The Crosslands. Phase 1 Proposed Hotel

Transcription

1 MARKET STUDY The Crosslands Phase 1 Proposed Hotel KISSIMMEE, FLORIDA SUBMITTED TO:PR OPOSED Thomas M. Roehlk, Executive Vice President & Secretary Deerfield Land Corporation South Orange Blossom Trail Orlando, Florida (407) PREPARED BY: CHR Consulting Services, Inc. D/B/A HVS Consulting & Valuation 8925 SW 148th Street, Suite 216 Miami, Florida, (305)

2 February 7, 2014 Thomas M. Roehlk, Executive Vice President & Secretary Deerfield Land Corporation South Orange Blossom Trail Orlando, Florida HVS MIAMI 8925 SW 148th Street, Suite 216 Miami, Florida, (305) (305) FAX Atlanta Boston Boulder Chicago Dallas Denver Houston Las Vegas Los Angeles Mexico City Miami Minneapolis Nassau New York Newport Philadelphia San Francisco St. Louis Toronto Vancouver Washington Athens Beijing Buenos Aires Dubai Hong Kong Lima London Milan Moscow Mumbai New Delhi Sao Paulo Shanghai Singapore Superior results through unrivaled hospitality intelligence. Everywhere. Dear Mr. Roehlk: Re: The Crosslands Phase 1 Proposed Hotel Kissimmee, Florida HVS Reference: Pursuant to your request, we herewith submit our market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Orlando-Kissimmee, 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. 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 Gary L. Johnson, Senior Consultant gjohnson@hvs.com, +1 (305) ext Certified General Real Estate Appraiser (FL) RZ3512 John P. Lancet, MAI, Director/Partner jlancet@hvs.com, +1 (305) ext Certified General Real Estate Appraiser (FL) RZ2554

3 Table of Contents SECTION TITLE PAGE 1. Executive Summary 1 2. Description of the Site and Neighborhood 8 3. Market Area Analysis Supply and Demand Analysis Projection of Occupancy and Average Rate Statement of Assumptions and Limiting Conditions 71 Addenda Penetration Explanation i Qualifications

4 1. Executive Summary Subject of the Market Study The subject of the market study is a parcel that is slated to be improved with a limited- or select-service business-oriented hotel; we assume the hotel will be affiliated with a nationally recognized upscale or upper midscale brand. The property is assumed to open on September 1, 2015 and will feature 120 rooms, limited food and beverage offerings, a pool, a whirlpool, an exercise room, a business center, a gift shop, and a guest laundry room. The hotel will also feature all necessary back-of-the-house space. The subject site is current vacant and unimproved; however, the developer intends to break ground by the end of February, 2014 for the development of a 410,000 square-foot retail center to be known as The Crosslands, Phase I. The planned retail center, as well as the proposed subject hotel, will represent the first phase of a planned mixed-use development. Note the subject site is located in Osceola County; however, the parent site encompasses land in both Osceola County as well as Orange County. The approved entitlements from each county individually and in total are summarized in the following table. APPROVED ENTITLEMENTS Osceola Orange County County Total Approved Use Entitlements Entitlements Entitlements Commercial 1,779,500 SF 966,975 SF 2,746,475 SF Office 1,852,200 SF 1,852,200 SF Office/Warehouse 80,000 SF 80,000 SF Hotel 500 Rooms 500 Rooms Multi-Family 2,350 Units 200 Units 2,550 Units According to the Osceola County Property Appraiser, the subject site s location is West Osceola Parkway, Kissimmee, Florida Pertinent Dates The effective date of the report is February 7, The subject site was inspected by Gary L Johnson on January 3, Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 1

5 Brand and Facilities Recommendations Based on our review of the competitive market and the subject site s neighborhood and demand generators, we recommend the development of a Hilton Garden Inn or Hyatt Place on the subject site. In regards to facilities and amenities, we recommend that the proposed subject property offer at least 1,500 square feet of meeting space. We also recommend the proposed hotel feature limited food and beverages outlets consistent with the brand standards of Hilton Garden Inn or Hyatt Place. Ownership, Franchise, and Management Assumptions The owner of the subject parcel is Deerfield Land Corporation; the parent company of this entity is Tupperware Brands Corporation, which is based in Orlando, Florida. It is our understanding that the subject site, as well as the surrounding sites that are part of the approved DRI, have been owned by Deerfield Land Corporation for more than twenty years. We are not aware of any current or recent listings of the subject site. Details pertaining to management terms were not yet determined at the time of this report. We recommend that the proposed subject hotel operate as an upscale, selectservice property. While we have recommended the Hilton Garden Inn or Hyatt Place brands, a specific franchise affiliation and/or brand has yet to be finalized. Summary of Hotel Market Trends Local employers and headquarter offices in the area, as well as compression from conventions and major tourist attractions represent the primary sources of demand for this market. Demand in the local market has fluctuated in the twelveyear period reviewed, resulting in an average annual compounded increase of 6.0%. Both occupancy and demand fluctuated in the first part of the last decade, declining in both 2003 and 2006, while recording positive growth in the remainder of the trend period. Demand was mostly stabilized from 2004 through 2008, with market occupancy remaining in range from roundly 68% to 73% throughout that period. The onset of the national economic recession resulted in slower growth in demand in 2009, although demand rebounded dramatically in 2010 as the economic recovery led to increased business and leisure demand in the local market. Market occupancy recorded consistent annual increases beginning in 2010 for each calender year through The latest data for 2013 indicates strong growth, with an increase in demand of 13.7% compared to The following table provides a historical perspective on the supply and demand trends for a selected set of hotels, as provided by Smith Travel Research. Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 2

6 FIGURE 1-1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) Year Average Daily Room Count Available Room Nights Change Occupied Room Nights Change Occupancy Average Rate Change RevPAR Change , , , % $76.06 $ , , % 302,705 (1.2) % (5.0) % (12.4) % , , , , , , , , ,023 (2.2) , , , , , , (4.1) , , , (12.9) (16.3) , , , (3.3) , , , , , , , , , Average Annual Compounded Change: % 6.0 % 2.0 % 4.0 % Hotels Included in Sample Number of Rooms Year Affiliated Year Opened The Florida Hotel & Conf Ctr 510 May 2004 Apr 1986 Courtyard Orlando Lake Buena Vista In The Marriott Village 312 Oct 2000 Oct 2000 Springhill Suites Orlando Lake Buena Vista In The Marriott Village 400 Dec 2000 Dec 2000 The Calypso 110 Dec 2013 Oct 2001 Holiday Inn Express & Suites Orlando Lake Buena 148 Oct 2007 May 2003 Hampton Inn Suites Orlando John Young Pkwy S Park 83 Nov 2007 Nov 2007 Hampton Inn Suites Orlando South Lake Buena Vista 125 Feb 2008 Feb 2008 Hilton Garden Inn Lake Buena Vista Orlando 137 Jul 2009 Jul 2009 Embassy Suites Orlando Lake Buena Vista South 300 Sep 2012 Sep 2012 Total 2,125 Source: STR Global The following table reflects our estimates of operating data for hotels on an individual basis. Note that we have deemed each of the proposed subject property s competitors as secondary competitors. The room count of each secondary competitor was weighted based on its assumed degree of competitiveness the future with the proposed subject hotel. These trends are presented in detail in the Supply and Demand Analysis chapter of this report. Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 3

7 FIGURE 1-2 SECONDARY COMPETITORS OPERATING PERFORMANCE Property Number of Rooms Est. Segmentation Estimated 2011 Estimated 2012 Estimated 2013 Total Competitive Level Weighted Annual Room Count Occ. Average Rate RevPAR Weighted Annual Room Count Occ. Average Rate RevPAR Weighted Annual Room Count Occ. Average Rate Commercial Meeting and Group Leisure RevPAR The Calypso (former Country Inn & Suites) % 20 % 50 % 70 % % $79 $ % $63 $ % $50 $33.00 Courtyard by Marriott Orlando Lake Buena Vista in the Marriott Village Embassy Suites Orlando Lake Buena Vista South Florida Hotel & Conference Center at the Florida Mall Orlando Hampton Inn & Suites Orlando John Young Parkway Hampton Inn & Suites Orlando South Lake Buena Vista Hilton Garden Inn Lake Buena Vista Orlando Holiday Inn Express Orlando Lake Buena Vista East SpringHill Suites by Marriott Orlando Lake Buena Vista in Marriott Village Totals/Averages 2, % 31 % 35 % 72 % 1, % $84.94 $ , % $87.90 $ , % $93.38 $70.84 Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 4

8 Summary of Forecast Occupancy and Average Rate Based on our analysis presented in the Projection of Occupancy and Average Rate chapter, we have chosen to use a stabilized occupancy level of 76% and a baseyear rate position of $93.00 (2013 $) for the proposed subject hotel. The following table reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections. FIGURE 1-3 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST Area-wide Market (Calendar Year) Subject Property (Calendar Year) Year Occupancy Average Rate Growth Average Rate Occupancy Average Rate Growth Average Rate Average Rate Penetration Base Year 75.9 % $93.38 $ % % % % The following table summarizes the proposed subject hotel s forecast, reflecting fiscal years and opening-year rate discounts as applicable. FIGURE 1-4 FORECAST OF AVERAGE RATE Year Occupancy Average Rate Before Discount Discount Average Rate After Discount 2015/16 61 % $ % $ / / / Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 5

