MARKET STUDY WITH FINANCIAL PROJECTIONSpublicworks.cuyahogacounty.us/pdf_publicworks/en... · As you requested, we have prepared a market study with financial projections for, and

MARKET STUDY WITH FINANCIAL PROJECTIONS

PROPOSED CONVENTION CENTER HOTEL CLEVELAND, OHIO

PREPARED FOR:

POSITIVELY CLEVELAND CLEVELAND, OHIO

PREPARED BY:

PKF CONSULTING PHILADELPHIA, PENNSYLVANIA

DATE OF THE REPORT:

MAY 30, 2013

May 30, 2013 Positively Cleveland c/o Mr. David Gilbert, President & CEO 334 Euclid Avenue Cleveland, Ohio 44114 Dear Mr. Gilbert: As you requested, we have prepared a market study with financial projections for, and made recommendations concerning, the proposed development of a hotel to be developed on a site adjacent to the new Cleveland Convention Center in downtown Cleveland, Ohio. This report summarizes our findings, conclusions, recommendations and estimates of performance for the property for its first five full fiscal years of operation assuming an opening date of July 1, 2017. As in all studies of this type, the estimated results assume and are based upon competent and efficient management and presume no significant changes in the competitive position of the lodging industry in the market area from those set forth in this report. The conclusions reached are based upon our present knowledge of the subject area’s lodging market as of the completion of our fieldwork, concluded on May 24, 2013. The estimates herein are preliminary in nature and are subject to refinement as the facilities’ program for the subject hotel evolves and a brand and operator are selected. The terms of our engagement are such that we have no obligation to revise this report or the estimated operating results herein to reflect events or conditions that occur subsequent to the date of the completion of our fieldwork. However, we are available to discuss the necessity for revision in view of changes in the economic or market factors affecting the proposed project. Since the estimated operating results are based on estimates and assumptions that are subject to uncertainty and variation, we do not represent them as results that will actually be achieved. This report has been prepared for your use and the use of government agencies and prospective developers, investors, lenders and hotel franchisors. The report and its contents, however, may not be quoted in any appraisal, prospectus or other document without our prior written consent. We would be pleased to hear from you if we can be of further assistance in the interpretation and application of our findings and conclusions. We appreciate your selection of PKF Consulting to provide professional services. Sincerely,

PKF Consulting

PKF Consulting USA | 8 Penn Center – 19th Floor | Philadelphia, PA 19103 TEL: 215-563-5300 | FAX: 215-563-1977 | www.pkfc.com

TABLE OF CONTENTS SECTION I: INTRODUCTION AND SCOPE OF SERVICES Introduction ........................................................................................................... 1 Scope of Services ................................................................................................... 1 SECTION II: MARKET AREA REVIEW Area Overview ........................................................................................................ 1 Demographic and Economic Trends .................................................................... 2 Employment ............................................................................................................ 3 Industrial and Office Markets ................................................................................. 5 Tourism .................................................................................................................... 6 Convention Center ................................................................................................ 10 Global Center for Health Innovation ................................................................... 12 Transportation and Access .................................................................................. 14 Conclusions ......................................................................................................... 15 SECTION III: COMPARABLE/COMPETITIVE CONVENTION CENTERS & CONVENTION CENTER HOTELS Comparable/Competitive Convention Centers….. .............................................. 1 The Convention Center Hotels…. ........................................................................ 14 SECTION IV: LODGING MARKET ANALYSIS Existing Lodging Market ....................................................................................... 1 Additions to the Lodging Supply ......................................................................... 6 Projections of Market Performance ..................................................................... 7 Conclusions ......................................................................................................... 10 SECTION V: HOTEL SITE AND RECOMMENDATIONS Site and Site Area.................................................................................................. 1 Facility Recommendations ................................................................................... 2 Management ............................................................................................................ 4 Timing ...................................................................................................................... 4 SECTION VI: ESTIMATED PERFORMANCE - THE PROPOSED HOTEL Market Position of the Proposed Hotel ............................................................... 1 Estimates of Net Operating Income after Reserve ............................................. 2 Projected Operating Results ................................................................................ 13

SECTION I: INTRODUCTION AND SCOPE OF SERVICES

PROPOSED CONVENTION CENTER HOTEL CLEVELAND, OHIO MAY 2013

Section I: Introduction and Scope of Services I-1 INTRODUCTION PKF Consulting was retained to conduct research and prepare analyses to enable it to determine if a hotel (“the Hotel”) proximate to or adjoining the new Cleveland Conven-tion Center and the Global Center for Health Innovation in downtown Cleveland, Ohio would be viable from a marketability standpoint and, if so, to make recommendations regarding the Hotel and prepare estimates of operating performance for the recom-mended property. The Hotel would be developed on a parcel of land currently occupied by a Cuyahoga County administrative building which would be demolished. The new Convention Center is to open in June 2013 and the Global Center shortly thereafter. The primary entrance to the Convention Center will be through the first floor of the Global Center. Combined, the facilities will offer over one million square feet of exhibit, meeting room, ballroom, of-fice and support areas. Based on the characteristics of the downtown Cleveland lodging market, the attributes of the primary competitors to the new Convention Center and the hotels that serve them and, to a large degree, the potential for hotel room-night generation perceived from the new Convention Center and Global Center, we recommend that a 600-room branded hotel be built on the subject site with an appropriate array of restaurant, lounge, meeting and banquet and other support spaces. It has been assumed herein that the Hotel will open on July 1, 2017 and will be independently operated by a qualified hotel management firm. SCOPE OF SERVICES In completing this assignment, we performed numerous tasks. Specifically, we:

• Discussed the project and its elements with you and other representatives of Positively Cleveland and MMPI;

• Visited and toured the new Convention Center and Global Center and various hotels and other attractions in downtown Cleveland;

• Compiled and reviewed historical lodging data for downtown Cleveland from Smith Travel Research and our files and economic/demographic data for relevant areas;

• Met with representatives of three major downtown Cleveland hotels;

• Obtained information from convention centers and convention-oriented hotels in cities deemed comparable to and competitive with the Cleveland facilities;

• Made recommendations concerning the subject hotel;

Section I: Introduction and Scope of Services I-2

• Prepared projected levels of occupancy and average room rate for the recommended hotel for its first five fiscal years of operation;

• Obtained and analyzed historical financial operating results for existing relevant hotels in Cleveland and in the cities deemed comparable/competitive;

• Prepared projected net incomes after reserves for the proposed hotel for its first five fiscal years of operation; and,

• Prepared this report summarizing our findings,

conclusions, recommendations and estimates.

