Market Study Proposed Omni Convention Center Hotel Dallas, Texas Property Location: Corner of Young Street and South Lamar Street Dallas, Texas 75202 Prepared by: HVS Consulting and Valuation Services Division of DFW Hospitality Consulting, LLC 2601 Sagebrush Drive, Suite 101 Flower Mound, Texas 75028 (972) 899-5400 (972) 899-1057 FAX Submitted to: The City of Dallas 650 South Griffin Dallas, Texas 75202 June 8, 2009 Mr. Al Rojas City of Dallas 650 South Griffin Dallas, Texas 75202 (214) 939-2794 (214) 939-2795 FAX Re: Proposed Omni Convention Center Hotel Dallas, Texas 2601 Sagebrush Drive, Suite 101 HVS Reference: 2009240020 Flower Mound, Texas 75028 (972) 899-5400 (972) 899-1057 FAX Dear Mr. Rojas: www.hvs.com Pursuant to your request, we herewith submit our updated market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Dallas area, as well as the pertinent nationwide hotel market conditions for convention Atlanta headquarters hotels. We have studied the proposed project, and the results Boston of our fieldwork and analysis are presented in this report. Boulder Chicago We hereby certify that we have no undisclosed interest in the property, and Dallas/Fort Worth our employment and compensation are not contingent upon our findings. Denver This study is subject to the comments made throughout this report and to all Mexico City Miami assumptions and limiting conditions set forth herein. New York Newport Sincerely, San Francisco HVS CONSULTING AND VALUATION SERVICES Toronto DFW Hospitality Consulting, LLC Vancouver Washington Athens Buenos Aires Dubai Hong Kong London Shannon Sampson, Senior Project Manager Madrid [email protected], (512) 698-7325 Mumbai New Delhi Sao Paulo Shanghai Singapore Rod Clough, MAI, Managing Director Specialists in Hotel Consulting and [email protected], (214) 629-1136 Appraisal Worldwide HVS Consulting and Valuation Services Table of Contents Table of Contents Section Title 1 Summary of Salient Data and Conclusions 2 Nature of the Assignment 3 Description of the Proposed Site and Neighborhood 4 Market Area Analysis 5 Overview of the U.S. Meetings Industry 6 Supply and Demand Analysis 7 Description of the Proposed Project 8 Projection of Occupancy and Average Rate 9 Projection of Income and Expense 10 Statement of Assumptions and Limiting Conditions 11 Certification Addenda Explanation of the Penetration Analysis Qualifications HVS Consulting and Valuation Services Summary of Salient Data and Conclusions 1-1 1. Summary of Salient Data and Conclusions Project: Proposed Omni Convention Center Hotel Location: Corner of Young Street and South Lamar Street Dallas, Texas 75202 Date of Inspection: March 4, 2009 Date of Report: June 8, 2009 Land Description Area: 8.38 acres, or 364,824 square feet Zoning: CA-1(A) - Central Area - 1 Assessor's Parcel Number(s): 00000100347000000; 00000100279000000; 00000100354000000 Flood Zone: X Improvements Outline Expected Opening Date: January 1, 2012 Property Type: Full-service lodging facility Hotel Orientation: Convention headquarters facility Guestrooms: 1,000 Food and Beverage Facilities: Two restaurants, a lounge, a coffee kiosk Meeting Space: 80,000 square feet (grand total) Grand Ballroom Size: 32,500 square feet Junior Ballroom Size: 17,500 square feet Additional Facilities: An outdoor pool, an outdoor whirlpool, a fitness center, a spa, a business center, retail outlets, and vending areas Parking Spaces: 720 HVS Consulting and Valuation Services Summary of Salient Data and Conclusions 1-2 Executive Summary The subject of the market study is a 364,824-square-foot (8.38-acre) parcel to be improved with a convention-headquarters, full-service lodging facility. Our analysis assumes the property will open on January 1, 2012 and will feature 1,000 rooms, two restaurants, a lounge, a coffee kiosk, 80,000 square feet of meeting space, an outdoor pool, an outdoor whirlpool, a fitness center, a spa, a business center, retail outlets, and vending areas. The hotel will also feature all necessary back-of-the-house space. The overview of facilities is presented in greater detail in Chapter Seven. The Omni Convention Center Hotel will be an impressive addition to Downtown Dallas. Omni hotels are well known for their urban architecture, spacious guestrooms, and high-end finishes. Each Omni guestroom features the Sensation Bar, a personal sundries counter that offers more than just drinks and snacks. Omni hotels also feature signature restaurants, among them Noé, 676 Restaurant and Bar, and Bob's Steak & Chop House. Many Omni properties also house a spa or offer in-room spa services. The proposed Omni Convention Center Hotel is expected to be designed in the same manner. Initial renderings of the hotel provide for an impressive, two-winged structure that merges together in a "V" shape. The addition of a new, state-of- the-art, convention headquarters Omni Hotel in Dallas is expected to attract large groups, events, and meetings from throughout the