9 Scope of Work 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, 1 Hotels, Motels and Restaurants: Valuations and Market Studies, 2 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations, 3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations, 4 and Hotels and Motels Valuations and Market Studies 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. A brand recommendation was derived based on an analysis of the existing and proposed competitive supply and the demand dynamics of the subject market. 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 1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies. (Chicago: American Institute of Real Estate Appraisers, 1983). 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels Valuations and Market Studies. (Chicago: Appraisal Institute, 2001). Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 6

10 the degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report. 7. Documentation for an occupancy and average rate projection is derived utilizing the build-up approach based on an analysis of lodging activity. Executive Summary Phase 1 Proposed Hotel Kissimmee, Florida 7

11 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 along the west side of South Orange Blossom Trail, in the northwest quadrant of the intersection formed by Osceola Parkway and South Orange Blossom Trail. This site is in the city of Kissimmee, Florida. Physical Characteristics The subject site will be apportioned from a larger parcel; thus, currently the specific dimensions and square feet of the subject site have not been determined. The parcel's adjacent uses are set forth in the following table. FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES Direction North South East West Adjacent Use vacant land vacant land; local access road to be constructed South Orange Blossom Trail (road) / Osceola County School for the Performing Arts (school) vacant land to be developed with The Crosslands retail center Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 8

12 THE PROPOSED CROSSLANDS RETAIL CENTER SITE PLAN Hotel Site Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 9

13 AERIAL PHOTOGRAPH (BING MAPS) Hotel Site Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 10

14 VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH VIEW FROM SITE TO THE EAST VIEW FROM SITE TO THE WEST Primary vehicular access to the proposed subject hotel will be provided by South Orange Blossom Trail. Access will also be available from Osceola Parkway via an access road to be constructed that will provide access to the retail outlets within the proposed retail center. The topography of the parcel is generally flat, and the site s shape is to be determined after it is apportioned from the larger parcel. Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 11

15 Site Utility Access and Visibility Upon completion of construction, we assume that the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. The site is expected to be fully developed with site or building improvements, which will contribute to the overall profitability of the hotel. It is important to analyze the site in regard to ease of access with respect to regional and local transportation routes and demand generators. The subject site is readily accessible to a variety of local, county, state, and interstate highways. MAP OF REGIONAL ACCESS ROUTES Primary regional access through the area is provided by east/west Interstate 4, which provides access to such cities as Tampa to the southwest and Daytona Beach to the northeast. North/south Interstate 95 is another major highway, providing access to such cities as Miami to the south and Jacksonville to the north. Regional access through the area is also provided by the Florida Turnpike, which extends from southeast Florida, through Orlando, to Interstate 75 to the northwest. The Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 12

16 subject market is served by a variety of additional local highways, which are illustrated on the map. From Interstate 4, motorists take the State Road 417, also known as the Central Florida Greeneway, Exit and proceed east on this thoroughfare to the Orange Blossom Trail Exit. Motorists execute a right turn (south) onto Orange Blossom Trail and travel south for approximately two miles to the subject site, which is located on the motorists right-hand side (west). The proposed subject hotel is assumed to have adequate signage at the street; thus, the hotel should benefit from very good visibility from within its local neighborhood. Overall, the subject site benefits from good accessibility, and the proposed hotel is expected to enjoy good visibility attributes. Airport Access Neighborhood The proposed subject hotel will be served by the Orlando International Airport, which is located approximately 14 miles to the northwest of the subject site. From the airport, motorists will follow signs to State Road 417, also known as the Central Florida Greeneway and travel west on this thoroughfare to Orange Blossom Trail. Motorists will then proceed south on Orange Blossom Trail, continuing to the subject site as previously noted. 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. The neighborhood surrounding the subject site is generally defined by Hunters Creek Boulevard to the north, the Florida Turnpike to the east, West Carroll Street to the south, and Dyer Boulevard to the west. Note the neighborhood encompasses portions of northern Osceola County and southern Orange County. This neighborhood is in the growth stage of its life cycle, with pockets of moderate growth occurring in the retail sector. Within the immediate proximity of the site, land use is primarily commercial and office in nature. The neighborhood is characterized by restaurants, office buildings, and retail shopping centers along the primary thoroughfares, with residential areas located along the secondary roadways. Some specific businesses and entities in the area include Tupperware World Headquarters, Osceola County School for the Performing Arts, Gatorland Theme Park, Osceola County Softball Complex, Osceola Business Park, Regal Cinema 16, JC Penny's, Kohl's, BJ's Wholesale Club, Lowe's, and Best Buy. Restaurants within immediate proximity of the subject site include Chipotle, Bonefish Grill. BJ's Restaurant & Brewhouse, Macaroni Grill, and Johnny Rockets. Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 13

17 Major changes in this neighborhood include the development of the Phase 1 of The Crosslands Retail Center which is expected to have tenants such as Hobby Lobby, Dick's Sporting Goods, Marshall's, Petsmart, and Cheddar's Restaurant. In addition SunRail, a commuter rail system that is under construction in the Greater Orlando area, upon completion will provide access from Poinciana to the south and DeLand to the north through Downtown Orlando. When Phase 1 is completed, SunRail will run for 31 miles with 17 stations along the CSX Transportation "A" Line (former Atlantic Coast Line Railroad main line). In 2014, service is scheduled to begin from Volusia County through Orlando with eventual connectivity to south Osceola County. The SunRail system is expected to be fully completed in SUNRAIL PROJECT Hotel Site Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 14

18 In general, we would characterize the neighborhood as 5% office use, 20% retail/restaurant use, 5% residential use, 60% vacant, and 10% other. 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. MAP OF NEIGHBORHOOD Overall, the supportive nature of the development in the immediate area is considered appropriate for and conducive to the operation of a hotel. Utilities The subject site will reportedly be served by all necessary utilities. We assume that these will be acquired from the most cost-effective providers within the local market. Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 15

19 Soil and Subsoil Conditions Nuisances and Hazards Flood Zone 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. According to the Federal Emergency Management Agency map illustrated below, the subject site is located in flood zone 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. Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 16

20 Zoning According to the local planning office, the subject property is zoned as follows: DRI - Osceola Corporate Center Developments of Regional Impact. OSCEOLA CORPORATE CENTER DRI According to the Osceola County Planning Office, the Osceola Corporate Center DRI contains the following approved entitlements; Commercial/retail - 1,779,500 square-feet; Office 1,852,200 square feet; Office/warehouse 80,000 square feet; Hotel (units can be converted to multi-family) 500 rooms; and Multi-family 2,350 units. We assume that all necessary permits and approvals will be secured (including an appropriate liquor license) and that the proposed subject property will be constructed in accordance with local zoning ordinances, building codes, and all Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 17

21 other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the site. Easements and Encroachments Conclusion 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 proposed subject hotel is anticipated to benefit from its location within a mixed-use, master-planned development that is scheduled to include phased development of office space, multi-family residential, and retail. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation. Description of the Site and Neighborhood Phase 1 Proposed Hotel Kissimmee, Florida 18

22 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. Market Area Definition 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 Kissimmee, the county of Osceola, and the state of Florida. The proposed subject property s market area can be defined by its Combined Statistical Area (CSA): Orlando-Deltona-Daytona Beach, 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. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 19

23 MAP OF MARKET AREA Economic and Demographic Review 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. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 20

24 FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY Average Annual Compounded Change Resident Population (Thousands) Osceola County % 4.3 % 2.4 % Orlando-Kissimmee, FL MSA 1, , , , Orlando-Deltona-Daytona Beach, FL CSA 1, , , , State of Florida 13, , , , United States 249, , , , Per-Capita Personal Income* Osceola County $20,528 $23,096 $22,837 $23, (0.1) 1.3 Orlando-Kissimmee, FL MSA 25,243 30,919 31,622 32, Orlando-Deltona-Daytona Beach, FL CSA 24,400 29,607 30,883 31, State of Florida 26,940 32,391 34,872 35, United States 26,826 33,770 36,677 37, W&P Wealth Index Osceola County (1.0) (0.8) 0.1 Orlando-Kissimmee, FL MSA (0.4) (0.4) 0.0 Orlando-Deltona-Daytona Beach, FL CSA (0.4) (0.2) 0.0 State of Florida (0.5) United States Food and Beverage Sales (Millions)* Osceola County $263 $336 $569 $ Orlando-Kissimmee, FL MSA 2,086 2,892 4,110 4, Orlando-Deltona-Daytona Beach, FL CSA 2,605 3,531 4,961 5, State of Florida 16,197 20,541 27,280 28, United States 257, , , , Total Retail Sales (Millions)* Osceola County $1,462 $2,158 $3,577 $3, Orlando-Kissimmee, FL MSA 16,709 25,556 33,709 35, Orlando-Deltona-Daytona Beach, FL CSA 21,370 31,878 41,595 43, State of Florida 159, , , , United States 2,620,710 3,613,909 4,189,260 4,325, * Inflation Adjusted Source: Woods & Poole Economics, Inc. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 21

