AGGREGATED APPRAISAL REPORT SUBMITTED TO:EXISTING PREPARED BY:

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1 AGGREGATED APPRAISAL REPORT TownePlace Suites by Marriott Chattanooga Near Hamilton Place Residence Inn by Marriott Chattanooga Near Hamilton Place Fairfield Inn & Suites by Marriott Lake City Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point SUBMITTED TO:EXISTING Mr. Martin Pinsker American Hotel Income Properties REIT Inc. 401 West Georgia Street, Suite 1660 Vancouver, British Columbia, V6B 5A1 PREPARED BY: HVS Consulting & Valuation Division of MM&R Valuation Services, Inc. 145 West 17th Street, Suite 400 North Vancouver, BC, V7M 3G4 +1 (604) (604)

2 December 9, 2016 HVS VANCOUVER 145 West 17th Street, Suite 400 North Vancouver, BC, V7M 3G4 +1 (604) (604) FAX Mr. Martin Pinsker American Hotel Income Properties REIT Inc. 401 West Georgia Street, Suite 1660 Vancouver, British Columbia, V6B 5A1 Re: TownePlace Suites by Marriott Chattanooga Near Hamilton Place 7010 McCutcheon Road Chattanooga, Tennessee Residence Inn by Marriott Chattanooga Near Hamilton Place 2340 Center Street Chattanooga, Tennessee Fairfield Inn & Suites by Marriott Lake City 538 Southwest Corporate Drive Lake City, Florida Fairfield Inn & Suites by Marriott Jacksonville W. Chaffee Point 561 Chaffee Point Boulevard Jacksonville, Florida Dear Mr. Pinsker: Pursuant to your request, we herewith submit our report pertaining to the abovecaptioned hotels. We have inspected each hotel and analyzed the market conditions in the Chattanooga, Tennessee, Lake City, Florida, and Jacksonville, Florida areas. Our report has been prepared in accordance with, and is subject to, the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the Uniform Standards of Professional Report Practice (USPAP), as provided by the Report Foundation. Moreover, at the client s request, we have included the as is value of the portfolio of four hotels, henceforth referred to as The Portfolio, in aggregate form. Based on our analysis, it is our opinion that the as is market value of the fee simple interest in the real and personal property of The Portfolio, as of September 1, 2016, is: $47,400,000 FOURTY SIX MILLION FOUR HUNDRED THOUSAND DOLLARS Superior results through unrivaled hospitality intelligence. Everywhere. This value estimate equates to $127,000 per room. This represents the "as is" value of The Portfolio, assuming a total capital expenditure of $2,791,365 for the four properties. In the event that the actual cost differs from the amount stated, the value of The Portfolio may change. It is assumed that the capital improvements

3 will be completed in a competent and timely manner. The capital expenditures will be discussed in detail in a subsequent section of this report This report is hotel to the extraordinary assumption that capital deductions will be required to fund necessary upgrades for The Portfolio. The use of this extraordinary assumption may have affected the assignment results. Moreover, several important general assumptions have been made that apply to this report and our valuations of hotels in general. These items are set forth in the Assumptions and Limiting Conditions chapter of this report. We hereby certify that we have no undisclosed interest in The Portfolio, and our employment and compensation are not contingent upon our findings. This study is hotel to the comments made throughout this report and to all assumptions and limiting conditions set forth herein. Sincerely, MM&R Valuation Services, Inc. Janet L. Snyder, Senior Vice President jsnyder@hvs.com, +1 (972) State certified general appraiser (FL) RZ3639 State Appraiser License (TN) 4960

4 Table of Contents SECTION TITLE PAGE 1.Summary of Salient Data and Conclusions 1 2.Nature of the Assignment 6 3.Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place 13 4.Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place 29 5.Real Estate Overview Fairfield Inn & Suites by Marriott Lake City 45 6.Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point 60 7.Market Area Analysis - Chattanooga 76 8.Market Area Analysis Lake City 92 9.Market Area Analysis Jacksonville Supply and Demand Analysis Approaches to Value Income Capitalization Approach Sales Comparison Approach Reconciliation of Value Indications Statement of Assumptions and Limiting Conditions Certification 172 Addenda Qualifications Copy of Report License(s)

5 1. Summary of Salient Data and Conclusions Property: Location: Interest Appraised: Ownership: Highest and Best Use (as improved): TownePlace Suites by Marriott Chattanooga Near Hamilton Place 7010 McCutcheon Road Chattanooga, Tennessee Hamilton County Fee Simple McCutcheon Lodging LLC Extended-stay lodging facility LAND DESCRIPTION Area: 0.96 acres, or 41,992 square feet Zoning: C-2 - Convenience Commercial Zone Assessor's Parcel Number(s): 149A A 013 FEMA Flood Zone: X IMPROVEMENTS DESCRIPTION Year Opened: 2013 Property Type: Extended-stay lodging facility Building Area: 48,469 square feet Guestrooms: 87 Number of Stories: Four Food and Beverage Facilities: A breakfast dining area Meeting Space: None Additional Facilities: An indoor pool, a fitness room, a lobby workstation, a market pantry, a guest laundry room, and an outdoor patio and barbecue area Parking Spaces: 38 (surface) - 40 additional spaces shared by easement adjacent with Residence Inn by Marriott Summary of Salient Data and Conclusions AHIP Portfolio of Hotels, TN and FL 1

6 Property: Location: Interest Appraised: Ownership: Highest and Best Use (as improved): Residence Inn by Marriott Chattanooga Near Hamilton Place 2340 Center Street Chattanooga, Tennessee Hamilton County Fee Simple Desna, Inc. Extended-stay lodging facility LAND DESCRIPTION Area: 3.21 acres, or 139,828 square feet Zoning: C-2 - Convenience Commercial Zone Assessor's Parcel Number(s): 149A A 011 FEMA Flood Zone: X IMPROVEMENTS DESCRIPTION Year Opened: 2009 Property Type: Extended-stay lodging facility Building Area: 90,409 square feet Guestrooms: 109 Number of Stories: Five Food and Beverage Facilities: A breakfast dining area Meeting Space: 4,615 square feet Additional Facilities: An indoor pool, an indoor whirlpool, a fitness room, a lobby workstation, a market pantry, a guest laundry room, an outdoor patio and barbecue area, and a putting green Parking Spaces: 155 (surface) - 40 are shared by easement with the neighboring TownePlace Suites Summary of Salient Data and Conclusions AHIP Portfolio of Hotels, TN and FL 2

7 Property: Location: Interest Appraised: Ownership: Highest and Best Use (as improved): Fairfield Inn & Suites by Marriott Lake City 538 Southwest Corporate Drive Lake City, Florida Columbia County Fee Simple Jaiguru Investments Inc. Limited-service lodging facility LAND DESCRIPTION Area: Zoning: Assessor's Parcel Number(s): FEMA Flood Zone: 3.00 acres, or 130,680 square feet CI - Commercial Intensive R X IMPROVEMENTS DESCRIPTION Year Opened: 2,008 Property Type: Limited-service lodging facility Building Area: 52,014 square feet Guestrooms: 89 Number of Stories: Four Food and Beverage Facilities: A breakfast dining area Meeting Space: 1,056 square feet Additional Facilities: An indoor pool and whirlpool, a fitness room, a twocomputer lobby workstation, a market pantry, a guest laundry room, an outdoor sundeck, and vending areas Parking Spaces: 91 (surface) Summary of Salient Data and Conclusions AHIP Portfolio of Hotels, TN and FL 3

8 Property: Location: Interest Appraised: Ownership: Highest and Best Use (as improved): Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point 561 Chaffee Point Boulevard Jacksonville, Florida Duval County Fee Simple Chaffee Lodging LLC Limited-service lodging facility LAND DESCRIPTION Area: 3.17 acres, or 138,256 square feet Zoning: PUD - Planned Use Development Assessor's Parcel Number(s): FEMA Flood Zone: X500 IMPROVEMENTS DESCRIPTION Year Opened: 2009 Property Type: Limited-service lodging facility Building Area: 55,382 square feet Guestrooms: 89 Number of Stories: Four Food and Beverage Facilities: A breakfast dining area Meeting Space: 1,000 square feet Additional Facilities: An indoor pool and whirlpool, a fitness room, a twocomputer lobby workstation, a market pantry, a guest laundry room, an outdoor sundeck, and vending areas Parking Spaces: 92 (surface) Summary of Salient Data and Conclusions AHIP Portfolio of Hotels, TN and FL 4

9 OPINIONS OF AS IS MARKET VALUE - SEPTEMBER 1, 2016 Income Capitalization Approach: $47,400,000 Sales Comparison Approach: $47,500,000 Cost Approach: Not Applicable As Is Market Value, as of September 1, 2016: $47,400,000 Market Value Conclusion per Room: $127,000 Total Capital Expenditure: $3,032,200 Total Capital Deduction (after deducting reserve): $2,791,365 Real and Personal Property: The real and personal property value conclusions exclude any value attributable to intangibles. All value attributable to the intangible property has been removed with the assumed expense of a management fee and a franchise fee (if applicable) in the valuation process. As a result, our value conclusion pertains to the real and personal property components only, which have been valued at $46,437,000 and $963,000, respectively, as of the current date of value. Summary of Salient Data and Conclusions AHIP Portfolio of Hotels, TN and FL 5

10 2. Nature of the Assignment Property Rights Appraised Objective of the Report The property rights appraised are the fee simple ownership of the real and personal property of each hotel. The fee simple estate is defined as absolute ownership unencumbered by any other interest or estate, hotel only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." 1 The objective of the report is to evaluate the supply and demand factors affecting the market for transient accommodations in the Chattanooga, Lake City, and Jacksonville areas for the purpose of developing an opinion of The Portfolio s aggregate market value. The following definition of market value has been agreed upon by the agencies that regulate federal financial institutions in the United States: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 2 As is market value is defined by the Report Institute as follows: 1 Report Institute, The Dictionary of Real Estate Report, 6th ed. (Chicago: Report Institute, 2015). 2 Federal Register, Vol. 75, No. 237, December 10, 2010: Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 6

11 The estimate of the market value of real property in its current physical condition, use, and zoning as of the report date. 3 Prospective market value is defined by the Report Institute as follows: A forecast of the value expected at a specified future date. 4 The prospective value opinion upon stabilization estimates the market value of a property upon reaching a stabilized level of operation. Operations are stabilized at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property. Ownership, Franchise, and Management History and Assumptions The TownePlace Suites by Marriott Chattanooga Near Hamilton Place hotel is currently owned by McCutcheon Lodging LLC, which is based in Chattanooga, Tennessee. McCutcheon Lodging LLC constructed the hotel and has owned the property since its opening in 2013; construction costs were not made available to us given the scope of this report. No transfers of the property have reportedly occurred since the hotel's construction. The Residence Inn by Marriott Chattanooga Near Hamilton Place is currently owned by Desna Inc., which is based in Chattanooga, Tennessee. Desna Inc. constructed the hotel and has owned the property since its opening in 2009; construction costs were not made available to us given the scope of this report. No transfers of the property have reportedly occurred since the hotel's construction. The Fairfield Inn & Suites by Marriott Lake City is currently owned by Jaiguru Investments Inc., which is based in Lake City, Florida. The hotel was last sold in 2006; Jaiguru Investments Inc. has owned the property since that time. No transfers of the property have reportedly occurred since Report Institute, The Dictionary of Real Estate Report, 6th ed. (Chicago: Report Institute, 2015). 4 Report Institute, The Dictionary of Real Estate Report, 4th ed. (Chicago: Report Institute, 2010). Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 7

12 The Fairfield Inn & Suites by Marriott West Chaffee Point is currently owned by Chaffee Lodging LLC, which is based in Chattanooga, Tennessee. The hotel was last sold in 2007; Chaffee Lodging LLC has owned the property since that time. No transfers of the property have reportedly occurred since The Portfolio is now under contract for purchase by American Hotel Income Properties REIT, Inc. for a total price of for a reported price of $46,976,546. The as is aggregate market value opinion in this report is within 1% of the contracted purchase price. Our analysis of the price reflects that it is consistent with our market value opinion. Moreover, each hotel in The Portfolio is managed by 3H Group Inc., an affiliate of the ownership entities. We were not provided with a copy of the agreements for our work files, but from our review of the operating statements of the hotels, it appears that a 3.0% of total revenues base-management fee is paid. Our report assumes that the management agreements can be terminated upon sale and that the hotel will be managed by a professional hotel-operating company throughout the assumed holding period, with fees deducted at rates consistent with current market standards. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study. Most Probable Buyer Intended Use of the Report Identification of the Client and Intended User(s) Assignment Conditions It is our opinion that the most probable buyer of the hotel would be a private investment fund, REIT, or ownership group looking to supplement its national hotel portfolio. This type of buyer would seek to implement its own management team, or a third-party professional hotel operator, and to maintain a nationally recognized brand affiliation for each hotel in the portfolio. This report is being prepared for use with investment decision making, financing, and/or financial reporting. The client for this engagement is American Hotel Income Properties REIT, Inc. This report is intended for the addressee firm and may not be distributed to or relied upon by other persons or entities. This report is hotel to the extraordinary assumption that a capital deduction will be required to fund necessary upgrades for The Portfolio. The use of this extraordinary assumption may have affected the assignment results. Moreover, several important general assumptions have been made that apply to this report and our valuations of hotels in general. These items are set forth in the Assumptions and Limiting Conditions chapter of this report. Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 8

13 Marketing and Exposure Periods Competency Scope of Work Our opinion is that the exposure period for The Portfolio, if sold as individual hotels, prior to our date of value, is estimated to be less than or equal to five to seven months, while the marketing period for The Portfolio, if sold as individual hotels, subsequent to our date of value, is less than or equal to five to seven months. Published surveys report marketing time, not the exposure period. Marketing time is an opinion of the amount of time it might take to sell a property at the concluded market value level during the period immediately after the effective date of a report. According to the HVS Brokers Survey - Spring 2016, reported marketing times averaged 5.2 months for luxury/upper-upscale properties, 5.8 months for full-service hotels, and 5.0 months for select-service hotels. Marketing time for luxury/upper-upscale properties, full-service hotels, and select-service hotels averaged 5.8, 6.9, and 6.0 months, respectively, according to the PWC Real Estate Investor Survey - First Quarter Overall marketing time is averaging 5.1 months for hotels, as reported by the Situs Real Estate Research Corporation s Real Estate Report - Fourth Quarter Our qualifications are included as an addendum to this report. These qualifications reflect that we have the competence required to complete this engagement, in accordance with the competency provision of the Uniform Standards of Professional Report Practice. Our knowledge and experience is appropriate for the complexity of this assignment. The methodology used to develop this report 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 Report Institute, entitled The Valuation of Hotels and Motels, 5 Hotels & Motels: Valuations and Market Studies, 6 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations, 7 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations, 8 and Hotels and Motels Valuations and Market Studies, 9 as well as in accordance with the Uniform System of Accounts for the Lodging Industry (USALI). 5 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978). 6 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies. (Chicago: American Institute of Real Estate Appraisers, 1983). 7 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 8 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations (Chicago: Report Institute, 1992). 9 Stephen Rushmore and Erich Baum, Hotels and Motels Valuations and Market Studies. (Chicago: Report Institute, 2001). Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 9

14 1. All information was collected and analyzed by the staff of MM&R Valuation Services, Inc.. Information such as historical operating statements, franchise and/or management agreements, site plans, floor plans, and leases, as applicable, were supplied by the client or property management. 2. The hotel sites were evaluated from the viewpoint of its utility for the development and operation of a hotel. The potential existence of surplus or excess land was investigated. We have reviewed adjacent uses, regional and local accessibility attributes, and visibility characteristics. A study of the local neighborhood of each hotel was undertaken to determine its boundaries, land uses, recent developments, and life-cycle stage. Other aspects of the land, such as soil and subsoil conditions, nuisances, hazards, easements, encroachments, zoning, and the current flood zone of the property, have been evaluated. 3. Each hotel in The Portfolio's improvements were inspected to evaluate their current condition, quality of construction, and design and layout, including any items of physical deterioration or functional obsolescence. A list of facilities and amenities that the property offers has been compiled, and past upgrades of each area of each hotel have been investigated. Recent capital expenditures, as well as planned future upgrades, have been reviewed. The remaining economic life of the hotel has been estimated. 4. Economic and demographic statistics for each market have been reviewed to identify specific hostelry-related trends that may affect future demand for hotels. Workforce characteristics have been evaluated, including employment trends by sector and unemployment rates. Major businesses and industries operating in the local area were investigated, and local area office statistics and trends were reviewed, as available. Passenger levels and recent changes at the area s pertinent airport have been researched, and visitor demand generators have been identified and evaluated. 5. An STR Trend Report pertaining to historical trends in room-night supply, demand, occupancy, average rate, and RevPAR for the hotel and a group of selected competitors has been ordered and analyzed for each hotel in The Portfolio. Performance levels for each of the competitive hotels have been researched and/or estimated. Ownership, management, facilities, renovations, and other pertinent factors for the competitive properties have been investigated. Potential new hotel supply was researched and quantified. Occupancy levels of each hotel and its existing competition provide a basis for quantifying current accommodated demand in the market. The market for hotel accommodations is segmented based on the specific characteristics of the types of travelers utilizing the area's hotels. By segmenting the demand accommodated by each hotel, the total demand by market segment is quantified. The demand generated by each market Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 10

15 segment is then projected by year up through a point of hypothetical market stabilization. Latent demand, if applicable, is estimated and added to the base demand forecast, resulting in a forecast of overall occupancy for the competitive market. 6. Based on the physical, economic, financial, and legal factors influencing the hotel, a conclusion regarding the property s highest and best use, as currently improved, was developed. The highest and best use of the hotel land, as if vacant, was also evaluated based on current real estate trends and market conditions. 7. Occupancy of each hotel in The Portfolio was projected based on a forecast of overall market penetration, or penetration by market segment. Average rate was projected based on competitive positioning, through the application of an overall ADR penetration rate, or penetration by each market segment s average rate. 8. Historical income and expense statements for each hotel in The Portfolio has been reviewed, analyzed, and compared to the financial performance of comparable hotels. Inflation forecasts were researched, forming the basis for our own forecast of inflation. A projection of income and expense was prepared in accordance with the USALI, setting forth the anticipated economic benefits of the hotel. All projections are expressed in inflated dollars. Each line item has been reviewed individually. Amounts are forecast based on past performance, expected changes at the property in the future, and comparable hotel performance levels. Property taxes are forecast based on a review of past assessment levels, comparable hotel assessments, and historical tax rates. 9. Our forecast of net income for The Portfolio is capitalized into an opinion of value via a ten-year mortgage-equity technique, as well as a discountedcash-flow analysis. Pertinent direct capitalization rates are also reviewed. Recent trends in interest rates, amortization, loan-to-value ratios, and equity return rates, as well as terminal capitalization rates, are researched and applied during this process. 10. As applicable, sales of comparable hotels have been researched for the local market, by brand nationally, and for the greater region as a whole. Among these sales, a smaller set of sales was selected for more detailed review and analysis. An adjustment grid was developed to assist in deriving our opinion of value via the sales comparison approach. 11. The cost approach was deemed inapplicable in the valuation of the hotel because it is not relied upon by hotel investors in the valuation process and requires unsubstantiated calculations to derive an estimate of asset Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 11

16 depreciation. An opinion of personal property value is presented, as well as an estimate of replacement cost for insurance purposes, if applicable. 12. The report considers the following three approaches to value: cost, sales comparison, and income capitalization. We have investigated numerous improved sales in the market area and have spoken with buyers, sellers, brokers, property developers, and public officials. Because lodging facilities are income-producing properties that are normally bought and sold on the basis of capitalization of their anticipated stabilized earning power, the greatest weight is given to the value indicated by the income capitalization approach. We find that most hotel investors employ a similar procedure in formulating their purchase decisions, and thus the income capitalization approach most closely reflects the rationale of typical buyers. Nature of the Assignment AHIP Portfolio of Hotels, TN and FL 12

17 3. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place LAND Physical Characteristics The hotel is located in eastern Chattanooga, southeast of the intersection formed by U.S. Highway 11 and McCutcheon Road. The street address of the TownePlace Suites Chattanooga Near Hamilton Place is 7010 McCutcheon Road, Chattanooga, Tennessee, The hotel site measures approximately 0.96 acres, or 41,992 square feet. The parcel's adjacent uses are set forth in the following table. FIGURE 3-1 PARCEL S ADJACENT USES Direction West North East South Adjacent Use Residence Inn by Marriott McCutcheon Road Vacant Microtel Inn & Suites Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 13

18 GIS MAP Topography and Site Utility The topography of the site is generally flat, and the shape permits efficient use of the site for building and site improvements, including ingress and egress. The hotel site does not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. The site is fully developed with building and site improvements. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 14

19 AERIAL PHOTOGRAPH VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 15

20 VIEW FROM SITE TO THE WEST VIEW FROM SITE TO THE EAST Access and Visibility Regional access to/from the city of Chattanooga and the hotel, in particular, is considered good. The hotel's market is served by a variety of additional local routes, which are illustrated on the map. Primary vehicular access to the hotel is provided by McCutcheon Road. Access is also available from Center Street by traveling through the adjacent Residence Inn by Marriott parking lot. The hotel is located near a busy intersection and is relatively simple to locate from Interstate 75, which is the nearest major highway. Overall, the hotel benefits from good accessibility and visibility attributes. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 16

21 MAP OF REGIONAL ACCESS ROUTES Airport Access Neighborhood The hotel is served by the Chattanooga Metropolitan Airport, which is located approximately two miles to the west of the hotel site. Hartsfield-Jackson Atlanta International Airport is the closest major international airport, located approximately 100 miles to the southeast. The hotel's neighborhood is generally defined by Robin Drive to the north, Interstate 75 to the east and to the south, and Hickory Valley Road to the west. The neighborhood is characterized by restaurants, small office parks, and hotels along the primary thoroughfares, with residential areas located along the secondary roadways. Some specific businesses and entities in the area include CarMax, Penske Truck Rental, and Family Dollar; nearby hotels include Homewood Suites by Hilton, Hilton Garden Inn, and Holiday Inn. Restaurants located near the hotel include Wendy's, Applebee's, and Subway. In general, this neighborhood is in the stable stage of its life cycle. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 17

22 MAP OF NEIGHBORHOOD Utilities Soil and Subsoil Conditions Nuisances and Hazards Flood Zone According to property ownership, the hotel site is served by all necessary utilities. Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent. We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors. According to the Federal Emergency Management Agency map illustrated below, the hotel site is located in flood zone X. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 18

23 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 Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 19

