FEASIBILITY STUDY Proposed Holiday Inn Edgewater

FEASIBILITY STUDY

Proposed Holiday Inn Edgewater

410 NORTHEAST 35TH TERRACE MIAMI, FLORIDA

SUBMITTED TO:PR OPOSED

Mr. Priesh Patel Edgewater Hotel Management, LLC 2930 Biscayne Boulevard Miami, Florida 33137 +1 (305) 978-3327

PREPARED BY:

HVS Consulting & Valuation Division of HVS Consulting & Valuation 111 Granada Court Orlando, Florida 32803 +1 (407) 203-1122

November-2018

November 5, 2018

Mr. Priesh Patel Edgewater Hotel Management, LLC 2930 Biscayne Boulevard Miami, Florida 33137

Re: Proposed Holiday Inn Edgewater

410 Northeast 35th Terrace

Miami, Florida

HVS Reference: 2018021820

Dear Mr. Patel:

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 Miami, Florida 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, HVS Consulting & Valuation

Donald C. Stephens Jr., Managing Director [email protected], +1 (407) 203-1122 State-Certified General Real Estate Appraiser RZ3699

HVS ORLANDO

111 Granada Court

Orlando, Florida 32803

+1 (407) 203-1122 (Office)

+1 (407) 203-1122 (Mobile)

www.hvs.com

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Table of Contents

SECTION TITLE PAGE

1. Executive Summary 6

Ownership, Franchise, and Management Assumptions 7

Summary of Hotel Market Trends 8

Summary of Forecast Occupancy and Average Rate 13

Summary of Forecast Revenue and Expense Statement 14

Feasibility Conclusion 17

2. Description of the Site and Neighborhood 20

Physical Characteristics 20

Access and Visibility 24

Airport Access 26

Neighborhood 26

Proximity to Local Demand Generators and Attractions 29

Flood Zone 30

Zoning 31

3. Market Area Analysis 33

Workforce Characteristics 37

Radial Demographic Snapshot 41

Unemployment Statistics 42

Major Business and Industry 43

Office Space Statistics 45

Convention Activity 48

Airport Traffic 49

Tourist Attractions 52

4. Supply and Demand Analysis 55

Definition of Subject Hotel Market 55

National Trends Overview 55

Miami, FL Lodging Market 59

Historical Supply and Demand Data 61

Seasonality 65

Patterns of Demand 69

Primary Competitors 72

Supply Changes 83

Demand Analysis Using Market Segmentation 85

Base Demand Growth Rates 87

Latent Demand 88

Accommodated Demand and Market-wide Occupancy 90

5. Description of the Proposed Improvements 92

Project Overview 92

Summary of the Facilities 93

Site Improvements and Hotel Structure 95

Lobby 95

Food and Beverage Facilities 95

Meeting and Banquet Space 105

Recreational Amenities 105

Guestrooms 105

Construction Budget 106

Conclusion 110

6. Projection of Occupancy and Average Rate 112

Historical Penetration Rates by Market Segment 112

Forecast of Subject Property’s Occupancy 113

Average Rate Analysis 115

Competitive Position 115

7. Projection of Income and Expense 122

Comparable Operating Statements 122

Forecast of Revenue and Expense 127

Rooms Revenue 130

Food and Beverage Revenue 130

Other Operated Departments Revenue 131

Miscellaneous Income (Valet Parking Revenue “Net”) 131

Rooms Expense 132

Food and Beverage Expense 133

Other Operated Departments Expense 133

Administrative and General Expense 133

Information and Telecommunications Systems Expense 134

Marketing Expense 134

Franchise Fee 135

Property Operations and Maintenance 135

Utilities Expense 136

Management Fee 136

Property Taxes 137

Insurance Expense 139

Reserve for Replacement 140

Forecast of Revenue and Expense Conclusion 141

8. Feasibility Analysis 142

Construction Cost Estimate 142

Mortgage Component 143

Equity Component 146

Terminal Capitalization Rate 149

Mortgage-Equity Method 151

Conclusion 153

9. Statement of Assumptions and Limiting Conditions 164

10. Certification 167

Addenda

Qualifications

Copy of Appraisal License

November-2018 Executive Summary Proposed Holiday Inn Edgewater – Miami, Florida 6

1. Executive Summary

The subject of the feasibility study is a 30,045-square-foot (0.69-acre) site to be improved with a full-service lodging facility; the hotel will be associated with the Holiday Inn brand. The subject site is currently cleared and ready for development. The property, which is expected to open on July 1, 2020, will feature 207 rooms, a restaurant and lounge, 1,285 square feet of meeting space, an outdoor pool, an outdoor whirlpool, a pool bar with covered seating, a fitness center, a business center, ground floor retail/office space (4,669 square feet), and a vending area. The hotel will also contain the appropriate parking capacity (139 ) and all necessary back-of-the-house space.

RENDERING OF PROJECT

The subject site’s location is 410 Northeast 35th Terrace, Miami, Florida 33137.

The effective date of the report is November 5, 2018. The subject site was inspected by Donald C. Stephens Jr. on October 10, 2018.

Considering the advanced stage of the proposed subject hotel in the development cycle, we have assumed a 3-month pre-development period allowing for brand procurement, finalizing design, and securing regulatory approvals and permitting, followed by a 17-month construction period including pre-opening, as shown in the following table.

Subject of the Feasibility Study

Pertinent Dates


FIGURE 1-1 PRE-DEVELOPMENT TIMELINE AND CONSTRUCTION CYCLE

Date of the

Feasibility Study

Pre-Development, Brand

Procurement, Design & Permitting

Period

Construction & Pre-Opening of

Hotel

Official Opening

of the Hotel

October 2018 November 2018 - January 2019 February 2019 - June 2020 July 1, 2020

3 months 17 months

(including 2-month pre-opening)

The forecasts of occupancy, average rate, and resulting RevPAR’s reflects years beginning on July 1, 2020, which corresponds with our expected date of opening. An adequate period of time should be allocated in order to solve any potential operational issues that may occur before the peak demand season begins in 2021.

The developer of the proposed subject hotel is Edgewater Hotel Management LLC; the parent company of this owning partnership is Santori Land LLC, which is based in Miami, Florida. Through an assemblage of six lots, the subject site was last sold on June 18, 2015 for a recorded price of $2,725,000 (OR Book 29675, Page 0890). Through a number of subsequent inter-company transactions, including partner buyback agreements, related holding costs and interest expense, the developer indicates that the subject site's land cost is $7,276,000 or $35,150 per planned unit; the price appears to have been an arm's-length transaction and was not subject to any concessions. The site is neither listed nor under contract for sale, and we have no knowledge of any recent listings.

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.

The proposed subject hotel will operate under a franchise agreement with Holiday Hospitality Franchising, Inc., which operates as a franchisor and licensor of most InterContinental Hotels Group brand names and marks, as a Holiday Inn. We have reviewed the terms of the agreement, dated June 27, 2018, which span 20 years after the hotel's opening date. In addition, we reviewed an amendment to the agreement that defines an "advertising assistance allowance" that effectively reduces royalty fees over the first three years of the term. The proposed subject hotel's franchise agreement calls for a royalty fee of 3.0% of rooms revenue for the first year, 4.0% during the second and third year, and 5.0% for the remainder of the term. A marketing assessment fee of 3.0% of rooms revenue is also stipulated throughout the duration of the agreement.

Ownership, Franchise, and Management Assumptions


The STR Trend Report that we custom-ordered for this assignment includes seven (7) upper-midscale and upscale properties collectively containing 1,265 rooms. These properties offer an array of facilities and include select-, full-service, and extended-stay hotels. Of this total, 45% of the rooms are positioned in the upper-midscale price/quality tier, while 55% is positioned in the upscale tier group.

The following table provides a historical perspective on the supply and demand trends for a selected set of hotels, as provided by STR.

FIGURE 1-2 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) – SELECTED COMPETITVE SET

Year

Average Daily

Room Count

Available Room

Nights Change

Occupied

Room Nights Change Occupancy

Average

Rate Change RevPAR Change

2012 850 310,250 — 225,098 — 72.6 % $134.44 — $97.54 —

2013 918 335,098 8.0 % 265,405 17.9 % 79.2 141.61 5.3 % 112.16 15.0 %

2014 1,012 369,380 10.2 305,999 15.3 82.8 152.95 8.0 126.71 13.0

2015 1,012 369,380 0.0 307,300 0.4 83.2 159.26 4.1 132.49 4.6

2016 1,089 397,430 7.6 310,109 0.9 78.0 158.15 (0.7) 123.41 (6.9)

2017 1,241 452,816 13.9 367,612 18.5 81.2 157.06 (0.7) 127.51 3.3

Year-to-Date Through August

2017 1,228 298,486 — 240,567 — 80.6 % $158.54 — $127.77 —

2018 1,265 307,395 3.0 % 259,898 8.0 % 84.5 171.10 7.9 % 144.66 13.2 %

Average Annual Compounded Change:

2012 - 2017 7.9 % 10.3 % 3.2 % 5.5 %

2012 - 2015 6.0 10.9 5.8 10.7

2015 - 2017 10.7 9.4 (0.7) (1.9)

2014 - 2017 7.0 6.3 0.9 0.2

Hotels Included in Sample

Holiday Inn Port Of Miami Downtown Upper Midscale Class Primary 200 Jan 2003 Jun 1964

Courtyard Miami Downtown Brickell Area Upscale Class Primary 233 Dec 2002 Jun 1975

Springhill Suites Miami Downtown Medical Center Upscale Class Primary 198 Nov 2009 Nov 2009

Hampton Inn Suites Miami Brickell Downtown Upper Midscale Class Primary 221 Sep 2011 Sep 2011

aloft Hotel Miami Brickell Upscale Class Primary 160 Aug 2013 Aug 2013

Homewood Suites Miami Downtown Brickell Upscale Class Primary 102 Apr 2016 Apr 2016

Hampton Inn & Suites Miami Midtown Upper Midscale Class Primary 151 Mar 2017 Mar 2017

Total 1,265

Source: STR

Class

Number

of Rooms

Year

Opened

Competitive Year

Status Affiliated

Positive annual growth in revenue-per-available-room (RevPAR) has brought the competitive market to performance levels not seen in some time. RevPAR has been on an increasing trajectory since 2012 with strong year-over-year gains. However, with the introduction of new competitive supply in early 2016 and 2017 resulted in

Summary of Hotel Market Trends


a continued compression of average daily rate (ADR) growth - on an aggregate basis. In fact, on a rolling 12-month basis ADR’s have remained relatively flat since early-2015 at roughly $157. More recent, ADR’s are signaling improvements and are currently averaging approximately $164 on a rolling basis in 2018.

Over the evaluation period, available room nights (supply) has increased an average 7.9% per year while occupied room nights (demand) increased at a compounded annual average growth rate of 10.3%. With above inflationary ADR growth over the review period, RevPAR exceeded expectation by increasing a strong 5.5% per year since 2012.

FIGURE 1-3 HISTORICAL SUPPLY & DEMAND TRENDS (STR)

66.0

68.0

70.0

72.0

74.0

76.0

78.0

80.0

82.0

84.0

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2012 2013 2014 2015 2016 2017

Occ

up

ancy

(%

)

Ro

om

Nig

hts

Available Room Nights Occupied Room Nights Occupancy

Performance data shown for this selected set of competitive hotels begin in 2012 with the recent opening of two competitive hotels; the 221-room Hampton by Hilton Brickell Downtown (September 2011), and the 160-room Aloft Hotel Miami Brickell (August 2011). As shown, this new supply was completely absorbed by the market, resulting in increasing occupancy rates, ADR's, and RevPAR's in 2013 and 2014. The positive trend in RevPAR continued in 2015, with growth driven largely by a strong recovery of the national and local economies, as well as the increase of international visitation to Miami-Dade County. In 2016, the hotel industry in the greater Miami area was negatively affected by factors such as the Zika virus scare, the increase in room inventory, and the decline in visitation from two of the largest international markets (Canada and Brazil) due to the strength of the U.S. dollar. With the next influx of new inventory occurring in 2016, average rate compressed slightly by the end of the year. Attributed to accepting lower rated group business as the property


opened right after the peak season ended, the new 102-room Homewood Suites more recently was replaced by higher ADR corporate demand. Data for 2017 illustrate a significant increase in supply-induced demand and a small decline in average rate, resulting in a healthy increase in RevPAR despite the negative effects of Hurricane Irma, which struck Miami in September 2017. The trailing twelve-month data and the year-to-date data through August 2018 illustrate strong increases in all three indices.

Year-to-date 2018 data illustrate continued strengthening in occupancy, up 3.9 percentage points, and a roughly $12.60 gain in average rate. RevPAR reached its high point in the summer of 2018. The entrance of new, high-rated supply and the overall strong economy have contributed to the latest trend. The near-term outlook is cautionary due to the influx of new supply expected in the near term within the competitive submarket. Notwithstanding, demand remains positive as International visitation is strong and is expected to grow further.

FIGURE 1-4 HISTORICAL ADR, REVPAR & OCCUPANCY TRENDS (STR)

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

$60

$80

$100

$120

$140

$160

$180

2012 2013 2014 2015 2016 2017 2017 YTD 2018 YTDO

ccup

ancy

AD

R &

Rev

PAR

Average Daily Rate ($) RevPAR ($) Occupancy (%)

On a 12-month rolling basis, RevPAR’s performance peaked in August 2018 at $138.76, largely driven by supply-induced demand increases that began with the introduction of the 151-room Hampton Inn & Suites Miami Midtown in early 2017, and significant average rate increase beginning in September 2017. Highlighted by 2018’s peak season year-over-year average rate gain of roughly $13.50, RevPAR is up 13.2% over the same 8-month period last year. It is important to note that with the opening of the new Hampton Inn & Suites all three indices, on an aggregate basis, increased. We expect this to continue as the hotel advances toward stabilization.


FIGURE 1-5 REVPAR – 12-MONTH MOVING AVERAGE

FIGURE 1-6 OCCUPANCY – 12-MONTH MOVING AVERAGE

FIGURE 1-7 AVERAGE DAILY RATE – 12-MONTH MOVING AVERAGE

A key observation from the historical data is that when new supply entered the market, whether it was new construction or newly renovated hotels, demand for hotel rooms exceeded supply. As such, new supply is being absorbed rapidly into the market suggesting that significant unaccommodated demand during peak seasonal demand periods is present. Market participants appear confident that going forward RevPAR increases will be in the form of modest average rate gains through aggressive yield management amid steady growth in room night demand levels.

The following tables reflect our estimates of operating data for hotels on an individual basis. Specific occupancy and average rate data were utilized in our analysis but are presented in ranges for the purposes of confidentiality. These trends are presented in detail in the Supply and Demand Analysis chapter of this report.

RevPAR ($)

January February March April May June July August September October November December

2012 94.69 95.65 96.35 97.54

2013 99.28 101.20 103.85 104.68 105.86 107.36 107.71 107.86 107.78 108.15 110.19 112.16

2014 113.83 116.20 117.91 119.58 120.79 120.65 120.67 122.06 123.19 124.92 125.69 126.71

2015 128.57 129.63 130.10 130.18 129.69 129.34 130.12 130.42 131.37 131.28 132.34 132.49

2016 132.95 132.48 131.87 132.06 131.85 131.36 130.98 129.52 128.24 126.72 124.52 123.41

2017 121.25 120.51 122.16 120.52 119.74 119.79 120.31 120.55 121.18 123.18 125.25 127.51

2018 129.44 132.17 134.04 136.20 137.78 138.33 138.33 138.76

Occupancy (%)


2012 72.9 72.7 72.5 72.6

2013 73.1 73.5 73.8 74.2 75.0 75.9 76.3 76.5 76.6 77.0 78.3 79.2

2014 79.4 79.5 79.7 80.0 80.3 80.3 80.5 81.6 82.2 82.9 82.9 82.8

2015 83.0 83.1 82.8 82.6 82.2 81.9 82.4 82.5 83.3 83.2 83.4 83.2

2016 83.2 82.9 82.9 83.1 83.2 82.8 82.3 81.2 80.3 79.4 78.4 78.0

2017 77.4 77.3 77.8 77.3 76.8 77.2 77.5 78.0 77.8 79.2 80.4 81.2

2018 81.8 82.4 82.6 83.3 83.7 83.7 83.8 83.8

ADR ($)


2012 129.90 131.49 132.85 134.44

2013 135.84 137.75 140.80 141.09 141.12 141.45 141.23 140.97 140.64 140.50 140.81 141.61

2014 143.31 146.08 147.98 149.44 150.35 150.23 149.96 149.61 149.83 150.70 151.65 152.95

2015 154.81 156.04 157.18 157.66 157.72 157.98 157.92 158.05 157.72 157.78 158.70 159.26

2016 159.80 159.78 159.05 158.85 158.55 158.57 159.18 159.47 159.72 159.69 158.76 158.15

2017 156.56 155.82 156.97 155.97 155.91 155.19 155.19 154.48 155.76 155.49 155.85 157.06

2018 158.25 160.48 162.28 163.56 164.55 165.22 165.07 165.57


FIGURE 1-8 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted

Annual

Room

Count

Weighted

Annual

Room

CountCom

mer

cial

Mee

tin

g an

d G

rou

p

Leis

ure

Property Occ. RevPAR RevPAR

Occupancy

Penetration

Yield

Penetration

Hampton Inn & Suites by Hilton Miami Midtown 151 40 % 10 % 50 % 0 — % — — 127 60 - 65 % $130 - $140 $85 - $90 75 - 80 % 65 - 70 %

Holiday Inn Port of Miami Downtown 200 50 10 40 200 80 - 85 160 - 170 130 - 140 200 75 - 80 150 - 160 125 - 130 95 - 100 95 - 100

Courtyard by Marriott Miami Downtown 233 50 10 40 233 70 - 75 160 - 170 120 - 125 233 80 - 85 160 - 170 140 - 150 100 - 110 110 - 120

Aloft Hotel Miami Brickell 160 50 10 40 160 75 - 80 150 - 160 115 - 120 160 80 - 85 150 - 160 125 - 130 100 - 110 95 - 100

Hampton Inn & Suites Miami Brickell Downtown 221 60 10 30 221 70 - 75 190 - 200 140 - 150 221 80 - 85 180 - 190 150 - 160 100 - 110 120 - 130

Homewood Suites by Hilton Miami Downtown Brickell 102 40 20 40 77 70 - 75 130 - 140 95 - 100 102 85 - 90 140 - 150 125 - 130 110 - 120 100 - 110

SpringHill Suites Miami Downtown/Medical Center 198 60 5 35 198 85 - 90 125 - 130 105 - 110 198 80 - 85 130 - 140 105 - 110 100 - 110 80 - 85

Totals/Averages 1,265 52 % 10 % 38 % 1,089 78.0 % $158.15 $123.34 1,241 81.2 % $157.07 $127.59 100.0 % 100.0 %

* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count Average RateCom

mer

cial

Mee

tin

g an

d G

rou

p

Leis

ureNumber

of Rooms

Average

Rate Occ.


Rate positioning considers, among other factors, the quality of the site and the proposed project, selected branding, on- and off-site amenities, and the level of service offered. The subject hotel will incorporate the highest compliance standards under the internationally-recognized Holiday Inn brand. We assume that the proposed hotel will be managed by a competent hotel management team familiar with operational experience in South Florida. Our financial forecasts contained in this study are based on the development vision, as articulated herein, being executed.

Based on our analysis presented in the Projection of Occupancy and Average Rate chapter, we have chosen to use a stabilized occupancy level of 78% and a base-year (2017) rate position of $142.50 for the proposed subject hotel.

A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast 5.0% and 2.5% discounts to the proposed subject hotel’s forecast room rates in the first two operating years, which would be typical for a new operation of this type.

The following table reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections.

FIGURE 1-9 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Calendar Year 2017 2018 2019 2020 2021 2022 2023 2024

Market ADR $157.07 $169.64 $176.42 $179.07 $183.55 $189.05 $194.73 $200.57

Projected Market ADR Growth Rate — 8.0% 4.0% 1.5% 2.5% 3.0% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabilized) $142.50 $153.90 $160.06 $162.46 $166.52 $171.51 $176.66 $181.96

ADR Growth Rate — 8.0% 4.0% 1.5% 2.5% 3.0% 3.0% 3.0%

Proposed Subject Stabilized ADR Penetration 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7%

Fiscal Year 2020/21 2021/22 2022/23 2023/24 2024/25

Proposed Subject Property Average Rate $164.47 $169.00 $174.07 $179.29 $184.67

Opening Discount 5.0% 2.5% 0.0% 0.0% 0.0%

Average Rate After Discount $156.25 $164.77 $174.07 $179.29 $184.67

Real Average Rate Growth — 5.5% 5.6% 3.0% 3.0%

Market ADR $181.29 $186.28 $191.87 $197.62 $203.55

Proposed Subject ADR Penetration (After Discount) 86.2% 88.5% 90.7% 90.7% 90.7%

ADR Expressed in Base-Year Dollars Deflated @ Inflation Rate $144.39 $147.83 $151.62 $151.62 $151.62

Summary of Forecast Occupancy and Average Rate


The following occupancies and average rates are used to project the subject property's rooms revenue; this forecast reflects fiscal years beginning on July 1, 2020, which correspond with our expected date of opening.

FIGURE 1-10 FORECAST OF OCCUPANCY, AVERAGE RATE, AND REVPAR

Year

2020/21 65 % $164.47 5.0 % $156.25 $101.56

2021/22 72 169.00 2.5 164.77 118.64

2022/23 76 174.07 0.0 174.07 132.29

2023/24 78 179.29 0.0 179.29 139.84

Occupancy

Average Rate

Before Discount Discount

Average Rate

After Discount RevPAR

Our positioning of each revenue and expense level is supported by comparable operations or trends specific to this market. Projected total revenue. House profit, and EBITDA less replacement reserves are set forth in the following table.

FIGURE 1-1 FORECAST OF REVENUE AND EXPENSE CONCLUSION

Year Total % Change Total % Change Total % Change

Projected 2020/21 $10,310,000 — $3,934,000 — 38.2 % $2,468,000 — 23.9 %

2021/22 11,884,000 15.3 % 4,931,000 25.3 % 41.5 3,240,000 31.3 % 27.2

2022/23 13,124,000 10.4 5,725,000 16.1 43.6 3,799,000 17.3 28.9

2023/24 13,851,000 5.5 6,050,000 5.7 43.7 4,042,000 6.4 29.2

2024/25 14,266,000 3.0 6,231,000 3.0 43.7 4,163,000 3.0 29.2

Total Revenue House Profit House

Profit

Ratio

EBITDA Less Replacement Reserve

As a % of

Ttl Rev

The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten-year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years that begin on July 1, 2020, expressed in inflated dollars for each year.

As illustrated, the proposed subject hotel is expected to stabilize at a profitable level. Please refer to the Forecast of Income and Expense chapter of our report for a detailed explanation of the methodology used in deriving this forecast.

Summary of Forecast Revenue and Expense Statement


FIGURE 1-11 DETAILED FORECAST OF INCOME AND EXPENSE

2020/21 Begins July 2021/22 2022/23 Stabilized 2024/25

Number of Rooms: 207 207 207 207 207

Occupancy: 65% 72% 76% 78% 78%

Average Rate: $156.25 $164.77 $174.07 $179.29 $184.67

RevPAR: $101.56 $118.63 $132.29 $139.84 $144.04

Days Open: 365 365 365 365 365

Occupied Rooms: 49,111 %Gross PAR POR 54,400 %Gross PAR POR 57,422 %Gross PAR POR 58,933 %Gross PAR POR 58,933 %Gross PAR POR

OPERATING REVENUE

Rooms $7,673 74.4 % $37,068 $156.24 $8,963 75.4 % $43,300 $164.76 $9,995 76.2 % $48,285 $174.06 $10,566 76.3 % $51,043 $179.29 $10,883 76.3 % $52,575 $184.67

Food & Beverage 1,692 16.4 8,175 34.46 1,877 15.8 9,067 34.50 2,012 15.3 9,721 35.04 2,113 15.3 10,209 35.86 2,177 15.3 10,515 36.93

Other Operated Departments 415 4.0 2,005 8.45 440 3.7 2,124 8.08 460 3.5 2,222 8.01 477 3.4 2,306 8.10 492 3.4 2,375 8.34

Valet Parking ("Net") 529 5.1 2,557 10.78 604 5.1 2,918 11.10 657 5.0 3,172 11.44 694 5.0 3,353 11.78 715 5.0 3,454 12.13

Total Operating Revenues 10,310 100.0 49,805 209.92 11,884 100.0 57,408 218.45 13,124 100.0 63,400 228.55 13,851 100.0 66,912 235.03 14,266 100.0 68,919 242.08

DEPARTMENTAL EXPENSES *

Rooms 2,031 26.5 9,809 41.35 2,172 24.2 10,492 39.93 2,284 22.9 11,036 39.78 2,377 22.5 11,485 40.34 2,449 22.5 11,829 41.55

Food & Beverage 1,369 80.9 6,613 27.87 1,455 77.5 7,030 26.75 1,525 75.8 7,369 26.57 1,585 75.0 7,656 26.89 1,632 75.0 7,886 27.70

Other Operated Departments 151 36.3 728 3.07 156 35.6 756 2.88 162 35.2 782 2.82 167 35.0 807 2.84 172 35.0 831 2.92

Total Expenses 3,550 34.4 17,150 72.29 3,783 31.8 18,278 69.55 3,972 30.3 19,187 69.17 4,129 29.8 19,948 70.07 4,253 29.8 20,547 72.17

DEPARTMENTAL INCOME 6,760 65.6 32,655 137.64 8,100 68.2 39,131 148.90 9,152 69.7 44,213 159.38 9,721 70.2 46,963 164.96 10,013 70.2 48,372 169.91

UNDISTRIBUTED OPERATING EXPENSES

Administrative & General 931 9.0 4,500 18.97 985 8.3 4,757 18.10 1,032 7.9 4,986 17.97 1,070 7.7 5,168 18.15 1,102 7.7 5,323 18.70

Info & Telecom Systems 116 1.1 561 2.36 123 1.0 593 2.26 129 1.0 621 2.24 133 1.0 644 2.26 137 1.0 663 2.33

Marketing 570 5.5 2,753 11.60 602 5.1 2,910 11.07 631 4.8 3,050 11.00 654 4.7 3,161 11.10 674 4.7 3,256 11.44

Franchise Fee 460 4.5 2,224 9.37 627 5.3 3,031 11.53 700 5.3 3,380 12.18 845 6.1 4,083 14.34 871 6.1 4,206 14.77

Prop. Operations & Maint. 288 2.8 1,390 5.86 345 2.9 1,665 6.34 425 3.2 2,053 7.40 440 3.2 2,128 7.47 454 3.2 2,192 7.70

Utilities 460 4.5 2,223 9.37 487 4.1 2,351 8.94 510 3.9 2,464 8.88 529 3.8 2,553 8.97 544 3.8 2,630 9.24

Total Expenses 2,826 27.4 13,651 57.54 3,169 26.7 15,308 58.25 3,427 26.1 16,554 59.67 3,672 26.5 17,738 62.30 3,782 26.5 18,270 64.17

GROSS HOUSE PROFIT 3,934 38.2 19,004 80.10 4,931 41.5 23,823 90.65 5,725 43.6 27,659 99.71 6,050 43.7 29,226 102.65 6,231 43.7 30,102 105.73

Management Fee 309 3.0 1,494 6.30 357 3.0 1,722 6.55 394 3.0 1,902 6.86 416 3.0 2,007 7.05 428 3.0 2,068 7.26

INCOME BEFORE NON-OPR. INC. & EXP. 3,625 35.2 17,510 73.80 4,575 38.5 22,101 84.10 5,332 40.6 25,757 92.85 5,634 40.7 27,218 95.60 5,803 40.7 28,035 98.47

NON-OPERATING INCOME & EXPENSE

Property Taxes 768 7.5 3,711 15.64 791 6.7 3,823 14.55 815 6.2 3,937 14.19 840 6.1 4,056 14.25 865 6.1 4,177 14.67

Insurance 182 1.8 879 3.70 187 1.6 905 3.44 193 1.5 932 3.36 199 1.4 960 3.37 205 1.4 989 3.47

Reserve for Replacement 206 2.0 996 4.20 357 3.0 1,722 6.55 525 4.0 2,536 9.14 554 4.0 2,676 9.40 571 4.0 2,757 9.68

Total Expenses 1,156 11.3 5,586 23.55 1,335 11.3 6,450 24.54 1,533 11.7 7,406 26.70 1,592 11.5 7,692 27.02 1,640 11.5 7,923 27.83

EBITDA LESS RESERVE $2,468 23.9 % $11,924 $50.26 $3,240 27.2 % $15,651 $59.56 $3,799 28.9 % $18,352 $66.16 $4,042 29.2 % $19,526 $68.58 $4,163 29.2 % $20,112 $70.64

*Departmental expenses are expressed as a percentage of departmental revenues.


FIGURE 1-12 TEN-YEAR FORECAST OF INCOME AND EXPENSE

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

Number of Rooms: 207 207 207 207 207 207 207 207 207 207

Occupied Rooms: 49,111 54,400 57,422 58,933 58,933 58,933 58,933 58,933 58,933 58,933

Occupancy: 65% 72% 76% 78% 78% 78% 78% 78% 78% 78%

Average Rate: $156.25 % of $164.77 % of $174.07 % of $179.29 % of $184.67 % of $190.21 % of $195.91 % of $201.79 % of $207.84 % of $214.08

RevPAR: $101.56 Gross $118.63 Gross $132.29 Gross $139.84 Gross $144.04 Gross $148.36 Gross $152.81 Gross $157.40 Gross $162.12 Gross $166.98

OPERATING REVENUE

Rooms $7,673 74.4 % $8,963 75.4 % $9,995 76.2 % $10,566 76.3 % $10,883 76.3 % $11,209 76.3 % $11,546 76.3 % $11,892 76.3 % $12,249 76.3 % $12,616 76.3 %

Food & Beverage 1,692 16.4 1,877 15.8 2,012 15.3 2,113 15.3 2,177 15.3 2,242 15.3 2,309 15.3 2,378 15.3 2,450 15.3 2,523 15.3


Valet Parking ("Net") 529 5.1 604 5.1 657 5.0 694 5.0 715 5.0 736 5.0 759 5.0 781 5.0 805 5.0 829 5.0



Rooms 2,031 26.5 2,172 24.2 2,284 22.9 2,377 22.5 2,449 22.5 2,522 22.5 2,598 22.5 2,676 22.5 2,756 22.5 2,839 22.5

Food & Beverage 1,369 80.9 1,455 77.5 1,525 75.8 1,585 75.0 1,632 75.0 1,681 75.0 1,732 75.0 1,784 75.0 1,837 75.0 1,892 75.0


Total Expenses 3,550 34.4 3,783 31.8 3,972 30.3 4,129 29.8 4,253 29.8 4,381 29.8 4,512 29.8 4,648 29.8 4,787 29.8 4,931 29.8



Administrative & General 931 9.0 985 8.3 1,032 7.9 1,070 7.7 1,102 7.7 1,135 7.7 1,169 7.7 1,204 7.7 1,240 7.7 1,277 7.7


Marketing 570 5.5 602 5.1 631 4.8 654 4.7 674 4.7 694 4.7 715 4.7 737 4.7 759 4.7 781 4.7

Franchise Fee 460 4.5 627 5.3 700 5.3 845 6.1 871 6.1 897 6.1 924 6.1 951 6.1 980 6.1 1,009 6.1

Prop. Operations & Maint. 288 2.8 345 2.9 425 3.2 440 3.2 454 3.2 467 3.2 481 3.2 496 3.2 511 3.2 526 3.2

Utilities 460 4.5 487 4.1 510 3.9 529 3.8 544 3.8 561 3.8 578 3.8 595 3.8 613 3.8 631 3.8

Total Expenses 2,826 27.4 3,169 26.7 3,427 26.1 3,672 26.5 3,782 26.5 3,895 26.5 4,012 26.5 4,133 26.5 4,257 26.5 4,384 26.5


Management Fee 309 3.0 357 3.0 394 3.0 416 3.0 428 3.0 441 3.0 454 3.0 468 3.0 482 3.0 496 3.0



Property Taxes 768 7.5 791 6.7 815 6.2 840 6.1 865 6.1 891 6.1 917 6.1 945 6.1 973 6.1 1,002 6.1

Insurance 182 1.8 187 1.6 193 1.5 199 1.4 205 1.4 211 1.4 217 1.4 224 1.4 230 1.4 237 1.4

Reserve for Replacement 206 2.0 357 3.0 525 4.0 554 4.0 571 4.0 588 4.0 605 4.0 624 4.0 642 4.0 662 4.0

Total Expenses 1,156 11.3 1,335 11.3 1,533 11.7 1,592 11.5 1,640 11.5 1,689 11.5 1,740 11.5 1,792 11.5 1,846 11.5 1,901 11.5

EBITDA LESS RESERVE $2,468 23.9 % $3,240 27.2 % $3,799 28.9 % $4,042 29.2 % $4,163 29.2 % $4,288 29.2 % $4,417 29.2 % $4,549 29.2 % $4,686 29.2 % $4,826 29.2 %1 1 1 1 1 1 1 1 1 1


% of

Gross


The Feasibility Analysis chapter of this report converts these cash flows into a net present value indication assuming set-forth debt and equity requirements. The conclusion of this analysis indicates that an equity investor contributing $15,312,000 (roughly 35% of the $43,800,000 development cost) could expect to receive a 17.1% internal rate of return over a ten-year holding period, assuming that the investor obtains financing at the time of the project’s completion at the loan-to-value ratio and interest rate set forth. The proposed subject hotel has an opportunity to serve a growing demand base in the northern "downtown" market. This market offers a wide complement of branded, select-service and extended-stay hotels; however, the Midtown district remains underserved by full-service lodging facilities, particularly within the IHG family. Based on our market analysis, there is sufficient market support for the proposed Holiday Inn hotel. Our conclusions are based primarily on the long-term strength of this hotel market combined with the current and anticipated demand growth in the Miami Midtown submarket. Our review of investor surveys indicates equity returns ranging from 12.7% to 22.9%, with an average of 17.2% for full-service assets. Based on these parameters, the calculated return to the equity investor, 17.1%, is consistent with the average and within the range of market-level returns given the anticipated cost of $43,800,000. In conclusion, the feasibility of the subject project is confirmed.

“Extraordinary Assumption” is defined in USPAP as follows:

An assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: Uncertain information might include physical, legal, or economic characteristics of the subject property; or conditions external to the property, such as market conditions or trends; or the integrity of data used in an analysis.1

The analysis is based on the extraordinary assumption that the described improvements have been completed as of the prospective "when complete" date of value. The reader should understand that the completed subject property does not yet exist as of the date of appraisal. Our appraisal does not address unforeseeable events that could alter the proposed project, and/or the market conditions reflected in the analyses; we assume that no significant changes, other than those anticipated and explained in this report, shall take place between the date of inspection and date of prospective value. The use of this extraordinary assumption may have affected the assignment results. Several important general assumptions have been made

1 The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, 2018–2019

ed.

Feasibility Conclusion

Assignment Conditions


that apply to this feasibility study. These aspects are set forth in the Assumptions and Limiting Conditions chapter of this report.

According to IHG’s regional representative, Mr. John Johnson, and our discussions with the developer of the proposed subject hotel, the 200-room Holiday Inn Port of Miami Downtown will be decommissioned in the near term clearing the way for site redevelopment. The World Trade Center of The Americas is slated to replace the Holiday Inn (see opposite rendering). According to public reports, the World Trade Center of the Americas is approved by the city as a 77-story tower with 400 residential units, 100 hotel rooms, 246,529 square feet of office space, and 516 parking spaces.

While a definitive date has yet to be formally announced by the owner/developer, it appears closure is imminent. As such, this analysis is based on the extraordinary assumption that the existing Holiday Inn will close operations on or before 3Q 2019; specifically, we have used a prospective closure date of July 1, 2019. Any departure from this assumption will significantly impact forecasted operating performance results contained in this feasibility study.

This feasibility report is being prepared for use in the development of the proposed subject hotel.

The client for this engagement is Edgewater Hotel Management, LLC. This report is intended for the addressee firm and may not be distributed to or relied upon by other persons or entities.

The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,2 Hotels, Motels and Restaurants: Valuations and Market Studies,3 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,4 Hotels and Motels: A Guide to Market

2 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of

Real Estate Appraisers, 1978). 3 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies.

(Chicago: American Institute of Real Estate Appraisers, 1983). 4 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and

Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990).

Intended Use of the Feasibility Study

Identification of the Client and Intended User

Scope of Work


Analysis, Investment Analysis, and Valuations,5 and Hotels and Motels – Valuations and Market Studies.6

1. All information was collected and analyzed by the staff of HVS Consulting & Valuation. Information was supplied by the client and/or the property’s development team.

2. The subject site has been evaluated from the viewpoint of its physical utility for the future operation of a hotel, as well as access, visibility, and other relevant factors.

3. The subject property's proposed improvements have been reviewed for their expected quality of construction, design, and layout efficiency.

4. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry-related economic and demographic trends that may have an impact on future demand for hotels.

5. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize the area's hotels. The factors investigated include purpose of visit, average length of stay, facilities and amenities required, seasonality, daily demand fluctuations, and price sensitivity.

6. An analysis of existing and proposed competition provides an indication of the current accommodated demand, along with market penetration and the degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report.

7. Documentation for an occupancy and ADR projection is derived utilizing the build-up approach based on an analysis of lodging activity.

8. A detailed projection of income and expense made in accordance with the Uniform System of Accounts for the Lodging Industry sets forth the anticipated economic benefits of the proposed subject property.

9. A feasibility analysis is performed, in which the market equity yield that an investor would expect is compared to the equity yield that an investor must accept.

5 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment

Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 6 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies.

(Chicago: Appraisal Institute, 2001).

November-2018 Description of the Site and Neighborhood Proposed Holiday Inn Edgewater – Miami, Florida 20

2. Description of the Site and Neighborhood

The suitability of the land for the operation of a lodging facility is an important consideration affecting the economic viability of a property and its ultimate marketability. Factors such as size, topography, access, visibility, and the availability of utilities have a direct impact on the desirability of a particular site.

The subject site is located in Midtown Miami, in the northeast quadrant of the intersection formed by Biscayne Boulevard and Northeast 35th Terrace. This site is in the city of Miami, Florida.

The subject site measures approximately 0.69 acres, or 30,045 square feet. The parcel's adjacent uses are set forth in the following table.

FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES

Direction

North Vacant Land; Planned 5,250 SF retail strip center

South Multi-Family Residential

East Residential

West Free-standing McDonald's restaurant

Adjacent Use

AERIAL VIEW OF SUBJECT SITE TO THE NORTH

AERIAL VIEW OF SUBJECT SITE TO THE SOUTH

Physical Characteristics


PROPOSED SITE PLAN

AERIAL VIEW OF SUBJECT SITE TO THE EAST

AERIAL VIEW OF SUBJECT SITE TO THE WEST


AERIAL PHOTOGRAPH

VIEW OF SUBJECT SITE


The topography of the site is flat, and the shape should permit efficient use of the site for building and site improvements, including ingress and egress. Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. It is expected that the site will be developed fully with building and site improvements, thus contributing to the overall profitability of the hotel.

VIEW FROM SITE TO THE NORTH

VIEW FROM SITE TO THE SOUTH

VIEW FROM SITE TO THE EAST

VIEW FROM SITE TO THE WEST

Topography and Site Utility


It is important to analyze the site with respect to regional and local transportation routes and demand generators, including ease of access. The subject site is readily accessible to a variety of local and county roads, as well as state and interstate highways.

MAP OF REGIONAL ACCESS ROUTES

Primary regional access routes in Miami-Dade County include Interstates 95 and 75, as well as Florida's Turnpike, also known as Ronald Reagan Turnpike. Florida's Turnpike is a limited-access toll expressway with a north/south orientation that intersects with the Dolphin Expressway (State Route 836). From its southern terminus in Homestead, Florida, Florida's Turnpike extends north through Orlando to Interstate 75 near Wildwood, Florida. State Route 836 is an east/west highway that provides access between Interstate 95 in Downtown Miami and Florida's Turnpike. State Route 826 is a north/south thoroughfare in central and southern Miami-Dade County that provides access around the west side of the city. State Route 826 extends to Interstate 75 and also connects to Interstate 95 in northern

Access and Visibility


Miami-Dade County. Access from the downtown Miami area to Miami Beach is provided primarily by an extension of State Route 836 (Interstate 395), known as the MacArthur Causeway; the John F. Kennedy Causeway; and Interstate 195 (also known as the Julia Tuttle Causeway). Regional access to/from the city of Miami and the subject site, in particular, is considered excellent. The subject market is served by a variety of additional local highways, which are illustrated on the map.

Primary vehicular access to the subject site is provided by Northeast 35th Terrance, which intersects with Biscayne Boulevard to the west and Northeast 36th Street to the north. The subject site is located near a busy intersection and is relatively simple to locate from Interstate 95 and 195, which are the nearest major highways. The proposed subject hotel is anticipated to have adequate signage at the street, as well as on its façade. Overall, the subject site benefits from good accessibility, and the proposed hotel is expected to enjoy good visibility from within its local neighborhood.

AERIAL PHOTOGRAPH OF THE SUBJECT SITE


The proposed subject hotel will be served by the Miami International Airport, which is located approximately five miles to the west of the subject site.

MIAMI INTERNATIONAL AIRPORT ACCESS

The neighborhood surrounding a lodging facility often has an impact on a hotel's status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. This section of the report investigates the subject neighborhood and evaluates any pertinent location factors that could affect its future occupancy, average rate, and overall profitability.

Midtown Miami is the collective term for the Wynwood and Edgewater neighborhoods of Miami, north of Downtown and south of the Miami Design District. It is roughly bound by North 20th Street to the south, I-195 to the north, I-95 to the west and Biscayne Bay to the east. In 2005, construction began on the "Midtown Miami" development between North 29th and 36th Street and Miami Avenue and the Florida East Coast Railway on what was historically an FEC rail yard. The project is a large-scale, urban development including high-rise residential development, hotels, parks, and a major urban shopping area.

Airport Access

Neighborhood

/wiki/Downtown_Miami


MIAMI DESIGN DISTRICT

The Miami Design District is located just 2.8 miles from Downtown Miami, 5 miles from Miami International Airport and under 7 miles from the heart of South Beach. The neighborhood surrounding the subject site is generally defined by Interstate 195 to the north, Biscayne Boulevard to the east, Interstate 395 to the south, and Interstate 95 to the west. This neighborhood is in the growth stage of its life cycle, with development occurring in the retail, restaurant, and residential sectors. Within the immediate proximity of the site, land use is primarily residential and commercial in nature. The neighborhood is characterized by condominium developments, hotels, restaurants, and retail shopping centers. Some specific businesses in the area include Target, HomeGoods, Nordstrom Rack, Starbucks, and several other establishments in the Midtown and Wynwood areas. Hotels in the vicinity include Hampton Inn & Suites by Hilton, Marriott, and DoubleTree by Hilton, while condominium developments in the vicinity include Grand, West Bay Plaza, Electra One, 4 Midtown, and Hyde Midtown. Restaurants located near the subject site include McDonald's (located immediately to the west of the subject site), Black Brick, Sakaya Kitchen, 100 Montaditos, Latteria Italiana and several other restaurants and lounges in both the Midtown and Wynwood areas; the proximity of


these restaurants is considered supportive of the operation of a full-service lodging property.

In general, this neighborhood is in the growth stage of its life cycle. A 5,250-square-foot, 5-unit retail strip center located Immediately to the north of the subject site is currently in the advanced planning stage. The site, which offer frontage along 36th Street is currently vacant and poised for immediate development. The developer is of the project is Architecture Woks LLC based in Miami Beach.

MAP OF NEIGHBORHOOD

The proposed subject hotel's opening should be a positive influence on the area; the hotel will be in character with and will complement surrounding land uses. Overall, the supportive nature of the development in the immediate area is considered appropriate for and conducive to the operation of a hotel.


The subject site is located near the area's primary generators of lodging demand. A sample of these demand generators is reflected on the following map, including respective distances from and drive times to the subject site. Overall, the subject site is well situated with respect to demand generators.

ACCESS TO DEMAND GENERATORS AND ATTRACTIONS

Proximity to Local Demand Generators and Attractions


According to the Federal Emergency Management Agency map illustrated below, the subject site is located in X.

COPY OF FLOOD MAP AND COVER

The flood zone definition for the X designation is as follows: areas outside the 500-year flood plain; areas of the 500-year flood; areas of the 100-year flood with average depths of less than one foot or with drainage areas less than one square mile and areas protected by levees from the 100-year flood.

Flood Zone


According to the local planning office, the subject property is zoned as follows: T6-36A-O / T6-36A-L - Urban Core Transect. Additional details pertaining to the proposed subject property’s zoning regulations are summarized in the following table.

FIGURE 2-2 ZONING

Municipality Governing Zoning City of Miami

Current Zoning Urban Core Transect

Current Use Vacant Land

Is Current Use Permitted? Yes

Is Change in Zoning Likely? No

Permitted Uses Hotel, Multi-Family Residential

Hotel Allowed Yes

Legally Non-Conforming Not Applicable

ZONING MAP

Zoning


The subject site will reportedly be served by all necessary utilities.

Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent.

We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors.

We are not aware of any easements attached to the property that would significantly affect the utility of the site or marketability of this project.

We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is favorably located proximate to the interstate and a major interchange, as well as a multitude of commercial demand generators and retail and restaurant outlets. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.

Utilities

Soil and Subsoil Conditions

Nuisances and Hazards

Easements and Encroachments

Conclusion

November-2018 Market Area Analysis Proposed Holiday Inn Edgewater – Miami, Florida 33

3. Market Area Analysis

The economic vitality of the market area and neighborhood surrounding the subject site is an important consideration in forecasting lodging demand and future income potential. Economic and demographic trends that reflect the amount of visitation provide a basis from which to project lodging demand. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will undergo economic growth, stabilize, or decline. In addition to predicting the direction of the economy, the rate of change must be quantified. These trends are then correlated based on their propensity to reflect variations in lodging demand, with the objective of forecasting the amount of growth or decline in visitation by individual market segment (e.g., commercial, meeting and group, and leisure).

The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of Miami, the county of Miami-Dade, and the state of Florida.

MIAMI-DADE COUNTY

Market Area Definition


Miami boasts a metropolitan area that includes several unincorporated areas and 35 incorporated areas or municipalities, all of which make up the majority of Miami-Dade County. The eastern portion of the city lies on the shores of Biscayne Bay, which contains several hundred natural and artificially created barrier islands, the largest of which contains Miami Beach and South Beach. The Gulf Stream, a warm ocean current, runs northward just 15 miles off the coast, allowing the city's climate to stay warm and mild all year. While tourism continues to be the principal industry, Miami has developed an increasingly diversified economy in recent years, making it a global city and the “Gateway to the Americas.” The region has emerged as a center for international tourism, banking, foreign trade, entertainment, technology, and distribution. Miami serves as the headquarters of Latin American operations for many multinational corporations, and the Miami International Airport and the Port of Miami are among the nation's busiest ports of entry, especially for cargo from South America and the Caribbean.

The subject property’s market area can be defined by its Combined Statistical Area (CSA): Miami-Fort Lauderdale-Port St. Lucie, FL. The CSA represents adjacent metropolitan and micropolitan statistical areas that have a moderate degree of employment interchange. Micropolitan statistical areas represent urban areas in the United States based around a core city or town with a population of 10,000 to 49,999; the MSA requires the presence of a core city of at least 50,000 people and a total population of at least 100,000 (75,000 in New England). The following exhibit illustrates the market area.


MAP OF MARKET AREA

A primary source of economic and demographic statistics used in this analysis is the Complete Economic and Demographic Data Source published by Woods & Poole Economics, Inc.—a well-regarded forecasting service based in Washington, D.C. Using a database containing more than 900 variables for each county in the nation, Woods & Poole employs a sophisticated regional model to forecast economic and demographic trends. Historical statistics are based on census data and information published by the Bureau of Economic Analysis. Projections are formulated by Woods & Poole, and all dollar amounts have been adjusted for inflation, thus reflecting real change.

These data are summarized in the following table.

Economic and Demographic Review


FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

Average Annual

Compounded Change

2000 2010 2016 2020 2000-10 2010-16 2016-20

Resident Population (Thousands)

Miami-Dade County 2,259.5 2,507.4 2,712.9 2,840.9 1.0 % 1.3 % 1.2 %

Miami-Fort Lauderdale-West Palm Beach, FL MSA 5,025.9 5,584.4 6,066.4 6,420.8 1.1 1.4 1.4

Miami-Fort Lauderdale-Port St. Lucie, FL CSA 5,496.0 6,187.9 6,723.5 7,130.3 1.2 1.4 1.5

State of Florida 16,047.5 18,849.1 20,612.4 21,857.9 1.6 1.5 1.5

United States 282,162.4 309,348.1 323,132.3 335,057.8 0.9 0.7 0.9

Per-Capita Personal Income*

Miami-Dade County $32,400 $37,554 $41,015 $44,402 1.5 1.5 2.0

Miami-Fort Lauderdale-West Palm Beach, FL MSA 39,511 42,395 47,125 50,953 0.7 1.8 2.0

Miami-Fort Lauderdale-Port St. Lucie, FL CSA 39,463 42,220 47,122 50,891 0.7 1.8 1.9

State of Florida 35,780 37,998 41,478 44,531 0.6 1.5 1.8

United States 36,812 39,622 44,450 47,348 0.7 1.9 1.6

W&P Wealth Index

Miami-Dade County 89.6 97.2 95.4 96.6 0.8 (0.3) 0.3

Miami-Fort Lauderdale-West Palm Beach, FL MSA 110.7 112.5 111.6 112.9 0.2 (0.1) 0.3

Miami-Fort Lauderdale-Port St. Lucie, FL CSA 111.0 112.4 111.7 112.9 0.1 (0.1) 0.3

State of Florida 100.7 100.7 97.5 98.1 (0.0) (0.5) 0.2

United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0

Food and Beverage Sales (Millions)*




State of Florida 22,183 28,727 38,469 41,653 2.6 5.0 2.0

United States 368,829 447,728 582,294 615,384 2.0 4.5 1.4

Total Retail Sales (Millions)*




State of Florida 241,567 268,761 327,486 358,686 1.1 3.3 2.3

United States 3,902,830 4,130,414 4,880,293 5,227,450 0.6 2.8 1.7

* Inflation Adjusted

Source: Woods & Poole Economics, Inc.


The U.S. population has grown at an average annual compounded rate of 0.7% from 2010 through 2016. The county’s population has increased at a quicker pace than the nation’s population; the average annual growth rate of 1.3% between 2010 and 2016 reflects a gradually expanding area. Following this population trend, per-capita personal income increased slowly, at 1.5% on average annually for the county between 2010 and 2016. Local wealth indexes have remained stable in recent years, registering a relatively near average 95.4 level for the county in 2016.

Food and beverage sales totaled $5,613 million in the county in 2016, versus $4,180 million in 2010. This reflects a 5.0% average annual change, which is stronger than the 3.0% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. Over the long term, the pace of growth is forecast to moderate to a more sustainable level of 1.9%, which is forecast through 2020. The retail sales sector demonstrated an annual increase of 1.4% registered in the decade 2000 to 2010, followed by an increase of 3.4% in the period 2010 to 2016. An increase of 2.0% average annual change is expected in county retail sales through 2020.

The characteristics of an area's workforce provide an indication of the type and amount of transient visitation likely to be generated by local businesses. Sectors such as finance, insurance, and real estate (FIRE); wholesale trade; and services produce a considerable number of visitors who are not particularly rate-sensitive. The government sector often generates transient room nights, but per-diem reimbursement allowances often limit the accommodations selection to budget and mid-priced lodging facilities. Contributions from manufacturing, construction, transportation, communications, and public utilities (TCPU) employers can also be important, depending on the company type.

The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2016, as well as a forecast for 2020.

Workforce Characteristics


FIGURE 3-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S)

Average Annual

Compounded Change

Percent Percent Percent Percent

Industry 2000 of Total 2010 of Total 2016 of Total 2020 of Total

Farm 7.4 0.6 % 7.1 0.5 % 7.3 0.4 % 7.8 0.4 % (0.4) % 0.6 % 1.6 %

Forestry, Fishing, Related Activities And Other 3.6 0.3 2.6 0.2 3.1 0.2 3.3 0.2 (3.1) 3.2 1.6

Mining 0.7 0.1 1.1 0.1 1.6 0.1 1.6 0.1 4.4 6.3 0.5

Utilities 4.8 0.4 3.7 0.3 3.5 0.2 3.5 0.2 (2.6) (1.1) 0.4

Construction 57.5 4.5 58.6 4.1 77.3 4.4 100.8 5.3 0.2 4.7 6.9

Manufacturing 66.2 5.2 39.7 2.8 47.9 2.7 49.8 2.6 (5.0) 3.2 1.0

Total Trade 213.9 16.8 219.1 15.5 267.9 15.3 306.6 16.0 0.2 3.4 3.4

Wholesale Trade 73.4 5.8 76.7 5.4 93.5 5.3 101.3 5.3 0.4 3.4 2.0

Retail Trade 140.5 11.1 142.4 10.1 174.4 9.9 205.3 10.7 0.1 3.4 4.2

Transportation And Warehousing 81.2 6.4 78.9 5.6 113.7 6.5 114.0 5.9 (0.3) 6.3 0.1

Information 36.2 2.8 22.7 1.6 25.6 1.5 25.9 1.3 (4.5) 2.0 0.3

Finance And Insurance 57.8 4.6 75.7 5.4 96.2 5.5 107.0 5.6 2.7 4.1 2.7

Real Estate And Rental And Lease 47.6 3.7 82.8 5.9 136.9 7.8 152.6 8.0 5.7 8.7 2.8

Total Services 542.0 42.7 667.4 47.2 825.0 47.1 895.1 46.7 2.1 3.6 2.1

Professional And Technical Services 82.3 6.5 97.5 6.9 126.5 7.2 133.7 7.0 1.7 4.4 1.4

Management Of Companies And Enterprises 6.8 0.5 11.8 0.8 16.9 1.0 18.9 1.0 5.7 6.1 2.9

Administrative And Waste Services 118.6 9.3 114.8 8.1 135.4 7.7 141.7 7.4 (0.3) 2.8 1.2

Educational Services 24.0 1.9 38.6 2.7 43.1 2.5 45.7 2.4 4.9 1.9 1.5

Health Care And Social Assistance 112.3 8.8 157.6 11.1 184.4 10.5 212.5 11.1 3.4 2.7 3.6

Arts, Entertainment, And Recreation 20.4 1.6 25.6 1.8 31.1 1.8 32.9 1.7 2.3 3.3 1.5

Accommodation And Food Services 82.5 6.5 103.1 7.3 138.6 7.9 149.4 7.8 2.3 5.1 1.9

Other Services, Except Public Administration 95.1 7.5 118.4 8.4 149.1 8.5 160.2 8.4 2.2 3.9 1.8

Total Government 151.1 11.9 155.8 11.0 147.5 8.4 150.4 7.8 0.3 (0.9) 0.5

Federal Civilian Government 19.1 1.5 20.9 1.5 20.2 1.2 20.2 1.1 0.9 (0.6) (0.0)

Federal Military 7.3 0.6 7.5 0.5 7.4 0.4 7.4 0.4 0.3 (0.2) 0.1

State And Local Government 124.7 9.8 127.4 9.0 119.9 6.8 122.7 6.4 0.2 (1.0) 0.6

TOTAL 1,269.9 100.0 % 1,415.1 100.0 % 1,753.5 100.0 % 1,918.4 100.0 % 1.1 % 3.6 % 2.3 %

MSA 2,758.9 — 3,126.9 — 3,852.4 — 4,233.9 — 1.3 % 3.5 % 2.4 %

U.S. 165,372.0 — 173,034.7 — 193,668.4 — 208,570.0 — 1.0 1.9 1.9

Source: Woods & Poole Economics, Inc.

2000-

2010

2010-

2016

2016-

2020


Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 1.1%. This trend was below the growth rate recorded by the MSA and also outpaced the national average. More recently, the pace of total employment growth in the county accelerated to 3.6% on an annual average from 2010 to 2016, reflecting the initial years of the recovery.

Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2016, increasing by 157,616 people, or 23.6%, and rising from 47.2% to 47.1% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Other Services, Except Public Administration were the largest employers. Strong growth was also recorded in the Real Estate And Rental And Lease sector, as well as the Total Trade sector, which expanded by 65.3% and 22.3%, respectively, in the period 2010 to 2016. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 2.3% on average annually through 2020. The trend is above the forecast rate of change for the U.S. as a whole during the same period.

For the Miami market, of the roughly 1,200,000 persons employed, 30% are categorized as office employees, while 12% are categorized as industrial employees. Total employment decreased by an average annual compound rate of -2.4% during the recession of 2007 to 2010, followed by an increase of 2.5% from 2010 to 2017. By comparison, office employment reflected compound change rates of -2.7% and 2.5%, during the same respective periods. Total employment is expected to expand by 2.5% in 2018, while office employment is forecast to expand by 2.0% in 2018. From 2018 through 2022, REIS anticipates that total employment will expand at an average annual compound rate of 0.8%, while office employment will expand by 0.9% on average annually during the same period.

The number of households is forecast to expand by 1.7% on average annually between 2018 and 2022. Population is forecast to expand during this same period, at an average annual compounded rate of 1.3%. Household average income is forecast to grow by 4.2% on average annually from 2018 through 2022.

The following table illustrates historical and projected employment, households, population and average household income data as provided by REIS for the overall Miami market.


FIGURE 3-3 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS

Year

2005 1,036,730 — 320,855 — 137,625 — 835,750 — 2,397,660 — $100,666 —

2006 1,057,400 2.0 % 326,486 1.8 % 139,170 1.1 % 842,910 0.9 % 2,410,390 0.5 % 108,762 8.0 %

2007 1,068,000 1.0 325,867 (0.2) 138,471 (0.5) 851,510 1.0 2,424,420 0.6 110,092 1.2

2008 1,024,300 (4.1) 311,901 (4.3) 129,568 (6.4) 858,760 0.9 2,449,170 1.0 106,513 (3.3)

2009 978,900 (4.4) 297,326 (4.7) 118,667 (8.4) 866,580 0.9 2,482,180 1.3 101,513 (4.7)

2010 992,730 1.4 299,829 0.8 119,115 0.4 882,290 1.8 2,540,270 2.3 110,983 9.3

2011 1,014,130 2.2 306,038 2.1 121,921 2.4 902,920 2.3 2,592,150 2.0 111,900 0.8

2012 1,041,530 2.7 315,810 3.2 124,244 1.9 917,040 1.6 2,625,600 1.3 115,609 3.3

2013 1,064,230 2.2 322,185 2.0 125,842 1.3 930,520 1.5 2,659,950 1.3 113,046 (2.2)

2014 1,105,870 3.9 335,105 4.0 129,672 3.0 938,650 0.9 2,690,030 1.1 122,068 8.0

2015 1,140,630 3.1 345,021 3.0 132,347 2.1 943,680 0.5 2,722,100 1.2 129,438 6.0

2016 1,166,600 2.3 353,652 2.5 133,201 0.6 951,950 0.9 2,747,160 0.9 130,365 0.7

2017 1,180,170 1.2 356,774 0.9 136,802 2.7 964,770 1.3 2,769,190 0.8 136,717 4.9

Forecasts

2018 1,209,420 2.5 % 363,923 2.0 % 138,602 1.3 % 982,070 1.8 % 2,806,920 1.4 % $143,733 5.1 %

2019 1,231,050 1.8 370,130 1.7 139,897 0.9 1,000,060 1.8 2,844,390 1.3 150,852 5.0

2020 1,230,110 (0.1) 369,966 (0.0) 138,549 (1.0) 1,016,750 1.7 2,881,410 1.3 155,780 3.3

2021 1,232,560 0.2 371,311 0.4 137,601 (0.7) 1,033,180 1.6 2,918,510 1.3 162,002 4.0

2022 1,249,450 1.4 377,116 1.6 138,210 0.4 1,050,170 1.6 2,955,410 1.3 169,271 4.5

Average Annual Compound Change

2005 - 2017 1.1 % 0.9 % (0.0) % 1.2 % 1.2 % 2.6 %

2005 - 2007 1.5 0.8 0.3 0.9 0.6 4.6

2007 - 2010 (2.4) (2.7) (4.9) 1.2 1.6 0.3

2010 - 2017 2.5 2.5 2.0 1.3 1.2 5.4

Forecast 2018 - 2022 0.8 % 0.9 % (0.1) % 1.7 % 1.3 % 4.2 %

% Chg% Chg

Office

Employment

Household

Avg. Income % Chg

Source: REIS Report, 2nd Quarter, 2018

Households % Chg Population

Industrial

Employment % Chg

Total

Employment % Chg


The following table reflects radial demographic trends for our market area measured by three points of distance from the subject site.

FIGURE 3-4 DEMOGRAPHICS BY RADIUS

Population

2023 Projection 26,316 221,372 573,071

2018 Estimate 24,730 206,696 538,975

2010 Census 22,255 181,424 485,730

2000 Census 20,980 164,561 458,315

Percent Change: 2018 to 2023 6.4% 7.1% 6.3%



Households

2023 Projection 11,592 89,802 236,308

2018 Estimate 10,782 83,261 221,115

2010 Census 9,512 71,570 196,475

2000 Census 7,630 59,254 175,696




Income

2018 Est. Average Household Income $78,034 $60,549 $66,729

2018 Est. Median Household Income 55,118 32,377 36,342

2018 Est. Civ. Employed Pop 16+ by Occupation

Architecture/Engineering 277 814 1,978

Arts/Design/Entertainment/Sports/Media 721 3,145 8,208

Building/Grounds Cleaning/Maintenance 514 7,756 21,156

Business/Financial Operations 624 3,869 10,648

Community/Social Services 75 680 1,913

Computer/Mathematical 386 1,665 4,277

Construction/Extraction 655 7,746 19,561

Education/Training/Library 383 2,852 9,133

Farming/Fishing/Forestry 1 326 708

Food Preparation/Serving Related 1,518 8,446 23,834

Healthcare Practitioner/Technician 585 3,697 10,652

Healthcare Support 263 2,018 5,070

Installation/Maintenance/Repair 148 1,722 5,589

Legal 238 1,724 5,164

Life/Physical/Social Science 78 451 1,427

Management 1,855 8,784 24,891

Office/Administrative Support 1,733 10,172 27,347

Production 268 2,995 7,891

Protective Services 229 1,966 4,970

Sales/Related 1,890 11,203 30,340

Personal Care/Service 292 2,614 7,940

Transportation/Material Moving 851 6,159 16,614

0.00 - 1.00 miles 0.00 - 3.00 miles 0.00 - 5.00 miles

Source: Environics Analytics

Radial Demographic Snapshot


This source reports a population of 538,975 within a five-mile radius of the subject site, and 221,115 households within this same radius. Average household income within a five-mile radius of the subject site is currently reported at $66,729, while the median is $36,342.

The following table presents historical unemployment rates for the proposed subject hotel’s market area.

FIGURE 3-5 UNEMPLOYMENT STATISTICS

Year

2008 4.8 % 5.5 % 6.3 % 5.8 %

2009 10.4 10.0 10.4 9.3

2010 11.1 10.8 11.1 9.6

2011 9.4 9.6 10.0 8.9

2012 8.3 8.2 8.5 8.1

2013 7.4 7.1 7.2 7.4

2014 6.7 6.3 6.3 6.2

2015 5.9 5.5 5.5 5.3

2016 5.3 4.9 4.8 4.9

2017 4.8 4.3 4.2 4.4

Recent Month - Aug

2017 5.1 % 4.6 % 4.3 % 4.4 %

2018 4.1 3.9 3.8 3.9

Source: U.S. Bureau of Labor Statistics

U.S.County MSA State

Current U.S. unemployment levels are now firmly below the annual averages of the last economic cycle peak of 2006 and 2007, when annual averages were 4.6%. National unemployment registered 4.1% each month during the first quarter of 2018, as well as the last quarter of 2017, roughly six points below the October 2009 peak of 10.0%. In July, August, and September of 2018, the rate remained low at 3.9%, 3.9%, and 3.7%, respectively. Total nonfarm payroll employment increased by 165,000, 270,000, and 134,000 jobs in July, August, and September of 2018, respectively. Gains in August occurred in the professional and business services, health care, transportation, and warehousing sectors. Unemployment has remained under the 5.0% mark since May 2016, reflecting a trend of relative stability and the overall strength of the U.S. economy. The unemployment rate fell to a 48-year low in September.

Unemployment Statistics


Locally, the unemployment rate was 4.8% in 2017; for this same area in 2018, the most recent month’s unemployment rate was registered at 4.1%, versus 5.1% for the same month in 2017. Unemployment rose in 2009 and 2010 because of the Great Recession. However, unemployment began to decline in 2011 as the economy rebounded, a trend that continued through 2017. The most recent comparative period illustrates continued improvement, indicated by the lower unemployment rate in the latest available data for 2018. Reportedly, local employment has remained strong within the tourism industry.

Providing additional context for understanding the nature of the regional economy, the following table presents a list of the major employers in the subject property’s market.

FIGURE 3-6 MAJOR EMPLOYERS

Number of

Rank Firm Employees

1 Miami-Dade County Public Schools 33,477

2 Miami-Dade County 25,502

3 Federal Government 19,200

4 The State of Florida 17,100

5 University of Miami 12,818

6 Baptist Health South Florida 11,353

7 American Airlines 11,031

8 Jackson Health System 9,797

9 City of Miami 3,997

10 Florida International University 3,534

Source: The Beacon Council, 2015

The following bullet points highlight major demand generators for this market:

• The area's favorable weather and the miles of beach in Miami Beach, Key Biscayne, Sunny Isles, Surfside, and Bal Harbour support the area's popularity for resort-style, subtropical tourism. According to the Greater Miami Convention & Visitors Bureau, 15.7 million visitors stayed at least one night in the Miami-Dade market in 2016, an increase of 1.5% over 2015 visitation levels. The increase was largely from domestic travel, which outpaced international travel after remaining relatively flat in 2013. Development of the area's attractions remains a primary objective for Miami Beach officials. One of the city's major projects in this sector is the City Center Redevelopment Project, which includes the new campus for the New World Symphony. This facility,

Major Business and Industry


which was designed by renowned architect Frank Gehry, consists of over 100,000 square feet of technologically advanced space for performances and instruction, as well as a music library, a rooftop garden, and a parking garage. The City is also in the early planning stages of collaboration with a developer to build a convention center hotel.

• PortMiami accommodates the largest volume of cruise ships and passengers in the world and is home to many cruise-line headquarters. The Port has historically been known as the “Cruise Capital of the World” and “Cargo Gateway of the Americas.” An important economic engine for the region, PortMiami's annual economic impact on South Florida is $27 billion, supporting approximately 207,000 jobs. The Port is currently executing a 25-year master plan that will improve cargo and cruise ship areas, along with improved security and infrastructure. In 2014, the Florida Department of Transportation, in partnership with MAT Concessionaire LLC, improved vehicular access to the area by constructing a tunnel beneath the port's primary waterway, extending from Interstate 395 on Watson Island to the cruise terminal. Additionally, one of the major infrastructure improvements at PortMiami, the Deep Dredge Project, which deepened the channel from 42 feet to approximately 50 feet, was completed in September 2015. The project is expected to increase opportunities for Asian trade, as it has made PortMiami the only Eastern Seaboard port south of Norfolk, Virginia, able to accommodate mega-size cargo vessels in preparation of the expanded Panama Canal, which reopened in June 2016.

• Miami is ranked as a global city for its importance in finance, commerce, media, entertainment, arts, and international trade. The city is home to many company headquarters and television studios, as well as the largest concentration of international banks in the United States, with over 100 commercial banks, thrift institutions, foreign bank agencies, and hundreds of other financial management and brokerage service firms. Because of its proximity to Latin America, Miami serves as the headquarters of Latin American operations for companies such as United Parcel Service, FedEx Corporation, Discovery Networks Latin America, and Hewlett-Packard. In February 2016, NBCUniversal Telemundo, which has an existing strong presence in the Miami market, announced plans to build its global headquarters in Miami-Dade County. Construction on the $250-million, 450,000-square-foot building was completed in early 2018. Additionally, Bauducco Foods opened its U.S. headquarters in August 2016. Furthermore, companies such as Royal Caribbean and Carnival Cruise Lines have a corporate presence in offices near the Miami International Airport.

Miami is experiencing a period of strong growth and expansion following the Great Recession. Private investment throughout the city has fueled significant economic growth, particularly from foreign sources. Miami recorded the fastest population


growth of large cities in the U.S. from 2010 to 2014, as new residents surged the city, particularly in the CBD. Furthermore, the area continues to expand its tourism attractions, and Miami remains one of the top-rated destinations in the country from both a domestic and international perspective. Construction at the Port of Miami, recent expansions at the airport, the repositioning of the Miami Beach Convention Center, and the continued growth of the residential and hospitality sectors will support the ongoing appeal of the market. Miami's global popularity as a year-round tourism destination and its location convenient for international corporations contribute to the area’s economic strength and serve as catalysts for the market's economy.

Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or occupied office space may have a proportional impact on commercial lodging demand and a less direct effect on meeting demand. The following table details office space statistics for the pertinent market area.

FIGURE 3-7 OFFICE SPACE STATISTICS – MARKET OVERVIEW

Submarket

1 North Miami 63 3,486,000 3,057,200 12.3 % $28.95

2 Airport West 148 12,700,000 11,264,900 11.3 30.77

3 Brickell 43 6,513,000 5,542,600 14.9 43.60

4 Hialeah 52 2,019,000 1,603,100 20.6 23.34

5 Biscayne Blvd. 36 1,913,000 1,595,400 16.6 35.81

6 Downtown 30 7,382,000 5,566,000 24.6 36.28

7 Coconut Grove 32 1,735,000 1,480,000 14.7 31.10

8 Coral Gables 56 4,521,000 4,109,600 9.1 39.96

9 South Miami/Gables 21 837,000 771,700 7.8 30.28

10 Sunset/Kendall 76 3,907,000 3,356,100 14.1 29.56

Totals and Averages 557 45,013,000 38,346,600 14.8 % $34.09

Inventory Occupied Office

Space

Vacancy

Rate

Average Asking

Lease RateBuildings Square Feet


The greater Miami market comprises a total of 45.0 million square feet of office space. For the 2nd Quarter of 2018, the market reported a vacancy rate of 14.8% and an average asking rent of $34.09. The subject property is located in the Biscayne Blvd. submarket, which houses 1,913,000 square feet of office space. The submarket's vacancy rate of 16.6% is above the overall market average. The average asking lease rate of $35.81 is above the average for the broader market.

Office Space Statistics


BISCAYNE BOULEVARD OFFICE TRACT

The inventory of office space in the Miami market increased at an average annual compound rate of 0.5% from 2005 through 2017, while occupied office space expanded at an average annual rate of 0.2% over the same period. During the period of 2005 through 2009, occupied office space contracted at an average annual compound rate of -0.3%. From 2009 through 2012, occupied office space contracted at an average annual compound rate of -1.1%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.9% average annual change in occupied office space from 2012 to 2017. From 2017 through 2022, the inventory of occupied office space is forecast to increase at an average annual compound rate of 0.2%, with available office space expected to increase 0.7%, thus resulting in an anticipated vacancy rate of 16.5% as of 2022.

The following table illustrates a trend of office space statistics for the overall Miami market and the Biscayne Blvd. submarket.


FIGURE 3-8 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS – GREATER MARKET VS. SUBMARKET

Year

2005 42,304,000 — 37,486,000 — 11.4 % $24.31 — 2,187,000 — 1,898,000 — 13.2 % $24.58 —

2006 40,822,000 (3.5) % 37,627,000 0.4 % 7.8 26.54 9.2 % 1,927,000 (11.9) % 1,655,000 (12.8) % 14.1 26.92 9.5 %

2007 40,756,000 (0.2) 37,246,000 (1.0) 8.6 28.90 8.9 1,893,000 (1.8) 1,630,000 (1.5) 13.9 30.00 11.4

2008 40,957,000 0.5 36,274,000 (2.6) 11.4 30.64 6.0 1,893,000 0.0 1,567,000 (3.9) 17.2 30.93 3.1

2009 41,180,000 0.5 35,221,000 (2.9) 14.5 30.16 (1.6) 1,893,000 0.0 1,547,000 (1.3) 18.3 28.92 (6.5)

2010 42,763,000 3.8 36,063,000 2.4 15.7 29.77 (1.3) 1,893,000 0.0 1,600,000 3.4 15.5 29.50 2.0

2011 44,243,000 3.5 36,681,000 1.7 17.1 30.06 1.0 1,893,000 0.0 1,619,000 1.2 14.5 30.15 2.2

2012 44,230,000 (0.0) 36,777,000 0.3 16.9 30.12 0.2 1,893,000 0.0 1,613,000 (0.4) 14.8 32.46 7.7

2013 44,066,000 (0.4) 36,720,000 (0.2) 16.7 30.45 1.1 1,893,000 0.0 1,628,000 0.9 14.0 33.05 1.8

2014 44,093,000 0.1 37,567,000 2.3 14.8 31.37 3.0 1,893,000 0.0 1,645,000 1.0 13.1 33.43 1.1

2015 44,117,000 0.1 37,997,000 1.1 13.9 32.46 3.5 1,893,000 0.0 1,660,000 0.9 12.3 34.20 2.3

2016 44,451,000 0.8 38,460,000 1.2 13.5 33.47 3.1 1,913,000 1.1 1,609,000 (3.1) 15.9 35.34 3.3

2017 44,767,000 0.7 38,359,000 (0.3) 14.3 33.96 1.5 1,913,000 0.0 1,578,000 (1.9) 17.5 36.25 2.6

Forecasts

2018 45,398,000 1.4 % 38,622,000 0.7 % 14.9 % $34.36 1.2 % 2,003,000 4.7 % 1,666,000 5.6 % 16.9 % $36.26 0.0 %

2019 45,530,000 0.3 38,604,000 (0.0) 15.2 34.86 1.5 2,013,000 0.5 1,668,000 0.1 17.1 36.39 0.4

2020 46,154,000 1.4 38,995,000 1.0 15.5 35.43 1.6 2,484,000 23.4 2,049,000 22.8 17.5 36.66 0.7

2021 46,364,000 0.5 38,953,000 (0.1) 16.0 36.07 1.8 2,494,000 0.4 2,036,000 (0.6) 18.4 36.91 0.7

2022 46,590,000 0.5 38,916,000 (0.1) 16.5 36.66 1.6 2,504,000 0.4 2,019,000 (0.8) 19.4 37.10 0.5

Average Annual Compound Change

2005 - 2017 0.5 % 0.2 % 2.8 % (1.1) % (1.5) % 3.3 %

2005 - 2007 (1.8) (0.3) 9.0 (7.0) (7.3) 10.5

2007 - 2010 1.6 (1.1) 1.0 (0.0) (0.6) (0.6)

2010 - 2017 0.7 0.9 1.9 0.2 (0.2) 3.0

Forecast 2018 - 2022 0.7 % 0.2 % 1.6 % 5.7 % 4.9 % 0.6 %

Miami Market Biscayne Blvd. Submarket

Available

Office Space % Chg

Occupied

Office Space % Chg

Asking

Lease Rate % Chg

Available

Office Space % Chg

Occupied

Office Space


% Chg

Vacancy

Rate

Asking

Lease Rate % Chg

Vacancy

Rate


A convention center serves as a gauge of visitation trends to a particular market. Convention centers also generate significant levels of demand for area hotels and serve as a focal point for community activity. Typically, hotels within the closest proximity to a convention center—up to three miles away—will benefit the most. Hotels serving as headquarters for an event benefit the most by way of premium rates and hosting related banquet events. During the largest of conventions, peripheral hotels may benefit from compression within the city as a whole.

MIAMI BEACH CONVENTION CENTER

The Miami Beach Convention Center (MBCC) serves as the primary convention center for the greater Miami area. The facility features over 1,000,000 square feet of flexible meeting space, including 500,000 square feet of exhibit space, 100,000 square feet of pre-function space, and 70 meeting rooms. MBCC also offers a business center, four boardrooms, a cyber café, box offices, concessions, and a concierge desk. The Miami Beach City Commission unanimously approved project plans to move forward on a $615-million MBCC expansion and renovation project. The new, 1.4-million-square-foot, LEED-certified convention center will feature a 60,000-square-foot grand ballroom, a 20,000-square-foot glass rooftop junior ballroom, additional meeting rooms and flex space, and a multi-level 886-space parking deck. Moreover, a new six-acre public green space will replace the existing parking lot in front of the center. Upon completion, the MBCC is expected to generate an economic impact of $2.5 billion over 30 years, as well as to create approximately 5,000 temporary jobs and 1,600 permanent jobs. Phase I of the project broke ground

Convention Activity


in October 2015; completion of this phase is slated for September 2018, in time for Art Basel, with total realization after Phase III's public park and outdoor-space completion in August 2019. In May 2015, the city commission selected Portman Holdings LLC as the developer of a proposed $405-million, 800-room headquarters hotel next to the MBCC; final approval was scheduled for public vote in March 2016, but this vote rejected a ground lease for a hotel that would be linked to the Miami Beach Convention Center.

Usage statistics for the MBCC were unavailable upon request. Reportedly, the facility has continued to host major conventions and many trade and consumer shows, such as the Miami International Boat Show, the South Florida International Auto Show, and Art Basel Miami Beach; however, market participants report that activity has declined in recent years.

Airport passenger counts are important indicators of lodging demand. Depending on the type of service provided by a particular airfield, a sizable percentage of arriving passengers may require hotel accommodations. Trends showing changes in passenger counts also reflect local business activity and the overall economic health of the area.

Miami International Airport (MIA) sits on 3,230 acres in Miami-Dade County. MIA is the premier gateway between the U.S. and Latin America, making it the second-largest U.S. airport in terms of international passenger traffic and ranks first in the nation in international freight delivery. Additionally, along with Atlanta's Hartsfield-Jackson Airport, Miami is one of the largest aerial gateways, owing to its proximity to tourist attractions, local economic growth, large local Latin American and European populations, and unique location. MIA hit a new milestone in December 2014, becoming the only U.S. airport to offer service from 100 different airline carriers. The airport's capital improvement plan, which was completed in 2014, included a renovation and expansion of the North and South Terminals, as well as facility-wide infrastructure improvements. The North Terminal's new three-level international arrival facility opened mid-year 2012, with a new 72-lane federal inspection area capable of serving 2,000 passengers per hour. In addition, the renovation included the construction of the new Miami Intermodal Center/Car Rental Center, which opened in 2010; the facility contains all rental car services in one central location and provides improved access to local transportation options. The MIA Mover, which opened in September 2011, provides rail service from the car-rental facility to the terminal. The airport reportedly generates a $33-billion economic impact annually.

The following table illustrates recent operating statistics for the Miami International Airport, which is the primary airport facility serving the proposed subject hotel’s submarket.

Airport Traffic


FIGURE 3-9 AIRPORT STATISTICS - MIAMI INTERNATIONAL AIRPORT

Year

2008 34,063,531 — —

2009 33,886,025 (0.5) % (0.5) %

2010 35,698,025 5.3 2.4

2011 38,314,389 7.3 4.0

2012 39,467,444 3.0 3.7

2013 40,562,948 2.8 3.6

2014 40,941,879 0.9 3.1

2015 44,350,247 8.3 3.8

2016 44,584,603 0.5 3.4

2017 44,071,313 (1.2) 2.9

Year-to-date, Jul

2017 26,530,423 — —

2018 26,787,988 1.0 % —

*Annual average compounded percentage change from the previous year

**Annual average compounded percentage change from first year of data

Change**

Passenger

Change*Traffic

Percent Percent

Source: Miami International Airport

FIGURE 3-10 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Ch

an

ge

in

Pa

sse

ng

er

Act

ivit

y

Source: HVS, Local Airport Authority

Local Passenger Volume National Passenger Volume

This facility recorded 44,071,313 passengers in 2017. The change in passenger traffic between 2016 and 2017 was -1.2%. The average annual change during the period shown was 2.9%.


Fort Lauderdale-Hollywood International Airport (FLL) consists of four passenger terminals with over 70 gates, restaurants, gift shops, and business centers. FLL is serviced by many major airlines that provide nonstop service to cities across the U.S. and internationally to Canada, the Bahamas, the Caribbean, Mexico, Latin America, and South America. In 2010, over $52 million in improvements were completed at the airport, including an expansion of the baggage system, ramp rehabilitation, gate security enhancements, and climate-control-system upgrades. An elevated taxiway and bridge were also part of the redesign. The airport closed its north runway from May to July 2011 to complete critical construction projects and install safety enhancement features. In January 2012, construction began on a $791-million runway extension and an associated taxiway and bridge, which were completed in September 2014. Furthermore, FLL's international terminal opened on June 30, 2017, which will foster continued growth at the airport, helping to alleviate the high volumes of international traffic at the nearby Miami International Airport. Moreover, two additional connectors to link all terminals together are expected to be completed by March 2022.

The following table illustrates recent operating statistics for the Fort Lauderdale Hollywood International Airport, which is the secondary airport facility serving the proposed subject property’s submarket.

FIGURE 3-11 AIRPORT STATISTICS – FORT LAUDERDALE HOLLYWOOD INTERNATIONAL AIRPORT

Year

2008 22,621,500 — —

2009 21,060,131 (6.9) % (6.9) %

2010 22,412,627 6.4 (0.5)

2011 23,349,835 4.2 1.1

2012 23,569,103 0.9 1.0

2013 23,559,779 (0.0) 0.8

2014 24,648,306 4.6 1.4

2015 26,941,671 9.3 2.5

2016 29,205,002 8.4 3.2

2017 32,511,053 11.3 4.1

Year-to-date, Jun

2017 16,811,316 — —

2018 18,507,532 10.1 % —

*Annual average compounded percentage change from the previous year

**Annual average compounded percentage change from first year of data

Passenger Percent

Source: Fort Lauderdale Hollywood International Airport

Traffic Change*

Percent

Change**


Air traffic registered 32,511,053 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 11.3%. The recent uptick in passenger traffic can be attributed in large part to the June 2017 opening of an international terminal at the airport, as well as increased service by major air carriers, particularly low-cost carriers such as JetBlue Airways, Spirit Airlines, and Southwest Airlines. These airlines account for two-thirds of all passenger traffic.

The Miami market benefits from a variety of tourist and leisure attractions in the area. The peak season for tourism in this area is from Christmas to Easter, although it attracts both domestic and international tourists year-round. Primary attractions in the area include the following:

• The area's beaches have been ranked as some of the best in the country, offering diverse options to accommodate people of all ages. In addition, Miami Beach is renowned for its Art Deco District, comprising the largest collection of such architecture in the world, including hundreds of hotels, apartments, and other structures that showcase the designs of the 1920s and 1930s. The South Beach section of Miami Beach is a major entertainment destination featuring a magnitude of boutique hotels, restaurants, shops, nightclubs, and bars.

• The 38-acre Miami Seaquarium offers daily shows with sea lions, dolphins, and a killer whale. In addition to the marine mammals, the Miami Seaquarium also houses fish, sharks, sea turtles, birds, reptiles, and manatees. Glass-bottom boats take tours of Biscayne Bay, and visitors can go on an underwater exploration in a 300,000-gallon tropical reef. Additionally, "Seal Swim" and "Dolphin Encounter" programs provide the opportunity for patrons to interact with the marine mammals.

• The Arsht Center is Florida’s largest performing arts center and is the second-largest performing arts center in the U.S. by area, behind only the Lincoln Center in New York City. This 540,000-square-foot facility, which opened in 2006, is located in Downtown Miami’s emerging Arts and Entertainment District and is the cornerstone of the Miami arts and culture scene. Home to Florida Grand Opera, Miami City Ballet, Broadway shows, and a variety of concert events, the center features a 2,400-seat ballet/opera house and a 2,200-seat concert hall.

• Coconut Grove and Coral Gables offer numerous dining, shopping, and entertainment venues. The streets of Coconut Grove are lined with a multitude of restaurants, clubs, and bars. Dining options range from casual fare to fine dining. A movie theater is located within CocoWalk, the heart of Coconut Grove. Coconut Grove is also the location of the Barnacle Historic State Park and the world-renowned Coconut Grove Arts Festival, which is held annually. Coral Gables offers a wide range of restaurants on its famed Miracle Mile, along with

Tourist Attractions


many upscale boutiques. Miracle Mile is a popular destination for bridal shopping, as the so-called "Bridal Row" contains more than three dozen shops that cater to bridal needs, including gowns, invitations, floral designs, rings, and accessories.

MIAMI DESIGN DISTRICT

This section discussed a wide variety of economic indicators for the pertinent market area.

The Miami-Dade market is experiencing a period of economic strength and expansion, primarily led by the tourism industry and an increase in discretionary spending. The cruise-ship industry continues to thrive as a result of increasing tourism arrivals. The Miami-Fort Lauderdale area remains a primary destination in South Florida, and local economic development officials anticipate continued tourism growth and expansion. As such, the local government has made substantial investments to improve and expand the Miami International Airport and PortMiami, which anchor the tourism industry. The outlook for the market area is positive.

Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy expanded during the last three years, with a relatively low point in growth occurring during the fourth quarter of 2015. Most recently, the U.S. economy expanded by 2.2% and 4.2% in the first two quarters of 2018, respectively. The recent growth is the highest level since the third quarter of 2014. In the second quarter of 2018, non-residential fixed investment

Conclusion


increased more than anticipated, primarily boosted by software and information processing equipment; conversely, imports fell, mainly related to petroleum.

FIGURE 3-12 UNITED STATES GDP GROWTH RATE

-1.2

4.0

5.0

2.0

3.22.7

1.00.4

1.5

2.31.9 1.8 1.8

3.0 2.82.3 2.2

4.2

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018

Source: tradingeconomics.com, Bureau of Economic Analysis

U.S. economic growth continues to support expansion of lodging demand. In 2018, demand growth through July registered 2.9%, stronger than the 2.7% level recorded in 2017. The economic growth, low unemployment, higher levels of personal income, and stability in the U.S. economy as of mid-year 2018 is helping to maintain strong interest in hotel investments by a diverse array of market participants.

November-2018 Supply and Demand Analysis Proposed Holiday Inn Edgewater – Miami, Florida 55

4. Supply and Demand Analysis

In the lodging industry, price varies directly, but not proportionately, with demand and inversely, but not proportionately, with supply. Supply is measured by the number of guestrooms available, and demand is measured by the number of rooms occupied; the net effect of supply and demand toward equilibrium results in a prevailing price, or average daily rate (ADR). The purpose of this section is to investigate current supply and demand trends, as indicated by the current competitive market, and to set forth a basis for the projection of future supply and demand growth.

The subject site is located in the greater Miami-Dade County lodging market. Within this greater market, the direct submarket that will include the proposed subject hotel is known as Midtown on the northern fringe of Miami's Central Business District. The proposed subject hotel is expected to compete with 7 hotels on a primary level based on location and product type.

The subject property’s local lodging market is most directly affected by the supply and demand trends within the immediate area. However, individual markets are also influenced by conditions in the national lodging market. We have reviewed national lodging trends to provide a context for the forecast of the supply and demand for the proposed subject hotel’s competitive set.

STR is an independent research firm that compiles and publishes data on the lodging industry, and this information is routinely used by typical hotel buyers. The following STR diagram presents annual hotel occupancy and ADR data since 1987. The next two tables contain information that is more recent; the data are categorized by geographical region, price point, type of location, and chain scale, and the statistics include occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

Definition of Subject Hotel Market

National Trends Overview


FIGURE 4-1 NATIONAL OCCUPANCY, AVERAGE RATE, AND REVPAR TRENDS

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

$0

$20

$40

$60

$80

$100

$120

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: STR

RevPAR Average Rate Occupancy


FIGURE 4-2 NATIONAL OCCUPANCY AND ADR TRENDS – YEAR-TO-DATE DATA

United States 67.3 % 67.7 % 0.5 % $127.13 $130.37 2.5 % $85.60 $88.22 3.1 % 2.0 % 2.5 %

Region

New England 65.6 % 67.0 % 2.0 % $156.10 $158.44 1.5 % $102.44 $106.11 3.6 % 2.0 % 4.1 %

Middle Atlantic 69.0 70.8 2.7 157.73 161.28 2.2 108.83 114.25 5.0 2.4 5.1

South Atlantic 69.1 69.2 0.2 124.56 127.90 2.7 86.11 88.56 2.8 1.7 1.9

East North Central 63.1 63.4 0.5 110.14 112.90 2.5 69.49 71.57 3.0 2.0 2.5

East South Central 63.0 63.0 0.0 98.20 100.87 2.7 61.82 63.53 2.8 2.1 2.1

West North Central 59.8 59.6 (0.4) 98.48 100.21 1.7 58.93 59.70 1.3 2.1 1.7

West South Central 63.1 64.0 1.4 100.05 102.83 2.8 63.09 65.77 4.3 2.7 4.1

Mountain 68.3 68.2 (0.1) 119.84 120.72 0.7 81.82 82.33 0.6 1.6 1.5

Pacific 75.7 75.5 (0.3) 164.40 170.54 3.7 124.52 128.84 3.5 1.9 1.6

Class

Luxury 72.0 % 72.7 % 1.0 % $283.80 $291.40 2.7 % $204.21 $211.82 3.7 % 2.3 % 3.4 %

Upper-Upscale 74.2 74.2 0.1 181.62 185.28 2.0 134.78 137.57 2.1 2.3 2.3

Upscale 73.7 73.8 0.4 141.90 144.76 2.0 104.61 106.82 2.1 4.5 4.6

Upper-Midscale 69.2 69.4 0.2 116.34 118.36 1.7 80.55 82.15 2.0 3.8 4.1

Midscale 62.2 62.5 0.4 94.60 96.92 2.4 58.86 60.52 2.8 0.4 0.8

Economy 59.9 60.4 0.7 72.07 74.11 2.8 43.20 44.76 3.6 (0.4) 0.3

Location

Urban 74.6 % 74.6 % 0.0 % $176.36 $180.90 2.6 % $131.60 $135.01 2.6 % 3.2 % 3.2 %

Suburban 68.4 68.5 0.1 108.94 111.44 2.3 74.47 76.28 2.4 2.3 2.5

Airport 74.9 75.3 0.5 116.81 119.29 2.1 87.51 89.85 2.7 1.6 2.2

Interstate 58.6 59.3 1.2 85.62 87.55 2.3 50.19 51.93 3.5 1.6 2.8

Resort 71.5 72.0 0.7 175.07 181.43 3.6 125.11 130.56 4.4 1.0 1.7

Small Metro/Town 58.9 59.6 1.1 104.13 106.21 2.0 61.34 63.27 3.1 1.4 2.5

Chain Scale

Luxury 74.6 % 75.5 % 1.1 % $320.16 $332.19 3.8 % $239.00 $250.76 4.9 % 2.1 % 3.3 %

Upper-Upscale 75.5 75.5 0.0 182.12 185.97 2.1 137.56 140.48 2.1 2.5 2.5

Upscale 75.1 75.0 (0.1) 140.72 143.52 2.0 105.63 107.64 1.9 5.5 5.4

Upper-Midscale 69.4 69.4 0.1 113.92 115.82 1.7 79.05 80.42 1.7 4.1 4.2

Midscale 61.5 61.7 0.3 87.91 89.83 2.2 54.08 55.44 2.5 0.9 1.2

Economy 59.4 59.8 0.6 63.01 64.59 2.5 37.44 38.63 3.2 (0.4) 0.2

Independents 64.3 64.9 0.8 127.08 130.47 2.7 81.77 84.63 3.5 0.4 1.2

Rms. Avail. Rms. Sold20172017 2018

Source: STR - September 2018 Lodging Review

2017 20182018

%

Change

%

Change

%

Change

Occupancy - YTD September Average Rate - YTD September RevPAR - YTD September Percent Change


FIGURE 4-3 NATIONAL OCCUPANCY AND ADR TRENDS – CALENDAR-YEAR DATA

United States 65.4 % 65.9 % 0.9 % $124.13 $126.72 2.1 % $81.15 $83.57 3.0 % 1.8 % 2.7 %

Region

New England 64.1 % 64.8 % 1.1 % $151.20 $153.78 1.7 % $96.96 $99.67 2.8 % 1.5 % 2.6 %

Middle Atlantic 67.2 67.8 0.9 163.54 162.88 (0.4) 109.91 110.50 0.5 2.8 3.8

South Atlantic 67.1 68.0 1.4 119.92 123.40 2.9 80.45 83.91 4.3 1.5 2.9

East North Central 61.0 61.4 0.5 108.32 109.53 1.1 66.12 67.20 1.6 1.9 2.4

East South Central 61.3 61.5 0.3 94.88 98.23 3.5 58.15 60.37 3.8 1.9 2.2

West North Central 59.0 58.0 (1.7) 96.10 97.47 1.4 56.71 56.54 (0.3) 1.4 (0.3)

West South Central 61.4 62.5 1.9 98.73 100.32 1.6 60.57 62.70 3.5 3.0 4.9

Mountain 65.3 66.3 1.6 114.36 118.51 3.6 74.63 78.61 5.3 1.1 2.8

Pacific 73.8 73.9 0.3 158.63 162.60 2.5 116.99 120.23 2.8 1.6 1.9

Class

Luxury 70.8 % 71.0 % 0.3 % $282.44 $286.27 1.4 % $199.95 $203.28 1.7 % 2.1 % 2.4 %

Upper-Upscale 72.5 72.7 0.3 178.13 181.00 1.6 129.17 131.67 1.9 1.7 2.0

Upscale 71.9 72.4 0.7 139.04 141.20 1.6 100.03 102.28 2.3 4.3 5.0

Upper-Midscale 67.1 67.6 0.8 114.07 115.86 1.6 76.54 78.34 2.3 4.0 4.8

Midscale 59.8 60.5 1.2 92.16 94.36 2.4 55.07 57.07 3.6 0.2 1.5

Economy 58.4 58.9 0.9 69.79 71.95 3.1 40.74 42.36 4.0 (0.4) 0.5

Location

Urban 73.1 % 73.5 % 0.7 % $177.36 $178.94 0.9 % $129.57 $131.61 1.6 % 3.1 % 3.8 %

Suburban 66.7 67.0 0.4 105.74 108.10 2.2 70.57 72.47 2.7 1.9 2.4

Airport 73.3 73.7 0.6 113.60 116.17 2.3 83.27 85.67 2.9 1.4 2.0

Interstate 56.5 57.2 1.3 83.14 85.04 2.3 46.97 48.67 3.6 1.5 2.9

Resort 68.4 69.6 1.8 169.02 173.57 2.7 115.60 120.88 4.6 0.9 2.7

Small Metro/Town 56.7 57.3 1.0 99.91 102.23 2.3 56.70 58.59 3.3 1.5 2.5

Chain Scale

Luxury 73.8 % 74.0 % 0.3 % $317.29 $323.74 2.0 % $234.09 $239.54 2.3 % 1.6 % 1.9 %

Upper-Upscale 74.2 74.2 0.0 179.54 182.04 1.4 133.25 135.15 1.4 2.1 2.1

Upscale 73.7 73.8 0.1 138.28 140.19 1.4 101.97 103.45 1.5 6.0 6.1

Upper-Midscale 67.5 67.9 0.7 111.43 113.09 1.5 75.18 76.84 2.2 3.3 4.0

Midscale 59.3 60.0 1.2 85.23 86.99 2.1 50.53 52.17 3.3 1.3 2.4

Economy 57.7 58.1 0.6 60.86 62.48 2.7 35.14 36.28 3.2 0.1 0.7

Independents 62.0 62.9 1.4 123.00 126.49 2.8 76.27 79.56 4.3 0.0 1.5

2017

RevPAR

%

Change Rms. Avail. Rms. Sold

Percent Change

%

Change

Occupancy Average Rate

2017

%

Change2016 20162016 2017

Source: STR - December 2017 Lodging Review


Following the significant RevPAR decline experienced during the last recession, demand growth resumed in 2010, led by select markets that had recorded growth trends in the fourth quarter of 2009. A return of business travel and some group activity contributed to these positive trends. The resurgence in demand was partly fueled by the significant price discounts that were widely available in the first half of 2010. These discounting policies were largely phased out in the latter half of the year, balancing much of the early rate loss. Demand growth remained strong, but decelerated from 2011 through 2013, increasing at rates of 4.7%, 2.8%, and 2.0%, respectively. Demand growth then surged to 4.0% in 2014, driven by a strong economy, a robust oil and gas sector, and limited new supply, among other factors. By 2014, occupancy had surpassed the 64% mark. Average rate rebounded similarly during this time, bracketing 4.0% annual gains from 2011 through 2014.

In 2015, demand growth continued to outpace supply growth, a relationship that has been in place since 2010. With a 2.9% increase in room nights, the nation's occupancy level reached a record high of 65.4% in 2015. Supply growth intensified modestly in 2015 (at 1.1%), following annual supply growth levels of 0.7% and 0.9% in 2013 and 2014, respectively. Average rate posted another strong year of growth, at 4.7% in 2015, in pace with the annual growth of the last four years. Robust job growth, heightened group and leisure travel, and waning price-sensitivity all contributed to the gains. In 2016, occupancy showed virtually no change, as demand growth kept pace with supply additions. Occupancy then moved even higher in 2017, to a new peak of 65.9%. Average rate increased roughly 3% and 2% in 2016 and 2017, respectively. By year-end 2017, the net change in RevPAR was 3.0%, reflecting a healthy lodging market overall. Year-to-date statistics through September reflect a 0.4-point occupancy increase, while average rate increased by just over $3.00, resulting in a 3.1% upward change in RevPAR.

According to STR, as of December 31, 2017, the greater Miami, FL area had 428 hotels with a total of 54,787 guestrooms. These totals represent a -0.1% change over the 2016 year-end inventory of 54,823 guestrooms.

The following table presents the historical occupancy, average rate, and RevPAR data for the Miami metropolitan area for the years 2000 through 2017, as well as for the comparative year-to-date period ending in September 2017 and 2018.

Miami, FL Lodging Market


FIGURE 4-4 MIAMI LODGING MARKET DATA – 2000 TO YTD SEPTEMBER 2018

Year

2000 69.7 % — $110.47 — $77.00 —

2001 65.0 (6.7) % 109.03 (1.3) % 70.87 (8.0) %

2002 62.2 (4.3) 101.20 (7.2) 62.95 (11.2)

2003 64.6 3.9 107.74 6.5 69.60 10.6

2004 68.1 5.4 114.48 6.3 77.96 12.0

2005 72.6 6.6 128.35 12.1 93.18 19.5

2006 70.8 (2.5) 142.15 10.8 100.64 8.0

2007 72.0 1.7 157.63 10.9 113.49 12.8

2008 71.5 (0.7) 159.71 1.3 114.19 0.6

2009 65.2 (8.8) 140.73 (11.9) 91.76 (19.6)

2010 70.2 7.7 144.13 2.4 101.18 10.3

2011 75.6 7.7 152.95 6.1 115.63 14.3

2012 76.4 1.1 163.59 7.0 124.98 8.1

2013 77.9 2.0 176.66 8.0 137.62 10.1

2014 78.3 0.5 185.12 4.8 144.95 5.3

2015 78.0 (0.4) 195.45 5.6 152.45 5.2

2016 75.6 (3.1) 189.98 (2.8) 143.62 (5.8)

2017 76.7 1.5 188.81 (0.6) 144.82 0.8

Year to date through September

2017 76.4 % $184.99 $141.33

2018 77.8 1.8 % 198.60 7.4 % 154.51 9.3 %

Average Annual Compound Growth

2000 to 2017 0.6 % 3.2 % 3.8 %

Percent

Change

Source: STR Global, STR Monthly Hotel Review

Occupancy

Percent

Change Average Rate

Percent

Change RevPAR

Domestic and international tourism, international business, PortMiami, and the Miami Beach Convention Center (MBCC) represent the primary sources of demand in the greater Miami market. A period of extraordinary growth at the beginning of the millennium brought an onslaught of new residents, high-rise condominium towers, commercial developments, and employers to the region. This period of growth caused RevPAR to grow between 2003 and 2007. RevPAR growth stalled beginning in the fourth quarter of in 2008, as the onset of the Great Recession took hold in the market, and declined nearly 20% in 2009 given reduced discretionary spending by tourists and a reduction in meeting and group activity. Nevertheless, the Miami market rebounded strongly from 2010 through 2015. The city’s emerging profile as a gateway city and its business climate has continued to fuel foreign


investment. Additionally, privately funded real estate projects, contributed to rising demand levels which prompted a significant amount of new hotel supply, causing occupancy levels to stabilize in 2015 while hoteliers focused on driving average rates, equating to a RevPAR increase of 5.2% by year’s end 2015. After six straight years of strong RevPAR gains, many market-wide challenges affected overall RevPAR in 2016, including the continued increase of new supply, temporary closure of the MBCC, a decrease of foreign travelers from Russia and Brazil due to their weakening currencies, and the Zika virus, all which affected visitation to Miami. With the conclusion of the Zika virus and absorption of new supply, RevPAR was relatively unchanged in 2017. Year-to-date data through June 2018 reflect strong RevPAR growth, largely due to a stronger-than-normal peak season, an increase in international travel to Miami, and the end of the absorption of new supply that severely affected the market in 2016 and 2017. Furthermore, RevPAR is expected to continue to make strong gains given the reopening of the MBCC in late 2018.

As previously noted, STR is an independent research firm that compiles and publishes data on the lodging industry, routinely used by typical hotel buyers. HVS has ordered and analyzed an STR Trend Report of historical supply and demand data for a group of hotels considered applicable to this analysis for the proposed subject hotel. This information is presented in the following table, along with the market-wide occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

Historical Supply and Demand Data


FIGURE 4-5 HISTORICAL SUPPLY AND DEMAND TRENDS

Year

Average Daily

Room Count

Available Room

Nights Change

Occupied

Room Nights Change Occupancy

Average

Rate Change RevPAR Change

2012 850 310,250 — 225,098 — 72.6 % $134.44 — $97.54 —

2013 918 335,098 8.0 % 265,405 17.9 % 79.2 141.61 5.3 % 112.16 15.0 %

2014 1,012 369,380 10.2 305,999 15.3 82.8 152.95 8.0 126.71 13.0

2015 1,012 369,380 0.0 307,300 0.4 83.2 159.26 4.1 132.49 4.6

2016 1,089 397,430 7.6 310,109 0.9 78.0 158.15 (0.7) 123.41 (6.9)

2017 1,241 452,816 13.9 367,612 18.5 81.2 157.06 (0.7) 127.51 3.3

Year-to-Date Through August

2017 1,228 298,486 — 240,567 — 80.6 % $158.54 — $127.77 —

2018 1,265 307,395 3.0 % 259,898 8.0 % 84.5 171.10 7.9 % 144.66 13.2 %

Average Annual Compounded Change:

2012 - 2017 7.9 % 10.3 % 3.2 % 5.5 %

2012 - 2015 6.0 10.9 5.8 10.7

2015 - 2017 10.7 9.4 (0.7) (1.9)

2014 - 2017 7.0 6.3 0.9 0.2

Hotels Included in Sample

Holiday Inn Port Of Miami Downtown Upper Midscale Class Primary 200 Jan 2003 Jun 1964

Courtyard Miami Downtown Brickell Area Upscale Class Primary 233 Dec 2002 Jun 1975

Springhill Suites Miami Downtown Medical Center Upscale Class Primary 198 Nov 2009 Nov 2009

Hampton Inn Suites Miami Brickell Downtown Upper Midscale Class Primary 221 Sep 2011 Sep 2011

aloft Hotel Miami Brickell Upscale Class Primary 160 Aug 2013 Aug 2013

Homewood Suites Miami Downtown Brickell Upscale Class Primary 102 Apr 2016 Apr 2016

Hampton Inn & Suites Miami Midtown Upper Midscale Class Primary 151 Mar 2017 Mar 2017

Total 1,265

Source: STR

Class

Number

of Rooms

Year

Opened

Competitive Year

Status Affiliated


FIGURE 4-6 HISTORICAL SUPPLY AND DEMAND TRENDS (STR)

66.0

68.0

70.0

72.0

74.0

76.0

78.0

80.0

82.0

84.0

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2012 2013 2014 2015 2016 2017

Occ

up

ancy

(%

)

Ro

om

Nig

hts

Available Room Nights Occupied Room Nights Occupancy

It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample; furthermore, not every property reports data in a consistent and timely manner. These factors can influence the overall quality of the information by skewing the results, and these inconsistencies may also cause the STR data to differ from the results of our competitive survey. Nonetheless, STR data provide the best indication of aggregate growth or decline in existing supply and demand; thus, these trends have been considered in our analysis. Opening dates, as available, are presented for each reporting hotel in the previous table.

The STR Trend Report that we custom-ordered for this assignment includes seven (7) upper-midscale and upscale properties collectively containing 1,265 rooms. These properties offer an array of facilities and include select-, full-service, and extended-stay hotels. Of this total, 45% of the rooms are positioned in the upper-midscale price/quality tier, while 55% is positioned in the upscale tier group.

The STR data for the competitive set reflect a market-wide occupancy level of 2017 in 81.2%, which compares to 78.0% for 2016. The STR data for the competitive set reflect a market-wide ADR level of $157.06 in 2017, which compares to $158.15 for 2016. These occupancy and ADR trends resulted in a RevPAR level of $127.51 in 2017.


FIGURE 4-7 HISTORICAL AVERAGE DAILY RATE, REVPAR, AND OCCUPANCY TRENDS (STR)

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

$60

$80

$100

$120

$140

$160

$180

2012 2013 2014 2015 2016 2017 2017 YTD 2018 YTD

Occ

up

an

cy

AD

R &

Rev

PAR

Average Daily Rate ($) RevPAR ($) Occupancy (%)

Performance data shown for this selected set of competitive hotels begin in 2012 with the recent opening of two competitive hotels; the 221-room Hampton by Hilton Brickell Downtown (September 2011), and the 160-room Aloft Hotel Miami Brickell (August 2011). As shown, this new supply was completely absorbed by the market, resulting in increasing occupancy rates, ADR's, and RevPAR's in 2013 and 2014. The positive trend in RevPAR continued in 2015, with growth driven largely by a strong recovery of the national and local economies, as well as the increase of international visitation to Miami-Dade County. In 2016, the hotel industry in the greater Miami area was negatively affected by factors such as the Zika virus scare, the increase in room inventory, and the decline in visitation from two of the largest international markets (Canada and Brazil) due to the strength of the U.S. dollar. With the next influx of new inventory occurring in 2016, average rate compressed slightly by the end of the year. Attributed to accepting lower rated group business as the property opened right after the peak season ended, the new 102-room Homewood Suites more recently was replaced by higher ADR corporate demand. Data for 2017 illustrate a significant increase in supply-induced demand and a small decline in average rate, resulting in a healthy increase in RevPAR despite the negative effects of Hurricane Irma, which struck Miami in September 2017. The trailing twelve-


month data and the year-to-date data through August 2018 illustrate strong increases in all three indices.

Year-to-date 2018 data illustrate continued strengthening in occupancy, up 3.9 percentage points, and a roughly $12.60 gain in average rate. RevPAR reached its high point in the summer of 2018. The entrance of new, high-rated supply and the overall strong economy have contributed to the latest trend. The near-term outlook is cautionary due to the influx of new supply expected in the near term within the competitive submarket. Notwithstanding, demand remains positive as International visitation is strong and is expected to grow further.

FIGURE 4-8 PRIMARY COMPETITORS – YEAR-TO-DATE OPERATING PERFORMANCE

Property

Data

Through Occupancy

Average

Rate RevPAR Occupancy

Average

Rate RevPAR Occupancy

Average

Rate RevPAR

Hampton Inn & Suites by Hilton Miami Midtown August 57 % $101.25 $57.71 70 % $147.50 $103.25 22.8 % 45.7 % 78.9 %

Holiday Inn Port of Miami Downtown August 82 163.00 133.66 87 167.00 145.29 6.1 2.5 8.7

Courtyard by Marriott Miami Downtown July 84 173.00 145.32 88 187.00 164.56 4.8 8.1 13.2

Aloft Hotel Miami Brickell July 84 159.00 133.56 85 176.00 149.60 1.2 10.7 12.0

Hampton Inn & Suites Miami Brickell Downtown August 81 189.00 153.09 84 192.00 161.28 3.7 1.6 5.3

Homewood Suites by Hilton Miami Downtown Brickell July 87 148.81 129.61 91 168.70 153.52 4.5 13.4 18.4

SpringHill Suites Miami Downtown/Medical Center July 86 133.00 114.38 85 142.00 120.70 -1.2 6.8 5.5

2017 Year-to-Date 2018 Year-to-Date % Change

A key observation from the historical data is that when new supply entered the market, whether it was new construction or newly renovated hotels, demand for hotel rooms exceeded supply. As such, new supply is being absorbed rapidly into the market suggesting that significant unaccommodated demand during peak seasonal demand periods is present. Market participants appear confident that going forward RevPAR increases will be in the form of modest average rate gains through aggressive yield management amid steady growth in room night demand levels.

Monthly occupancy and ADR trends are presented in the following tables. The illustrated monthly occupancy and average rates patterns reflect important seasonal characteristics. We have reviewed these trends in developing our forthcoming forecast of market-wide demand and average rate.

Seasonality


FIGURE 4-9 MONTHLY OCCUPANCY TRENDS

Month 2012 2013 2014 2015 2016 2017 2018

January 77.0 % 83.2 % 85.1 % 87.5 % 87.6 % 79.9 % 87.2 %

February 86.9 91.8 91.1 91.5 87.9 85.6 92.5

March 89.3 92.7 92.1 88.5 88.5 91.3 94.0

April 80.6 85.9 88.8 86.4 88.6 81.3 89.4

May 70.5 80.2 83.9 79.9 80.4 75.0 80.4

June 66.5 77.2 77.4 73.1 70.4 75.5 75.4

July 69.2 73.6 76.5 82.6 76.5 80.3 81.1

August 62.8 67.4 80.6 82.0 70.2 76.7 76.8

September 58.9 62.9 70.6 80.1 69.4 67.7 —

October 67.8 72.7 80.6 79.6 69.1 86.2 —

November 69.1 84.3 84.2 86.4 74.9 89.0 —

December 73.0 84.0 83.5 81.2 76.3 86.2 —

Annual Occupancy 72.6 % 79.2 % 82.8 % 83.2 % 78.0 % 81.2 % —

Year-to-Date 75.2 % 81.1 % 84.4 % 83.9 % 80.9 % 80.6 % 84.5 %

Source: STR

FIGURE 4-10 MONTHLY ADR TRENDS

Month 2012 2013 2014 2015 2016 2017 2018

January $157.48 $170.20 $182.25 $202.20 $208.28 $190.13 $196.79

February 162.50 181.04 204.69 219.04 221.24 208.26 224.80

March 163.17 190.79 202.16 216.57 208.52 206.96 224.19

April 138.91 142.05 158.58 164.30 161.59 150.99 166.59

May 127.25 129.25 143.18 143.13 141.28 141.37 155.03

June 109.80 118.12 121.76 123.15 125.49 122.73 131.65

July 111.85 110.97 115.16 117.65 125.62 130.33 128.94

August 106.15 110.81 112.97 115.34 116.44 115.96 122.45

September 103.65 107.47 115.28 116.10 117.34 138.05 —

October 132.92 133.02 145.18 145.73 144.69 145.12 —

November 133.09 138.51 149.90 160.94 149.50 154.87 —

December 141.19 149.19 164.31 171.20 163.68 175.15 —

Annual Average Rate $134.44 $141.61 $152.95 $159.26 $158.15 $157.06 —

Year-to-Date $136.91 $145.86 $156.73 $164.29 $164.48 $158.54 $171.10

Source: STR


FIGURE 4-11 SEASONALITY

2012 2013 2014 2015 2016 2017 2018

High Season - January, February, March, April, November, December

Occupancy 79.2 % 86.8 % 87.4 % 86.9 % 83.7 % 85.7 % 90.8 %

Average Rate $150.20 $161.46 $177.38 $189.44 $185.32 $180.49 $203.34

RevPAR 119.00 140.08 155.08 164.54 155.13 154.61 184.58

Shoulder Season - May, June, July, October

Occupancy 68.5 % 75.8 % 79.6 % 78.9 % 74.1 % 79.3 % 79.0 %

Average Rate $120.61 $123.37 $131.83 $132.54 $134.35 $135.25 $138.73

RevPAR 82.65 93.50 104.96 104.52 99.60 107.21 109.65

Low Season - August, September

Occupancy 60.9 % 65.2 % 75.7 % 81.1 % 69.8 % 72.3 % 76.8 %

Average Rate $104.96 $109.23 $114.03 $115.71 $116.88 $126.13 $122.45

RevPAR 63.90 71.25 86.34 93.81 81.57 91.16 94.05

Source: Smith Travel Research


FIGURE 4-12 MONTHLY OCCUPANCY AND ADR TRENDS (TRAILING 12 MONTHS)

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0O

ccu

pa

ncy

(%)

Occupancy ADR


A review of the trends in occupancy and ADR by day of the week provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by STR, are illustrated in the following tables.

FIGURE 4-13 OCCUPANCY BY DAY OF WEEK (TRAILING 12 MONTHS)

Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month

Sep - 17 63.9 % 59.8 % 72.6 % 71.6 % 64.4 % 72.8 % 67.4 % 67.7 %

Oct - 17 78.9 80.7 85.2 91.5 90.6 91.9 87.7 86.2

Nov - 17 86.8 85.3 85.3 87.8 89.5 94.1 94.4 89.0

Dec - 17 82.4 80.4 83.9 86.8 89.3 91.4 88.2 86.2

Jan - 18 79.3 82.9 87.2 91.8 91.2 89.3 88.7 87.2

Feb - 18 84.3 87.6 92.8 96.3 97.0 95.2 94.3 92.5

Mar - 18 92.1 89.6 95.2 96.0 95.0 95.5 94.3 94.0

Apr - 18 83.0 85.2 88.1 90.8 92.9 93.5 95.2 89.4

May - 18 77.4 72.2 78.2 81.6 81.6 86.4 85.6 80.4

Jun - 18 71.6 70.0 73.8 76.7 78.1 80.3 76.0 75.4

Jul - 18 77.3 72.1 76.0 81.2 86.4 90.7 88.8 81.1

Aug - 18 71.1 67.7 73.0 76.9 78.9 84.8 82.8 76.8

Average 79.1 % 78.0 % 82.5 % 85.7 % 86.3 % 88.5 % 86.5 % 83.8 %

Source: STR

FIGURE 4-14 AVERAGE RATE BY DAY OF WEEK (TRAILING 12 MONTHS)


Sep - 17 $129.24 $138.27 $143.33 $141.45 $142.68 $138.95 $132.59 $138.05

Oct - 17 139.15 141.04 143.14 146.72 147.92 152.01 147.18 145.12

Nov - 17 147.86 151.84 154.13 152.51 154.66 162.35 160.22 154.87

Dec - 17 173.50 158.00 168.11 176.03 180.03 183.75 181.00 175.15

Jan - 18 181.69 192.43 203.68 205.78 202.13 193.22 193.38 196.79

Feb - 18 204.51 212.60 220.17 231.50 238.64 239.78 222.64 224.80

Mar - 18 224.79 218.77 214.08 216.79 223.59 236.15 230.53 224.19

Apr - 18 155.18 165.60 167.14 166.98 168.21 172.10 172.27 166.59

May - 18 147.12 149.45 153.16 155.67 152.83 164.91 160.95 155.03

Jun - 18 126.88 130.63 130.66 132.11 130.53 136.62 132.04 131.65

Jul - 18 125.91 123.42 126.20 124.25 128.50 138.30 135.91 128.94

Aug - 18 118.04 117.98 119.71 123.76 121.88 127.29 125.27 122.45

Average $157.67 $160.79 $164.01 $166.54 $168.25 $171.70 $168.58 $165.57

Source: STR

Patterns of Demand

FIGURE 4-15 OCCUPANCY AND AVERAGE RATE BY DAY OF WEEK (TRAILING 12 MONTHS)

$150.00

$155.00

$160.00

$165.00

$170.00

$175.00

72.0

74.0

76.0

78.0

80.0

82.0

84.0

86.0

88.0

90.0

Sunday Monday Tuesday Wednesday Thursday Friday Saturday

Occ

up

an

cy (%

)

Occupancy ADR


FIGURE 4-16 OCCUPANCY, AVERAGE RATE, AND REVPAR BY DAY OF WEEK (MULTIPLE YEARS)

Occupancy (%)

Sep 15 - Aug 16 75.6 % 75.6 % 80.2 % 83.1 % 83.5 % 86.9 % 83.5 % 81.2 %

Sep 16 - Aug 17 73.0 69.7 75.6 78.0 80.1 86.0 84.0 78.0

Sep 17 - Aug 18 79.1 78.0 82.5 85.7 86.3 88.5 86.5 83.8

Change (Occupancy Points)

FY 15 - FY 16 (2.7) (5.9) (4.7) (5.1) (3.4) (1.0) 0.5 (3.2)

FY 16 - FY 17 6.2 8.3 7.0 7.7 6.2 2.5 2.5 5.8

ADR ($)

Sep 15 - Aug 16 $152.98 $155.59 $156.96 $159.36 $163.04 $164.96 $162.15 $159.47

Sep 16 - Aug 17 146.36 147.92 151.19 153.28 158.08 162.55 159.28 154.48

Sep 17 - Aug 18 157.67 160.79 164.01 166.54 168.25 171.70 168.58 165.57

Change (Dollars)

FY 15 - FY 16 ($6.63) ($7.67) ($5.77) ($6.08) ($4.96) ($2.42) ($2.87) ($5.00)

FY 16 - FY 17 11.32 12.88 12.82 13.27 10.17 9.15 9.30 11.10

Change (Percent)

FY 15 - FY 16 (4.3) % (4.9) % (3.7) % (3.8) % (3.0) % (1.5) % (1.8) % (3.1) %

FY 16 - FY 17 7.7 8.7 8.5 8.7 6.4 5.6 5.8 7.2

RevPAR ($)

Sep 15 - Aug 16 $115.72 $117.66 $125.91 $132.45 $136.09 $143.40 $135.46 $129.52

Sep 16 - Aug 17 106.78 103.10 114.23 119.56 126.55 139.73 133.78 120.55

Sep 17 - Aug 18 124.76 125.39 135.37 142.66 145.13 151.89 145.86 138.76

Change (Dollars)

FY 15 - FY 16 ($8.94) ($14.57) ($11.68) ($12.89) ($9.54) ($3.67) ($1.68) ($8.97)

FY 16 - FY 17 17.98 22.29 21.14 23.10 18.59 12.15 12.08 18.21

Change (Percent)

FY 15 - FY 16 (7.7) % (12.4) % (9.3) % (9.7) % (7.0) % (2.6) % (1.2) % (6.9) %

FY 16 - FY 17 16.8 21.6 18.5 19.3 14.7 8.7 9.0 15.1

Source: STR

Total Year

Sunday Monday Tuesday Total Year

Wednesday Saturday

Wednesday Thursday Friday Saturday

Total YearSaturday

Friday

Thursday FridayWednesday

Sunday Monday Tuesday Thursday

Sunday Monday Tuesday

In most markets, business travel, including individual commercial travelers and corporate groups, is the predominant source of demand on Monday through Thursday nights. Leisure travelers and non-business-related groups generate a majority of demand on Friday and Saturday nights.


FIGURE 4-17 OCCUPANCY, ADR & REVPAR – FY AVERAGE CHANGE

Occupancy (%)

Mon - Thurs Fri - Sat

FY 15 - FY 16 -4.8 -0.3

FY 16 - FY 17 7.3 2.5

Average Change (Points)

ADR ($)


FY 15 - FY 16 -$6.12 -$2.64

FY 16 - FY 17 $12.29 $9.23

FY 15 - FY 16 -3.9% -1.6%

FY 16 - FY 17 8.1% 5.7%

Average Change

RevPAR ($)


FY 15 - FY 16 -$12.17 -$2.67

FY 16 - FY 17 $21.28 $12.12

FY 15 - FY 16 -9.6% -1.9%

FY 16 - FY 17 18.5% 8.9%

Average Change

Based on an evaluation of the occupancy, rate structure, market orientation, chain affiliation, location, facilities, amenities, reputation, and quality of each area hotel, as well as the comments of management representatives, we have identified several properties that are expected to be primarily competitive with the proposed subject hotel. Additional lodging facilities may be judged only secondarily competitive; although the facilities, rate structures, or market orientations of these hotels prevent their inclusion among the primary competitive supply, they are expected to compete with the proposed subject hotel to some extent.

The following table summarizes the important operating characteristics of the future primary competitors. This information was compiled from personal interviews, inspections, online resources, and our in-house database of operating and hotel facility data.

SUPPLY

Primary Competitors


FIGURE 4-18 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Property Occ. RevPAR RevPAR

Occupancy

Penetration

Yield

Penetration

Hampton Inn & Suites by Hilton Miami Midtown 151 40 % 10 % 50 % 0 — % — — 127 60 - 65 % $130 - $140 $85 - $90 75 - 80 % 65 - 70 %

Holiday Inn Port of Miami Downtown 200 50 10 40 200 80 - 85 160 - 170 130 - 140 200 75 - 80 150 - 160 125 - 130 95 - 100 95 - 100

Courtyard by Marriott Miami Downtown 233 50 10 40 233 70 - 75 160 - 170 120 - 125 233 80 - 85 160 - 170 140 - 150 100 - 110 110 - 120

Aloft Hotel Miami Brickell 160 50 10 40 160 75 - 80 150 - 160 115 - 120 160 80 - 85 150 - 160 125 - 130 100 - 110 95 - 100

Hampton Inn & Suites Miami Brickell Downtown 221 60 10 30 221 70 - 75 190 - 200 140 - 150 221 80 - 85 180 - 190 150 - 160 100 - 110 120 - 130

Homewood Suites by Hilton Miami Downtown Brickell 102 40 20 40 77 70 - 75 130 - 140 95 - 100 102 85 - 90 140 - 150 125 - 130 110 - 120 100 - 110

SpringHill Suites Miami Downtown/Medical Center 198 60 5 35 198 85 - 90 125 - 130 105 - 110 198 80 - 85 130 - 140 105 - 110 100 - 110 80 - 85

Totals/Averages 1,265 52 % 10 % 38 % 1,089 78.0 % $158.15 $123.34 1,241 81.2 % $157.07 $127.59 100.0 % 100.0 %

* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count Average RateCom

mer

cial

Mee

tin

g an

d G

rou

p

Leis

ureNumber

of Rooms

Average

Rate Occ.


FIGURE 4-19 PRIMARY COMPETITORS – FACILITY PROFILES

Property

Number of

Rooms

Year

Opened

Approx. Miles

To Subject

Property Food and Beverage Outlets

Indoor

Meeting

Space (SF)

Meeting Space

per Room Facilities & Amenities

Hampton Inn & Suites by Hilton Miami Midtown 151 2017 0.1 1,012 6.7

3450 Biscayne Boulevard

Holiday Inn Port of Miami Downtown 200 1964 2.3 2,000 10.0

340 Biscayne Boulevard

Courtyard by Marriott Miami Downtown 233 1975 2.6 3,249 13.9

200 Southeast 2nd Avenue

Aloft Hotel Miami Brickell 160 2013 3.2 490 3.1

1001 Southwest 2nd Avenue

Hampton Inn & Suites Miami Brickell Downtown 221 2011 3.3 3,650 16.5

50 Southwest 12th Street

Homewood Suites by Hilton Miami Downtown Brickell 102 2016 3.6 675 6.6

1750 Southwest1st Avenue

SpringHill Suites Miami Downtown/Medical Center 198 2009 2.1 1,204 6.1

1311 Northwest 10th Avenue

Complimentary breakfast Business Center; Airport/Local Shuttle; Guest Laundry Area; Gift Shop; Outdoor

Swimming Pool; Indoor Whirlpool; Fitness Room; Lobby Workstation; Market

Pantry; Vending Area(s)

Complimentary breakfast Outdoor Swimming Pool; Fitness Center

Complimentary breakfast Business Center; Guest Laundry Area; Concierge; Room Service; Gift Shop;

Fitness Center

Complimentary breakfast Business Center; Guest Laundry Area; Outdoor Swimming Pool; Fitness Center

Business Center; Guest Laundry Area; Outdoor Swimming Pool; Fitness Room;

Market Pantry; Coffee Station; Laundry/Valet Service

Full-Service Restaurant (Marina's Bar & Grill) Business Center; Guest Laundry Area; Concierge; Room Service; Outdoor

Swimming Pool; Fitness Center

Complimentary breakfast (The Bistro) Business Center; Guest Laundry Area; Concierge; Room Service; Outdoor

Swimming Pool; Tennis Court(s); Fitness Center

Complimentary breakfast


The following map illustrates the locations of the subject property and its future competitors.

MAP OF COMPETITION

Our survey of the primarily competitive hotels in the local market shows a range of lodging types and facilities. Each primary competitor was inspected and evaluated. Descriptions of our findings are presented below.


PRIMARY COMPETITOR #1 - HAMPTON INN & SUITES BY HILTON MIAMI MIDTOWN

FIGURE 4-20 ESTIMATED HISTORICAL OPERATING STATISTICS

Year

Wtd. Annual

Room Count Occupancy RevPAR

Occupancy

Penetration

Yield

Penetration

Est. 2017* 127 60 - 65 % 130 - 140 85 - 90 75 - 80 % 65 - 70 %

Average Rate

* Partial Year – Opened March 2017

The Hampton Inn & Suites by Hilton is located in the subject's Midtown district within the northern fringe of Miami's CBD. This hotel is the newest among the competitive set and benefits by its brand and upscale product offering. Performance levels through 2017 were lower than expected. We attribute its calendar year occupancy level (63%) due to its late opening after the peak season was wrapping up. We expect that occupancy will improve through 2018-19 (roughly 70% through August) and stabilize at levels consistent with the market. Overall, the property appeared to be in very good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Holiday Inn Edgewater.

Hampton Inn & Suites by Hilton Miami Midtown 3450 Biscayne Boulevard Miami, FL


PRIMARY COMPETITOR #2 - HOLIDAY INN PORT OF MIAMI DOWNTOWN


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 200 80 - 85 % $160 - $170 $130 - $140 100 - 110 % 100 - 110 %

Est. 2016 200 80 - 85 160 - 170 130 - 140 100 - 110 100 - 110

Est. 2017 200 75 - 80 150 - 160 125 - 130 95 - 100 95 - 100

Average Rate

The Holiday Inn is located in the heart of Downtown Miami, just west of the renowned Bayside Marketplace. Overlooking Miami's Biscayne Bay, the Holiday Inn is within close proximity to the Port of Miami, American Airlines Arena, the Arsht Center for the Performing Arts, and its close proximity to many of Downtown Miami's leisure and corporate demand generators. We note that a considerable amount of the hotel's accommodated room night demand is generated by leisure travelers who stay at the hotel prior to, or immediately following, their cruise from the Port of Miami. The hotel is scheduled to be decommissioned in the near term (originally built in 1964). Overall, the property appeared to be in fair condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Holiday Inn Edgewater.

Holiday Inn Port of Miami Downtown 340 Biscayne Boulevard Miami, FL


PRIMARY COMPETITOR #3 - COURTYARD BY MARRIOTT MIAMI DOWNTOWN


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 233 85 - 90 % $150 - $160 $130 - $140 100 - 110 % 100 - 110 %

Est. 2016 233 70 - 75 160 - 170 120 - 125 90 - 95 95 - 100

Est. 2017 233 80 - 85 160 - 170 140 - 150 100 - 110 110 - 120

Average Rate

Built in 1975, the 14-story Courtyard Miami Downtown Hotel is a 3-star hotel with 233 rooms, including 27 suites. Hotel amenities include a fitness center, outdoor swimming pool, valet parking, complimentary Wi-Fi and five meeting and event rooms, for a total area of 3,266 square feet. The Bistro, open for breakfast and dinner, is the Courtyard’s only food and beverage outlet. The advantage regarding location for the hotel is that the property is within walking distance of many of the prominent businesses in the downtown area as well as being relatively proximate to a variety of retail outlets and restaurants. The Courtyard is accessible to the Metromover, which provides free transportation to most of Downtown Miami and Brickell. Overall, the property appeared to be in good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Holiday Inn Edgewater.

Courtyard by Marriott Miami Downtown 200 Southeast 2nd Avenue Miami, FL


PRIMARY COMPETITOR #4 - ALOFT HOTEL MIAMI BRICKELL


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 160 80 - 85 % $150 - $160 $120 - $125 95 - 100 % 90 - 95 %

Est. 2016 160 75 - 80 150 - 160 115 - 120 95 - 100 95 - 100

Est. 2017 160 80 - 85 150 - 160 125 - 130 100 - 110 95 - 100

Average Rate

This hotel benefits from its strong Marriott brand affiliation. The hotel is located in the core market of Brickell Miami and opened in August 2013. The advantage regarding location for the hotel is that the property is within walking distance of many of the businesses in the downtown district as well as being relatively proximate to a variety of retail outlets and restaurants. Overall, the property appeared to be in good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Holiday Inn Edgewater.

Aloft Hotel Miami Brickell 1001 Southwest 2nd Avenue Miami, FL


PRIMARY COMPETITOR #5 - HAMPTON INN & SUITES MIAMI BRICKELL DOWNTOWN


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 221 75 - 80 % $190 - $200 $150 - $160 90 - 95 % 110 - 120 %

Est. 2016 221 70 - 75 190 - 200 140 - 150 90 - 95 110 - 120

Est. 2017 221 80 - 85 180 - 190 150 - 160 100 - 110 120 - 130

Average Rate

This property opened in late 2011, replacing the previous Hampton Inn (formerly Hotel Urbano that is being renovated to be a Hilton Garden Inn) after that property fell out of Hilton's system. This hotel offers a complimentary breakfast, a business center, fitness center, outdoor patio, pool and lobby bar, and benefits from its location relative to Mary Brickell Village and many of the area's financial and legal offices, restaurants, cafes, shops, and night clubs. The hotel also features three meeting rooms and two boardrooms. The hotel benefits from its proximity to Miami Metro Rail and the Metromover and the popularity of the Hilton HHonors rewards program. Overall, the property appeared to be in good condition. Its accessibility is similar to the accessibility attributes of the subject site, while its visibility is similar to the expected visibility of the Proposed Holiday Inn Edgewater.

Hampton Inn & Suites Miami Brickell Downtown 50 Southwest 12th Street Miami, FL


PRIMARY COMPETITOR #6 - HOMEWOOD SUITES BY HILTON MIAMI DOWNTOWN BRICKELL


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2016* 77 70 - 75 % 130 - 140 95 - 100 90 - 95 % 75 - 80 %

Est. 2017 102 85 - 90 140 - 150 125 - 130 110 - 120 100 - 110

Average Rate

* Partial Year – Opened April 2016

The hotel opened in April 2016 right after the peak season ended. The hotel had to accept low rated groups that lasted through the end of 2017 after which it has been replaced by higher ADR corporate demand. This hotel benefits from its strong Hilton brand affiliation and its extended-stay product offering. Overall, the property appeared to be in very good condition. Its accessibility is similar to the accessibility attributes of the subject site, while its visibility is similar to the expected visibility of the Proposed Holiday Inn Edgewater.

Homewood Suites by Hilton Miami Downtown Brickell 1750 Southwest1st Avenue Miami, FL


PRIMARY COMPETITOR #7 - SPRINGHILL SUITES MIAMI DOWNTOWN/MEDICAL CENTER


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 198 85 - 90 % $120 - $125 $110 - $115 100 - 110 % 80 - 85 %

Est. 2016 198 85 - 90 125 - 130 105 - 110 110 - 120 85 - 90

Est. 2017 198 80 - 85 130 - 140 105 - 110 100 - 110 80 - 85

Average Rate

This hotel benefits from its strong Marriott brand affiliation. The hotel is located proximate to Miami's medical institutions and benefits from associated business. The hotel opened in 2009. The advantage of this hotel is its extended-stay product offering and proximate to a variety of restaurants. Overall, the property appeared to be in very good condition. Its accessibility is inferior to the accessibility attributes of the subject site, while its visibility is inferior to the expected visibility of the Proposed Holiday Inn Edgewater.

SpringHill Suites Miami Downtown/Medical Center 1311 Northwest 10th Avenue Miami, FL


It is important to consider any new hotels that may have an impact on the proposed subject hotel’s operating performance. The hotels that have recently opened, are under construction, or are in the stages of early development in the Miami market are noted below. The list is categorized by the principal submarkets within the city.

FIGURE 4-27 AREA DEVELOPMENT ACTIVITY

Proposed Hotel Name

Hotel Product

Tier Development Stage AddressProposed Hotel 0

Hilton Garden Inn Miami Brickell 129 Upscale Under Renovation Q4 '18 2500 Brickell Avenue

Hotel Indigo Brickell 140 Upscale Under Construction Q1 '19 145 SW 11th Street

Hotel Sojourn Extended Stay 90 Independent Under Construction Q2 '18 145 SW 11th Street

Proposed AC by Marriott 151 Upscale Under Construction Q1 '20 3400 Biscayne Boulevard

Yotel Downtown Miami 250 Upscale Broke Ground Q1 '20 227 NE 2nd Street

Tru by Hilton 96 Midscale About to Begin Q1 '19 1911 SW 3rd Avenue

Marriott Convention Center Hotel at Miami Worldcenter 1,800 Independent About to Begin 700 N Miami Avenue

Embassy Suites-211/ Home2 Suites -142 353 Two Brands About to Begin 1129 SW 3rd Avenue

Citizen M 252 Upper-Upscale About to Begin 15 SE 10th Street

Courtyard by Marriott Biscayne Bay 270 Upscale ON HOLD 511 NE 15th Street

Cambria Suites Brickell 204 Upscale ON HOLD 145 SW 12th Street

Proposed Branded Select-Service Hotel 125 Independent ON HOLD 250, 296 SW 7th Street

Sofitel Miami Watson Island 350 Upper-Upscale ON HOLD Watson Island, Miami, FL, 33121

Proposed Curio Collection Design District hotel (Triptych) 297 Upper-Upscale ON HOLD 3601 N Miami Avenue

Proposed Boutique Hotel Midtown 125 Independent ON HOLD 1950 NW 1st AvenueHilton Garden Inn Miami Midtown 135 Upscale ON HOLD 7880 Biscayne Blvd, Miami, FL, 33138

Residence Inn Miami Brickell 205 Upscale ON HOLD 1741 SW 2nd Ave, Miami, FL

Goldman Property 68 Independent ON HOLD 2700 NW 2nd Avenue

Proposed Boutique Hotel - Wynwood 100 Independent ON HOLD 70 NW 28th Street, Miami, FL

Proposed Boutiue Luxury Hotel - Design District 119 Independent ON HOLD 95 NE 40th Street, Miami, FL, 3137

Bentley Edgewater - Autograph Collection 207 Upper-Upscale ON HOLD 410 NE 35th Terrace

Island Gardens - Luxury Hotel 135 Upper-Upscale ON HOLD 888 Mccarthur Causeway

Island Gardens - Four Star Hotel 345 Luxury ON HOLD 888 Mccarthur Causeway

Luxury Hotel at Resorts World Miami 500 Independent ON HOLD 1 Herald Plaza

Proposed Standard Hotel 207 Upper-Upscale ON HOLD 401 SW 3rd Avenue

One Bayfront Plaza 841 Upscale ON HOLD 100 S Biscayne Blvd

Proposed Holiday Inn 79 Upper-Midscale ON HOLD 2110 N Miami Avenue

Ibis Hotel 520 Midscale ON HOLD 88 SW 10th Street

21c Museum Hotel 135 Luxury ON HOLD 4201 NE 2nd Avenue

Proposed OD Hotel 169 Upscale ON HOLD 139 NE 1st Street

Residence Inn Biscayne 225 Upscale ON HOLD NE 18th St and Biscayne Blvd

Wyndham Grand -200/ Tryp Wyndham -245 445 Two Brands ON HOLD 78 SW 10th Street

Independent Hotel 300 Independent ON HOLD 301 N Miami Avenue

Vib Best Western 200 Upscale Cancelled NE 2nd Avenue and NE 17th Street

Estimated

Number of

Rooms

Expected

Qtr. & Year

of Opening

Of the hotels listed in the preceding table, we have identified the following new supply that is expected to have some degree of competitive interaction with the proposed subject hotel, based on location, anticipated market orientation and price point, and/or operating profile.

Supply Changes


FIGURE 4-28 NEW SUPPLY

Total

Proposed Property

Number

of Rooms Address/Location

Competitive

LevelEstimated Opening

Date Development Stage

Proposed Holiday Inn Edgewater 207 410 NE 35th Terrace 100 % 207 July 1, 2020 Approved, Construction to Begin Shortly

Hilton Garden Inn Miami Brickell 129 2500 Brickell Avenue 100 129 November 1, 2018 Under Renovation

Hotel Indigo Brickell 140 145 SW 11th Street 100 140 January 1, 2019 Under Construction

Proposed AC by Marriott 151 3400 Biscayne Boulevard 100 151 January 1, 2020 Under Construction

Totals/Averages 627 627

Weighted

Room

Count

The Hilton Garden Inn (former Hotel Urbano) is currently under renovation and is expected to be fully competitive due to its product tier and Hilton brand affiliation. The Hotel Indigo Brickell is under construction on a site located at Southwest 11th Street, approximately one mile from the subject property. Given its proximate location and similar select-service profile, this hotel has been weighted as fully competitive new supply in our analysis. The AC by Marriott Midtown will be a lifestyle, upscale, select-service hotel and is currently under construction in Midtown Miami. This hotel has been positioned as a future competitor. A number of other properties at the midscale and upper-upscale product tiers are proposed for the Downtown and Brickell submarkets of Miami. Although these hotels are not expected to compete directly with the proposed subject hotel, the volume of new supply is anticipated to reduce compression and related overflow to this submarket. Therefore, these hotels have been considered qualitatively in our positioning of the proposed subject hotel's stabilized occupancy level.

While we have taken reasonable steps to investigate proposed hotel projects and their status, due to the nature of real estate development, it is impossible to determine with certainty every hotel that will be opened in the future, or what their marketing strategies and effect in the market will be. Depending on the outcome of current and future projects, the future operating potential of the proposed subject hotel may be affected. Future improvement in market conditions will raise the risk of increased competition. Our forthcoming forecast of stabilized occupancy and average rate is intended to reflect such risk.

We have identified various properties that are expected to be competitive to some degree with the proposed subject hotel. We have also investigated potential increases in competitive supply in this Miami submarket. The Proposed Holiday Inn Edgewater should enter a dynamic market of varying product types and price points. Next, we will present our forecast for demand change, using the historical supply data presented as a starting point.

Supply Conclusion


The following table presents the most recent trends for the subject hotel market as tracked by HVS. These data pertain to the competitors discussed previously in this section; performance results are estimated, rounded for the competition, and in some cases weighted if there are secondary competitors present. In this respect, the information in the table differs from the previously presented STR data and is consistent with the supply and demand analysis developed for this report.

FIGURE 4-29 HISTORICAL MARKET TRENDS

Year

Est. 2015 308,118 — 369,380 — 83.4 % $159.22 — $132.81 —

Est. 2016 309,962 0.6 % 397,430 7.6 % 78.0 158.15 (0.7) % 123.34 (7.1) %

Est. 2017 367,807 18.7 452,816 13.9 81.2 157.07 (0.7) 127.59 3.4

Avg. Annual Compounded

Chg., Est. 2015-Est. 2017: 9.3 % 10.7 % (0.7) % (2.0) %

% Change

Market

Occupancy Market ADR% Change

Room Nights

Available % Change % Change

Market

RevPAR

Accommodated

Room Nights

For the purpose of demand analysis, the overall market is divided into individual segments based on the nature of travel. Based on our fieldwork, area analysis, and knowledge of the local lodging market, we estimate the 2017 distribution of accommodated-room-night demand as follows.

FIGURE 4-30 ACCOMMODATED-ROOM-NIGHT DEMAND

Marketwide

Market Segment

Commercial 190,267 52 %

Meeting and Group 37,165 10

Leisure 140,376 38

Total 367,807 100 %

Accommodated

Demand

Percentage

of Total

DEMAND

Demand Analysis Using Market Segmentation


FIGURE 4-31 MARKET-WIDE ACCOMMODATED-ROOM-NIGHT DEMAND

52%

10%

38%

Commercial Meeting and Group Leisure

The market’s demand mix comprises commercial demand, with this segment representing roughly 52% of the accommodated room nights in this Miami submarket. The meeting and group segment comprises 10% of the total, with the final portions leisure in nature, reflecting 38%.

Using the distribution of accommodated hotel demand as a starting point, we will analyze the characteristics of each market segment in an effort to determine future trends in room-night demand.

Commercial demand consists mainly of individual businesspeople passing through the subject market or visiting area businesses, in addition to high-volume corporate accounts generated by local firms. Brand loyalty (particularly frequent-traveler programs), as well as location and convenience with respect to businesses and amenities, influence lodging choices in this segment. Companies typically designate hotels as “preferred” accommodations in return for more favorable rates, which are discounted in proportion to the number of room nights produced by a commercial client. Commercial demand is strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases somewhat on Sunday night. It is relatively constant throughout the year, with marginal declines in late December and during other holiday periods.

Commercial Segment


The meeting and group market includes meetings, seminars, conventions, trade association shows, and similar gatherings of ten or more people. Peak convention demand typically occurs in the spring and fall. Although there are numerous classifications within the meeting and group segment, the primary categories considered in this analysis are corporate groups, associations, and SMERFE (social, military, ethnic, religious, fraternal, and educational) groups. Corporate groups typically meet during the business week, most commonly in the spring and fall months. These groups tend to be the most profitable for hotels, as they typically pay higher rates and usually generate ancillary revenues including food and beverage and/or banquet revenue. SMERFE groups are typically price-sensitive and tend to meet on weekends and during the summer months or holiday season, when greater discounts are usually available; these groups generate limited ancillary revenues. Association demand is generally divided on a geographical basis, with national, regional, and state associations representing the most common sources. Professional associations and/or those supported by members' employers often meet on weekdays, while other associations prefer to hold events on weekends. The profile and revenue potential of associations varies depending on the group and the purpose of the meeting or event.

Leisure demand consists of individuals and families spending time in an area or passing through en route to other destinations. Travel purposes include sightseeing, recreation, or visiting friends and relatives. Leisure demand also includes room nights booked through Internet sites such as Expedia, Hotels.com, and Priceline; however, leisure may not be the purpose of the stay. This demand may also include business travelers and group and convention attendees who use these channels to take advantage of any discounts that may be available on these sites. Leisure demand is strongest Friday and Saturday nights, and all week during holiday periods and the summer months. These peak periods represent the inverse of commercial visitation trends, underscoring the stabilizing effect of capturing weekend and summer tourist travel. Future leisure demand is related to the overall economic health of the region and the nation. Trends showing changes in state and regional unemployment and disposable personal income correlate strongly with leisure travel levels.

The purpose of segmenting the lodging market is to define each major type of demand, identify customer characteristics, and estimate future growth trends. Starting with an analysis of the local area, three segments were defined as representing the subject property’s lodging market. Various types of economic and demographic data were then evaluated to determine their propensity to reflect changes in hotel demand. Based on this procedure, we forecast the following average annual compounded market-segment growth rates.

Meeting and Group Segment

Leisure Segment

Base Demand Growth Rates


FIGURE 4-32 AVERAGE ANNUAL COMPOUNDED MARKET-SEGMENT GROWTH RATES

Annual Growth Rate

Market Segment

Commercial 7.0 % 4.0 % 3.0 % 2.0 % 1.0 % 1.0 %

Meeting and Group 7.0 4.0 3.0 2.0 1.0 1.0

Leisure 7.0 4.0 3.0 2.0 1.0 1.0

Base Demand Growth 7.0 % 4.0 % 3.0 % 2.0 % 1.0 % 1.0 %

2018 2019 2020 2021 2022 2023

Year-to-date 2018 data (through August) illustrate continued strengthening in occupancy, up 3.9 percentage points or 8% over the same eight-month period last year. While we attribute some of this growth to supply-induced demand (supply up 3% over the same period last year) and seasonal aspects, we expect a slightly lower annual growth rate by the end of the year.

A table presented earlier in this section illustrated the accommodated-room-night demand in the subject property’s competitive market. Because this estimate is based on historical occupancy levels, it includes only those hotel rooms that were used by guests. Latent demand reflects potential room-night demand that has not been realized by the existing competitive supply, further classified as either unaccommodated demand or induced demand.

Unaccommodated demand refers to individuals who are unable to secure accommodations in the market because all the local hotels are filled. These travelers must defer their trips, settle for less desirable accommodations, or stay in properties located outside the market area. Because this demand did not yield occupied room nights, it is not included in the estimate of historical accommodated-room-night demand. If additional lodging facilities are expected to enter the market, it is reasonable to assume that these guests will be able to secure hotel rooms in the future, and it is therefore necessary to quantify this demand.

Unaccommodated demand is further indicated if the market is at all seasonal, with distinct high and low seasons; such seasonality indicates that although year-end occupancy may not average in excess of 70%, the market may sell out certain nights during the year. To evaluate the incidence of unaccommodated demand in the market, we have reviewed the average occupancy by the night of the week for the past twelve months for the competitive set, as reflected in the STR data. This is set forth in the following table.

Latent Demand

Unaccommodated Demand


FIGURE 4-33 OCCUPANCY BY NIGHT OF THE WEEK


Sep - 17 63.9 % 59.8 % 72.6 % 71.6 % 64.4 % 72.8 % 67.4 % 67.7 %

Oct - 17 78.9 80.7 85.2 91.5 90.6 91.9 87.7 86.2

Nov - 17 86.8 85.3 85.3 87.8 89.5 94.1 94.4 89.0

Dec - 17 82.4 80.4 83.9 86.8 89.3 91.4 88.2 86.2

Jan - 18 79.3 82.9 87.2 91.8 91.2 89.3 88.7 87.2

Feb - 18 84.3 87.6 92.8 96.3 97.0 95.2 94.3 92.5

Mar - 18 92.1 89.6 95.2 96.0 95.0 95.5 94.3 94.0

Apr - 18 83.0 85.2 88.1 90.8 92.9 93.5 95.2 89.4

May - 18 77.4 72.2 78.2 81.6 81.6 86.4 85.6 80.4

Jun - 18 71.6 70.0 73.8 76.7 78.1 80.3 76.0 75.4

Jul - 18 77.3 72.1 76.0 81.2 86.4 90.7 88.8 81.1

Aug - 18 71.1 67.7 73.0 76.9 78.9 84.8 82.8 76.8

Average 79.1 % 78.0 % 82.5 % 85.7 % 86.3 % 88.5 % 86.5 % 83.8 %

Source: STR

Our interviews with market participants found that the market generally sells out on Monday through Saturday nights during the peak travel season, as well as sporadically within other periods throughout the year. A portion of this demand, which is currently turned away, should return to the market concurrent with the supply increase.

The following table presents our estimate of unaccommodated demand in the subject market.

FIGURE 4-34 UNACCOMMODATED DEMAND ESTIMATE

Market Segment

Commercial 190,267 10.1 % 19,185

Meeting and Group 37,165 10.3 3,837

Leisure 140,376 10.9 15,348

Total 367,807 10.4 % 38,370

Unaccommodated

Demand Percentage

Unaccommodated

Room Night Demand

Accommodated Room

Night Demand

Accordingly, we have forecast unaccommodated demand equivalent to 10.4% of the base-year demand, resulting from our analysis of monthly and weekly peak demand and sell-out trends.


Induced demand represents the additional room nights that are expected to be attracted to the market following the introduction of a new demand generator. Situations that can result in induced demand include the opening of a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities. Although increases in demand are expected in the local market, we have accounted for this growth in the determination of market-segment growth rates rather than induced demand.

Based upon a review of the market dynamics in the subject property’s competitive environment, we have forecast growth rates for each market segment. Using the calculated potential demand for the market, we have determined market-wide accommodated demand based on the inherent limitations of demand fluctuations and other factors in the market area.

Residual demand is a form of excess demand that develops as a result of seasonality of demand patterns in the hotel market. The seasonality occupancy patterns are shown in Figure 4-7. Our room night analysis model holds the amount of forecast room night demand in any month that exceeds the historical maximum monthly occupancy rate, as residual demand. Consequently, the total amount of residual room night demand being “held” in the residual demand category will actually be absorbed when a new hotel enters the market. In simpler terms, residual demand is defined as “total potential demand.

Note that our room night analysis reflects the new supply entrants previously discussed, as well as the assumed opening of a 207-room hotel at the subject site in July 2020. Anticipated supply additions are fairly large in number in the years 2019-20 (11.4% and 10.9%, respectively) and, as a result, the market-wide occupancy for the competitive hotel set is forecast to modestly decline to about 76% by 2021 and then eventually stabilize at just above 78%. We remind the reader that we believe these forecasts to represent the conservative baseline case and it is certainly possible that market-wide occupancy may stabilize at a slightly better rate than what is forecast in our analysis.

The following table details our projection of lodging demand growth for the subject market, including the total number of occupied room nights and any residual unaccommodated demand in the market.

Induced Demand

Accommodated Demand and Market-wide Occupancy


FIGURE 4-35 FORECAST OF MARKET OCCUPANCY

203,586 211,729 218,081 222,443 224,667 226,914 229,183

Unaccommodated Demand 20,528 21,349 21,989 22,429 22,653 22,880 23,109

0 0 0 0 0 0 0

224,113 233,078 240,070 244,872 247,320 249,794 252,292

Growth Rate 17.8 % 4.0 % 3.0 % 2.0 % 1.0 % 1.0 % 1.0 %

39,766 41,357 42,597 43,449 43,884 44,323 44,766

4,106 4,270 4,398 4,486 4,531 4,576 4,622

0 0 0 0 0 0 0

43,872 45,627 46,995 47,935 48,415 48,899 49,388

18.0 % 4.0 % 3.0 % 2.0 % 1.0 % 1.0 % 1.0 %

150,202 156,210 160,896 164,114 165,755 167,413 169,087

16,422 17,079 17,591 17,943 18,123 18,304 18,487

0 0 0 0 0 0 0

166,624 173,289 178,488 182,057 183,878 185,717 187,574

18.7 % 4.0 % 3.0 % 2.0 % 1.0 % 1.0 % 1.0 %

Base Demand 393,554 409,296 421,575 430,006 434,306 438,649 443,036

Unaccommodated Demand 41,056 42,698 43,979 44,858 45,307 45,760 46,218

Induced Demand 0 0 0 0 0 0 0

Total Demand 434,609 451,994 465,553 474,864 479,613 484,409 489,253

less: Residual Demand 42,793 28,970 14,410 3,718 4,677 5,645 6,623

Total Accommodated Demand 391,816 423,024 451,144 471,146 474,936 478,764 482,631

Overall Demand Growth 6.5 % 8.0 % 6.6 % 4.4 % 0.8 % 0.8 % 0.8 %

Market Mix

51.6 % 51.6 % 51.6 % 51.6 % 51.6 % 51.6 % 51.6 %

10.1 10.1 10.1 10.1 10.1 10.1 10.1

38.3 38.3 38.3 38.3 38.3 38.3 38.3

1,265 1,264 1,265 1,265 1,265 1,265 1,265

Proposed Holiday Inn Edgewater ¹ 104 207 207 207 207

Hilton Garden Inn Miami Brickell ² 22 129 129 129 129 129 129

Hotel Indigo Brickell ³ 140 140 140 140 140 140

Proposed AC by Marriott 4 151 151 151 151 151

Change to Existing Hotels

Holiday Inn Port of Miami Downtown A -100 -200 -200 -200 -200 -200

Available Room Nights per Year 469,594 523,110 580,113 617,580 617,580 617,580 617,580

Nights per Year 365 365 365 365 365 365 365

Total Supply 1,287 1,433 1,589 1,692 1,692 1,692 1,692

Rooms Supply Growth 3.7 % 11.4 % 10.9 % 6.5 % 0.0 % 0.0 % 0.0 %

Marketwide Occupancy 83.4 % 80.9 % 77.8 % 76.3 % 76.9 % 77.5 % 78.1 %

¹ Opening in July 2020 of the 100% competitive, 207-room Proposed Holiday Inn Edgewater² Opening in November 2018 of the 100% competitive, 129-room Hilton Garden Inn Miami Brickell³ Opening in January 2019 of the 100% competitive, 140-room Hotel Indigo Brickell4 Opening in January 2020 of the 100% competitive, 151-room Proposed AC by MarriottA Change of room count in July 2019 of the 100% competitive, Holiday Inn Port of Miami Downtown

Leisure

Existing Hotel Supply

Proposed Hotels

Totals

Commercial

Meeting and Group

Induced Demand

Total Demand

Growth Rate

Leisure

Base Demand


Induced Demand

Total Demand

Growth Rate


2023 2024

Base Demand

Induced Demand

Total Demand

Meeting and Group

Base Demand

Commercial

2018 2019 2020 2021 2022

November-2018 Description of the Proposed Improvements Proposed Holiday Inn Edgewater – Miami, Florida 92

5. Description of the Proposed Improvements

The quality of a lodging facility's physical improvements has a direct influence on marketability, attainable occupancy, and average room rate. The design and functionality of the structure can also affect operating efficiency and overall profitability. This section investigates the subject property's proposed physical improvements and personal property in an effort to determine how they are expected to contribute to attainable cash flows.

The Proposed Holiday Inn Edgewater will be a full-service lodging facility containing 207 rentable units. The 8-story property will open on July 1, 2020. The subject site is currently cleared and ready for development.

TYPICAL HOLIDAY INN EXTERIOR

Owned by InterContinental Hotels Group (IHG), a leading global hospitality group, the first Holiday Inn was introduced in 1952 in Memphis, Tennessee. According to IHG, the brand is one of the most popular in the industry, with over 100 million guest nights hosted every year globally. The upper-midscale, full-service hotels feature a restaurant and lounge, a swimming pool, a fitness room, business services, and meeting facilities. As of year-end 2017, there were 773 Holiday Inn properties (135,604 rooms) in the Americas. In 2017, Holiday Inn hotels in the Americas operated at an average occupancy level of 66.6%, with an average daily rate of $112.61 and an average RevPAR of $75.25.

Project Overview


Based on information provided by the proposed subject hotel’s development representatives, the following table summarizes the facilities that are expected to be available at the proposed subject hotel.

FIGURE 5-1 PROPOSED FACILITIES SUMMARY

Guestroom Configuration

King 74

Double Queen 133

Total 207

Food & Beverage Facilities

Main Restaurant (2,721 SF) 50

Pool Bar (3rd level) 25

Indoor Meeting & Banquet Facilities

Meeting Room (3rd level) 1,285

Total 1,285

Amenities & Services

Outdoor Swimming Pool Outdoor Sundeck

Outdoor Whirlpool Retail/Office Space (Ground Floor)

Fitness Center Vending Area

Business Center Valet Parking

Infrastructure

Parking Spaces 139

Elevators

Life-Safety Systems

Construction Details

2 Guest, 1 Service

Square Footage

Number of Units

Seating Capacity

Sprinklers, Smoke Detectors

Reinforced Concrete (Plank)

FIGURE 5-2 BUILDING AREA MATRIX

Area Matrix SF % of Total

Main Restaurant 2,721 1.7%

Hotel Units 82,767 51.8%

Lobby 3,076 1.9%

Amenity Area 7,188 4.5%

Parking 30,539 19.1%

Back-of-the-House 12,173 7.6%

Circulation 21,170 13.3%

Total 159,634

Summary of the Facilities


FIGURE 5-3 FLOOR AREA SUMMARY


Once guests arrive at the site, valet service (for a market-appropriate rate) will be available. The valet service, which will be operated by the hotel, is located on the second-floor level and will offer stacked (elevator lift) parking for 139 vehicles. Overall, the planned site improvements for the property appear adequate.

The hotel structure will comprise one single building, which will be constructed of steel and reinforced concrete. The exterior of the hotel will be finished with stucco and will feature stone accents on the ground level and near the main entrance. XX stairways and XX elevators will provide internal vertical transportation within the main structure. The hotel's roof will be made of wood trusses, covered with plywood and roof tiles or composition shingles. Double-paned windows will reduce noise transmission into the rooms. Heating and cooling will be provided by through-the-wall units and several large units for the public areas. Overall, the planned building components appear normal for a hotel of this type and should meet the standards for this market. We assume that all structural components will meet local building codes and that no significant defaults will occur during construction that would affect the future operating potential of the hotel or delay its assumed opening date.

The hotel’s restaurant and lounge will be located opposite the front desk in the lobby. The furnishings of the space are expected to be of a similar style and finish as lobby and guestroom furnishings. The hotel is expected to offer one meeting room, which is located on the third floor. The hotel is planned to offer an outdoor pool, a pool bar, and a fitness room as recreational facilities all of which are located on the third-floor level. Other amenities are expected to include a lobby workstation, a market pantry integrated into the front desk, and vending areas on select guestroom floors. The hotel will feature standard and suite-style room configurations and the typical in-room amenities associated with the Holiday Inn brand. Guestroom bathrooms will be of a standard size, with a shower-in-tub, commode, and single or double sink with vanity area, featuring a stone countertop. Overall, the facilities should be appropriate for a hotel of this type, and we assume that they will meet brand standards.

The hotel is anticipated to offer a full-service restaurant and lounge, room service, and banquet operations. We would expect onsite outlets to be relatively upscale due to the ideal hotel service level and first-class nature. The furnishings of the restaurant and lounge are expected to be of a similar style and finish as lobby and guestroom furnishings.

We have assumed that the hotel would provide a competitive offering of food and beverage facilities for an upper-midscale, full-service property.

Site Improvements and Hotel Structure

Lobby

Food and Beverage Facilities


FIGURE 5-4 GROUND FLOOR BUILDING PLAN


FIGURE 5-5 SECOND FLOOR BUILDING PLAN (STACKED PARKING LEVEL)


FIGURE 5-6 THIRD FLOOR BUILDING PLAN


FIGURE 5-7 FOURTH FLOOR BUILDING PLAN


FIGURE 5-8 FIFTH FLOOR BUILDING PLAN


FIGURE 5-9 SIXTH FLOOR BUILDING PLAN


FIGURE 5-10 SEVENTH FLOOR BUILDING PLAN


FIGURE 5-11 EIGHTH FLOOR BUILDING PLAN


FIGURE 5-12 ROOF BUILDING PLAN


The hotel will offer one meeting room located on the third-floor level proximate to the hotel's pool and pool bar. This planned meeting space appears appropriate for a hotel of this type and is assumed to meet brand standards. Public restrooms near the entrance to the meeting space should enhance the overall functionality of the area.

The proposed hotel will offer an outdoor pool, located on the third level terrace, and a fitness room as recreational facilities. Restrooms will be present on the third level, adjacent to the fitness room, and near the doors leading to the pool area.

The hotel will feature standard guestroom and suite-style room configurations, with guestrooms present on the third through eighth levels of the property's single building. The standard guestrooms will measure approximately 387-425 square feet, comprising comprise king, queen, or double/double configurations. Suites will be available for a premium rate that will feature a larger living area (779 square feet). Both room types will offer typical amenities for this product type, such as a coffeemaker and high-speed, wireless Internet access. Overall, the guestrooms will offer a competitive product for this neighborhood.

FIGURE 5-13 ROOM TYPE MATRIX

Meeting and Banquet Space

Recreational Amenities

Guestrooms


Guestroom bathrooms are expected to be of a standard size, with a shower-in-tub, commode, and single sink with vanity area, featuring a granite countertop. The floors are anticipated to be finished with tile, and the walls will likely be finished with a wallcovering. Bathroom amenities should include a hairdryer and complimentary toiletries. Overall, the bathroom design should appeal to the upscale traveler and conform to brand standards.

The interior guestroom corridors will be wide and functional, permitting the easy passage of housekeeping carts. Corridor carpet, wallcovering, signage, and lighting will be in keeping with the overall look and design of the rest of the property.

The hotel will be served by the necessary back-of-the-house space, including administrative offices, an in-house laundry facility, and a full-service kitchen to serve the needs of the restaurant and lounge. These spaces should be adequate for a hotel of this type and should allow for the efficient operation of the property under competent management.

We assume that the property will be built according to all pertinent codes and brand standards. Moreover, we assume its construction will not create any environmental hazards (such as mold) and that the property will fully comply with the Americans with Disabilities Act.

Our analysis assumes that, after its opening, the hotel will require ongoing upgrades and periodic renovations in order to maintain its competitive level in this market and to remain compliant with brand standards. These costs should be adequately funded by the forecasted reserve for replacement, as long as a successful, ongoing preventive-maintenance program is employed by hotel staff.

The construction budget for the 207-room subject hotel, as provided by the project developer, is illustrated in the following table. It should be noted that HVS included additional estimated costs as the developer’s budget was preliminary in terms of anticipated FF&E costs, pre-opening and working capital, and complete soft costs. We have used actual site costs as reported by the developer, and the developer’s fee is based on 10% of accumulative costs (excluding land). Relative to hard cost estimates, we relied on the preliminary budget prepared by Seawood Builders (see Figures 5-15 to 5-17).

Back-of-the-House

ADA and Environmental

Capital Expenditures

Construction Budget


FIGURE 5-14 SUBJECT PROPERTY CONSTRUCTION BUDGET

Component

Hard Costs & Site Improvements

$22,809,676 $110,192

136,858 661

1,147,327 5,543

165,072 797

$24,258,933 $117,193

FF&E

$4,250,000 $20,531

825,000 3,986

Subtotal FFE & OS&E 5,075,000 $24,517

Pre-Opening Costs and Working Capital

$1,600,000 $7,729

$1,600,000 $7,729

Soft Costs

$500,000 $2,415

400,000 1,932

200,000 966

1,250,000 6,039

$2,350,000 $11,353

Subtotal (without Land and Developer's

Fee) $33,283,933 $160,792

$7,276,000 $35,150

Subtotal (without Developer's Fee) $40,559,933 $195,942

Developer's Fee $3,328,393 $16,079

Total $43,888,326 $212,021

Architectural (to date & est. to complete)

Property Tax (to date & est. to complete)

General Liability Insurance

Procurement Estimate (HVS)

Hard Costs (per Seawood Builders GC Estimate)

Cost

Site Cost

Subtotal Pre-Opening and Working Capital

Overhead & Profit


Payment & Performance Bonds

FF&E Estimate (HVS)

Subtotal Hard Cost & Site Improvements

Subtotal Soft Costs

Remaining Soft Costs (HVS) - Including Interest Reserve

Engineering (to date & est. to complete)

Cost per Room


FIGURE 5-15 SUBJECT PROPERTY CONSTRUCTION BUDGET (HARD COSTS ONLY)


FIGURE 5-16 SUBJECT PROPERTY CONSTRUCTION BUDGET (HARD COSTS ONLY) – CON’T


FIGURE 5-17 SUBJECT PROPERTY CONSTRUCTION BUDGET (HARD COSTS ONLY) – CON’T

Overall, the proposed subject hotel should offer a well-designed, functional layout of support areas and guestrooms. All typical and market-appropriate features and amenities appear to be included in the hotel's design. We assume that the building will be fully open and operational on the stipulated opening date and will meet all local building codes and brand standards. Furthermore, we assume that the hotel

Conclusion


staff will be adequately trained to allow for a successful opening and that pre-marketing efforts will have introduced the product to major local accounts at least six months in advance of the opening date.

November-2018 Projection of Occupancy and Average Rate Proposed Holiday Inn Edgewater – Miami, Florida 112

6. Projection of Occupancy and Average Rate

Along with ADR results, the occupancy levels achieved by a hotel are the foundation of the property's financial performance and market value. Most of a lodging facility's other revenue sources (such as food, beverages, other operated departments, and rentals and other income) are driven by the number of guests, and many expense levels vary with occupancy. To a certain degree, occupancy attainment can be manipulated by management. For example, hotel operators may choose to lower rates in an effort to maximize occupancy. Our forecasts reflect an operating strategy that we believe would be implemented by a typical, professional hotel management team to achieve an optimal mix of occupancy and average rate.

The subject property's forecasted market share and occupancy levels are based upon its anticipated competitive position within the market, as quantified by its penetration rate. The penetration rate is the ratio of a property's market share to its fair share.

In the following table, the penetration rates attained by the primary competitors and the aggregate secondary competitors are set forth for each segment for the base year.

FIGURE 6-1 HISTORICAL PENETRATION RATES

Property

Hampton Inn & Suites by Hilton Miami Midtown 60 % 77 % 102 % 78 %

Holiday Inn Port of Miami Downtown 94 96 102 97

Courtyard by Marriott Miami Downtown 101 104 110 105

Aloft Hotel Miami Brickell 100 102 108 103

Hampton Inn & Suites Miami Brickell Downtown 119 101 80 102

Homewood Suites by Hilton Miami Downtown Brickell 86 219 116 111

SpringHill Suites Miami Downtown/Medical Center 117 50 93 101

Ove

rall

Com

mer

cial

Mee

ting

and

Gro

up

Leis

ure

The Hampton Inn & Suites Miami Brickell Downtown achieved the highest penetration rate within the commercial segment. The highest penetration rate in the meeting and group segment was achieved by the Homewood Suites by Hilton

Penetration Rate Analysis

Historical Penetration Rates by Market Segment


Miami Downtown Brickell, while the Homewood Suites by Hilton Miami Downtown Brickell led the market with the highest leisure penetration rate.

Because the supply and demand balance for the competitive market is dynamic, there is a circular relationship between the penetration factors of each hotel in the market. The performance of individual new hotels has a direct effect upon the aggregate performance of the market, and consequently upon the calculated penetration factor for each hotel in each market segment. The same is true when the performance of existing hotels changes, either positively (following a refurbishment, for example) or negatively (when a poorly maintained or marketed hotel loses market share).

A hotel’s penetration factor is calculated as its achieved market share of demand divided by its fair share of demand. Thus, if one hotel’s penetration performance increases, thereby increasing its achieved market share, this leaves less demand available in the market for the other hotels to capture and the penetration performance of one or more of those other hotels consequently declines (other things remaining equal). This type of market share adjustment takes place every time there is a change in supply, or a change in the relative penetration performance of one or more hotels in the competitive market. Our projections of penetration, demand capture, and occupancy performance for the subject property account for these types of adjustments to market share within the defined competitive market.

The reader should note that the numbers shown for the row labeled ‘Demand’ under the market segments (i.e. transient, commercial meeting & group) in Figure 4-33 will not always match the number shown in the row labeled “Base Demand’ in Figure 6-2. This is because the ‘Demand’ row shown in Figure 6-2 is the sum of (Base Demand plus Unaccommodated Demand for said segment), less some allocated portion of the total Residual Demand shown in Figure 4-33, which is demand that is not absorbed. The Demand number shown in Figure 6-2 will only equal the Base Demand number shown in Figure 4-33 when none of the Unaccommodated Demand can be absorbed.

The proposed subject hotel's occupancy forecast is set forth as follows, with the adjusted projected penetration rates used as a basis for calculating the amount of captured market demand. The proposed subject hotel's occupancy forecast is recapped below and is based on our opinion and forecast that the hotel can ultimately achieve 100% of its ‘fair share’ of the forecast market-wide occupancy resulting from our room night analysis.

Forecast of Subject Property’s Occupancy


FIGURE 6-2 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY

Market Segment

Commercial

Demand 232,667 242,962 244,918 246,894

Market Share 4.6 % 9.1 % 9.6 % 9.7 %

Capture 10,632 22,152 23,468 23,925

Penetration 70 % 75 % 78 % 79 %

Meeting and Group

Demand 45,542 47,560 47,943 48,330

Market Share 4.6 % 11.0 % 13.2 % 13.6 %

Capture 2,101 5,254 6,347 6,556

Penetration 70 % 90 % 108 % 111 %

Leisure

Demand 172,934 180,624 182,075 183,541

Market Share 6.3 % 13.3 % 14.8 % 15.3 %

Capture 10,964 24,097 26,992 28,131

Penetration 97 % 109 % 121 % 125 %

Total Room Nights Captured 23,697 51,503 56,808 58,612

Available Room Nights 38,088 75,555 75,555 75,555

Subject Occupancy 62 % 68 % 75 % 78 %

Market-wide Available Room Nights 580,113 617,580 617,580 617,580

Fair Share 7 % 12 % 12 % 12 %

Market-wide Occupied Room Nights 451,144 471,146 474,936 478,764

Market Share 5 % 11 % 12 % 12 %

Market-wide Occupancy 78 % 76 % 77 % 78 %

Total Penetration 80 % 89 % 98 % 100 %

2020 2021 2022 2023

We have forecast a demand capture its fair share (equal to 100% of the market-wide occupancy) given the subject’s locational orientation east of Brickell in the Midtown district as compared to its competitors. These positioned segment penetration rates result in the following market segmentation forecast.

FIGURE 6-3 MARKET SEGMENTATION FORECAST – SUBJECT PROPERTY

Commercial 45 % 43 % 41 % 41 %

Meeting and Group 9 10 11 11

Leisure 46 47 48 48

Total 100 % 100 % 100 % 100 %

2020 2021 2022 2023


FIGURE 6-4 STABILIZED MARKET SEGMENTATION– SUBJECT PROPERTY

41%

11%

48%

Commercial Meeting and Group

Leisure

Based on our analysis of the proposed subject hotel and market area, we have selected a stabilized occupancy level of 78%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given all changes in the life cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability.

One of the most important considerations in estimating the value of a lodging facility is a supportable forecast of its attainable average rate, which is more formally defined as the average rate per occupied room. Average rate can be calculated by dividing the total rooms revenue achieved during a specified period by the number of rooms sold during the same period. The projected average rate and the anticipated occupancy percentage are used to forecast rooms revenue, which in turn provides the basis for estimating most other income and expense categories.

Although the ADR analysis presented here follows the occupancy projection, these two statistics are highly correlated; one cannot project occupancy without making specific assumptions regarding average rate. This relationship is best illustrated by revenue per available room (RevPAR), which reflects a property's ability to

Average Rate Analysis

Competitive Position


maximize rooms revenue. The following table summarizes the historical average rate, RevPAR, and respective ADR and RevPAR penetration levels for the proposed subject property’s competitors. The stabilized average rate and RevPAR levels that have been projected for the proposed subject hotel, expressed in base-year dollars, are also presented to understand the ADR positioning anticipated for the property upon stabilization. The basis for our ADR projection follows later in this section of the report.

FIGURE 6-5 BASE-YEAR ADR AND REVPAR OF THE COMPETITORS

Property

Hampton Inn & Suites by Hilton Miami Midtown $130 - $140 85 - 90 % $85 - $90 65 - 70 %

Holiday Inn Port of Miami Downtown 150 - 160 100 - 110 125 - 130 95 - 100

Courtyard by Marriott Miami Downtown 160 - 170 100 - 110 140 - 150 110 - 120

Aloft Hotel Miami Brickell 150 - 160 95 - 100 125 - 130 95 - 100

Hampton Inn & Suites Miami Brickell Downtown 180 - 190 120 - 130 150 - 160 120 - 130

Homewood Suites by Hilton Miami Downtown Brickell 140 - 150 90 - 95 125 - 130 100 - 110

SpringHill Suites Miami Downtown/Medical Center 130 - 140 80 - 85 105 - 110 80 - 85

Overall Average $157.07 100.0 % $127.59 100.0 %

.

Subject As If Stabilized (In 2017 Dollars) $142.50 90.7 % $116.27 91.1 %

Estimated 2017

Average Room

Rate

Average Room

Rate Penetration

Rooms Revenue

Per Available

Room (RevPAR)

RevPAR

Penetration

The defined primarily competitive market realized an overall average rate of $157.07 in the 2017 base year, declining from the 2016 level of $158.15.

We have also reviewed average rate performance levels through year-to-date 2018 as shown in the following table (presented in ascending order).


FIGURE 6-6 2018 YEAR-TO-DATE AVERAGE RATE OF THE COMPETITORS

Average Rate Average Rate

Property Data Through 2017 Year-to-Date 2018 Year-to-Date

SpringHill Suites Miami Downtown/Medical Center July $133.00 $142.00 6.8 %

Hampton Inn & Suites by Hilton Miami Midtown August 101.25 147.50 45.7

Holiday Inn Port of Miami Downtown August 163.00 167.00 2.5

Homewood Suites by Hilton Miami Downtown Brickell July 148.81 168.70 13.4

Aloft Hotel Miami Brickell July 159.00 176.00 10.7

Courtyard by Marriott Miami Downtown July 173.00 187.00 8.1

Hampton Inn & Suites Miami Brickell Downtown August 189.00 192.00 1.6

% Change

Highlighted by 2018’s peak season year-over-year average rate gain of roughly $13.50, RevPAR is up 13.2% over the same 8-month period last year. It is important to note that with the opening of the new Hampton Inn & Suites all three indices, on an aggregate basis, increased. Year-to-date average rate is up 7.9% through August.

The Hampton Inn & Suites Brickell achieved the highest estimated average rate in the local competitive market, by a significant margin, because of its downtown location and product offering. Ranked second was the Courtyard, followed closely by the Holiday Inn and the aLoft. The selected rate position for the proposed subject hotel, in base-year dollars, takes into consideration factors such as its Midtown location and proximity to the Design District, full-service product offering, and its new construction. Moreover, the loss of decommissioned inventory at the existing 200-room Holiday Inn, coupled with the addition of high-quality rooms at the subject, should support a continued, heightened average-rate position for the city's higher-caliber properties. We have selected the rate position of $142.50, in base-year (2017) dollars, for the proposed subject hotel. Utilizing 2017 data, our projection is roughly $19.00 below the weighted average of the five “downtown” hotels – excluding the Hampton Midtown and the SpringHill Suites.

Market-wide rates began to trend upward post-recession in 2012. We would expect this upward trend to continue in the near term given the strengthening market dynamics in this Miami CBD submarket, including a rise in higher-rated corporate accounts coupled with growth expectations in the leisure segment at the hotels in the primary competitive set.

Based on these considerations, the following table sets forth the basis for our projection of the proposed subject hotel’s average rate. We have positioned the proposed subject hotel’s stabilized average rate in base-year dollars at $142.50 which reflects an ADR penetration of 90.7 %. Based on our review of the proposed


improvements and the anticipated profile of the product and its operation, it is our opinion that the ADR penetration level should be achievable with appropriate management and marketing. The positioned stabilized average rate is projected to increase at the same rate as the overall market’s average rate, prior to consideration of any ADR discounting during the hotel’s ramp-up period. Note that we have assumed an underlying inflation rate of 2.5% in the first projection year, 2.5% in the second projection year, and 3.0% in the third projection year (and thereafter) in our forecast of income and expense, which follows later in this report.

The proposed subject hotel’s projected average rate (as if stabilized) is then fiscalized to correspond with the hotel’s anticipated date of opening for each forecast year. Discounts of 5% and 3% have been applied to the stabilized room rates projected for the first two years of operation, as would be expected for a new property of this type as it builds its reputation and becomes established in the market.

The following table presents the proposed subject hotel’s ADR penetration level, followed by the average rate deflated to base-year dollars by the assumed underlying inflation rate, for each year of the forecast.

FIGURE 6-7 ADR FORECAST - MARKET AND PROPOSED SUBJECT PROPERTY

Calendar Year 2017 2018 2019 2020 2021 2022 2023 2024

Market ADR $157.07 $169.64 $176.42 $179.07 $183.55 $189.05 $194.73 $200.57

Projected Market ADR Growth Rate — 8.0% 4.0% 1.5% 2.5% 3.0% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabilized) $142.50 $153.90 $160.06 $162.46 $166.52 $171.51 $176.66 $181.96

ADR Growth Rate — 8.0% 4.0% 1.5% 2.5% 3.0% 3.0% 3.0%

Proposed Subject Stabilized ADR Penetration 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7%

Fiscal Year 2020/21 2021/22 2022/23 2023/24 2024/25

Proposed Subject Property Average Rate $164.47 $169.00 $174.07 $179.29 $184.67

Opening Discount 5.0% 2.5% 0.0% 0.0% 0.0%

Average Rate After Discount $156.25 $164.77 $174.07 $179.29 $184.67

Real Average Rate Growth — 5.5% 5.6% 3.0% 3.0%

Market ADR $181.29 $186.28 $191.87 $197.62 $203.55

Proposed Subject ADR Penetration (After Discount) 86.2% 88.5% 90.7% 90.7% 90.7%

ADR Expressed in Base-Year Dollars Deflated @ Inflation Rate $144.39 $147.83 $151.62 $151.62 $151.62

The Midtown Miami market should experience ADR growth through the near term. The proposed subject hotel's rate position should reflect growth similar market trends because of the proposed hotel's new facility, strong brand affiliation,


expected service level, and location. The proposed subject hotel’s ADR penetration level is forecast to reach 90.7 % by the stabilized period, consistent with our stabilized ADR positioning.

The following table sets forth our concluding forecast of the proposed subject hotel’s occupancy, average rate, and RevPAR, with corresponding penetration levels, for the first projection year through the stabilized year of operation. The market’s historical and projected occupancy, average rate, and RevPAR are presented for comparison, with the projections fiscalized to correspond with the proposed subject hotel’s forecast, as appropriate.


FIGURE 6-8 COMPARISON OF HISTORICAL AND PROJECTED OCCUPANCY, AVERAGE RATE, AND REVPAR – PROPOSED SUBJECT PROPERTY AND

MARKET

2015 2016 2017 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Proposed Holiday Inn Edgewater

Occupancy — % — % 65.2 % 71.6 % 76.4 % 78.2 %

Change in Points — — — 6.5 4.7 1.8

Occupancy Penetration — — 84.6 % 93.5 % 98.9 % 100.5 %

Average Rate $142.50 $156.95 $161.25 $156.25 $164.77 $174.07 $179.29

Change — 2.7 % (3.1) % 5.5 % 5.6 % 3.0 %

Average Rate Penetration 90.7 % 90.7 % 86.2 % 88.5 % 90.7 % 90.7 %

RevPAR — — $101.82 $118.05 $132.94 $140.17

Change — — — 15.9 % 12.6 % 5.4 %

RevPAR Penetration — — 72.9 % 82.7 % 89.7 % 91.1 %

2015 2016 2017 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Miami Submarket

Occupancy 83.4 % 78.0 % 81.2 % 82.2 % 79.3 % 77.0 % 76.6 % 77.2 % 77.8 %

Change in Points — (5.4) 3.2 0.9 (2.8) (2.3) (0.4) 0.6 0.6

Average Rate $159.22 $158.15 $157.07 $173.00 $177.74 $181.29 $186.28 $191.87 $197.62

Change — (0.7) % (0.7) % 10.1 % 2.7 % 2.0 % 2.8 % 3.0 % 3.0 %

RevPAR $132.81 $123.34 $127.59 $142.14 $141.00 $139.66 $142.68 $148.14 $153.82

Change — (7.1) % 3.4 % 11.4 % (0.8) % (1.0) % 2.2 % 3.8 % 3.8 %

* The forecast for the proposed subject property does not include rate discounts that are expected to occur during the initial year(s) of operation.

Projected

Historical (Estimated) Projected


The following occupancies and average rates will be used to proposed subject hotel’s rooms revenue; this forecast reflects years beginning on July 1, 2020, which correspond with our financial projections.

FIGURE 6-9 FORECASTS OF OCCUPANCY, AVERAGE RATE, AND REVPAR

Year

2020/21 65 % $164.47 5.0 % $156.25 $101.56

2021/22 72 169.00 2.5 164.77 118.64

2022/23 76 174.07 0.0 174.07 132.29

2023/24 78 179.29 0.0 179.29 139.84

Occupancy

Average Rate

Before Discount Discount

Average Rate

After Discount RevPAR

November-2018 Projection of Income and Expense Proposed Holiday Inn Edgewater – Miami, Florida 122

7. Projection of Income and Expense

In this chapter of our report, we have compiled a forecast of income and expense for the proposed subject hotel. This forecast is based on the facilities program set forth previously, as well as the occupancy and average rate forecast discussed previously.

The forecast of income and expense is expressed in current dollars for each year. The stabilized year is intended to reflect the anticipated operating results of the property over its remaining economic life, given any or all applicable stages of build-up, plateau, and decline in the life cycle of the hotel. Thus, income and expense estimates from the stabilized year forward exclude from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusual revenues or expenses. The ten-year period reflects the typical holding period of large real estate assets such as hotels. In addition, the ten-year period provides for the stabilization of income streams and comparison of yields with alternate types of real estate. The forecasted income streams reflect the future benefits of owning specific rights in income-producing real estate.

In order to project future income and expense for the proposed subject hotel, we have included a sample of individual comparable operating statements from our database of hotel statistics. All financial data are presented according to the three most common measures of industry performance: ratio to sales (RTS), amounts per available room (PAR), and amounts per occupied room night (POR). These historical income and expense statements will be used as benchmarks in our forthcoming forecast of income and expense.

Comparable Operating Statements


FIGURE 7-2 COMPARABLE OPERATING STATEMENTS: RATIO TO SALES

Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject

Year: 2017/18 2017/18 2017 2016/17 2016 2017

Edition: 11 11 11 10 11 11

Number of Rooms: 240 to 310 210 to 270 120 to 150 160 to 210 180 to 230 207

Occupied Rooms: 82,173 54,831 45,333 53,509 53,569 58,933

Days Open: 365 365 365 365 365 365

Occupancy: 82% 63% 92% 80% 72% 78%

Average Rate: $133 $137 $117 $160 $115 $149

RevPAR: $108 $86 $108 $128 $83 $117

REVENUE

Rooms 86.6 % 84.9 % 83.7 % 83.7 % 84.7 % 76.3 %

Food & Beverage 12.5 11.6 14.9 15.5 12.7 15.3

Other Operated Departments 0.6 1.2 1.0 0.7 2.6 3.4

Miscellaneous Income 0.3 2.3 0.4 0.1 0.0 5.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

DEPARTMENTAL EXPENSES*

Rooms 22.3 21.9 20.7 23.0 21.6 22.5

Food & Beverage 73.0 77.8 76.9 79.4 76.6 75.0


Total 28.7 27.9 29.1 31.7 28.5 29.8

DEPARTMENTAL INCOME 71.3 72.1 70.9 68.3 71.5 70.2

OPERATING EXPENSES

Administrative & General 6.6 7.1 5.3 9.1 7.9 7.7

Info. and Telecom. Systems 1.4 1.7 0.5 0.8 0.4 1.0

Marketing 6.0 8.0 2.9 5.9 3.9 4.7

Franchise Fee 5.0 5.5 6.3 4.2 8.2 6.1

Property Operations & Maintenance 3.7 4.5 3.4 5.6 4.3 3.2

Utilities 2.6 3.9 3.9 6.4 3.0 3.8

Total 25.3 30.6 22.3 32.0 27.7 26.5

HOUSE PROFIT 46.0 41.5 48.6 36.3 43.8 43.7

Management Fee 3.4 3.0 3.0 3.5 3.0 3.0

INCOME BEFORE FIXED CHARGES 42.6 38.5 45.6 32.8 40.8 40.7

FIXED EXPENSES

Property Taxes 7.2 5.5 2.2 3.0 1.4 6.1

Insurance 0.8 1.0 1.5 1.2 0.7 1.4

Reserve for Replacement 4.0 4.0 4.0 4.0 4.0 4.0

Total 12.0 10.5 7.7 8.2 6.1 11.5

NET INCOME 30.6 % 28.0 % 37.9 % 24.6 % 34.7 % 29.2 %

* Departmental expense ratios are expressed as a percentage of departmental revenues

Stabilized $


FIGURE 7-3 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER AVAILABLE ROOM


Year: 2017/18 2017/18 2017 2016/17 2016 2017

Edition: 11 11 11 10 11 11


Occupied Rooms: 82,173 54,831 45,333 53,509 53,569 58,933

Days Open: 365 365 365 365 365 365

Occupancy: 82% 63% 92% 80% 72% 78%

Average Rate: $133 $137 $117 $160 $115 $149

RevPAR: $108 $86 $108 $128 $83 $117

REVENUE

Rooms $39,492 $31,558 $39,356 $46,671 $30,242 $42,533

Food & Beverage 5,706 4,321 6,985 8,621 4,531 8,507

Other Operated Departments 265 441 474 393 937 1,922

Miscellaneous Income 145 869 185 47 15 2,794

Total 45,609 37,188 47,000 55,733 35,725 55,755

DEPARTMENTAL EXPENSES

Rooms 8,815 6,899 8,148 10,724 6,538 9,570

Food & Beverage 4,167 3,363 5,370 6,845 3,473 6,380

Other Operated Departments 87 99 163 95 186 673

Total 13,069 10,361 13,681 17,664 10,197 16,622

DEPARTMENTAL INCOME 32,540 26,828 33,319 38,069 25,528 39,133

OPERATING EXPENSES

Administrative & General 2,990 2,622 2,504 5,058 2,806 4,306

Info. and Telecom. Systems 637 629 222 418 154 537

Marketing 2,752 2,959 1,348 3,283 1,392 2,634

Franchise Fee 2,280 2,050 2,978 2,366 2,929 3,403

Property Operations & Maintenance 1,685 1,660 1,615 3,109 1,542 1,773

Utilities 1,191 1,462 1,815 3,573 1,056 2,128

Total 11,535 11,381 10,481 17,807 9,879 14,780

HOUSE PROFIT 21,005 15,447 22,838 20,262 15,649 24,352

Management Fee 1,573 1,113 1,407 1,961 1,079 1,673

INCOME BEFORE FIXED CHARGES 19,432 14,334 21,430 18,300 14,571 22,680

FIXED EXPENSES

Property Taxes 3,291 2,038 1,015 1,682 516 3,379

Insurance 368 371 704 691 254 800

Reserve for Replacement 1,824 1,488 1,880 2,229 1,429 2,230

Total 5,484 3,896 3,599 4,603 2,199 6,410

NET INCOME $13,948 $10,438 $17,831 $13,697 $12,372 $16,270

Stabilized $


FIGURE 7-4 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER OCCUPIED ROOM


Year: 2017/18 2017/18 2017 2016/17 2016 2017

Edition: 11 11 11 10 11 11


Occupied Rooms: 82,173 54,831 45,333 53,509 53,569 58,933

Days Open: 365 365 365 365 365 365

Occupancy: 82% 63% 92% 80% 72% 78%

Average Rate: $133 $137 $117 $160 $115 $149

RevPAR: $108 $86 $108 $128 $83 $117

REVENUE

Rooms $132.64 $136.98 $117.20 $160.49 $114.60 $149.39

Food & Beverage 19.17 18.75 20.80 29.64 17.17 29.88


Miscellaneous Income 0.49 3.77 0.55 0.16 0.06 9.81

Total 153.19 161.42 139.96 191.65 135.38 195.84


Rooms 29.61 29.95 24.26 36.88 24.77 33.61

Food & Beverage 13.99 14.60 15.99 23.54 13.16 22.41


Total 43.90 44.97 40.74 60.74 38.64 58.39

DEPARTMENTAL INCOME 109.29 116.45 99.22 130.91 96.74 137.45

OPERATING EXPENSES

Administrative & General 10.04 11.38 7.46 17.39 10.63 15.12

Info. and Telecom. Systems 2.14 2.73 0.66 1.44 0.58 1.88

Marketing 9.24 12.84 4.01 11.29 5.28 9.25

Franchise Fee 7.66 8.90 8.87 8.14 11.10 11.95

Property Operations & Maintenance 5.66 7.20 4.81 10.69 5.84 6.23

Utilities 4.00 6.34 5.40 12.29 4.00 7.47

Total 38.74 49.40 31.21 61.23 37.44 51.92

HOUSE PROFIT 70.55 67.05 68.01 69.67 59.31 85.54

Management Fee 5.28 4.83 4.19 6.74 4.09 5.88

INCOME BEFORE FIXED CHARGES 65.27 62.22 63.82 62.93 55.22 79.66

FIXED EXPENSES

Property Taxes 11.05 8.85 3.02 5.79 1.95 11.87

Insurance 1.24 1.61 2.10 2.38 0.96 2.81

Reserve for Replacement 6.13 6.46 5.60 7.67 5.42 7.83

Total 18.42 16.91 10.72 15.83 8.33 22.51

NET INCOME $46.85 $45.31 $53.10 $47.10 $46.89 $57.15

Stabilized $


The departmental income of the comparable properties ranged from 68.3% to 72.1% of total revenue. The comparable properties achieved a house profit ranging from 36.3% to 48.6% of total revenue. We will refer to the comparable operating data in our discussion of each line item, which follows later in this section of the report.

FIGURE 7-5 COMPARABLE OPERATING STATEMENTS: COMPOSITE STATEMENT

Number of Rooms: 1,036

Occupied Rooms: 289,415

Days Open: 365

Occupancy: 76.5% Amount per Amount per

Average Rate: $132.85 Percentage Available Occupied

RevPAR: $101.68 of Revenue Room Room

REVENUE

Rooms $38,450 84.9 % $37,114 $132.85

Food & Beverage 6,052 13.4 5,842 20.91

Other Operating Departments 505 1.1 487 1.74

Miscellaneous Income 284 0.6 274 0.98

Total 45,291 100.0 43,717 156.49


Rooms 8,475 22.0 8,181 29.28

Food & Beverage 4,640 76.7 4,479 16.03

Other Operating Departments 125 24.7 120 0.43

Total 13,240 29.2 12,780 45.75

DEPARTMENTAL INCOME 32,051 70.8 30,937 110.74

OPERATING EXPENSES

Administrative & General 3,287 7.3 3,173 11.36

Info. and Telecom. Systems 464 1.0 447 1.60

Marketing 2,532 5.6 2,444 8.75

Franchise Fee 2,549 5.6 2,461 8.81

Property Operations & Maintenance 1,963 4.3 1,895 6.78

Utilities 1,794 4.0 1,731 6.20

Total 12,589 27.8 12,152 43.50

HOUSE PROFIT 19,462 43.0 18,785 67.24

Management Fee 1,469 3.2 1,418 5.08

INCOME BEFORE FIXED CHARGES 17,993 39.7 17,367 62.17

FIXED EXPENSES

Property Taxes 1,945 4.3 1,877 6.72

Insurance 464 1.0 448 1.60

Reserve for Replacement 1,812 4.0 1,749 6.26

Total 4,220 9.3 4,073 14.58

NET INCOME $13,773 30.4 % $13,294 $47.59


HVS uses a fixed and variable component model to project a lodging facility's revenue and expense levels. This model is based on the premise that hotel revenues and expenses have one component that is fixed and another that varies directly with occupancy and facility usage. A projection can be made by taking a known level of revenue or expense and calculating its fixed and variable components. The fixed component is then increased in tandem with the underlying rate of inflation, while the variable component is adjusted for a specific measure of volume such as total revenue.

The actual forecast is derived by adjusting each year’s revenue and expense by the amount fixed (the fixed expense multiplied by the inflated base-year amount) plus the variable amount (the variable expense multiplied by the inflated base-year amount) multiplied by the ratio of the projection year’s occupancy to the base-year occupancy (in the case of departmental revenue and expense) or the ratio of the projection year’s revenue to the base year’s revenue (in the case of undistributed operating expenses). Fixed expenses remain fixed, increasing only with inflation. Our discussion of the revenue and expense forecast in this report is based upon the output derived from the fixed and variable model. This forecast of revenue and expense is accomplished through a systematic approach, following the format of the Uniform System of Accounts for the Lodging Industry. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense.

In consideration of the most recent trends, the projections set forth previously, and our assessment of probable property appreciation levels, we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlying inflation rate are discussed in our write-up of individual income and expense items.

Based on an analysis that will be detailed throughout this section, we have formulated a forecast of income and expense. The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten-year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years that begin on July 1, 2020, expressed in inflated dollars for each year.

Fixed and Variable Component Analysis

Inflation Assumption

Forecast of Revenue and Expense


FIGURE 7-6 DETAILED FORECAST OF INCOME AND EXPENSE

2020/21 Begins July 2021/22 2022/23 Stabilized 2024/25

Number of Rooms: 207 207 207 207 207

Occupancy: 65% 72% 76% 78% 78%

Average Rate: $156.25 $164.77 $174.07 $179.29 $184.67

RevPAR: $101.56 $118.63 $132.29 $139.84 $144.04

Days Open: 365 365 365 365 365

Occupied Rooms: 49,111 %Gross PAR POR 54,400 %Gross PAR POR 57,422 %Gross PAR POR 58,933 %Gross PAR POR 58,933 %Gross PAR POR

OPERATING REVENUE

Rooms $7,673 74.4 % $37,068 $156.24 $8,963 75.4 % $43,300 $164.76 $9,995 76.2 % $48,285 $174.06 $10,566 76.3 % $51,043 $179.29 $10,883 76.3 % $52,575 $184.67

Food & Beverage 1,692 16.4 8,175 34.46 1,877 15.8 9,067 34.50 2,012 15.3 9,721 35.04 2,113 15.3 10,209 35.86 2,177 15.3 10,515 36.93

Other Operated Departments 415 4.0 2,005 8.45 440 3.7 2,124 8.08 460 3.5 2,222 8.01 477 3.4 2,306 8.10 492 3.4 2,375 8.34

Valet Parking ("Net") 529 5.1 2,557 10.78 604 5.1 2,918 11.10 657 5.0 3,172 11.44 694 5.0 3,353 11.78 715 5.0 3,454 12.13



Rooms 2,031 26.5 9,809 41.35 2,172 24.2 10,492 39.93 2,284 22.9 11,036 39.78 2,377 22.5 11,485 40.34 2,449 22.5 11,829 41.55

Food & Beverage 1,369 80.9 6,613 27.87 1,455 77.5 7,030 26.75 1,525 75.8 7,369 26.57 1,585 75.0 7,656 26.89 1,632 75.0 7,886 27.70


Total Expenses 3,550 34.4 17,150 72.29 3,783 31.8 18,278 69.55 3,972 30.3 19,187 69.17 4,129 29.8 19,948 70.07 4,253 29.8 20,547 72.17



Administrative & General 931 9.0 4,500 18.97 985 8.3 4,757 18.10 1,032 7.9 4,986 17.97 1,070 7.7 5,168 18.15 1,102 7.7 5,323 18.70


Marketing 570 5.5 2,753 11.60 602 5.1 2,910 11.07 631 4.8 3,050 11.00 654 4.7 3,161 11.10 674 4.7 3,256 11.44

Franchise Fee 460 4.5 2,224 9.37 627 5.3 3,031 11.53 700 5.3 3,380 12.18 845 6.1 4,083 14.34 871 6.1 4,206 14.77

Prop. Operations & Maint. 288 2.8 1,390 5.86 345 2.9 1,665 6.34 425 3.2 2,053 7.40 440 3.2 2,128 7.47 454 3.2 2,192 7.70

Utilities 460 4.5 2,223 9.37 487 4.1 2,351 8.94 510 3.9 2,464 8.88 529 3.8 2,553 8.97 544 3.8 2,630 9.24

Total Expenses 2,826 27.4 13,651 57.54 3,169 26.7 15,308 58.25 3,427 26.1 16,554 59.67 3,672 26.5 17,738 62.30 3,782 26.5 18,270 64.17


Management Fee 309 3.0 1,494 6.30 357 3.0 1,722 6.55 394 3.0 1,902 6.86 416 3.0 2,007 7.05 428 3.0 2,068 7.26



Property Taxes 768 7.5 3,711 15.64 791 6.7 3,823 14.55 815 6.2 3,937 14.19 840 6.1 4,056 14.25 865 6.1 4,177 14.67

Insurance 182 1.8 879 3.70 187 1.6 905 3.44 193 1.5 932 3.36 199 1.4 960 3.37 205 1.4 989 3.47

Reserve for Replacement 206 2.0 996 4.20 357 3.0 1,722 6.55 525 4.0 2,536 9.14 554 4.0 2,676 9.40 571 4.0 2,757 9.68

Total Expenses 1,156 11.3 5,586 23.55 1,335 11.3 6,450 24.54 1,533 11.7 7,406 26.70 1,592 11.5 7,692 27.02 1,640 11.5 7,923 27.83

EBITDA LESS RESERVE $2,468 23.9 % $11,924 $50.26 $3,240 27.2 % $15,651 $59.56 $3,799 28.9 % $18,352 $66.16 $4,042 29.2 % $19,526 $68.58 $4,163 29.2 % $20,112 $70.64



FIGURE 7-7 TEN-YEAR FORECAST OF INCOME AND EXPENSE

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

Number of Rooms: 207 207 207 207 207 207 207 207 207 207

Occupied Rooms: 49,111 54,400 57,422 58,933 58,933 58,933 58,933 58,933 58,933 58,933

Occupancy: 65% 72% 76% 78% 78% 78% 78% 78% 78% 78%

Average Rate: $156.25 % of $164.77 % of $174.07 % of $179.29 % of $184.67 % of $190.21 % of $195.91 % of $201.79 % of $207.84 % of $214.08

RevPAR: $101.56 Gross $118.63 Gross $132.29 Gross $139.84 Gross $144.04 Gross $148.36 Gross $152.81 Gross $157.40 Gross $162.12 Gross $166.98

OPERATING REVENUE

Rooms $7,673 74.4 % $8,963 75.4 % $9,995 76.2 % $10,566 76.3 % $10,883 76.3 % $11,209 76.3 % $11,546 76.3 % $11,892 76.3 % $12,249 76.3 % $12,616 76.3 %

Food & Beverage 1,692 16.4 1,877 15.8 2,012 15.3 2,113 15.3 2,177 15.3 2,242 15.3 2,309 15.3 2,378 15.3 2,450 15.3 2,523 15.3


Valet Parking ("Net") 529 5.1 604 5.1 657 5.0 694 5.0 715 5.0 736 5.0 759 5.0 781 5.0 805 5.0 829 5.0



Rooms 2,031 26.5 2,172 24.2 2,284 22.9 2,377 22.5 2,449 22.5 2,522 22.5 2,598 22.5 2,676 22.5 2,756 22.5 2,839 22.5

Food & Beverage 1,369 80.9 1,455 77.5 1,525 75.8 1,585 75.0 1,632 75.0 1,681 75.0 1,732 75.0 1,784 75.0 1,837 75.0 1,892 75.0


Total Expenses 3,550 34.4 3,783 31.8 3,972 30.3 4,129 29.8 4,253 29.8 4,381 29.8 4,512 29.8 4,648 29.8 4,787 29.8 4,931 29.8



Administrative & General 931 9.0 985 8.3 1,032 7.9 1,070 7.7 1,102 7.7 1,135 7.7 1,169 7.7 1,204 7.7 1,240 7.7 1,277 7.7


Marketing 570 5.5 602 5.1 631 4.8 654 4.7 674 4.7 694 4.7 715 4.7 737 4.7 759 4.7 781 4.7

Franchise Fee 460 4.5 627 5.3 700 5.3 845 6.1 871 6.1 897 6.1 924 6.1 951 6.1 980 6.1 1,009 6.1

Prop. Operations & Maint. 288 2.8 345 2.9 425 3.2 440 3.2 454 3.2 467 3.2 481 3.2 496 3.2 511 3.2 526 3.2

Utilities 460 4.5 487 4.1 510 3.9 529 3.8 544 3.8 561 3.8 578 3.8 595 3.8 613 3.8 631 3.8

Total Expenses 2,826 27.4 3,169 26.7 3,427 26.1 3,672 26.5 3,782 26.5 3,895 26.5 4,012 26.5 4,133 26.5 4,257 26.5 4,384 26.5


Management Fee 309 3.0 357 3.0 394 3.0 416 3.0 428 3.0 441 3.0 454 3.0 468 3.0 482 3.0 496 3.0



Property Taxes 768 7.5 791 6.7 815 6.2 840 6.1 865 6.1 891 6.1 917 6.1 945 6.1 973 6.1 1,002 6.1

Insurance 182 1.8 187 1.6 193 1.5 199 1.4 205 1.4 211 1.4 217 1.4 224 1.4 230 1.4 237 1.4

Reserve for Replacement 206 2.0 357 3.0 525 4.0 554 4.0 571 4.0 588 4.0 605 4.0 624 4.0 642 4.0 662 4.0

Total Expenses 1,156 11.3 1,335 11.3 1,533 11.7 1,592 11.5 1,640 11.5 1,689 11.5 1,740 11.5 1,792 11.5 1,846 11.5 1,901 11.5

EBITDA LESS RESERVE $2,468 23.9 % $3,240 27.2 % $3,799 28.9 % $4,042 29.2 % $4,163 29.2 % $4,288 29.2 % $4,417 29.2 % $4,549 29.2 % $4,686 29.2 % $4,826 29.2 %1 1 1 1 1 1 1 1 1 1


% of

Gross


The following description sets forth the basis for the forecast of income and expense. We anticipate that it will take four years for the proposed subject hotel to reach a stabilized level of operation. Each revenue and expense item have been forecast based upon our review of the proposed subject hotel's operating budget and comparable income and expense statements. The forecast is based upon fiscal years beginning July 1, 2020, expressed in inflated dollars for each year.

Rooms revenue is determined by two variables: occupancy and average rate. We projected occupancy and average rate in a previous section of this report. The proposed subject hotel is expected to stabilize at an occupancy level of 78% with an average rate of $179.29 in 2023/24. Following the stabilized year, the subject property’s average rate is projected to increase along with the underlying rate of inflation.

Food and beverage revenue is generated by a hotel's restaurants, lounges, coffee shops, snack bars, banquet rooms, and room service. In addition to providing a source of revenue, these outlets serve as an amenity that assists in the sale of guestrooms. With the exception of properties with active lounges or banquet facilities that draw local residents, in-house guests generally represent a substantial percentage of a hotel's food and beverage patrons. In the case of the Proposed Holiday Inn Edgewater, food and beverage department will include a restaurant and lounge, and a pool bar located on the third-floor level; moreover, meeting space is expected to span 1,285 square feet.

Although food and beverage revenue vary directly with changes in occupancy, the small portion generated by banquet sales and outside capture is relatively fixed. The proposed subject hotel's food and beverage (F&B) operation is expected to be an important component of the hotel. Therefore, based upon our review of comparable operating statements, we have positioned an appropriate revenue level given the hotel's planned facility and price point. We would anticipate future moderate growth to occur within this category after the hotel's opening.

FIGURE 7-8 FOOD AND BEVERAGE REVENUE

#1 #2 #3 #4 #5 2020/21

Food & Beverage Revenue

Percentage of Revenue 12.5 % 11.6 % 14.9 % 15.5 % 12.7 % 16.4 % 15.3 %

Per Available Room $5,706 $4,321 $6,985 $8,621 $4,531 $8,175 $8,507

Per Occupied Room $19.17 $18.75 $20.80 $29.64 $17.17 $34.46 $29.88

Comparable Operating Statements Proposed Subject Property Forecast

Deflated Stabilized

Rooms Revenue

Food and Beverage Revenue


According to the Uniform System of Accounts, other operated departments include any major or minor operated department other than rooms and food and beverage. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's retail/office revenues (lease income), attrition fees, meeting space rentals, telephone charges, market pantry sales, guest laundry fees, and in-room movie and game charges. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.

FIGURE 7-9 OTHER OPERATED DEPARTMENTS REVENUE

#1 #2 #3 #4 #5 2020/21


Per Available Room $265 $441 $474 $393 $937 $2,005 $1,922



Deflated Stabilized

The miscellaneous income sources comprise those other than guestrooms, food and beverage, and the other operated departments. The proposed subject hotel's miscellaneous income revenues are expected to be generated primarily by the hotel's valet parking facilities located on the second-floor level.

Typical in the downtown Miami market, hotels surveyed charge a parking fee for both self-serve and valet service. These fees vary, but range from $15 to $27 per over-night stay, and valet service ranges from $23 to $35 per day. Based on our discussion with the subject’s competitors in the market, parking revenues are typically monitored on transient guest room sales as opposed to group business recognizing that groups often do not arrive with a vehicle and are either picked-up by hotel transport at the airport or arrive by another form of transportation such as mass transit. We have estimated a typical capture rate on transient rooms and a significantly reduced capture rate for group business, and projected parking revenue accordingly. Related expenses are estimated at 50% of revenue.

FIGURE 7-10 MISCELLANEOUS INCOME (VALET PARKING “NET”)

#1 #2 #3 #4 #5 2020/21


Per Available Room $145 $869 $185 $47 $15 $2,557 $2,794



Deflated Stabilized

Other Operated Departments Revenue

Miscellaneous Income (Valet Parking Revenue “Net”)


Changes in this revenue item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy. A detailed summary of our “net” revenue forecast is shown in the following table.

FIGURE 7-11 VALET PARKING REVENUE AND EXPENSE

2020/21 2021/22 2022/23 2023/24

Valet Parking Revenue Year 1 Year 2 Year 3 Year 4

Total Room Nights Sold 49,111 54,400 57,422 58,933

Valet Service Participation Rate 65% 31,922 35,360 37,324 38,306

% Captured 65% 65% 65% 65%

Valet Service Fee/Day $30.50 (Base Year)

Inflated Daily Rate $33.17 $34.16 $35.19 $36.24

Total Parking Revenue 1,058,737 1,207,937 1,313,296 1,388,293

Less: Expenses @ 50% 529,368 603,969 656,648 694,146

Net Parking Income 529,368 603,969 656,648 694,146

POR (Based on Total Room Nights Sold) $10.78 $11.10 $11.44 $11.78

Rooms expense consists of items related to the sale and upkeep of guestrooms and public space. Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy and managers can generally scale the level of service staff on hand to meet an expected occupancy level, much of a hotel's payroll is fixed. A base level of front desk personnel, housekeepers, and supervisors must be maintained at all times. As a result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy.

Commissions and reservations are usually based on room sales, and thus are highly sensitive to changes in occupancy and average rate. While guest supplies vary 100% with occupancy, linens and other operating expenses are only slightly affected by volume. The proposed subject hotel's rooms department expense has been positioned based upon our review of the comparable operating data and our understanding of the hotel's future service level and price point.

FIGURE 7-12 ROOMS EXPENSE

#1 #2 #3 #4 #5 2020/21




Deflated Stabilized


Rooms Expense


Food expenses consist of items necessary for the primary operation of a hotel's food and banquet facilities. The costs associated with food sales and payroll are moderately to highly correlated to food revenues. Items such as china, linen and uniforms are less dependent on volume. Although the other expense items are basically fixed, they represent a relatively insignificant factor. Beverage expenses consist of items necessary for the operation of a hotel’s lounge and bar areas. The costs associated with beverage sales and payroll are moderately to highly correlated to beverage revenues. The proposed subject hotel's F&B operation is expected to be efficiently managed and operated at an expense level that is in line with other comparable operations.

FIGURE 7-13 FOOD AND BEVERAGE EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

Other operated departments expense includes all expenses reflected in the summary statements for the divisions associated in these categories. This was previously discussed in this chapter. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's retail/office revenues (lease income), attrition fees, meeting space rentals, telephone charges, market pantry sales, guest laundry fees, and in-room movie and game charges. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.

FIGURE 7-14 OTHER OPERATED DEPARTMENTS EXPENSE

#1 #2 #3 #4 #5 2020/21


Per Available Room $87 $99 $163 $95 $186 $728 $673



Deflated Stabilized

Administrative and general expense includes the salaries and wages of all administrative personnel who are not directly associated with a particular department. Expense items related to the management and operation of the property are also allocated to this category.

Food and Beverage Expense

Other Operated Departments Expense

Administrative and General Expense


Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; provision for doubtful accounts, which are moderately affected by the number of transactions or total revenue; and salaries, wages, and benefits, which are very slightly influenced by volume. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the administrative and general expense level at a market- and property-supported level.

FIGURE 7-15 ADMINISTRATIVE AND GENERAL EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

Information and telecommunications systems expense consists of all costs associated with a hotel’s technology infrastructure. This includes the costs of cell phones, administrative call and Internet services, and complimentary call and Internet services. Expenses in this category are typically organized by type of technology, or the area benefitting from the technology solution. We expect the proposed subject hotel's information and telecommunications systems to be well managed. Expense levels should stabilize at a typical level for a property of this type.

Marketing expense consists of all costs associated with advertising, sales, and promotion; these activities are intended to attract and retain customers. Marketing can be used to create an image, develop customer awareness, and stimulate patronage of a property's various facilities.

The marketing category is unique in that all expense items, with the exception of fees and commissions, are totally controlled by management. Most hotel operators establish an annual marketing budget that sets forth all planned expenditures. If the budget is followed, total marketing expenses can be projected accurately.

Marketing expenditures are unusual because although there is a lag period before results are realized, the benefits are often extended over a long period. Depending on the type and scope of the advertising and promotion program implemented, the lag time can be as short as a few weeks or as long as several years. However, the favorable results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of concentrated sales efforts for many months. Based upon our review of the comparable operating data and the expected scope of facility for

Information and Telecommunications Systems Expense

Marketing Expense


the proposed subject hotel, we have positioned the marketing expense level at a market- and property-supported level.

FIGURE 7-16 MARKETING EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

The proposed subject hotel will operate under a franchise agreement with Holiday Hospitality Franchising, Inc., which operates as a franchisor and licensor of most InterContinental Hotels Group brand names and marks, as a Holiday Inn. We have reviewed the terms of the agreement, dated June 27, 2018, which span 20 years after the hotel's opening date. In addition, we reviewed an amendment to the agreement that defines an "advertising assistance allowance" that effectively reduces royalty fees over the first three years of the term. The proposed subject hotel's franchise agreement calls for a royalty fee of 3.0% of rooms revenue for the first year, 4.0% during the second and third year, and 5.0% for the remainder of the term. A marketing assessment fee of 3.0% of rooms revenue is also stipulated throughout the duration of the agreement.

Property operations and maintenance expense is another expense category that is largely controlled by management. Except for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating, and electrical items), most maintenance can be deferred for varying lengths of time.

Maintenance is an accumulating expense. If management elects to postpone performing a required repair, they have not eliminated or saved the expenditure; they have only deferred payment until a later date. A lodging facility that operates with a lower-than-normal maintenance budget is likely to accumulate a considerable amount of deferred maintenance.

The age of a lodging facility has a strong influence on the required level of maintenance. A new or thoroughly renovated property is protected for several years by modern equipment and manufacturers' warranties. However, as a hostelry grows older, maintenance expenses escalate. A well-organized preventive maintenance system often helps delay deterioration, but most facilities face higher property operations and maintenance costs each year, regardless of the occupancy trend. The quality of initial construction can also have a direct impact on future maintenance requirements. The use of high-quality building materials and

Franchise Fee

Property Operations and Maintenance


construction methods generally reduces the need for maintenance expenditures over the long term.

We expect the proposed subject hotel's maintenance operation to be well managed. Expense levels should stabilize at a typical level for a property of this type. Changes in this expense item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.

FIGURE 7-17 PROPERTY OPERATIONS AND MAINTENANCE EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

The utilities consumption of a lodging facility takes several forms, including water and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous power requirements. The most common sources of hotel utilities are electricity, natural gas, fuel oil, and steam. This category also includes the cost of water service.

Total energy cost depends on the source and quantity of fuel used. Electricity tends to be the most expensive source, followed by oil and gas. Although all hotels consume a sizable amount of electricity, many properties supplement their utility requirements with less expensive sources, such as gas and oil, for heating and cooking. The changes in this utilities line item through the projection period are a result of the application of the underlying inflation rate and projected changes in occupancy.

FIGURE 7-18 UTILITIES EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

Management expense consists of the fees paid to the managing agent contracted to operate the property. Some companies provide management services and a brand-name affiliation (first-tier management company), while others provide

Utilities Expense

Management Fee


management services alone (second-tier management company). Some management contracts specify only a base fee (usually a percentage of total revenue), while others call for both a base fee and an incentive fee (usually a percentage of defined profit). Basic hotel management fees are often based on a percentage of total revenue, which means they have no fixed component. While base fees typically range from 2% to 4% of total revenue, incentive fees are deal specific and often are calculated as a percentage of income available after debt service and, in some cases, after a preferred return on equity. Total management fees for the proposed subject hotel have been forecast at 3.0% of total revenue.

Property (or ad valorem) tax is one of the primary revenue sources of municipalities. Based on the concept that the tax burden should be distributed in proportion to the value of all properties within a taxing jurisdiction, a system of assessments is established. Theoretically, the assessed value placed on each parcel bears a definite relationship to market value, so properties with equal market values will have similar assessments and properties with higher and lower values will have proportionately larger and smaller assessments.

Depending on the taxing policy of the municipality, property taxes can be based on the value of the real property or the value of the personal property and the real property. We have based our estimate of the proposed subject property's market value (for tax purposes) on an analysis of assessments of comparable hotel properties in the local municipality.

We have positioned the future assessment levels of the subject site and proposed improvements, as well as the planned personal property, based upon the illustrated comparable data.

Property Taxes


FIGURE 7-19 COUNTY-ASSESSED VALUE OF COMPARABLE HOTELS

Year

Hotel Open

Courtyard by Marriott Miami Downtown 1975 $15,423,600 $10,076,400 $1,760,965 $27,260,965

Aloft Hotel Miami Brickell 2013 6,259,500 9,240,500 1,655,313 17,155,313

Hampton Inn & Suites Miami Brickell Downtown 2011 16,875,000 8,125,000 1,737,088 26,737,088

Homewood Suites by Hilton Miami Downtown Brickell 2016 2,175,000 11,553,000 835,775 14,563,775

SpringHill Suites Miami Downtown/Medical Center 2009 1,514,640 13,885,360 1,266,222 16,666,222

Assessments per Room

Courtyard by Marriott Miami Downtown 231 $66,769 $43,621 $7,623 $110,390

Aloft Hotel Miami Brickell 160 39,122 57,753 10,346 96,875

Hampton Inn & Suites Miami Brickell Downtown 221 76,357 36,765 7,860 113,122

Homewood Suites by Hilton Miami Downtown Brickell 102 21,324 113,265 8,194 134,588

SpringHill Suites Miami Downtown/Medical Center 198 7,650 70,128 6,395 77,778

Positioned Subject - Per Room 207 $25,000 $125,000 $15,000 $165,000

Positioned Subject - Total $5,175,000 $25,875,000 $3,105,000 $34,155,000

Source: Miami-Dade County Property Appraiser

# of Rms

Improvements Personal TotalLand

Tax rates are based on the city and county budgets, which change annually. The most recent tax rate in this jurisdiction was reported at 21.65230%. The following table shows changes in the tax rate during the last several years.

FIGURE 7-20 COUNTY TAX RATES

Real Property

Year

2016 22.29370 22.29370

2017 21.65230 21.65230

Source: Miami-Dade County Property Appraiser

Millage Rate Millage Rate

Personal Property

Based on comparable assessments and the tax rate information, the proposed subject property's projected property tax expense levels are calculated as follows.

FIGURE 7-21 PROJECTED PROPERTY TAX BURDEN (BASE YEAR)

Personal

Land Real Property Total Property

Positioned (Assessed Value) $5,175,000 $25,875,000 $31,050,000 $3,105,000

Millage Rate 21.65230 21.65230

Tax Burden as of Base Year $672,304 $67,230

Real Property


FIGURE 7-22 PROJECTED PROPERTY TAX EXPENSE - REAL PROPERTY

Taxes

Year Payable

Positioned $672,304 — $672,304

2020/21 $672,304 8.2 % $727,529

2021/22 727,529 3.0 749,355

2022/23 749,355 3.0 771,836

2023/24 771,836 3.0 794,991

Burden Increase

Real Property

Total Tax Burden (Positioned

Prior to Increase)

Base Rate of Tax

FIGURE 7-23 PROJECTED PROPERTY TAX EXPENSE – PERSONAL PROPERTY

Taxes

Year Payable

Positioned $67,230 — $67,230

2020/21 $67,230 8.2 % $72,753

2021/22 72,753 3.0 74,936

2022/23 74,936 3.0 77,184

2023/24 77,184 3.0 79,499

Burden Increase

Personal Property

Personal Tax Burden

(Positioned Prior to

Base Rate of Tax

FIGURE 7-24 PROJECTED PROPERTY TAX EXPENSE – SUMMARY

Year Real Personal Total

Positioned $672,304 $67,230 $739,534 4 % $709,953

2020/21 $727,529 $72,753 $800,282 4 % $768,271

2021/22 749,355 74,936 824,291 4 791,319

2022/23 771,836 77,184 849,020 4 815,059

2023/24 794,991 79,499 874,490 4 839,511

Taxes Payable Early Pmt.

Discount

Total Tax

Payable

The insurance expense category consists of the cost of insuring the hotel and its contents against damage or destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. General insurance costs also include premiums relating to liability, fidelity, and theft coverage.

Insurance rates are based on many factors, including building design and construction, fire detection and extinguishing equipment, fire district, distance from the firehouse, and the area's fire experience. Insurance expenses do not vary with occupancy.

Insurance Expense


FIGURE 7-25 INSURANCE EXPENSE

#1 #2 #3 #4 #5 2020/21


Per Available Room $368 $371 $704 $691 $254 $879 $800


Deflated Stabilized


Furniture, fixtures, and equipment are essential to the operation of a lodging facility, and their quality often influences a property's class. This category includes all non-real estate items that are capitalized, rather than expensed. The furniture, fixtures, and equipment of a hotel are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality, durability, and the amount of guest traffic and use.

Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income-producing potential of a lodging facility. Because capitalized expenditures are not included in the operating statement but affect an owner's cash flow, a forecast of income and expense should reflect these expenses in the form of an appropriate reserve for replacement.

The International Society of Hospitality Consultants (ISHC) oversees a major industry-sponsored study of the capital expenditure requirements for full-service/luxury, select-service, and extended-stay hotels. The most recent study was published in 2014.7 Historical capital expenditures of well-maintained hotels were investigated through the compilation of data provided by most of the major hotel companies in the United States. A prospective analysis of future capital expenditure requirements was also performed based upon the cost to replace short- and long-lived building components over a hotel's economic life. The study showed that the capital expenditure requirements for hotels vary significantly from year to year and depend upon both the actual and effective ages of a property. The results of this study showed that hotel lenders and investors are requiring reserves for replacement ranging from 4% to 5% of total revenue.

Based on the results of our analysis and on our review of the proposed subject asset and comparable lodging facilities, as well as on our industry expertise, we estimate that a reserve for replacement of 4% of total revenues is sufficient to provide for the

7 The International Society of Hotel Consultants, CapEx 2014, A Study of Capital

Expenditure in the U.S. Hotel Industry.

Reserve for Replacement


timely and periodic replacement of the subject property's furniture, fixtures, and equipment. This amount has been ramped up during the initial projection period.

Projected total revenue. House profit, and EBITDA less replacement reserves are set forth in the following table.

FIGURE 7-26 FORECAST OF REVENUE AND EXPENSE CONCLUSION

Year Total % Change Total % Change Total % Change

Projected 2020/21 $10,310,000 — $3,934,000 — 38.2 % $2,468,000 — 23.9 %

2021/22 11,884,000 15.3 % 4,931,000 25.3 % 41.5 3,240,000 31.3 % 27.2

2022/23 13,124,000 10.4 5,725,000 16.1 43.6 3,799,000 17.3 28.9

2023/24 13,851,000 5.5 6,050,000 5.7 43.7 4,042,000 6.4 29.2

2024/25 14,266,000 3.0 6,231,000 3.0 43.7 4,163,000 3.0 29.2

Total Revenue House Profit House

Profit

Ratio

EBITDA Less Replacement Reserve

As a % of

Ttl Rev

Forecast of Revenue and Expense Conclusion

November-2018 Feasibility Analysis Proposed Holiday Inn Edgewater – Miami, Florida 142

8. Feasibility Analysis

Return on investment can be defined as the future benefits of an income-producing property relative to its acquisition or construction cost. The first step in performing a return on investment analysis is to determine the amount to be initially invested. For a proposed property, this amount is most likely to be the development cost of the hotel. Based on the total development cost, the individual investor will utilize a return on investment analysis to determine if the future cash flow from a current cash outlay meets his or her own investment criteria and at what level above or below this amount such an outlay exceeds or fails to meet these criteria.

As an individual or company considering investment in hotel real estate, the decision to use one’s own cash, an equity partner's capital, or lender financing will be an internal one. Because hotels typically require a substantial investment, only the largest investors and hotel companies generally have the means to purchase properties with all cash. We would anticipate the involvement of some financing by a third party for the typical investor or for those who may be entering the market for hotel acquisitions at this time. In leveraged acquisitions and developments where investors typically purchase or build upon real estate with a small amount of equity cash (20% to 50%) and a large amount of mortgage financing (50% to 80%), it is important for the equity investor to acknowledge the return requirements of the debt participant (mortgagee), as well as his or her own return requirements. Therefore, we will begin our rate of return analysis by reviewing the debt requirements of typical hotel mortgagees.

Because the subject property is a proposed hotel, we have relied upon the actual development budget for the proposed subject hotel in performing a cost analysis. As this budget takes into consideration all of the physical, structural, and design elements specific to the property, it is believed to be the most accurate assessment of the actual cost of developing a hotel facility of this type.

It should be noted that HVS included additional estimated costs as the developer’s budget was preliminary in terms of anticipated FF&E costs, pre-opening and working capital, and complete soft costs. We have used actual site costs as reported by the developer, and the developer’s fee is based on 10% of accumulative costs (excluding land). Relative to hard cost estimates, we relied on the preliminary budget prepared by Seawood Builders (see Figures 5-15 to 5-17).

Construction Cost Estimate


The details of this budget, prepared by the developers of the Proposed Holiday Inn Edgewater, are presented in the following table.

FIGURE 8-1 SUBJECT PROPERTY CONSTRUCTION BUDGET

Component

Hard Costs & Site Improvements

$22,809,676 $110,192

136,858 661

1,147,327 5,543

165,072 797

$24,258,933 $117,193

FF&E

$4,250,000 $20,531

825,000 3,986

Subtotal FFE & OS&E 5,075,000 $24,517


$1,600,000 $7,729

$1,600,000 $7,729

Soft Costs

$500,000 $2,415

400,000 1,932

200,000 966

1,250,000 6,039

$2,350,000 $11,353

Subtotal (without Land and Developer's

Fee) $33,283,933 $160,792

$7,276,000 $35,150

Subtotal (without Developer's Fee) $40,559,933 $195,942

Developer's Fee $3,328,393 $16,079

Total $43,888,326 $212,021

Architectural (to date & est. to complete)

Property Tax (to date & est. to complete)

General Liability Insurance

Procurement Estimate (HVS)

Hard Costs (per Seawood Builders GC Estimate)

Cost

Site Cost

Subtotal Pre-Opening and Working Capital

Overhead & Profit


Payment & Performance Bonds

FF&E Estimate (HVS)

Subtotal Hard Cost & Site Improvements

Subtotal Soft Costs

Remaining Soft Costs (HVS) - Including Interest Reserve

Engineering (to date & est. to complete)

Cost per Room

Hotel financing is available for most tiers of the lodging industry from a variety of lender types. The CMBS market is in a phase of strong activity, including lending in the hospitality sector. While many lenders remain active, underwriting standards are more stringent than ten years ago, and loan-to-value ratios remain in the 60% to 70% range. Lenders continue to be attracted to the lodging industry because of the higher yields generated by hotel financing relative to other commercial real estate, and the industry continues to perform strongly in most markets. Commercial

Mortgage Component


banks, mortgage REITs, insurance companies, and CMBS and mezzanine lenders continue to pursue deals.

Data for the mortgage component may be developed from statistics of actual hotel mortgages made by long-term lenders. The American Council of Life Insurance, which represents 20 large life insurance companies, publishes quarterly information pertaining to the hotel mortgages issued by its member companies.

Because of the six- to nine-month lag time in reporting and publishing hotel mortgage statistics, it was necessary to update this information to reflect current lending practices. Our research indicates that the greatest degree of correlation exists between the average interest rate of a hotel mortgage and the concurrent yield on an average-A corporate bond.

The following chart summarizes the average mortgage interest rates of the hotel loans made by these lenders. For the purpose of comparison, the average-A corporate bond yield (as reported by Moody's Bond Record) is also shown.

FIGURE 8-2 AVERAGE MORTGAGE INTEREST RATES AND AVERAGE-A CORPORATE BOND YIELDS

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2009

- 1s

t

2009

- 3r

d

2010

- 1s

t

2010

- 3r

d

2011

- 1s

t

2011

- 3r

d

2012

- 1s

t

2012

- 3r

d

2013

- 1s

t

2013

- 3r

d

2014

- 1s

t

2014

- 3r

d

2015

- 1s

t

2015

- 3r

d

2016

- 1s

t

2016

- 3r

d

2017

- 1s

t

2017

- 3r

d

2018

- 1s

t

Ra

te (%

)

Sources: American Council of Life Insurance, Moody's Bond Record, HVS

Avg. Interest Rate (%) Avg. A Corp. Bond Yield (%)


The relationship between hotel interest rates and the yields from the average-A corporate bond can be detailed through a regression analysis, which is expressed as follows.

Y = 0.95736040 X + 0.75768730

Where: Y = Estimated Hotel Mortgage Interest Rate X = Current Average-A Corporate Bond Yield (Coefficient of correlation is 95%)

The October 17, 2018, average yield on average-A corporate bonds, as reported by Moody’s Investors Service, was 4.45%. When used in the previously presented equation, a factor of 4.45 produces an estimated hotel/motel interest rate of 5.02% (rounded).

Despite the recent interest-rate increases, hotel debt remains available at favorable interest rates from a variety of lender types as of mid-year 2018 (e.g., CMBS, balance-sheet lenders, insurance companies, SBA lenders, and other sources). The most prevalent interest rates for single hotel assets are currently ranging from 5.0% to 7.0%, depending on the type of debt, loan-to-value ratio, and the quality of the asset and its market.

In addition to the mortgage interest rate estimate derived from this regression analysis, HVS constantly monitors the terms of hotel mortgage loans made by our institutional lending clients. Fixed-rate debt is being priced at roughly 250 to 500 basis points over the corresponding yield on treasury notes. As of October 17, 2018, the yield on the ten-year T-bill was 3.16%, indicating an interest rate range from 5.7% to 8.2%. The hotel investment market has been very active given the strong performance of this sector and low interest rates in recent years. The Federal Reserve raised the federal funds rate by 25 basis points in December 2016, March 2017, June 2017, March 2018, and June 2018; the Fed increased rates again in September 2018 to a range between 2.0% and 2.25%. Hotel mortgage interest rates have been affected modestly by the recent rate increases given the contraction in interest-rate spreads; however, future increases by the Fed raises the prospect of a higher cost of debt capital for hotel investors in late 2018 and 2019. Hotel values have not yet been affected by the rise in the Fed rate; furthermore, debt capital is expected to remain available at favorable interest rates in the near term. At present, we find that lenders that are active in the market are using loan-to-value ratios of 60% to 70%, and amortization periods of 20 to 30 years. Loan-to-value ratios in 2018 are not as robust as those from a couple of years ago, when ratios as high as 75% were available.


Based on our analysis of the current lodging industry mortgage market and adjustments for specific factors, such as the property’s site, proposed facility, and conditions in the Miami hotel market, it is our opinion that a 5.25% interest, 25-year amortization mortgage with a 0.071910 constant is appropriate for the proposed subject hotel. In the mortgage-equity analysis, we have applied a loan-to-cost ratio of 65%, which is reasonable to expect based on this interest rate and current parameters.

The remaining capital required for a hotel investment generally comes from the equity investor. The rate of return that an equity investor expects over a ten-year holding period is known as the equity yield. Unlike the equity dividend, which is a short-term rate of return, the equity yield specifically considers a long-term holding period (generally ten years), annual inflation- adjusted cash flows, property appreciation, mortgage amortization, and proceeds from a sale at the end of the holding period. To establish an appropriate equity yield rate, we have used two sources of data: past appraisals and investor interviews.

Hotel Sales – Each appraisal performed by HVS uses a mortgage-equity approach in which income is projected and then discounted to a current value at rates reflecting the cost of debt and equity capital. In the case of hotels that were sold near the date of our valuation, we were able to derive the equity yield rate and unlevered discount rate by inserting the ten-year projection, total investment (purchase price and estimated capital expenditure and/or PIP) and debt assumptions into a valuation model and solving for the equity yield. The overall capitalization rates for the historical income and projected first-year income are based on the sales price “as is.” The following table shows a representative sample of hotels that were sold on or about the time that we appraised them, along with the derived equity return and discount rates based on the purchase price and our forecast.

Equity Component


FIGURE 8-3 SAMPLE OF HOTELS SOLD – FULL-SERVICE & LUXURY

Hotel Location

Hyatt Centric Santa Barbara, CA 200 Jul-18 9.6 % 15.3 % 5.5 % 5.8 %

Holiday Inn Hotel & Suites Mesa, AZ 246 Jun-18 10.6 17.9 7.4 9.4

Waldorf Astoria Biltmore Phoenix, AZ 606 Apr-18 9.5 15.9 6.8 7.0

Waldorf Astoria Grand Wailea Wailea, HI 776 Apr-18 8.9 14.5 5.2 5.5

Embassy Suites by Hilton Indianapolis, IN 221 Feb-18 10.9 18.9 8.0 9.1

Westin Tysons Corner Falls Church, VA 407 Feb-18 10.4 18.1 8.3 8.7

DoubleTree University Area Minneapolis, MN 140 Feb-18 9.7 17.0 — 7.7

Mystic Hotel Union Square San Francisco, CA 82 Jan-18 8.9 15.2 6.2 6.4

DoubleTree Guest Suites Tampa, FL 203 Jan-18 11.1 18.3 8.8 7.6

Sheraton Suites Plantation, FL 263 Jan-18 12.5 21.2 7.4 9.1

Marriott Key Bridge Arlington, VA 583 Jan-18 8.3 13.0 5.1 5.8

Madeline Telluride Telluride, CO 124 Dec-17 10.4 18.9 5.8 8.6

Turtle Bay Resort Kahuku, HI 452 Dec-17 8.9 14.2 6.0 6.4

Smyth Tribeca Hotel New York, NY 100 Nov-17 8.2 12.7 4.1 3.8

Hotel Minneapolis Minneapolis, MN 222 Nov-17 9.6 15.7 7.3 5.2

Marriott at Legacy Town Center Plano, TX 404 Nov-17 11.1 19.8 9.4 10.4

Marriott Key Bridge Arlington, VA 582 Nov-17 8.3 13.0 5.1 5.8

MacArthur Place Sonoma, CA 64 Oct-17 9.3 15.5 — —

Madison A Hilton Hotel Washington, DC 356 Sep-17 9.3 15.2 2.6 6.9

Sheraton Chicago O'Hare Airport Rosemont, IL 296 Sep-17 11.2 18.4 10.8 10.1

Hamilton Hotel Washington, DC 318 Sep-17 9.7 15.2 4.2 5.5

Hyatt Regency Riverfront Jacksonville, FL 951 Aug-17 11.4 20.2 9.7 9.9

Westin Long Beach Long Beach, CA 469 Aug-17 10.5 18.0 8.0 7.6

New York Manhattan Hotel New York City, NY 171 Aug-17 9.2 15.0 4.9 4.9

Hilton Executive Meeting Center Glendale, CA 351 Jul-17 10.4 17.2 7.7 6.8

Holiday Inn Airport Albuquerque, NM 121 Jun-17 12.4 20.9 7.3 8.7

Pacific Edge Hotel Laguna Beach, CA 109 Jun-17 9.4 15.2 5.7 5.6

Marriott Quorum Addison Dallas, TX 547 Jun-17 11.2 18.4 8.7 9.6

Embassy Suites Anaheim Orange, CA 230 May-17 9.6 16.3 6.4 7.6

Hilton Dallas Park Cities Dallas, TX 224 Apr-17 9.4 16.2 6.8 7.2

Crowne Plaza JFK Airport Jamaica, NY 330 Apr-17 11.2 19.1 8.6 9.2

Sheraton Sonoma County Petaluma, CA 184 Apr-17 10.5 17.7 9.5 9.4

Clarion Inn Pocatello Pocatello, ID 196 Apr-17 13.1 22.9 2.3 10.0

Hotel Triton San Francisco, CA 140 Apr-17 13.1 21.1 9.8 10.1

Crowne Plaza JFK Airport Jamaica, NY 330 Mar-17 10.7 18.1 8.3 8.9

Westin Atlanta Airport Atlanta, GA 500 Mar-17 11.0 18.3 8.3 10.1

Ballantyne Charlotte Charlotte, NC 244 Mar-17 11.7 20.1 5.2 9.1

Westin Maui Kaanapali Lahaina, HI 759 Mar-17 9.5 16.1 9.1 9.0

Source: HVS

Year Year Oneof Rooms of Sale Yield Yield

Equity Historical

Overall Rate

Based on Sales Price

ProjectedProperty

Total

Number Date


FIGURE 8-4 SAMPLE OF HOTELS SOLD – SELECT-SERVICE/EXTENDED-STAY

Hotel Location

Courtyard by Marriott Myrtle Beach, SC 157 Jun-18 11.3 % 19.4 % 8.9 % 9.2 %

SpringHill Suites Fairfax, VA 140 Jun-18 9.3 17.9 6.7 7.0

Hampton Inn & Suites Harrison, NJ 165 May-18 10.1 18.1 7.9 7.1

Aloft Silicon Valley Newark, CA 174 May-18 10.0 17.0 7.3 7.6

SpringHill Suites Centreville, VA 136 May-18 10.3 18.6 7.3 8.0

Staybridge Suites Wilmington, NC 93 Apr-18 11.5 21.4 9.6 9.6

Aloft Harlem New York, NY 124 Mar-18 9.8 15.5 6.0 3.8

Hampton Inn Financial District New York, NY 81 Mar-18 8.3 12.7 4.5 5.0

Residence Inn by Marriott Sacramento, CA 126 Feb-18 10.5 18.9 8.7 9.6

Hampton Inn Denver Southwest Lakewood, CO 150 Feb-18 12.7 21.3 10.7 13.9

Hyatt Place Chandler, AZ 129 Jan-18 9.4 15.7 7.5 6.8

Wyndham Garden Greenville, SC 139 Jan-18 14.2 24.2 6.0 7.7

Hampton Inn Cincinnati Fairfield, OH 100 Jan-18 12.2 20.9 10.5 10.7

Hampton Inn Atlanta College Park, GA 127 Jan-18 9.3 15.0 10.1 10.0

Hampton Inn Atlanta Northwest Atlanta, GA 127 Jan-18 14.9 26.1 11.0 10.0

Hilton Garden Inn Allentown West Breinigsvile, PA 111 Nov-17 10.8 18.9 8.1 8.6

Courtyard by Marriott Tucson Airport Tucson, AZ 149 Nov-17 9.7 16.1 8.9 8.3

Hampton Inn Saint Augustine I-95 Saint Augustine, FL 67 Sep-17 11.9 21.0 11.3 10.8

Hampton Inn & Suites Palm Coast Palm Coast, FL 94 Sep-17 12.5 21.2 10.2 10.6

Element Denver Park Meadows Lone Tree, CO 123 Aug-17 10.3 18.7 5.9 8.1

SpringHill Suites by Marriott Savannah, GA 79 Aug-17 12.1 20.8 4.0 9.3

TownePlace Suites by Marriott Waco, TX 93 Aug-17 11.2 20.7 8.5 7.8

Courtyard SeaWorld Lackland San Antonio, TX 96 Aug-17 11.0 18.9 7.9 7.8

Courtyard Kaua'i at Coconut Beach Kapa'a, HI 311 Aug-17 11.5 19.4 6.4 4.1

Hampton Inn by Hilton Norfolk Virginia Beach, VA 120 Jul-17 11.4 21.2 12.4 12.6

TownePlace Suites by Marriott Tallahassee, FL 94 Jul-17 10.5 16.1 14.5 7.9

Hyatt Place US Capitol Washington, D.C. 200 Jun-17 10.3 20.0 6.1 7.2

Hyatt Place San Jose Downtown San Jose, CA 234 Jun-17 12.2 21.4 8.1 8.5

Courtyard by Marriott Boston Cambridge, MA 207 Jun-17 9.0 14.9 5.5 6.0

Hilton Garden Inn Philadelphia Fort Washington, PA 146 May-17 10.9 19.7 7.6 8.3

Hampton Inn Northlake Atlanta, GA 121 May-17 11.5 20.0 9.4 9.6

Hyatt House Denver Airport Denver, CO 123 May-17 11.5 21.9 7.0 8.7

Courtyard by Marriott Maui Kahului, HI 138 May-17 8.1 12.7 6.0 6.0

Courtyard by Marriott Rock Hill, SC 90 Apr-17 12.5 23.6 15.2 11.1

Hampton Inn DeKalb, IL 80 Mar-17 10.7 19.1 6.9 8.1

Hampton Inn Ridgefield Park, NJ 83 Mar-17 9.8 17.1 6.4 6.6

Courtyard by Marriott Tulsa, OK 122 Mar-17 12.3 21.4 12.3 10.3

Hilton Garden Inn Overland Park, KS 125 Feb-17 10.6 19.4 8.1 8.5

Source: HVS

Overall Rate

Based on Sales Price

of Rooms of Sale

Historical

Total

Property Equity Projected

Year Year One

Date

Yield Yield

Number


Investor Interviews - During the course of our work, we continuously monitor investor equity-yield requirements through discussions with hotel investors and brokers. We find that equity yield rates currently range from a low in the low-to-mid teens for high-barrier-to-entry "trophy assets"; the upper teens for high quality, institutional-grade assets in strong markets; and the upper teens to low 20s for quality assets in more typical markets. Equity yield rates tend to exceed 20% for aging assets with functional obsolescence and/or other challenging property- or market-related issues. Equity return requirements also vary with an investment’s level of leverage.

The following table summarizes the range of equity yields indicated by hotel sales and investor interviews. We note that there tends to be a lag between the sales data and current market conditions, and thus, the full effect of the change in the economy and capital markets may not yet be reflected.

FIGURE 8-5 SUMMARY OF EQUITY YIELD OR INTERNAL RATE OF RETURN REQUIREMENTS

Source Data Point Range Average

HVS Hotel Sales - Full-Service & Luxury 12.7% - 22.9% 17.2%

HVS Hotel Sales - Select-Service & Extended-Stay 12.7% - 26.1% 19.1%

HVS Hotel Sales - Limited-Service 16% - 26.1% 20.1%

HVS Investor Interviews 13% - 25%

Based on the assumed 65% loan-to-cost ratio, the risk inherent in achieving the projected income stream, and the anticipated market position of the subject property, it is our opinion that an equity investor could expect to receive a 17.1% internal rate of return over a 10-year holding period, assuming that the investor obtains financing at the time of the project’s completion at the loan-to-cost ratio and interest rate set forth.

Inherent in this valuation process is the assumption of a sale at the end of the ten-year holding period. The estimated reversionary sale price as of that date is calculated by capitalizing the projected eleventh-year net income by an overall terminal capitalization rate. An allocation for the selling expenses is deducted from this sale price, and the net proceeds to the equity interest (also known as the equity residual) are calculated by deducting the outstanding mortgage balance from the reversion.

We have reviewed several recent investor surveys. The following chart summarizes the averages presented for terminal capitalization rates in various investor surveys during the past decade.

Terminal Capitalization Rate


FIGURE 8-6 HISTORICAL TRENDS OF TERMINAL CAPITALIZATION RATES

7.0

8.0

9.0

10.0

11.0

12.0

13.0

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Term

ina

l Ca

p R

ate

(%)

PWC - Full-Service PWC - Limited-ServiceSitus RERC - First Tier Situs RERC - Second TierPWC - Select-Service Situs RERC - Third Tier

FIGURE 8-7 TERMINAL CAPITALIZATION RATES DERIVED FROM INVESTOR SURVEYS


HVS Brokers Survey - Fall 2018

Limited-Service & Economy Hotels 5.0% - 11.0% 8.8%

Select-Service Hotels 4.5% - 10.0% 8.3%

Full-Service Hotels 4.5% - 10.0% 7.7%

Luxury & Upper Upscale Hotels 5.0% - 10.0% 7.0%

PWC Real Estate Investor Survey - 3rd Quarter 2018

Limited-Service Hotels 7.75% - 11.0% 9.4%



Luxury Hotels 5.5% - 9.5% 7.3%

USRC Hotel Investment Survey - Mid-Year 2018



Situs RERC Real Estate Report - 2nd Quarter 2018

First Tier Hotels 7.0% - 11.3% 8.4%

Second Tier Hotels 7.5% - 12.0% 9.4%

Third Tier Hotels 7.3% - 13.0% 10.0%


For purposes of this analysis, we have applied a terminal capitalization rate of 8.50%. Our final position for the terminal capitalization rate reflects the current market for hotel investments and also considers the subject property's attributes. Terminal capitalization rates, in general, have remained stable over the past few years. Terminal cap rates are at the low end of the range for quality hotel assets in markets with high barriers to entry and at the high end of the range for older assets or for those suffering from functional obsolescence and/or weak market conditions, reflecting the market's recognition that certain assets have less opportunity for significant appreciation.

As the two participants in a real estate investment, investors and lenders must evaluate their equity and debt contributions based on their particular return requirements. After carefully weighing the risk associated with the projected economic benefits of a lodging investment, the participants will typically make their decision whether or not to invest in a hotel or resort by determining if their investment will provide an adequate yield over an established period. For the lender, this yield will typically reflect the interest rate required for a hotel mortgage over a period of what can range from seven to ten years. The yield to the equity participant may consider not only the requirements of a particular investor, but also the potential payments to cooperative or ancillary entities such as limited partner payouts, stockholder dividends, and management company incentive fees.

The return on investment analysis in a hotel acquisition would not be complete without recognizing and reflecting the yield requirements of both the equity and debt participants. The analysis will now calculate the yields to the mortgage and equity participants during a ten-year projection period.

The annual debt service is calculated by multiplying the mortgage component by the mortgage constant.

Mortgage Component $28,438,000

Mortgage Constant 0.071910

Annual Debt Service $2,045,000

The yield to the lender based on a 65% debt contribution equates to an interest rate of 5.25%, which is calculated as follows.

Mortgage-Equity Method


FIGURE 8-8 RETURN TO THE LENDER

Total Annual Present Worth of $1 Discounted

Year Debt Service Factor at 5.2% Cash Flow

2020/21 $2,045,000 x 0.950707 = $1,944,000

2021/22 2,045,000 x 0.903844 = 1,848,000

2022/23 2,045,000 x 0.859291 = 1,757,000

2023/24 2,045,000 x 0.816934 = 1,671,000

2024/25 2,045,000 x 0.776665 = 1,588,000

2025/26 2,045,000 x 0.738381 = 1,510,000

2026/27 2,045,000 x 0.701984 = 1,436,000

2027/28 2,045,000 x 0.667381 = 1,365,000

2028/29 2,045,000 x 0.634484 = 1,298,000

2029/30 23,244,000 * x 0.603209 = 14,021,000

Value of Mortgage Component $28,438,000

*10th year debt service of $2,045,000 plus outstanding mortgage balance of $21,199,000

The following table illustrates the cash flow available to the equity position, after deducting the debt service from the projected net income.

FIGURE 8-9 NET INCOME TO EQUITY

Net Income

Available for Total Annual Net Income

Year Debt Service Debt Service to Equity

2020/21 $2,468,000 - $2,045,000 = $423,000

2021/22 $3,240,000 - 2,045,000 = $1,195,000

2022/23 $3,799,000 - 2,045,000 = $1,754,000

2023/24 $4,042,000 - 2,045,000 = $1,997,000

2024/25 $4,163,000 - 2,045,000 = $2,118,000

2025/26 $4,288,000 - 2,045,000 = $2,243,000

2026/27 $4,417,000 - 2,045,000 = $2,372,000

2027/28 $4,549,000 - 2,045,000 = $2,504,000

2028/29 $4,686,000 - 2,045,000 = $2,641,000

2029/30 $4,826,000 - 2,045,000 = $2,781,000

In order for the present value of the equity investment to equate to the $15,312,000 capital outlay, the investor must accept a 17.1% return, as shown in the following table.


FIGURE 8-10 EQUITY COMPONENT YIELD

Net Income Present Worth of $1 Discounted

Year to Equity Factor at 17.1% Cash Flow

2020/21 $423,000 x 0.853974 = $361,000

2021/22 $1,195,000 x 0.729271 = 871,000

2022/23 $1,754,000 x 0.622778 = 1,092,000

2023/24 $1,997,000 x 0.531836 = 1,062,000

2024/25 $2,118,000 x 0.454174 = 962,000

2025/26 $2,243,000 x 0.387853 = 870,000

2026/27 $2,372,000 x 0.331216 = 786,000

2027/28 $2,504,000 x 0.282850 = 708,000

2028/29 $2,641,000 x 0.241546 = 638,000

2029/30 $38,599,000 * x 0.206274 = 7,962,000

Value of Equity Component $15,312,000

*10th year net income to equity of $2,780,939 plus sales proceeds of $35,818,000

In determining the potential feasibility of the Proposed Holiday Inn Edgewater, we analyzed the lodging market, researched the area’s economics, reviewed the estimated development cost, and prepared a ten-year forecast of income and expense, which was based on our review of the current and historical market conditions, as well as comparable income and expense statements.

The conclusion of this analysis indicates that an equity investor contributing $15,312,000 (roughly 35% of the $43,800,000 development cost) could expect to receive a 17.1% internal rate of return over a ten-year holding period, assuming that the investor obtains financing at the time of the project’s completion at the loan-to-value ratio and interest rate set forth. The proposed subject hotel has an opportunity to serve a growing demand base in the northern "downtown" market. This market offers a wide complement of branded, select-service and extended-stay hotels; however, the Midtown district remains underserved by full-service lodging facilities, particularly within the IHG family. Based on our market analysis, there is sufficient market support for the proposed Holiday Inn hotel. Our conclusions are based primarily on the long-term strength of this hotel market combined with the current and anticipated demand growth in the Miami Midtown submarket. Our review of investor surveys indicates equity returns ranging from 12.7% to 22.9%, with an average of 17.2% for full-service assets. Based on these parameters, the calculated return to the equity investor, 17.1%, is consistent with the average and within the range of market-level returns given the anticipated cost of $43,800,000. In conclusion, the feasibility of the subject project is confirmed.

Conclusion


The analysis is based on the extraordinary assumption that the described improvements have been completed as of the prospective "when complete" date of value. The reader should understand that the completed subject property does not yet exist as of the date of appraisal. Our appraisal does not address unforeseeable events that could alter the proposed project, and/or the market conditions reflected in the analyses; we assume that no significant changes, other than those anticipated and explained in this report, shall take place between the date of inspection and date of prospective value. The use of this extraordinary assumption may have affected the assignment results. Several important general assumptions have been made that apply to this feasibility study. These aspects are set forth in the Assumptions and Limiting Conditions chapter of this report.

In addition, this analysis is based on the extraordinary assumption that the existing 200-room Holiday Inn Port of Miami Downtown will be decommissioned and close operations on or before 3Q 2019. For this analysis, we have used a prospective closure date of July 1, 2019. Any departure from this assumption will significantly impact forecasted operating performance results contained in this feasibility study.

We have made no assumptions of hypothetical conditions in our report. Furthermore, we have not made any jurisdictional exceptions to the Uniform Standards of Professional Appraisal Practice in our analysis or report.

November-2018 Supplemental Income Approach Proposed Holiday Inn Edgewater – Miami, Florida 155

9. Supplemental Income Approach

The subject property upon completion has been valued via the income approach through the application of a ten-year mortgage-equity technique and a discounted-cash-flow analysis. The conversion of the subject property's forecasted EBITDA Less Replacement Reserve into an estimate of value was based on the premise that investors typically leverage their real estate investments to enhance their equity yield. Typically, the majority of a transaction is capitalized with mortgage financing (50% to 70%), with equity comprising the balance (30% to 50%). The amounts and terms of available mortgage financing and the rates of return that are required to attract sufficient equity capital formed the basis for allocating the net income between the mortgage and equity components and deriving a value estimate.

The valuation of the mortgage and equity components is accomplished using an algebraic equation that calculates the exact amount of debt and equity that the hotel will be able to support based on the anticipated cash flow (as estimated by the forecast of income and expense) and the specific return requirements demanded by the mortgage lender (interest) and the equity investor (equity yield). Thus, the anticipated net income (before debt service and depreciation) is allocated to the mortgage and equity components based on market rates of return and loan-to-value ratios. The total of the mortgage component and the equity component equals the value of the property. Using this method of the income capitalization approach with the variables set forth, we estimate the value of the fee simple interest in the subject property, as of July 1, 2020, to be $43,800,000.

The value is mathematically proven by confirming that the market-derived yields are met for the lender and equity participant during the projection period. Using the assumed financial structure set forth in the previous calculations, market value can be allocated between the debt and equity as follows.

Mortgage Component (65%) $28,438,000

Equity Component (35%) 15,313,000

Total $43,751,000

The annual debt service is calculated by multiplying the mortgage component by the mortgage constant.

Mortgage Component $28,438,000

Mortgage Constant 0.071910

Annual Debt Service $2,045,000

INCOME CAPITALIZATION

Mortgage-Equity Method – Value Opinion

Mathematical Proof of Value


The eleven-year forecast of net income and ten-year forecast of net income to equity are presented in the following table.

FIGURE 9-27 ELEVEN-YEAR FORECAST OF NET INCOME AND TEN-YEAR FORECAST OF NET INCOME TO EQUITY

Year

2020/21 $2,468,000 $2,045,000 $423,000 1.21 2.8 %

2021/22 3,240,000 2,045,000 1,195,000 1.58 7.8

2022/23 3,799,000 2,045,000 1,754,000 1.86 11.5

2023/24 4,042,000 2,045,000 1,997,000 1.98 13.0

2024/25 4,163,000 2,045,000 2,118,000 2.04 13.8

2025/26 4,288,000 2,045,000 2,243,000 2.10 14.6

2026/27 4,417,000 2,045,000 2,372,000 2.16 15.5

2027/28 4,549,000 2,045,000 2,504,000 2.22 16.4

2028/29 4,686,000 2,045,000 2,641,000 2.29 17.2

2029/30 4,826,000 2,045,000 2,781,000 2.36 18.2

2030/31 4,971,000

EBITDA Less Reserve,

Before Debt Service Less: Debt Service

EBITDA Less Reserve,

to Equity

Debt Coverage

Ratio

Cash-on-Cash

Return

The net proceeds to equity upon sale of the property were determined by deducting sales expenses (brokerage and legal fees) and the outstanding mortgage balance.

The equity residual at the end of the tenth year is calculated by deducting brokerage and legal fees and the mortgage balance from the reversionary value. The reversionary value is calculated as the eleventh year's net income capitalized by the terminal capitalization rate. The calculation is shown as follows.

11th Year's EBITDA Less Reserve $4,971,000

Capitalization Rate 8.5%

Reversionary Value

Less:

Brokerage and Legal Fees

Mortgage Balance

Net Sale Proceeds to Equity

$58,479,000

1,462,000

21,199,000

$35,818,000

The discount rate (before debt service), the yield to the lender, and the yield to the equity position have been calculated by computer with the following results.


FIGURE 9-28 TOTAL PROPERTY VALUE AND INTERNAL RATES OF RETURN

Projected Yield

(Internal Rate of Return)

Position Value Over Holding Period

Total Property $43,750,000 10.7 %

Mortgage 28,438,000 5.2

Equity 15,313,000 17.1

Note: Whereas the mortgage constant and value are calculated on the basis of

monthly mortgage payments, the mortgage yield in this proof assumes single annual

payments. As a result, the proof's derived yield may be slightly less than that

actually input.

The position of the total property yield or unlevered discount rate reflects the current market conditions for both debt and equity capital. Debt remains available at favorable interest rates from a variety of lender types, though loan-to-value ratios remain in the 60% to 70% for most transactions. Equity and mezzanine financing is readily available due to the attractive yields being generated by hotels when compared with other forms of commercial real estate. We continue to interview hotel investors to assess the movement in yield rates and their impact on value.

The following tables demonstrate that the property receives its anticipated yields, proving that the value is correct based on the assumptions used in this approach.

FIGURE 9-29 VALUE OF THE MORTGAGE COMPONENT

Total Annual Present Worth of $1 Discounted

Year Debt Service Factor at 5.2% Cash Flow

2020/21 $2,045,000 x 0.950707 = $1,944,000

2021/22 2,045,000 x 0.903844 = 1,848,000

2022/23 2,045,000 x 0.859291 = 1,757,000

2023/24 2,045,000 x 0.816934 = 1,671,000

2024/25 2,045,000 x 0.776665 = 1,588,000

2025/26 2,045,000 x 0.738381 = 1,510,000

2026/27 2,045,000 x 0.701984 = 1,436,000

2027/28 2,045,000 x 0.667381 = 1,365,000

2028/29 2,045,000 x 0.634484 = 1,298,000

2029/30 23,244,000 * x 0.603209 = 14,021,000

Value of Mortgage Component $28,438,000

*10th year debt service of $2,045,000 plus outstanding mortgage balance of $21,199,000


FIGURE 9-30 VALUE OF THE EQUITY COMPONENT

Net Income Present Worth of $1 Discounted

Year to Equity Factor at 17.1% Cash Flow

2020/21 $423,000 x 0.853974 = $361,000

2021/22 $1,195,000 x 0.729271 = 871,000

2022/23 $1,754,000 x 0.622778 = 1,092,000

2023/24 $1,997,000 x 0.531836 = 1,062,000

2024/25 $2,118,000 x 0.454174 = 962,000

2025/26 $2,243,000 x 0.387853 = 870,000

2026/27 $2,372,000 x 0.331216 = 786,000

2027/28 $2,504,000 x 0.282850 = 708,000

2028/29 $2,641,000 x 0.241546 = 638,000

2029/30 $38,599,000 * x 0.206274 = 7,962,000

Value of Equity Component $15,312,000

*10th year net income to equity of $2,780,939 plus sales proceeds of $35,818,000

The following chart summarizes the averages presented for overall capitalization rates in various investor surveys during the past decade.

FIGURE 9-31 HISTORICAL TRENDS OF OVERALL CAPITALIZATION RATES

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Ove

rall

Ca

p R

ate

(%)

PWC - Full-Service PWC - Luxury Situs RERC - First Tier

PWC - Select-Service PWC - Limited-Service Situs RERC - Second Tier

Situs RERC - Third Tier

Direct Capitalization


FIGURE 9-32 OVERALL CAPITALIZATION RATES DERIVED FROM SALES AND INVESTOR SURVEYS



HVS Hotel Sales - Select-Service & Extended-Stay 4% - 15.2% 8.4%

HVS Hotel Sales - Limited-Service 2.3% - 14.3% 8.8%





Luxury & Upper-Upscale Hotels 4.0% - 8.5% 6.2%





Luxury Hotels 4.0% - 9.0% 7.1%








We note that the averages illustrated in the previous table are derived from wide arrays of data points, and a range of reasonableness extends both lower and higher than the indicated data points. The following table reflects the capitalization rates for the proposed subject hotel that have been derived based on our estimate of market value via the discounted-cash-flow analysis. Note that the stabilized year's net income has been deflated to first-year dollars.

FIGURE 9-33 DERIVED CAPITALIZATION RATES

EBITDA Less Derived

Year Reserves Capitalization Rate

Forecast 2020/21 $2,468,000 5.6 %

Deflated Stabilized

(2020/21) Dollars 3,717,000 8.5


The derived capitalization rates are considered appropriate for a proposed lodging facility such as the Proposed Holiday Inn Edgewater. The derived capitalization rates that are based on the forecasted net operating income fall in line with acceptable returns for a hotel of this caliber. We note that these capitalization rates reflect the expectation of improved profitability over the initial years of the forecast. Hotel investors are acquiring assets at “going-in” capitalization rates that reflect the anticipation of modest growth in revenue coupled with gains in efficiency.

The process of converting the projected income stream into an estimate of value via the discounted-cash-flow method is described as follows.

1. An appropriate discount rate is selected to apply to the projected net income before debt service. This rate reflects the "free and clear" internal rate of return to an all-cash purchaser or a blended rate of debt and equity return requirements. The discount rate takes into consideration the degree of perceived risk, anticipated inflation, market attitudes, and rates of return on other investment alternatives, as well as the availability and cost of financing. The discount rate is chosen by reviewing sales transactions and investor surveys and interviewing market participants.

2. A reversionary value reflecting the sales price of the property at the end of the ten-year holding period is calculated by capitalizing the eleventh-year net income by the terminal capitalization rate and deducting typical brokerage and legal fees.

3. Each year's forecasted net income before debt service and depreciation and the reversionary sales proceeds at the end of the ten-year holding period are converted to a present value by multiplying the cash flow by the chosen discount rate for that year in the forecast. The sum of the discounted cash flows equates to the value of the subject property.

The following chart summarizes the averages presented for discount rates in various investor surveys during the past decade.

Discounted Cash Flow Analysis – “When Complete”


FIGURE 9-34 HISTORICAL TRENDS OF DISCOUNT RATES

9.0

10.0

11.0

12.0

13.0

14.0

15.0

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Dis

cou

nt R

ate

(%)

PWC - Full-Service PWC - LuxurySitus RERC - First Tier PWC - Select-ServicePWC - Limited-Service Situs RERC - Second TierSitus RERC - Third Tier

FIGURE 9-35 OVERALL DISCOUNT RATES DERIVED FROM SALES AND INVESTOR SURVEYS



HVS Hotel Sales - Select-Service & Extended-Stay 8.1% - 14.9% 10.9%

HVS Hotel Sales - Limited-Service 9.8% - 13.9% 11.7%





Luxury & Upper-Upscale Hotels 6.0% - 12.0% 8.8%





Luxury Hotels 6.25% - 12.0% 9.5%









We note that the averages illustrated in the previous table are derived from wide arrays of data points, and a range of reasonableness extends both lower and higher than the indicated data points. Based on our review of these surveys, sales transactions (see total property yields shown in the table titled Sample of Hotels Sold), and interviewing market participants, we have selected a discount rate of 10.75% for our analysis.

Utilizing the discount rate set forth, the discounted-cash-flow procedure is summarized as follows.

FIGURE 9-36 DISCOUNTED CASH FLOW ANALYSIS – WHEN COMPLETE

Discounted

Year 10.75% Cash Flow

2020/21 $2,468,247 0.90293 $2,228,665

2021/22 3,239,777 0.81529 2,641,360

2022/23 3,798,782 0.73615 2,796,489

2023/24 4,041,886 0.66470 2,686,638

2024/25 4,163,158 0.60018 2,498,643

2025/26 4,287,663 0.54192 2,323,583

2026/27 4,416,874 0.48932 2,161,269

2027/28 4,549,078 0.44182 2,009,895

2028/29 4,686,000 0.39894 1,869,324

2029/30 61,843,000 * 0.36022 22,276,815

Estimated Value $43,492,683

(SAY) $43,500,000

Per Room $210,000

Reversion Analysis

11th Year's EBITDA Less Reserves $4,970,717


Total Sales Proceeds $58,479,023

Less: Transaction Costs @ 2.5% 1,461,976

Net Sales Proceeds $57,017,048

EBITDA Less

Reserve

Discount Factor @

*10th year net income of $4,825,939 plus sales proceeds of $57,017,000

The preceding valuation process was repeated using the projected cash flows beginning as of the stabilized year. The discounted-cash-flow procedure is summarized as follows.

Discounted Cash Flow Analysis – “When Stabilized”


FIGURE 9-37 DISCOUNTED CASH FLOW ANALYSIS—STABILIZED VALUE

4

10.75 %

8.5

2.5

Discount Factor @ Discounted

Year 10.75% Cash Flow

2026/27 $4,041,886 0.90293 $3,650,000

2027/28 4,163,158 0.81529 3,394,000

2028/29 4,287,663 0.73615 3,156,000

2029/30 4,416,874 0.66470 2,936,000

2030/31 4,549,078 0.60018 2,730,000

2031/32 4,685,741 0.54192 2,539,000

2032/33 4,825,939 0.48932 2,361,000

2033/34 4,971,000 0.44182 2,196,000

#REF! 5,120,000 0.39894 2,043,000

#REF! 67,582,000 * 0.36022 24,344,000

Estimated Value $49,349,000

(SAY) $49,300,000

Per Room $238,000

Reversion Analysis

11th Year's EBITDA Less Reserves $5,432,000


Total Sales Proceeds $63,906,000

Less: Transaction Costs @ 2.5% 1,598,000

Net Sales Proceeds (Say) $62,308,000

Discount Rate

Terminal Cap

Transaction Costs

EBITDA Less

Reserve

*10th year net income of $5,274,000 plus sales proceeds of $62,308,000

Stabilized Year

Using the income capitalization approach, the subject property was valued by a mortgage-equity analysis, a straightforward discounted-cash-flow analysis, and a direct capitalization technique. Based on our review of each method and their inherent strengths and weaknesses, as well as investor attitudes and methodologies, we have reconciled the “when complete” value indication via the income capitalization approach to $43,800,000. Furthermore, it is our opinion that the “when stabilized” value is $49,300,000.

Conclusion

November-2018 Statement of Assumptions and Limiting Conditions Proposed Holiday Inn Edgewater – Miami, Florida 164

10. Statement of Assumptions and Limiting Conditions

1. This report is set forth as a feasibility study of the proposed subject hotel; this is not an appraisal report.

2. This report is to be used in whole and not in part.

3. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated.

4. We assume that there are no hidden or unapparent conditions of the sub-soil or structures, such as underground storage tanks, that would affect the property’s development potential. No responsibility is assumed for these conditions or for any engineering that may be required to discover them.

5. We have not considered the presence of potentially hazardous materials or any form of toxic waste on the project site. We are not qualified to detect hazardous substances and urge the client to retain an expert in this field if desired.

6. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have assumed the proposed hotel would be designed and constructed to be in full compliance with the ADA.

7. We have made no survey of the site, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate will be within the boundaries of the property described, and that no encroachment will exist.

8. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Consulting & Valuation are assumed true and correct. We can assume no liability resulting from misinformation.

9. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property.

10. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including the appropriate liquor license if applicable), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser.


11. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise.

12. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media.

13. We are not required to give testimony or attendance in court because of this analysis without previous arrangements and shall do so only when our standard per-diem fees and travel costs have been paid prior to the appearance.

14. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us.

15. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspection.

16. The quality of a lodging facility's onsite management has a direct effect on a property's economic viability. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results.

17. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease because of market volatility and economic forces outside the control of the hotel’s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed based upon information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel investor as of the stated date of the report.

18. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first.

19. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors.


20. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client; the use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client.

21. Evaluating and comprising financial forecasts for hotels is both a science and an art. Although this analysis employs various mathematical calculations to provide value indications, the final forecasts are subjective and may be influenced by our experience and other factors not specifically set forth in this report.

22. This study was prepared by HVS Consulting & Valuation. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of HVS Consulting & Valuation as employees, rather than as individuals.

November-2018 Certification Proposed Holiday Inn Edgewater – Miami, Florida 167

11. Certification

The undersigned hereby certify that, to the best of our knowledge and belief:

1. the statements of fact presented 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, and conclusions;

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

4. we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment;

5. our engagement in this assignment was not contingent upon developing or reporting predetermined results;

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

7. our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice;

8. Donald C. Stephens Jr. personally inspected the property described in this report;

9. Donald C. Stephens Jr. has not performed services, as an appraiser or in any other capacity, on the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment;

10. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute;

11. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; and

November-2018 Certification Proposed Holiday Inn Edgewater – Miami, Florida 168

12. as of the date of this report, Donald C. Stephens Jr. has completed the Standards and Ethics Education Requirements for Candidates of the Appraisal Institute.

Donald C. Stephens Jr. Managing Director HVS Consulting & Valuation State-Certified General Real Estate Appraiser RZ3699

FEASIBILITY STUDY Proposed Holiday Inn Edgewater

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