25 The U.S. population has grown at an average annual compounded rate of 1.0% from 2000 through The county s population has grown at a quicker pace than the nation s population; the average annual growth rate of 4.3% between 2000 and 2013 reflects a rapidly expanding area. Following this population trend, per-capita personal income decreased slowly, at -0.1% on average annually for the county between 2000 and Local wealth indexes have remained stable in recent years, registering a relatively low 64.0 level for the county in Food and beverage sales totaled $569 million in the county in 2013, versus $336 million in This reflects a 4.1% average annual change, which is stronger than the 2.5% 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 2.7%, which is forecast through The retail sales sector demonstrated an annual increase of 4.0% registered in the decade 1990 to 2000, followed by an increase of 4.0% in the period 2000 to An increase of 3.1% average annual change is expected in county retail sales through Workforce Characteristics 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 1990, 2000, and 2013, as well as a forecast for Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 22

26 FIGURE 3-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S) Percent Percent Percent Percent Industry 1990 of Total 2000 of Total 2013 of Total 2015 of Total Average Annual Compounded Change Farm % % % % 0.6 % (3.4) % 0.0 % Forestry, Fishing, Related Activities And Other (0.4) 1.7 Mining (1.5) (1.9) 0.0 Utilities (0.0) Construction (0.3) 1.6 Manufacturing (0.7) (1.3) 0.4 Total Trade Wholesale Trade Retail Trade Transportation And Warehousing Information Finance And Insurance Real Estate And Rental And Lease Total Services Professional And Technical Services Management Of Companies And Enterprises (12.2) 0.3 Administrative And Waste Services Educational Services Health Care And Social Assistance Arts, Entertainment, And Recreation Accommodation And Food Services Other Services, Except Public Administration Total Government Federal Civilian Government Federal Military (0.1) State And Local Government TOTAL % % % % 3.9 % 3.0 % 1.6 % MSA , , , % 1.5 % 1.5 % U.S. 138, , , , Source: Woods & Poole Economics, Inc. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 23

27 Woods & Poole Economics, Inc. reports that during the period from 1990 to 2000, total employment in the county grew at an average annual rate of 3.9%. This trend was above the growth rate recorded by the MSA and also outpaced the national average. More recently, the pace of total employment growth in the county slowed to 3.0% on an annual average from 2000 to Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2000 to 2013, increasing by 16,100 people, or 51.5%, and rising from 49.2% to 50.9% of total employment. Of the various service sub-sectors, Accommodation And Food Services and Health Care And Social Assistance were the largest employers. Strong growth was also recorded in the Total Government sector, as well as the Total Trade sector, which expanded by 73.4% and 37.7%, respectively, in the period 2000 to Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.6% on average annually through The trend is above the forecast rate of change for the U.S. as a whole during the same period. The following table illustrates historical and projected employment, households, population and average household income data as provided by REIS for the overall Orlando market. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 24

28 FIGURE 3-3 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS Year Total Employment % Chg Office Employment % Chg Industrial Employment % Chg Households % Chg Population % Chg Household Avg. Income % Chg , , , ,060 1,683,720 $73, ,230 (1.9) % 268,810 (0.1) % 105,680 (2.6) % 659, % 1,735, % 74, % , , ,652 (2.9) 677, ,784, , , , ,860 (0.8) 698, ,842, , , , , , ,917, , ,038, , , , ,991, , ,077, , , , ,041, , ,094, , , , ,073, , ,048,300 (4.2) 322,577 (3.3) 105,143 (7.3) 790, ,099, ,142 (3.2) ,400 (5.2) 309,662 (4.0) 95,887 (8.8) 798, ,124, ,841 (4.6) ,006, ,942 (0.2) 95,636 (0.3) 809, ,156, , ,024, , ,829 (1.9) 818, ,197, , ,046, , , , ,245, , Forecasts ,073, % 327, % 95, % 848, % 2,289, % $99, % ,073,570 (0.0) 327, , , ,289, ,412 (0.0) ,102, , , , ,342, , ,137, , , , ,400, , ,172, , , , ,465, , Average Annual Compound Change % 1.4 % (1.1) % 2.2 % 2.4 % 2.6 % (2.7) (2.5) (5.5) (1.3) (0.6) Forecast % 2.1 % 0.9 % 2.0 % 1.9 % 2.4 % Source: REIS Report, 4th Quarter, 2013 Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 25

29 For the market, of the roughly 1,000,000 persons employed, 31% work in offices and are categorized as office employees, while 9% are categorized as industrial employees. Total employment decreased by an average annual compound rate of - 2.7% during the recession of 2007 to 2010, followed by an improvement of 2.0% from 2010 to By comparison, office employment reflected compound change rates of -2.5% and 1.7%, during same respective periods. Total employment is expected to expand by 2.5% in 2013, while office employment is forecast to expand by 2.6% in Forecasts for the period 2012 through 2016 anticipate total employment will improve at an average annual compound rate of 2.3%, and office employment is forecast to improve by 2.1% on average annually during the same time frame. The number of households are forecast to improve by 2.0% on average annually between 2012 and Population is forecast to expand during this same time frame, at an average annual compounded rate of 1.9%. Household average income is forecast to grow by 2.4% on average annually between 2012 through Unemployment Statistics The following table presents historical unemployment rates for the proposed subject hotel s market area. FIGURE 3-4 UNEMPLOYMENT STATISTICS Year County MSA State U.S % 5.1 % 5.3 % 6.0 % Recent Month - Nov % 7.7 % 7.9 % 7.8 % Source: U.S. Bureau of Labor Statistics The unemployment rate for the U.S. fluctuated within the narrow range of 4.6% to 6.0% in the period spanning from 2003 to The recession and financial crisis in 2007 and 2008 resulted in heightened unemployment rates, which peaked at Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 26

30 10.0% in October of Job growth resumed in late 2009; the national unemployment rate has steadily declined since Total nonfarm payroll employment increased by 203,000 jobs in November of 2013, which brought the unemployment rate down to 7.0%, falling to the lowest level in over four years. The number of people on temporary-layoff status declined by 377,000, as federal employees that were affected by the shutdown returned to work. This positive trend reflects steady progress by the U.S. economy. Job gains were most significant in the transportation and warehousing, healthcare, and manufacturing sectors. Locally, the unemployment rate was 9.3% in 2012; for this same area in 2013, the most recent month s unemployment rate was registered at 6.5%, versus 8.7% for the same month in Unemployment rates in this area declined from 2003 through 2010, concurrent with the general recovery trend after a difficult period earlier this decade. However, unemployment began to rise in 2007 as the nation entered an economic slowdown. This trend continued through 2010; however, 2011 and 2012 data illustrated a marked decrease in the unemployment rate, and most recent comparative period shows further improvement. Local economic development officials noted that over the last year, Orlando has led the state in terms of job creation; job growth has been fueled largely by the hospitality sector. As the economy continues to emerge from the recession in coming years, local employment is expected to improve. Furthermore, local medical and higher education facilities continue to expand in the area, and local employment is strong within these sectors. Continued growth in the biotechnology sector is anticipated to help stabilize this economic indicator. Our interviews with economic development officials reflect a positive but cautious outlook for the area. Major Business and 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. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 27

31 FIGURE 3-5 MAJOR EMPLOYERS Number of Rank Firm Employees 1 Walt Disney World Resort 64,000 2 Orange County Public Schools 22,789 3 Florida Hospital 17,600 4 Universal Orlando 16,000 5 Orlando Health 14,310 6 Walgreen Co. 11,927 7 Orange County Government 7,372 8 Lockheed Martin Corp. 7,000 9 Lake County Schools 6, Darden Restaurants, Inc. 5,968 Source: Orlando Business Journal's 2013 Book of Lists The following bullet points highlight major demand generators for this market: Year-round tourism remains a cornerstone of lodging demand, drawing nearly 50 million visitors to this Central Florida market area annually. World-class theme parks and attractions create a unique family destination that cannot be found anywhere else in the world. Walt Disney World Resort, the heart of Orlando s attraction experience, includes the following four theme parks: Magic Kingdom, Epcot, Disney s Hollywood Studios, and Disney s Animal Kingdom. Other major theme parks in the area include Universal Studios Orlando and SeaWorld Orlando. Walt Disney s Magic Kingdom opened its doors in 1971 following an intensive site selection process by Walt Disney himself, selecting Orlando because of its abundant available land as well as its inland location, sheltering the theme park from seasonal hurricanes. Following the success of the Magic Kingdom, Walt Disney World Resorts opened Epcot Center in 1982, Disney s Hollywood Studios in 1989, and Disney s Animal Kingdom in Additionally, Walt Disney World Resort features two water parks, 23 themed hotels, and a variety of dining and entertainment venues. The Wizarding World of Harry Potter at Universal Studios Orlando opened in June of 2010; this attraction spans 20 acres and is the sixth Island of Adventure found at the theme park. In April of 2011, SeaWorld debuted its new killerwhale show, "One Ocean. Changes in this sector include the transformation of Cypress Gardens in nearby Winter Haven into the world's largest LEGOLAND, which opened on October 15, 2011, and the completion of renovations at Fantasyland in Disney's Magic Kingdom, which opened December 4th Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 28