24 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. Zoning Easements and Encroachments IMPROVEMENTS Property Overview According to the local planning office, the hotel is zoned as follows: C-2 - Convenience Commercial Zone. This zoning designation allows for most commercial uses, including gas stations, offices, retail outlets, restaurants, and hotels and motels. We assume that all necessary permits and approvals have been secured (including the appropriate liquor license if applicable) and that the hotel was constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the hotel. The hotel site features a reciprocal cross easement and parking agreement with the adjacent Residence Inn by Marriott site. According to the provided survey, the agreement includes 40 shared parking spaces. We have not reviewed the easement, but have assumed that it would transfer with a change of ownership. The TownePlace Suites Chattanooga Near Hamilton Place is an extended-stay lodging facility containing 87 rentable units. The descriptions and pictures presented in this section reflect the hotel as observed at the time of our inspection on September 1, The hotel was designed and developed as a TownePlace Suites by Marriott in 2013; the configuration and array of facilities and amenities are consistent with Marriott s standards for the TownePlace Suites brand as of that date. The property has not undergone any major renovations since opening and the property is in very good condition. In connection with the pending transaction, Marriott is reportedly in the process of developing a change-of-ownership property improvement plan (PIP) that would outline the renovations necessary for the hotel to comply with current brand standards. A new owner would be required to complete these renovations in connection with a new franchise agreement. The assumed upgrades have been noted in the following section; the cost of these renovations forms the basis for the capital deduction that is incorporated in our opinion of the as is value of the hotel. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 20

25 HOTEL FRONT OF HOTEL HOTEL BACK OF HOTEL Summary of the Facilities Based on information provided by the hotel s management representatives, the following table summarizes the facilities available at the hotel. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 21

26 FIGURE 3-2 FACILITIES SUMMARY Guestroom Configuration Number of Units King 55 Queen/Queen 28 Queen 4 Total 87 Food & Beverage Facilities Seating Capacity Breakfast Dining Area 22 Amenities & Services Indoor Swimming Pool Fitness Room Lobby Workstation Market Pantry Guest Laundry Room Outdoor Patio & Barbecue Area Infrastructure Parking Spaces Elevators Life-Safety Systems Construction Details 38 (additional 40 shares spaces with Residence Inn by Marriott) 2 Guest Sprinklers, Smoke Detectors Wood Frame, Poured Concrete Site Improvements and Hotel Structure The hotel comprises one four-story building that is positioned on the south side of the site. Surface parking is located to the north of the building. Guests are also able to park in the adjacent Residence Inn by Marriott parking lot. According to documentation provided by ownership, there is not a formal easement for the use of the parking lot at the Residence Inn by Marriott. Other site improvements include signage, located at the entrance to the hotel property, and well-kept landscaping and sidewalks; an outdoor patio and barbeque area is situated near the hotel's entrance, which is located on the north side of the hotel. The hotel's main entrance leads directly into the lobby. The first floor houses the public areas and the back-of-the-house space, while the guestrooms are located on all levels of the building. The site and the structure appeared to be in very good condition upon inspection. No recent changes were noted by management. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 22

27 LOBBY SEATING AREA FRONT DESK BREAKFAST DINING AREA PATIO AND BARBECUE AREA Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 23

28 FITNESS ROOM POOL MARKET PANTRY LOBBY WORKSTATION Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 24

29 TYPICAL GUESTROOM SLEEPING AREA TYPICAL GUESTROOM LIVING AREA TYPICAL GUESTROOM BATHROOM SINK TYPICAL GUESTROOM BATHROOM BATH Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 25

30 TYPICAL GUESTROOM KITCHEN TYPICAL GUESTROOM LIVING AREA Hotel facilities and amenities include a breakfast dining area, an indoor pool, a fitness room, a two-computer lobby workstation, a market pantry, a guest laundry room, and an outdoor patio and barbeque area. These spaces are functional, appearing to be well kept upon inspection, and have not been updated since the hotel's 2013 opening. The hotel features studio-style guestrooms, which offer typical amenities for this hotel's asset class. The guestrooms have reportedly not undergone any significant renovations since the hotel's opening. Overall, the public areas and guestrooms were in very good condition upon inspection. As part of the planned change-of-ownership property improvement plan, renovations are expected to include minor décor and softgoods upgrades throughout the property, the refurbishment or replacement of the hotel's case goods, and the completion of any deferred maintenance, such as re-caulking tubs. Back-of-the-House The hotel is served by the necessary back-of-the-house space, including an inhouse laundry facility, administrative offices, and a prep kitchen. The kitchen is located adjacent to the breakfast dining area. The kitchen facilities are appropriate for the scope of service provided, appearing to be in very good condition; no significant or persistent problems were reported by hotel management. The inhouse laundry facility contains three large-capacity washers and three dryers. The hotel's back-of-the-house equipment and appliances were reported to be operational at the time of inspection, appearing to be in very good condition. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 26

31 LAUNDRY KITCHEN/FOOD PREP AREA ADA and Environmental Functional Obsolescence Effective Age and Remaining Economic Life According to information provided by management representatives, there are no environmental hazards present in the hotel's improvements, nor did we observe any. The property reportedly complies with the Americans with Disabilities Act; furthermore, the ADA-mandated pool lift was installed during the hotel's construction in Due to the relatively new construction of the hotel, we found no indications of functional obsolescence. Our opinion of effective age and remaining economic life for the building is presented as follows. FIGURE 3-3 EFFECTIVE AGE AND REMAINING ECONOMIC LIFE Typical Economic Life 50 Years Chronological Age 3 Effective Age 2 Remaining Economic Life 48 Hotels are typically renewed on a regular basis. With good ongoing maintenance and regular upgrading, the remaining economic life can be periodically extended. Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 27

32 Capital Expenditures According to hotel ownership, there have been no major capital expenditures since the hotel's opening in Real Estate Overview TownePlace Suites Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 28

33 4. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place LAND Physical Characteristics The hotel is located in eastern Chattanooga, south of the intersection formed by U.S. Highway 11 and McCutcheon Road. The street address of the Residence Inn by Marriott Chattanooga Near Hamilton Place is 2340 Center Street, Chattanooga, Tennessee, The hotel site measures approximately 3.21 acres, or 139,828 square feet. The parcel's adjacent uses are set forth in the following table. FIGURE 4-4 PARCEL S ADJACENT USES Direction North South East West Adjacent Use McCutcheon Road Vacant TownePlace Suites by Marriott, Microtel Inn & Suites Center Street Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 29

34 GIS MAP Topography and Site Utility The topography of the site is generally flat, and the shape permits efficient use of the site for building and site improvements, including ingress and egress. The hotel site does not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. The site is fully developed with building and site improvements. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 30

35 AERIAL PHOTOGRAPH VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THEEAST Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 31

36 VIEW FROM SITE TO THE SOUTH VIEW FROM SITE TO THE WEST Access and Visibility Regional access to/from the city of Chattanooga and the hotel, in particular, is considered good. The hotel's market is served by a variety of additional local routes, which are illustrated on the map. Primary vehicular access to the hotel is provided by Center Street. Access is also available from McCutcheon Road. The hotel is located near a busy intersection and is relatively simple to locate from Interstate 75, which is the nearest major highway. Overall, the hotel benefits from good accessibility and visibility attributes. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 32

37 MAP OF REGIONAL ACCESS ROUTES Airport Access Neighborhood The hotel is served by the Chattanooga Metropolitan Airport, which is located approximately two miles to the west of the hotel site. Hartsfield-Jackson Atlanta International Airport is the closest major international airport, located approximately 100 miles to the southeast. The hotel's neighborhood is generally defined by Robin Drive to the north, Interstate 75 to the east and to the south, and Hickory Valley Road to the west. The neighborhood is characterized by restaurants, small office parks, and hotels along the primary thoroughfares, with residential areas located along the secondary roadways. Some specific businesses and entities in the area include CarMax, Penske Truck Rental, and Family Dollar; nearby hotels include Homewood Suites by Hilton, Hilton Garden Inn, and Holiday Inn. Restaurants located near the hotel include Wendy's, Applebee's, and Subway. In general, this neighborhood is in the stable stage of its life cycle. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 33

38 MAP OF NEIGHBORHOOD Utilities Soil and Subsoil Conditions Nuisances and Hazards Flood Zone According to property ownership, the hotel site is served by all necessary utilities. Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent. We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors. According to the Federal Emergency Management Agency map illustrated below, the hotel site is located in flood zone X. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 34

39 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. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 35

40 Zoning Easements and Encroachments IMPROVEMENTS Property Overview According to the local planning office, the hotel is zoned as follows: C-2 - Convenience Commercial Zone. This zoning designation allows for most commercial uses, including gas stations, offices, retail outlets, restaurants, and hotels and motels. We assume that all necessary permits and approvals have been secured (including the appropriate liquor license if applicable) and that the hotel was constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the hotel. The hotel site features a reciprocal cross easement and parking agreement with the adjacent TownePlace Suites site. According to the provided survey, the agreement includes 40 shared parking spaces. We have not reviewed the easement, but have assumed that it would transfer with a change of ownership. The Residence Inn by Marriott Chattanooga Near Hamilton Place is an extendedstay lodging facility containing 109 rentable units. The descriptions and pictures presented in this section reflect the hotel as observed at the time of our inspection on September 1, The hotel was designed and developed as a Residence Inn by Marriott in 2009; the configuration and array of facilities and amenities are consistent with Marriott s standards for the brand as of that date. The property has not undergone any major renovations since opening; however, the property is in generally good condition. In connection with the pending transaction, Marriott is reportedly in the process of developing a change-of-ownership property improvement plan (PIP) that would outline the renovations necessary for the hotel to comply with current brand standards. A new owner would be required to complete these renovations in connection with a new franchise agreement. The assumed upgrades have been noted in the following section; the cost of these renovations forms the basis for the capital deduction that is incorporated in our opinion of the as is value of the hotel. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 36

41 HOTEL FRONT OF HOTEL HOTEL BACK OF HOTEL Summary of the Facilities Based on information provided by the hotel s management representatives, the following table summarizes the facilities available at the hotel. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 37

42 FIGURE 4-5 FACILITIES SUMMARY Guestroom Configuration Number of Units Studio Suite 38 King Suite 42 Queen/Queen Suites 4 Two-Bedroom Suite 17 Fireplace Suite 8 Total 109 Food & Beverage Facilities Seating Capacity Breakfast Dining Area 34 Meeting & Banquet Facilities Alexander Hamilton Ballroom 3,800 Andrew Jackson Room 580 Sequoya Boardroom 235 Total 4,615 Amenities & Services Square Footage Indoor Swimming Pool Indoor Whirlpool Fitness Room Lobby Workstation Market Pantry Guest Laundry Room Outdoor Patio & Barbecue Area Putting Green Infrastructure Parking Spaces Elevators Life-Safety Systems Construction Details 155 (40 are shared with TownePlace Suites) 2 Guest Sprinklers, Smoke Detectors Wood Framing, Poured Concrete Site Improvements and Hotel Structure The hotel comprises one five-story building that is positioned in the center of the site. Surface parking is located around the building. Other site improvements include signage, located at the northern corner of the site, and well-kept landscaping and sidewalks; an outdoor patio and barbeque area and a putting green are located to the east of the building. The hotel's main entrance, located on the east side of the building, leads directly into the lobby. The first floor houses the public areas and the back-of-the-house space, while the guestrooms are located on Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 38

43 all levels of the building. The site and the structure appeared to be in good condition upon inspection. No recent changes were noted by management. LOBBY SEATING AREA FRONT DESK BREAKFAST DINING AREA MEETING ROOM Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 39

44 FITNESS ROOM POOL MARKET PANTRY LOBBY WORKSTATION Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 40

45 TYPICAL GUESTROOM SLEEPING AREA TYPICAL GUESTROOM LIVING AREA TYPICAL GUESTROOM BATHROOM SINK TYPICAL GUESTROOM BATHROOM BATH Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 41

46 TYPICAL GUESTROOM KITCHEN GUESTROOM CORRIDOR Hotel facilities and amenities include a complimentary services area where breakfast and an evening manager's reception are held, an indoor pool and whirlpool, a fitness room, a two-computer lobby workstation, a market pantry, a guest laundry room, an outdoor patio and barbeque area, and a putting green. The hotel also features over 4,600 square feet of meeting space, more than is typical for a standard Residence Inn by Marriott, which is marketed as a conference center. These spaces are functional, appearing to be well kept upon inspection. Hotel management maintains a strict property management program that has precluded any major capital expenditures since the hotel's 2009 opening; however, some areas are beginning to show signs of wear. The hotel features studio, onebedroom, and two-bedroom suite-style guestrooms, which offer typical amenities for this hotel's asset class. The guestrooms have reportedly not undergone any significant renovations since the hotel's opening. Overall, the public areas and guestrooms were in good condition upon inspection. As part of the planned change-of-ownership property improvement plan, renovations are expected to include new carpet throughout the property; upgraded select softgoods and décor in the lobby area; and new softgoods, lighting, and décor in the guestrooms. Worn or damage case goods should also be refurbished or replaced. Back-of-the-House The hotel is served by the necessary back-of-the-house space, including an inhouse laundry facility, administrative offices, and a full-service kitchen. The kitchen is located adjacent to the conference center. The kitchen facilities are appropriate for the scope of service provided, appearing to be in good condition; no significant or persistent problems were reported by hotel management. The in- Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 42

47 house laundry facility contains three large-capacity washers and three dryers. The hotel's back-of-the-house equipment and appliances were reported to be operational at the time of inspection, appearing to be in good condition. LAUNDRY KITCHEN ADA and Environmental Functional Obsolescence Effective Age and Remaining Economic Life According to information provided by management representatives, there are no environmental hazards present in the hotel's improvements, nor did we observe any. The property reportedly complies with the Americans with Disabilities Act; furthermore, the ADA-mandated pool lift was installed in The hotel, which opened in 2009, features a modern layout and design that largely precludes any functional obsolescence. Upon our inspection, we found no major components or aspects of the property's design that significantly limit its profitability. Our opinion of effective age and remaining economic life for the building is presented as follows. FIGURE 4-6 EFFECTIVE AGE AND REMAINING ECONOMIC LIFE Typical Economic Life 50 Years Chronological Age 7 Effective Age 5 Remaining Economic Life 45 Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 43

48 Hotels are typically renewed on a regular basis. With good ongoing maintenance and regular upgrading, the remaining economic life can be periodically extended. Capital Expenditures According to hotel management, there have been no major capital expenditures in the last three years. Real Estate Overview Residence Inn by Marriott Chattanooga Near Hamilton Place AHIP Portfolio of Hotels, TN and FL 44

49 5. Real Estate Overview Fairfield Inn & Suites by Marriott Lake City LAND Physical Characteristics The hotel is located in southwest Lake City, southwest of the intersection formed by SW Corporate Drive and SW Florida Gateway Drive. The street address of the Fairfield Inn & Suites by Marriott Lake City is 538 Southwest Corporate Drive, Lake City, Florida, The hotel site measures approximately 3.00 acres, or 130,680 square feet. The parcel's adjacent uses are set forth in the following table. FIGURE 5-7 PARCEL'S ADJACENT USES Direction North South East West Adjacent Use Vacant Land Vacant Land SW Corporate Drive Vacant Land GIS MAP Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 45

50 Topography and Site Utility The topography of the parcel is generally flat, and the shape permits efficient use of the site for building and site improvements, including ingress and egress. The hotel site contains approximately one and one-quarter acres of surplus land in the southern portion of the site that cannot be sold, entitled, or developed for alternate use because it comprises a water retention pond. Thus, the site is only partially developed with site or building improvements; however, the remaining portion is surplus land. AERIAL PHOTOGRAPH Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 46

51 VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH VIEW FROM SITE TO THE EAST VIEW FROM SITE TO THE WEST Access and Visibility Regional access to/from the city of Lake City and the hotel, in particular, is considered excellent. The hotel's market is served by a variety of additional local routes, which are illustrated on the map. Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 47

52 MAP OF REGIONAL ACCESS ROUTES Vehicular access to the hotel is provided by SW Corporate Drive. The hotel is located near a busy intersection and is relatively simple to locate from Interstate 75, which is the nearest major highway. Overall, the hotel benefits from very good accessibility and good visibility attributes. Airport Access Neighborhood The hotel is served by the Gainesville Regional Airport, which is located approximately 40 miles to the southeast of the hotel site. The hotel is also served by the Jacksonville International Airport, located approximately 60 miles to the northeast of the hotel site. The hotel's neighborhood can be generally described as the U.S. Highway 90/College Avenue corridor between NW Turner Avenue to the west and NW Bascom Norris Drive to the east. 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 in the area include Rountree Moore Chevrolet Cadillac, First Federal Bank of Florida, and Walmart Supercenter; nearby hotels include the Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 48

53 Country Inn & Suites by Carlson, the Home2 Suites by Hilton, and the Hampton Inn. Restaurants located near the hotel include Cracker Barrel Old Country Store, IHOP, and Steak 'n Shake. In general, this neighborhood is in the growth stage of its life cycle, with noticeable roadway construction and several retail strip developments underway at the time of our market visit. MAP OF NEIGHBORHOOD Utilities Soil and Subsoil Conditions Nuisances and Hazards According to property ownership, the hotel site is served by all necessary utilities. Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent. We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors. Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 49

54 Flood Zone According to the Federal Emergency Management Agency map illustrated below, the hotel 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. Zoning According to the local planning office, the hotel is zoned as follows: CI - Commercial Intensive. This zoning designation allows for most commercial uses, including retail outlets, restaurants, and hotels and motels. We assume that all necessary permits and approvals have been secured (including the appropriate Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 50

55 liquor license if applicable) and that the hotel was constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the hotel. Easements and Encroachments IMPROVEMENTS Property Overview We are not aware of any easements or encroachments encumbering the property that would significantly affect its utility or marketability. The Fairfield Inn & Suites by Marriott Lake City is an limited-service lodging facility containing 89 rentable units. The descriptions and pictures presented in this section reflect the hotel as observed at the time of our inspection on August 11, The hotel was designed and developed as a Fairfield Inn & Suites by Marriott in 2008; the configuration and array of facilities and amenities are consistent with Marriott's standards for the Fairfield Inn & Suites brand as of that date. The property was undergoing renovations at the time of our inspection; updates included new furniture in the guestrooms, new wallcovering in the public spaces and guestroom corridors, and new carpeting and window coverings throughout the hotel. These renovations are expected to be completed mid- October Additionally, in connection with the pending transaction, Marriott is in the process of developing a property improvement plan (PIP) that would outline any other renovations necessary for the hotel to comply with current brand standards. A new owner would be required to complete these renovations in connection with a new franchise agreement. The cost of these renovations forms the basis for the capital deduction that is incorporated in our opinion of the as is value of the hotel. Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 51

56 HOTEL FRONT OF HOTEL HOTEL BACK OF HOTEL Summary of the Facilities Based on information provided by the hotel s management representatives, the following table summarizes the facilities available at the hotel. Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 52

57 FIGURE 5-8 FACILITIES SUMMARY Guestroom Configuration Number of Units Queen/Queen 39 King 24 King Suites 21 Queen Suites 5 Total 89 Food & Beverage Facilities Seating Capacity Breakfast Dining Area 36 Meeting & Banquet Facilities Square Footage AA Meeting Room 1,056 Amenities & Services Indoor Pool Indoor Whirlpool Fitness Room Lobby Workstation Market Panry Guest Laundry Area Outdoo Sundeck Vending Areas Infrastructure Parking Spaces Elevators Life-Safety Systems Construction Details Guest, 1 Guest/Service Sprinklers, Smoke Detectors Wood Framing, Poured Concrete Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 53

58 Site Improvements and Hotel Structure LOBBY SEATING AREA The hotel comprises one four-story building that is positioned on the north side of the site. Surface parking is located around the building. Other site improvements include signage, located at the entrance to the hotel property, and well-kept landscaping and sidewalks; an outdoor sundeck area is situated to the west of the hotel structure. The hotel's main entrance, located on the east side of the building, leads directly into the lobby. The first floor houses the public areas and the backof-the-house space, while the guestrooms are located on the all levels. The site and the structure appeared to be in good condition upon inspection. No recent changes were noted by management. FRONT DESK Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 54

59 BREAKFAST DINING AREA MEETING ROOM FITNESS ROOM POOL Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 55

60 MARKET PANTRY LOBBY WORKSTATION TYPICAL GUESTROOM SLEEPING AREA TYPICAL GUESTROOM LIVING AREA Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 56

61 TYPICAL GUESTROOM BATHROOM SINK TYPICAL GUESTROOM BATHROOM BATH TYPICAL GUESTROOM CORRIDOR GUESTROOM LAUNDRY Hotel facilities and amenities include a breakfast dining area, an indoor pool and whirlpool, a fitness room, a two-computer lobby workstation, a market pantry, a guest laundry room, an outdoor sundeck, and vending areas. These spaces are functional, appearing to be well kept upon inspection. The vinyl wallcovering in Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 57

62 the public areas was replaced in July No other recent renovations of the public areas were noted by management. The hotel features standard and suitestyle guestrooms, which offer typical amenities for this hotel's asset class. The furniture in the guestrooms was being replaced in August In July 2016, the corridors received new wallcovering. The guestroom bathrooms have not undergone any renovations since the hotel's opening. No other recent changes were notes by management; however, the carpeting and window treatments throughout the hotel are expected to be replaced in the near future, as noted previously. Overall, the public areas and guestrooms were in good condition upon inspection. Back-of-the-House LAUNDRY The hotel is served by the necessary back-of-the-house space, including an inhouse laundry facility, administrative offices, and a prep kitchen. The kitchen is located adjacent to the dining area. The kitchen facilities are appropriate for the scope of service provided, appearing to be in good condition; no significant or persistent problems were reported by hotel management. The in-house laundry facility contains two large-capacity washers and two dryers. The hotel's back-ofthe-house equipment and appliances were reported to be operational at the time of inspection, appearing to be in good condition. FOOD PREP AREA ADA and Environmental According to information provided by management representatives, there are no environmental hazards present in the hotel's improvements, nor did we observe any. The property reportedly complies with the Americans with Disabilities Act; Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 58

63 furthermore, the ADA-mandated pool lift is reportedly original to the hotel's construction in Functional Obsolescence Effective Age and Remaining Economic Life The hotel, which opened in 2008, features a modern layout and design that largely precludes any functional obsolescence. Upon our inspection, we found no major components or aspects of the property's design that significantly limit its profitability. Our opinion of effective age and remaining economic life for the building is presented as follows. FIGURE 5-9 EFFECTIVE AGE AND REMAINING ECONOMIC LIFE Typical Economic Life 50 Years Chronological Age 8 Effective Age 5 Remaining Economic Life 45 Hotels are typically renewed on a regular basis. With good ongoing maintenance and regular upgrading, the remaining economic life can be periodically extended. Capital Expenditures According to management, capital expenditures thus far in 2016 have included select upgrades to the public spaces and guestrooms, as noted previously. Reportedly, no major capital was spent prior to Real Estate Overview Fairfield Inn & Suites by Marriott Lake City AHIP Portfolio of Hotels, TN and FL 59

