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Home My WebLink About8.1 Hotel Feasibility Study CITY CLERK File # D[i]~EJ-~0 AGENDA STATEMENT CITY COUNCIL MEETING DATE: September 4, 2007 SUBJECT: Feasibility Study on Full-Service Hotel Report Prepared by: Christopher L. Foss Economic Development Director ATTACHMENTS: 1. Feasibility Study by PKF Consulting (April 2007) RECOMMENDATION:~ Receive the report and provide Staff with appropriate direction. .. FINANCIAL STATEMENT: None. DESCRIPTION: In the FY 2007-08 Goals and Objectives, the City Council adopted Goal II-C-5 which directed staff to "Work to find a full-service hotel." To that end, Staffhas worked with the Alameda County Surplus Property Authority (ACSP A) on a County-initiated and County-funded study to determine the viability of a full-service hotel in the Dublin market. Staff first met with the County and representatives of PKF Consulting, the nation's leading hospitality market research firm, in February 2007 to discuss the feasibility study. It was determined that PKF Consulting would analyze the economic feasibility of a full-service hotel complete with the following components: . 200 rooms · 10,000 square foot conference center / meeting space that could accommodate 475 persons, · All-purpose restaurant that could seat 100-125 patrons . A club lounge . A business center . A fitness center . Swimming pool with Jacuzzi. In the study, PKF Consulting developed two scenarios: Scenario 1 - a 200-room three to four star hotel (Embassy Suites, Doubletree, Westin), and Scenario II - a 200-room Renaissance ClubSport. The two COPY TO: Page 1 of3 ITEM NO. <g. ( G:\Chris\Hotel Study 2007\Agenda statement for Hotel Study Sept 2007.doc scenarios used similar project assumptions (see above) but Scenario II included the construction/operation of a 65,000 s.f. ClubSport facility. The report is based on the assumption that investors in this tier of lodging facility typically require a return on equity/investment (ROI) at a minimum of 18% for new development. PKF Consulting indicated that investors would not build a project without that level of ROI. The study assumed certain financial contributions by the County and City (as outlined below) to allow the project to meet the necessary ROI for investors in this type of hotel product: 200-room Hotel 200-room Renaissance ClubSport County contributes land City funds cost of conference center City rebates 100% of TOT from proj ect for 10 years City provides direct cash subsidy to proj ect 3-4 acres $3.8 million $5,000,000 in current dollars $9.7 million 7 acres $3.8 million $5,000,000 in current dollars $750,000 The project, as studied, would meet the required 18% return on equity/investment necessary to interest a full-service hotel developer if the City/County were interested in investing the following: Scenario 1: 200-room hotel with 10,000 s.f. conference center City: County: Total: $18.5 million $6 - 12 million (at land value of$2 to $3 million per acre) $24.5 to $30.5 million Scenario 2: 200-room Renaissance ClubSport with 10,000 s.f. conference center City: County: Total: $9.5 million $14-20 million (at land value of$2 to $3 million per acre) $23.5 to $29.5 million At the present time, there are 2 full-service hotels in the Tri- Valley that meet parameters (200 rooms / 10,000 s.f. of conference space / restaurant) as defined by the PKF study. These hotels are: Hotel San Ramon Marriott Hilton Pleasanton at the Club Rooms 368 294 Meeting Space (s.f.) 16,500 10,466 There are 3 additional hotels with over 200 rooms, but they don't meet the conference/meeting space threshold: Hotel Pleasanton Plaza Hotel Radisson Hotel Sheraton Four Points Rooms 244 236 214 Meeting Space (s.f.) 8,625 5,696 5,838 Each of these hotels has been part of the Tri-Valley hotel market for several years. These full-service hotels are able to operate in this market as they had much lower land and construction costs when they 213 were built, and are able to charge more competitive rates because their operating costs are lower than the operating costs of a new full-service hotel. Due to the sizeand strength of the Tri-Valley hotel market, representatives ofPKF Consulting stated that it was their opinion that there was not enough hotel room demand or high enough hotel rates to justify the development of a new full--service hotel in the area - without a large public subsidy. The representatives from PKF Consulting did, however, indicate that focused-service hotels (150 rooms and less) could build in Dublin and achieve a required ROI for their investor(s) without requiring a public subsidy. RECOMMENDATION: It is recommended that the City Council receive the report and provide Staff with the appropriate direction. 