32 The success of Orlando s healthcare system has led the way for the city s surging biotechnology industry. Some 155 biotechnology and life science companies with combined annual revenues of $2.6 billion employ approximately 9,250 people in the area. The University of Central Florida (UCF) Health Sciences Campus at Lake Nona is becoming an international hub for health and biotech services. Once completely developed, the 7,000-acre Lake Nona Medical City will include the Burnett School of Biomedical Sciences, UCF College of Medicine s Medical Education building, UCF College of Nursing, Harriet F. Ginsburg Health Sciences Library, Burnham Institute for Medical Research East Coast Campus, Orlando VA Medical Center, and MD Anderson Cancer Center Orlando Cancer Research Institute, among other medical and educational uses. The Burnham Institute for Medical Research East Coast Campus, the Burnett School of Biomedical Sciences, and the MD Anderson Cancer Center Orlando Cancer Research Institute were completed in 2009, while the UCF College of Medicine s Medical Education building opened in July of Additionally, the University of Florida Research & Academic Center and the Nemours Children's Hospital opened their doors to patients in The Orlando VA Medical Center is currently under construction and is scheduled to open in the summer of Florida Hospital is one of the largest hospital systems in the country, treating nearly one million patients on a yearly basis and spanning seven hospitals and fifteen Central Care walk-in medical centers. This healthcare system specializes in a diverse range of services, including globally recognized programs in cardiology, cancer, women s medicine, neurology, diabetes, orthopedics, and rehabilitation. Florida Hospital is routinely recognized as one the best medical facilities in the country by U.S. News & World Report and serves as a prominent referral hospital throughout areas of the southeastern United States, the Caribbean, and South America. In March of 2011, the Walt Disney Pavilion at Florida Hospital for Children opened. The Disney-themed facility features 200 beds in addition to an 81-bed neonatal intensive care unit. In late 2011, Florida Hospital and the Burnham Institute for Medical Research opened a 54,000-square-foot, state-of-the-art medical facility focusing on diabetes, obesity, and the metabolic origins of cardiovascular disease. Orlando's popularity as a year-round tourism destination has historically contributed to the area's overall economic strength; however, the national recession significantly affected the local economy. During this time, leisure visitation decreased because of reduced discretionary spending, while negative publicity surrounding corporate junkets and diminishing popularity of upscale destinations reduced group demand to the area. Despite the economic conditions that led to reduced visitation to the region through 2009, the area began experiencing stabilization and some renewed growth in 2010/11. Tourism growth is expected to continue as broader economic conditions improve, and recovery in Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 29

33 Office Space Statistics the greater Orlando area is anticipated to be supported by continued growth in the medical and biotechnology fields. Additionally, the development of a high-speed rail line between Tampa and Orlando, which is expected to be complete by 2015, should help support the overall economy. Orlando is projected to remain a top destination for business and leisure travel; therefore, the long-term outlook for the area is optimistic. Trends in occupied office space are typically among the most reliable indicators of lodging demand, because firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or in the amount of 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 3-6 OFFICE SPACE STATISTICS MARKET OVERVIEW Submarket Inventory Buildings Square Feet Occupied Office Space Vacancy Rate Average Asking Lease Rate 1 Downtown 70 6,587,000 5,289, % $ South Orlando 95 6,077,000 5,050, East/UCF 76 3,777,000 3,214, Altamonte/Casselbery 58 1,997,000 1,525, Sanford 61 5,016,000 4,098, Maitland 66 5,683,000 4,654, Northwest Orlando 32 1,290,000 1,068, Winter Park 50 1,657,000 1,368, Kissimmee , , Totals and Averages ,747,000 26,825, % $21.44 Source: REIS Report, 4th Quarter, 2013 The greater Orlando market comprises a total of 32.7 million square feet of office space. For the 4th Quarter of 2013, the market reported a vacancy rate of 18.1% and an average asking rent of $ The subject property is located in the Kissimmee submarket, which houses 663,000 square feet of office space. The submarket's vacancy rate of 16.0% is below the overall market average. The average asking lease rate of $20.18 is below the average for the broader market. The following table illustrates a trend of office space statistics for the overall Orlando market and the Kissimmee submarket. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 30

34 FIGURE 3-7 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS GREATER MARKET VS. SUBMARKET Year Available Office Space % Chg Occupied Office Space Orlando Market % Chg Vacancy Rate Asking Lease Rate % Chg Available Office Space % Chg Kissimmee Submarket Occupied Office Space % Chg Vacancy Rate Asking Lease Rate % Chg ,943,000 24,273, % $ , , % $ ,142, % 24,979, % % 541, % 394, % % ,769, ,967,000 (0.0) (1.2) 541, , ,369, ,990, (1.8) 541, ,000 (11.9) (0.9) ,665, ,068, , , ,145, ,395, , , ,759, ,796, , , ,229, ,703,000 (0.3) , , ,519, ,410,000 (1.0) , ,000 (3.6) (2.6) ,315,000 (0.6) 27,065,000 (4.7) (2.9) 663, , (6.4) ,205,000 (0.3) 26,557,000 (1.9) (0.6) 663, ,000 (4.4) ,514, ,481,000 (0.3) , , ,661, ,647, , ,000 (2.7) Forecasts ,747, % 26,825, % 18.1 % % 663, % 557, % 16.0 % $ % ,747, ,825, , , ,841, ,111, , , ,427, ,779, , , ,802, ,351, , , Average Annual Compound Change % 0.8 % 0.7 % 4.1 % 3.0 % 2.1 % (0.0) (2.6) (1.1) (2.6) (0.0) (1.3) 1.0 Forecast % 1.2 % 1.8 % 0.0 % 0.5 % 1.1 % Source: REIS Report, 4th Quarter, 2013 Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 31

35 The inventory of office space in the Orlando market increased at an average annual compound rate of 1.6% from 2000 through 2012, while occupied office space expanded at an average annual rate of 0.8% over the same period. During the period of 2000 through 2007, occupied office space expanded at an average annual compound rate of 2.4%. From 2007 through 2010, occupied office space contracted at an average annual compound rate of -2.6%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.2% average annual change in occupied office space from 2010 to From 2012 through 2016, the inventory of occupied office space is forecast to increase at an average annual compound rate of 1.2%, with available office space expected to increase 0.7%, thus resulting in an anticipated vacancy rate of 16.1% as of Convention Activity 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. The Orange County Convention Center (OCCC) is a vital component of the economic health of Orlando s hotel market. This center is the second largest in contiguous space in the United States, with over 2.5 million gross square feet. Positioned eleven miles southwest of Downtown Orlando, the center is located on International Drive, just northeast of the intersection formed by Interstate 4 and the Beeline Expressway. The OCCC comprises two separate facilities, the west building and the north/south building. Features of the OCCC include 2.1 million square feet of exhibit space, 74 meeting rooms, 235 breakout rooms, a 2,643-seat theatre, four business centers, three full-service restaurants, and eight food courts. In 2013, the OCCC will begin a five-year reinvestment and renovation project at a total cost of approximately $187 million; upgrades will include a complete renovation of the west building and new furnishings in the pre-function areas. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 32

36 ORANGE COUNTY CONVENTION CENTER The following table illustrates recent use statistics for this facility. FIGURE 3-8 CONVENTION CENTER STATISTICS Number of Percent Number of Percent Year Conventions Change Delegates Change ,407, (13.5) % 1,472, % (10.1) 1,310,377 (11.0) (6.9) 1,077,085 (17.8) (6.5) 1,178, (10.9) 1,214, ,319, ,244,543 (5.7) Source: Orange County Convention Center Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 33

37 Airport Traffic 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. The Orlando International Airport (MCO) is located approximately six miles southeast of Downtown Orlando. Major airlines that service MCO include AirTran Airways, American Airlines, Delta Air Lines, JetBlue Airways, Southwest Airlines, and United Airlines, among others. The modern terminal facility offers a convenient passenger transportation system linking the concourse gates to the multilevel terminal. Orlando International Airport offers a variety of retail outlets and services, including numerous restaurants and bars. In 2009, the airport was awarded approximately $26 million in grants through the American Recovery and Reinvestment Act of 2009 (ARRA). According to airport officials, ARRA funding has allowed for taxiway improvements and a variety of other infrastructure improvements. While plans for a new southern terminal have been put on hold due to lower-than-expected passenger traffic growth, the airport authority is moving forward with plans for a new $470-million parking garage as of 2013, as well as the infrastructure for a new train station that is expected to begin service in The following table illustrates recent operating statistics for the Orlando International Airport, which is the primary airport facility serving the proposed subject hotel s submarket. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 34

38 Change in Passenger Activity FIGURE 3-9 AIRPORT STATISTICS - ORLANDO INTERNATIONAL AIRPORT Year Passenger Traffic Percent Change* Percent Change** ,319, ,146, % 14.0 % ,128, ,640, ,480, ,661,269 (2.2) ,693,649 (5.5) ,877, ,426, ,288,887 (0.4) 2.9 Year-to-date, Nov ,288, ,736,495 (1.7) % *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Orlando International Airport FIGURE 3-10 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND 15% 10% 5% 0% -5% -10% Local Passenger Volume National Passenger Volume Source: HVS, Local Airport Authority Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 35