SECTION II: MARKET AREA REVIEW PROPOSED CONVENTION CENTER HOTEL CLEVELAND, OHIO MAY 2013

Section II: Market Area Review II-1

The purpose of this section is to review pertinent economic and demographic data to determine the current economic climate in the subject market area, its potential for growth and the degree to which it could support the subject hotel as envisioned. AREA OVERVIEW The proposed hotel’s site is located in the heart of downtown Cleveland, Ohio. The Cleveland Metropolitan Statistical Area (“MSA”) includes the five counties of Cuyahoga (within which the City of Cleveland is located), Geauga, Lake, Lorain and Medina. Dubbed "Polymer Valley," the metropolitan Cleveland area has the largest concentra-tion of polymer companies in the United States. This and other manufacturing industries have historically formed the foundation of the area’s economy. Today, more than 37 percent of all Fortune 500 companies are present in Cleveland or the surrounding northeast Ohio region through corporate headquarters, major divisions, subsidiaries, and sales offices. In addition, more than 160 engineering companies are located in the MSA and over 100 biotechnology firms are located in northeast Ohio, along with more than 100 research laboratories. The Cleveland Clinic Health System is one of the world’s foremost healthcare institutions and has the nation's largest hospital-based department of biomedical engineering. The following two maps indicate the location of the proposed hotel’s site within Cleve-land’s downtown and the surrounding region.

Market Area Review II-2

The following sections of the report present statistical and other information that provide some indication of the relative economic and demographic health of the area surround-ing the subject site. DEMOGRAPHIC AND ECONOMIC TRENDS The table below presents a summary of population data for the City of Cleveland, Cuyahoga County and Cleveland MSA and compared to the U.S. overall.

POPULATION TRENDS

2000

2010

C.A.C* 2012

Estimate

C.A.C(1) City of Cleveland 478,403 396,815 -1.9% 393,806(2) -0.8% Cuyahoga County 1,393,978 1,280,122 -0.8% 1,265,111 -0.6% Cleveland MSA 2,148,143 2,077,240 -0.3% 2,063,535 -0.3% U.S.A. 281,424,602 308,747,508 0.9% 313,914,040 0.8% (1) Compound Annual Change (2) 2011 Estimate Source: U.S. Census Bureau.

The populations of the City, County and MSA have each been in decline over the past two-plus decades. These trends have contrasted with the experience of the U.S. overall, which grew consistently over this period. Today, with a population of approximately 2.1 million, the Cleveland MSA is the 29th-largest in the U.S. The City and County are relatively less affluent than the national average, as indicated in the comparative household income and housing value data in the table to follow.


However, Cuyahoga County on the whole is significantly more affluent than the City, with income comparable to the national average.

INCOME AND HOME VALUE ESTIMATES AVERAGE 2007-2011

Area

Per Capita

Income

Median Household

Income

Median Value of Owner-Occupied

Housing Units City of Cleveland $16,665 $27,470 $94,300

Cuyahoga County $26,810 $44,088 $134,900 U.S.A. $27,334 $51,914 $186,200

Source: U.S. Census

EMPLOYMENT A review of employment trends offers an indication of the relative health of the subject market area. The data in the following table presents employment and unemployment data for the City of Cleveland, Cuyahoga County, the MSA and the U.S. from 2010 through March 2013. These data provide insight as to the magnitude of, and trends in, employment that sur-rounds the subject site.

LABOR MARKET TRENDS (000’s)

Area/Metric 2010 2011 2012 CAC (1) March 2012

March 2013

City of Cleveland: Labor Force

165.6 163.9 162.7 -0.9% 161.3 158.3

Employed

146.4 146.7 147.3 0.3% 146.1 144.2 Unemployment

11.6% 10.5% 9.5% 9.4% 8.9%

Cuyahoga County

Labor Force

633.6 628.1 625.5 -0.6% 619.8 609.8 Employed

575.9 577.2 579.6 0.3% 574.9 567.2

Unemployment

9.1% 8.1% 7.3% 7.2% 7.0% Cleveland MSA: Labor Force

1,064.3 1,058.4 1,054.7 -0.5% 1,046.8 1,030.5

Employed

970.1 975.7 979.9 0.5% 971.9 958.7 Unemployment

8.9% 7.8% 7.1% 7.2% 7.0%

United States: Labor Force

153,889 153,617 154,975 0.4% 154,316 154,512

Employed

139,064 139,869 142,469 1.2% 141,412 142,698 Unemployment

9.6% 8.9% 8.1% -- 8.4% 7.6%

(1) Compound Annual Change; not seasonally adjusted. Source: Bureau of Labor Statistics


The preceding data indicate recovery from the recession, which “bottomed-out” in 2010, has begun, with increasing levels of employment, but with unemployment percentages that remain stubbornly high. While the City’s unemployment rate is higher than the na-tional average, rates in the County and MSA are significantly lower. Also notable are the contracting labor forces in the City, County and MSA which contrast with the nation’s growth overall. Average employment breakdowns by category over the period 2000 through 2011 for Cuyahoga County are presented in the following table.