U.S. The hotel could also be complemented by a new College Football Hall of Fame, for which the government and local community leaders are actively campaigning. The site for this attraction would be adjacent to the hotel, and if built, would further strengthen not only the neighborhood’s appeal for tourism travel, but would also increase the hotel’s appeal for capturing NCAA and other sports-oriented groups. Spurred by several major capital investments, and a renewed Uptown district, Dallas is experiencing its strongest economic cycle in recent history. Visionaries and important Dallas developers have incited over $6 billion in new investments. Projects such as the Magnolia and Hamilton’s Davis residential complex generated momentum in the mid- and late-90s, and major additional projects during the last several years show the force of change to be formidable. AT&T will move its headquarters to the CBD in 2009, and 7-Eleven recently relocated its corporate offices to Downtown Dallas, occupying 300,000 square feet in One Arts Plaza. Comerica relocated its headquarters from Detroit to the CBD in 2008, and Fireman’s Fund Insurance Company leased an additional 130,000+ square feet for expanding operations. These activities reflect the type of evolution occurring in the local market. The market remained resilient through 2008, despite the accelerating national recession. The amount of office space occupied in the Dallas CBD increased considerably in 2008, with just over 20,500,000 square feet occupied as of the fourth quarter 2008, representing an increase of over 1,100,000 square feet since the fourth quarter of 2007, according to CB Richard Ellis. This number will likely moderate in 2009 as companies streamline operations to survive the downturn; however, once the economy stabilizes, the market will return to a growth mode quickly and from a higher base level than other national markets that experienced a greater correction in 2008. HVS Consulting and Valuation Services Summary of Salient Data and Conclusions 1-3 Along with this relatively strong office environment, the development of other complementary uses has expanded considerably in recent years, with multiple high-density residential projects, retail and restaurant additions, and entertainment venues throughout the downtown and uptown areas. The Ritz-Carlton celebrated its opening on August 15, 2007, representing the first Ritz-Carlton property in Texas, a market long-dominated by Four Seasons and several notable independent luxury properties. Nearby, Victory Park is a new crown jewel for the city, with its hip W Hotel and Residences representing a type of ultra-modern hotel product never before available in the city. Victory Park now boasts ABC’s new television facility, featuring a highly visible configuration similar to that of NBC’s Today Show in New York City’s Rockefeller Center, and new music venues such as the House of Blues. Room revenues for Dallas rose 2.7% in 2008 (versus the 0.7% growth rate for the nation as a whole), slowing from the 5.7% growth rate in 2007, according to Smith Travel Research. Although citywide occupancy declined by just over one point to 58.9% in 2008 (due in part to new supply), rates managed to increase by just over $2.00. Market conditions in the hotel sector began to deteriorate in the fourth quarter of 2008, and in January of 2009, occupancy levels fell just over seven points and rates fell by roughly $3.00, contributing to a RevPAR decline of 18.9% for the month. The outlook for the industry and local hotel market is not favorable for the near term, with similar declines expected through at least the first two quarters of the year. While some normalization may occur in the second half of the year, net gains in RevPAR are not expected. The decline in travel is not only being impacted by general cutbacks in corporate spending and a propensity for personal savings over discretionary leisure travel spending, but also by the negative press put on the high-end corporate meetings industry in recent months. As the AHLA and industry leaders work with Washington to remedy the perspective being placed on the industry, as hotel companies proliferate advertising outlets with new campaigns targeted at changing the way people are viewing the meetings industry and travel in general, and corporations stabilize budgets and operations through 2009, we anticipate that the local hotel market will recover in the period of 2010 through 2012, with a primary acceleration of recovery in 2011 and 2012. This expectation is reflected in our forecasts. This forecast recovery of the downtown Dallas hotel industry through the next decade will be dependent on the development of a headquarters hotel, which will enable the full salability of the Dallas Convention Center on the national stage. A vibrant, highly-utilized convention center typically serves as a vital component to a major city’s downtown visitation and downtown hotel utilization levels.