64 6. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point LAND Physical Characteristics The hotel is located in Jacksonville, northeast of the intersection formed by Chaffee Point Boulevard and Crystal Springs Road. The street address of the Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point is 561 Chaffee Point Boulevard, Jacksonville, Florida, The hotel site measures approximately 3.17 acres, or 138,256 square feet. The parcel's adjacent uses are set forth in the following table. FIGURE 6-10 PARCEL'S ADJACENT USES Direction North South East West Adjacent Use Water Retention Pond Family Dollar Vacant Land Chaffee Point Boulevard Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 60

65 GIS MAP Topography and Site Utility The topography of the parcel is generally flat, and, although the shape is somewhat irregular, it permits efficient use of the site for building and site improvements, including ingress and egress. The hotel site contains approximately one and onehalf acres of surplus land in the northeastern portion of the site that cannot be sold, entitled, or developed for alternate use because it comprises a portion of a water retention pond. Thus, the site is only partially developed with site or building improvements; however, the remaining portion is surplus land. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 61

66 AERIAL PHOTOGRAPH VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 62

67 VIEW FROM SITE TO THE EAST VIEW FROM SITE TO THE WEST Access and Visibility Regional access to/from the city of Jacksonville and the hotel, in particular, is considered excellent. The hotel's market is served by a variety of additional local routes, which are illustrated on the map. Vehicular access to the hotel is provided by Chaffee Point Boulevard. The hotel is located near a busy intersection and is relatively simple to locate from Interstate 10, which is the nearest major highway. Overall, the hotel benefits from very good accessibility and visibility attributes. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 63

68 MAP OF REGIONAL ACCESS ROUTES Airport Access Neighborhood The hotel is served by the Jacksonville International Airport, which is located approximately 15 miles to the northeast of the hotel site. The hotel's neighborhood is generally defined by Old Plank Road to the north, Blair Road to the east, Normandy Boulevard to the south, and Chaffee Road to the west. 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 in the area include a Shell fueling station, Winn Dixie Supermarket, and Family Dollar; nearby hotels include Best Western Plus, Hampton Inn, and Holiday Inn Express Hotel & Suites. Restaurants located near the hotel include Cracker Barrel Old Country Store, Wendy's, McDonald's, and Mr. Chubby's Wings. In general, this neighborhood is in the stable stage of its life cycle. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 64

69 MAP OF NEIGHBORHOOD Utilities Soil and Subsoil Conditions Nuisances and Hazards Flood Zone According to property ownership, the hotel site is served by all necessary utilities. Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent. We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors. According to the Federal Emergency Management Agency map illustrated below, the hotel site is located in flood zone X500. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 65

70 COPY OF FLOOD MAP AND COVER The flood zone definition for the X500 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. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 66

71 Zoning Easements and Encroachments IMPROVEMENTS Property Overview According to the local planning office, the hotel is zoned as follows: PUD - Planned Use Development. This zoning designation allows for most commercial uses, including retail outlets, restaurants, and hotels and motels. We assume that all necessary permits and approvals have been secured (including the appropriate liquor license if applicable) and that the hotel was constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the hotel. We are not aware of any easements or encroachments encumbering the property that would significantly affect its utility or marketability. The Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point is an limitedservice lodging facility containing 89 rentable units. The descriptions and pictures presented in this section reflect the hotel as observed at the time of our inspection on August 12, The hotel was designed and developed as a Fairfield Inn & Suites by Marriott in 2009; the configuration and array of facilities and amenities are consistent with Marriott's standards for the Fairfield Inn & Suites brand as of that date. The property has not undergone any major renovations since opening; however, the property is in generally good condition. In connection with the pending transaction, Marriott is reportedly in the process of developing a changeof-ownership property improvement plan (PIP) that would outline the renovations necessary for the hotel to comply with current brand standards. A new owner would be required to complete these renovations in connection with a new franchise agreement. The assumed upgrades have been noted in the following section; the cost of these renovations forms the basis for the capital deduction that is incorporated in our opinion of the as is value of the hotel. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 67

72 HOTEL FRONT OF HOTEL HOTEL BACK OF HOTEL Summary of the Facilities Based on information provided by the hotel s management representatives, the following table summarizes the facilities available at the hotel. Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 68

73 FIGURE 6-11 FACILITIES SUMMARY Guestroom Configuration Number of Units Queen 39 King 24 King Suite 21 Queen Suite 5 Total 89 Food & Beverage Facilities Seating Capacity Breakfast Dining Area 34 Meeting & Banquet Facilities Square Footage Crystal Springs Room 1,000 Amenities & Services Indoor Swimming Pool Indoor Whirlpool Fitness Room Lobby Workstation Market Pantry Guest Laundry Area Outdoor Sundeck Vending Areas Infrastructure Parking Spaces Elevators Life-Safety Systems Construction Details 92 1 Guest, 1 Guest/Service Sprinklers, Smoke Detectors Wood Frame, Poured Concrete Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 69

74 Site Improvements and Hotel Structure LOBBY SEATING AREA The hotel comprises one four-story building that is positioned in the center of the site. Surface parking is located around the building. Other site improvements include signage, located at the entrance to the hotel property, and well-kept landscaping and sidewalks; an outdoor sundeck is situated to the east of the hotel structure. The hotel's main entrance, located on the west side of the building, leads directly into the lobby. The first floor houses the public areas and the back-of-thehouse space, while the guestrooms are located on the all levels. The site and the structure appeared to be in good condition upon inspection; however, management reported a recurring roof leak that has been an issue during storms. No recent changes or updates concerning the structure or site were noted by management. FRONT DESK Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 70

75 BREAKFAST DINING AREA MEETING ROOM FITNESS ROOM POOL Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 71

76 MARKET PANTRY LOBBY WORKSTATION TYPICAL GUESTROOM SLEEPING AREA TYPICAL GUESTROOM LIVING AREA Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 72

77 TYPICAL GUESTROOM BATHROOM SINK TYPICAL GUESTROOM BATHROOM BATH TYPICAL GUESTROOM CORRIDOR GUESTROOM LAUNDRY Hotel facilities and amenities include a breakfast dining area, an indoor pool and whirlpool, a fitness room, a two-computer lobby workstation, a market pantry, a guest laundry room, an outdoor sundeck, and vending areas. These spaces are functional, appearing to be well kept upon inspection. The indoor whirlpool heater Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 73

78 was reported to be in need of repair at the time of inspection; however, no recent renovations of the public areas were noted by management. The hotel features standard and suite-style guestrooms, which offer typical amenities for this hotel's asset class. No recent guestroom renovations were noted by management. Additionally, the guestroom bathrooms and guestroom corridors have not received any upgrades since the hotel's construction. Overall, the public areas and guestrooms were in good condition upon inspection. In accordance with the assumed change-of-ownership PIP, the public areas are likely to receive new wallcovering, while the guestrooms are expected to receive new furniture. Additionally, the carpeting and window coverings are anticipated to be replaced throughout the hotel. Back-of-the-House The hotel is served by the necessary back-of-the-house space, including an inhouse laundry facility, administrative offices, and a prep kitchen. The kitchen is located adjacent to the breakfast dining area. The kitchen facilities are appropriate for the scope of service provided, appearing to be in good condition; no significant or persistent problems were reported by hotel management. The in-house laundry facility contains two large-capacity washers and two dryers. One of the washers was reported to be in need of repairs; otherwise, the hotel's back-of-the-house equipment and appliances were reported to be operational at the time of inspection, appearing to be in good condition. FOOD PREP AREA Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 74

79 ADA and Environmental Functional Obsolescence Effective Age and Remaining Economic Life According to information provided by management representatives, there are no environmental hazards present in the hotel's improvements, nor did we observe any. The property reportedly complies with the Americans with Disabilities Act; furthermore, the ADA-mandated pool lift is reportedly original to the hotel's construction in The hotel, which opened in 2009, features a modern layout and design that largely precludes any functional obsolescence. Upon our inspection, we found no major components or aspects of the property's design that significantly limit its profitability. Our opinion of effective age and remaining economic life for the building is presented as follows. FIGURE 6-12 EFFECTIVE AGE AND REMAINING ECONOMIC LIFE Typical Economic Life 50 Years Chronological Age 7 Effective Age 3 Remaining Economic Life 47 Hotels are typically renewed on a regular basis. With good ongoing maintenance and regular upgrading, the remaining economic life can be periodically extended. Capital Expenditures According to management, there have been no major capital expenditures since the hotel's opening in Real Estate Overview Fairfield Inn & Suites by Marriott Jacksonville West Chaffee Point AHIP Portfolio of Hotels, TN and FL 75

80 7. Market Area Analysis - Chattanooga 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 hotels are located in the city of Chattanooga, the county of Hamilton, and the state of Tennessee. As the fourth largest city in Tennessee and the county seat for Hamilton County, Chattanooga is a prominent city in Southern Tennessee. The city's location equidistant from Atlanta and Knoxville, as well as its proximity to Nashville, make it a prime location for business and leisure activity alike. The economy is anchored by the automotive industry and the insurance and healthcare sectors. Recent expansions at the local business and the revitalization of the downtown and riverfront areas have bolstered the area economy in recent years. Today's Chattanooga boasts a vital and diverse economy, rich cultural history, and gleaming new downtown attractions loved by residents and visitors alike. The hotels' market area can be defined by its Combined Statistical Area (CSA): Chattanooga-Cleveland-Dalton, TN-GA-AL. 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 - Chattanooga AHIP Portfolio of Hotels, TN and FL 76

81 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 - Chattanooga AHIP Portfolio of Hotels, TN and FL 77

82 FIGURE 7-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY Average Annual Compounded Change Resident Population (Thousands) Hamilton County % 0.8 % 0.7 % Chattanooga, TN-GA MSA Chattanooga-Cleveland-Dalton, TN-GA-AL CSA State of Tennessee 5, , , , United States 282, , , , Per-Capita Personal Income* Hamilton County $36,609 $37,935 $39,834 $42, Chattanooga, TN-GA MSA 33,006 34,119 35,989 38, Chattanooga-Cleveland-Dalton, TN-GA-AL CSA 30,499 31,301 33,051 35, State of Tennessee 32,105 34,532 36,765 39, United States 36,473 39,144 41,554 44, W&P Wealth Index Hamilton County (0.4) (0.2) (0.0) Chattanooga, TN-GA MSA (0.4) (0.1) (0.1) Chattanooga-Cleveland-Dalton, TN-GA-AL CSA (0.5) (0.1) (0.1) State of Tennessee (0.1) United States Food and Beverage Sales (Millions)* Hamilton County $519 $588 $650 $ Chattanooga, TN-GA MSA Chattanooga-Cleveland-Dalton, TN-GA-AL CSA 970 1,145 1,263 1, State of Tennessee 7,295 8,765 9,836 10, United States 368, , , , Total Retail Sales (Millions)* Hamilton County $5,102 $5,218 $5,853 $6, Chattanooga, TN-GA MSA 6,677 6,986 7,871 8, Chattanooga-Cleveland-Dalton, TN-GA-AL CSA 10,926 11,258 12,649 13, State of Tennessee 78,510 82,181 93, , United States 3,902,969 4,149,070 4,707,800 5,187, * Inflation Adjusted Source: Woods & Poole Economics, Inc. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 78

83 The U.S. population grew at an average annual compounded rate of 0.9% from 2010 to 2015; the state s population changed by 1.1% during that period. The county s population grown more slowly than the nation s population; the average annual growth rate of 0.8% between 2010 and 2015 reflects a gradually expanding area. In 2015, the county s population was approximately 350,000; it is forecast to be roughly 360,000 by Following this population trend, per-capita personal income increased slowly, at 1.0% on average annually for the county between 2010 and The county s annual per-capita personal income level was approximately $40,000 in 2015; it is expected to be $42,000 by This compares to respective state and U.S. levels of $37,000 and $42,000 in 2015, and $39,000 and $44,000 by The county s local wealth index in 2015 was a relatively modest 93.7, higher than the state s 2015 wealth index of The county s wealth index is anticipated to be 93.5 by 2020, while the state s wealth index is forecast to be Food and beverage sales totaled $650 million in the county in 2015, versus $588 million in This reflects a 2.0% average annual change, which is stronger than the 1.3% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. The pace of growth is anticipated to moderate to a more sustainable level of 1.5% through The retail sales sector demonstrated an annual increase of 0.2% from 2000 to 2010, followed by an increase of 2.3% during the period from 2010 to An increase of 1.6% average annual change in county retail sales is forecast through Workforce Characteristics The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2015, as well as a forecast for Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 79

84 FIGURE 7-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S) Percent Percent Percent Percent Industry 2000 of Total 2010 of Total 2015 of Total 2020 of Total Average Annual Compounded Change Farm % % % % (1.8) % 0.0 % 0.0 % Forestry, Fishing, Related Activities And Other (17.3) Mining (4.8) 0.4 (0.8) Utilities (5.1) (0.1) (0.1) Construction (0.6) Manufacturing (3.8) 1.1 (0.7) Total Trade (1.8) Wholesale Trade (0.7) (1.0) 0.1 Retail Trade (2.1) Transportation And Warehousing (2.3) Information (0.4) 1.5 Finance And Insurance Real Estate And Rental And Lease Total Services Professional And Technical Services Management Of Companies And Enterprises (13.4) 1.3 (0.4) Administrative And Waste Services (0.2) Educational Services Health Care And Social Assistance Arts, Entertainment, And Recreation Accommodation And Food Services Other Services, Except Public Administration Total Government (0.1) Federal Civilian Government (0.8) 0.3 (0.1) Federal Military (1.0) State And Local Government (0.2) TOTAL % % % % (0.2) % 1.3 % 1.1 % MSA (0.2) % 1.3 % 1.1 % U.S. 165, , , , Source: Woods & Poole Economics, Inc. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 80

85 Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county contracted at an average annual rate of -0.2%. This trend was on par with the growth rate recorded by the MSA and also lagged the national average, reflecting the contracting nature of the local economy throughout most of the decade until the recession in the latter years. More recently, the pace of total employment growth in the county accelerated to 1.3% on an annual average from 2010 to 2015, reflecting the initial years of the recovery. Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2015, increasing by 11,604 people, or 12.4%, and transitioning from 40.0% to 42.2% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Accommodation And Food Services were the largest employers. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.1% on average annually through The trend is below the forecast rate of change for the U.S. as a whole during the same period. Radial Demographic Snapshot The following table reflects radial demographic trends for our market area measured by three points of distance from the hotel. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 81

86 FIGURE 7-3 DEMOGRAPHICS BY RADIUS miles Population 2021 Projection 6,112 42, , Estimate 5,747 40,206 98, Census 5,304 37,431 92, Census 4,395 35,280 84,552 Growth % 5.6% 5.0% Growth % 7.4% 6.4% Growth % 6.1% 8.9% Households 2021 Projection 2,945 18,175 42, Estimate 2,781 17,224 40, Census 2,589 16,104 37, Census 1,930 14,577 33,907 Growth % 5.5% 5.1% Growth % 7.0% 6.5% Growth % 10.5% 12.0% Income 2016 Est. Average Household Income $61,234 $68,229 $68, Est. Median Household Income 48,198 53,145 50, Est. Civ. Employed Pop 16+ by Occupation 2,754 19,875 47,671 Architect/Engineer Arts/Entertainment/Sports ,053 Building Grounds Maintenance ,551 Business/Financial Operations 252 1,245 2,639 Community/Social Services Computer/Mathematical Construction/Extraction ,923 Education/Training/Library 175 1,407 2,962 Farming/Fishing/Forestry Food Prep/Serving 224 1,268 2,962 Health Practitioner/Technician 141 1,571 3,605 Healthcare Support ,084 Maintenance Repair ,148 Legal Life/Physical/Social Science Management 322 2,349 5,278 Office/Admin. Support 355 2,850 7,056 Production 124 1,034 3,051 Protective Services Sales/Related 353 2,326 5,247 Personal Care/Service ,191 Transportation/Moving ,833 Source: The Nielsen Company miles miles This source reports a population of 98,002 within a five-mile radius of the hotel, and 40,418 households within this same radius. Average household income within Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 82

87 a five-mile radius of the hotel is currently reported at $68,135, while the median is $50,687. The following table illustrates historical and projected employment, households, population and average household income data as provided by REIS for the overall Chattanooga market. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 83

88 FIGURE 7-4 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS Year Total Employment % Chg Office Employment Industrial % Chg Employment % Chg Households % Chg Population % Chg Household Avg. Income % Chg ,200 68,618 48, , ,390 $74, , % 68,593 (0.0) % 47,215 (1.9) % 199, % 497, % 76, % , , ,133 (0.2) 202, , , , , , , , , , ,187 (0.2) 46,866 (1.4) 207, , , ,800 (3.1) 67,989 (1.7) 44,665 (4.7) 208, , ,898 (1.0) ,900 (5.8) 65,201 (4.1) 39,684 (11.2) 210, , ,641 (2.6) , ,981 (0.3) 40, , , , , , , , , , , , , , , , , ,503 (0.4) 43, , , ,508 (1.5) , , , , , , , , , , , , Forecasts , % 72, % 45, % 225, % 552, % $107, % , , , , , , , , , , , , , , , , , , , , ,888 (0.5) 233, , , Average Annual Compound Change % 0.3 % (0.8) % 1.0 % 0.9 % 2.8 % (0.7) (2.5) (2.1) (4.7) Forecast % 1.2 % 0.5 % 1.0 % 0.6 % 3.3 % Source: REIS Report, 2nd Quarter, 2016 Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 84

89 For the Chattanooga market, of the roughly 200,000 persons employed, 28% are categorized as office employees, while 18% are categorized as industrial employees. Total employment decreased by an average annual compound rate of - 2.5% during the recession of 2008 to 2011, followed by an increase of 1.6% from 2011 to By comparison, office employment reflected compound change rates of -2.1% and 1.8%, during the same respective periods. Total employment is expected to expand by 2.4% in 2016, while office employment is forecast to expand by 2.4% in From 2015 through 2020, REIS anticipates that total employment will increase at an average annual compound rate of 1.2%, while office employment will increase by 1.2% on average annually during the same period. The number of households is forecast to increase by 1.0% on average annually between 2015 and Population is forecast to expand during this same period, at an average annual compounded rate of 0.6%. Household average income is forecast to grow by 3.3% on average annually from 2015 through Unemployment Statistics The following table presents historical unemployment rates for the hotels market area, the state, and the nation. FIGURE 7-5 UNEMPLOYMENT STATISTICS Year City MSA State U.S % 4.4 % 5.2 % 4.6 % (r) 8.8(r) (r) 8.2(r) 9.0(d) (r) 7.4(r) 7.8(d) (r) 7.4(r) 7.8(d) (r) 6.4(r) 6.5(d) (r) 5.6(r) 5.8(d) 5.3 Recent Month - Jun % 6.1 % 6.2 % 5.3 % * Letters shown next to data points (if any) reflect revised population controls and/or model re-estimation implemented by the BLS. Source: U.S. Bureau of Labor Statistics Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 85

90 After the U.S. unemployment rate declined to an annual average of 4.6% in 2006 and 2007, the Great Recession, which spanned December 2007 through June 2009, resulted in heightened unemployment rates. The unemployment rate peaked at 10.0% in October 2009, after which job growth resumed; the national unemployment rate has steadily declined since Total nonfarm payroll employment increased by 24,000, 292,000, and 255,000 jobs in May, June, and July 2016, respectively. The strongest gains in July were recorded in the professional and business services, health care, and financial activities sectors. The national unemployment rate was reported to be 4.9% in both June and July; it has remained near the 5.0% mark since August 2015, reflecting a trend of relative stability and the overall strength of the U.S. economy. Locally, the unemployment rate was 6.0(r)% in 2015; for this same area in 2016, the most recent month s unemployment rate was registered at 5.3%, versus 6.6% for the same month in After a period of relative stability, unemployment began to rise in 2008 as the region entered an economic slowdown, and this trend continued through 2009 as the height of the national recession took hold. However, contrary to the national trend, the local unemployment rate decreased slightly in This modest downward trend continued in 2011 and 2012, followed by a slight increase in Unemployment levels declined again in 2014, a trend that continued through The most recent comparative period illustrates continued improvement, indicated by the lower unemployment rate in the latest available data for As noted previously, employment is expected to continue growing because of the major employer expansions and the City of Chattanooga's focus on new retail and commercial employers. 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 hotels market. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 86

91 FIGURE 7-6 MAJOR EMPLOYERS Number of Rank Firm Employees 1 BlueCross BlueShield of Tennessee 4,899 2 Hamilton County Dept. of Education 4,508 3 Erlanger Health System 4,384 4 Tennessee Valley Authority 3,786 5 Amazon.com, Inc. 3,312 6 Unum Group 2,800 7 McKee Foods 2,700 8 CHI Memorial 2,602 9 City of Chattanooga 2, Volkswagen Chattanooga 2,177 Source: Chattanooga Area Chamber of Commerce, 2016 Strengthening economic conditions and development projects throughout the market have been noted since The manufacturing and distribution industries are important to this region. Two major contributors are the Volkswagen manufacturing plant and the Amazon.com distribution center. Combined, these companies have hired more than 4,000 workers since In July 2014, the Volkswagen Group of America awarded the production of its new CrossBlue SUV to the Chattanooga plant. As a result, Volkswagen plans to add 538,000 square feet to the existing facility and hire 1,800 additional employees; production is expected to begin by year-end Volkswagen's presence has also spurred several of its suppliers to open facilities in Chattanooga. In light of the upcoming CrossBlue production, seat supplier Seating Systems is spending $5.4 million to upgrade and expand its current facility, which is expected to create 190 jobs. Moreover, FedEx is constructing a 235,000-square-foot distribution center. The $30-million facility is expected to open in August In nearby Cleveland, in 2016, German polysilicon producer Wacker opened its new $2.5-billion plant. The facility employs approximately 650 people and will produce over 20,000 metric tons per year at full capacity; plans for the expansion of the Wacker facility have been discussed. The abovementioned factors should bode well for Chattanooga moving forward. Office Space Statistics Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or occupied office space may have a proportional impact on commercial lodging Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 87

92 demand and a less direct effect on meeting demand. The following table details office space statistics for the pertinent market area. FIGURE 7-7 OFFICE SPACE STATISTICS MARKET OVERVIEW Submarket Inventory Buildings Square Feet Occupied Office Space Vacancy Rate Average Asking Lease Rate 1 Central 31 2,390,000 2,017, % $ Northern , , East 50 1,776,000 1,607, Totals and Averages 96 4,565,000 3,940, % $15.20 Source: REIS Report, 2nd Quarter, 2016 The greater Chattanooga market comprises a total of 4.6 million square feet of office space. For the 2nd Quarter of 2016, the market reported a vacancy rate of 13.7% and an average asking rent of $ The hotel is located in the East submarket, which houses 1,776,000 square feet of office space. The submarket's vacancy rate of 9.5% is below the overall market average. The average asking lease rate of $12.05 is below the average for the broader market. The following table illustrates a trend of office space statistics for the overall Chattanooga market and the East submarket. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 88