3~3 PREPARED FOR: MR. PATRICK CASHMAN DIRECTOR ALAMEDA COUNTY COMMUNITY DEVELOPMENT AGENCY 224 W. WINTON AVE., ROOM 110 HAYWARD, CA 94544-1215 PREPARED By: PKF CONSULTING SAN FRANCISCO, CALIFORNIA DATE OF THE REPORT: APRIL 27, 2007 90574 ffen,1rg./ cy JqJo'1 hA.~ ATTACHMENT 1 '" , . April 27, 2007 02 ~ 024 PKF CONSULTING 425 California Street Suite 1650 San Francisco. CA 94104 Telephone (415) 421-5378 Telefax (415) 956-7708 Mr. Patrick Cashman Director Alameda County Community Development Agency 224 W. Winton Ave., Room 110 Hayward, CA 94544-1215 Re: Proposed Hotel Dublin Dear Mr. Cashman: Pursuant to our engagement, we have prepared an analysis of the economic feasibility of a proposed hotel (the "Subject") to be located at Dublin Boulevard and Iron Horse Parkway in Dublin, California. At your request, we have only evaluated the feasibility of a full-service hotel attached to an approximately 10,000-square foot conference center. This study includes two scenarios: Scenario I - a 200-room, three to four-star, more typical, full-service hotel (Le. Embassy Suites, Doubletree, Westin) and Scenario II - a 200-room Renaissance ClubSport. Presented in the following document are exhibits that summarize our findings. These exhibits are outlined as follows: EXHIBIT A: Summary of the Development Program 1. Scenario I: Full-Service Hotel 2. Scenario II: Renaissance ClubSport EXHIBIT B: 1. 2. 3. EXHIBIT C: 1. 2. 3. EXHIBIT D: 1. 2. 3. Market Analysis Historical Performance of the Competitive Market Projected Performance of the Competitive Market Projected Performance of the Subject Financial Feasibility - Scenario I: Full-Service Hotel Projected Operating Results Valuation Using the Discounted Cash Flow Analysis Internal Rate of Return Analysis Financial Feasibility - Scenario II: Renaissance ClubSport Projected Operating Results Valuation Using the Discounted Cash Flow Analysis Internal Rate of Return Analysis Member, PKF International Ltd. 31c2~ PKF Proposed Hotel Dublin Alameda County Community Development Agency EXECUTIVE SUMMARY In Scenario I, we are of the opinion that the optimal type of full-service hotel for the Subject would be a 200-room, three to four-star property. Examples of this type of hotel include "tier three" Embassy Suites, Doubletree, and Westin. The Subject will have guestrooms with an average size of 350 square feet, and amenities will include an all-purpose restaurant, approximately 10,000 square feet of meeting space, a club lounge, business center, fitness center, and swimming pool with Jacuzzi. The development cost for this tier of lodging facility in Dublin is estimated to be approximately $230,000 per room (without land) today. Based on the recommended program, we have developed a statement of projected operating results (cash flow pro formas) for the Subject. From these pro formas, the estimated development cost, and an assumed debt structure (75 percent loan to value), we performed an analysis of the leveraged internal rate of return (IRR) to equity. The results of this analysis are presented in the following table. As noted, we have assumed various degrees of subsidy in each scenario. Scenario Subsid IRR City contributes the land 3.4% II City contributes the land and conference center 5.4% III City contributes the land, conference center, and TOT rebate for 10 years 8.4% It should be noted that investors in this tier of lodging facility typically require a return on equity at a minimum of 18 percent for new development. As such, only Scenario IV generates a market rate return. In Scenario II, we have assumed that the Subject will be a 200-room Renaissance ClubSport. The Subject will have guestrooms with an average size of 350 square feet, and amenities will include an all-purpose restaurant, approximately 10,000 square feet of meeting space, a club lounge, business center, and approximately 65,000-square foot ClubSport. The development cost for this tier of lodging