39 This facility recorded 35,288,887 passengers in The change in passenger traffic between 2011 and 2012 was -0.4%. The average annual change during the period shown was 2.9%. Passenger traffic for Orlando International Airport started the decade off with a significant decrease as the national economy was in a recession and the airline industry was dealing with the effects of the terrorist attacks of Beginning in 2003, through 2007, passenger traffic increased year over year as the national economy recovered. In 2008 and 2009 as the nation entered the second recession of the decade, passenger traffic declined again. This trend has reversed and the airport experienced growth in 2010 and 2011, and remained relatively stable in 2012 and year-to-date in Tourist Attractions The market benefits from a variety of tourist and leisure attractions in the area. The peak season for tourism in this area is from May to September. However, visitation remains strong during other times of the year because of the worldwide appeal of Orlando as a major tourism destination. A favorable year-round climate also contributes to strong tourism throughout the year. Primary attractions in the area include the following: Walt Disney World Resort is one of the world's preeminent vacation destinations. The resort offers four major theme parks (Magic Kingdom, Epcot, Hollywood Studios, and Animal Kingdom Park) and two water parks (Blizzard Beach and Typhoon Lagoon). Disney's current promotions revolve around the theme "Celebrations" and the tag line "What Will You Celebrate?" In September of 2009, Disney announced that Walt Disney World's Fantasyland would be renovated. The new area will focus on Disney princesses, Dumbo the flying elephant, and Winnie the Pooh and will feature three attractions, including a Little Mermaid ride, in addition to two new food and beverage outlets. The new Fantasyland opened in September Disney has reopened the section of downtown Disney which was known as Pleasure Island and is now called Hyperion Wharf. The port city and amusement pier-themed area now feature boutique retail and dining options. SeaWorld Orlando s Aquatica water park spans nearly 60 acres. The park was designed to model the natural scenery of New Zealand and Australia and includes live animals such as dolphins and macaws, as well as other tropical wild and sea life. Offering 80,000 square feet of beach area and featuring lagoons, 6 rivers, and 36 water slides, Aquatica is a premier water attraction in Florida. The most noteworthy attraction of the park is a series of slides constructed of clear tubes that extend underwater through a habitat of Commerson's dolphins. Aquatica also offers side-by-side wave pools. SeaWorld Orlando debuted its newest Shamu show, One Ocean, in April of In the spring of 2012, SeaWorld opened TurtleTrek, a 3D film experience about sea turtles, and SeaWorld's animal encounter-themed water park, Discovery Cove, Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 36

40 opened a swimming and wading adventure with otters and other marmosets known as Freshwater Oasis. Universal Orlando Resort offers major theme parks such as Islands of Adventure and Universal Studios, as well as the Wet 'n Wild water park. Islands of Adventure features marquis rides including the Amazing Adventures of Spider Man and Jurassic Park River Adventure, while Universal Studios offers Shrek 4-D and Revenge of the Mummy, among many others. In June of 2010, Universal Orlando opened the Wizarding World of Harry Potter, which is based on the popular Harry Potter books and movies. The park opened a new attraction, Despicable Me: Minion Mayhem, in July of Orlando is a major golfing destination, with a multitude of golf resorts drawing thousands of visitors annually. The metro area offers over 170 golf courses and 23 golf academies. David Leadbetter, known as one of the world's top golf instructors, calls Orlando home at the world headquarters of David Leadbetter s Golf Academy at ChampionsGate. In addition, Orlando boasts a host of other nationally-ranked instruction schools, including the Fred Griffin Grand Cypress Academy of Golf, voted one of the top 25 golf schools in America by Golf Magazine, as well as the Arnold Palmer Golf Academy at Bay Hill, the Faldo Golf Institute by Marriott, and the Graves Golf Academy at Eagle Creek Golf Club. WALT DISNEY WORLD Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 37

41 Conclusion This section discussed a wide variety of economic indicators for the pertinent market area. After a period of economic expansion, the market area entered into a period of contraction as the local economy began to experience the challenges felt across the nation associated with the recession. Our market interviews and research revealed that as the national economy improves and people have more discretionary income the market will continue to improve. The outlook for the area is generally optimistic. FIGURE 3-11 UNITED STATES GDP GROWTH RATE Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy entered a recession in December of 2007, which worsened in the fall of 2008 when the financial crisis shocked the world economy. The U.S. fell into economic decline for most of 2009, but the nation s gross domestic product (GDP) and corporate profits began to grow again in the third quarter of In 2010, the economy experienced four consecutive quarters of economic growth, reflecting a rebound from the recession. Following a slight contraction in the first quarter of 2011, the economy has grown at positive, albeit fluctuating rates, as evidenced in the following table Source: tradingeconomics.com, Bureau of Economic Analysis Gross domestic product (GDP) increased at an annual rate of 4.1% in the third quarter of 2013, beating preliminary projections and substantially exceeding the 2.5% annual growth rate in the second quarter. The U.S. GDP has averaged 3.2% since it was first recorded in The strong growth was driven by increases of 7.9% in durable goods, 13.4% in non-residential structures, and 10.3% in real Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 38

42 residential investment. This growth occurred despite the 1.5% contraction in government spending and investment. The economic outlook continues to be positive; GDP is projected to grow at an annual rate of 3.0% in 2014, according to the Federal Open Market Committee. Market Area Analysis Phase 1 Proposed Hotel Kissimmee, Florida 39

43 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 rate. 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. Definition of Subject Hotel Market The 120-room proposed hotel will be located in Kissimmee, Florida. The greater Orlando market surrounding the subject site offers 453 hotels and motels, spanning 116,499 rooms. Of this larger supply set, the proposed subject hotel is expected to compete with a smaller set of hotels based on various factors. These factors may include location, price point, product quality, length of stay (such as an extended-stay focus vs. nonextended-stay focus), room type (all-suite vs. standard), hotel age, or brand, among other factors. We have reviewed these pertinent attributes and established an expected competitive set based upon this review. Our review of the proposed subject hotel s specific competitive set within the Orlando/Kissimmee area begins after our review of national occupancy, average rate, and RevPAR trends. National Trends Overview The proposed subject hotel 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. Smith Travel Research (STR) is an independent research firm that compiles and publishes data on the lodging industry, routinely used by typical hotel buyers. Figure 4-1 presents annual hotel occupancy and average rate data since Figures 4-2 and 4-3 illustrate the more recent trends, categorized by geography, price point, type of location, and chain scale. 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. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 40

44 FIGURE 4-1 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS $120 $100 $80 $60 $40 $20 $0 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% RevPAR Average Rate Occupancy Source: STR Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 41

45 FIGURE 4-2 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS YEAR-TO-DATE DATA Occupancy - Thru December Average Rate - Thru December RevPAR - Thru December % Change % Change % Change United States 61.3 % 62.3 % 1.5 % $ $ % $65.15 $ % Region New England 61.4 % 62.5 % 1.8 % $ $ % $78.11 $ % Middle Atlantic (0.7) South Atlantic East North Central East South Central West North Central West South Central Mountain Pacific Price Luxury 69.5 % 70.6 % 1.6 % $ $ % $ $ % Upscale Midprice Economy Budget Location Urban 69.4 % 70.5 % 1.6 % $ $ % $ $ % Suburban Airport Interstate Resort Small Metro/Town Chain Scale Luxury 73.3 % 74.6 % 1.8 % $ $ % $ $ % Upper Upscale Upscale Upper Midscale Midscale Economy Independents Source: STR - December 2013 Lodging Review Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 42

46 FIGURE 4-3 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS CALENDAR YEAR DATA Occupancy Average Rate RevPAR % Change % Change % Change United States 59.9 % 61.4 % 2.5 % $ $ % $61.02 $ % Region New England 61.2 % 61.6 % 0.7 % $ $ % $73.84 $ % Middle Atlantic South Atlantic East North Central East South Central West North Central West South Central Mountain Pacific Price Luxury 68.3 % 69.7 % 2.0 % $ $ % $ $ % Upscale Midprice Economy Budget Location Urban 67.5 % 69.5 % 2.9 % $ $ % $99.53 $ % Suburban Airport Interstate Resort Small Metro/Town Chain Scale Luxury 71.0 % 73.2 % 3.1 % $ $ % $ $ % Upper Upscale Upscale Mid-scale w/ F&B Mid-scale w/o F&B Economy Independents Source: STR - December 2012 Lodging Review Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 43

47 Following the significant occupancy and 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 The pace of demand growth accelerated through the year; in 2010, lodging demand in the U.S. increased by 7.7% over that registered in 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 These discounting policies were largely phased out in the latter half of the year, balancing much of the early rate loss. Average rate decreased by only 0.1% in 2010 when compared to Strong demand growth continued in 2011 and 2012, at 5.0% and 3.0%, respectively. Demand increased 2.1% in the year-to-date through November 2013 period. Average rate rebounded by respective rates of 3.7% and 4.2%, in 2011 and 2012, followed by a 3.8% increase in the year-to-date through November 2013 period. In 2012, occupancy reached 61.4% (exceeding the ten-year average); moreover, occupancy is on track to gain another point in Average rate finished the year just over $106 in 2012, with year-to-date trends suggesting that another $4 to $5 gain in rate in 2013 is likely. Demand and average rates should continue to strengthen in the near term. These trends, combined with the low levels of supply growth anticipated through 2014, should boost occupancy to just over 63% by year-end On a national average, strengthening occupancy levels should also permit hotels to increase room rates beyond the 4.2% achieved in HVS forecasts U.S. average rate growth of 4.5% for 2013 and 5.0% for Historical Supply and Demand Data Smith Travel Research (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. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 44