93 FIGURE 7-8 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS GREATER MARKET VS. SUBMARKET Chattanooga Market East Submarket Year Available Office Space Occupied % Chg Office Space % Chg Vacancy Rate Asking Lease Rate % Chg Available Office Space % Chg Occupied Office Space % Chg Vacancy Rate Asking Lease Rate % Chg ,740,000 4,043, % $ ,756,000 1,445, % $ ,634,000 (2.2) % 3,932,000 (2.7) % (0.5) % 1,756, % 1,459, % % ,622,000 (0.3) 4,085, ,744,000 (0.7) 1,524, (1.1) ,662, ,058,000 (0.7) ,784, ,520,000 (0.3) ,638,000 (0.5) 4,120, ,749,000 (2.0) 1,537, ,682, ,941,000 (4.3) ,793, ,603, ,736, ,876,000 (1.6) (0.2) 1,847, ,609, (0.8) ,565,000 (3.6) 3,840,000 (0.9) ,776,000 (3.8) 1,625, ,565, ,822,000 (0.5) ,776, ,618,000 (0.4) ,565, ,868, ,776, ,614,000 (0.2) (0.9) ,565, ,780,000 (2.3) ,776, ,556,000 (3.6) (0.5) ,565, ,791, ,776, ,565, ,565, ,929, ,776, ,618, Forecasts ,565, % 3,950, % 13.5 % $ % 1,776, % 1,613,000 (0.3) % 9.2 % $ % ,605, ,982, ,786, ,624, ,640, ,007, ,799, ,635, ,682, ,025, ,813, ,641, ,729, ,042, ,830, ,648, Average Annual Compound Change (0.3) % (0.2) % 1.1 % 0.1 % 0.9 % 0.6 % (0.5) (0.1) (0.5) (2.3) (0.1) (0.1) Forecast % 0.6 % 3.2 % 0.8 % 0.5 % 3.5 % Source: REIS Report, 2nd Quarter, 2016 Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 89

94 The inventory of office space in the Chattanooga market contracted at an average annual compound rate of -0.3% from 2003 through 2015, while occupied office space contracted at an average annual rate of -0.2% over the same period. During the period of 2003 through 2008, occupied office space expanded at an average annual compound rate of 0.5%. From 2008 through 2011, occupied office space contracted at an average annual compound rate of -2.3%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.5% average annual change in occupied office space from 2011 to From 2015 through 2020, the inventory of occupied office space is forecast to increase at an average annual compound rate of 0.6%, with available office space expected to increase 0.9%, thus resulting in an anticipated vacancy rate of 14.5% as of 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. Chattanooga Airport, also known as Lovell Field, is located within minutes of Downtown Chattanooga and an easy drive from anywhere in southeast Tennessee, north Georgia, and north Alabama. The airport is serviced by Allegiant Air, American Eagle, Delta, and US Airways, which offer non-stop flights to Chicago, Charlotte, Atlanta, Dallas/Fort Worth, Detroit, Orlando, Tampa, and Washington, D.C. In 2013, the main terminal at Chattanooga Airport underwent a $7,200,000 renovation that included new carpeting, new wall and bathroom tile, new rentalcar counters, and a new restaurant facility. The following table illustrates recent operating statistics for the Chattanooga Metropolitan Airport, which is the primary airport facility serving the hotels submarket. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 90

95 FIGURE 7-9 AIRPORT STATISTICS - CHATTANOOGA METROPOLITAN AIRPORT Year Passenger Percent Percent Traffic Change* Change** , , % 21.0 % ,639 (2.1) , ,868 (5.6) , , ,928 (0.0) , , Year-to-date, May , , % *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Chattanooga Metropolitan Airport This facility recorded 778,183 passengers in The change in passenger traffic between 2014 and 2015 was 10.9%. The average annual change during the period shown was 5.0%. Tourist Attractions Conclusion The hotel market benefits from a variety of tourism and leisure attractions in the area. Leisure demand generators include the Tennessee Aquarium, Lookout Mountain, Rock City, and Ruby Falls. Special events also play a role during key weekends, such as Riverbend Festival and the Chattanooga Marathon, which has its inaugural run in No major changes related to these attributes of the market are expected in the near future. This section discussed a wide variety of economic indicators for the pertinent market area. Chattanooga is experiencing a period of economic strength and expansion, primarily led by the manufacturing and distribution industries. Our market interviews and research revealed that the entrances of several worldrenowned employers into the market, such as Amazon and Volkswagen, have also contributed to growth in the hospitality and retail sectors. The outlook for the market area is positive. Market Area Analysis - Chattanooga AHIP Portfolio of Hotels, TN and FL 91

96 8. Market Area Analysis Lake City 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 hotel is located in the city of Lake City, the county of Columbia, and the state of Florida. Lake City, the seat of Columbia County, began as a Seminole Village and was incorporated in In 1864, the Battle of Olustee was fought to the east of Lake City, the only major battle in Florida during the Civil War. In the early 1900s, Lake City established itself as an important railroad junction served by Florida Railroad, Georgia Southern Railroad, Atlantic Coast Line, and Seaboard Air Line. Today, Lake City is often referred to as the "Gateway to Florida" and is considered the midway point between Atlanta and Miami along Interstate 75. Its favorable location near the northern border of Florida makes the city a major stopping point for many interstate travelers entering and leaving the state. The hotel s market area can be defined by its Combined Statistical Area (CSA): Gainesville-Lake City, 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 Lake City AHIP Portfolio of Hotels, TN and FL 92

97 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 Lake City AHIP Portfolio of Hotels, TN and FL 93

98 FIGURE 8-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY Average Annual Compounded Change Resident Population (Thousands) Columbia County % 1.1 % 1.5 % Gainesville-Lake City, FL CSA State of Florida 16, , , , United States 282, , , , Per-Capita Personal Income* Columbia County $23,184 $27,114 $28,018 $29, Gainesville-Lake City, FL CSA 28,119 32,552 33,709 35, State of Florida 34,981 37,721 39,407 42, United States 36,473 39,144 41,554 44, W&P Wealth Index Columbia County (0.5) (0.1) Gainesville-Lake City, FL CSA (0.4) (0.1) State of Florida (0.3) (0.0) United States Food and Beverage Sales (Millions)* Columbia County $60 $86 $96 $ Gainesville-Lake City, FL CSA State of Florida 22,184 29,113 33,196 37, United States 368, , , , Total Retail Sales (Millions)* Columbia County $789 $890 $1,020 $1, Gainesville-Lake City, FL CSA 3,906 4,395 5,045 5, State of Florida 241, , , , United States 3,902,969 4,149,070 4,707,800 5,187, * Inflation Adjusted Source: Woods & Poole Economics, Inc. Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 94

99 The U.S. population grew at an average annual compounded rate of 0.9% from 2010 to 2015; the state s population changed by 1.4% during that period. The county s population increased at a quicker pace than the nation s population; the average annual growth rate of 1.1% between 2010 and 2015 reflects a gradually expanding area. In 2015, the county s population was approximately 70,000; it is forecast to be roughly 80,000 by Following this population trend, per-capita personal income increased slowly, at 0.7% on average annually for the county between 2010 and The county s annual per-capita personal income level was approximately $28,000 in 2015; it is expected to be $30,000 by This compares to respective state and U.S. levels of $39,000 and $42,000 in 2015, and $42,000 and $44,000 by The county s local wealth index in 2015 was a relatively low 71.3, lower than the state s 2015 wealth index of The county s wealth index is anticipated to be 70.9 by 2020, while the state s wealth index is forecast to be Food and beverage sales totaled $96 million in the county in 2015, versus $86 million in This reflects a 2.3% average annual change, which is weaker than the 3.6% pace recorded in the prior decade. The pace of growth is anticipated to moderate to a more sustainable level of 2.4% through The retail sales sector demonstrated an annual increase of 1.2% from 2000 to 2010, followed by an increase of 2.8% during the period from 2010 to An increase of 2.4% average annual change in county retail sales is forecast through Workforce Characteristics The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2015, as well as a forecast for Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 95

100 FIGURE 8-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S) Percent Percent Percent Percent Industry 2000 of Total 2010 of Total 2015 of Total 2020 of Total Average Annual Compounded Change Farm % % % % 2.4 % (0.2) % 0.6 % Forestry, Fishing, Related Activities And Other (7.0) 0.6 Mining (4.6) 1.1 Utilities (2.3) 1.6 Construction (2.5) (0.4) 0.9 Manufacturing (1.2) Total Trade Wholesale Trade (2.8) 0.6 Retail Trade Transportation And Warehousing Information (4.1) (5.2) 1.0 Finance And Insurance Real Estate And Rental And Lease Total Services Professional And Technical Services (4.4) Management Of Companies And Enterprises (1.6) (1.3) 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 (0.2) 0.2 Federal Military (0.3) 0.1 State And Local Government TOTAL % % % % 1.5 % 1.3 % 1.5 % U.S. 165, , , , Source: Woods & Poole Economics, Inc. Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 96

101 Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 1.5%. This trend outpaced the national average, reflecting the expanding nature of the local economy throughout most of the decade until the recession in the latter years. More recently, the pace of total employment growth in the county remained relatively flat at 1.3% on an annual average from 2010 to Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2015, increasing by 1,269 people, or 13.5%, and transitioning from 35.3% to 37.6% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Accommodation And Food Services were the largest employers. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.5% on average annually through The trend is above the forecast rate of change for the U.S. as a whole during the same period. Unemployment Statistics The following table presents historical unemployment rates for the hotel s market area, the state, and the nation. FIGURE 8-3 UNEMPLOYMENT STATISTICS Year County State Country % 3.2 % 4.6 % (r) (r) 10.0(d) (r) 8.5(d) (r) 7.3(d) (r) 6.3(d) (r) 5.4(d) 5.3 Recent Month - Jun % 5.6 % 5.3 % * Letters shown next to data points (if any) reflect revised population controls and/or model re-estimation implemented by the BLS. Source: U.S. Bureau of Labor Statistics Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 97

102 After the U.S. unemployment rate declined to an annual average of 4.6% in 2006 and 2007, the Great Recession, which spanned December 2007 through June 2009, resulted in heightened unemployment rates. The unemployment rate peaked at 10.0% in October 2009, after which job growth resumed; the national unemployment rate has steadily declined since Total nonfarm payroll employment increased by 24,000, 292,000, and 255,000 jobs in May, June, and July 2016, respectively. The strongest gains in July were recorded in the professional and business services, health care, and financial activities sectors. The national unemployment rate was reported to be 4.9% in both June and July; it has remained near the 5.0% mark since August 2015, reflecting a trend of relative stability and the overall strength of the U.S. economy. Locally, the unemployment rate was 5.4(r)% in 2015; for this same area in 2016, the most recent month s unemployment rate was registered at 4.9%, versus 5.6% for the same month in Unemployment began to rise in 2007 as the region entered an economic slowdown, and this trend continued through 2010 as the height of the national recession took hold. However, unemployment declined slightly in 2011 as the economy rebounded, a trend that continued through The most recent comparative period illustrates improvement, indicated by the lower unemployment rate in the latest available data for Local economic development officials noted that employment remains strong within the education sector and manufacturing industry, and that new development should spur continued improvement in employment trends. 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 hotel s market. Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 98

103 FIGURE 8-4 MAJOR EMPLOYERS Number of Rank Firm Employees 1 University of Florida 27,870 2 UF Health 12,000 3 Alachua County School Board 4,200 4 Veterans Affairs Medical Center 3,500 5 City of Gainesville 2,270 6 Publix Supermarkets 2,160 7 North Florida Regional Medical Center 2,100 8 Gator Dining Services 1,200 9 Nationwide Insurance Company Wal-Mart Stores, Inc. 910 Source: Gainesville Area Chamber of Commerce, 2015 The market has experienced strengthening economic conditions and development projects in recent years. Health care is a major component of the local economy, with the VA Medical Center and Lake City Medical Center representing two of the area's largest employers. Services offered by the Lake City VA Medical Center include primary, specialty, and long-term care, while Lake City Medical Center specializes in cancer care, cardiovascular services, rehabilitation services, emergency care, and diagnostic imaging. Logistics and distribution is another important industry for the market due to its proximity to Interstates 10 and 75. Target operates a 420,000-square-foot regional distribution center that opened in The $140-million facility is primarily utilized for cold-storage products and features an automated storage and retrieval system. Aviation services are also important to the economy. TIMCO Aviation Services specializes in commercial aircraft maintenance, storage, and repairs; the company operates facilities throughout the country and is one of the largest employers in Columbia County. The Lake City TIMCO facility is located at the Lake City Gateway Airport and features eight hangars that total 632,000 square feet. Additionally, several Department of Corrections (DOC) facilities are located along U.S. Highway 90, generating lodging demand for hotels located in the area. 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 Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 99

104 in passenger counts also reflect local business activity and the overall economic health of the area. Gainesville Regional Airport is a public airport located just northeast of the city of Gainesville. Five major commercial airlines provide service to airports in the Southeast. Delta Air Lines offers service to the Hartsfield-Jackson Atlanta International Airport, U.S. Airways offers service to the Charlotte Douglas International Airport, United Airlines and Silver Airways offer service to Orlando International Airport, and American Airlines offers service to Miami International Airport. In 2013, Phase III renovations to the terminal were completed. The $1.3- million project, which started in 2012, included energy enhancements, curbside repaving, new exterior lighting, fresh paint and landscaping, a new irrigation system, and repaved parking areas and sidewalk ramps. Additionally, in 2013, the airport was granted federal funds for a $4.7-million taxiway and apron project. The following table illustrates recent operating statistics for the Gainesville Regional Airport, which is the primary airport facility serving the hotel s submarket. FIGURE 8-5 AIRPORT STATISTICS - GAINESVILLE REGIONAL AIRPORT Year Passenger Percent Percent Traffic Change* Change** , , % 13.4 % ,065 (15.1) (1.9) ,697 (11.0) (5.0) , , , ,054 (17.0) , , Year-to-date, May , ,864 (3.4) % *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Gainesville Regional Airport Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 100

105 This facility recorded 432,106 passengers in The change in passenger traffic between 2014 and 2015 was 2.1%. The average annual change during the period shown was 3.5%. The following table illustrates recent operating statistics for the Jacksonville International Airport, which is the secondary airport facility serving the hotel s submarket. FIGURE 8-6 AIRPORT STATISTICS JACKSONVILLE INTERNATIONAL AIRPORT Year Passenger Percent Percent Traffic Change* Change** ,919, ,319, % 6.8 % ,002,698 (5.0) ,605,934 (6.6) (1.8) ,601,500 (0.1) (1.4) ,515,165 (1.5) (1.4) ,222,125 (5.3) (2.1) ,129,222 (1.8) (2.0) ,258, (1.5) ,131, Year-to-date, Jun ,638, ,636, % *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Jacksonville International Airport Jacksonville International Airport (JAX) is located 13 miles north of Downtown Jacksonville. The airport features two runways and one main terminal with two concourses. The airport, which is serviced by many major domestic airlines, underwent a major renovation in The project included the expansion of the existing terminal building, the construction of Concourse C, and the reconstruction of Concourse A. In January 2009, the Jacksonville Airport Authority curtailed its plans to reconstruct Concourse B, citing slowing passenger traffic levels; however, the reconstruction of Concourse B, along with the construction of two additional runways paralleling the existing runway, is still part of the long-term vision for the airport. Service to several cities was added in 2015, including Pittsburgh, Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 101

106 Cincinnati, and Pensacola; furthermore, service to Toronto, Nassau, and St. Louis, among other cities, began in May This facility registered 6,131,073 passengers in The change in passenger traffic between 2014 and 2015 was 16.6%. The increase in passenger traffic shown by the most recent data can be attributed in large part to the addition of several new domestic flights. Southwest Airlines began a nonstop service from Jacksonville International Airport to Chicago's Midway Airport in the third quarter of In addition, Silver Airways launched nonstop service between Jacksonville International Airport and Pensacola International Airport in March Allegiant Airways launched services to Pittsburgh, Pennsylvania and Cincinnati, Ohio in 2015; furthermore, in 2016, the airline introduced new services to New Orleans, Louisiana; Richmond, Virginia; and Memphis, Tennessee. Tourist Attractions Conclusion The hotel market benefits from a modest number of tourism and leisure attractions in the area. Leisure demand generators include Ichetucknee Springs, O'leno State Park, and the Suwannee River. Special events also play a role during key weekends, such as the Olustee Battle Reenactment and festivals at the Spirit of Suwannee Music Park. Furthermore, Lake City is within 45 minutes of Gainesville and benefits from overflow from major events at the University of Florida, including football games and graduation. No major changes related to these attributes of the market are expected in the near future. This section discussed a wide variety of economic indicators for the pertinent market area. Lake City is experiencing a period of economic strength and expansion, led by the distribution and retail sectors. Our market interviews and research revealed that a variety of new retail and restaurant establishments are anticipated to benefit the market and offer travelers a greater variety of options in the area. The outlook for the market area is positive. Market Area Analysis Lake City AHIP Portfolio of Hotels, TN and FL 102

107 9. Market Area Analysis Jacksonville 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 hotel is located in the city of Jacksonville, the county of Duval, and the state of Florida. Jacksonville is part of the greater Duval County economic base. Located in northeast Florida at the crossroads of Interstates 95 and 10, Jacksonville is the largest city in the contiguous United States by measure of land area. The city is the insurance and financial center of the state of Florida and home to several U.S. Navy bases, as well as the National Football League's Jacksonville Jaguars. The city offers a major shipping port and hosts a variety of corporations and industries. Jacksonville's appeal as a site for expanding companies is due in part to its highly skilled workforce, a strong military presence, and major educational institutions. The hotel s market area can be defined by its Combined Statistical Area (CSA): Jacksonville-St. Marys-Palatka, FL-GA. 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 Jacksonville AHIP Portfolio of Hotels, TN and FL 103

108 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 Jacksonville AHIP Portfolio of Hotels, TN and FL 104

109 FIGURE 9-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY Average Annual Compounded Change Resident Population (Thousands) Duval County % 1.2 % 1.3 % Jacksonville, FL MSA 1, , , , Jacksonville-St. Marys-Palatka, FL-GA CSA 1, , , , State of Florida 16, , , , United States 282, , , , Per-Capita Personal Income* Duval County $35,629 $37,998 $39,832 $42, Jacksonville, FL MSA 36,253 38,614 41,009 43, Jacksonville-St. Marys-Palatka, FL-GA CSA 35,088 37,693 40,030 42, State of Florida 34,981 37,721 39,407 42, United States 36,473 39,144 41,554 44, W&P Wealth Index Duval County (0.1) (0.2) 0.1 Jacksonville, FL MSA (0.0) (0.0) 0.1 Jacksonville-St. Marys-Palatka, FL-GA CSA (0.0) 0.1 State of Florida (0.3) (0.0) United States Food and Beverage Sales (Millions)* Duval County $1,093 $1,491 $1,686 $1, Jacksonville, FL MSA 1,511 2,218 2,552 2, Jacksonville-St. Marys-Palatka, FL-GA CSA 1,596 2,317 2,663 3, State of Florida 22,184 29,113 33,196 37, United States 368, , , , Total Retail Sales (Millions)* Duval County $12,694 $13,922 $15,989 $17, Jacksonville, FL MSA 16,812 19,387 22,592 25, Jacksonville-St. Marys-Palatka, FL-GA CSA 17,928 20,717 24,101 27, State of Florida 241, , , , United States 3,902,969 4,149,070 4,707,800 5,187, * Inflation Adjusted Source: Woods & Poole Economics, Inc. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 105

110 The U.S. population grew at an average annual compounded rate of 0.9% from 2010 to 2015; the state s population changed by 1.4% during that period. The county s population increased at a quicker pace than the nation s population; the average annual growth rate of 1.2% between 2010 and 2015 reflects a gradually expanding area. In 2015, the county s population was approximately 920,000; it is forecast to be roughly 980,000 by Following this population trend, per-capita personal income increased slowly, at 0.9% on average annually for the county between 2010 and The county s annual per-capita personal income level was approximately $40,000 in 2015; it is expected to be $43,000 by This compares to respective state and U.S. levels of $39,000 and $42,000 in 2015, and $42,000 and $44,000 by The county s local wealth index in 2015 was a relatively near average 96.6, lower than the state s 2015 wealth index of The county s wealth index is anticipated to be 96.9 by 2020, while the state s wealth index is forecast to be Food and beverage sales totaled $1,686 million in the county in 2015, versus $1,491 million in This reflects a 2.5% average annual change, which is weaker than the 3.2% pace recorded in the prior decade. The pace of growth is anticipated to moderate to a more sustainable level of 2.2% through The retail sales sector demonstrated an annual increase of 0.9% from 2000 to 2010, followed by an increase of 2.8% during the period from 2010 to An increase of 2.3% average annual change in county retail sales is forecast through Workforce Characteristics The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2015, as well as a forecast for Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 106

111 FIGURE 9-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S) Percent Percent Percent Percent Industry 2000 of Total 2010 of Total 2015 of Total 2020 of Total Average Annual Compounded Change Farm % % % % (5.6) % 0.4 % 0.7 % Forestry, Fishing, Related Activities And Other (3.0) Mining Utilities (7.3) (5.8) (0.8) Construction (1.3) Manufacturing (3.0) (0.2) (0.3) Total Trade (0.3) Wholesale Trade (0.7) Retail Trade (0.2) Transportation And Warehousing (0.2) Information (3.4) (0.0) 1.3 Finance And Insurance Real Estate And Rental And Lease Total Services Professional And Technical Services Management Of Companies And Enterprises (2.9) Administrative And Waste Services (2.0) Educational Services Health Care And Social Assistance Arts, Entertainment, And Recreation Accommodation And Food Services Other Services, Except Public Administration Total Government (0.0) Federal Civilian Government (0.4) 0.2 Federal Military (2.8) (0.3) 0.1 State And Local Government TOTAL % % % % 0.6 % 1.6 % 1.7 % MSA % 1.7 % 1.9 % U.S. 165, , , , Source: Woods & Poole Economics, Inc. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 107

112 Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 0.6%. This trend was below the growth rate recorded by the MSA and also lagged the national average, reflecting the stable nature of the local economy throughout most of the decade until the recession in the latter years. More recently, the pace of total employment growth in the county accelerated to 1.6% on an annual average from 2010 to 2015, reflecting the initial years of the recovery. Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2015, increasing by 35,677 people, or 13.2%, and transitioning from 44.1% to 46.0% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Administrative And Waste Services were the largest employers. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.7% 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 Jacksonville market. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 108

