New York Gaming Facility Location Board Response to Request for Applications to Develop and Operate a Gaming Facility in New York State TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. MARKET AND FINANCIAL FEASIBLITY STUDY Proposed Hotel at Tioga Downs 2384 WEST RIVER ROAD NICHOLS, NEW YORK SUBMITTED TO:EXISTING PREPARED BY: Mr. Tom Osiecki HVS Consulting and Valuation Services Chief Operating Officer Division of M&R Valuation Services, Inc. American Racing and Entertainment 100 Bush Street, Suite 750 2384 West River Road San Francisco, California 94104 Nichols, New York 13812 +1 415 896‐0868 +1 607 372‐1174 www.hvs.com [email protected] November‐2012 TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. (cont.) November 27, 2012 Mr. Tom Osiecki American Racing and Entertainment 2384 West River Road HVS San Francisco Nichols, New York 13812 100 Bush Street, Suite 750 +1 607 372‐1174 San Francisco, California 94104 [email protected] +1 415 896‐0868 +1 415 896‐0516 FAX www.hvs.com Re: Proposed Hotel at Tioga Downs 2384 West River Road Atlanta Nichols, New York Boston Boulder HVS Reference: 2012040062 Chicago Dallas Denver Dear Mr. Osiecki: Houston Las Vegas Pursuant to your request, we herewith submit our market study and feasibility Mexico City analysis pertaining to the above‐captioned hotel. We have reviewed the scope of Miami the proposed subject property and analyzed the market conditions in the greater Minneapolis Nichols, New York area. Our analysis and report were prepared in accordance with Nassau New York the Uniform Standards of Professional Appraisal Practice (USPAP), as provided by Newport the Appraisal Foundation. Philadelphia San Francisco We have made an extraordinary assumption specific to the subject site. In Scenario St. Louis #2, which assumes table games are legal at the subject property, we have assumed Toronto that the ownership could obtain the necessary regulatory approvals to implement Vancouver table games. Several important general assumptions have been made that apply to Washington this report. These aspects are set forth in the Assumptions and Limiting Conditions Athens chapter of this report. We have made no assumptions of hypothetical conditions in Beijing Buenos Aires our report. Dubai Hong Kong Lima London Madrid Milan Moscow Mumbai New Delhi Sao Paulo Shanghai Singapore Specialists in Hotel Consulting and Appraisal Worldwide TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. (cont.) 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, M&R Valuation Services, Inc. Emily C Sze, Assistant Vice President [email protected], +1 702 228‐8489 Suzanne R. Mellen, MAI, CRE, FRICS, ISHC Senior Managing Director [email protected], +1 415 268‐0351 TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. (cont.) Table of Contents SECTION TITLE PAGE 1. Nature of the Assignment 5 2. Proposed Hotel Development 11 3. Market Area Analysis 18 4. Supply and Demand Analysis 27 5. Projection of Occupancy and Average Rate 40 6. Feasibility Analysis 47 7. Conclusion 85 8. Statement of Assumptions and Limiting Conditions 86 9. Certification 90 Addendum Qualifications TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. (cont.) 1. Nature of the Assignment Subject of the The subject of this study is the fee simple interest in a to‐be‐built full‐service Market and Financial lodging facility known as the Proposed Hotel at Tioga Downs. The proposed hotel Feasibility Study at Tioga Downs is intended to complement, and be operated in conjunction with, the existing Tioga Downs Casino. The subject property is proposed to be a three‐ star hotel with 136 rooms, a restaurant, a 2,000‐square‐foot spa, 10,900 square feet of indoor meeting space, and 19,558 square feet of outdoor meeting space. Additional components of the subject property include 1,900 square feet of administrative office space, and a 105,552‐square‐foot parking garage. The hotel's civic address is 2384 West River Road, Nichols, New York 13812. In New York’s January 2012 State of the State address, Governor Cuomo pushed for a comprehensive state gaming approach, paving the way for live table games, and commercial gaming facilities. This would require legislation; the vote on a constitutional amendment is expected no sooner than the fall of 2013. In March 2012, New York announced it would allow up to seven Las Vegas‐style commercial casinos; the locations and particulars are unknown. Currently, nine commercial casinos offer video lottery terminals; New York also has four Indian casinos that offer all forms of gaming including table games. We have analyzed the Proposed Hotel at Tioga Downs under two scenarios: 1) assuming table games are illegal at the subject property and 2) assuming table games are legal and implemented at the subject property. Under Scenario # 2 we have assumed the addition of a 17,352‐square‐foot casino featuring 12 banked table games, 14 poker tables, and 1,000 additional video lottery terminals. Property Rights This assignment is defined as an appraisal consulting assignment, because an Appraised estimate of value is developed as one step in the evaluation of the project’s feasibility. The property rights appraised are the fee simple ownership of the land and improvements, including the furniture, fixtures, and equipment. The fee simple estate is defined as “absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat."1 The Proposed Hotel at Tioga Downs is appraised as an open and operating facility. 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago Appraisal Institute, 2010). November‐2012 Nature of the Assignment Proposed Hotel at Tioga Downs – Nichols, New York 5 TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. (cont.) Objective of the The objective of the assignment is to evaluate the supply and demand factors Assignment affecting the market for transient accommodations in the greater Nichols area, and to evaluate the financial feasibility of the proposed hotel. The feasibility of the hotel has been evaluated under two scenarios, assuming that: 1) table games are not permitted at the adjacent Tioga Downs casino and, 2) table games are legal and operational at the casino. Under both scenarios, pro formas have been prepared assessing the financial performance of the proposed hotel, and the projected net income has been capitalized into an estimate of value as of the date of completion via a discounted cash flow analysis. The project is deemed feasible if the economic value to the developer as of the date of completion exceeds the project’s total development cost. The development cost of the project has been provided by Tioga Downs’ management. This is a simplistic feasibility analysis, and we note that there may be other factors that would impact the project’s feasibility under each scenario, such as the cost of capital, timing of the development, specific investor motivations, etc. The following definition of market value has been agreed upon by the agencies that regulate federal financial institutions in the United States: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.2 Pertinent Dates The effective date of the economic values to the developer is July 1, 2014. The subject property was inspected by Emily C Sze on March 27, 2012. Suzanne R. Mellen, MAI, CRE, FRICS, ISHC participated in the analysis and inspected the property during the course of a prior assignment for this client. 2 Federal Register, Vol. 55, No. 165, August 24, 1990: 34696. November‐2012 Nature of the Assignment Proposed Hotel at Tioga Downs – Nichols, New York 6 TIOGA DOWNS RACETRACK, LLC Exhibit VIII.C.7.b. (cont.) Ownership, Franchise, American Racing and Entertainment, LLC owns and operates horseracing and and Management gaming facilities in New York, specifically the Tioga Downs Casino in Nichols, New History York, and the Vernon Downs Hotel and Casino in Vernon, New York. Tioga Downs Casino, for which the proposed subject hotel will be developed, is a gaming facility featuring video lottery terminals and a harness horseracing track. The Proposed Hotel at Tioga Downs is intended to be a full‐service hotel operated in conjunction with the existing Tioga Downs Casino; the hotel operation is intended to complement the existing gaming operation. We have assumed cost efficiencies based on combined operations and management between the two facilities, and have assumed that the three‐star hotel would be operated without a franchise affiliation with a national hotel brand. Highest and Best Use Based on our analysis of the subject site, including its location, the surrounding land‐use patterns, the available alternate uses, and the market influences of supply and demand, it is our opinion that the highest and best use of the site under consideration is for hotel development to serve the existing gaming facilities and racetrack.