Proposed Hotel @ 63Rd and Prospect Avenue
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MARKET STUDY Proposed Hotel @ 63rd and Prospect Avenue 63RD STREET & PROSPECT AVENUE KANSAS CITY, MISSOURI SUBMITTED TO:PR OPOSED PREPARED BY: Mr. Jeffrey Williams HVS Consulting & Valuation City of Kansas City Division of TS Worldwide, LLC 414 East 12th Street, 16th Floor 33972 North Oak Drive Kansas City, Kansas, 64106 Pequot Lakes, Minnesota, 59472 816-513-2890 +1 (303) 588-6558 January-2016 January 12, 2016 Mr. Jeffrey Williams City of Kansas City 414 East 12th Street, 16th Floor Kansas City, Kansas, 64106 HVS MINNEAPOLIS Re: Proposed Hotel @ 63rd and Prospect Avenue 33972 North Oak Drive Pequot Lakes, Minnesota, 59472 Kansas City, Missouri +1 (303) 588-6558 HVS Reference: 2015021744 +1 (970) 493-2919 FAX www.hvs.com Dear Mr. Williams: Pursuant to your request, we herewith submit our market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Kansas City, Missouri area. We have studied the proposed project, and the results of our fieldwork and analysis are presented in this report. We have also reviewed the proposed improvements for this site. Our report was prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), as provided by the Appraisal Foundation. We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein. Sincerely, TS Worldwide, LLC Sara E. Olson, Vice President [email protected], +1 (402) 690-0407 Tanya J. Pierson, MAI, Managing Director [email protected], +1 (303) 588-6558 Superior results through unrivaled hospitality intelligence. Everywhere. Table of Contents SECTION TITLE PAGE 1. Executive Summary 1 2. Description of the Site and Neighborhood 10 3. Market Area Analysis 17 4. Supply and Demand Analysis 38 5. Description of the Proposed Project 67 6. Projection of Occupancy and Average Rate 74 7. Projection of Income and Expense 83 8. Statement of Assumptions and Limiting Conditions 101 9. Certification 104 Addenda Qualifications 1. Executive Summary Subject of the The subject of the market study is a 958,320-square-foot (22.00-acre) parcel to be Market Study partially improved with a lodging facility. Based on our evaluation of the southern Kansas City lodging market, as well as our interviews with major demand generators in the area, we would recommend potential development of a midscale, economy-oriented, extended-stay hotel for the subject site. While the land area is capable of accommodating a larger select- or full-service hotel, given the required amenities and facilities, as well as the price sensitivity of travelers in the area, the cost difference could not be justified. It is our recommendation that the hotel be branded as either a TownePlace Suites by Marriott or Home2 Suites by Hilton. These brands belong to two of the strongest parent companies with major rewards programs, particularly for corporate travelers, who make up more than 50% of the room nights in the competitive market area. Given the differences in franchise costs, for the purpose of our analysis, we have assumed that the hotel would be branded as a TownePlace Suites by Marriott throughout our projections. The property, which is expected to open on April 1, 2017, is positioned as an 80 room hotel, inclusive of a breakfast dining area, an indoor pool and whirlpool, a fitness room, a business center, a market pantry, and a guest laundry room. The hotel will also contain all necessary back-of-the-house space. The proposed hotel will be part of a greater 22-acre site at East 63rd Street and Prospect Avenue. While no additional development at the site is currently confirmed, city officials have expressed interest in future mixed-use office, multi- family, and restaurant uses. In the early 2000s, a multimillion-dollar shopping center with restaurants, a grocery store, and a housing development was planned by a previous developer; however, after the developer failed to control asbestos contamination following the demolition of older homes on several of the parcels, the project collapsed because of environmental and financial conflicts. The City of Kansas City later acquired the site, controlling it through a 99-year lease with the Tax Increment Financing Commission of Kansas City. According to city officials, in 2014, the site was cleaned, and all asbestos contamination was removed. The subject site’s location is 63rd Street & Prospect Avenue, Kansas City, Missouri, 64130. Pertinent Dates The effective date of the report is January 12, 2016. The subject site was inspected by Sara E. Olson on November 19, 2015. Tanya J. Pierson, MAI participated in the analysis and reviewed the findings, but did not personally inspect the property. January-2016 Executive