facility in Dublin is estimated to be approximately $360,000 per room (without land) today. Based on the aforementioned, we have developed a statement of projected operating results (cash flow pro formas) for the Subject. From these pro formas, the estimated development cost, and an assumed debt structure (75 percent loan to -2- If 1dLj PKF Proposed Hotel Dublin Alameda County Community Development Agency value), we performed an analysis of the leveraged internal rate of return (IRR) to equity. The results of this analysis are presented in the following table. As noted, we have again assumed various degrees of subsidy in each scenario. Scenario Subsid IRR City contributes the land 13.0% II City contributes the land and conference center 15.1% III City contributes the land, conference center, and TOT rebate for 10 years 17.5% As noted, the returns for Scenario II are higher resulting in significantly less participation required by the city. PKF Consulting appreciates this opportunity to be of service to you. Should you have any questions, or if we can be of further assistance, please do not hesitate to contact us. Yours sincerely, PKF Consulting By: Thomas E. Callahan, CPA, CRE, FRICS, MAl Chief Executive Officer - West thomas.callahan @pkfc.com I 415.421.5378 By: Alvin P. Chan Vice President alvin.chan@pkfc.com 1415.421.5378 -3- EXHIBIT A SUMMARYOFTHEDEVELOPMENTPROGRAM ) 51<R't (; 1 ~Lf PKF Proposed Hotel Dublin Exhibit A: Summary of the Development Program EXHIBIT A-1 Scenario I: Develo . ft. Guestrooms Total: Typical Size: 200 350 sq. ft. 13' x 27' Meeting Space Restaurant: Seats: Other Amenities: 10,000 s . ft. 6,500 s . ft. 475 people e and Other Amenities AII- ur ose 1 00 to 125 Club lounge, business center, fitness center, swimmin 001 with Jacuzzi EXHIBIT A-2 Scenario II: Renaissance ClubSport Develo ment Pro ram Three to four-star 770 140,000 sq. ft. 65,000 SQ. ft. 205,000 s . ft. Guestrooms I Meeting Space 200 350 sq. ft. 13' x 27' Total: Typical Size: Restaurant: Seats: Other Amenities: 10,000 s . ft. 6,500 s . ft. 475 people e and Other Amenities AII- ur ose 1 00 to 125 Club lounge, business center, ClubS art -5- '7 oJ; ~4 EXHIBIT B MARKET ANALYSIS PKF 8 1- o<'Lf Proposed Hotel Dublin Exhibit B: Market Analysis EXHIBIT B-1 Proposed Hotel Dublin Historical Performance of the Com etitive Market Annual Occupied Percent Market Percent Percent Year Su I I Rooms Chan e Occu anc ADR Chan e RevPAR Chan e 2002 689,120 376,482 54.6% $110.57 $60.40 2003 689,120 0.0% 392,714 4.3% 57.0% $98.62 -10.8% $56.20 2004 689,120 0.0% 413,795 5.4% 60.0% $96.01 -2.6% $57.65 2005 689,120 0.0% 440,277 6.4% 63.9% $98.64 2.7% $63;02 2006 689,.120 0.0% 442,753 0.6% 64.2% $105.89 7.4% $68.04 CAGR O.{)% 4.1% -1.1% 3.0% Hotels Included: Hilton at the Club, Crowne Plaza (future Marriott), Radisson, Four Points, Sheraton (former Wyndham Garden), COUltyard, Holiday Inn Express Hotel & Suites, Amerisuites (future Hyatt Place), Marriott San Ramon Source: PKF Consulting -7.0% 2.6% 9.3% 8.0% EXHIBIT B-2 Proposed Hotel Dublin Projected Performance of the Competitive Market Annual Percent Occupied Percent Market Percent Percent Year Supply Change Rooms Change Occupancy ADR Chanae RevPAR Chanae 2006 689,,120 0.0% 442,753 0.6% 64% $105.89 7.4% $68.04 8.0% 2007 689,,120 0.0% 460,500 4.0% 67% $111.25 5.1% $74.34 9.3% 2008 689,,120 0.0% 474,300 3.0% 69% $116.75 4.9% $80.36 8.1% 2009 689,,120 0.0% 488,500 3.0% 71% $121.50 4.1% $86.13 7.2% 2010' 762,,120 10.6% 517,400 5.9% 68% $125.25 3.1% $85.03 -1.3% 2011 762" 120 0.0% 532,900 3.0% 70% $129.00 3.0% $90.20 6.1% 2012 762" 120 0.0% 533,500 0.1% 70% $132.75 2.9% $92.93 3.0% 2013 762" 120 0.0% 533,500 0.0% 70% $136.75 3.0% $95.73 3.0% 2014 762" 120 0.0% 533,500 0.0% 70% $140.75 2.9% $98.53 2.9% CAGR 2.!i% - 3.7% - - 3.8% 5.0% 1 Assumes January 1 , 2010 opening of the 200-room Subject Source: PKF Consulting -7- PKF '1162Lf Proposed Hotel Dublin Exhibit B: Market Analysis EXHIBIT B-3 Hypothetical Year ADR 2006 $125.001 2007 $131.25 5.0% 2008 $136.50 4.0% 2009 $140.60 3.0% 20102 $144.81 3.0% 3.0% $140.47 65.0% 2011 $149.16 3.0% 0.0% $149.16 6.2% 70.0% 2012 $153.63 3.0% 0.0% $153.63 3.0% 72.0% 2013 $158.24 3.0% 0.0% $158.24 3.0% 72.0% 2014 $162.99 3.0% 0.0% $162.99 3.0% 72.0% Hypothetical ADR assuming the Subject was open and stabilized in 2006 2 January 1 , 2010 projected opening