48 FIGURE 4-4 HISTORICAL SUPPLY AND DEMAND TRENDS Year Average Daily Room Count Available Room Nights Change Occupied Room Nights Change Occupancy Average Rate Change RevPAR Change , , , % $76.06 $ , , % 302,705 (1.2) % (5.0) % (12.4) % , , , , , , , , ,023 (2.2) , , , , , , (4.1) , , , (12.9) (16.3) , , , (3.3) , , , , , , , , , Average Annual Compounded Change: % 6.0 % 2.0 % 4.0 % Number Year Year Hotels Included in Sample of Rooms Affiliated Opened The Florida Hotel & Conf Ctr 510 May 2004 Apr 1986 Courtyard Orlando Lake Buena Vista In The Marriott Village 312 Oct 2000 Oct 2000 Springhill Suites Orlando Lake Buena Vista In The Marriott Village 400 Dec 2000 Dec 2000 The Calypso 110 Dec 2013 Oct 2001 Holiday Inn Express & Suites Orlando Lake Buena 148 Oct 2007 May 2003 Hampton Inn Suites Orlando John Young Pkwy S Park 83 Nov 2007 Nov 2007 Hampton Inn Suites Orlando South Lake Buena Vista 125 Feb 2008 Feb 2008 Hilton Garden Inn Lake Buena Vista Orlando 137 Jul 2009 Jul 2009 Embassy Suites Orlando Lake Buena Vista South 300 Sep 2012 Sep 2012 Total 2,125 Source: STR Global Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 45

49 It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample, and 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. 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 data for the competitive set reflect an overall market occupancy level of 75.4% in 2013, which compares to 73.2% for The overall average occupancy level for the calendar years presented equates to 70.7%. Local employers and headquarter offices in the area, as well as compression from conventions and major tourist attractions represent the primary sources of demand for this market. Demand in the local market has fluctuated in the twelve-year period reviewed, resulting in an average annual compounded increase of 6.0%. Both occupancy and demand fluctuated in the first part of the last decade, declining in both 2003 and 2006, while recording positive growth in the remainder of the trend period. Demand was mostly stabilized from 2004 through 2008, with market occupancy remaining in range from roundly 68% to 73% throughout that period. The onset of the national economic recession resulted in slower growth in demand in 2009, although demand rebounded dramatically in 2010 as the economic recovery led to increased business and leisure demand in the local market. Market occupancy recorded consistent annual increases beginning in 2010 for each calender year through The latest data for 2013 indicates strong growth, with an increase in demand of 13.7% compared to The STR data for the competitive set reflect an overall market average rate level of $94.08 in 2013, which compares to $89.28 for The average across all calendar years presented for average rate equates to $ Average rate in the local market registered positive growth mid-decade from 2004 through much of The strength of the economy during that time, with little rate-resistance from corporate accounts allowed hotel operators to increase rates. The entrance of new high-quality hotels, as well as renovations to existing hotels, also allowed local hotel operators to increase rates. Upon the onset of the economic recession, average rate growth began to slow in late Average rates declined in 2009, and this downward trend continued through much of 2010, along with the contraction of the national economy; however, average rates bottomed out in the low $80s that year. Average rates rebounded in 2011, and this positive trend continued through 2012 as the national and local lodging markets began to normalize. The latest 2013 data illustrate continued consistent month-over-month increases, indicating that rate recovery is underway as economic conditions Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 46

50 strengthen and demand levels continue to rise. These occupancy and average rate trends resulted in a RevPAR level of $70.91 in Seasonality Monthly occupancy and average rate trends are presented in the following tables. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 47

51 FIGURE 4-5 MONTHLY OCCUPANCY TRENDS Month January 56.1 % 61.7 % 57.7 % 65.3 % 65.5 % 74.0 % 70.8 % 61.3 % 67.3 % 64.6 % 70.5 % 75.9 % February March April May June July August September October November December Annual Occupancy 60.7 % 55.9 % 71.1 % 72.8 % 71.2 % 71.0 % 67.8 % 65.2 % 69.6 % 72.1 % 73.2 % 75.4 % Source: STR Global Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 48

52 FIGURE 4-6 MONTHLY AVERAGE RATE TRENDS Month January $75.12 $75.97 $82.87 $88.32 $ $ $ $ $93.24 $94.25 $94.47 $ February March April May June July August September October November December Annual Average Rate $76.06 $72.27 $73.92 $80.76 $89.18 $96.98 $97.40 $84.82 $82.04 $85.18 $89.28 $94.08 Source: STR Global Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 49

53 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. Patterns of Demand A review of the trends in occupancy, average rate, and RevPAR per day of the week over the past three fiscal years provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by Smith Travel Research, are illustrated in the following table. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 50

54 FIGURE 4-7 OCCUPANCY, AVERAGE RATE AND REVPAR BY DAY OF WEEK Occupancy (%) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Jan 11 - Dec % 67.7 % 73.4 % 72.9 % 73.4 % 77.8 % 79.6 % 72.1 % Jan 12 - Dec Jan 13 - Dec Change (Occupancy Points) FY 11 - FY FY 12 - FY ADR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Jan 11 - Dec 11 $83.84 $87.29 $88.90 $87.71 $84.86 $81.67 $82.44 $85.18 Jan 12 - Dec Jan 13 - Dec Change (Dollars) FY 11 - FY 12 $4.43 $5.28 $3.26 $3.85 $4.04 $3.98 $4.09 $4.10 FY 12 - FY Change (Percent) FY 11 - FY % 6.0 % 3.7 % 4.4 % 4.8 % 4.9 % 5.0 % 4.8 % FY 12 - FY RevPAR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Jan 11 - Dec 11 $50.12 $59.10 $65.23 $63.96 $62.25 $63.54 $65.63 $61.42 Jan 12 - Dec Jan 13 - Dec Change (Dollars) FY 11 - FY 12 $4.30 $4.33 $1.65 $3.60 $4.37 $4.59 $4.99 $3.93 FY 12 - FY Change (Percent) FY 11 - FY % 7.3 % 2.5 % 5.6 % 7.0 % 7.2 % 7.6 % 6.4 % FY 12 - FY Source: STR Global 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. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 51

55 SUPPLY 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 competitive with the proposed subject hotel. However, it is our opinion that each of the competitive hotels will only be secondarily competitive with the proposed subject property. The room count of each secondary competitor has been weighted based on its assumed degree of competitiveness the future with the proposed subject hotel. By assigning degrees of competitiveness, we can assess how the proposed subject hotel and its future competitors may react to various changes in the market, including new supply, changes to demand generators, and renovations or franchise changes of existing supply. The following table sets forth the pertinent operating characteristics of the competitors. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 52

56 FIGURE 4-8 COMPETITORS OPERATING PERFORMANCE Property Number of Rooms Est. Segmentation Estimated 2011 Estimated 2012 Estimated 2013 Weighted Weighted Weighted Total Annual Annual Annual Competitive Room Average Room Average Room Average Level Count Occ. Rate RevPAR Count Occ. Rate RevPAR Count Occ. Rate Commercial Meeting and Group Leisure RevPAR The Calypso (former Country Inn & Suites) % 20 % 50 % 70 % % $79 $ % $63 $ % $50 $33.00 Courtyard by Marriott Orlando Lake Buena Vista in the Marriott Village Embassy Suites Orlando Lake Buena Vista South Florida Hotel & Conference Center at the Florida Mall Orlando Hampton Inn & Suites Orlando John Young Parkway Hampton Inn & Suites Orlando South Lake Buena Vista Hilton Garden Inn Lake Buena Vista Orlando Holiday Inn Express Orlando Lake Buena Vista East SpringHill Suites by Marriott Orlando Lake Buena Vista in Marriott Village Totals/Averages 2, % 31 % 35 % 72 % 1, % $84.94 $ , % $87.90 $ , % $93.38 $70.84 Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 53

57 The following map illustrates the locations of the proposed subject hotel and its future competitors. MAP OF COMPETITION Our survey of the competitive hotels in the local market shows a range of lodging types and facilities. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 54

58 Supply Changes It is important to consider any new hotels that may have an impact on the proposed subject hotel s operating performance. Based upon our research, new supply (including the proposed subject property) considered in our analysis is presented in the following table. FIGURE 4-9 NEW SUPPLY Proposed Property Number of Rooms Total Competitive Level Weighted Room Count Estimated Opening Date Development Stage The Crosslands Phase 1 Proposed Hotel % 120 September 1, 2015 Early Development Darden HQs November 1, 2014 Broke Ground Courtyard / Residence Inn Lake Nona May 1, 2015 Early Development Totals/Averages A 128-room, six-story Marriott Courtyard is under development adjacent to the headquarters of Darden Restaurants at the intersection of John Young Parkway and Martin Andersen Beachline Expressway. Concord Hospitality was selected to be the developer in 2013 after the original developer, Legacy Companies, terminated their plans in late In September 2013, Concord Hospitality signed a ground lease with Darden Restaurants and closed on a $10.8 million mortgage loan from S&T Bank of Pennsylvania. The Courtyard is scheduled to open in November Orlando-based Tavistock Group is planning to develop a 204-room dual-branded Marriot Courtyard and Residence Inn at Lake Nona Town Center. This hotel will be part of the initial phase of the Lake Nona mixed-use development located near the south entrance of the Orlando International Airport. Other planned components in the first phase of the Lake Nona Town Center include a 7,000 square-foot bank and approximately 15,000 square feet of retail. Lake Nona Medical City, a 650-acre health and sciences park is located across the street from this proposed hotel. The designs for the hotel are now being refined and construction is expected to commence in early We have determined that both proposed hotels will be 100% competitive with the proposed subject property. 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 Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 55

59 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 positively or negatively 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. Supply Conclusion DEMAND 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 submarket. The Crosslands Phase 1 Proposed Hotel 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. 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 the competitors are weighted for their estimated competitiveness with the proposed subject property. 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 4-10 HISTORICAL MARKET TRENDS Year Accommodated Room Nights % Change Room Nights Available % Change Market Occupancy Market ADR % Change Market RevPAR % Change Est , , % $84.94 $62.54 Est , % 510, % % % Est , , Avg. Annual Compounded Chg., Est Est. 2013: 9.2 % 7.6 % 4.9 % 6.4 % Demand Analysis Using Market Segmentation 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 2013 distribution of accommodated-room-night demand as follows. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 56

60 FIGURE 4-11 ACCOMMODATED ROOM NIGHT DEMAND Market Segment Marketwide Accommodated Demand Percentage of Total Commercial 143, % Meeting and Group 131, Leisure 150, Total 425, % The market s demand mix comprises commercial demand, with this segment representing roughly 34% of the accommodated room nights in this submarket. The remaining portion comprises meeting and group at 31%, with the final portion leisure in nature, reflecting 35%. 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. Local Demand Generators According to our research, the following demand generators located within the subject neighborhood will be important contributors to the proposed subject property s accommodated demand. Because of its location, the proposed subject property is expected to directly benefit from each of these demand generators. We have considered these local demand generators qualitatively in our concluded penetration rates presented later in this narrative. Tupperware World Headquarters is expected to contribute commercial demand to the proposed subject property in terms of both meeting room rentals and room night demand. Typically, Tupperware generates roundly 1,200 to 1,800 room nights annually, with hotel guests currently staying in a variety of hotels, primarily at the Florida Hotel & Conference Center at the Florida Mall. Gatorland this theme park attraction recorded attendance of 400,000 and 430,000 in 2012 and 2013, respectively. According to our discussions with Mark McHugh, General Manager of Gatorland, approximately 20% of the park s visitors are day trippers from within the state of Florida, with the remaining 80% of visitors from outside the state. Of the 80% nonresident visitors, approximately 15% of the visitors stay in the area specifically to visit Gatorland, while the remainder stay in the area to visit several attractions. Currently these guests are typically staying in hotels Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 57

61 along the U.S. 192 strip in Kissimmee or in the Sea World area. Assuming an average party size of three guests and a conservative 50% capture rate, we have estimated there are roundly potential room nights from Gatorland visitors. Osceola County Softball Complex - According to our discussions with representatives at the Osceola County Department of Tourism Development, the Osceola County Softball Complex generated in excess of 100,000 room nights during both the 2011 and 2012 fiscal years fiscal year data was not available but is expected to exceed the two-year average. Osceola Corporate Center future phased development Long-term the proposed subject property will benefit from its location within the Osceola Corporate Center mixed-use development. As previously discussed, the DRI has entitlements for 1,779,500 square feet of commercial/ retail, 1,852,200 square feet of office, 80,000 square feet of office/warehouse, and 2,350 developable units of multifamily. There are also 500 hotel rooms approved which represent future hotels to be developed in accordance with future demand that will be induced into the market. Furthermore, the developer has approved development entitlements on adjoining land in Orange County immediately north of the Osceola Corporate Center DRI. This planned development (PD) contains entitlements for 966,975 square feet of commercial development on 51.6-acres and 200 units of age restricted multi-family development on ten acres. Commercial Segment 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 frequenttraveler 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. Considering both current and historical trends, we project demand change rates of 5.0% in 2014, 6.0% in 2015, and 4.0% in After these first three projection years, we have forecast demand change rates of 3.0% annually through the remainder of the projection period. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 58

62 Meeting and Group 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, beverage and banquet revenue. SMERFE groups are typically price-sensitive and tend to meet on weekends and/or during the summer months or holiday season, when greater discounts are usually available. These groups generate limited ancillary revenues. The profile and revenue potential of associations varies depending on the group and the purpose of their meeting or event. Considering both current and historical trends, we project demand change rates of 5.0% in 2014, 6.0% in 2015, and 4.0% in After these first three projection years, we have forecast demand change rates of 3.0% annually through the remainder of the projection period. Leisure Segment 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. Considering both current and historical trends, we project demand change rates of 5.0% in 2014, 6.0% in 2015, and 4.0% in After these first three projection years, we have forecast demand change rates of 3.0% annually through the remainder of the projection period. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 59

63 Conclusion 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. FIGURE 4-12 AVERAGE ANNUAL COMPOUNDED MARKET SEGMENT GROWTH RATES Market Segment Annual Growth Rate Commercial 5.0 % 6.0 % 4.0 % 3.0 % 3.0 % 3.0 % Meeting and Group Leisure Base Demand Growth 5.0 % 6.0 % 4.0 % 3.0 % 3.0 % 3.0 % Latent Demand Unaccommodated Demand 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; this type of demand can be divided into unaccommodated demand and 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 sells out many nights during the year. The following table presents our estimate of unaccommodated demand in the subject market. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 60

64 FIGURE 4-13 UNACCOMMODATED DEMAND ESTIMATE Market Segment Accommodated Room Night Demand Unaccommodated Demand Percentage Unaccommodated Room Night Demand Commercial 143, % 3,420 Meeting and Group 131, ,122 Leisure 150, ,577 Total 425, % 10,119 Accordingly, we have forecast unaccommodated demand equivalent to 2.4% of the base-year demand, resulting from our analysis of monthly and weekly peak demand and sell-out trends. Induced Demand Accommodated Demand and Marketwide Occupancy 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. 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. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 61

65 FIGURE 4-14 FORECAST OF MARKET OCCUPANCY Commercial Base Demand 150, , , , , ,875 Unaccommodated Demand 3,591 3,806 3,959 4,078 4,200 4,326 Total Demand 154, , , , , ,201 Growth Rate 7.5 % 6.0 % 4.0 % 3.0 % 3.0 % 3.0 % Meeting and Group Base Demand Unaccommodated Demand Total Demand Growth Rate Leisure Base Demand Unaccommodated Demand Total Demand Growth Rate 137, , , , , ,036 3,278 3,475 3,614 3,722 3,834 3, , , , , , , % 6.0 % 4.0 % 3.0 % 3.0 % 3.0 % 157, , , , , ,223 3,756 3,981 4,140 4,265 4,393 4, , , , , , , % 6.0 % 4.0 % 3.0 % 3.0 % 3.0 % Totals Base Demand 446, , , , , ,134 Unaccommodated Demand 10,625 11,263 11,713 12,065 12,427 12,799 Total Demand 457, , , , , ,934 less: Residual Demand 21,169 14,512 11,713 12,065 12,427 12,799 Total Accommodated Demand 436, , , , , ,134 Overall Demand Growth 2.5 % 7.8 % 4.7 % 3.0 % 3.0 % 3.0 % Market Mix Commercial Meeting and Group Leisure Existing Hotel Supply Proposed Hotels 33.8 % 33.8 % 33.8 % 33.8 % 33.8 % 33.8 % ,536 1,536 1,536 1,536 1,536 1,536 The Crosslands Phase 1 Proposed Hotel ¹ Darden HQs ² Courtyard / Residence Inn Lake Nona ³ Available Rooms per Night 568, , , , , ,748 Nights per Year Total Supply 1,558 1,841 1,988 1,988 1,988 1,988 Rooms Supply Growth 1.4 % 18.2 % 8.0 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 76.7 % 70.0 % 67.9 % 69.9 % 72.0 % 74.1 % ¹ ² ³ Opening in September 2015 of the 100% competitive, 120-room The Crosslands Phase 1 Proposed Hotel Opening in November 2014 of the 100% competitive, 128-room Darden HQs Opening in May 2015 of the 100% competitive, 204-room Courtyard / Residence Inn Lake Nona These room-night projections for the market area will be used in forecasting the proposed subject hotel's occupancy and average rate in Chapter 6. Supply and Demand Analysis Phase 1 Proposed Hotel Kissimmee, Florida 62

66 5. Projection of Occupancy and Average Rate Along with average rate 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. Penetration Rate Analysis Forecast of Subject Property s Occupancy The proposed 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. A complete discussion of the concept of penetration is presented in the addenda. 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. Consequently, the actual penetration factors Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 63