Summary Proposed Hotel @ 63rd and Prospect Avenue – Kansas City, Missouri 1 Ownership, Franchise, The developer of the proposed subject hotel is Sunflower Development Group, and Management which is based in Kansas City, Missouri. The subject site is part of a larger 22-acre Assumptions set of parcels owned by the Tax Increment Financing Commission of Kansas City. The developing entity is expected to lease a smaller portion of the site for a nominal payment of $1 for a period of 99 years. The subject site has reportedly not been sold in several years and is neither listed for sale nor under contract. Details pertaining to management terms were not yet determined at the time of this report; however, we assume that the proposed hotel will be managed by a professional hotel-operating company, with fees deducted at rates consistent with current market standards. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study. We recommend that the proposed subject hotel operate as a midscale, extended- stay, limited-service property. While we have placed heavy consideration on the TownePlace Suites by Marriott brand, which is affiliated with Marriott International, a specific franchise affiliation and/or brand has yet to be finalized. Based on our review of the agreement’s terms or expected terms, the TownePlace Suites by Marriott franchise is reflected in our forecasts with a royalty fee of 5% of rooms revenue, and a marketing assessment of 1.5% of rooms revenue. Summary of Hotel Local employers and regional development activity, as well as interstate travelers Market Trends and local residents, represent the primary sources of demand for the selected competitive market. Occupancy levels were relatively subdued in the years following the national recession, between 2009 and 2013, failing to rise above 50% occupancy. Demand began to strengthen somewhat in 2014, a trend that continued through the majority of 2015, pushing the year-to-date occupancy above 60% for the first time in the last ten years. In recent years, the market's demand growth has been supported by an increase in development activity in the southern Kansas City area. For the southernmost hotels in this competitive set, demand generators include the new NNSA (National Nuclear Security Administration) and USDA facilities in and around the CenterPoint KCS Intermodal Center, as well as the Cerner Trails campus. Demand growth for hotels in the northern half of the competitive set has been driven largely by activity at the Truman Sports Complex. Given that the MLB Royals baseball team made the playoffs in 2015, additional demand was generated by World Series games hosted in Kansas City. The following table provides a historical perspective on the supply and demand trends for a selected set of hotels, as provided by STR. January-2016 Executive Summary Proposed Hotel @ 63rd and Prospect Avenue – Kansas City, Missouri 2 FIGURE 1-1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) Average Daily Available Room Occupied Room Average Year Room Count Nights Change Nights Change Occupancy Rate Change Re vPAR Change 2003 614 224,110 — 117,009 — 52.2 % $67.10 — $35.03 — 2004 614 224,110 0.0 % 126,475 8.1 % 56.4 71.13 6.0 % 40.14 14.6 % 2005 614 224,110 0.0 129,911 2.7 58.0 74.20 4.3 43.01 7.1 2006 614 224,110 0.0 129,532 (0.3) 57.8 78.55 5.9 45.40 5.6 2007 614 224,110 0.0 129,056 (0.4) 57.6 79.88 1.7 46.00 1.3 2008 614 224,110 0.0 119,994 (7.0) 53.5 80.43 0.7 43.07 (6.4) 2009 614 224,110 0.0 112,095 (6.6) 50.0 78.58 (2.3) 39.31 (8.7) 2010 661 241,444 7.7 105,569 (5.8) 43.7 80.51 2.5 35.20 (1 0.4) 2011 695 253,675 5.1 109,657 3.9 43.2 82.38 2.3 35.61 1.2 2012 695 253,675 0.0 115,324 5.2 45.5 84.67 2.8 38.49 8.1 2013 695 253,675 0.0 114,366 (0.8) 45.1 87.45 3.3 39.42 2.4 2014 691 252,204 (0.6) 138,664 21.2 55.0 90.28 3.2 49.64 25.9 Year-to-Date Through October 2014 693 210,663 — 118,342 — 56.2 % $90.47 — $50.82 — 2015 681 207,024 (1.7) % 131,666 11.3 % 63.6 95.31 5.3 % 60.62 19.3 % Average Annual Compounded Change: 2003 - 2014 1.1 % 1.6 % 2.7 % 3.2 % 2003 - 2007 0.0 2.5 4.5 7.0 2007 - 2010 2.5 (6.5) 0.3 (8.5) 2010 - 2014 1.1 7.1 2.9 9.0 Number Year Year Hotels Included in Sample of Rooms Affiliated Opened Four Points by Sheraton Kansas City Sports Complex 168 Jun 2013 May 1975 Drury Inn & Suites Kansas City Stadium 123 May 1984 May 1984 Best Western Plus Seville Plaza Hotel 75 Nov 2010 Jun 1985 Courtyard Kansas City South 149 Sep 1990 Sep 1990 Days Inn & Suites Kansas City South 85 Oct 2014 Jul 1993 Holiday Inn Express & Suites Kansas City Sports Complex Area 81 Jun 2010 Jun 2010 Total 681 Source: STR The following tables reflect our estimates of operating data for hotels on an individual basis.