113 FIGURE 9-3 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS Year Total Employment % Chg Office Employment Industrial % Chg Employment % Chg Households % Chg Population % Chg Household Avg. Income % Chg , ,765 69, ,510 1,207,750 $86, , % 187, % 70, % 478, % 1,235, % 91, % , , , , ,265, , , , , , ,295, , , ,195 (1.1) 72,615 (2.0) 510, ,315, , ,970 (3.5) 192,444 (3.9) 68,281 (6.0) 516, ,328, ,644 (1.9) ,170 (4.9) 187,071 (2.8) 62,640 (8.3) 522, ,342, ,228 (3.4) , , ,638 (1.6) 524, ,355, , , , ,194 (4.0) 526, ,370, , , , , , ,387, , , , ,526 (0.2) 541, ,407, ,040 (2.9) , , , , ,435, , , , , , ,462, , Forecasts , % 219, % 63, % 579, % 1,489, % $120, % , , , , ,519, , , , , , ,549, , , , , , ,579, , , , ,614 (0.3) 636, ,609, , Average Annual Compound Change % 1.3 % (0.8) % 1.6 % 1.6 % 2.5 % (2.4) (1.3) (5.3) (0.3) Forecast % 1.9 % 0.8 % 2.4 % 2.0 % 5.3 % Source: REIS Report, 2nd Quarter, 2016 Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 109

114 For the Jacksonville market, of the roughly 700,000 persons employed, 33% are categorized as office employees, while 10% are categorized as industrial employees. Total employment decreased by an average annual compound rate of - 2.4% during the recession of 2008 to 2011, followed by an increase of 2.4% from 2011 to By comparison, office employment reflected compound change rates of -1.3% and 2.1%, during the same respective periods. Total employment is expected to expand by 2.4% in 2016, while office employment is forecast to expand by 2.5% in From 2015 through 2020, REIS anticipates that total employment will increase at an average annual compound rate of 1.7%, while office employment will increase by 1.9% on average annually during the same period. The number of households is forecast to increase by 2.4% on average annually between 2015 and Population is forecast to expand during this same period, at an average annual compounded rate of 2.0%. Household average income is forecast to grow by 5.3% on average annually from 2015 through Unemployment Statistics The following table presents historical unemployment rates for the hotel s market area, the state, and the nation. FIGURE 9-4 UNEMPLOYMENT STATISTICS Year County MSA State U.S % 3.3 % 3.2 % 4.6 % (r) 10.7(r) (r) 9.7(r) 10.0(d) (r) 8.2(r) 8.5(d) (r) 7.0(r) 7.3(d) (r) 6.2(r) 6.3(d) (r) 5.2(r) 5.4(d) 5.3 Recent Month - Jun % 5.5 % 5.6 % 5.3 % * Letters shown next to data points (if any) reflect revised population controls and/or model re-estimation implemented by the BLS. Source: U.S. Bureau of Labor Statistics Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 110

115 After the U.S. unemployment rate declined to an annual average of 4.6% in 2006 and 2007, the Great Recession, which spanned December 2007 through June 2009, resulted in heightened unemployment rates. The unemployment rate peaked at 10.0% in October 2009, after which job growth resumed; the national unemployment rate has steadily declined since Total nonfarm payroll employment increased by 24,000, 292,000, and 255,000 jobs in May, June, and July 2016, respectively. The strongest gains in July were recorded in the professional and business services, health care, and financial activities sectors. The national unemployment rate was reported to be 4.9% in both June and July; it has remained near the 5.0% mark since August 2015, reflecting a trend of relative stability and the overall strength of the U.S. economy. Locally, the unemployment rate was 5.7(r)% in 2015; for this same area in 2016, the most recent month s unemployment rate was registered at 5.0%, versus 6.0% for the same month in Unemployment began to rise in 2007 as the region entered an economic slowdown, and this trend continued through 2010 as the height of the national recession took hold. Unemployment then declined from 2011 through 2015, in line with the economic recovery within the greater Jacksonville area. The most recent comparative period illustrates further improvement, as indicated by the latest data for Several new projects and expansions, as previously noted, are reportedly contributing to job growth. 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 hotel s market. FIGURE 9-5 MAJOR EMPLOYERS Number of Rank Firm Employees 1 Naval Air Station Jacksonville/U.S. Navy 25,240 2 Duval County Public Schools 14,480 3 Naval Station Mayport 9,000 4 City of Jacksonville 8,820 5 Baptist Health 8,270 6 Florida Blue 6,500 7 Citi 5,000 8 Mayo Clinic 4,970 9 United Parcel Services 4, Clay County School Board 4,000 Source: JAXUSA Partnership, 2015 Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 111

116 The market is diversified among the healthcare, distribution, military, shipping, financial, and insurance industries and sectors. Naval Air Station Jacksonville (NAS Jax) is the largest employer for the market; in the first quarter of 2015, the $16- million MQ-4C Triton Mission Control Center was completed. The healthcare sector is another important aspect of this market; in early 2015, an outpatient medical complex known as UF Health North opened along Max Leggett Parkway. This is the first phase of a larger development, which is planned to include a 92- bed inpatient facility; the facility is expected to be complete in In addition, the Jacksonville Port Authority (JAXPORT) provides the foundation for numerous companies that collectively employ a workforce of over 65,000, generating an annual economic impact of $19 billion for the region. JAXPORT operates three public marina terminals and offers cargo terminals for the intermodal transport of containers, automobiles, bulk, break-bulk, and refrigerated cargoes, as well as a temporary cruise terminal. Furthermore, a concerted effort is being made to broaden the appeal of Jacksonville as a young, vibrant city. Several organizations, including the Downtown Investment Authority, are diligently working to broaden the appeal of Jacksonville as an international business destination. The changes to the downtown area should benefit all areas of Jacksonville, aiding in the continued growth of the city as a whole. Office Space Statistics Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or occupied office space may have a proportional impact on commercial lodging demand and a less direct effect on meeting demand. The following table details office space statistics for the pertinent market area. FIGURE 9-6 OFFICE SPACE STATISTICS MARKET OVERVIEW Submarket Inventory Buildings Square Feet Occupied Office Space Vacancy Rate Average Asking Lease Rate 1 Beaches , , % $ Downtown North 43 4,998,000 4,003, Downtown South 39 3,876,000 3,093, Northwest/Orange Park , , Southside/West 43 1,776,000 1,388, Southside/North 81 4,370,000 3,500, Southside/Bay Meadows 104 7,390,000 5,919, Arlington , , Totals and Averages ,003,000 19,889, % $19.02 Source: REIS Report, 2nd Quarter, 2016 Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 112

117 The greater Jacksonville market comprises a total of 25.0 million square feet of office space. For the 2nd Quarter of 2016, the market reported a vacancy rate of 20.5% and an average asking rent of $ The hotel is located in the Northwest/Orange Park submarket, which houses 927,000 square feet of office space. The submarket's vacancy rate of 21.6% is above the overall market average. The average asking lease rate of $15.39 is below the average for the broader market. The following table illustrates a trend of office space statistics for the overall Jacksonville market and the Northwest/Orange Park submarket. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 113

118 FIGURE 9-7 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS GREATER MARKET VS. SUBMARKET Jacksonville Market Northwest/Orange Park Submarket Year Available Office Space Occupied % Chg Office Space % Chg Vacancy Rate Asking Lease Rate % Chg Available Office Space % Chg Occupied Office Space % Chg Vacancy Rate Asking Lease Rate % Chg ,843,000 19,973, % $ , , % $ ,180, % 20,301, % % 848, % 734, % % ,215, ,544, , , ,722,000 (2.0) 20,873, ,000 (3.5) 775,000 (3.4) ,923, ,190, , ,000 (8.3) ,140, ,590,000 (2.8) , ,000 (6.5) (2.1) ,918,000 (0.9) 19,774,000 (4.0) (1.6) 915, , (2.4) ,918, ,746,000 (0.1) (1.3) 915, , ,918, ,747, , ,000 (0.7) (0.3) ,979, ,801, , , ,979, ,647,000 (0.8) , , (1.4) ,979, ,700, , ,000 (6.6) ,003, ,748, , , Forecasts ,066, % 20,049, % 20.0 % $ % 927, % 730, % 21.3 % $ % ,177, ,361, , , ,379, ,634, , , ,655, ,857, , , ,949, ,094, , , Average Annual Compound Change % (0.1) % 1.1 % 0.7 % 0.2 % 1.0 % (0.0) (2.3) (0.4) 2.4 (1.9) (1.0) Forecast % 1.3 % 3.3 % 1.6 % 0.1 % 1.8 % Source: REIS Report, 2nd Quarter, 2016 Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 114

119 The inventory of office space in the Jacksonville market remained relatively stable at an average annual compound rate of 0.1% from 2003 through 2015, while occupied office space remained relatively stable at an average annual rate of -0.1% over the same period. During the period of 2003 through 2008, occupied office space expanded at an average annual compound rate of 1.5%. From 2008 through 2011, occupied office space contracted at an average annual compound rate of - 2.3%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.0% average annual change in occupied office space from 2011 to From 2015 through 2020, the inventory of occupied office space is forecast to increase at an average annual compound rate of 1.3%, with available office space expected to increase 0.9%, thus resulting in an anticipated vacancy rate of 18.7% as of 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. Jacksonville International Airport (JAX) is located 13 miles north of Downtown Jacksonville. The airport features two runways and one main terminal with two concourses. The airport, which is serviced by many major domestic airlines, underwent a major renovation in The project included the expansion of the existing terminal building, the construction of Concourse C, and the reconstruction of Concourse A. In January 2009, the Jacksonville Airport Authority curtailed its plans to reconstruct Concourse B, citing slowing passenger traffic levels; however, the reconstruction of Concourse B, along with the construction of two additional runways paralleling the existing runway, is still part of the long-term vision for the airport. Service to several cities was added in 2015, including Pittsburgh, Cincinnati, and Pensacola; furthermore, service to Toronto, Nassau, and St. Louis, among other cities, began in May The following table illustrates recent operating statistics for the Jacksonville International Airport, which is the primary airport facility serving the hotel s submarket. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 115

120 FIGURE 9-8 AIRPORT STATISTICS - JACKSONVILLE INTERNATIONAL AIRPORT Year Passenger Percent Percent Traffic Change* Change** ,919, ,319, % 6.8 % ,002,698 (5.0) ,605,934 (6.6) (1.8) ,601,500 (0.1) (1.4) ,515,165 (1.5) (1.4) ,222,125 (5.3) (2.1) ,129,222 (1.8) (2.0) ,258, (1.5) ,131, Year-to-date, Jun ,638, ,636, % *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Jacksonville International Airport This facility recorded 6,131,073 passengers in The change in passenger traffic between 2014 and 2015 was 16.6%. The average annual change during the period shown was 0.4%. The increase in passenger traffic shown by the most recent data can be attributed in large part to the addition of several new domestic flights. Southwest Airlines began a nonstop service from Jacksonville International Airport to Chicago's Midway Airport in the third quarter of In addition, Silver Airways launched nonstop service between Jacksonville International Airport and Pensacola International Airport in March Allegiant Airways launched services to Pittsburgh, Pennsylvania and Cincinnati, Ohio in 2015; furthermore, in 2016, the airline introduced new services to New Orleans, Louisiana; Richmond, Virginia; and Memphis, Tennessee. Tourist Attractions The hotel market benefits from a variety of tourism and leisure attractions in the area. Leisure demand generators include nearby beaches, state parks, and nature trails. Special events also play a role during key weekends, such as football games at nearby universities and local festivals. No major changes related to these attributes of the market are expected in the near future. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 116

121 Conclusion This section discussed a wide variety of economic indicators for the pertinent market area. The greater Jacksonville area is experiencing a period of economic strength and expansion, primarily led by the fields of manufacturing, tourism, and health care. Our market interviews and research revealed that planned developments and current construction projects should contribute to further economic growth. The outlook for the market area is positive. Market Area Analysis Jacksonville AHIP Portfolio of Hotels, TN and FL 117

122 10. Supply and Demand Analysis In the lodging industry, 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, resulting in a forecast of market-wide occupancy. Historical Supply and Demand Data 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 the hotel and its competitors for Chattanooga, Lake City, and Jacksonville. This information is presented in the following tables, 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. It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample; furthermore, not every property reports data in a consistent and timely manner. These factors can influence the overall quality of the information by skewing the results, and these inconsistencies may also cause the STR data to differ from the results of our competitive survey. Nonetheless, STR data provide the best indication of aggregate growth or decline in existing supply and demand; thus, these trends have been considered in our analysis. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 118

123 FIGURE 10-1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) - CHATTANOOGA Year Average Daily Room Count Available Room Nights Change Occupied Room Nights Change Occupancy Average Rate Change RevPAR Change , , % $72.84 $ , % 209, % % % , ,338 (2.9) , , , , (1.1) , , (7.2) (10.6) , , , , ,454 (1.0) 267,988 (0.9) , , ,695 (2.7) (2.3) , , , (0.6) (15.2) , , , , , , Year-to-Date Through June , , , % $99.69 $ , , % 214, % % % Hotels Included in Sample Number of Rooms Year Affiliated Year Opened Hampton Inn Chattanooga Airport I Apr 1988 Apr 1988 Courtyard Chattanooga I May 1991 May 1991 Fairfield Inn & Suites Chattanooga 108 Dec 2013 May 1991 Country Inn & Suites Hamilton Place Mall 82 Sep 1994 Sep 1994 Comfort Inn & Suites Chattanooga 76 Jul 2006 Jan 1996 Homewood Suites Chattanooga Hamilton Place 76 Apr 1997 Apr 1997 Mainstay Suites Chattanooga 78 May 1998 May 1998 Hilton Garden Inn Chattanooga Hamilton Place 112 Aug 2004 Aug 2004 Staybridge Suites Chattanooga Hamilton Place 88 Dec 2007 Dec 2007 Residence Inn Chattanooga Near Hamilton Place 109 Jun 2009 Jun 2009 Holiday Inn Chattanooga Hamilton Place 137 Feb 2012 Feb 2012 TownePlace Suites Chattanooga Near Hamilton Place 87 Nov 2012 Nov 2012 Embassy Suites Chattanooga Hamilton Place 203 Jun 2013 Jun 2013 Hampton Inn & Suites Chattanooga Hamilton Place 134 Oct 2013 Oct 2013 Total 1,566 Source: STR Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 119

124 The STR data for the competitive set reflect a market-wide occupancy level of 73.8% in 2015, which compares to 64.8% for The overall average occupancy level for the calendar years presented equates to 68.1%. The STR data for the competitive set reflect a market-wide average rate level of $ in 2015, which compares to $96.09 for These occupancy and average rate trends resulted in a RevPAR level of $74.60 in Strong occupancy and average rate levels caused RevPAR to peak at more than $58 for this selected set of hotels in the Chattanooga market in 2007, before declining to a low point of roughly $51 by year-end 2009 because of the recession and the entrance of new supply. A rapid recovery began in 2010 and continued through 2011, with RevPAR levels surpassing the prior peak in However, despite strong demand growth, the entrance of additional new supply caused occupancy levels to decline and placed downward pressure on rates, causing RevPAR to dip to roughly $55 in In 2014, as the new supply was absorbed into the market, occupancy levels recovered and average rate registered modest growth. Increased room night demand by Wacker and Volkswagen caused a sharp increase in occupancy in 2015, which exceeded the historical peak. Year-to-date data illustrate continued strengthening in occupancy and a roughly $3.75 gain in average rate. RevPAR reached its high point in the summer of The outlook for the remaining months of 2016 is cautionary due to the gradual departure of the longterm demand related to the opening of the Wacker plant and Volkswagen expansion. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 120

125 FIGURE 10-2 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) LAKE CITY Year Average Daily Room Count Available Room Nights Change Occupied Room Nights Change Occupancy Average Rate Change RevPAR Change ,815 95, % $94.47 $ , % 97, % % (13.3) % , , (9.9) (21.4) , , (0.2) , , , , , ,329 (1.1) , , , , Year-to-Date Through June ,034 77, % $ $ , % 90, % % % Hotels Included in Sample Number of Rooms Quality Inn Lake City 55 Dec 2012 Oct 1999 Country Inn & Suites Lake City 60 Jan 2001 Jan 2001 Holiday Inn & Suites Lake City 127 Aug 2004 Aug 2004 Hampton Inn Suites Lake City 89 Apr 2006 Apr 2006 Fairfield Inn & Suites Lake City 89 May 2008 May 2008 Comfort Suites Lake City 94 Jan 2009 Jan 2009 Home2 Suites Lake City 86 Jan 2016 Jan 2016 Total 600 Source: STR Year Affiliated Year Opened Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 121

126 The STR data for the competitive set reflect a market-wide occupancy level of 81.7% in 2015, which compares to 78.0% for The overall average occupancy level for the calendar years presented equates to 75.2%. The STR data for the competitive set reflect a market-wide average rate level of $ in 2015, which compares to $ for These occupancy and average rate trends resulted in a RevPAR level of $88.28 in Both occupancy and RevPAR first peaked for this selected set of hotels in the Lake City market in 2007, resulting in a RevPAR of nearly $75. RevPAR declined to a low point of roughly $51 by year-end 2009 because of the recession and the opening of the Fairfield Inn & Suites by Marriott mid-year 2008 and the opening of the Comfort Suites in early A rapid recovery began in 2010, with average rate increases resuming in 2011; this upward trend extended through year-end As illustrated, the 2007 peak in RevPAR was exceeded in Primary factors contributing to this period of strengthening included the renovation of competitive supply and the continued growth of the local economy. Year-to-date data illustrate continued improvement in occupancy and a roughly $1.60 gain in average rate. RevPAR reached its high point in early The entrance of new supply and continued market growth have contributed to this latest strengthening trend for The outlook for the remaining months of 2016 is positive.. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 122

127 FIGURE 10-3 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) - JACKSONVILLE Year Average Daily Room Count Available Room Nights Change Occupied Room Nights Change Occupancy Average Rate Change RevPAR Change ,842 68, % $82.49 $ , % 86, % (7.8) % % , , (1.8) , , (1.3) , ,340 (4.0) (0.3) , , , ,143 (1.4) Year-to-Date Through June ,174 66, % $89.04 $ , % 72, % % % Hotels Included in Sample Number of Rooms Year Affiliated Year Opened Hampton Inn Jacksonville I 10 West 82 Dec 2004 Dec 2004 Comfort Suites Jacksonville 64 Jul 2007 Jul 2007 Country Inn & Suites Jacksonville West 73 Jan 2008 Jan 2008 Holiday Inn Express & Suites Chaffee Jacksonville West 81 Aug 2008 Aug 2008 Best Western Plus Cecil Field Inn & Suites 65 Apr 2011 Nov 2008 Fairfield Inn & Suites Jacksonville West Chaffee Point 89 Aug 2009 Aug 2009 Total 454 Source: STR Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 123

128 The STR data for the competitive set reflect a market-wide occupancy level of 77.3% in 2015, which compares to 78.5% for The overall average occupancy level for the calendar years presented equates to 68.7%. The STR data for the competitive set reflect a market-wide average rate level of $88.45 in 2015, which compares to $82.72 for These occupancy and average rate trends resulted in a RevPAR level of $68.40 in Despite the addition of the subject Fairfield Inn & Suites by Marriott in late 2009, occupancy levels for this selected set of hotels in the Jacksonville West Chaffee market began to recover in 2010 from the economic downturn and quickly reached levels in the mid-70s by In 2013, occupancy declined as average rate growth took hold, but quickly rebounded in 2014, reaching a historical high. Occupancy levels in 2015 remained relatively stable; however, the most recent year-to-date data for 2016 illustrate greater occupancy gains in the overall market. Average rate levels declined from 2010 through 2012 as the market absorbed the large influx of new supply in 2008 and During that time, hotel operators reportedly focused on driving occupancy levels at the expense of average rate. As the new supply was absorbed, hoteliers shifted focus to increasing average rate; thus, market-wide average rate increased year-over-year from 2013 through Year-to-date data for 2016 show continued increases in average rate, with rates reaching a historical high. 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 considered primarily competitive with each hotel in The Portfolio. If applicable, additional lodging facilities may be judged only secondarily competitive; although the facilities, rate structures, or market orientations of these hotels prevent their inclusion among the primary competitive supply, they do compete with the hotel to some extent. The following tables summarizes the important operating characteristics of the primary competitors and the aggregate secondary competitors (if applicable). This information was compiled from personal interviews, inspections, lodging directories, and our in-house library of operating data. The tables also set forth each property s penetration factors; penetration is the ratio between a specific hotel s operating results and the corresponding data for the market. If the penetration factor is greater than 100%, the property is performing better than the market as a whole; conversely, if the penetration is less than 100%, the hotel is performing at a level below the market-wide average. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 124

129 FIGURE 10-4 PRIMARY COMPETITORS OPERATING PERFORMANCE TOWNEPLACE SUITES CHATTANOOGA HAMILTON PLACE Est. Segmentation Estimated 2014 Estimated 2015 Property Numbe r of Rooms Weighted Annual Room Count Occ. Average Rate RevPAR Weighted Annual Room Count Occ. Commercial Leisure Extended-Stay Group Average Rate RevPAR Occupanc y Yield Penetration Mainstay Suites Chattanooga Country Inn & Suites Chattanooga Comfort Inn & Suites Chattanooga Sub-Totals/Averages % 21 % 30 % 7 % % $71.43 $ % $74.93 $ % 74.0 % Secondary Competitors 1, % 30 % 12 % 11 % % $ $ % $ $ % % Totals/Averages 1, % 27 % 17 % 10 % 1, % $93.16 $ , % $97.55 $ % % * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 125

130 FIGURE 10-5 SECONDARY COMPETITOR(S) OPERATING PERFORMANCE TOWNEPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Est. Segmentation Estimated 2014 Estimated 2015 Property Weighted Number of Rooms Total Competitive Level Annual Room Count Occ. Commercial Leisure Ext ended-st ay Group Weighted Annual Average Rate RevPAR Room Count Occ. Average Rate RevPAR Homewood Suites by Hilton Chattanooga Hamilton Place Staybridge Suites at Hamilton Place Fairfield Inn & Suites Chattanooga Hampton Inn & Suites Chattanooga Hamilton Place Hampton Inn Chattanooga Airport I 75 Courtyard by Marriott Chattanooga Hilton Garden Inn Chattanooga Hamilton Place Embassy Suites Chattanooga Hamilton Place Holiday Inn Chattanooga at Hamilton Place Totals/Averages 1, % 30 % 12 % 11 % 64 % % $ $ % $ $79.07 * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 126