CUYAHOGA COUNTY EMPLOYMENT DISTRIBUTION BY MAJOR SECTOR

Sector

2000 2007-2011 Avg. %

Change # of Jobs %

# of Jobs %

Agriculture, forestry, fishing and hunting, and mining 901 0% 1,264 0% 40% Construction 28,952 5% 23,771 4% -18% Manufacturing 102,279 16% 73,144 12% -28% Wholesale trade 24,570 4% 19,018 3% -23% Retail trade 68,699 11% 62,055 11% -10% Transportation and warehousing, and utilities 30,779 5% 26,243 4% -15% Information 17,821 3% 12,595 2% -29% Finance and insurance, and real estate and rental and

leasing 54,773 9% 48,316 8% -12%

Professional, scientific, and management, and adminis-trative and waste management services 64,340 10% 63,067 11% -2%

Educational services, and health care and social assis-tance 137,562 22% 153,004 26% 11%

Arts, entertainment, and recreation, and accommoda-tion and food services 48,796 8% 51,841 9% 6%

Other services, except public administration 28,090 4% 26,685 5% -5% Public administration 26,857 4% 25,403 4% -5% Total Non-Farm Employment 634,419 100% 586,406 100% -8% Source: U.S. Census The data in the preceding table indicate that Educational Services, Health Care and So-cial Assistance is the largest employment category in the Counties, representing 26 per-cent of the employment. This sector grew by a healthy 11 percent over the 2000 to 2011 period. As has been the case throughout most of the Midwest, the Manufacturing sector experienced a significant decline over the past decade-plus, having contracted by 28 per-cent over this period and now representing 12 percent of employment. The table on the following page presents the most recent data available (2011) con-cerning the largest existing private employers in the MSA.


LARGEST PRIVATE SECTOR EMPLOYERS CLEVELAND MSA

Employer

Sector

Employees Locally

Cleveland Clinic Health System Health Care 34,000 University Hospitals Health Care 13,726 Giant Eagle Grocery 10,311 Progressive Insurance Insurance 8,612 Summa Health System Health Care 8,000 Group Management Services, Inc. Professional Services 7,242 General Motors Manufacturing 5,975 Key Corp Financial Services 5,827 MetroHealth System Health Care 5,558 Case Western Reserve University Higher Education 4,620 Source: Crain’s Cleveland Business 2012 Book of Lists.

At some 34,000 workers, the Cleveland Clinic Health System is by far the largest single private sector employer in the MSA. This and other health care providers account for four of the MSA’s top10 private employers. In addition to the companies and organizations mentioned above, the following Fortune 1,000 companies are headquartered in Cleveland:

• Eaton Corporation (manufacturing) • Sherwin-Williams (manufacturing) • Nacco Industries (manufacturing) • Medical Mutual of Ohio (health insurance) • Cliffs Natural Resources (natural resources) • Applied Industrial Technologies (manufacturing) • Lincoln Electric (manufacturing)

INDUSTRIAL AND OFFICE MARKETS The industrial and office markets represent important sources of demand for lodging accommodations and a review of recent trends in these markets is meaningful. The following commentary, from Colliers International’s Cleveland Knowledge Report – First Quarter 2013, provides insight into recent trends and the outlook for the region’s industrial and office markets:

“The Cleveland industrial and office markets had a strong start to 2013. Both sectors combined for close to two (2) million square feet of positive absorption in the first quarter. Manufacturing companies accounted for most of the activity in industrial, while biotech firms made up the most movement in office. In the U.S., both of these sectors have been driving recent economic improvements and job creation which bodes well for the city of Cleveland and its surrounding suburbs.

A major factor in the market activity has been the substantial amount of tax credits that are available statewide. These tax credits have


encouraged local businesses to expand and allowed new development to be a possibility. The most notable project spurred from these aggressive tax policies is the new $465 million Global Center for Health Innovation and newly renovated convention center which is slated to open in October of this year. The one (1) million-square-foot complex will be anchored by the global healthcare IT firm HIMMS which chose Cleveland over Nashville and New York.

Going forward, Cleveland must take advantage of the growth in manufacturing and healthcare. Biotech firms will continue to gravitate to the area due to the world-renowned Cleveland Clinic, while manufacturing will continue to be attracted to the experienced labor force and location of the city with regard to Lake Erie.

The outlook for 2013 is generally positive, with the potential for sustained tenant growth rather than the space-neutral or modest gains of the last two years.”

The Hotel’s site is located in Colliers International’s “Downtown” sub-market, which an-chors the region’s office market and is also a major hub of industrial development. Rel-evant first quarter 2013 industrial and office market statistics are summarized in the following table.

CLEVELAND REGION INDUSTRIAL AND OFFICE MARKETS – FIRST QUARTER 2013

Market/Submarket

Total Inventory

(S.F.)

Total Vacant

(S.F.)

Vacancy

Rate

YTD

Absorption

Asking Rental Rate

Industrial: Downtown Cleveland 26,472,132 2,883,210 10.9% 13,215 $3.34 Total Cleveland Region 478,284,663 41,690,366 8.7% 1,616,929 $3.59 Office: Downtown Cleveland 39,426,278 7,373,874 18.7% -377,592 $17.22 Total Cleveland Region 145,533,101 17,549,617 12.1% 275,760 $16.04 Source: Colliers International

TOURISM Tourism activities generate substantial amounts of lodging demand and offer an indica-tion of the vitality of the Cleveland hotel market. Five miles east of downtown Cleveland is University Circle, a 550-acre concentration of cultural, educational, and medical institutions, including the Cleveland Botanical Gar-den, Case Western Reserve University, University Hospitals, Severance Hall, the Cleveland Museum of Art, the Cleveland Museum of Natural History, and the Western Reserve Historical Society. Cleveland is also home to the I. M. Pei-designed Rock and Roll Hall of Fame, located on the Lake Erie waterfront at North Coast Harbor, approxi-mately three blocks north of the Hotel’s site. In 2011 (most recent data available), this


museum attracted some 460,600 visitors. Neighboring attractions include the Great Lakes Science Center, the Steamship Mather Museum, and the USS Cod, a World War II submarine. Cleveland's professional sports teams include the Cleveland Indians (Major League Baseball), Cleveland Browns (National Football League), and Cleveland Cavaliers (National Basketball Association). All three of these teams play their games at facilities in downtown Cleveland and, in aggregate, attracted over 2.1 million attendees to games in 2012. While most attendees to these sporting events originate from within the Cleve-land area, many come from outside the area to follow visiting teams. Attendees of sporting, entertainment and trade events from outside the area often stay overnight, especially on weekends. The following table summarizes recent historical trends in home-game attendance for these three sports teams.

ANNUAL ATTENDANCE MAJOR CLEVELAND SPORTS FRANCHISES

Franchise/Measure

Year 2009 2010 2011 2012 Average

Indians (MLB)

Total Home Attendance 1,776,904 1,394,812 1,840,835 1,603,596 1,654,037 Per-Game Average 22,492 17,435 22,726 19,797 20,613 League Rank 25th 30th 24th 29th 27th Browns (NFL)

Total Home Attendance 551,110 528,933 526,874 533,058 534,994 Per-Game Average 68,889 66,117 65,859 66,632 66,874 League Rank 15th 20th 18th 18th 18th Cavaliers (NBA)

Total Home Attendance 820,439 843,042 824,595 525,577(1) 829,359(2) Per-Game Average 20,011 20,562 20,112 15,927 19,153 League Rank 5th 2nd 3rd 19th 7th (1) Strike-shortened season (2) Due to strike-shortened 2012 season, average taken of 2009-2011 seasons only Sources: Major League Baseball; National Football League; National Basketball Associa-tion

Fashion Week Cleveland, the City's annual fashion event, is one of the few internation-ally recognized fashion industry events in North America. The annual Ingenuity Fest, Notacon and TEDxCLE conference focus on the combination of art and technology. The Cleveland International Film Festival has been held annually since 1977, and typi-cally attracts over 60,000 attendees. Cleveland also hosts an annual holiday display lighting and celebration, dubbed Winterfest, which is held downtown at the city's historic hub, Public Square. Cleveland also has a vibrant theater district. The Playhouse Square Center, located in downtown Cleveland approximately 0.5 miles east of the Hotel’s site, is the second-largest theater complex in the United States (second only to New York City’s Lincoln Center). Theaters currently operating at the Playhouse Square Center include:


Allen Theater Palace Theater Hanna Theater 14th Street Theater Ohio Theater Kennedy’s Theater State Theater Idea Center Studio 1 at Playhouse Sq.

The top five paid attractions in Cleveland in 2010 (most recent comprehensive data available) are presented in the following table.

TOP PAID ATTENDANCE ATTRACTIONS – 2010 CUYAHOGA COUNTY

Attraction Attendance Type of Business

Quicken Loans Arena 2,000,000 Sports and entertainment arena International Exposition Center 1,500,000 Conventions Cleveland MetroParks Zoo 1,176,919 Zoo Woolstein Center 548,049 Sports and entertainment arena Rock & Roll Hall of Fame 452,100 Museum

Source: Crain’s Cleveland Business 2012 Book of Lists; Rock & Roll Hall of Fame

The Horseshoe Casino Cleveland, a Caesar’s property, opened in May of 2012 and is the first casino to be built in the state of Ohio. The 96,000-square-foot facility is located in downtown Cleveland approximately three blocks southwest of the hotel’s site. Horse-shoe has 1,846 slot machines and 119 table games. While the Casino does not offer on-site lodging, per se, the adjoining Ritz-Carlton Hotel reportedly now owes much of its business to casino players. The table below presents the casino revenue (after payouts to winners) data for the Horseshoe Casino since its opening.

Win/Unit/ Win/Unit/ Win/Pos./Units Win Day Units Win Day Day**

2012: May* 2,083 $12,925,047 $345 94 $3,578,608 $2,115 $353June 2,083 18,523,050 296 94 7,592,721 2,692 449July 2,083 16,288,878 252 94 7,655,772 2,627 438August 2,083 15,178,877 235 94 7,671,072 2,632 439September 2,067 14,754,019 238 94 6,366,802 2,258 376October 2,038 13,102,435 207 95 7,736,845 2,627 438November 1,858 13,153,617 236 117 7,330,701 2,089 348December 1,854 15,214,944 265 117 9,314,695 2,568 428

2013: January 1,849 13,018,302 227 117 7,645,220 2,108 351February 1,849 14,007,338 253 117 8,045,601 2,292 382March 1,849 16,035,242 280 119 8,460,670 2,293 382April 1,846 11,962,075 216 119 7,928,353 2,221 370

Fiscal Year 1,899 $174,163,824 $251 103 $89,327,060 $2,373 $396

* Opened May 14, 2012. ** Six positions per table. Source: Ohio Casino Control Commission.

Year/Month

Slot Machines Table Games

HORSESHOE CASINO - CLEVELAND OHIOCASINO REVENUES/WINS

FISCAL YEAR ENDED APRIL 30, 2013

The map and key on the following page identify the locations of these area attractions.


Noted Cleveland Attractions - Map Key

Map Code Attraction Map Code Attraction

A Cleveland MMCC / Proposed Hotel Site G Playhouse Square Center B Quicken Loans Arena (Cleveland Cavaliers) H Progressive Field (Cleveland Indians) C International Exposition Center I Cleveland Browns Stadium (Cleveland Browns) D Cleveland MetroParks Zoo J University Circle E Woolstein Center K Horseshoe Casino F Rock & Roll Hall of Fame


CONVENTION CENTER The prior convention center was an extension to the Public Auditorium or Public Hall, which opened in 1922. The expanded facility is comprised of a classic building and was adequate for conventions of “its day” when it opened in 1964. With the plethora of new relatively column-free and high-ceilinged convention centers built in cities throughout the nation in the 1990’s and 2000’s with the aid of federal and state funds, the Cleve-land facility quickly became non-competitive for first-class conventions, trade shows and events. While the auditorium and stage remain functional, it became clear that Cleveland required a new state-of-the-art facility to regain a competitive position in the convention and group meeting market. In response to this situation, the new Cleveland Convention Center (“the Center”) is under construction between East and West Mall Drives and St. Clair Avenue and to the north of East Lakeside Avenue and is scheduled to host its first event in June 2013. Most of the new convention center will be underground, with landscaped event and pe-destrian areas above. The Center’s new 32,000-square-foot ballroom, however, will have glass walls and will overlook Lake Erie. Features of the new Center include:

• Three main adjoining exhibit halls totaling some 226,000 square feet with: o 90-foot column spacings o 30-foot ceiling heights

• A 32,000-square-foot divisible ballroom • 26 meeting rooms totaling some 50,000 square feet and ranging in size from

800 to 6,600 square feet • Some 57,000 square feet of pre-function space • Food and beverage, restroom and other support facilities • A spacious truck dock

The following are layouts of the floors of the new Cleveland Convention Center.

Upper Registration & Meeting Room Floor (with Ramps to the Global Center)


Main Exhibit Floor

Ballroom Floor

Some of the major events already booked at the Center include:

• The Annual Case Management Society of America (>2,000 attendees; 5,500 hotel room-nights)


• The Ohio Music Education Association (~9,000 attendees; 2,575 hotel room-nights; three-year commitment)

• The CleanMed Conference & Exposition (>1,500 attendees; 1,500 room-nights)

• Ohio Optometric Association’s “EastWest Eye Conference” (>1,500 at-tendees; 1,125 room-nights; three-year commitment)

• Industrial Supply Association (>1,500 attendees; 2,800 room-nights)

• National Association of Housing & Redevelopment Officials (>1,500 at-tendees; 4,300 room-nights)

• Content Marketing World (~1,500 attendees; 3,500 room-nights; multi-year commitment)

As of the end of March 2013, definite bookings for the Center totaled approximately 50,200 room-nights for 2013, 15,000 in 2014, 28,400 in 2015 and lesser amounts in future years. Tentative bookings at that time totaled 7,300 in 2013, 31,900 in 2014, 30,800 in 2015, 46,200 in 2016, 32,100 in 2017 and lesser amounts thereafter. Once the Center and Global Center open and can establish a reputation, these numbers should increase. The targeted room-night goal for the Convention Center, as of March 2013, is approximately 104,000 room-nights. In addition to the bookings in hand, the Center has “lost” over 183,000 room-nights of convention demand due to conflicting dates, pricing and, in many cases, the inability of the City to offer either a large enough headquarters hotel or enough “blocked” rooms in close proximity to the Center. The Center is being jointly sold by Positively Cleveland, the City’s convention and busi-ness bureau, and MMPI, who manage both the Center and the Global Center. GLOBAL CENTER FOR HEALTH INNOVATION While its total employment in the hundreds will not qualify it as one of the “major employers” in the Cleveland area, the Global Center for Health Innovation (“the Global Center”, formerly referred to as the Medical Mart), to be adjacent to the subject convention center hotel and attached to the Center itself, will have a measurable impact on the downtown area and material impacts on both the convention center and the subject hotel. The 235,000-square-foot Global Center aims to be a further expansion of the Cleveland area’s already- mentioned dominant presence in the regional, national and international healtcare markets as a center for healthcare innovation, education and commerce. Its four floors of space will be generally devoted to the following:


• Floor 1 – Health and Home (plus the major atrium gateway to the convention center, an 11,000-square-foot junior ballroom and 8,200 square feet of pre-function/event space)

• Floor 2 – People, Patients and Caregivers

• Floor 3 – Clinical Spaces

• Floor 4 – Healthcare IT

Various companies and organizations will present changing exhibits on new procedures, technigues, products and medical treatment theories and will host symposia, conferences and product demonstrations and training sessions. Two major tenants of the Global Center (of the over 50 that have been announced) are: GE Healthcare, which will present the “Disease Pathway”, with displays, showcases and presentations addressing breast cancer, heart disease and Alzheimer’s; and, Healthcare Management and Information Systems (or “HIMSS”) which will occupy the fourth floor of the Global Center and have a continuous stream of visitors, from near and far, coming to be educated on the latest in the exploding world of information systems for the healtcare industry. It is conceivable that HIMSS alone could host 40 to 50 visitors per day (or some 10,000 per year), many from out of town. It is envisioned that the Global Center will not only generate thousands of individual commercial traveler hotel room-nights with industry professionals staying abreast of what’s new in the healthcare industry and small groups (seminars, conferences, etc.), but will be the attraction that tips the scales for meeting planners responsible for booking medium- and large-sized healthcare association and professional conventions and meetings. (The InterContinental Hotel and the other hotels around the Cleveland Clinic already attract a significant amount of this business without benefit of the Global Center and a convention center.) The following are floor-by-floor layouts of the Global Center, with the first floor indicating its linkage with the Convention Center.


First Floor

Second Through Fourth Floors

TRANSPORTATION AND ACCESS Downtown Cleveland is well-served by highway and rail systems, with easy access to commercial air travel. Highway access into downtown Cleveland is provided directly via I-90. I-90 is the prima-ry east/west highway route through the area, passing approximately seven blocks south of the Hotel’s site via 9th Street. Interstate 71 originates just southwest of the downtown area, approximately 4.6 miles (an eight minute drive via I-90) south of the proposed


hotel’s site and is the primary route from downtown Cleveland to Cleveland-Hopkins International Airport (CLE). State Route 2 (“Cleveland Memorial Shoreway”) also pro-vides direct access into downtown Cleveland, branching off of I-90 and passing the Ho-tel’s site two blocks north via 9th Street. Superior Avenue, running southeast/northwest two blocks south of the Hotel’s site, is a primary local conduit through the downtown. The Hotel’s site is 14.5 miles (a 20-minute drive) northeast of Cleveland-Hopkins Inter-national Airport (“CLE”). CLE is the City's commercial international airport and serves as one of three main hubs for United Airlines. The airport holds the distinction of having the first airport-to-downtown rapid transit connection in North America, established in 1968. In 2011 (most recent full year available) CLE accommodated some 9.2 million passengers, down from approximately 11.5 million in 2007, prior to the inset of the most recent recession. In addition to CLE, Cleveland is served by Burke Lakefront Airport, on the north shore of downtown between Lake Erie and the Cleveland Memorial Shoreway. Burke is pri-marily a commuter and business airport, accommodating private aircraft traffic. Amtrak provides service to Cleveland via the Capitol Limited and Lake Shore Limited routes, which stop at Cleveland Lakefront Station two blocks north of the Hotel’s site. Cleveland has also been identified as a hub for the proposed Ohio Hub project, which would eventually bring high-speed rail to Ohio. There have been several proposals for commuter rail in Cleveland over the years, including an ongoing study into a Sandusky–Cleveland line. Thus, the subject site is very well located in relation to the region’s transportation net-work. CONCLUSIONS The condition of the U.S. economy continues to improve, albeit sluggishly. Unemploy-ment rates are expected to remain on a slow downward trajectory over the next several years. The general consensus amongst the experts is that the U.S. economy will con-tinue to recover with between two and three percent GDP growth. Unemployment rates in the City of Cleveland are expected to remain above the national average, but the County and MSA should continue to experience rates lower than the national average. Several developments taking place downtown bode well for the area’s hotel market. Specifically, the recent opening of the Horseshoe Casino and the upcom-ing openings of the new Cleveland Convention Center and the Global Center for Health Innovation will generate new demand for hotel lodging and expand downtown Cleve-land’s tourism and visitation profile. In sum, we believe that the area around the subject site and its central location within a major metropolitan area are deemed quite suitable for, and should be supportive to, the development of a convention hotel and should successfully attract a mix of convention and group meeting attendees, tourists and commercial travelers.

SECTION III: COMPARABLE/COMPETITIVE CONVENTION CENTERS & CONVENTION

CENTER HOTELS PROPOSED CONVENTION CENTER HOTEL CLEVELAND, OHIO MAY 2013

Section III: Comparable/Competitive Convention Centers & Convention Center Hotels III-1 This section of the report discusses the convention centers, and supporting lodging markets, deemed most relevant to the new Cleveland Convention Center (and the ad-joining Global Center for Health Innovation, formerly known as the Cleveland Medical Mart) and the proposed convention headquarters hotel (“the Hotel”). COMPARABLE/COMPETITIVE CONVENTION CENTERS The convention centers, and supporting lodging inventories, located in the following five cities are discussed herein: Cincinnati; Columbus; Indianapolis; Louisville; and, Pitts-burgh. These cities were selected for comparison and analysis as they were commonly mentioned as potential direct competition by representatives of Positively Cleveland (the City’s Convention and Visitors Bureau), MMPI (Merchandise Mart Properties, Inc., the managers of both the Convention Center and the Global Center for Health Innovation) and selected General Managers of hotels in downtown Cleveland. Further, the selected comparable/competitive convention centers appear to constitute an appropriate com-parative sample based on our experience with convention center operations in the re-gion.

The following pages describe the selected convention centers and related hotel invento-ries in alphabetical order.

Cincinnati The Duke Energy Convention Center opened in 1968 in downtown Cincinnati. It has been expanded and renovated, with the last major $135 million expansion completed in 2006. At that time, management of the Duke Center was taken over by Global Spec-trum. The following is a photograph of the exterior of the Center.

Section III: Comparable/Competitive Convention Centers & Convention Center Hotels III-2

The Duke Center offers some 750,000 square feet of total space as follows:

• 195,000 square feet of exhibit hall space • 31 meeting rooms with approximately 44,300 square feet of space • Grand ballroom of 40,000 square feet • Junior ballroom of 17,000 square feet

The following are the floor plans for the Duke Energy Center:


The Cincinnati USA annual report for 2011 reported that the Center had an attendance of 798,378 in 2011 from 163 events with 334 event-days. The attendance was broken down as follows: 37 percent conventions; 35 percent consumer shows; 11 percent trade shows; 9 percent special events; and, 4 percent each for meetings and banquets. Ac-cording to Cincinnati USA, it booked some 206,000 hotel room-nights in 2012, roughly the same as in 2011 and 2010. The Duke Energy Center has two hotels connected to it by walkways/bridges: the 872-room Millenium Hotel and the 486-room Hyatt Regency Hotel. In 2012, these two hotels experienced a combined occupancy of 50.9 percent at an aggregate average room rate of $105.49. The combined results for 2012 were diluted by the lackluster performance of the Millenium Hotel. Including the two hotels attached to the Center, there are a total of five hotels with 2,521 rooms in the immediate vicinity of the Center. In 2012, these ho-tels reported an aggregate occupancy of 60.3 percent at an average room rate of $128.43. According to Smith Travel Research, these five hotels garnered some 40 per-cent of their occupied rooms from the group segment in 2012. This would equate to ap-proximately 1,135 occupied group rooms for every 1,000 square feet of exhibit space in the Duke Energy Center. The Microsoft MapPoint map on the following page indicates the location of the Duke Energy Center and a .3-mile radius around the Center. Also shown are symbols and, in most cases, names for the hotels located within the .3-mile radius.


Columbus The Greater Columbus Convention Center is located in downtown Columbus near the Nationwide Arena. This uniquely-designed facility is operated by SMG. A following is a photograph of the Center.

The Columbus Center offers some 440,000 square feet of total space as follows:


The following are the floor plans for the Columbus Center:


Section III: Comparable/Competitive Convention Centers & Convention Center Hotels III-6 According to the Convention Center, it booked 219,636 room-nights in 2012. (Experi-ence Columbus indicated that it booked some 313,000 hotel room-nights in 2012.) The Center’s event attendance for 2012 was broken down as follows: 17 percent conven-tions; 28 percent consumer shows; 19 percent trade shows; 18 percent sporting events; 14 percent meetings; 2 percent banquets; and, 1 percent special events. The Greater Columbus Convention Center has two hotels connected to it by walk-ways/bridges: the 532-room Hilton Hotel, which opened in mid-October of 2012, and the 633-room Hyatt Regency Hotel. In 2012, these two hotels experienced a combined oc-cupancy of 66.8 percent at an aggregate average room rate of $126.31 despite the par-tial-year ramp-up results of the Hilton. Including the two hotels attached to the Center, there are a total of eight hotels with 2,241 rooms in the immediate vicinity of the Center. In 2012, these eight hotels reported an aggregate occupancy of 66.4 percent at an av-erage room rate of $120.64. According to Smith Travel Research, these eight hotels re-ported some 49 percent of their occupied rooms from the group segment in the five months in late 2012 and early 2013 for which data were available. On an annualized basis, this would equate to approximately 648 occupied group rooms for every 1,000 square feet of exhibit space in the Greater Columbus Convention Center. The following is a Microsoft MapPoint map indicating the location of the Greater Colum-bus Convention Center and a .3-mile radius around the Center. Also shown are symbols and, in most cases, names for the hotels located within the .3-mile radius.

Indianapolis The self-operated Indiana Convention Center is located in downtown Indianapolis adja-cent to the Lucas Oil Stadium. (The Convention Center benefits from many events held at, or also encompassing, the Lucas Oil Stadium.) A photograph of the Center is found on the following page.


The Indiana Convention Center, without the facilities in the Lucas Oil Stadium, offers some 750,000 square feet of total space as follows:


The following are the floor plans for the Indiana Center:


According to the Indianapolis Convention & Visitors Association, they have some 750,000 definite room-nights booked for 2013 of which some 560,000 are directly tied to the Convention Center. Another 84,000 room-nights are “tentative” for 2013, with 42,000 of those related to the Convention Center. The Center’s event attendance for 2011 was broken down as follows: 27 percent conventions; 4 percent consumer shows; 8 percent trade shows; 61 percent sporting events; and, 1 percent special events. The Indiana Convention Center has three hotels connected to it by walkways/bridges: the 622-room Marriott Hotel; the 573-room Westin Hotel; and, the 499-room Hyatt Re-gency Hotel. In 2012, three two hotels experienced a combined occupancy of 71.6 per-cent at an aggregate average room rate of $139.28. Including the three hotels attached to the Center, there are a total of 13 hotels with 4,660 rooms in the immediate vicinity of the Center. In 2012, these 13 hotels reported an aggregate occupancy of 69.9 percent at an average room rate of $143.33. According to Smith Travel Research, these 13 ho-tels garnered some 58 percent of their occupied rooms from the group segment in 2012. This would equate to approximately 1,229 occupied group rooms for every 1,000 square feet of exhibit space in the Indiana Convention Center. On the following page is a Microsoft MapPoint map indicating the location of the Indiana Convention Center and a .3-mile radius around the Center. Also shown are symbols and, in most cases, names for the hotels located within the .3-mile radius.


Louisville The Kentucky International Convention Center is located in downtown Louisville. This facility is not operated by a third party. A photograph of the Center is found below.

The Kentucky International Convention Center offers some 265,000 square feet of total space as follows:

• 191,000 square feet of exhibit hall space • 53 meeting rooms with approximately 44,000 square feet of space • Grand ballroom of 30,000 square feet

The following are the plans for the primary facilities at the Kentucky Center:


Section III: Comparable/Competitive Convention Centers & Convention Center Hotels III-11 According to the 2011 annual report of the Kentucky State Fair Board, which owns and operates both the Convention Center and the nearby Kentucky Exposition Center, the Convention Center reported a total attendance of 299,336 in 2011. The Fair Board does not publish attendance breakdown information and the Center does not publish and would not provide this data. The Kentucky International Convention Center has one hotel, the 616-room Marriott Ho-tel, directly connected to it. In 2012, this hotel experienced an occupancy in the range of 65 to 69 percent at an average room rate in the range of $155 to $165. There are a total of 10 hotels with 3,454 rooms in the immediate vicinity of the Center. In 2012, these ho-tels reported an aggregate occupancy of 67.0 percent at an average room rate of $135.51. Due to the dominance of the Galt House Hotel in the market, Smith Travel Re-search was unable to provide market-mix data for this set of hotels. However, based on information gleaned from the major hotels in this competitive set, we estimate that some 48 percent of the set’s occupied rooms in 2012 came from the group segment. This would equate to approximately 2,123 occupied group rooms for every 1,000 square feet of exhibit space in the Kentucky Center. The following is a Microsoft MapPoint map indicating the location of the Kentucky Inter-national Convention Center and a .3-mile radius around the Center. Also shown are symbols and, in most cases, names for the hotels located within the .3-mile radius.

Pittsburgh The David L. Lawrence Convention Center is located in downtown Pittsburgh adjacent to the Lucas Oil Stadium. This facility is operated by SMG. A photograph of the Center is found on the following page.


The David L. Lawrence Convention Center offers some 600,000 square feet of usable space as follows:

• 313,000 square feet of exhibit hall space (of which some 237,000 square feet is “prime” space for practical use)

• 53 meeting rooms with approximately 78,000 square feet of space • Grand ballroom of 31,600 square feet

The following are the floor plans for the David L. Lawrence Center:


Visit Pittsburgh reported that the David L. Lawrence Center had an attendance of 515,355 in 2011 from 175 events. The attendance was broken down as follows: 25 per-cent conventions; 55 percent consumer shows; 2 percent trade shows; 5 percent spe-cial events; 10 percent for sporting events; 2 percent for banquets; and 1 percent for meetings. According to Visit Pittsburgh, they have tracked some 110,000 annual room-nights related to the Center in recent years, although they believe the actual Center-related demand level to be much higher in totality. The David L. Lawrence Center has one hotel connected to it by walkways/bridges: the 616-room Westin Hotel. In 2012, this hotel experienced an occupancy in the range of 70 to 74 percent at an average room rate in the range of $139 to $149. Including the hotel attached to the Center, there are a total of five hotels with 1,837 rooms in the immediate vicinity of the Center. In 2012, these hotels reported an aggregate occupancy of 71.6 percent at an average room rate of $157.74. According to Smith Travel Research, these five hotels attracted some 43 percent of their occupied rooms from the group segment in 2012. This would equate to approximately 661 occupied group rooms for every 1,000 square feet of exhibit space in the David L. Lawrence Center. A Microsoft MapPoint map indicating the location of the Center and a .3-mile radius around the Center is presented on the following page. Also shown are symbols and, in most cases, names for the hotels located within the .3-mile radius.


Summary The following table summarizes some of the key metrics associated with the convention centers deemed most competitive with, and comparable to, the new Cleveland Conventon Center.

COMPARABLE/COMPETITIVE CONVENTION CENTERSAND NEARBY LODGING MARKETS - 2011/2012

Cincinnati Columbus Indianapolis Louisville Pittsburgh Totals/Averages

Operator Global Spectrum SMG Self Self SMG

Center Exhibit Space 195,000 338,000 558,000 191,000 313,000 319,000

Attendance: Year 2011 2012 2011 2011 2011 Number 798,378 1,014,455 2,009,030 299,336 515,355 927,311 Attendees Per SF of Exhibit Space 4.1 3.0 3.6 1.6 1.6 2.9 Attendance Breakdown:

Conventions/Conferences 37% 17% 27% N.P. 25% 21% Public/Gate Shows 35% 28% 4% N.P. 55% 24% Special Events 9% 1% 1% N.P. 5% 3% Sporting Events N.P. 18% 61% N.P. 10% 18% Trade Shows 11% 19% 8% N.P. 2% 8% Banquets 4% 2% Incl. above N.P. 2% 2% Meetings 4% 14% Incl. above N.P. 1% 4%

CC-Directly Attributed Room-Nights:Number 206,000 219,636 560,000 N.P. 110,000 1,095,636Occupied Rooms/Exhibit SF 1.06 0.65 1.00 N.A. 0.35 0.78

THE CONVENTION CENTER HOTELS The table on the following page includes some of the data previously mentioned for the hotels attached to the various competitive convention centers, as well as for the broader

Section III: Comparable/Competitive Convention Centers & Convention Center Hotels III-15 sets of “Convention Center area“ hotels, located within roughly 0.3 miles of each Center in these cities, which are listed in the summary.

COMPARABLE/COMPETITIVE CONVENTION CENTERSAND NEARBY LODGING MARKETS - 2011/2012

Cincinnati Columbus Indianapolis Louisville Pittsburgh Totals/Averages

Operator Global Spectrum SMG SMG Self SMG

Center Exhibit Space 195,000 338,000 558,000 191,000 313,000 319,000

Attendance: Year 2011 2012 2011 2011 2011 Number 798,378 1,014,455 2,009,030 299,336 515,355 927,311 Attendees Per SF of Exhibit Space 4.1 3.0 3.6 1.6 1.6 2.9 Attendance Breakdown:

Conventions/Conferences 37% 17% 27% N.P. 25% 21% Public/Gate Shows 35% 28% 4% N.P. 55% 24% Special Events 9% 1% 1% N.P. 5% 3% Sporting Events N.P. 18% 61% N.P. 10% 18% Trade Shows 11% 19% 8% N.P. 2% 8% Banquets 4% 2% Incl. above N.P. 2% 2% Meetings 4% 14% Incl. above N.P. 1% 4%

CC-Directly Attributed Room-Nights:Number 206,000 219,636 560,000 N.P. 110,000 1,095,636Occupied Rooms/Exhibit SF 1.06 0.65 1.00 N.A. 0.35 0.78

Hotel Rooms:Attached to Center 1,358 1,165 1,694 616 616 1,090Within .3 Miles of CC ("CC Area") 2,521 2,241 4,660 3,454 1,837 2,943

Rooms/1,000 SF of Exhibit Space:Attached to Center 7.0 3.4 3.0 3.2 2.0 3.4Within .3 Miles of CC ("CC Area") 12.9 6.6 8.4 18.1 5.9 9.2

Hotels Attached to CC - 2012:Occupancy 50.9% 66.8% 71.6% 65-69% 70-74% 64.9%Average Room Rate $105.49 $126.31 $139.28 $155-165 $139-149 $133.45

Hotels in "CC Area" - 2012:Occupancy 60.3% 66.4% 69.9% 67.0% 71.6% 67.3%Average Room Rate $128.43 $120.64 $143.33 $135.51 $157.74 $138.18Total Occupied Rooms 554,930 446,840 1,188,636 844,926 480,322 3,515,654"Group" Occupied Rooms: 221,417 218,952 685,843 422,463 207,019 1,755,693 % of Total Occupied Rooms 40% 49% 58% 50% 43% 50% Per 1,000 SF of Exhibit Space 1,135 648 1,229 2,212 661 1,250Hotels (bold are attached): