Date of the Report - LoopNet€¦ · CBRE Hotels, Consulting CBRE, Inc. 101 California Street, 44th Floor San Francisco, CA 94111 +1 415 772 0358 Office +1 415 810 1582 Mobile [email protected]

Date of the Report: September 13, 2017 Prepared for: Mr. Hari Johl 224 Nunzia Court Rancho Cordova, CA 95670 Prepared By: CBRE Hotels 101 California Street, 44th Floor San Francisco, California 94010

17-490SF-0076

Miky Kuo Director CBRE Hotels, Consulting

CBRE, Inc. 101 California Street, 44th Floor San Francisco, CA 94111 +1 415 772 0358 Office +1 415 810 1582 Mobile [email protected] www.cbrehotels.com

C O M M E R C I A L R E A L E S T A T E S E R V I C E S

September 13, 2017 Mr. Hari Johl 224 Nunzia Court Roseville, California 95661 (916) 541-2659 Re: Market Demand Study 10707 White Rock Road Rancho Cordova, CA 95670 CBRE, Inc. File No. 17-490SF-0076

Dear Mr. Johl:

In accordance with your request, we have completed our analysis, which is a study of the potential

market demand for a proposed +/- 80-room Holiday Inn Express (the “Hotel” or “Subject”) to be

located on a +/- 1.32-acre site at 10707 White Rock Road in Rancho Cordova, California. Pursuant to our engagement, we have prepared this letter report, summarizing our findings.

The conclusions set forth are based on an analysis of the existing and potential future supply and

demand for the competitive lodging market as of the completion of our fieldwork in September of 2017. Due to the abbreviated nature of this report, it is intended for your internal management

use in determining the potential market demand for the proposed Hotel.

As in all studies of this type, the estimated results are based on competent and efficient

management and presume no significant change in the status of the competitive lodging market from that as set forth in this report. The terms of our engagement are such that we have no

obligation to revise our conclusions to reflect events or conditions that occur subsequent to the date

of completion of our fieldwork. However, we are available to discuss the necessity for revisions in view of changes in the economy or market factors impacting the competitive lodging market.

Since the future performance of the proposed Hotel is based on estimates and assumptions that

are subject to uncertainty and variation, we do not present them as results that will actually be

achieved. However, our analysis has been conscientiously prepared on the basis of information

http://www.cbrehotels.com/

Mr. Hari Johl Proposed Holiday Inn Express – Rancho Cordova, California September 13, 2017 Page 2

obtained during the course of this assignment and on our experience in the industry. This report is

subject to the Certification and Assumptions and Limiting Conditions presented in the Addenda.

After you have had an opportunity to review this report, please feel free to contact us with any

questions or comments. Thank you for the opportunity to work with you on this interesting

engagement. Yours sincerely, CBRE HOTELS

By: Julie Purnell Managing Director [email protected] I 415.772.0262

_______________________________ By: Miky Kuo Director [email protected] I 415.772.0358


A. INTRODUCTION

1. OVERVIEW OF THE MARKET STUDY

CBRE Hotels was formally retained on August 23, 3017 by Mr. Hari Johl to conduct a study of the

potential market demand for a proposed Holiday Inn Express at 10707 White Rock Road in Rancho

Cordova, California. As a component of this analysis, we first determined the market potential for

the proposed Hotel in the local market and offered our recommendations as to the appropriateness of the proposed lodging facility to be developed on the identified site. Based on the recent

performance of comparable hotels in the market, we then provided our projections of the

occupancy and average daily room rate (“ADR”) the proposed Hotel could achieve for its first ten years of operation.

For the purpose of this analysis, we have assumed that after a +/- 22-month predevelopment and

construction period, the proposed Hotel would be open and available for occupancy by July 1,

2019.

2. METHODOLOGY

Specifically, in conducting the study of the potential market demand, we:

Visited the proposed site and assessed the impact of its accessibility, visibility, and location relative to demand generators;

Reviewed the development program for the proposed Hotel on the identified site in Rancho

Cordova;

Researched and analyzed current economic and demographic trends to determine their impact on future lodging demand in the market;

Researched the competitive lodging supply in and around Rancho Cordova and the

Sacramento market, with a particular focus on the hotels that would compete most directly with the proposed Hotel;

Reviewed the historical performance of the competitive lodging market;

Estimated the anticipated growth in supply and demand for lodging accommodations in

the local market area;

Prepared a forecast of future performance for the competitive lodging market; and,

Developed a forecast of the likely occupancy levels and the average daily room rates the

proposed Hotel could reasonably achieve over its first ten years of operation;

Several sources were used in compiling the background information and preparing the analyses

contained in this report. These sources include CBRE’s Trends® in the Hotel Industry, data gathered

through direct interviews with representatives of local businesses, data provided by sources in the


lodging chains with which the competitive properties are affiliated, and data from various local

government agencies.

B. SITE AND PROJECT DESCRIPTION

1. SITE DESCRIPTION

The proposed Subject site is located at 10707 White Rock Road in Rancho Cordova, California. The site is approximately 1.32 acres and rectangular in shape. The proposed Subject site is

bordered by the Courtyard Rancho Cordova to the west, the Best Western Plus Rancho Cordova to

the north, the Casa Ramos Mexican Restaurant to the east, and White Rock Road to the south. The site appears to be generally at grade with its surroundings.

The site’s Assessor’s Parcel Number is 072-0210-099.

A photograph, a parcel map, and aerials of the proposed Subject site are presented on the

following pages, with the proposed Hotel site highlighted in red.


Proposed Subject Site (View from the south)


Proposed Subject Site – Aerial

Prop. Subject


Proposed Subject Site - Aerial

Prop. Subject


Proposed Subject Site Parcel Map


Surrounding uses consist primarily of commercial uses as listed below.

North: Best Western Plus Rancho Cordova

East: Casa Ramos Mexican Restaurant, McDonald’s, Shell Gas Station, Extended Stay America

South: White Rock Road, Office Park

West: Courtyard Rancho Cordova

The proposed Hotel will have very good visibility from U.S. Route 50 and from White Rock Road.

The Subject site is located at the northwest quadrant of the intersection of White Rock Road and

Zinfandel Drive. The site is accessed via the Zinfandel Drive exit of US Route 50. The Subject site

is located approximately 15 miles (20 minute drive by automobile) from downtown Sacramento. During commute hours, the drive time may be longer. The proposed Subject site will have excellent

accessibility at this location.

The proposed Subject site is located proximate to +/- 5.0 million square feet of Class A office space. Among the many commercial demand generators occupying space in Rancho Cordova

include Moss Adams, Barclays Global Investors, Cisco Systems, National University, Heald College,

Encompass Insurance Company, Pearson Education, Inc., California Health Benefit Exchange, Office of Technology Services, NEC, Progressive Insurance, Maximus, Inc., VSP Vision Center,

Fireman’s Fund Insurance Company, California State Controller’s Office, Franklin Templeton

Investments, Blue Shield of California, McKesson, Dignity Health, Wells Fargo Insurance, Hewlett

Packard Enterprise, Anthem Blue Cross, and many others.

Overall, the location of the proposed Subject site is ranked “very good” as outlined in the following

table.

Subject Site Analysis

Excellent Very Good Good Fair Poor Accessibility X Visibility X Proximity to Demand X Long-term Strategic Potential X

Presented on the following pages are local and regional maps illustrating the location of and access

to the proposed Subject.


Local Map

Prop. Subject


Regional Map

Prop. Subject


2. PROJECT DESCRIPTION

Based on discussions with you, we understand that you intend to develop a +/-80-room Holiday Inn Express. Presented in the following paragraphs is an overview of the proposed Hotel, which

would be affiliated with InterContinental Hotels Group (“InterContinental”).

Holiday Inn Express is an upper midscale, limited-service lodging brand affiliated with

InterContinental. There are over 2,500 Holiday Inn Express hotels located worldwide, representing over 250,000 guestrooms. Furthermore, there are over 700 Holiday Inn Express Hotels in the

development pipeline. Holiday Inn Express hotels offer well-appointed guestrooms, inviting social

spaces, and high-quality amenities. Typical amenities include complimentary hot breakfast, free Wi-Fi access, state-of-the-art fitness centers, and business centers.

As we understand it, the proposed Hotel will contain approximately 80 rooms and comply with

Holiday Inn Express brand standards. The proposed Hotel would also include all back-of-the house

and administrative facilities necessary for the operation of the Hotel. The assumed programming for the proposed Hotel, based on typical Holiday Inn Express brand standards is presented below.

PROPOSED HOLIDAY INN EXPRESS RANCHO CORDOVA PRELIMINARY PROGRAM SUMMARY

Brand: Holiday Inn Express Address: 10707 White Rock Road Rancho Cordova, CA Lot Size: +/- 1.32 acres (57,499 sf) Gross Building Size: +/- 40,000 sf (+/-500 sf per guestroom) Stories: 3 or 4 stories Guestrooms: 80 Gross SF/room: +/-500 sf Amenities: Complimentary Breakfast

Complimentary Wi-Fi Fitness center

Business center

We are of the opinion that an 80-room Holiday Inn Express would be an appropriate hotel to accommodate the demand in Rancho Cordova.

For the purpose of this analysis, we have assumed that the proposed Hotel would be open and be

available for occupancy on July 1, 2019.


C. LOCAL AREA ECONOMIC HIGHLIGHTS As previously stated, the identified site is located in Rancho Cordova, California. Presented below is a summary of several of the primary economic attributes of the Sacramento region and the city

of Rancho Cordova.

The Sacramento region is the largest metropolitan statistical area (“MSA”) in Central

California. The Sacramento MSA is comprised of the four county regions of Sacramento, Yolo, El Dorado, and Placer counties. Sacramento County is comprised of Citrus Heights,

Elk Grove, Folsom, Galt, Isleton, Rancho Cordova, Sacramento, as well as other

incorporated and unincorporated areas. The valley continues to attract thousands of new residents every year based on a strategic location, which combines a high quality of living

with relatively low housing costs (as compared to the San Francisco Bay Area). Sacramento

is a major stop along both Interstate 5 (“I-5”) and Highway 99, the two freeways that service Central Valley cities, and Interstate 80 (“I-80”) and Highway 50, which provide important

east-west accessibility.

The Subject site is located in Rancho Cordova, approximately 15 miles east of downtown

Sacramento along U.S. Highway 50. Rancho Cordova officially became the Sacramento region’s newest city on July 1, 2003. The City is named after the Cordova Vineyard, which

was located in the center of Rancho Rio de los Americanos. The City encompasses a total

of 22.8 square miles, with less than one half square miles representing water.

According to the U.S. Census Bureau, Rancho Cordova had an estimated population of

73,900 people in January 2017, up from 64,800 in 2010, which represents a CAGR of

1.9 percent, above the state average of 0.8 percent for the same period.

As of July 2017, the unemployment rate in Sacramento County, in which the city of Rancho Cordova is located, was 5.4 percent, in line with the state average of 5.4 and above the

national average of 4.4 percent for the same period. The City of Rancho Cordova had an

unemployment rate of 5.9 percent as of July 2017.

According to CBRE Research, Rancho Cordova is located in the “Highway 50 Corridor”

office submarket of the Sacramento MSA. This submarket runs from Sacramento (15 miles

west of Rancho Cordova) through South Lake Tahoe (92 miles east of Rancho Cordova).

The net rentable area in this office submarket as of second quarter 2017 was roundly 11.4 million square feet. The office vacancy rate was approximately 19.7 percent, slightly higher

the overall vacancy rate of the Sacramento MSA of 14.2 percent. The “Highway 50

Corridor” submarket posted negative absorption of 87,756 square feet YTD through second quarter 2017. The average monthly asking lease rate for this office submarket was

$1.57, $0.23 below the overall lease rate for the Sacramento MSA.


Rancho Cordova has a thriving business sector which is the primary lodging demand

generator in the local market. Rancho Cordova is the Sacramento Area’s largest employment sub-center, attracting over 50,000 commuters. The leading industries are

home improvement, vehicles and vehicular service, technology, colleges and vocational

training, and recreation, leisure, and entertainment. Rancho Cordova has over 5.0 million

square feet of Class A office space, over 18 million square feet of industrial space, and an abundance of retailers. In the region, Rancho Cordova has a higher concentration of office

users, and particularly large office users, than any area in the region except downtown

Sacramento. Most other cities have their office buildings spread throughout the city, while Rancho Cordova’s office product is focused in a few concentrated, productive areas.

The top 10 employers in Rancho Cordova are State of California, Veterans Affairs Medical

Center, AMPAC Fine Chemicals LLC, Delta Dental, Sutter Health, Vision Service Plan (VSP),

Franklin Templeton, Progressive Insurance, Health Net Federal Svc LLC, and Blue Shield of California. A map of the Top 30 employers in Rancho Cordova relative to the proposed

Subject is presented on the following page.


Prop. Subject


The Sacramento region is served by Interstates 5 and 80, U.S. Route 50, and State Route

99. Interstate 5, a major north-south route, has its southern terminus at the United States-Mexico border at the San Ysidro crossing. It heads north across the length of California

before it crosses into Oregon south of the Medford-Ashland metropolitan area. Interstate

80 is a major east-west route which has its western terminus in San Francisco. From San

Francisco it heads east across the Bay Bridge to Oakland, where it turns north and crosses the Carquinez Bridge before turning back northeast and east through Sacramento Valley.

Interstate 80 then goes over the Sierra Nevada mountain range and crosses into Nevada

State. U.S. Route 50 runs east from I-80 in West Sacramento to the Nevada state line in South Lake Tahoe. State Route 99, commonly known as Highway 99 or 99, is a north-

south state highway in the U.S. state of California, stretching almost the entire length of the

Central Valley.

Rancho Cordova’s location with access to nearby freeways easily allows travelers to reach many interesting attractions found in the Sacramento Metropolitan area. Approximately

1,500 miles of rivers and lakes provide opportunities for water skiing, wind surfing, sailing,

and fishing. The adjacent American River Parkway contains various recreation areas and extends 23 miles along both sides of the American River from Hazel Avenue to the north to

the Sacramento River to the west. Paved bicycle and running paths also line the entire

Parkway.

The majority of visitors to the Sacramento area arriving by air fly into the Sacramento County International Airport, located approximately 25 miles northwest of the Subject site.

In addition to the Sacramento County International Airport, Rancho Cordova is serviced by

Mather Airport. Mather Airport is a public-use airport, which specializes in general aviation and has two runways.

After review of the general economic and demographic information for the City of Rancho Cordova

and the Sacramento MSA, it can be concluded that the market is poised for continued economic growth (albeit at a slower pace). Given the positive business climate, economic vitality, and

strategic location of Sacramento MSA, we are of the opinion that the city of Rancho Cordova is

poised for long-term success.


D. HOTEL MARKET ANALYSIS

1. NATIONAL MARKET OVERVIEW

The research division of CBRE Hotels (formerly PKF Hospitality Research) owns the database for

Trends® in the Hotel Industry, the statistical review of U.S. hotel operations, which first appeared in

1935 and has been published every year since. Beginning in 2007, the powerful Hotel Horizons®

was unveiled. Hotel Horizons® is an economics-based hotel forecasting model that projects five years of supply, demand, occupancy, ADR, and revenue per available room (“RevPAR”) for the U.S.

lodging industry with a high degree of accuracy. Hotel Horizons® reports are published on a

quarterly basis for 59 markets and six national chain-scales.

Based on the September – November 2017 National Edition of Hotel Horizons®, revenue per

available room (“RevPAR”) for the U.S. lodging market grew by 6.7 percent in 2012, 5.2 percent

in 2013, 8.2 percent in 2014, 6.2 percent in 2015, and 3.2 percent in 2016. As a point of

comparison, RevPAR declined by 16.7 percent in 2009, the largest percentage decline since CBRE Hotels/PKF Hospitality Research began tracking lodging performance in 1935. This significant

drop was a direct result of the severe national and global recession which began in the fall of 2007

and lasted well into 2009. Further, it resulted in a 40.0 percent decrease in hotels’ net operating income (“NOI”), subsequently impacting hotel values throughout the nation.

For the following three years (2017, 2018, and 2019), the overall U.S. lodging market is projected

to achieve RevPAR growth rates of 2.8 percent, 2.4 percent, and 1.2 percent, respectively, with ADR

gains leading these increases. Generally speaking, the pace of growth in the lodging industry is beginning to slow, driven largely by increased new supply and the early signs of retraction in

commercial business and group travel.

2. SACRAMENTO LODGING MARKET OVERVIEW

According to the September – November 2017 Sacramento Edition of Hotel Horizons®, by year-end

2017, hotels in the Sacramento MSA are forecast to see a RevPAR increase of 9.0 percent. This is

the result of an estimated increase in occupancy of 2.6 percent and a 6.3 percent gain in average

daily room rates (ADR). The 9.0 percent boost in Sacramento RevPAR is better than the national projection of a 2.8 percent increase.

Leading the way in 2017 RevPAR growth is the lower-priced segment of Sacramento. In 2017, the

properties in this category are forecast to achieve a 6.1 percent gain in ADR and see a 3.1 percent increase in occupancy, resulting in a 9.3 percent RevPAR increase. Upper-priced hotels are

projected to experience ADR growth rate of 6.3 percent, along with a 1.8 percent gain in

occupancy, resulting in an 8.2 percent RevPAR increase.

Looking towards 2018, Sacramento RevPAR is expected to grow 3.9 percent. This is less than the rate of growth in 2017. Unlike 2017, prospects for RevPAR growth in the upper-priced segment


(positive 3.8 percent) are better than in the lower-priced segment (3.6 percent). Sacramento market

occupancy levels are expected to range from 69.7 percent to 70.9 percent during the five-year forecast period.

3. COMPETITIVE LODGING MARKET OVERVIEW

In our analysis of the potential market demand for the proposed Hotel in Rancho Cordova, we

have selected seven upper midscale and upscale hotels as representing a reasonable sample of

hotels that would be competitive for demand in the local area. While other hotels in the regional

market may be deemed competitive to the proposed Subject, the selected properties were useful in illustrating the general performance of the local market. A summary of the identified competitive

market is presented on the following page.


COMPETITIVE MARKET

Hotel Rooms Opening

Date Chain Class Affiliation

Fairfield Inn & Suites Rancho Cordova 104 2003 Upper Midscale Marriott

Hyatt Place Sacramento Rancho Cordova 127 1999 Upscale Hyatt

Hampton Inn Sacramento Rancho Cordova 86 1999 Upper Midscale Hilton

Courtyard Sacramento Rancho Cordova 145 1986 Upscale Marriott

Best Western Plus Rancho Cordova 101 1990 Upper Midscale Best Western

Holiday Inn Sacramento Rancho Cordova 119 1985 Upper Midscale InterContinental

DoubleTree Suites Sacramento Rancho Cordova 158 1989 Upscale Hilton

Total 840 - - -

As noted, the competitive market totals 840 rooms, with an average hotel size of 120 rooms. All

properties contain between 86 and 158 rooms, with the smallest being the Hampton Inn Sacramento Rancho Cordova and the largest being the DoubleTree Sacramento Rancho Cordova.

It should be noted that the Fairfield Inn & Suites Rancho Cordova, the Hyatt Place Sacramento

Rancho Cordova, the Hampton Inn Sacramento Rancho Cordova, the Courtyard Sacramento Rancho Cordova, and the Best Wester Plus Rancho Cordova are all located off the Zinfandel Drive

exit of U.S. Highway 50 (the same exit as the proposed Subject). The Holiday Inn Sacramento

Rancho Cordova and DoubleTree Suites Sacramento Rancho Cordova are located approximately

two miles north of the aforementioned hotels, off the Point E. Drive exit of U.S. Highway 50.

It should also be noted that the DoubleTree Suites Sacramento Rancho Cordova was previously the

Sunrise Suites. It was closed for repositioning from May 2016 through October 2016 and reopened

as the DoubleTree in November 2016.

As stated, while other hotels in the regional market may be deemed competitive to the proposed

Hotel, the selected properties were useful in illustrating the general performance of the local hotel

market. A map of the competitive market has been presented on the following page.



4. HISTORICAL PERFORMANCE OF THE COMPETITIVE MARKET

Presented in the following table is a summary of the historical supply and demand and the resulting occupancy percentages for the identified competitive market for the period 2011 to 2016 as well

as through year-to-date (“YTD”) July 2017 and 2016. Also included are the competitive market’s

average daily rate (“ADR”) and revenue per available room (“RevPAR”) figures. RevPAR is an

industry standard which equates to the total revenue generated by available rooms and thereby measures the operational success of a market or individual property.

PROP. HOLIDAY INN EXPRESS RANCHO CORDOVA HISTORICAL PERFORMANCE OF THE COMPETITIVE MARKET

Annual Percent Occupied Percent Market Percent Percent Year Supply Change Rooms Change Occupancy ADR Change RevPAR Change 2011 310,980 - 176,637 - 56.8% $84.85 - $48.19 - 2012 308,425 -0.8% 193,999 9.8% 62.9% $85.25 0.5% $53.62 11.3% 2013 308,060 -0.1% 200,239 3.2% 65.0% $88.87 4.2% $57.77 7.7% 2014 307,330 -0.2% 203,452 1.6% 66.2% $93.68 5.4% $62.02 7.4% 2015 306,600 -0.2% 216,460 6.4% 70.6% $100.12 6.9% $70.68 14.0% 2016 277,765 -9.4% 186,380 -13.9% 67.1% $106.00 5.9% $71.13 0.6%

CAGR/AVG. -2.2% - 1.1% - 64.8% 4.6% - 8.1% -

YTD Jul '16 163,544 - 108,266 - 66.2% $106.63 - $70.59 -

YTD Jul '17 178,080 8.9% 128,218 18.4% 72.0% $112.94 5.9% $81.32 15.2%

Source: CBRE Hotels

Supply for the competitive market has decreased at a compound annual growth rate

(“CAGR”) of 2.2 percent over the past six years. The decrease in supply is attributable to

guestroom subtractions for several hotels during this period as well as one hotel temporarily

closing for conversion rather than any hotels opening or closing. Specifically, the following supply changes occurred.

Best Western Plus Rancho Cordova: two room decrease (May 2011), four room

decrease (January 2012), four room decrease (June 2014)

Holiday Inn Rancho Cordova: three room decrease (Mary 2012)

DoubleTree Suites Rancho Cordova: 158 rooms closed from May through October

2016, reopened November 2016. This annualized supply increase is also reflected

in the 8.9 percent YTD July 2017 supply growth.

Demand as measured by occupied rooms during this period has increased at a CAGR of

1.1 percent. From 2011 to 2015, demand growth was strong, ranging from 1.6 percent

to 9.8 percent. During this period, occupancy increased from 56.8 percent in 2011 to a record high of 70.6 percent in 2015. Due to the closing of the DoubleTree Suites Rancho

Cordova in 2016 for conversion, demand declined 13.9 percent and occupancy decline to


67.1 percent. Overall, occupancy for the past six years has averaged 64.8 percent. More

recently as of YTD July 2017, demand has increased 18.4 percent over the prior year. The accommodated demand increase is directly attributable to the opening of the DoubleTree

Rancho Cordova. As a result, YTD July 2017 occupancy increased to 72.0 percent;

compared to 66.2 percent occupancy as of YTD July 2016.

It is also worth noting the performance of the competitive market prior to 2016, when the DoubleTree Rancho Cordova was closed for conversion. Between 2011 and 2015,

accommodated demand in the competitive market increased by approximately 39,800

rooms (176,637 occupied rooms in 2011 versus 216,460 occupied rooms in 2015). Also, accommodated demand in the competitive market increased at a CAGR of 5.2 percent

from 2011 to 2015.

The ADR for the competitive market increased at a CAGR of 4.6 percent over the past six

years. During this period, ADR growth ranged from 0.5 percent to 6.9 percent. ADR increased from $84.85 in 2011 to $106.00 in 2016. As of YTD July 2017, ADR increased

5.9 percent over the prior year period.

With healthy increases in both occupancy and ADR, RevPAR for the competitive market increased at a robust CAGR of 8.1 percent over the past six years. RevPAR growth during

this period ranged from 0.6 percent to 14.0 percent. RevPAR growth achieve was only 0.6

percent in 2016 due to the decline in market occupancy attributable to the conversion of

the DoubleTree Suites Rancho Cordova. As of YTD July 2017, RevPAR increased 5.9 percent over the prior year period. RevPAR increased at a CAGR of 10.0 percent from

2011 to 2015.

In 2016, we estimate that the occupancy of the individual properties ranged from approximately 60 percent to 78 percent. We further estimate that the ADR of the individual

hotels ranged from approximately $97 to $120. Additionally, we estimate the demand

segmentation of the competitive market is comprised of approximately 90 percent transient commercial and leisure demand and 10 percent group demand.

As illustrated in the chart on the following page, occupancy in the competitive market

exhibits seasonal patterns. According to STR, Inc., the strongest months are the months of

April through October when occupancy is in the 70 percent range. February, March, and April are shoulder periods when occupancy is in the 60 percent range. January and

December are the slowest months with occupancy in the 40 percent to 50 percent range,

which is somewhat typical in a corporate/business driven market.


COMPETITIVE MARKET SEASONALITY (MONTHLY)

Monthly Occupancy 2014 2015 2016 3-Year Avg. January 53% 58% 54% 55% February 63% 67% 62% 64% March 65% 71% 59% 65% April 70% 77% 65% 71% May 70% 76% 79% 75% June 74% 77% 73% 75% July 71% 76% 76% 74% August 68% 71% 78% 73% September 75% 79% 77% 77% October 72% 81% 81% 78% November 60% 66% 68% 65% December 53% 49% 44% 49%

66% 71% 67% 68%

The chart below illustrates the demand in the competitive market by day of the week.

Corporate travel drives demand from Monday through Thursday with occupancy in the high 60 to 80 percent range. Corporate demand peaks on Tuesdays and Wednesdays. Leisure

travel drives demand on Fridays and Saturdays. Weekend occupancy peaks on Saturdays

with occupancy in the mid 70 percent range. Transient leisure business associated with

amateur sports drives weekend demand. Like most corporate markets, Sundays are the slowest day of the week with average occupancy of approximately 43 percent.

COMPETITIVE MARKET SEASONALITY (WEEKLY)

Day of Week TTM 7/15 TTM 7/16 TTM 7/17 3-Year Avg.

Sunday 43% 42% 45% 43% Monday 68% 66% 69% 68% Tuesday 81% 78% 81% 80% Wednesday 82% 78% 83% 81%

Thursday 67% 66% 69% 67% Friday 67% 67% 70% 68% Saturday 76% 75% 79% 76%

Year 69% 68% 71% 69%


5. ADDITIONS TO SUPPLY

During the course of our research, we have identified one new hotel project that could be competitive with the proposed Subject. We have included this hotel in our projection of future

supply and demand.

Homewood Suites Rancho Cordova: A 105-room Homewood Suites has been proposed

at 10700 White Rock Road in Rancho Cordova. This site is directly across the street from the proposed Subject. This project has received a conditional use permit from the City of

Rancho Cordova but has not yet begun construction. We understand that it is scheduled

to start construction in the fourth quarter of 2017 with a second quarter 2019 opening date. For the purpose of this analysis, we have assumed an April 2019 opening date.

It is worth noting that a 100-room Hyatt House has been proposed for a site at the northeast

intersection of Folsom Boulevard and Point E. Drive in Rancho Cordova. A convention center has

also been proposed for this site. Due to the highly speculative nature of this project, however, we have not included this potential addition to supply in our analysis.

E. PROJECTED MARKET AND SUBJECT PERFORMANCE

1. PROJECTED PERFORMANCE OF THE COMPETITIVE MARKET

Presented in the following table is a summary of our occupancy and ADR projections for the

competitive market for the years 2017 through 2024, coinciding with the proposed Hotel’s first five full years of operation. As discussed, we have assumed that the proposed Hotel would be open

and available for occupancy by July 1, 2019.

PROP. HOLIDAY INN EXPRESS RANCHO CORDOVA

PROJECTED PERFORMANCE OF THE COMPETITIVE MARKET

Annual Percent Occupied Percent Market Percent Percent

Year Supply Change Rooms Change Occupancy ADR Change RevPAR Change

2016 277,765 -9.4% 186,380 -13.9% 67% $106.00 5.9% $71.13 0.6%

2017 306,600 10.4% 216,200 16.0% 71% $109.00 3.0% $76.86 8.1%

2018 306,600 0.0% 217,700 0.7% 71% $112.00 3.0% $79.53 3.5%

2019 350,035 14.2% 229,400 5.4% 66% $115.00 3.0% $75.37 -5.2%

2020 374,125 6.9% 243,200 6.0% 65% $118.00 3.0% $76.71 1.8%

2021 374,125 0.0% 246,900 1.5% 66% $122.00 3.0% $80.51 5.0%

2022 374,125 0.0% 246,900 0.0% 66% $126.00 3.0% $83.15 3.3%

2023 374,125 0.0% 246,900 0.0% 66% $130.00 3.0% $85.79 3.2%

2024 374,125 0.0% 246,900 0.0% 66% $134.00 3.0% $88.43 3.1%

CAGR 2.9% - 1.9% - - 3.0% 2.0% Source: CBRE Hotels


Supply in the competitive market is projected to increase by 10.4 percent in 2017. This

reflects the conversion and opening of the 158-room DoubleTree Suites Rancho Cordova rather than the ground up development of a new hotel. Supply in the competitive market

is projected to increase 14.2 percent in 2019 and 6.9 percent in 2020 due to the additions

of the 105-room Homewood Suites Rancho Cordova (April 2019) and the proposed 80-

room Subject (July 2019).

Consistent with recent occupancy and demand trends, we project occupancy to increase to

71 percent in 2017 and remain at this level in 2018. We then project occupancy to decline

to 66 percent in 2019 and 65 percent in 2020, due to the annualized additions of the 105-room Homewood Suites Rancho Cordova and proposed 80-room Subject. As these two

hotels are absorbed by the market, occupancy is projected to increase to 66 percent in

2021. We project market occupancy to stabilize at 66 percent from 2021 onward. While

a stabilized occupancy of 66 percent is above the competitive market’s recent record high performance, it is higher than the annual average for the past six years (64.8 percent) and

reflects the effects of the aforementioned new supply. Furthermore, normal economic cycles

suggest a more reasonable long-term stabilized occupancy level slightly lower than current record highs.

It should be noted that accommodated demand increased approximately 39,800 between

2011 and 2015. We project accommodated demand to increase approximately 30,700

between 2017 and 2021, when occupancy is projected to stabilize.

Based on the performance of the competitive market through YTD July 2017, we project

ADR to increase 5.0 percent in 2017 and 4.0 percent in 2018. From 2019 onward we

project ADR growth of 3.0 percent, consistent with our long-term outlook for inflation.

2. PROJECTED PERFORMANCE OF THE PROPOSED HOTEL

Based upon our analysis contained herein, including a review of the overall competitive market and of each identified hotel, we have provided our occupancy and ADR projections for the proposed

Hotel’s first five full years of operation, as stated in calendar years. In providing these projections, we

have considered the following advantages and disadvantages impacting the future performance of

the proposed Subject.

The proposed Hotel will represent one of the newest lodging facilities in the local market.

While the proposed 105-room Homewood Suites is scheduled to open in April 2019, the most

recent hotel to open was the Fairfield Inn & Suites Rancho Cordova in December 2003 (the DoubleTree Rancho Cordova originally opened in October 1989 and was a different hotel).

The proposed Hotel will benefit from a location less than ¼ mile from the Zinfandel Drive exit

off Highway 50, providing very good access and visibility.


The proposed Hotel is located proximate to over 5.0 million square feet of Class A office space

in Rancho Cordova and is walkable to a variety of restaurants and other amenities.

The proposed Hotel will benefit from its affiliation with InterContinental. As such, it will benefit

from a strong national central reservations system and guest loyalty program. Furthermore,

the proposed Hotel will be the only hotel affiliated with InterContinental located off the

Zinfandel Drive exit in Rancho Cordova, whereas several of the other national hotel companies (ie. Marriott International and Hilton Hotels and Resorts) are represented by multiple

properties. The other InterContinental affiliated hotel is the Holiday Inn Rancho Cordova,

located approximately 2.0 miles north at the Point E Drive exit.

The Rancho Cordova lodging market is quite sensitive to supply fluctuations as evidenced by

the decline in overall performance following the closing of the DoubleTree Rancho Cordova.

Based upon the aforementioned, the proposed Subject’s occupancy is projected to stabilize at 68

percent by 2021, the Subject’s third year of operation. During the first and second years of operation, we project the Subject to achieve occupancy of 60 and 65 percent as the proposed Subject gains

recognition in the local market. It should be noted that a stabilized occupancy level of 68 percent

results in a market penetration of 103 percent (2021), which is deemed reasonable based on the location, number of rooms, product type, brand affiliation, and market share achieved by the other

hotels in the competitive market. At this level of performance and given the demand characteristics of

Rancho Cordova, we estimate that approximately 95 percent of the captured demand would be from

the transient business and leisure market segments.

Based on the individual attributes and performance levels of the individual competitive hotels, we

believe that the proposed Subject could achieve an ADR of $105 under the hypothetical condition that

it was open in 2016 (the last full year for which we have performance data). This ADR level positions the proposed Subject at approximately the same level as the competitive market’s 2016 aggregate

performance. This positions the proposed Hotel above the Best Western Plus Rancho Cordova,

Holiday Inn Rancho Cordova, and Fairfield Inn & Suites Rancho Cordova, but below the Hyatt Place Rancho Cordova, Hampton Inn Rancho Cordova, Courtyard Rancho Cordova, and DoubleTree

Rancho Cordova.

The chart on the following page presents the performance of the Holiday Inn Express chain versus the

performance of the other hotel brands on a national level.



2016 BRAND PERFORMANCE COMPARISON (U.S. FRANCHISED HOTELS)

Occ ADR RevPAR RevPAR +/- Holiday Inn Express 68.8% $111.52 $76.73 - Holiday Inn 66.5% $111.59 $74.21 -3.3% Fairfield Inn & Suites 69.9% $110.83 $77.47 1.0% Hampton Inn 74.0% $120.80 $89.39 16.5% Hyatt Place 77.4% $127.69 $98.83 28.8% DoubleTree 74.3% $135.60 $100.75 31.3% Courtyard by Marriott 72.9% $139.24 $101.51 32.3% Best Western Plus N/A N/A N/A N/A

Based on the individual attributes and performance levels of the individual competitive hotels, we believe that the proposed Subject could achieve an ADR of $105 under the hypothetical condition that

it was open in 2016. It should be noted that we have included a 2.0 percent introductory discount for

the proposed Hotel in its first year of operation, which is typical as hotels offer discounts and promotions to create awareness in the local market. This results in an ADR upon opening in 2019 of

$115.

Based on the analysis contained herein, we have provided our projections for the proposed 80-room

Hotel in the table below. Our projections for both occupancy and ADR for the proposed Subject’s first full five years of operation are presented in the following table. In providing our projections, we have

assumed that the Hotel would be open and available for occupancy by July 1, 2019.


PROJECTED PERFORMANCE

Hypothetical Market Introductory Actual Percent Percent

Year ADR Growth Discount ADR Change Occupancy RevPAR Change

2016 $105.00 - 2017 $110.00 5.0% 2018 $114.00 4.0% 2019 $117.00 3.0% 2.0% $115.00 - 60% $68.53 -

2020 $121.00 3.0% 0.0% $121.00 5.2% 65% $78.73 14.9%

2021 $125.00 3.0% 0.0% $125.00 3.3% 68% $84.76 7.7%

2022 $129.00 3.0% 0.0% $129.00 3.2% 68% $87.47 3.2%

2023 $133.00 3.0% 0.0% $133.00 3.1% 68% $90.18 3.1%

2024 $137.00 3.0% 0.0% $137.00 3.0% 68% $92.90 3.0%

Source: CBRE Hotels


3. CONVERSION TO A FISCAL YEAR BASIS

As noted earlier, the proposed Subject is assumed to open on July 1, 2019. Accordingly, we must convert the calendar year forecast into fiscal year periods. To accomplish this for the fiscal year

2019/20, we have taken a weighted average of the six months of the calendar year 2019 and six

months of the calendar year 2020 to derive the fiscal year projection. We have then performed

this analysis for each subsequent fiscal year. In doing so, it is our calculation that for the first fiscal year, the proposed Subject will achieve an ADR of $118 with a corresponding occupancy of 63

percent. We project a long-term stabilized occupancy of 68 percent beginning in 2021/22. We

have presented our projections of occupancy and ADR for the Subject for the period 2019/20 to 2028/29 in the following table.

PROP. HOLIDAY INN EXPRESS RANCHO CORDOVA PROJECTED FUTURE PERFORMANCE

Calendar Year Projections Fiscal Year Conversion

Percent Fiscal Percent Year Occupancy ADR Change Year Occupancy ADR Change 2019 60.0% $115.00 - 2019/20 63.0% $118.00 - 2020 65.0% $121.00 5% 2020/21 67.0% $123.00 4% 2021 68.0% $125.00 3% 2021/22 68.0% $127.00 3% 2022 68.0% $129.00 3% 2022/23 68.0% $131.00 3% 2023 68.0% $133.00 3% 2023/24 68.0% $135.00 3% 2024 68.0% $137.00 3% 2024/25 68.0% $139.00 3% 2025 68.0% $141.00 3% 2025/26 68.0% $143.00 3% 2026 68.0% $145.00 3% 2026/27 68.0% $147.00 3% 2027 68.0% $149.00 3% 2027/28 68.0% $151.00 3% 2028 68.0% $153.00 3% 2028/29 68.0% $156.00 3% Note: Average daily rates rounded to the whole dollar Source: CBRE Hotels

Although it is possible that the proposed Subject will experience growth in occupancy and ADR

above those estimated in this report, it is also possible that sudden economic downturns,

unexpected additions to the room supply, or other external factors will force the property below the

selected point of stability. Consequently, the estimated occupancy and ADR levels are representative of the most likely potential operations of the proposed Subject over the projected

holding period based on our analysis of the market as of the date of this report.


F. CONCLUSION

In conclusion, we are of the opinion that there is sufficient market demand to support the development of a proposed 80-room Holiday Inn Express at 10707 White Rock Road in Rancho

Cordova, CA. That being said, the Rancho Cordova lodging market is quite sensitive to supply

fluctuations. The addition of any other hotels in Rancho Cordova (other than those discussed in

this report) may put further downward pressure on occupancy in the competitive market.

This completes our analysis of the potential market demand of the proposed Hotel. After you have

had an opportunity to review this letter, please feel free to contact us with any questions or

comments. Thank you for this opportunity and we look forward to working with you on this engagement in the future.

Yours sincerely, CBRE Hotels

By: Julie Purnell Managing Director [email protected] I 415.772.0262

_______________________________ By: Miky Kuo Director [email protected] I 415.772.0358

Addenda

ADDENDA

Addenda

Addendum A

CERTIFICATION

Addenda

Certification

We, Julie Purnell and Miky Kuo, certify that, to the best of our knowledge and belief:

1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported

assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, conclusions, and recommendations.

3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment.

4. We have performed no (or the specified) services, as an appraiser or in any other capacity regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

5. We have no bias with respect to any property that is the subject of this report or to the parties involved with this assignment.

6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this report.

7. Miky Kuo has made a personal inspection of the identified hotel site. 8. No one has provided significant professional assistance to the persons signing this report.

Julie Purnell Miky Kuo Managing Director Director [email protected] [email protected] 415.772.0262 415.772.0358

mailto:[email protected]

mailto:[email protected]

Addenda

Addendum B

ASSUMPTIONS AND LIMITING CONDITIONS

Addenda

Assumptions and Limiting Conditions 1. CBRE, Inc. through its appraiser (collectively, “CBRE”) has inspected through reasonable observation the

subject property. However, it is not possible or reasonably practicable to personally inspect conditions beneath the soil and the entire interior and exterior of the improvements on the subject property. Therefore, no representation is made as to such matters.

2. The report, including its conclusions and any portion of such report (the “Report”), is as of the date set forth in the letter of transmittal and based upon the information, market, economic, and property conditions and projected levels of operation existing as of such date. The dollar amount of any conclusion as to value in the Report is based upon the purchasing power of the U.S. Dollar on such date. The Report is subject to change as a result of fluctuations in any of the foregoing. CBRE has no obligation to revise the Report to reflect any such fluctuations or other events or conditions which occur subsequent to such date.

3. Unless otherwise expressly noted in the Report, CBRE has assumed that:

(i) Title to the subject property is clear and marketable and that there are no recorded or unrecorded matters or exceptions to title that would adversely affect marketability or value. CBRE has not examined title records (including without limitation liens, encumbrances, easements, deed restrictions, and other conditions that may affect the title or use of the subject property) and makes no representations regarding title or its limitations on the use of the subject property. Insurance against financial loss that may arise out of defects in title should be sought from a qualified title insurance company.

(ii) Existing improvements on the subject property conform to applicable local, state, and federal building codes and ordinances, are structurally sound and seismically safe, and have been built and repaired in a workmanlike manner according to standard practices; all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; and the roof and exterior are in good condition and free from intrusion by the elements. CBRE has not retained independent structural, mechanical, electrical, or civil engineers in connection with this appraisal and, therefore, makes no representations relative to the condition of improvements. CBRE appraisers are not engineers and are not qualified to judge matters of an engineering nature, and furthermore structural problems or building system problems may not be visible. It is expressly assumed that any purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems.

(iii) Any proposed improvements, on or off-site, as well as any alterations or repairs considered will be completed in a workmanlike manner according to standard practices.

(iv) Hazardous materials are not present on the subject property. CBRE is not qualified to detect such substances. The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater, mold, or other potentially hazardous materials may affect the value of the property.

(v) No mineral deposit or subsurface rights of value exist with respect to the subject property, whether gas, liquid, or solid, and no air or development rights of value may be transferred. CBRE has not considered any rights associated with extraction or exploration of any resources, unless otherwise expressly noted in the Report.