131 MAP OF COMPETITION TOWNEPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 127

132 FIGURE 10-6 PRIMARY COMPETITORS OPERATING PERFORMANCE RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Est. Segmentation Estimated 2014 Estimated 2015 Property Number of Rooms Weighted Annual Room Count Oc c. Average Rate RevPAR Weighted Annual Room Count Occ. Commercial Leisure Extended-S tay Group Average Rate RevPAR Occupancy Penetratio Yield Penetration Staybridge Suites at Hamilton Place Homewood Suites by Hilton Chattanooga Hamilton Place Embassy Suites Chattanooga Hamilton Place Sub-Totals/Averages % 29 % 25 % 11 % % $ $ % $ $ % % Secondary Competitors 1, % 27 % 9 % 11 % % $89.66 $ % $93.36 $ % 84.0 % Totals/Averages 1, % 28 % 16 % 11 % 1, % $99.61 $ , % $ $ % % * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 128

133 FIGURE 10-7 SECONDARY COMPETITOR(S) OPERATING PERFORMANCE RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Est. Segmentation Estimated 2014 Estimated 2015 Property Weighted Number of Rooms Total Competitive Level Annual Room Count Occ. Commercial Leisure Ext ended-st ay Group Weighted Annual Average Rate RevPAR Room Count Occ. Average Rate RevPAR Courtyard by Marriott Chattanooga Hilton Garden Inn Chattanooga Hamilton Place % 35 % 0 % 10 % 75 % % $100 - $105 $60 - $ % $100 - $105 $70 - $ Mainstay Suites Chattanooga Fairfield Inn & Suites Chattanooga Hampton Inn & Suites Chattanooga Hamilton Place Holiday Inn Chattanooga at Hamilton Place Comfort Inn & Suites Chattanooga Country Inn & Suites Chattanooga Hampton Inn Chattanooga Airport I Totals/Averages 1, % 27 % 9 % 11 % 68 % % $89.66 $ % $93.36 $66.25 * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 129

134 MAP OF COMPETITION RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 130

135 FIGURE 10-8 PRIMARY COMPETITORS OPERATING PERFORMANCE FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Est. Segmentation Estimated 2014 Estimated 2015 Property Number of Rooms Weighted Annual Room Count Occ. Avera ge Rate RevPAR Weighted Annual Room Count Occ. Leisure Commercial Group Government Average Rate RevPAR Occupancy Penetration Yield Penetration Comfort Suites Lake City Hampton Inn & Suites Lake City Country Inn & Suites By Carlson Lake City Home2 Suites by Hilton Lake City Opened in 2016 Sub-Totals/Averages % 14 % 12 % 7 % % $ $ % $ $ % % Secondary Competitors % 9 % 8 % 9 % % $99.60 $ % $ $ % 90.5 % Totals/Averages % 13 % 11 % 8 % % $ $ % $ $ % % * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 131

136 FIGURE 10-9 SECONDARY COMPETITOR(S) OPERATING PERFORMANCE FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Est. Segmentation Estimated 2014 Estimated 2015 Property Weighted Weighted Total Annual Annual Number of Rooms Competitive Level Room Count Occ. Average Rate RevPAR Room Count Occ. Average Rate RevPAR Leisure Commercial Group Government Quality Inn Lake City % 5 % 15 % 5 % 75 % % $70 - $75 $40 - $ % $80 - $85 $50 - $55 Holiday Inn Lake City Totals/Averages % 9 % 8 % 9 % 75 % % $99.60 $ % $ $80.33 * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 132

137 MAP OF COMPETITION FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 133

138 FIGURE PRIMARY COMPETITORS OPERATING PERFORMANCE FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Est. Segmentation Estimated 2014 Estimated 2015 Property Number of Rooms Weighted Annual Room Count Occ. Average Rate RevPAR Weighted Annual Room Count Occ. Commercial Government Leisure Group Average Rate Re vpar Occupancy Penetratio Yield Penetration Hampton Inn Jacksonville Interstate 10 West Holiday Inn Express Hotel & Suites Chaffee-Jacksonville West Best Western Plus Cecil Field Inn & Suites Sub-Totals/Averages % 14 % 26 % 10 % % $87.14 $ % $93.19 $ % % Secondary Competitors % 10 % 53 % 10 % % $69.69 $ % $73.13 $ % 65.1 % Totals/Averages % 13 % 31 % 10 % % $83.69 $ % $89.28 $ % % * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 134

139 FIGURE SECONDARY COMPETITOR(S) OPERATING PERFORMANCE FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Est. Segmentation Estimated 2014 Estimated 2015 Property Weighted Weighted Total Annual Annual Number of Rooms Competitive Level Room Count Occ. Average Rate RevPAR Room Count Occ. Average Rate RevPAR Commercial Government Leisure Group Country Inn & Suites Jacksonville % 10 % 55 % 5 % 75 % % $70 - $75 $45 - $ % $75 - $80 $45 - $50 Comfort Suites Jacksonville Totals/Averages % 10 % 53 % 10 % 75 % % $69.69 $ % $73.13 $45.63 * Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 135

140 MAP OF COMPETITION FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 136

141 Supply Changes It is important to consider any new hotels that may have an impact on the hotel s operating performance. The following chart sets forth the hotels that are under construction in the Chattanooga, Lake City, and Jacksonville markets. While we have taken reasonable steps to investigate proposed hotel projects and their status, due to the nature of real estate development, it is impossible to determine with certainty every hotel that will be opened in the future, or what their marketing strategies and effect in the market will be. Depending on the outcome of current and future projects, the future operating potential of the hotel may be affected. Future improvement in market conditions will raise the risk of increased competition. Our forthcoming forecast of stabilized occupancy and average rate is intended to reflect such risk. FIGURE AREA DEVELOPMENT ACTIVITY - CHATTANOOGA Estimated Expected Number of Qtr. & Year Proposed Hotel Name Rooms 0 Hotel Product Tier Development Stage of Opening Address Westin Chattanooga 261 Upper-Upscale Under Construction Q3 ' Pine Street, Chattanooga, TN Aloft Chattanooga 160 Upscale Under Construction Q4 ' Broad Street, Chattanooga, TN According to the local planning office and our research, no new hotels are expected within the hotel's competitive submarket at this time. However, a Westin hotel is currently under construction and an Aloft is planned for development in an existing office building, We have considered the impact of these hotels qualitatively in our positioning of the market's stabilized occupancy levels. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 137

142 FIGURE NEW SUPPLY LAKE CITY Proposed Property Number of Rooms Total Weighted Competitive Room Estimated Opening Level Count Date Developer Development Stage Home2 Suites by Hilton Lake City % 86 January 22, 2016 Jim Dix Construction, Inc. Recently Opened Totals/Averages FIGURE NEW SUPPLY - JACKSONVILLE The recently opened Home2 Suites by Hilton, located one-quarter of a mile from the hotel site, is competitive with the hotel given its proximate location; however, this extended-stay hotel targets a different customer base. Therefore, this new supply has been weighted secondarily competitive in our analysis. Proposed Property Number of Rooms Total Weighted Competitive Room Estimated Opening Level Count Date Developer Development Stage Proposed Holiday Inn Express Hotel & Suites % 70 January 1, 2017 Feasterco Constr Under Construction Totals/Averages The proposed Holiday Inn Express Hotel & Suites will be similar to the hotel in terms of product and service level. Given the five-mile distance, this property has been weighted secondarily competitive in our analysis. DEMAND Commercial Segment For the purpose of demand analysis, the each market is divided into individual segments based on the nature of travel. In the Chattanooga, these included commercial, leisure, extended-stay, and group, while in Lake City and Jacksonville, these included leisure, commercial, group, and government. Following is a description of each market segment. Commercial demand consists mainly of individual businesspeople passing through the hotel market or visiting area businesses, in addition to high-volume corporate accounts generated by local firms. Brand loyalty (particularly frequent-traveler programs), as well as location and convenience with respect to businesses and amenities, influence lodging choices in this segment. Companies typically designate hotels as preferred accommodations in return for more favorable rates, which are discounted in proportion to the number of room nights produced by a commercial client. Commercial demand is strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 138

143 somewhat on Sunday night. It is relatively constant throughout the year, with marginal declines in late December and during other holiday periods. Leisure Segment Extended-Stay Segment Group Segment Government 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. Extended-stay demand consists of individuals who require accommodations for more than five nights; typically, the length of stay ranges from ten to fourteen nights, but can stretch to a month or more. The three principal categories of extended-stay demand are business-related (typically associated with long-term projects), family-oriented, and relocation demand. Extended-stay patrons usually prefer hotels located near shopping centers, restaurants, entertainment venues, and service-retail uses such as grocery stores, dry cleaners, and fueling stations. Extended-stay demand tends to trend in line with an area s corporate expansion and/or population growth; commercial growth has a direct correlation with longer-term training activities that may be occurring in the area, while changes in population typically support related relocation demand. Large-scale construction projects, prevalent in growing metropolitan areas, also generate significant levels of extended-stay demand. In the limited-service sector, group demand is most commonly generated by groups that require ten or more room nights, but need little to no meeting space within the hotel. Examples of these groups include family reunions, sports teams, and bus tours. In some markets, limited-service hotels may also accommodate demand from groups or individuals attending events at the local convention center or at one of the larger convention hotels in the area. Government demand consists of individuals visiting government entities in the hotel market, in addition to high-volume accounts generated by major government institutions or military bases. Brand loyalty (particularly frequent-traveler programs), as well as location and convenience with respect to government offices Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 139

144 or military bases, influence lodging choices in this segment. Preferred hotels regularly honor published per-diem rates, which are established annually, although they may vary by season. Demand generated from government sources is typically strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases somewhat on Sunday night. Government demand is relatively constant throughout the year, declining somewhat in late December and during other holiday periods. Some longer-term demand may be present, depending on the purpose of the visit. Changes in government employment, as well as trends for the locally specific government institutions, affect government demand. Based on our fieldwork, area analysis, and knowledge of the each local lodging market, we estimate the 2015 distribution of accommodated-room-night demand in the following tables. FIGURE ACCOMMODATED ROOM-NIGHT DEMAND TOWNEPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Market Segment Marketwide Accommodated Demand Percentage of Total Subject Property Accommodated Percentage of Demand Total Commercial 138, % 8, % Leisure 83, , Extended-Stay 52, , Group 30, ,245 5 Total 304, % 24, % FIGURE ACCOMMODATED ROOM-NIGHT DEMAND RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Market Segment Marketwide Accommodated Demand Percentage of Total Accommodated Demand Subject Property Percentage of Total Commercial 148, % 10, % Leisure 93, , Extended-Stay 53, , Group 37, ,698 5 Total 333, % 33, % Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 140

145 FIGURE ACCOMMODATED ROOM-NIGHT DEMAND FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Market Segment Marketwide Accommodated Demand Percentage of Total Subject Property Accommodated Demand Percentage of Total Leisure 96, % 18, % Commercial 17, , Group 15, , Government 10, ,328 5 Total 140, % 26, % FIGURE ACCOMMODATED ROOM-NIGHT DEMAND FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Market Segment Marketwide Accommodated Demand Percentage of Total Subject Property Accommodated Demand Percentage of Total Commercial 55, % 14, % Government 15, , Leisure 37, , Group 11, , Total 120, % 26, % The following tables illustrate out projections of base room night demand and annual growth for each hotel in The Portfolio. We note that 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. 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. To evaluate the incidence of unaccommodated demand in the market, we have reviewed the average occupancy by the night of the week for the past twelve months for the competitive set in each market, as reflected in the STR data. Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 141

146 FIGURE DEMAND PROJECTION TOWNEPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Commercial Base Demand 138, , , , , ,496 Total Demand 145, , , , ,496 Growth Rate 5.0 % (2.5) % (2.0) % (1.5) % (0.5) % Leisure Base Demand Total Demand Growth Rate Extended-Stay Base Demand Total Demand Growth Rate 83,618 86,962 83,049 80,558 79,349 78,952 86,962 83,049 80,558 79,349 78, % (4.5) % (3.0) % (1.5) % (0.5) % 52,021 55,662 52,601 51,286 50,773 50,519 55,662 52,601 51,286 50,773 50, % (5.5) % (2.5) % (1.0) % (0.5) % Group Base Demand 30,248 31,004 30,229 29,625 29,328 29,182 Total Demand 31,004 30,229 29,625 29,328 29,182 Growth Rate 2.5 % (2.5) % (2.0) % (1.0) % (0.5) % Totals Base Demand 304, , , , , ,149 less: Residual Demand 12,760 5, Total Accommodated Demand 306, , , , ,149 Overall Demand Growth 0.6 % (1.2) % (1.0) % (1.1) % (0.5) % Market Mix Commercial 45.6 % 45.6 % 46.1 % 46.3 % 46.2 % 46.2 % Leisure Extended-Stay Group Existing Hotel Supply 1,136 1,114 1,114 1,114 1,114 1,114 Available Room Nights per Year 414, , , , , ,975 Nights per Year Total Supply 1,136 1,115 1,115 1,115 1,115 1,115 Rooms Supply Growth -1.9 % 0.0 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 73.5 % 75.4 % 74.4 % 73.7 % 72.9 % 72.5 % A Change of room count in May 2016 of the 100% competitive, Mainstay Suites Chattanooga Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 142

147 FIGURE DEMAND PROJECTION RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Commercial Base Demand 148, , , , ,055 Total Demand 156, , , ,055 Growth Rate 5.0 % (2.5) % (2.0) % (1.5) % 2019 Leisure Base Demand Total Demand Growth Rate Extended-Stay Base Demand Total Demand Growth Rate 93,279 97,011 92,645 89,866 88,518 97,011 92,645 89,866 88, % (4.5) % (3.0) % (1.5) % 53,966 57,744 54,568 53,204 52,672 57,744 54,568 53,204 52, % (5.5) % (2.5) % (1.0) % Group Base Demand 37,192 38,122 37,169 36,426 36,061 Total Demand 38,122 37,169 36,426 36,061 Growth Rate 2.5 % (2.5) % (2.0) % (1.0) % Totals Base Demand 333, , , , ,306 Overall Demand Growth 4.8 % (3.6) % (2.4) % (1.4) % Market Mix Commercial 44.7 % 44.8 % 45.2 % 45.4 % 45.3 % Leisure Extended-Stay Group Existing Hotel Supply 1,212 1,212 1,212 1,212 1,212 Available Room Nights per Year 442, , , , ,471 Nights per Year Total Supply 1,212 1,212 1,212 1,212 1,212 Rooms Supply Growth 0.0 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 75.4 % 78.9 % 76.1 % 74.3 % 73.3 % Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 143

148 FIGURE DEMAND PROJECTION FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Leisure Base Demand 96, , , , , ,692 Unaccommodated Demand 5,963 6,052 6,143 6,204 6,266 Total Demand 118, , , , ,959 Growth Rate 23.2 % 1.5 % 1.5 % 1.0 % 1.0 % Commercial Base Demand Unaccommodated Demand Total Demand Growth Rate Group Base Demand Unaccommodated Demand Total Demand Growth Rate ,828 19,789 20,086 20,388 20,591 20, ,269 20,573 20,882 21,090 21, % 1.5 % 1.5 % 1.0 % 0.5 % 15,598 16,533 16,699 16,866 16,950 16, ,153 17,325 17,498 17,585 17, % 1.0 % 1.0 % 0.5 % 0.0 % Government Base Demand 10,705 11,240 11,352 11,409 11,466 11,466 Unaccommodated Demand Total Demand 11,270 11,382 11,439 11,496 11,496 Growth Rate 5.3 % 1.0 % 0.5 % 0.5 % 0.0 % Totals Base Demand 140, , , , , ,803 Unaccommodated Demand 7,092 7,195 7,299 7,369 7,434 Total Demand 167, , , , ,237 Overall Demand Growth 17.7 % 0.7 % 0.6 % 0.3 % 0.2 % Market Mix Leisure 68.6 % 70.9 % 71.0 % 71.1 % 71.1 % 71.3 % Commercial Group Government Existing Hotel Supply Proposed Hotels Home2 Suites by Hilton Lake City ¹ Available Room Nights per Year 171, , , , , ,393 Nights per Year Total Supply Rooms Supply Growth 18.4 % 0.0 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 82.3 % 81.8 % 82.4 % 82.9 % 83.2 % 83.3 % ¹ Opening in January 2016 of the 100% competitive, 86-room Home2 Suites by Hilton Lake City Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 144

149 FIGURE DEMAND PROJECTION FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Commercial Base Demand 55,593 59,484 61,269 62,494 63,432 64,066 Unaccommodated Demand 3,922 4,040 4,121 4,183 4,225 Total Demand 63,407 65,309 66,615 67,614 68,290 Growth Rate 14.1 % 3.0 % 2.0 % 1.5 % 1.0 % Government Base Demand Unaccommodated Demand Total Demand Growth Rate Leisure Base Demand Unaccommodated Demand Total Demand Growth Rate ,566 16,033 16,193 16,355 16,437 16, ,360 16,524 16,689 16,773 16, % 1.0 % 1.0 % 0.5 % 0.0 % 37,178 38,108 38,870 39,453 39,848 40,047 1,563 1,594 1,618 1,634 1,642 39,671 40,464 41,071 41,482 41, % 2.0 % 1.5 % 1.0 % 0.5 % Group Base Demand 11,916 12,155 12,337 12,460 12,523 12,523 Unaccommodated Demand Total Demand 12,475 12,662 12,789 12,853 12,853 Growth Rate 4.7 % 1.5 % 1.0 % 0.5 % 0.0 % Totals Base Demand 120, , , , , ,072 Unaccommodated Demand 6,133 6,290 6,401 6,483 6,533 Total Demand 131, , , , ,605 less: Residual Demand 6, Total Accommodated Demand 125, , , , ,605 Overall Demand Growth 4.6 % 7.3 % 1.6 % 1.1 % 0.6 % Market Mix Commercial 46.2 % 48.1 % 48.4 % 48.6 % 48.7 % 48.9 % Government Leisure Group Existing Hotel Supply Proposed Hotels Proposed Holiday Inn Express Hotel & Suites ¹ Available Room Nights per Year 153, , , , , ,668 Nights per Year Total Supply Rooms Supply Growth 0.0 % 16.6 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 78.5 % 82.1 % 75.5 % 76.8 % 77.6 % 78.1 % ¹ Opening in January 2017 of the 75% competitive, 93-room Proposed Holiday Inn Express Hotel & Suites Supply and Demand Analysis AHIP Portfolio of Hotels, TN and FL 145

150 11. Approaches to Value In appraising real estate for market value, three approaches to value are considered: income capitalization, cost, and sales comparison. Basic summaries of each approach are provided as follows; please refer to the introduction of each respective chapter for additional description. Income Capitalization Approach Sales Comparison Approach Cost Approach The income capitalization approach analyzes a property's ability to generate financial returns as an investment. The report estimates a property's operating cash flow, and the result is utilized in a direct capitalization technique and a discounted-cash-flow analysis. The income capitalization approach is often selected as the preferred valuation method for operating properties because it most closely reflects the investment rationale of knowledgeable buyers. The sales comparison approach estimates the value of a property by comparing it to similar properties sold on the open market. To obtain a supportable estimate of value, the sales price of a comparable property must be adjusted to reflect any dissimilarity between it and the property being appraised. The sales comparison approach is most useful in the case of simple forms of real estate such as vacant land and single-family homes, where the properties are homogeneous and the adjustments are few and relatively simple to compute. In the case of complex investments such as hotels, where the adjustments are numerous and more difficult to quantify, the sales comparison approach loses much of its reliability. The cost approach estimates market value by computing the cost of replacing the property and subtracting any depreciation resulting from physical deterioration, functional obsolescence, and external (or economic) obsolescence. The value of the land, as if vacant and available, is then added to the depreciated value of the improvements for a total value estimate. The cost approach is most reliable for estimating the value of new properties; however, as the improvements deteriorate and market conditions change, the resultant loss in value becomes increasingly difficult to quantify accurately. Moreover, our experience with hotel investors shows that this group of buyers and sellers relies upon the methods of the income approach when making decisions; the cost approach generally does not play a significant role. Approaches to Value AHIP Portfolio of Hotels, TN and FL 146

151 Reconciliation The final step in the valuation process is the reconciliation and correlation of the value indications. Factors that are considered in assessing the reliability of each approach include the purpose of the report, the nature of the hotel, and the reliability of the data used. In the reconciliation, the applicability and supportability of each approach are considered and the range of value indications is examined. The most significant weight is given to the approach that produces the most reliable solution and most closely reflects the criteria used by typical investors. Approaches to Value AHIP Portfolio of Hotels, TN and FL 147

152 12. Income Capitalization Approach The income capitalization approach is based on the principle that the value of a property is indicated by its net return, known as the present worth of future benefits. The future benefits of income-producing properties, such as hotels, are net income before debt service and depreciation (as estimated by a forecast of income and expense) and any anticipated reversionary proceeds from a sale. These future benefits can be converted into an indication of market value through a capitalization process and discounted-cash-flow analysis. The forecast of income and expense is expressed in current dollars for each year. The stabilized year is intended to reflect the anticipated operating results of the property over its remaining economic life, given any or all applicable stages of build-up, plateau, and decline in the life cycle of the hotel. The eleven-year forecast of net income forms the basis of a mortgage-equity and discounted-cash-flow analysis, where ten years of net income and a reversion derived from the capitalized eleventh year's net income are discounted back to the date of value and summed to derive an estimate of market value. Because the value is unknown but the loan-to-value ratio and market rates of return can be estimated, the value is computed by way of a linear algebraic equation. The algebraic equation that solves for the total property value using a ten-year mortgage and equity technique was developed by Suzanne R. Mellen, CRE, MAI, FRICS, ISHC, Senior Managing Director of the San Francisco office of HVS. A complete discussion of the technique is presented in her article entitled Simultaneous Valuation: A New Technique. Review of Operating History Because each hotel in The Portfolio is an existing hotel with an established operating performance, its historical income and expense experience can serve as a basis for projections. The income and expense statements for each hotel were provided by current ownership. Where applicable, we have reorganized the statements in accordance with the Uniform System of Accounts for the Lodging Industry (USALI). The following table illustrates the base year aggregate operating statement. Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 148

