2006 Hotel Market Review

Thomas G. Dolan, Vice President of Business Development Erich Baum, Vice President

HVS INTERNATIONAL NEW YORK 372 Willis Ave. Mineola, NY 11501 +1 516.248.8828 (ph) +1 516.742.3059 (fax)

February 2006

New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto London Madrid New Delhi Singapore Hong Kong Sydney São Paulo Buenos Aires Newport, RI HVS International, Mineola, New York Boston Article – Erich Baum & Thomas Dolan 1

Boston Hotel Market Review - 2006

The Boston lodging market realized another solid RevPAR gain in 2005, but the rate of growth represented a substantial deceleration from the rate of growth in 2004. Results in 2004 were particularly strong due to the impact of the Democratic National Convention (DNC). Table 1 summarizes historical trends between 1999 and 2005. The information was provided by Smith Travel Research, and includes those hotels located in the City of Boston, where the inventory totaled 15,375 rooms as of December 2005.

Table 1 Historical Boston City Results –Smith Travel Research

Occupancy Rate Average Daily Rate RevPAR RevPAR as % Year Rate % Change Rate % Change Rate % Change of 2000 Peak

1999 74.7 % --- $183.46 --- $137.09 --- 89 % 2000 78.8 5.5 % 195.56 6.6 % 154.19 12.5 % 100 2001 69.8 (11.5) 177.52 (9.2) 123.88 (19.7) 80 2002 71.0 1.8 162.97 (8.2) 115.77 (6.5) 75 2003 70.6 (0.7) 151.38 (7.1) 106.84 (7.7) 69 2004 73.7 4.5 165.36 9.2 121.91 14.1 79 2005 74.3 0.8 172.58 4.4 128.18 5.1 83

Source: Smith Travel Research

In real terms, the market appears to be stable and healthy, despite the fact that its RevPAR remains well below the 2000 peak. Most major metropolitan U.S. markets have now exceeded their 2000 RevPAR levels. The fact that Boston remains behind the curve is chiefly a result of a still sluggish commercial segment. The City’s meeting and group segment is back in full force, and pre-bookings for 2006 are exceptionally strong, with 29 citywide conventions planned, up from a total of 20 during 2005. In terms of leisure demand, international demand is generally the strongest indicator of this segment’s health in Boston, and it has also rebounded.

The market will need to be in fine form in future years in order to absorb the new inventory. Seven hotels are currently under construction, detailed as follows. HVS International, Mineola, New York Boston Article – Erich Baum & Thomas Dolan 2

Table 2 Changes in Hotel Inventory – Boston

Num ber of Project Name Location Room s Opening Date Developer

Westin Hotel Convention Center - Waterfront District 790 July 2006 Fallon/NEDevelopment/Starw ood InterContinental Hotel - Waterfront/Financial Districts 424 September 2006 Intell Management & Investment O 'Callaghan Hotel 1 Court Street - Financial District 130 Early 2007 Intercontinental Dev elopers Hotel G eneral Hospital 308 Mid 2007 Richard Friedman Renaissance Hotel Seaport Blvd & D Street - Waterfront 471 Late 2007 Marriott International Mandarin Oriental Prudential Center - Back Bay 148 Early 2008 CWB Boylston Regent Hotel Battery Wharf - North End 150 Early 2008 Development Management Corp. Total 2,421 % of Total Current Boston Inventory 16%

Source: HVS International

The 2,421 rooms represent a 16% increase in inventory, where the three largest hotels and 1,685 of the rooms will be added in the South Boston Waterfront District, developed largely on the basis of the Boston Convention & Exhibition Center (BCEC), which opened in this area in mid 2004 and has thus far operated without a meaningful block of rooms available within walking distance. Including the Charles Street Jail Hotel with 308 rooms, ±80% of the new inventory is four-star in product and pricing. This segment may face challenges in the next few years. Although group demand can reasonably be expected to grow in tandem with the supply growth, the new hotels will also be competing for the market’s existing share of commercial and leisure demand.

In our opinion, key variables for the City lodging market looking into the future are as follows:

1) How fast will the South Boston Waterfront District mature? As a complement to the BCEC and the new hotels, the neighborhood requires a retail presence and more office space in order to sustain a node of hotel development over the long term. This effort is a work in progress.

2) When will commercial demand return in earnest? Recovery in this segment has been slow, and it seems that some “next big thing” is necessary to stimulate the technology sector. Harvard’s recently HVS International, Mineola, New York Boston Article – Erich Baum & Thomas Dolan 3

announced plan to construct a 500,000-square-foot stem cell research incubator could be a harbinger. Boston’s unrivaled intellectual and entrepreneurial power might also be roused in pursuit of alternative fuel technology or its implementation in everyday life.

3) The recommendation by a state advisory panel on the fate of the Hynes Center, the smaller Back Bay-based convention facility that continues to operate following the opening of the BCEC, was expected by now, but has yet to be released. Given its recent performance, its closure seems unlikely.

(The authors thank Smith Travel Research for granting use of the historical data presented in this article.)

Erich Baum has lived in Portsmouth, New Hampshire for the past ten years while working remotely as a consultant with the HVS New York office. Prior to joining HVS New York, Erich was a consultant in the HVS San Francisco office where he had been working for six years. In October 2005, Tom Dolan relocated to Boston from New York where he had been working in business development and also as a consultant with HVS since 2000. Prior to 2000, Tom had spent eleven years in operations. Going Forward, Tom and Erich will spearhead the HVS growth initiative in the New England Region from the Boston office.

For more information, please contact them at:

Erich Baum [email protected] 603 427-1739

Tom Dolan [email protected] 617-424-8900

HVS International - Boston 607 Boylston Street, 6th Floor Boston, MA 02116