(vi) There are no contemplated public initiatives, governmental development controls, rent controls, or changes in the present zoning ordinances or regulations governing use, density, or shape that would significantly affect the value of the subject property.

(vii) All required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be readily obtained or renewed for any use on which the Report is based.

(viii) The subject property is managed and operated in a prudent and competent manner, neither inefficiently or super-efficiently.

(ix) The subject property and its use, management, and operation are in full compliance with all applicable federal, state, and local regulations, laws, and restrictions, including without limitation environmental laws, seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, and licenses.

(x) The subject property is in full compliance with the Americans with Disabilities Act (ADA). CBRE is not qualified to assess the subject property’s compliance with the ADA, notwithstanding any discussion of possible readily achievable barrier removal construction items in the Report.

Addenda

(xi) All information regarding the areas and dimensions of the subject property furnished to CBRE are correct, and no encroachments exist. CBRE has neither undertaken any survey of the boundaries of the subject property nor reviewed or confirmed the accuracy of any legal description of the subject property.

Unless otherwise expressly noted in the Report, no issues regarding the foregoing were brought to CBRE’s attention, and CBRE has no knowledge of any such facts affecting the subject property. If any information inconsistent with any of the foregoing assumptions is discovered, such information could have a substantial negative impact on the Report. Accordingly, if any such information is subsequently made known to CBRE, CBRE reserves the right to amend the Report, which may include the conclusions of the Report. CBRE assumes no responsibility for any conditions regarding the foregoing, or for any expertise or knowledge required to discover them. Any user of the Report is urged to retain an expert in the applicable field(s) for information regarding such conditions.

4. CBRE has assumed that all documents, data and information furnished by or behalf of the client, property owner, or owner’s representative are accurate and correct, unless otherwise expressly noted in the Report. Such data and information include, without limitation, numerical street addresses, lot and block numbers, Assessor’s Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets, and related data. Any error in any of the above could have a substantial impact on the Report. Accordingly, if any such errors are subsequently made known to CBRE, CBRE reserves the right to amend the Report, which may include the conclusions of the Report. The client and intended user should carefully review all assumptions, data, relevant calculations, and conclusions of the Report and should immediately notify CBRE of any questions or errors within 30 days after the date of delivery of the Report.

5. CBRE assumes no responsibility (including any obligation to procure the same) for any documents, data or information not provided to CBRE, including without limitation any termite inspection, survey or occupancy permit.

6. All furnishings, equipment and business operations have been disregarded with only real property being considered in the Report, except as otherwise expressly stated and typically considered part of real property.

7. Any cash flows included in the analysis are forecasts of estimated future operating characteristics based upon the information and assumptions contained within the Report. Any projections of income, expenses and economic conditions utilized in the Report, including such cash flows, should be considered as only estimates of the expectations of future income and expenses as of the date of the Report and not predictions of the future. Actual results are affected by a number of factors outside the control of CBRE, including without limitation fluctuating economic, market, and property conditions. Actual results may ultimately differ from these projections, and CBRE does not warrant any such projections.

8. The Report contains professional opinions and is expressly not intended to serve as any warranty, assurance or guarantee of any particular value of the subject property. Other appraisers may reach different conclusions as to the value of the subject property. Furthermore, market value is highly related to exposure time, promotion effort, terms, motivation, and conclusions surrounding the offering of the subject property. The Report is for the sole purpose of providing the intended user with CBRE’s independent professional opinion of the value of the subject property as of the date of the Report. Accordingly, CBRE shall not be liable for any losses that arise from any investment or lending decisions based upon the Report that the client, intended user, or any buyer, seller, investor, or lending institution may undertake related to the subject property, and CBRE has not been compensated to assume any of these risks. Nothing contained in the Report shall be construed as any direct or indirect recommendation of CBRE to buy, sell, hold, or finance the subject property.

9. No opinion is expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Any user of the Report is advised to retain experts in areas that fall outside the scope of the real estate appraisal profession for such matters.

10. CBRE assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance.

11. Acceptance or use of the Report constitutes full acceptance of these Assumptions and Limiting Conditions and any special assumptions set forth in the Report. It is the responsibility of the user of the Report to read in full, comprehend and thus become aware of all such assumptions and limiting conditions. CBRE assumes no responsibility for any situation arising out of the user’s failure to become familiar with and understand the same.

Addenda

12. The Report applies to the property as a whole only, and any pro ration or division of the title into fractional interests will invalidate such conclusions, unless the Report expressly assumes such pro ration or division of interests.

13. The allocations of the total value estimate in the Report between land and improvements apply only to the existing use of the subject property. The allocations of values for each of the land and improvements are not intended to be used with any other property or appraisal and are not valid for any such use.

14. The maps, plats, sketches, graphs, photographs, and exhibits included in this Report are for illustration purposes only and shall be utilized only to assist in visualizing matters discussed in the Report. No such items shall be removed, reproduced, or used apart from the Report.

15. The Report shall not be duplicated or provided to any unintended users in whole or in part without the written consent of CBRE, which consent CBRE may withhold in its sole discretion. Exempt from this restriction is duplication for the internal use of the intended user and its attorneys, accountants, or advisors for the sole benefit of the intended user. Also exempt from this restriction is transmission of the Report pursuant to any requirement of any court, governmental authority, or regulatory agency having jurisdiction over the intended user, provided that the Report and its contents shall not be published, in whole or in part, in any public document without the written consent of CBRE, which consent CBRE may withhold in its sole discretion. Finally, the Report shall not be made available to the public or otherwise used in any offering of the property or any security, as defined by applicable law. Any unintended user who may possess the Report is advised that it shall not rely upon the Report or its conclusions and that it should rely on its own appraisers, advisors and other consultants for any decision in connection with the subject property. CBRE shall have no liability or responsibility to any such unintended user.

Date of the Report - LoopNet€¦ · CBRE Hotels, Consulting CBRE, Inc. 101 California Street, 44th Floor San Francisco, CA 94111 +1 415 772 0358 Office +1 415 810 1582 Mobile [email protected]

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