153 FIGURE 12-1 BASE YEAR AGGREGATE STATEMENT OF OPERATIONS 2015/16 Fiscal Year Ending May Number of Rooms: 374 Paid Occupied Rooms: 115,851 Days Open: 365 Paid Occupancy: 84.9% Average Rate: $98.28 RevPAR: $83.41 Percentage Available Room Amount Occupied Room of Revenue OPERATING REVENUE Rooms $11, % $30,444 $98.28 Other Operated Departments Miscellaneous Income Total Operating Revenue 11, , DEPARTMENTAL EXPENSES* Rooms 2, , Other Operated Departments Total 2, , DEPARTMENTAL INCOME 9, , UNDISTRIBUTED OPERATING EXPENSES Administrative & General , Marketing , Franchise Fee , Prop. Operations & Maint , Utilities , Total 2, , GROSS HOUSE PROFIT 6, , Management Fee INCOME BEFORE NON-OPER. INC. & EXP. 5, , NON-OPERATING INCOME AND EXPENSE Property Taxes , Insurance Reserve for Replacement , Total 1, , EBITDA LESS RESERVE $4, % $12,697 $40.99 Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 149

154 Comparable Operating Statements In order to gauge the hotel hotel's profitability, we have reviewed the following individual income and expense statements from comparable hotels, derived from our database of hotel income and expense statements. FIGURE 12-2 COMPARABLE OPERATING STATEMENT: RATIO TO SALES TOWNPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Year: 2014/ / Number of Rooms: 80 to to to to to 110 Days Open: Occupancy: 75% 80% 72% 84% 74% Average Rate: $87 $97 $99 $98 $85 RevPAR: $65 $78 $71 $83 $63 REVENUE Rooms 96.3 % 93.9 % 98.0 % 97.8 % 98.4 % Other Operated Departments Rentals & Other Income Total DEPARTMENTAL EXPENSES* Rooms Other Operated Departments Total DEPARTMENTAL INCOME OPERATING EXPENSES Administrative & General Marketing Franchise Fee Property Operations & Maintenance Utilities Total HOUSE PROFIT Management Fee INCOME BEFORE FIXED CHARGES * Departmental expense ratios are expressed as a percentage of departmental revenues Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 150

155 FIGURE 12-3 COMPARABLE OPERATING STATEMENT: RATIO TO SALES RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Year: 2015/ / /13 Edition: Number of Rooms: 90 to to to to to 120 Days Open: Occupancy: 82% 85% 77% 81% 75% Average Rate: $122 $104 $121 $125 $113 RevPAR: $100 $89 $93 $102 $84 REVENUE Rooms 99.3 % 97.3 % 94.5 % 98.4 % 92.6 % Other Operated Departments Rentals & Other Income Total DEPARTMENTAL EXPENSES* Rooms Other Operated Departments Total DEPARTMENTAL INCOME OPERATING EXPENSES Administrative & General Info. and Telecom. Systems Marketing Franchise Fee Property Operations & Maintenance Utilities Total HOUSE PROFIT Management Fee INCOME BEFORE FIXED CHARGES * Departmental expense ratios are expressed as a percentage of departmental revenues Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 151

156 FIGURE 12-4 COMPARABLE OPERATING STATEMENT: RATIO TO SALES FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Year: 2014/ / / Number of Rooms: 80 to to to to to 130 Occupancy: 83% 89% 77% 85% 82% Average Rate: $110 $111 $108 $112 $101 RevPAR: $91 $99 $84 $95 $83 REVENUE Rooms 98.3 % 96.3 % 98.7 % 98.8 % 99.5 % Other Operated Departments Rentals & Other Income Total DEPARTMENTAL EXPENSES* Rooms Other Operated Departments Total DEPARTMENTAL INCOME OPERATING EXPENSES Administrative & General Info. and Telecom. Systems Marketing Franchise Fee Property Operations & Maintenance Utilities Total HOUSE PROFIT Management Fee INCOME BEFORE FIXED CHARGES * Departmental expense ratios are expressed as a percentage of departmental revenues Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 152

157 FIGURE 12-5 COMPARABLE OPERATING STATEMENT: RATIO TO SALES FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Year: / /14 Number of Rooms: 80 to to to to to 140 Occupancy: 78% 86% 75% 84% 75% Average Rate: $103 $100 $93 $95 $93 RevPAR: $80 $86 $70 $80 $70 REVENUE Rooms 97.2 % 94.8 % 97.3 % % 97.4 % Other Operated Departments Rentals & Other Income (0.3) 0.0 Total DEPARTMENTAL EXPENSES* Rooms Other Operated Departments Total DEPARTMENTAL INCOME OPERATING EXPENSES Administrative & General Marketing Franchise Fee Property Operations & Maintenance Utilities Total HOUSE PROFIT Management Fee INCOME BEFORE FIXED CHARGES * Departmental expense ratios are expressed as a percentage of departmental revenues Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 153

158 Fixed and Variable Component Analysis Inflation Assumption Forecast of Income and Expense HVS uses a fixed and variable component model to project a lodging facility's revenue and expense levels. This model is based on the premise that hotel revenues and expenses have one component that is fixed and another that varies directly with occupancy and facility usage. A projection can be made by taking a known level of revenue or expense and calculating its fixed and variable components. The fixed component is then increased in tandem with the underlying rate of inflation, while the variable component is adjusted for a specific measure of volume such as total revenue. In consideration of the most recent trends, the projections set forth previously, and our assessment of probable property appreciation levels, we have applied an underlying inflation rate of 2.0% in 2016, 2.5% in 2017, and 3.0% in 2018 and thereafter. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlying inflation rate are discussed in our write-up of individual income and expense items. In the following tables, we present our forecast of income and expense for each hotel in The Portfolio on an aggregate basis. The forecast begins on June 1, 2016, expressed in inflated dollars for each year. Each revenue and expense item has been forecast based upon our review of the each hotel s operating history, operating budget, and comparable income and expense statements. Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 154

159 FIGURE 12-6 DETAILED FORECAST OF INCOME AND EXPENSE AND TRAILING-12-MONTH OPERATING HISTORY Historical Operating Results 2015/16 Fiscal Year Ending May 2016/ / /19 Number of Rooms: Occupancy (Paid Rooms): 85% 83% 82% 82% Average Rate: $98.28 $ $ $ RevPAR: $83.41 $84.84 $87.66 $90.16 Days Open: Occupied Rooms (Paid): 115,851 %Gross PAR POR 112,888 %Gross PAR POR 112,099 %Gross PAR POR 111,635 %Gross PAR POR OPERATING REVENUE Rooms $11, % $30,444 $98.28 $11, % $30,965 $ $11, % $31,997 $ $12, % $32,909 $ Other Operated Departments Miscellaneous Income Total Operating Revenues 11, , , , , , , , DEPARTMENTAL EXPENSES * Rooms 2, , , , , , , , Other Operated Departments Total 2, , , , , , , , DEPARTMENTAL INCOME 9, , , , , , , , UNDISTRIBUTED OPERATING EXPENSES Administrative & General , , , , Marketing , , , , Franchise Fee , , , , Prop. Operations & Maint , , , , Utilities , , , , Total 2, , , , , , , , GROSS HOUSE PROFIT 6, , , , , , , , Management Fee , INCOME BEFORE NON-OPER. INC. & EXP. 5, , , , , , , , NON-OPERATING INCOME AND EXPENSE Property Taxes , , , , Insurance Reserve for Replacement , , , , Total 1, , , , , , , , EBITDA LESS RESERVE $4, % $12,697 $40.99 $4, % $12,239 $40.55 $4, % $12,666 $42.26 $4, % $13,012 $43.59 *Departmental expenses are expressed as a percentage of departmental revenues. Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 155

160 FIGURE 12-7 TEN-YEAR FORECAST OF INCOME AND EXPENSE 2016/ / / / / / / / / /26 Number of Rooms: Occupied Rooms: 112, , , , , , , , , ,318 Occupancy: 83% 82% 82% 82% 82% 82% 82% 82% 82% 82% Average Rate: $ % of $ % of $ % of $ % of $ % of $ % of $ % of $ % of $ % of $ RevPAR: $84.84 Gross $87.66 Gross $90.16 Gross $92.68 Gross $95.46 Gross $98.31 Gross $ Gross $ Gross $ Gross $ OPERATING REVENUE Rooms $11, % $11, % $12, % $12, % $13, % $13, % $13, % $14, % $14, % $15, % Other Operated Departments Miscellaneous Income Total Operating Revenue 12, , , , , , , , , , DEPARTMENTAL EXPENSES* Rooms 2, , , , , , , , , , Other Operated Departments Total 2, , , , , , , , , , DEPARTMENTAL INCOME 9, , , , , , , , , , UNDISTRIBUTED OPERATING EXPENSES Administrative & General , , Marketing Franchise Fee , , , , , , , Prop. Operations & Maint Utilities Total 3, , , , , , , , , , GROSS HOUSE PROFIT 6, , , , , , , , , , Management Fee INCOME BEFORE NON-OPER. INC. & EXP. 5, , , , , , , , , , NON-OPERATING INCOME AND EXPENSE Property Taxes Insurance Reserve for Replacement Total 1, , , , , , , , , , EBITDA LESS RESERVE $4, % $4, % $4, % $4, % $5, % $6, % $5, % $5, % $5, % $5, % *Departmental expenses are expressed as a percentage of departmental revenues. % of Gross Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 156

161 INCOME CAPITALIZATION MORTGAGE-EQUITY TECHNIQUE Mortgage Component Equity Component & Equity Yield Rate Each hotel in The Portfolio has been valued via the income approach through the application of a ten-year mortgage-equity technique and a discounted-cash-flow analysis. The conversion of the portfolio s forecasted EBITDA Less Replacement Reserve into an estimate of value was based on the premise that investors typically leverage their real estate investments to enhance their equity yield. Typically, the majority of a transaction is capitalized with mortgage financing (50% to 80%), with equity comprising the balance (20% to 50%). The amounts and terms of available mortgage financing and the rates of return that are required to attract sufficient equity capital formed the basis for allocating the net income between the mortgage and equity components and deriving a value estimate. Based on our analysis of the current lodging industry mortgage market and adjustments for specific factors, such as each hotel in the portfolio s location and condition, it is our opinion that a loan-to-value ratio of 60% to 70% is reasonable to expect based on this interest rate and current parameters. The remaining capital required for a hotel investment generally comes from the equity investor. The following table summarizes the range of equity yields indicated by hotel sales and investor interviews. We note that there tends to be lag between the sales data and current market conditions, and thus, the full effect of the change in the economy and capital markets may not yet be reflected. FIGURE 12-8 SUMMARY OF EQUITY YIELD OR INTERNAL RATE OF RETURN REQUIREMENTS Source Data Point Range Average HVS Hotel Sales - Full-Service & Luxury 10.7% % 17.3% HVS Hotel Sales - Select-Service & Extended-Stay 14.2% % 18.7% HVS Hotel Sales - Budget/Economy 12.5% % 20.3% HVS Investor Interviews 13% - 25% While the lack of attainable yields on alternate investments has continued to put downward pressure on equity-yield rates, increasing leverage levels are enabling investors to earn higher returns. Competition for quality assets remains strong among all hotel asset types. These influences are keeping equity yields from increasing significantly. Intense competition for assets in the major metro areas is pushing investors to pursue acquisitions with greater upside in secondary and tertiary markets. Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 157

162 Terminal Capitalization Rate We have reviewed several recent investor surveys, and the following table summarizes the data. FIGURE 12-9 TERMINAL CAPITALIZATION RATES DERIVED FROM INVESTOR SURVEYS Source Data Point Range Average PWC Real Estate Investor Survey - 1st Quarter 2016 Select-Service Hotels 7.5% % 9.0% Full-Service Hotels 7.0% % 8.4% Luxury Hotels 5.5% % 7.3% USRC Hotel Investment Survey - Winter 2016 Full-Service Hotels 6.8% - 9.0% 8.1% Situs RERC Real Estate Report - 1st Quarter 2016 First Tier Hotels 6.7% % 8.3% Our final position for the terminal capitalization rate reflects the current market for hotel investments. In tandem with overall lower return expectations, terminal capitalization rates for quality hotel assets in markets with high barriers to entry have declined to new lows, while terminal capitalization rates for older assets or for those suffering from functional obsolescence and/or weak market conditions remain elevated, reflecting the market's recognition that certain assets have less opportunity for significant appreciation. Mortgage-Equity Method - Value Opinion The valuation of the mortgage and equity components is accomplished using an algebraic equation that calculates the exact amount of debt and equity that the hotel will be able to support based on the anticipated cash flow (as estimated by the forecast of income and expense) and the specific return requirements demanded by the mortgage lender (interest) and the equity investor (equity yield). Thus, the anticipated net income (before debt service and depreciation) is allocated to the mortgage and equity components based on market rates of return and loan-to-value ratios. The total of the mortgage component and the equity component equals the value of the property. The position of the total property yield or unlevered discount rate reflects the current market conditions for both debt and equity capital. Debt remains available at favorable interest rates, though some lenders have pulled out of the market and underwriting standards have become more stringent. Equity and mezzanine financing is readily available due to the attractive yields being generated by hotels when compared with other forms of commercial real estate. We continue to Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 158

163 interview hotel investors to assess the movement in yield rates and their impact on value. Direct Capitalization Overall Discount Rate and Discounted Cash Flow Analysis The direct capitalization approach applies an overall capitalization rate to projected net income to derive a value estimate. The process of converting the projected income stream into an estimate of value via the discounted-cash-flow method is described as follows. 1. An appropriate discount rate is selected to apply to the projected net income before debt service. This rate reflects the "free and clear" internal rate of return to an all-cash purchaser or a blended rate of debt and equity return requirements. 2. A reversionary value reflecting the sales price of the property at the end of the ten-year holding period is calculated by capitalizing the eleventh-year net income by the terminal capitalization rate and deducting typical brokerage and legal fees. 3. Each year's forecasted net income before debt service and depreciation and the reversionary sales proceeds at the end of the ten-year holding period are converted to a present value by multiplying the cash flow by the chosen discount rate for that year in the forecast. The sum of the discounted cash flows equates to the value of the hotel. We have reviewed several recent investor surveys, and the following table summarizes the data. Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 159

164 FIGURE OVERALL DISCOUNT RATES DERIVED FROM SALES AND INVESTOR SURVEYS Source Data Point Range Average HVS Hotel Sales - Full-Service & Luxury 7.2% % 10.3% HVS Hotel Sales - Select-Service & Extended-Stay 9% % 10.6% PWC Real Estate Investor Survey - 1st Quarter 2016 Select-Service Hotels 9.0% % 10.8% Full-Service Hotels 8.5% % 10.5% Luxury Hotels 6.5% % 9.6% USRC Hotel Investment Survey - Winter 2016 Full-Service Hotels 8.8% % 10.2% Situs RERC Real Estate Report - 1st Quarter 2016 First Tier Hotels 7.5% % 9.3% Direct Capitalization The following table illustrates the range of key inputs used and the resulting aggregate value of The Portfolio. FIGURE VALUATION PARAMETERS AND AGGREGATE VALUE CONCLUSION Loan-to-Value Ratio: 65-70% Discount Rate: % Terminal Capitalizatoin Rate: % Interest Rate: 6% Equity Yeild: 19% Holding Period: 10 Years Closing Costs: 3% Start Date: September 1, 2016 Reversion Year: 2025/26 "As Is" Value Conclusion: $47,400,000 Per Room: $126,738 Income Capitalization Approach AHIP Portfolio of Hotels, TN and FL 160

165 13. Sales Comparison Approach The sales comparison approach is based on the principle of substitution, which defines a property s value as the cost of acquiring an equally desirable substitute (assuming that no costly delay is incurred in making the substitution). Thus, the sales comparison approach can be used to form an opinion of a property s market value from the price at which equally desirable properties have sold, or for which they can be purchased, on the open market. Comparable Sales To present our selection of comparable sales, we conducted comprehensive searches for recent transactions of hotels that bear comparisons to the hotels in The Portfolio in one or more key areas. When possible, we gave priority to transactions occurring in the same state or region as a hotel in The Portfolio. We also considered factors such as operational and physical similarities to each hotel in The Portfolio, including brand affiliation and revenue-generating characteristics. All of the data have been verified by HVS or obtained from a verifying source. Sales Comparison Approach AHIP Portfolio of Hotels, TN and FL 161

166 FIGURE 13-1 SUMMARY OF SELECTED COMPARABLE SALES TOWNEPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Property Location Sale Date Price Rooms Price/Rm Year Opened Aloft Nashville Cool Springs Franklin, TN Jun-16 $23,000, $160, % 2008 Homewood Suites by Hilton Huntsville Huntsville, AL Feb-16 14,000, , % 2014 Residence Inn by Marriott Franklin Cool Springs Franklin, TN Nov-13 25,500, , Residence Inn by Marriott Birmingham Downtown Birmingham, AL Sep-13 20,000, , Overall Cap MAP OF PRIMARY COMPARABLE SALES TOWNEPLACE SUITES CHATTANOOGA NEAR HAMILTON PLACE Sales Comparison Approach AHIP Portfolio of Hotels, TN and FL 162

167 FIGURE 13-2 SUMMARY OF SELECTED COMPARABLE SALES RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Property Location Sale Date Price Rooms Price/Rm Year Opened Homewood Suites by Hilton Huntsville Huntsville, AL Feb-16 $14,000, $138, % 2014 Residence Inn by Marriott Atlanta Midtown Atlanta, GA Jan-16 38,000, , Hyatt House Charlotte Center City Charlotte, NC Mar-14 32,496, , Residence Inn by Marriott Franklin Cool Springs Franklin, TN Nov-13 25,500, , Residence Inn by Marriott Birmingham Downtown Birmingham, AL Sep-13 20,000, , Overall Cap MAP OF PRIMARY COMPARABLE SALES RESIDENCE INN BY MARRIOTT CHATTANOOGA NEAR HAMILTON PLACE Sales Comparison Approach AHIP Portfolio of Hotels, TN and FL 163

168 FIGURE 13-3 SUMMARY OF SELECTED COMPARABLE SALES FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Property Location Sale Date Price Rooms Price/Rm Hampton Inn & Suites Tallahassee I-10 Tallahassee, FL Oct-15 $18,000, $147, Fairfield Inn & Suites by Marriott Holiday Tarpon Springs Holiday, FL Dec-14 5,300, , % 2011 Hampton Inn Fort Lauderdale Plantation Plantation, FL Sep-14 13,000, , Overall Cap Year Opened MAP OF PRIMARY COMPARABLE SALES FAIRFIELD INN & SUITES BY MARRIOTT LAKE CITY Sales Comparison Approach AHIP Portfolio of Hotels, TN and FL 164

169 FIGURE 13-4 SUMMARY OF SELECTED COMPARABLE SALES FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Property Location Sale Date Price Rooms Price/Rm Year Opened Hampton Inn & Suites Tallahassee I-10 Tallahassee, FL Oct-15 $18,000, $147, Fairfield Inn & Suites by Marriott Holiday Tarpon Springs Holiday, FL Dec-14 5,300, , % 2011 Hampton Inn Fort Lauderdale Plantation Plantation, FL Sep-14 13,000, , Overall Cap MAP OF PRIMARY COMPARABLE SALES FAIRFIELD INN & SUITES BY MARRIOTT JACKSONVILLE WEST CHAFFEE POINT Sales Comparison Approach AHIP Portfolio of Hotels, TN and FL 165

170 Conclusion Prior to adjustments, the comparable sales transacted for amounts ranging from $68,000 to $238,000 per room. Based on our review of the adjusted sales, we have selected a per key value of $127,000, which equates to a concluded value via the sales comparison approach of $47,500,000 for the 374-room portfolio of four hotels. Sales Comparison Approach AHIP Portfolio of Hotels, TN and FL 166

171 14. Reconciliation of Value Indications The reconciliation, which is the last step in the report process, involves summarizing and correlating the data and procedures employed throughout the analysis. The final value conclusion is arrived at after reviewing the estimates indicated by the income capitalization and sales comparison approaches. The relative significance, applicability, and defensibility of each indicated value are considered, and the greatest weight is given to that approach deemed most appropriate for the property being appraised. The purpose of this report is to estimate the market value of the fee simple interest in the hotel; our report involves a careful analysis of the property itself and the economic, demographic, political, physical, and environmental factors that influence real estate values. Income Capitalization Approach Sales Comparison Approach Cost Approach Our nationwide experience indicates that the procedures used in estimating market value by the income capitalization approach are comparable to those employed by the hotel investors who constitute the marketplace. For this reason, we believe that the income capitalization approach produces the most supportable value estimate, and it is given the greatest weight in our final estimate of the hotel's market value. The sales comparison approach uses actual sales of similar properties to provide an indication of the hotel's value. Although we have investigated a number of sales in an attempt to develop a range of value indications, several adjustments are necessary to render these sales prices applicable to the hotel. The adjustments, which tend to be subjective, diminish the reliability of the sales comparison approach; furthermore, typical hotel investors employ a sales comparison procedure only to establish broad value parameters. Due to the practices of typical hotel buyers and sellers in today s market, the cost approach was not employed in arriving at an as is market value estimate. Reconciliation of Value Indications AHIP Portfolio of Hotels, TN and FL 167

172 Value Conclusion Based on our analysis, it is our opinion that the as is market value of the fee simple interest in the real and personal property of The Portfolio, as of September 1, 2016, is: $47,400,000 FOURTY SIX MILLION FOUR HUNDRED THOUSAND DOLLARS This value estimate equates to $127,000 per room. This represents the "as is" value of The Portfolio, assuming a total capital expenditure of $2,791,365. In the event that the actual cost differs from the amount stated, the value of the The Portfolio may change. It is assumed that the capital improvements will be completed in a competent and timely manner. Reconciliation of Value Indications AHIP Portfolio of Hotels, TN and FL 168

173 15. Statement of Assumptions and Limiting Conditions 1. This report is to be used in whole and not in part. 2. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed marketable and free of any deed restrictions and easements. The property is valued as though free and clear unless otherwise stated. 3. We assume that there are no hidden or unapparent conditions of the subsoil or structures, such as underground storage tanks, that would render the property more or less valuable. No responsibility is assumed for these conditions or for any engineering that may be required to discover them. 4. We have not considered the presence of potentially hazardous materials such as asbestos, urea-formaldehyde foam insulation, any form of toxic waste, polychlorinated biphenyls (PCBs), pesticides, mold, or lead-based paints. We are not qualified to detect hazardous substances and urge the client to retain an expert in this field if desired. 5. The Americans with Disabilities Act (ADA) became effective on January 26, We have conducted no specific compliance survey to determine whether the hotel has been designed in accordance with the various detailed requirements of the ADA. It is possible that the design does not conform to the requirements of the act, and this could have an unfavorable effect on value. Because we have no direct evidence regarding this issue, our estimate of value does not consider possible non-compliance with the ADA. 6. We have made no survey of the property, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate is within the boundaries of the property described, and that there is no encroachment or trespass unless noted. 7. All information, financial operating statements, estimates, and opinions obtained from parties not employed by MM&R Valuation Services, Inc. are assumed true and correct. We can assume no liability resulting from misinformation. 8. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the hotel. Statement of Assumptions and Limiting Conditions AHIP Portfolio of Hotels, TN and FL 169

