitality district with ancillary businesses. o Within three blocks of Festival Hall
Conclusions – Site Analysis
The YMCA site offers an excellent view of Lake Michigan. However, other site characteristics are probably more important in generating satisfactory utilization. The hotel is not visible from any of the streets leading into the Downtown district. Further, it is difficult to access due to the one-way orientation of Lake Avenue. It is also surrounded by land uses that do not contribute the attractiveness of the site as a lodging destination. The walking route along Lake Avenue would offer little pedestrian interest for visitors (i.e. retail and restaurant businesses). The YMCA Site may be better suited to residential use based on its proximity and access to the library.
The Walker site offers convenience to the marina and beach and enjoys proximity to Lake Michigan. However, it is removed from downtown due to its separation by the Root River. A hotel at this site would be isolated given current surrounding land uses. The site and surrounding area would need to become a fully redeveloped destination with mixed uses including residential (per the Downtown Plan), recreation, retail, dining and lodging. A project of this size and scope may take five to ten years to develop.
However, there are some alternative locations that if made available for development, could provide a more optimal location for a new hotel. These alternative sites would provide closer proximity to the pedestrian emphasis and retail streets and restaurants. They also provide greater opportunity to create a Downtown hospitality district with a critical mass of visitor-oriented businesses.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 11 3. Local Economic Conditions
This section provides a brief overview of the economy in Racine as it relates to lodging demand. The size, stability and diversity of the local economy including major employers are important indicators of future commercial travel.
Population – The City of Racine has maintained a steady population of approximately 82,000 between 2000 and 2009. The County population was approximately 201,000 in 2009 (U.S. Census Bureau).
Median household income in the City (in 2008 inflation-adjusted dollars) was $40,976, 21-percent below the U.S level of $52,175.
Business categories in 2007 that had the largest number of employees in the City included: health care and social assistance (7,977), manufacturing (7,717), retail trade (4,240), and administrative and support (3,095). (U.S. Census Bureau)
The top employers in the City of Racine during the fourth quarter of 2009 were: All Saints Medical Center Inc., Racine Unified School District , S C Johnson & Son Inc., and CNH America (source: Worknet Wisconsin). A comprehensive analysis of 11 important corporations in the community is presented in Section 6 of this report.
Traffic Volume - Downtown Racine is approximately 10-miles east of I-94, the major corridor that connects Chicago and Milwaukee. Traffic counts Downtown on South Main Street average approximately 12,000 vehicles per day. For comparison, Route 20 (Washington Avenue) 5-miles west of Downtown Racine averages approximately 33,000 vehicles per day.
Unemployment - Racine continues to struggle with the second highest unemployment of any Wisconsin city. The State Department of Commerce reports that Racine’s unemployment rate was 14.5-percent in July 2010 (not seasonally adjusted). However, the City improved from a year ago, possibly suggesting that the economy is slowly improving. The statewide seasonally adjusted unemployment rate for July was 7.8 percent.
Changes in Local Employment – As in other cities, the current economic recession has resulted in sizable layoffs. Layoffs of 50 to over 100 employees have been reported in firms as diverse as CNH Capital, Putzmeister America, In- Sink-Erator, Johnson Outdoors, and Diversey.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 12 Future Economic Development – While industrial development is being limited by current economic conditions, activity levels relative to future economic development may be high in the County due to the extension of new sewer and water line to I-94. According to various economic development experts, most growth could be expected in the I-94 corridor including new industrial and warehousing development. Future growth in the City and downtown may be focused on residential, specialty retail, institutional and cultural sectors.
Tourism - While Downtown Racine is not dependent on tourism as a primary industry, it does offer the visitor a number of attractions. Examples include a 900-slip marina, the Racine Heritage Museum, the Racine Art Museum, wide beaches and small-boat harbors, Frank Lloyd Wright's architecture including the Johnson Wax Administration Building and Wingspread residence.
Conclusions – Local Economic Conditions
Racine has a substantial and diverse business and commercial base. It is home to S C Johnson & Son Inc. and CNH America. However, the City continues to struggle with the second highest unemployment among Wisconsin cities. Tourism attractions have added to the appeal of the City including a 900-slip marina, museums, beaches, and examples of Frank Lloyd Wright's architecture. Traffic volume is lower Downtown than on Route 20 (Washington Avenue). Future growth in the Downtown may be focused on residential, specialty retail, institutional and cultural sectors.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 13 4. Lodging Supply Analysis
This section examines the strength of individual lodging competitors in the market area. It contains an overview of the lodging supply in the Racine lodging market area with a focus on both primary and secondary competition.
Information on the existing competition in this section was obtained from interviews with hotel general managers as well as from web-based and other published material. Most hotel descriptions were drawn from hotel websites.
To begin, the following table identifies all of the hotels and motels in Racine County. As the table indicates, roughly half of the properties are small and/or independently operated. These are not considered competitive to the proposed Downtown Racine hotel.
Racine County Lodging Supply By Year Size Racine County Location Rooms Opened Affiliation
1 Marriott Racine Racine 222 Jun 1984 Chain 2 Radisson Hotel Racine Harbourwalk Racine 121 Apr 1994 Chain 3 Riverside Inn Racine 112 Mar 1970 Independent 4 Holiday Inn Express Racine Area I 94 Sturtevant 107 Feb 1998 Chain 5 Knights Inn Racine Racine 106 Dec 1988 Chain 6 Comfort Inn Racine Racine 80 Aug 1987 Chain 7 Microtel Inn & Suites Racine Racine 79 Jul 2000 Chain 8 Fairfield Inn Racine Racine 63 Dec 1991 Chain 9 Super 8 Racine Racine 61 Jun 1994 Chain 10 Baymont Waterford Waterford 52 Oct 2002 Chain 11 AmericInn Burlington Burlington 50 Jun 1989 Chain 12 Grandview Inn Sturtevant 48 Jun 1995 Independent 13 Ramada Limited Racine Sturtevant Sturtevant 48 Mar 1997 Chain 14 Rainbow Motel Burlington 44 Jun 1968 Independent 15 Pauls Motel Sturtevant 32 Independent 16 Seeker Motel Racine 26 Independent 17 Country Inn Motel Racine 22 Independent Total Racine County Rooms 1,273 Source: Smith Travel Research
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 14 The Racine lodging market area’s competitive hotels include two full-service and four limited-service properties with a total of 713 rooms of varying quality. The number of rooms and year open by location is summarized below. Note that one of these properties, the Radisson Hotel & Conference Center Kenosha, is located in neighboring Kenosha County.
Racine Lodging Market Area Competitive Hotels Name of Establishment City Zip Affiliation Open Rooms Code Date Date Radisson Hotel Racine Racine 53403 Apr 1994 Apr 1994 121 Harbourwalk Marriott Racine Racine 53406 Oct 1992 Jun 1984 222
Fairfield Inn Racine Racine 53406 Dec 1991 Dec 1991 63
Comfort Inn Racine Racine 53406 Oct 1992 Aug 1987 80
Radisson Hotel & Conference Pleasant 53158 Jan 1998 Jan 1998 120 Center Kenosha Prairie Holiday Inn Express Sturtevant 53177 Feb 1998 Feb 1998 107 Racine I-94 Total 713 Source: Smith Travel Research
Racine hotels also compete with Milwaukee properties including those near the airport (such as the Wyndham Milwaukee Airport Hotel & Convention Center).
Not included here are two prominent Racine conference centers that are used exclusively for private use: Wingspread Guest House (42 units) used by the Johnson Foundation; and the Council House (20 rooms) used by S.C. Johnson & Sons, Inc.
Of the lodging market area’s competitive hotels, two are considered primary competitors due to their location, quality and amenities. These include the Marriott on Route 20 and the Radisson Hotel Racine Harbourwalk. The remaining hotels are considered secondary competition, but still compete for overnight room night demand.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 15 Primary Competition
Marriott Racine
The Marriott Racine is a 222-room (including six suites) property that is 26 years old. It is located 5-miles west of Downtown Racine on Route 20, Washington Avenue. The five- floor property is a full-service hotel with Bentley's Restaurant, Chat’s Lounge, 13 meeting rooms, and 10,000 sq. ft. of total meeting space. The hotel has a concierge level, business center, indoor pool and fitness center.
This hotel is the preferred choice for many corporate and group meeting travelers to Racine. It is the only hotel that can accommodate groups over 100 people. It is reported that the hotel runs full with corporate travelers on many Monday, Tuesday and Wednesday nights during the business travel season (September – May). Diversey is located near the hotel and is a significant generator of demand (sales training, etc.).
The property’s occupancy level may have declined 6-7 points during the recession, less than at the other competitive properties. We believe the hotel achieves a RevPar premium of 125-150% over its competitive set. The Marriott frequent stay program is one draw that helps this property penetrate market demand.
The hotel was built as a Sheraton Inn and Conference Center by Racine Hotel Partners Limited Partnership, a subsidiary of Johnson Wax Development Corp. It opened in 1982. The hotel was sold to New Castle Hotel Corp in April 1990 and reflagged as a Marriott Hotel. Based on the hotels age, location and amenities it may be difficult to qualify for the full-service Marriott brand today and would more likely be a select-service Courtyard by Marriott brand.
The regular hotel room rate from their website for single occupancy (for sample day of Wednesday, October 6, 2010) was $159.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 16
Radisson Hotel Racine Harbourwalk
The Radisson Hotel Racine Harbourwalk is a 121-room property that is 16 years old. It is located at 223 Gaslight Circle, adjacent to the marina in Downtown Racine. The three- floor property is a full-service hotel with the Chancery Family Pub, 4,000 square feet of event space, including two banquet rooms with views of Lake Michigan. It also has a business center, indoor pool and fitness center.
The Radisson is the lone hotel in Downtown Racine. Some believe that a second downtown property would improve downtown as an overnight destination for travelers. Market mix is mostly commercial travel with approximately 15% leisure travel. Many local residents have guests stay downtown at the Radisson to showcase their community.
In the summer the Radisson achieves the highest occupancy because of its lakeside location (the only lake-side hotel south of Sheboygan). It is reported that in the winter, travelers prefer hotels on the west side of town. There is limited demand generated by marina and boat owners.
Parking is a perceived issue for some hotel guests. Although only $1.50 per day, it is a perceived negative in the minds of many guests. In addition, some guests have difficulty finding the Radisson. Based on comments received, the hotel does not qualify as a first class business hotel.
Regular hotel room rate from their website for single occupancy (for sample day of Wednesday, October 6, 2010) was $119.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 17 Secondary Competition
Fairfield Inn Racine is a 63-room limited service property that is 19 years old. It is located 5-miles west of Downtown Racine on Route 20, Washington Avenue. It is reported that the hotel is very popular in the community due to its Marriott affiliation. Regular hotel room rate from their website for single occupancy (for sample day of Wednesday, October 6, 2010) was $90.
Comfort Inn Racine is an 80-room limited-service property that is 23 years old. It is located 5-miles west of Downtown Racine on Route 20, Washington Avenue. Regular hotel room rate from their website for single occupancy (for sample day of Wednesday, October 6, 2010) was $70.
Radisson Hotel & Conference Center Kenosha (Pleasant Prairie) is a 120-room full-service property that is 12 years old. It is located 24-miles southwest of Downtown Racine via Route 20 and I-94. While distant from Racine, it does represent the nearest full-service competitor outside of Racine and is along the I- 94 corridor for travelers from Chicago. Regular hotel room rate from their website for single occupancy (for sample day of Wednesday, October 6, 2010) was $134 ($101 nonrefundable).
Holiday Inn Express Racine I-94 (Sturtevant) is a 107-room limited-service property that is 12 years old. It is located 10-miles west of Downtown Racine on Route 20, Washington Avenue. The property enjoys a gateway location to Racine as it is located at the junction of I-94 and Route 20. Regular hotel room rate from their website for single occupancy (for sample day of Wednesday, October 6, 2010) was $99 ($85 nonrefundable).
Historical Changes in Supply
In 1990, the 168-room Inn on the Lake closed and was later torn down. The Lake Avenue site is now a city-owned parking lot.
In 1992, the 112-room Holiday Inn Racine (owned by the Integra Company of Irving, Texas), filed for bankruptcy. The hotel has operated without a franchise since then.
These reductions in lodging supply, while almost 20 years have passed, were countered by the subsequent additions of the Radisson Hotel Racine Harbourwalk (1994), Fairfield Inn Racine (1991), and the Holiday Inn Express (1998). However, there been no new additions since these properties were built.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 18 Comparison with Other Lodging Markets
The Racine lodging market area has not experienced the recent growth in supply as witnessed in comparable markets. The table below indicates that room supply increased by 16-percent in Appleton and 12-percent in Green Bay since 2003 (lesser amounts in other communities ), while no rooms were added in Racine. These statistics indicate that travelers to these communities have had available newer lodging alternatives than those traveling to Racine.
New Rooms Added Since 2003 New Total New Rooms Hotel Market Rooms Rooms Ratio Appleton 469 2885 16% Green Bay 502 4261 12% Kenosha 90 998 9% Rockford 254 3375 8% Neenah/Oshkosh 95 1471 6% Racine 0 1273 0% Source: Smith Travel Research
Conclusions - Lodging Supply Analysis
Racine’s competitive hotels are aging. They range in age from 26 years (Marriott) to 12 years (Holiday Inn Express). The Downtown Radisson is 16 years old and the Fairfield Inn is 19 years old. Market supply of full service hotels has not changed since the 1990’s (Marriott, Radisson). The average age of chain hotels in the market is 17 years.
Significant competition exists in the community for corporate business. Over the years, the emergence of small and limited service properties have competed for full-service hotel room nights. Local business representatives are generally satisfied with local lodging options, but the Marriott and Radisson are showing their wear.
There are no business-oriented or group meeting-oriented hotels Downtown. Furthermore, there are no select-service hotels in the lodging market area.2 No other hotels that are planned for development within the downtown area. The only hotel under development in the region is a Hampton Inn in downtown Burlington, WI.
2 The term "select service" includes properties like Hyatt Place, Hilton Garden Inn, and Marriott Courtyard. These properties have limited food and beverage outlets and do not offer comprehensive business or banquet facilities. They do offer innovative and quality accommodations and are suited well for smaller business meetings.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 19 5. Overview of Lodging Demand Segments
Market demand segments for lodging properties in the Racine lodging market area fall into three general categories: commercial, group meeting and leisure/other.
Commercial Travelers
Business travelers represent a large portion of lodging demand in the Racine market area. This segment includes people traveling on business representing commercial, industrial and governmental organizations. Peak business demand is usually experienced Monday through Thursday nights. Reasons for visiting might include conducting business with a local company (recruiting, training, management meetings); calling on multiple businesses (by suppliers, vendors, sales representatives); and stopping between destinations.
Some in the community believe that Johnson related companies and CNH remain the dominant room night generators. Others argue that commercial demand is more diversified. A more detailed examination of these segments from the perspective of selected Racine demand generators is presented in section 6.
The current economic recession has had a significant impact on most corporate travel since 2007 with some companies reporting a decrease of 50 to 75-percent in room nights booked. The swings in room night demand in Racine may be magnified by its dependence on the corporate travel market. Some other markets with regional educational and healthcare facilities attract room night demand which is less susceptible to changes in the economy (“college towns” or places with large medical institutions enjoy a more stable base of travelers). Some companies have imposed travel bans, although this has begun to ease. While there is some pessimism among business operators regarding the speed of economic recovery, there are signs of a slow but steady increase in travel.
Group Meeting Travelers
The group market consists of both business and leisure travel. Business group meetings are typically associated with conferences, board meetings, training programs, seminars, trade shows, and other gatherings. Leisure groups include bus tours, school activities, athletic events, etc. Tour groups come for sightseeing and attending special events. There are a few events (like the triathlon) that result in a full hotel occupancy city wide.
Downtown Racine is home to Festival Hall, a 15,700-square-foot area with a theater that can seat 1,500 people, a classroom that can accommodate 1,000, and banquet space for 1,200 people; the Green Room, designed for private gatherings, a 1,050-square-foot space. Also Downtown and overlooking Lake Michigan is Memorial Hall. This facility
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 20 accommodates concerts, crafts, and various local functions. It features an 8,400 square- foot main auditorium and the 2,400 square-foot East Hall.
Many of the events currently held Downtown are centered around these halls. Events mostly include community/civic events, distantly followed by weddings, banquets, consumer shows, and concerts. Only a small number of meetings or conferences are currently accommodated at these facilities. See the table that follows:
Racine Civic Centre Event Totals (Festival Hall and Memorial Hall) - 20083 Event Use Event Type Events Attendance Days Days Banquets 22 25 32 8,645 Concert 8 8 21 5,849 Broadway/Theatrical-Commercial 0 0 0 0 Community/Educational Theatrical 3 3 3 2,600 Family Shows 0 0 0 0 Convention 0 0 0 0 Meeting/Conference 32 32 31 1,475 Consumer Show 2 4 6 735 Trade Show 2 4 8 858 Wedding Reception 24 24 24 7,194 Community/Civic 40 42 45 42,088 Sporting 7 7 9 2,775 Recreational Sports 8 8 8 205 Film/Movie 0 0 0 0 Small Event Parties 1 1 1 270 Total for Year 149 158 188 72,694 Note: It should be noted that attendance has increased significantly July year-to-date from 2008 (44,000 attendees) to 2010 (61,000 attendees). Source: VenuWorks of Racine
Some believe Racine is not well positioned to capture state association business due to its far southeast location. Fierce competition exists from Wisconsin Dells and other more convenient locations. Furthermore, the mid-location between Chicago and Milwaukee appears to provide little advantage in capturing corporate group demand from both of these cities. In short, it may be very difficult to penetrate the very competitive convention market.
The lodging and meeting space to accommodate groups downtown is very limited. While 4,000 S.F. of space is available at the Radisson, it is too small to hold groups over 100. The current configurations of Festival Hall and Memorial Halls are not suitable for
3 Events are total number of events. Event Days are number of days of public attendance for the Event. Use Days are number of setup/tear down days for the Event. Attendance is the number of guests attending the Event.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 21 many business groups and would need reinvestment and improvement. They also lack suitable breakout meeting rooms. Further, no hotels are contiguous to these facilities. Events that are accommodated in these facilities are limited by the 121 guest rooms offered by the Radisson.
Leisure/Other Travelers
Travelers may visit an area for a vacation, to attend sporting or social events, to visit local attractions (architecture, lake, museums), for treatment at local medical facilities, or to visit friends and relatives. They might be staying over simply because they are traveling to other destinations. Leisure travelers may be individuals, couples, families, or small groups.
One major source of visitation to Downtown Racine are yacht owners. These are important consumers for downtown restaurants, specialty stores and cultural attractions. However, as they typically stay on their boats, their use of hotel rooms is typically limited to periods of inclement weather or to accommodate friends or relatives on shore.
Conclusions - Lodging Demand Segments
Lodging Demand in Downtown Racine is primarily commercial transient related travel. While some corporate group meeting demand exists (as described in section 6), it is more limited in scope than cities with more complete meeting facilities. However, group demand related to community and civic events is significant during selected annual events. The leisure/other transient travel is also an important sector of Downtown given its hospitality related amenities including restaurants, specialty retail, museums, public art, outdoor activities, events and its proximity to Lake Michigan.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 22 6. Detailed Analysis of Corporate Demand Generators
As business travel represents the most significant market segment for hotels in the Racine lodging market area, key business leaders in the community were contacted to assess the lodging needs of their companies. These business representatives were invited to respond to a series of standardized survey questions regarding current and future lodging preferences and needs. Companies responding included:
All Saints Medical Center Case New Holland Diversey Johnson Financial Johnson Outdoors Modine Pioneer Q Research Solutions Ruud SC Johnson Twin Disc
Findings are presented as follows and reflect only the perspectives of one of two people from each company. For purposes of this analysis, individual responses are kept confidential.
