Market Study for Full-Service Hotels

FEASIBILITY STUDY Proposed Extended-Stay Hotel MARICOPA, ARIZONA SUBMITTED TO:PR OPOSED PREPARED BY: Ms. Denyse Airheart HVS Consulting & Valuation 39700 W Civic Center Plaza Division of TS Worldwide, LLC Maricopa, Arizona, 85239 221 East Indianola Avenue Phoenix, Arizona, 85012 +1 (520) 316-6992 +1 (608) 658-0587 February-2018 March 2, 2018 Ms. Denyse Airheart 39700 W Civic Center Plaza Maricopa, Arizona, 85239 HVS PHOENIX - LOS ANGELES OFFICE Re: Proposed Extended-Stay Hotel 221 East Indianaola Avenue Maricopa, Arizona Phoenix, Arizona, 85012 +1 (608) 658-0587 HVS Reference: 2017022183 +1 (415) 896-0516 FAX www.hvs.com Dear Ms. Airheart: Pursuant to your request, we herewith submit our feasibility study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Maricopa, Arizona 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 Ryan Wall, Director [email protected], +1 (608) 658-0587 State Appraiser License (AZ) 32100 Superior results through unrivaled hospitality intelligence. Everywhere. Table of Contents SECTION TITLE PAGE 1. Executive Summary 1 Ownership, Franchise, and Management Assumptions 1 Summary of Hotel Market Trends 2 Summary of Forecast Occupancy and Average Rate 6 Summary of Forecast Income and Expense Statement 6 Feasibility Conclusion 9 2. Description of the Site and Neighborhood 12 Physical Characteristics 12 Access and Visibility 13 Airport Access 15 Neighborhood 15 Flood Zone 17 Zoning 19 3. Market Area Analysis 20 Workforce Characteristics 24 Radial Demographic Snapshot 28 Unemployment Statistics 30 Major Business and Industry 31 Office Space Statistics 34 Convention Activity 34 Airport Traffic 37 Tourist Attractions 39 4. Supply and Demand Analysis 46 Definition of Subject Hotel Market 46 National Trends Overview 46 Historical Supply and Demand Data 50 Seasonality 53 Patterns of Demand 56 Primary Competition 59 Secondary Competitors 68 Supply Changes 70 Demand Analysis Using Market Segmentation 71 Base Demand Growth Rates 73 Latent Demand 74 Accommodated Demand and Market-wide Occupancy 76 5. Description of the Proposed Improvements 78 Project Overview 78 Summary of the Facilities 81 Site Improvements and Hotel Structure 82 Public Areas 83 Guestrooms 85 Construction Budget 88 Conclusion 88 6. Projection of Occupancy and Average Rate 89 Historical Penetration Rates by Market Segment 89 Forecast of Subject Property’s Occupancy 90 Average Rate Analysis 93 Competitive Position 93 7. Projection of Income and Expense 99 Comparable Operating Statements 99 Forecast of Revenue and Expense 103 Rooms Revenue 106 Other Operated Departments Revenue 106 Miscellaneous Income 106 Rooms Expense 107 Other Operated Departments Expense 107 Administrative and General Expense 108 Information and Telecommunications Systems Expense 108 Marketing Expense 108 Franchise Fee 109 Property Operations and Maintenance 109 Utilities Expense 110 Management Fee 111 Property Taxes 111 Insurance Expense 115 Reserve for Replacement 115 Forecast of Revenue and Expense Conclusion 116 8. Feasibility Analysis 117 Construction Cost Estimate 117 Mortgage Component 118 Equity Component 120 Terminal Capitalization Rate 123 Mortgage-Equity Method 125 Conclusion 127 9. Statement of Assumptions and Limiting Conditions 129 10. Certification 132 Addenda Qualifications Copy of Appraisal License(s) Flood Zone Map with Base Flood Elevation Determinations 1. Executive Summary Subject of the We have analyzed the potential performance for a nationally branded, extended- Feasibility Study stay hotel that is anticipated to be located along the State Route 347 corridor in Maricopa, Arizona. The property, which is expected to open on July 1, 2020, is recommended to feature 100 rooms, a breakfast dining area, 450 square feet of meeting space, an outdoor pool and whirlpool, a fitness room, a lobby workstation, a market pantry, a guest laundry room, and an outdoor patio and barbecue area. The hotel should also contain the appropriate parking capacity (surface) and all necessary back-of-the-house space. The Maricopa market area does not contain any non-casino, overnight lodging accommodations. Although primarily a residential community, greater Maricopa is home to automotive proving grounds, a USDA research facility, a first-class event center, top recreational facilities, and a growing retail/restaurant sector, including the soon-to-be-completed Edison Pointe shopping complex. While a particular brand has yet to be determined for the proposed subject property, our study assumes that the proposed subject hotel will operate as a nationally branded, upper- midscale to upscale, extended-stay hotel. This hotel is expected to enjoy a location along State Route 347, a major thoroughfare connecting Maricopa to the greater Phoenix region and Pinal County. The subject site’s location is anticipated to be along the State Route 347 corridor in Maricopa, Arizona. Pertinent Dates The effective date of the report is March 2, 2018. The subject market and select prospective sites were inspected by Ryan M. Wall on November 30, 2017. Ownership, Franchise, We note that a specific site for hotel development in the City of Maricopa has not and Management been selected at this time. Several available sites exist along State Route 347 and are Assumptions considered suitable for hotel development, including a city-owned site next to the Copper Sky Recreational Complex. The forecast and assumptions outlined in this report assume that the proposed hotel will be located favorably within the State Route 347 corridor, which offers easy access to transportation linkages, ancillary commercial uses (retail, restaurant, and entertainment), and demand generators in/around the City of Maricopa. Any deviation from these site assumptions could potentially alter the feasibility of this project; however, additional analysis would be required to confirm. 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 February-2018 Executive Summary Proposed Extended-Stay Hotel – Maricopa, Arizona 1 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 property operate as an upper-midscale to upscale, extended-stay hotel. While we have placed heavy consideration on the Home2 Suites by Hilton, Staybridge Suites, and TownePlace Suites by Marriott brands, a specific franchise affiliation and/or brand has yet to be finalized. Our projections reflect a nationally branded, upper-midscale to upscale, extended-stay hotel. Based on our review of the agreement’s terms or expected terms, a typical franchise fee for the aforementioned brands is reflected in our forecasts with a royalty fee of 5.0% of rooms revenue, and a marketing assessment of 3.0% of rooms revenue. Summary of Hotel Following the Great Recession, RevPAR rose 18.0% in 2011, as increased economic Market Trends activity along Chandler's nearby Price Road Corridor allowed the greater Chandler submarket to recover at a quicker pace than the rest of region that year. Nonetheless, the majority of the selected competitive set is located along the Interstate 10 Corridor in Chandler, set back from the main concentration of commercial demand in the Price Road Corridor. We note that hotels along the Interstate 10 Corridor in Chandler have historically received compression-related room nights during peak periods of demand given the proximity. However, increased commercial demand along the Price Road Corridor from 2012 through 2014 led to increases in new, non-competitive hotel supply that limited the number of compression-related room nights received for the competitive set. This dynamic led to minimal overall RevPAR growth from 2012 through 2014 for the competitive hotels. In 2015, increased demand associated with Super Bowl XLIX in Phoenix helped area hotels to achieve strong average rate (ADR) growth. However, stronger demand growth, coinciding with improvements in the local and state economies, was not enough to offset the modest post-Super Bowl ADR correction and the openings of the Home2 Suites by Hilton and Best Western Plus in 2016. Strong demand growth continued in the year-to-date 2017 period, with the market realizing a 5.6% increase in overall RevPAR. We note that several of the competitive hotels along the Interstate 10 Corridor in Chandler are older structures that feature dated interiors in some instances. Therefore, these hotels have realized modest ADR erosion in the year-to-date period as they seek to provide a more cost-effective alternative to newer hotels opening in the greater Chandler market. The outlook for this market is cautiously optimistic, despite a large amount of new supply, given major office developments and

Load more