174 9. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including the appropriate liquor license if applicable), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. 10. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise. 11. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. 12. We are not required to give testimony or attendance in court because of this analysis without previous arrangements, and shall do so only when our standard per-diem fees and travel costs have been paid prior to the appearance. 13. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us. 14. We take no responsibility for any events or circumstances that take place subsequent to either the date of value or the date of our field inspection, whichever occurs first. 15. The quality of a lodging facility's onsite management has a direct effect on a property's economic viability and value. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results and the value estimate. 16. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be hotel to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease because of market volatility and economic forces outside the control of the hotel s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed based upon information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel buyer as of the stated date(s) of valuation. Statement of Assumptions and Limiting Conditions AHIP Portfolio of Hotels, TN and FL 170

175 17. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. 18. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be hotel to small rounding errors. 19. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also hotel to the terms and conditions set forth in our engagement letter with the client. 20. Although this analysis employs various mathematical calculations to provide value indications, the final estimate is subjective and may be influenced by our experience and other factors not specifically set forth in this report. 21. Any distribution of the total value between the land and improvements or between partial ownership interests applies only under the stated use. Moreover, separate allocations between components are not valid if this report is used in conjunction with any other analysis. 22. Our report has been prepared in accordance with, and is hotel to, the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the Uniform Standards of Professional Practice (USPAP), as provided by the Report Foundation. 23. This study was prepared by MM&R Valuation Services, Inc.. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of MM&R Valuation Services, Inc. as employees, rather than as individuals. Statement of Assumptions and Limiting Conditions AHIP Portfolio of Hotels, TN and FL 171

176 16. Certification The undersigned hereby certify that, to the best of our knowledge and belief: 1. the statements of fact presented in this report are true and correct; 2. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions; 3. we have no present or prospective interest in the property that is the hotel of this report and no personal interest with respect to the parties involved; 4. we have no bias with respect to the property that is the hotel of this report or to the parties involved with this assignment; 5. our engagement in this assignment was not contingent upon developing or reporting predetermined results; 6. our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this report; 7. our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Report Practice; 8. Mallory B. Hall, MBA(Lake City and Jacksonville) and Benjamin A. Levin (Chattanooga) personally inspected the properties described in this report; Janet L. Snyder participated in the analysis and reviewed the findings, but did not personally inspect the properties; 9. Mallory B. Hall, MBA and Benjamin A. Levin provided significant real property report assistance to Janet L. Snyder, and that no one other than those listed above and the undersigned prepared the analyses, conclusions, and opinions concerning the real estate that are set forth in this report; 10. Janet L. Snyder has not performed services, as an appraiser or in any other capacity, on the property that is the hotel of this report within the threeyear period immediately preceding acceptance of this assignment; 11. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code Certification AHIP Portfolio of Hotels, TN and FL 172

177 of Professional Ethics and the Standards of Professional Report Practice of the Report Institute; 12. the use of this report is hotel to the requirements of the Report Institute relating to review by its duly authorized representatives; and 13. as of the date of this report, Janet L. Snyder has completed the Standards and Ethics Education Requirement for Candidates of the Report Institute. Janet L. Snyder Senior Vice President MM&R Valuation Services, Inc. State certified general real estatee appraiser RZ3639 State Appraiser License (TN) 4960 Certification AHIP Portfolio of Hotels, TN and FL 173

178 Janet Snyder EMPLOYMENT 2005 to present HVS CONSULTING AND VALUATION SERVICES Asheville, North Carolina HILTON DALLAS LINCOLN CENTRE Dallas, Texas HILTON HOTELS Dallas, Texas EDUCATION AND OTHER TRAINING STATE CERTIFICATIONS BA Baylor University Other Specialized Training Classes Completed: Basic Appraisal Principles 30 hours Basic Appraisal Procedures 30 hours Uniform Standards of Professional Appraisal Practice 15 hours Basic Income Capitalization 39 hours General Appraiser Sales Comparison Approach 30 hours Business Practices and Ethics 8 hours General Appraiser Market Analysis and HBU 30 hours General Appraiser Site Valuation and Cost Approach 30 hours General Appraiser Report Writing and Case Studies 30 hours Statistics, Modeling and Finance 15 hours An Introduction to Valuing Green Buildings 7 hours Condemnation Appraising: Principles & Applications 22 hours Advanced Income Capitalization 40 hours NC Trainee Supervisor Class 4 hours FL Law Class 3 hours Quantitative Analysis 40 hours Advanced Concepts & Case Studies 40 hours Comp Review Class Demo Report Writing 7 hours USPAP Update 2008, 2014 Alabama, Florida, Georgia, Kentucky, New Hampshire, North Carolina, South Carolina, Tennessee, Virginia, West Virginia HVS, Asheville, North Carolina Qualifications of Janet Snyder 1

179 PUBLISHED ARTICLES HVS Journal HVS Journal HVS Journal HVS Journal HVS Journal In Focus: InterContinental Hotels Group, April 2014 Market Intelligence Report 2013: Charlotte, August 2013 HVS Hotel Market Intelligence Report: Asheville, North Carolina, September 2012 HVS Reflections on the 2010 Hunter Hotel Conference, co-authored with Mike Brophy, May 2010 HVS Market Intelligence Report: Asheville, North Carolina, January 2009 PROFESSIONAL AFFILIATIONS American Hotel & Lodging Association HVS, Asheville, North Carolina Qualifications of Janet Snyder 2

180 EXAMPLES OF CORPORATE AND INSTITUTIONAL CLIENTS SERVED Alianza Trinity Holdings LLC Anglo Irish Ascent Hospitality Atlantis Marine World Bank of America Bank of Colorado Bank of Hampton Roads Bank of Jackson Hole Bank of the Commonwealth Bank of the Ozarks Bankers Bank Barclays BB&T Bear Stearns Behringer Harvard Biltmore Company Blanchard & Calhoun Bracewell & Giuliani LLP Bright s Creek Development Cantor Fitzgerald Capmark Finance Inc. Capsule Group Carolina Bank Cascade Financial CIBC World Markets Citadel Securities Citibank Citigroup Columbus Bank and Trust Column Financial Continental Cornerstone Commercial Mortgages, LLC Credit Suisse CSFB CW Capital Deutsche Bank DNC Hotels, LLC EagleBank MD Eastern Bank Elm Street Center LLC Fidelity Bank Financial Funding First State Bank Ganesh Ventures LLC GE Commercial Mortgage GE Franchise Finance Gibson Dunn & Crutcher Gibson Hotel Management & Development GMAC Commercial Mortgage GoldKey PHR Hotels & Resorts Goldman Sachs GS Development LLC HFF Hill, LLC Holliday Fenoglio Fowler Holloway Lodging REIT icap Realty Advisors IRSA Istar Financial Ixis Capital Markets JAM Hospitality JER Partners Johnson Resort Properties Jones Lang LaSalle JPMorgan Chase Kilpatrick/Torchlight Kimpton Hotels & Resorts Laconia Savings Bank Lady Vista Latitude Hospitality, Inc. Laureate Capital Laurus Corporation Lehman Brothers LNR Love Funding Lubbock Economic Development Alliance MainSource Bank Maxwell Development McNamee Hosea Merrill Lynch Merrill Trust MetLife Moody National Companies Morgan Stanley Mortenson Development Mutual Bank Narsi Properties, Inc. Noah Bank Nomura North Hill Suites, LLC Northmarq Capital NRB of Chicago NXT Capital, LLC Olympia Equity Advisors Orix Capital Markets Parks Hospitality Group Peabody Hotels Peachtree Hotel Group PGP Inc. Potomac Business Services Principal Real Estate Advisors Pritchard Associates, Inc. Property Analytics Prudential R&R, LLC Raldex Hospitality RAM Hotels Ravi Patel RBS Greenwich Capital Resort Management Group, LLC Richard Curtis Robinson McFadden Rosedev Development Ryan Companies US, Inc. S&H Equities Scenic Land Investments Seagrass Real Estate & Development Seaport Companies Seaview Properties, LLC Signature Bank Silverton Bank Sovereign Bank Specialty Finance Group Starwood Capital Group Summit Financial Synergie/Titan Development The Village at Hendrix, LLC TierOne Bank Torchlight TriMont Real Estate UBS UrbanAmerica LP US Bank Virendra Patel Walton Street Capital HVS, Asheville, North Carolina Qualifications of Janet Snyder 3

181 EXAMPLES OF PROPERTIES APPRAISED OR EVALUATED PORTFOLIO ANALYSIS Portfolio of 4 Land Appraisals for Fillmore Capital Partners Portfolio of 4 Maryland and Virginia Hotels for Ladder Capital ALABAMA Proposed Autograph Collection, Birmingham Proposed Hilton Garden Inn, Anniston Proposed Hotel, Auburn Clarion Hotel, Birmingham Hilton, Birmingham Proposed Hotel, Conway Proposed Hampton Inn & Suites, Fairhope Proposed Hilton Garden Inn, Foley Proposed Embassy Suites, Hoover Homewood Suites by Hilton, Mobile Proposed Home2 Suites by Hilton, Mobile Courtyard by Marriott, Montgomery Proposed Hotel, Montgomery Proposed Hotel, Prattville Proposed Hotel Indigo, Tuscaloosa ARIZONA Proposed aloft, Glendale Holiday Inn Express, Phoenix Fairfield Inn, Sierra Vista ARKANSAS Fairfield Inn & Suites, Conway Proposed Hotel, Conway Residence Inn by Marriott, Little Rock CALIFORNIA Proposed Hampton Inn & Suites, Lancaster Proposed Homewood Suites, Lancaster Proposed element, Palmdale Pasadena Inn (Red Lion Conversion), Pasadena Proposed SpringHill Suites, Ridgecrest Best Western Miramar, San Diego COLORADO The Sky Hotel Aspen, Aspen The Hotel Telluride, Telluride CONNECTICUT Homewood Suites, Farmington DELAWARE Proposed Hampton Inn & Suites, Newark DISTRICT OF COLUMBIA Willard InterContinental Hotel and Office Courtyard Washington Navy Yard FLORIDA Country Inn & Suites, Cape Canaveral Daytona Beach Resort, Daytona Beach Westin, Fort Lauderdale Comfort Inn, Gainesville Crowne Plaza Hollywood Beach Sian, Hollywood Cheeca Lodge & Spa, Islamorada Holiday Inn Express, Jacksonville Proposed Residence Inn by Marriott, Jacksonville Homewood Suites, Maitland Proposed Hampton Inn & Suites, New Smyrna Beach Proposed SpringHill Suites, New Smyrna Beach Courtyard by Marriott, Ocala Fairfield Inn & Suites by Marriott, Ocala Residence Inn by Marriott, Ocala Great Value Suites, Orlando International Plaza Resort, Orlando Hampton Inn, Ormond Beach Proposed Home2 Suites, Pensacola Proposed Saba Hotel, Rosemary Beach Proposed Embassy Suites, St. Augustine Proposed Hampton Inn & Suites, Sarasota Holiday Inn, Tallahassee Crowne Plaza, West Palm Beach GEORGIA Proposed Hyatt Place, Athens Hilton Atlanta Airport, Atlanta Sheraton Gateway Hotel Atlanta Airport, Atlanta W Hotel, Atlanta Hampton Inn West, Augusta Holiday Inn, Augusta Partridge Inn, Augusta Staybridge Suites, Augusta Wingate Inn, Augusta SpringHill Suites, Buckhead Days Inn, Columbus Best Western Plus, Conyers Fairfield Inn by Marriott, Cordele Holiday Inn Express, Cordele Proposed Fairfield Inn & Suites, Dalton Proposed Lodge & Villas at Foxhall, Douglas County Proposed Westin at Foxhall, Douglas County Proposed Embassy Suites, Duluth Proposed Spruill Residence Inn, Dunwoody Holiday Inn Express, Forsyth Hilton Garden Inn, Lithonia Proposed Hotel & Conference Center, Lookout Mountain Fairfield Inn by Marriott, Milledgeville Dolce Hotel (Conversion to Crowne Plaza), Peachtree City Proposed Aloft, Perimeter HVS, Asheville, North Carolina Qualifications of Janet Snyder 4

182 The Lodge & Spa at Callaway Gardens, Pine Mountain The Brice, Savannah Proposed Cambria Suites, Savannah Proposed Hotel Indigo, Savannah Red Roof Inn & Suites, Savannah Savannah Suites, Savannah Hampton Inn, Thomasville Fairfield Inn by Marriott, Warner Robbins INDIANA Hampton Inn, Clarksville KENTUCKY Fairfield Inn & Suites by Marriott, Ashland Holiday Inn, Bowling Green Proposed Candlewood Suites, Bowling Green Baymont Inn & Suites, Lexington Best Western Regency Inn, Lexington Courtyard by Marriott, Lexington DoubleTree Guest Suites, Lexington Holiday Inn Express, Lexington Holiday Inn, Louisville Holiday Inn, Hurstbourne, Louisville Proposed Holiday Inn Express, Louisville Courtyard by Marriott, Paducah Proposed Courtyard by Marriott, Somerset LOUISIANA Proposed Courtyard by Marriott, Houma Hampton Inn, Lancaster Homewood Suites, Lancaster Proposed Hotel Indigo, New Orleans Holiday Inn Express Hotel & Suites New Orleans Airport South, Saint Rose MAINE TownePlace Suites, Scarborough Holiday Inn, Waterville MARYLAND Sheraton Washington North, Beltsville Hilton, Columbia Legacy Hotel, Rockville Holiday Inn Select, Solomon s Island MASSACHUSSETS Homewood Suites, Billerica Seaport Hotel and Parking Garage, Boston Proposed Hotel at Patriot Place, Foxboro Clarion Nantasket Beach Resort Hotel and Spa, Hull TownePlace Suites, Tewksbury MICHIGAN Hilton Airport, Kentwood MINNESOTA Homewood Suites, Bloomington Proposed Westin, Minneapolis Proposed Cambria Suites, Rochester MISSISSIPPI Proposed TownePlace Suites, Flowood Proposed Embassy Suites, Jackson Candlewood Suites, Pearl Dancing Rabbit Inn, Philadelphia MISSOURI Proposed Indigo Hotel, Kansas City NEW HAMPSHIRE Proposed Courtyard, Keene NEW JERSEY Proposed Fairfield Inn & Suites, Millville Proposed Aloft, Newark Proposed Sheraton, Newark Proposed TRYP Wyndham, Newark Proposed Holiday Inn Express, West Long Branch NEW MEXICO TownePlace Suites, Farmington NEW YORK Land, Bronx Proposed Harbor Center Marriott Hotel, Buffalo Holiday Inn JFK (Hilton conversion), Jamaica Proposed Courtyard by Marriott, New York City Proposed Ludlow Hotel, New York City Proposed Hyatt Place, Riverhead Land, Ronkonkoma Sheraton, Smithtown NORTH CAROLINA Sleep Inn & Suites, Albemarle Brookstone Lodge, Asheville Clarion Inn Airport, Asheville Crowne Plaza, Asheville Days Inn, Asheville DoubleTree by Hilton Biltmore, Asheville Fairfield Inn & Suites South Biltmore, Asheville Four Points, Asheville Hilton Biltmore Park, Asheville Holiday Inn Airport, Asheville Hotel Indigo, Asheville Proposed Holiday Inn, Asheville Proposed Homewood Suites, Asheville Proposed Hotel, Asheville HVS, Asheville, North Carolina Qualifications of Janet Snyder 5

183 Proposed Hotel Biltmore Estate, Asheville Proposed Lodge at Biltmore Estate, Asheville Ramada, Asheville Red Roof Inn, Asheville Renaissance, Asheville SpringHill Suites by Marriott, Asheville Proposed Tweetsie Railroad Hotel, Blowing Rock Best Western Blue Ridge Plaza, Boone Country Inn & Suites by Carlson, Boone Hampton Inn, Boone Holiday Inn Express, Boone Proposed Radisson Blu, Brights Creek Proposed Hilton Garden Inn, Carolina Beach Embassy Suites Raleigh - Durham Research Triangle East, Cary Courtyard by Marriott Charlotte Arrowwood, Charlotte Courtyard by Marriott Charlotte Billy Graham Parkway, Charlotte Courtyard by Marriott Charlotte City Center, Charlotte Econo Lodge, Charlotte Hilton Charlotte University Place, Charlotte Marriott Charlotte SouthPark, Charlotte Renaissance, Charlotte Sheraton Charlotte Airport, Charlotte SpringHill Suites Charlotte Airport, Charlotte Sun Suites of Charlotte-Matthews, Charlotte Holiday Inn Express, Clemmons Hampton Inn & Suites, Concord Holiday Inn Express, Dillsboro Proposed Full-Service, Durham Proposed Hilton Garden Inn, Durham Proposed Hotel, Durham DoubleTree, Fayetteville Fairfield Inn by Marriott Asheville Airport, Fletcher Proposed Boutique Hotel, Gastonia Marriott, Greensboro Proposed TownePlace Suites by Marriott, Greensboro Proposed Wyndham, Greensboro Red Roof Inn, Greenville Quality Inn & Suites, Hickory Red Roof Inn, Hickory Hawthorn Suites, Huntersville Proposed Hotel, Huntersville Home Towne Suites, Kannapolis Sea Ranch Hotel, Kill Devil Hills Comfort Inn, Lumberton Country Inn & Suites, Lumberton Fairfield Inn by Marriott, Lumberton Proposed Sonesta Resort/Land Impact Study, Mill Spring Quality Inn & Suites, Monroe Wingate Inn, Mooresville Comfort Suites, Pineville Hampton Inn & Suites, Pineville Hilton Garden Inn, Pineville Hampton Inn, Pisgah Forest Car Wash, Raleigh Courtyard North Raleigh, Raleigh Embassy Suites Crabtree, Raleigh Proposed Aloft, Raleigh Proposed Element, Raleigh Proposed Marriott, Raleigh Proposed Summerfield Suites, Raleigh Renaissance Hotel, Raleigh Sheraton, Raleigh Wingate Inn, Raleigh Proposed Fairfield Inn by Marriott, Rocky Mount Proposed Home2 Suites by Hilton, Sailsbury Hampton Inn, Shelby Residence Inn by Marriott, Southern Pines Masters Inn, Statesville Comfort Inn, Sylva Full-Service Restaurant, Winston- Salem Hilton Garden Inn, Winston-Salem NORTH DAKOTA Proposed Extended-Stay Hotel, Minot OHIO Hampton Inn, Akron Fairfield Inn, Austintown Marriott Airport, Cleveland Quality Inn, Durant Proposed Courtyard by Marriott, Grove City Hampton Inn, Kent Proposed Courtyard by Marriott, Stow OKLAHOMA Quality Inn, Durant Renaissance, Tulsa PENNSYLVANIA Wyndham, Harrisburg Proposed Candlewood Suites, Hazelton Le Meridien, Philadelphia Courtyard by Marriott Shadyside, Pittsburgh Proposed Staybridge Suites, Royersford SOUTH CAROLINA Home Towne Suites, Anderson Proposed Courtyard by Marriott, Cayce Hilton Garden Inn Waterfront, Charleston Proposed Hilton Garden Inn, Charleston Proposed Hotel, Charleston Hyatt Place, Columbia Marriott, Columbia Proposed Aloft, Columbia Proposed Sheraton, Columbia Ramada Inn, Columbia Value Place, Elgin Proposed Staybridge Suites, Florence Embassy Suites, Greenville HVS, Asheville, North Carolina Qualifications of Janet Snyder 6

184 Proposed Hilton Garden Inn, Greenville Savannah Suites, Greenville Westin Poinsett, Greenville Aqua Beach Inn, Myrtle Beach Crown Reef Resort, Myrtle Beach Holiday Inn Express, Myrtle Beach Springmaid Beach Resort, Myrtle Beach Sun N Sand Resort, Myrtle Beach Quality Inn, North Charleston Proposed Home2 Suites, Orangeburg Hilton Garden Inn, Rock Hill Proposed Embassy Suites, Rock Hill Proposed Courtyard, Summerville Proposed Residence Inn, Summerville Holiday Inn Oceanfront, Surfside Beach TENNESSEE Homewood Suites, Brentwood Fairfield Inn & Suites, Chattanooga Sheraton Read House, Chattanooga Staybridge Suites, Chattanooga Proposed Fairfield Inn & Suites, Johnson City Red Roof Inn, Johnson City Fitness Center, Knoxville Hilton Hotel, Knoxville Marriott, Knoxville Proposed Extended-Stay Hotel Farragut Hotel, Knoxville Red Roof Inn Knoxville West, Knoxville Holiday Inn Select, Memphis Wyndham Garden, Memphis Homewood Suites Brentwood, Nashville TEXAS Days Inn, Amarillo Super 8 University, Austin Homewood Suites Market Center, Dallas Holiday Inn Express, Frisco Proposed Hilton Garden Inn, Frisco Proposed Courtyard by Marriott, Galveston Hampton Inn Medical Center, Houston Hilton Garden Inn Northwest, Houston Wyndham DFW Airport North, Irving Proposed Hotel, Lubbock Proposed Focused-Service, New Braunfels Quality Inn & Suites, San Antonio Holiday Inn Express, Waxahachie Proposed Fairfield Inn & Suites, Westover Hill UTAH Capitol Reef Resort, Torrey VIRGINIA Hilton Garden Inn, Arlington Proposed Hampton Inn, Bedford Proposed Boutique Hotel, Bristol Courtyard by Marriott, Charlottesville Proposed Beacon Hotel, Charlottesville AmeriSuites (Hyatt Place Conversion), Chester Hampton Inn Petersburg Southpark Mall, Colonial Heights Holiday Inn Petersburg North Fort Lee, Colonial Heights Best Western, Exmore Country Inn & Suites, Hampton Embassy Suites, Hampton Proposed Hyatt Place, Herndon Proposed Sheraton, Herndon Comfort Inn Gunston Corner, Lorton Holiday Inn & Suites, Newport News Omni, Newport News Proposed Courtyard by Marriott, Newport News Proposed Residence Inn, Newport News Courtyard by Marriott, Norfolk SpringHill Suites, Norfolk Country Inn & Suites, Richmond Holiday Inn Richmond South-Bells Road, Richmond Proposed Hyatt Place, Richmond Proposed Hotel, Virginia Beach WEST VIRGINIA Comfort Inn West Cross Lanes, Charleston Comfort Inn, Cross Lanes WISCONSIN Proposed Aloft, Green Bay Crowne Plaza, Madison Marriott, Madison Proposed Staybridge Suites, Milwaukee WYOMING Lodge at Jackson Hole, Jackson Rustic Inn, Jackson INTERNATIONAL Mexico Proposed Thompson Hotel, Los Veneros Jamaica Proposed Resort HVS, Asheville, North Carolina Qualifications of Janet Snyder 7

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