Room Nights Generated per Year
Company estimates of hotel room nights generated varied greatly among the companies from less than 50 to over 5,000. Many of the businesses reported generating “several hundred” room nights per year. One company offers its employees an employee overnight hotel program where the company pays 80% of the room rate for staff who decide to stay local and not make the commute home. This program alone generates 2,000-2,500 room nights year-round. However, another prominent business reported that it generates very few hotel nights and that they have never had a time when they could not obtain a room.
As discussed earlier, the economic recession has had a significant impact on corporate travel with some companies reporting a significant decrease in room nights booked.
Purpose of Travel
Business travel to Racine has diverse purposes. General company visits were most frequently cited including both mid and upper management. Some international visitors
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 23 are included. Business meetings represented another important segment of business travel. Training and sales meetings were frequently mentioned. One company reported hosting over 50 annual training sessions (10-15 people each) and four national sales conferences. Vendors, suppliers, dealers, consultants, and employee recruits also generate room night demand.
Particular Visitors that could be Accommodated Downtown
The character and sense of place offered by a Downtown Racine location would appeal to certain segments of business visitors. Downtown is the preferred location when wanting a visitor to obtain a favorable and authentic experience in the community. This could include international guests, home office executives, first-time visitors, customers and company recruits. Guests that arrive on the weekend who seek outside activities could also be housed downtown. Only one business indicated they would not have a need for a new Downtown hotel.
Possible Room Night Guarantees
Overall, company representatives were reserved about guaranteeing room nights to ensure the development of a new downtown hotel. Some cited market uncertainty while others indicated an interest in discussing a guarantee as plans advance. The company offering the “employee overnight hotel program” might consider guaranteeing up to 2,000 per year if the rate were low enough. A few businesses mentioned guaranteeing under 50 rooms per year. A guarantee would be dependent on location, type of hotel, and negotiated rate. Only one respondent ruled out any type of guarantee.
Hotels Used and Overall Satisfaction
The Marriott and Radisson were mentioned most frequently. Respondents were generally satisfied with both options, but acknowledge that both are also showing wear. Nevertheless, over the years, they have generally served the community well.
Respondents like the Radisson because it is a full service hotel, has an excellent and convenient location, and offers a complimentary shuttle. Still, many believe it is a basic hotel without special appeal to business travelers.
The Marriott is a full service hotel that has significant function space. Some feel it is not a “true business and meetings hotel.” It is easier to get to for the highway traveler, but is five miles removed from Downtown business activity.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 24 Other properties used include the Fairfield Inn (Marriott affiliation and value), Holiday Inn Express (I-94 gateway location), the Council House (S.C Johnson internal use only), Milwaukee airport hotels and other properties in the Chicago – Milwaukee I-94 Corridor
Some reported that the selection of hotels in Racine represent a nice range of products and good values. Others disagreed and imply that they are aging products. Unavailability of rooms was not cited as a problem. However, some mentioned that the Marriott and Fairfield Inn sell out more frequently.
Hotel Meeting Facility Needs
Meeting needs varied in size from 10-50 to larger meetings of over 200. Five of the companies contacted indicated they their need for outside meeting space is minimized because of their own in-house meeting facilities. While the actual meetings are held onsite, overnight attendees are still housed at area hotels.
When holding off-site meetings, the Marriott is clearly the preferred choice and the only hotel with significant function space needed. One respondent indicated that the Marriott has inflexible meeting space, limited A/V and business support, the need for rental car transit and other issues that make it a less desirable business conference hotel.
Some indicated that a new Downtown hotel could not depend upon Festival Hall or Memorial Hall to provide adequate business meeting space.
Downtown Hotel Concept and Price Range Desired
Respondents were mixed on what type of hotel they would like to see Downtown. While many would prefer a full-service hotel with restaurant and full meeting facilities (i.e. Hilton or Marriott Hotel), others thought a select-service hotel with some meeting space (i.e. Hyatt Place or Hilton Garden Inn) would be more appropriate for the market. A boutique hotel with fine dining and casual restaurant was also mentioned by a few. Overall, there is a preference for something more upscale than that which is currently available. One respondent indicated that he believes there is not a need for a new hotel downtown.
Acceptable rate range (prior to room taxes) was generally in the $100-$150 range. This would depend on the hotels quality, services (including transportation), and other amenities. A few respondents had lower acceptable rates in the $70-$100 rate range. Consistent with the HVS research conducted in 2004, local business representatives would welcome a new and upscale hotel downtown, but acknowledge price sensitivity in the market.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 25 Preferred Location for a Downtown Hotel
Business leaders were asked what location would be best for a new Downtown Racine hotel. They were given three choices:
YMCA site described as “Lakeview Site within three blocks of Monument Square” “Central Business District Site, one or two blocks from Monument Square” Walker site described as “Root River/Lakeview site within six blocks of Monument Square”
While respondents were equally divided among these choices, many added comments useful in exploring the merits of various sites. Examples include:
“Not the Lakeview (YMCA) site due to undesirable buildings nearby and one-way streets.” “Root River (Walker) site would be more attractive as it near beach, paths, and could be connected to the Downtown core with Trolley service.” “Any of the sites described. A downtown location would benefit Racine.” “Any of the sites described. Although Main Street would be central.” “Closer to the lake the better. It gives guests a unique experience to be walking distance of the water.” “Root River (Walker) and Lakeview (YMCA) sites as they would allow guests to enjoy Downtown amenities.” “A Convenient and aesthetically pleasing location.”
Conclusions - Detailed Analysis of Corporate Demand Generators
Local business leaders shared different opinions on the need for a new Downtown hotel and what type and location would be most fitting. Certain companies generate significant overnight lodging demand while others reported very little. General company visits by mid to upper management are most common. Some companies hold group meetings and conferences periodically. Most companies have reported a decrease in travel as a result of the current economic recession. The Marriott and Radisson are used most frequently, although both properties have shortcomings. Many of the respondents were open to the idea of guaranteeing room nights as a way to incentivize development of a new Downtown hotel. Downtown would provide a preferred location for many corporate visitors as it provides a favorable and authentic experience in the community. Full-service, select-service and boutique hotels were all identified as preferences for a new Downtown lodging product. Respondents were equally divided on which Downtown site would be preferable.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 26 7. Market Operating Performance
This section presents current trends the U.S. lodging industry and an analysis of operating performance of the six competitive hotels in the Racine lodging market area (from section 4). The performance of these properties is used later in this report as a key indicator of the operating performance of the proposed Downtown Racine hotel.
National Lodging Trends
To provide context for data on Racine, the following U.S. lodging trends are provided. The following information provides historic and current operating data and trends.
According to Smith Travel Research (STR), The U.S. hotel industry finished 2009 with a 55.4% occupancy and average daily rate (ADR) of $96.43. The occupancy rate was 7.7 points lower than 2007 (two years prior) while average daily room rate ADR was 7.3 percent lower than 2007. Full year projections for 2010 indicate a slowly improving U.S. lodging market. 2010 is projected to end with a with a 57.1% occupancy rate, an average daily rate (ADR) of $97.74. Slow improvement in occupancy and ADR is expected to continue in 2011.
According to STR, room supply is expected to grow 2.2 percent during 2010, and demand is projected to increase 6.6 percent. Room supply during 2011 is expected to increase 1.1-percent and demand is projected to rise 2.5 percent.
The Hotel Industry Pulse Index is a U.S. hotel industry indicator that tracks monthly overall business conditions in the industry, like an industry GDP, and points in a timely way to the changes in direction from growth to recession or vice versa. The index increased 3.8% in July 2010 after edging up 2% in June, according to economic research firm e-forecasting.com in conjunction with STR. The index’s six-month growth rate, which historically has signaled turning points in U.S. hotel business activity, continued to improve.
The total active U.S. hotel development pipeline comprises 3,412 projects totaling 359,264 rooms, according to the July 2010 STR/TWR/Dodge Construction Pipeline Report. This represents a 26.4-percent decrease in the number of rooms in the total active pipeline compared to July 2009. The midscale without food and beverage segment posted the smallest decrease, falling 20.0 percent in the total active pipeline. The total active pipeline data includes projects under construction, final planning and planning stages, but does not include projects in the pre-planning stage.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 27 Racine Lodging Market Trends – Competitive Supply
Market operating performance data for the combined six hotels that make up the competitive supply was purchased from Smith Travel Research. The firm collects operating data from hotel companies nationwide and is recognized for data reliability. While performance for individual hotels is not disclosed, market data in aggregate provides an important indicator in evaluating the strength of the local lodging market.
Occupancy - Since 2006, Racine market occupancy trends have matched those of the total U.S. lodging industry. Market occupancies reached 63% in 2006 and 2007, then fell to 60% in 2008 and the mid 50% range in 2009.
Hotel Occupancy Comparison Racine Sample vs. U.S. Lodging Industry 64.0%
62.0%
60.0%
58.0%
56.0% Occupancy 54.0%
52.0%
50.0%
48.0% 2004 2005 2006 2007 2008 2009 Racine Hotel Sample 57.3% 58.4% 63.1% 63.0% 60.6% 54.2% US Lodging Industry 61.4% 63.1% 63.3% 63.1% 60.4% 55.4%
Source: Smith Travel Research
As of June year-to-date (YTD) 2010, Racine market occupancies are at 52%, about even with June YTD 2009. At the same time U.S. June YTD occupancies are at 56.4% a 4.4% increase over June YTD 2009 same period. Racine occupancy trends reflect the local markets dependence on the corporate sector and its sensitivity to changes in corporate travel habits.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 28 Average Daily Room Rate - Average room rates from the competitive hotel sample reached a high of $101.71 in 2008. Since then, average rates have fallen to $93. At the same time, U.S. average lodging industry rates reached a high of $106.78 in 2008 and are now at the mid-$90 range. June YTD 2010 Racine rates are even with prior YTD data while the U.S. lodging industry has decline by 2% compared to the prior year.
Average Daily Room Rate Comparison Racine Hotel Sample vs U.S. Lodging Industry $120.00
$100.00
$80.00
$60.00
$40.00 Average Daily Average Daily RoomRate
$20.00
$0.00 2004 2005 2006 2007 2008 2009 Racine Hotel Sample $82.72 $84.38 $88.18 $98.79 $101.71 $92.99 US Lodging Industry $86.40 $91.19 $97.99 $104.07 $106.78 $96.43
Source: Smith Travel Research
The 2004 HVS Racine Hotel Conference Center Feasibility Study described the price sensitive within the local market with this statement. “Discussion with property managers indicated that there is a psychological barrier among local consumers regarding paying more than $100 for lodging.” This equated to $116 in 2010 value dollars. Our current Analysis of Corporate Demand Generators (section 6) support to some extent these same sentiments. When asked ”What price range per night (prior to tax) would be acceptable to your organization,” responses were generally in the $100- $150 range while a few had lower acceptable rates in the $70-$100 rate range.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 29 Revenue per Available Room (RevPar) - RevPAR can be calculated by multiplying the occupancy rate by the average daily room rate. It is a measure of revenue productivity per unit (rooms). RevPar from the competitive hotel sample reached a high of $62.22 in 2007. Since then, RevPar has fallen to $50.42.
RevPAR Comparison Racine Hotel Sample vs U.S. Lodging Industry $70.00
$60.00
$50.00
$40.00
RevPar $30.00
$20.00
$10.00
$0.00 2004 2005 2006 2007 2008 2009 Racine Hotel Sample $47.43 $49.26 $55.66 $62.22 $61.67 $50.42 US Lodging Industry $53.05 $57.52 $62.03 $65.67 $64.50 $53.42
Source: Smith Travel Research
Conclusions – Market Operating Performance
The U.S. and Racine lodging markets have been experiencing similar patterns in occupancy and average daily room rate since 2007. Significant declines in performance have occurred since 2007. The 2009 occupancy in the Racine lodging market (competitive sample of six hotels) was 54.2% (compared to 63.0% in 2007) with an average daily room rate of $92.99 (compared to $98.79 in 2007). Performance in 2010 has appeared to stabilize with local and national data pointing to a slow recovery in the hotel industry.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 30 8. Proposed Hotel Projected Operating Performance
For purposes of this Phase I report, preliminary recommendations are made regarding the type of property (concept) that would most effectively serve Downtown Racine and the community. Then, based on reasonable assumptions, projection of stabilized revenue per available room (RevPar) is presented. The projected RevPar is then compared with U.S. averages to determine if it is within industry norms.
Recommended Concept
Based on our research, we feel the proposed Downtown Hotel should have the following features:
Upscale select-service design and brand4 100-120 guest rooms including suites Limited food and beverage service Limited meeting space
This type of property in Downtown Racine would be more appropriate than a full- service conference hotel as its initial investment would be lower and its operating profit, in this market, would be higher. We believe the hotel should target individual transient business travelers, leisure/other travelers, and small group meetings.
Assumptions
Certain assumptions are necessary in projecting revenue per available room (RevPar) for the proposed Downtown Racine hotel. These include:
An alternate and more optimal site is secured or the deficits in either of the proposed sites are minimized. The economy continues to strengthen and rebound within the period ranging from hotel opening to hotel stabilization (usually two to three years). No other hotels are developed within the downtown market during the same time period. The site, concept and pricing of the hotel would meet the expectations of the major lodging demand generators in the market as presented in this study. The hotel would be affiliated with an upscale, select service lodging brand.
4 The term "select service" includes properties like Hyatt Place, Hilton Garden Inn, and Marriott Courtyard. These properties have limited food and beverage outlets and do not offer comprehensive business or banquet facilities. They do offer innovative and quality accommodations and are well suited for smaller business meetings.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 31 Responsible ownership, competent management and effective marketing support are maintained. Through effective marketing efforts, the proposed hotel would outperform the broader Racine lodging market area and capture demand that is currently accommodated elsewhere (leakage).
Projected Revenue per Available Room (RevPar)
We feel the proposed Downtown hotel would exceed its “fair–share” capture of market area room nights and exceed market area average daily room rates (ADR) for the following reasons:
1. It would be the only new hotel in the market area. 2. The competitive properties are aging. 3. It would be the only select-service property in the market area, a concept that appeals to today’s business traveler. 4. The appeal of and enthusiasm for Downtown Racine and its proximity to Lake Michigan provides a competitive advantage.
Based on our estimates of operating performance of the Racine lodging market’s competitive hotels, and considering the strengths and weaknesses of each property, we believe the proposed downtown hotel could achieve a 30-percent premium in revenue per available room (RevPar) over the competitive market average.
Based on 2010 year-to-date trends, the 2010 combined RevPar for the competitive hotels is projected to be $51. Applying the 30-percent premium, the proposed Downtown hotel would achieve a stabilized RevPar of approximately $66 (in 2010 value dollars). This stabilized level could be achieved in two to three years.
Check for Reasonableness
Supporting our RevPar projection are actual performance figures from other select- service hotel brands. The following table provides the RevPar range from a spectrum of lodging concepts. Note that the table reflects depressed 2009 performance. Our projected $66 RevPar falls between the two select-service brands (Courtyard and Hyatt select-service including Hyatt Place). Accordingly, the projection would be consistent with the performance of other U.S hotels in this industry sector.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 32 RevPar Comparisons Among Brands - 2009 RevPAR Average 2009 Ranking Brand Lodging Sector Occupancy Rate RevPAR
1 Hyatt Full Service Full Service 65.0% $176.00 $114.40 2 Marriott Full Service Full Service 63.4% $145.16 $92.03 3 Courtyard Select Service 62.8% $111.20 $69.83 4 Hyatt Select Service Select Service 67.1% $93.00 $62.40 5 Fairfield Inn Limited Service 60.8% $84.62 $51.45 6 Candlewood Suites* Limited Service 70.2% $72.20 $50.68 Source: Company 10K Reports *Candlewood Suites data for year 2008
Other Considerations
The RevPar of $66, while currently on par with U.S. select-service hotels, may be unsatisfactory from an investment perspective. Hotel market demand growth resulting from local and national economic recovery may be necessary for the hotel to generate a higher RevPar and return-on investment. For purposes of this analysis, robust hotel demand growth is not reflected in this projection.
While recent economic conditions are suppressing RevPar estimates and the lodging industry remains in a protracted slump, some in the industry argue that now is an attractive time to start planning for new development. As the economy moves into recovery, and lodging demand grows, new properties or projects in the pipeline will be first in position to capture a greater share of room night demand and command higher room rates.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 33
S T U DY LIMITATIONS A N D U S E PHASE I - PRELIMINARY FINDINGS
SEPTEMBER 2010 (DRAFT 9/1/10)
Study Limitations
This study is based on estimates, assumptions and other information available as of September, 2010. Since the projections are based on estimates and assumptions that are subject to uncertainty and variation depending on evolving events, they are not represented as results that will actually be achieved. At the time of writing this report, added economic instability clouded near-term prospects for the lodging industry. Accordingly, the economic environment and its impact on the local lodging industry must be continually reassessed. For hotel operators, the result may be lower revenues or higher operating costs and declining operating margins. The resulting uncertainty may require further adjustments to the projections depending on how future events unfold. Information contained in this report has been gathered from sources believed to be reliable and, where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others.
Use of this Study
This study is to be used in whole and not in part. It may not be reproduced in any form without our written permission.
The purpose of market studies and operating projections is to estimate the potential economic return from a given project. Those who utilize these studies must consider the methodology employed, the data evaluated and the resulting estimates and assumptions.
We believe that our methodology constitutes valid and accepted methods of evaluating and valuing hotel projects. However, these procedures rely on judgments dependent on the accuracy of data evaluated and influenced by external circumstances that can change very rapidly. As a result, we recommend that our clients recognize these limitations when evaluating the projections contained in this report.
If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us.
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 34
ACKNOWLEDGMENTS PHASE I - PRELIMINARY FINDINGS
SEPTEMBER 2010 (DRAFT 9/1/10)
The authors would like to extend their thanks to the following organizations and their representatives who graciously provided their time and objective insight related to this analysis:
Wheaton Franciscan Health Care-All Saints, Kenneth Buser Case New Holland Inc., Jack Phillips Diversey, Donna Repenning Downtown Racine Corporation, Devin Sutherland Johnson Bank, Thomas Mahoney Johnson Outdoors, Cynthia Georgeson and Lynn Martin Marriott Racine, Brian Wismar Modine, John Stevens Pioneer Products, Jim Beere Q Research Solutions, Inc., Dawn Messina Racine, City of, Brian O’Connell and Matthew Sadowski Racine County Economic Development Corporation, Gordy Kacala Radisson Hotel Racine Harbourwalk, Lori Jaime Real Racine, Dave Blank Ruud Lighting, Inc., Christopher Ruud SC Johnson, Christopher Hayes Twin Disc, Dave Johnson VenuWorks of Racine, Rik Edgar Wingspread, Roger Dower
Phase I - Preliminary Findings (DRAFT 9/1/10), Page 35