date of the Subject Source: PKF Consulting Proposed Full-Service Hotel Dublin Pro' ected Performance Market Actual Percent Growth Discount ADR Chan e RevPAR Percent Chan e $91.30 $104.41 $110.62 $113.93 $117.35 14.4% 5.9% 3.0% 3.0% Proposed Renaissance ClubSport Dublin Pro.ected Performance Hypothetical Market Actual Percent Percent Year ADR Growth Discount ADR Chan e RevPAR Chan e 2006 $140.001 2007 $147.00 5.0% 2008 $152.88 4.0% 2009 $157.47 3.0% 20102 $162.19 3.0% 3.0% $157.32 65.0% $102.26 2011 $167.06 3.0% 0.0% $167.06 6.2% 72.0% $120.28 17.6% 2012 $172.07 3.0% 0.0% $172.07 3.0% 75.0% $129.05 7.3% 2013 $177.23 3.0% 0.0% $177.23 3.0% 75.0% $132.92 3.0% 2014 $182.55 3.0% 0.0% $182.55 3.0% 75.0% $136.91 3.0% Hypothetical ADR assuming the Subject was open and stabilized in 2006 2 January 1, 2010 projected opening date of the Subject Source: PKF Consulting -8- .. 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Qi e " o (/) PKF Proposed Hotel DUblin /3;{ o'lLf Exhibit C: Financial Feasibility - Scenario I: Full-Service Hotel EXHIBIT C-2 Discounted Cash Flow Analysis Cash Flow From Present Value o erations Factor $2,130,000 0.9009 2,818,000 0.8116 2,996,000 0.7312 2,955,000 0.6587 3,049,000 0.5935 3,150,000 0.5346 3,247,000 0.4817 3,337,000 0.4339 3,449,000 0.3909 3,557,000 0.3522 $42,183,000 0.3522 Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Reversion Total Present Value Value Rounded Calculation of Reversion Year 11 NOI Terminal Capitalization Rate Indicated Value at Reversion Less: Selling Costs (1.0%) Net Cash Flow u on Sale Note: Present value figures may not foot due to rounding. Source: PKF Consulting -12- Present Value 11.0% $1,918,900 2,287,200 2,190,600 1,946,600 1,809,400 1,684,100 1,563,900 1,448,000 1 ,348,300 1,252,700 $14,856,200 $32,306,000 $32,300,000 $4,101,000 9.62470% $42,609,000 ($426,000) $42,183,000 .. c- .- Q) - ... .00 :J:I: CQ) Gi .~ ... i:: o Q) :I:CfJ -g~ III :J OLL c.. 0- ... 0 Q. .- ... IV C Q) (,) en I >- == :c "ii) IV Q) LL IV 'u C IV C u: (,) ... :c .c >< W t&.. ~ ~ '0. '" Q)OUi g Ol ~ ~.!: JB ::I~ c: "'0- .5$:15 1)' -g"'C 'a5- (/} ~ E <U~ll.oog goo gfgg8E a: ~ ~ '2: U g8 Gio ~~2'Gt5 a."E~gf9~ffi.~ '0 <<S L.L. CD ~ O.S; e oIu..u..ll.OUoc.. ~g8gg~~~~ mqqq~~~cqLOrrt [@g~~ml'JCC~ 0'" '" 1 .. c C") I () ?- m ~ >< w ",0 ",0 r--.qo 8~~ "'''' '" ,.,,., Q) Q) ~~ Cii CD 0. 0. - Q) ~.= u'" -> C-o Q) C E '" 0.--' o Cii > Q) Cl OlO o 0 ~ ~ 00 0 oCC cc C\Ie6 cD .... .... '" '" .5 :is ::l C ]j o J: '" " ~ (;) " C 0 'S ta <.) ;p ....J C ~ ~ ~ "5 >. Co ~ UJ Q) 0 -g~~ ~ ~ g ~ ~ g.~~-g! 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OJ 2: OJ If) Ql a: w o<l u.. u.. .... 18~02'1 >J1. 1}, M '" o 8 <Xl '" I~ if. '" M '" o o o "- '" '" Ill; L- if. .... M '" o o o ... ~ ~ ~ "- M '" I I'- ,... I o o o '" '" '" ~ >J1. o '" M '" o 8 ;;; ... ~ Q) 2: Ql '" Q) a: Q; ~ Ql E o Q C Ig :a I~ o Qi z .~ "S '" C o (.) u.. lll! a. CD !: " o (f) .. }q ~02Lj Proposed Hotel Dublin Exhibit D: Financial Feasibility - Scenario II: Renaissance ClubSport .. PKF EXHIBIT 0-2 Discounted Cash Flow Analysis Cash Flow From Present Value o erations Factor $3,147,000 0.8969 5,450,000 0.8044 6,451,000 0.7214 6,769,000 0.6470 7,195,000 0.5803 7,451,000 0.5204 7,625,000 0.4667 7,794,000 0.4186 7,967,000 0.3754 8,138,000 0.3367 $90,437,000 0.3367 Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Reversion Total Present Value Value Rounded) Calculation of Reversion Year 11 NOI Terminal Capitalization Rate Indicated Value at Reversion Less: Selling Costs (1.0%) Net Cash Flow u on Sale Note: Present value figures may not foot due to rounding. 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" ,;(13 ~dlf STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS Economic and Social Trends - The consultant assumes no responsibility for economic, physical or demographic factors which may affect or alter the opinions in this report if said economic, physical or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The consultant is not obligated to predict future political, economic or social trends. Information Furnished by Others - In preparing the report, the consultant was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the consultant for the accuracy of such information and the consultant assumes no responsibility for information relied upon later found to have been inaccurate. The consultant reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Hidden Conditions - The consultant assumes no responsibility for hidden or unapparent conditions of the properties, subsoil, ground water or structures. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions. Hazardous Materials - The consultant has not been provided any information regarding the presence of any material or substance on or in any portion of the subject property, which material or substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics. Unless otherwise stated in the report, the consultant did not become aware of the presence of any such material or substance during the consultant's inspection of the subject property. However, the consultant is not qualified to investigate or test for the presence of such materials or substances. The consultant assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover. the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state and local environmental laws, regulations and rules. Zoning and Land Use - Unless otherwise stated, the subject property is assumed to be in full compliance with all applicable zoning and land use regulations and restrictions. Licenses and Permits - Unless otherwise stated, the property is assumed to have all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization that have been or can be obtained or renewed for any use on which the performance estimates contained in this report are based. Engineering Survey - No engineering survey has been made by the consultant. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated. Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report. .. . ~. c?Lf 1024 STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Legal Matters- No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate consultants. Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the consultant, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with properly written qualification and only in its entirety for its stated purpose. Archeological Significance - No investigation has been made by the consultant and no information has been provided to the consultant regarding potential archeological significance of the subject property or any portion thereof. This report assumes no portion of the subject property has archeological significance. Compliance with the Americans with Disabilities Act - The Americans with Disabilities Act ("ADA") became effective January 26, 1992. It is assumed that the property will be in direct compliance with the various detailed requirements of the ADA. Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and conclusions are based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here in their entirety. Utilization of the Land and/or Improvements - It is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Dissemination of Material - Neither all or any part of the contents of this report shall be disseminated to the general public through advertising or sales media, public relations media, new media or other public means of communication without the prior written consent and approval of the consultant(s). Distribution and Liability to Third Parties - The party of whom this report was prepared may distribute copies of this report only in its entirety to such third parties as may be selected by the party for whom this report was prepared; however, portions of this report shall not be given to third parties without our written consent. Liability to third parties will not be accepted. Use in Offering Materials - This report, including all cash flow forecasts, market surveys and related data, conclusions, exhibits and supporting documentation may not be reproduced or references made to the report or to PKF Consulting in any sale offering, prospectus, public or private placement memorandum, proxy statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate transaction unless PKF Consulting has approved in writing the text of any such reference or reproduction prior to the distribution and filing thereof. Limits to Liability - PKF Consulting cannot be held liable in any cause of action resulting in litigation for any dollar amount which exceeds the total fees collected from this individual engagement. Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this assignment will be the responsibility of the client.