67 applicable to the subject property and its competitors for each market segment in each projection year may vary somewhat from the penetration factors delineated in the previous tables. The following tables set forth, by market segment, the projected adjusted penetration rates for the proposed subject hotel and the competitive set. FIGURE 5-1 COMMERCIAL SEGMENT ADJUSTED PENETRATION RATES Hotel Secondary Competition 100 % 100 % 96 % 93 % 91 % 91 % The Crosslands Phase 1 Proposed Hotel Darden HQs Courtyard / Residence Inn Lake Nona FIGURE 5-2 MEETING AND GROUP SEGMENT ADJUSTED PENETRATION RATES Hotel Secondary Competition 100 % 106 % 107 % 105 % 104 % 104 % The Crosslands Phase 1 Proposed Hotel Darden HQs Courtyard / Residence Inn Lake Nona FIGURE 5-3 LEISURE SEGMENT ADJUSTED PENETRATION RATES Hotel Secondary Competition 100 % 105 % 106 % 105 % 105 % 105 % The Crosslands Phase 1 Proposed Hotel Darden HQs Courtyard / Residence Inn Lake Nona These positioned segment penetration rates result in the following market segmentation forecast. Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 64

68 FIGURE 5-4 MARKET SEGMENTATION FORECAST SUBJECT PROPERTY Commercial 48 % 48 % 47 % 46 % 46 % Meeting and Group Leisure Total 100 % 100 % 100 % 100 % 100 % The subject property'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. FIGURE 5-5 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY Market Segment Commercial Demand 158, , , , ,875 Market Share 2.6 % 7.8 % 8.1 % 8.5 % 8.5 % Capture 4,150 13,021 13,958 15,082 15,534 Penetration 120 % 130 % 135 % 142 % 142 % Meeting and Group Demand 145, , , , ,036 Market Share 1.3 % 3.9 % 4.5 % 5.0 % 5.0 % Capture 1,834 5,891 6,972 8,111 8,354 Penetration 58 % 64 % 74 % 83 % 83 % Leisure Demand 166, , , , ,223 Market Share 1.6 % 4.8 % 4.9 % 5.1 % 5.1 % Capture 2,655 8,343 8,834 9,358 9,638 Penetration 73 % 79 % 82 % 84 % 84 % Total Room Nights Captured 8,640 27,255 29,764 32,551 33,527 Available Room Nights 14,640 43,800 43,800 43,800 43,800 Subject Occupancy 59 % 62 % 68 % 74 % 77 % Marketwide Available Room Nights 672, , , , ,748 Fair Share 2 % 6 % 6 % 6 % 6 % Marketwide Occupied Room Nights 470, , , , ,134 Market Share 2 % 6 % 6 % 6 % 6 % Marketwide Occupancy 70 % 68 % 70 % 72 % 74 % Total Penetration 84 % 92 % 97 % 103 % 103 % Based on our analysis of the proposed subject hotel and market area, we have selected a stabilized occupancy level of 76%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 65

69 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. Average Rate Analysis Competitive Position 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 average rate analysis presented here follows the occupancy projection, these two statistics are highly correlated; in reality, 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 maximize rooms revenue. The following table summarizes the historical average rate and the RevPAR of the subject property s future competitors. FIGURE 5-6 BASE-YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS Property Estimated 2013 Average Room Rate Average Room Rate Penetration Rooms Revenue Per Available Room (RevPAR) RevPAR Penetration The Calypso $ % $ % Courtyard Lake in Marriott Village Embassy Suites Lake Buena Vista South Florida Hotel & Conference Center Hampton Inn & Suites John Young Parkway Hampton Inn & Suites Lake Buena Vista Hilton Garden Inn Lake Buena Vista Holiday Inn Express Lake Buena Vista SpringHill Suites in Marriott Village Overall Average $93.38 $70.84 Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 66

70 The defined competitive market realized an overall average rate of $93.38 in the 2013 base year. The Embassy Suites achieved the highest estimated average rate in the local competitive market, by a measurable margin, because of its new product and upscale facilities. The selected rate position for the proposed subject hotel, in base-year dollars, was based on a comparative brand analysis of the average rates achieved by Hilton Garden Inns in the same markets within Florida as Hampton Inn & Suites during the calender year Overall, Hilton Garden Inn s achieved an ADR penetration rate of 1.01 compared to Hampton Inn & Suites within the same markets. The 2013 average rate of the Hampton Inn & Suites John Young Parkway and the Hampton Inn & Suites South Lake Buena Vista was roundly $98 and $87, respectively, for average of $ Application of a 1.01 rate penetration (for Hilton Garden Inn) results in roundly $93. We have selected the rate position of $93.00, in base-year dollars, for the proposed subject. As illustrated previously, the average rate for the competitive market averaged $84.94 in 2011, before reaching $93.38 in The average annual compounded average rate growth for the past three calender years was 4.7%. In addition, the introduction of the dual-branded Courtyard/Residence Inn and the Darden HQ are expected to support additional average rate growth in the market. Based on these considerations, the following table illustrates the projected average rate and the growth rates assumed. FIGURE 5-7 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST Area-wide Market (Calendar Year) Subject Property (Calendar Year) Year Occupancy Average Rate Growth Average Rate Occupancy Average Rate Growth Average Rate Average Rate Penetration Base Year 75.9 % $93.38 $ % % % % As illustrated above, a 5.0% rate of change is expected for the proposed subject hotel's positioned 2013 room rate in This is followed by growth rates of 4.0% and 3.0% in 2015 and 2016, respectively. The competitive market should enjoy positive rate growth through the near term. The proposed subject hotel's rate position should reflect growth similar to market trends because of the Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 67

71 proposed hotel's new facility, and assumed strong brand affiliation. The proposed subject hotel s penetration rate is forecast to reach 99.6% by the stabilized period. The North American lodging market bottomed out in late 2009, at which time demand rebounded and the supply pipeline diminished. In 2010, occupancy rebounded strongly, and by 2011, average rates in most U.S. markets showed increases. In many urban markets, strong occupancy levels are allowing hotel operators to continue to make aggressive average rate gains in 2013, while in some less-robust markets, average rate growth is still constrained by weak demand levels. With demand largely recovered from the correction in 2009, and new supply remaining muted in 2013 and 2014, markets should be able to support healthy average rate gains in the near term. 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 10.0% and 5.0% 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 occupancies and average rates will be used to project the subject property's rooms revenue; this forecast reflects years beginning on September 1, 2015, which correspond with our financial projections. FIGURE 5-8 FORECAST OF OCCUPANCY, AVERAGE RATE, AND REVPAR Year Occupancy Average Rate Before Discount Discount Average Rate After Discount RevPAR 2015/16 61 % $ % $93.23 $ / / / Brand and Facilities Recommendations Based on our review of the competitive market and the subject site s neighborhood and demand generators, we recommend the development of a Hilton Garden Inn or Hyatt Place on the subject site. In regards to facilities and amenities, we recommend that the proposed subject property offer at least 1,500 square feet of meeting space. We also recommend the proposed hotel feature limited food and beverages outlets consistent with the brand standards of Hilton Garden Inn or Hyatt Place. Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 68

72 HILTON GARDEN INN ORLANDO AT SEAWORLD Brief overviews and representative pictures of the selected potential brands follow. Hilton Garden Inn properties are select-service hotels with limited food and beverage facilities. The franchise typically targets the individual business and the weekend leisure segments. The Hilton Garden Inn concept is value-engineered to provide those services expected of its targeted guests and eliminate expenses related to unsought amenities. Hilton Garden Inns feature the Pavilion Lounge; a casual, buffet-style restaurant; the Pavilion Pantry (offering microwavable and packaged foods and beverages); and a business center. Standard guestroom amenities include two telephones with data ports, complimentary high-speed Internet access, a hospitality center with microwave and refrigerator, and a spacious work desk. Most properties offer a swimming pool, whirlpool, and fitness room, as well as a proprietary Stay Fit Kit for in-room exercise. In 2012, the Hilton Garden Inn brand operated at an average occupancy level of 70.8%, with an average daily rate of $ and average RevPAR of $ Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 69

73 HYATT PLACE FORT LAUDERDALE AIRPORT SOUTH In 2007 and 2008, most properties under the AmeriSuites chain, an upscale chain of all-suite business class hotels, were renovated and rebranded as Hyatt Place hotels; the concept has also been developed via new construction. With this rebranding, Hyatt Place has been able to compete with other select-service products specifically, Courtyard and Hilton Garden Inn. Hyatt Place is distinguished among hotels in its asset class through a variety of amenities and guest-service offerings. These include the Gallery, a lobby area featuring the option of self-service check-in kiosks and free access to computers and a printer; the 24/7 Guest Kitchen and Bakery for purchase, as well as he Kitchen Skillet, a complimentary breakfast offered daily in the Guest Kitchen. Hyatt Place hotels typically range in size from 125 to 200 rooms and feature a pool, an exercise room, and meeting space - typically 1,800 to 2,000 square feet. Guestrooms feature hightech equipment including wireless Internet access and 42-inch flat-panel televisions with the Hyatt Plug Panel capable of accepting inputs from computers, portable media players, and smart phones. In 2013, J.D. Power and Associates ranked Hyatt Place highest in guest satisfaction among upscale hotel brands. There are roundly 165 Hyatt Place hotels in operation in the United States with more than 35 announced hotels in development throughout the United States, China, Europe, India, Latin America, and the Middle East. Projection of Occupancy and Average Rate Phase 1 Proposed Hotel Kissimmee, Florida 70