Proposed Downtown Berryville Hotel Berryville, Virginia 22611-1315 NKF Job No.: 19-0004412 Feasibility Study Prepared For: Mr. Nathan Stalvey President Berryville Main Street 23 East Main Street Berryville, VA 22611-1315 Prepared By: Newmark Knight Frank Hospitality, Gaming & Leisure Group Valuation & Advisory 1350 Euclid Avenue, Suite 300 Cleveland, OH 44115 1350 Euclid Avenue, Suite 300 Cleveland, OH 44115 July 19, 2019 Mr. Nathan Stalvey President Berryville Main Street 23 East Main Street Berryville, VA 22611-1315 RE: Feasibility Study of a Proposed Downtown Berryville Hotel Downtown Berryville , Berryville, Virginia NKF Job No.: 19-0004412 Newmark Knight Frank Valuation & Advisory, LLC has prepared a feasibility study of the referenced property in the following report. Summary of the Proposed Subject Property The feasibility study considers development of a proposed hotel in Downtown Berryville on or proximate to Main Street. The subject site has average access to major roadway (State Route 7) because of its proposed location in downtown Berryville's Main Street district, limiting its visibility and ease of ingress and egress from a major roadway. While the proposed site is proximate to some demand generators, the low density of commercial developments in the area is projected to be a weakness. Leisure attractions in Berryville and Clarke County including vineyards, historic manors and event venues, and Barns of Rose Hill will help mitigate this weakness. Visibility is considered to be average, relative to other historic downtown locations, due to its proposed multi- level configuration, assumed signage, and on or proximate to Main Street. State Route 7, which connects Berryville to neighboring Winchester and Leesburg, is less than a mile north from central downtown. The proposed hotel is recommended to contain 50 rooms and affiliate with a limited- service national chain like Ascend Collection, Best Western, Cobblestone, or similar brand. The subject property should feature all basic services for a property of this type, and offer amenities including a breakfast room, fitness center, lobby pantry and bar, meeting space, and ice machines. Development costs have not been estimated since the proposed hotel is in the preliminary planning stages. Based on industry averages and known development costs of similar properties, we estimate development costs of approximately $6.5 million to $7.5 million or roughly $130,000 to $150,000 per room. Key Investment Considerations Strengths We assume the proposed subject hotel remains affiliated with Ascend Collection, Best Western, Cobblestone or a similar brand throughout the projection period. Newmark Knight Frank www.ngkf.com Letter of Transmittal ii There are no traditional, competitive hotels in the Town of Berryville or Clarke County to serve visiting travelers. Those visiting the market must either stay in Winchester, Virginia (roughly 8 miles west); Leesburg, Virginia (roughly 25 miles east); or Charles Town, West Virginia (roughly 14 miles north). Several wedding and event venues are in the greater Berryville area that generate strong leisure room night demand on Friday and Saturdays between early spring and late fall. Additionally, fall foliage generates strong leisure demand during the week and weekends in mid to late fall. The recommended facilities like meeting space and bar will help manufacture room night demand during the week (Monday through Wednesday) and shoulder days (Sunday and Thursday) and improve the proposed property’s competitiveness with hotels in neighboring markets. There are numerous events held in Berryville throughout the year that have the potential to generate room night demand on weekends and in the summer. Research indicated visitors to these events use accommodations in neighboring markets, including Winchester and Leesburg. Weaknesses While there are several industrial and manufacturing companies based in Berryville, these companies generate approximately 500 commercial room nights annually, which does not provide enough demand alone to fill a hotel during the week (Monday through Thursday). This weakness could be mitigated by the proposed subject hotel attracting commercial travelers from neighboring markets, including Winchester, Leesburg, and Charles Town. From an investment perspective, the proposed subject could face challenges in the current market environment as it competes for debt and equity investment against properties with superior location, franchise and/or physical characteristics. Partially offsetting this feature, though, is this property type's ability to draw more opportunistic yield-seeking capital. Opportunities The proposed subject's room rate structure is expected to be below average in the marketplace. We believe the proposed subject will be able to post above-average increases in ADR prior to the date of stabilization, with gains approximately representative of inflation each year thereafter. Threats Three hotel supply additions totaling 270 rooms in neighboring Winchester and the reopening of Battletown Inn with 10 rooms will place downward pressure on rate growth, limiting how much the overall market can raise rates despite an increase in demand from ongoing developments. Such adverse rate pressure is likely to impact the proposed NEWMARK KNIGHT FRANK Letter of Transmittal iii subject hotel, as well. This threat is partially mitigated by the proposed subject property’s location in Berryville where fewer accommodations exist. The Federal Reserve increased the Federal Funds Rate eight times since December 2016, from 0.50% to 2.50%. In the first half of 2019, consensus among analysts was that an additional 50-basis rate increase would occur by year’s end; however, in early June 2019, the Federal Reserve Chairman, Jerome Powell, commented that a decrease of the Federal Funds Rate was in play should the U.S. economy show signs of slowing due to ongoing trade disputes between the U.S. and China. Impacts of the steady increase between 2016 and 2018 have not directly translated into any material changes in commercial real estate capitalization rates. A potential decrease likely will not affect capitalization rates, either. It is worth noting a potential slowdown in investments over the next 12 months as a result of a slowing U.S. and global economy. The Extraordinary Assumptions and/or Hypothetical Conditions that were made during the feasibility study process to arrive our opinions of value are fully discussed below. We urge the client to consider these issues carefully given the intended use of this feasibility study, as their use might have affected the assignment results. Extraordinary Assumptions We assume the proposed subject property achieves stabilization as of our prospective date. We assume no material change in the physical characteristics described, condition of the subject property, or in overall market conditions between the date of inspection and effective dates, except for those identified within the report. Furthermore, we assume quality workmanship on the hotel's proposed construction, that all aspects of the hotel will be adequate for the property to be fully competitive within the market, that said aspects are sufficient for the property be fully compliant with all branding requirements, and that it will be completed on or before the date stipulated in the report. Hypothetical Conditions This feasibility study does not employ any hypothetical conditions. Compliance Remarks The intended use and user of our report are specifically identified in our report as agreed upon in our contract for services and/or reliance language found in the report. No other use or user of the report is permitted by any other party for any other purpose. Dissemination of this report by any party to non-client, non-intended users does not extend reliance to any other party, and Newmark Knight Frank will not be responsible for unauthorized use of the report, its conclusions or its contents used partially or in their entirety. The feasibility study was developed based on, and this report has been prepared in conformance with, the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP) and the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. NEWMARK KNIGHT FRANK Certification iv CERTIFICATION We certify that, to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in in the property that is the subject of this report and no personal interest in with respect to the parties involved. 4. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 5. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this feasibility study. 7. This feasibility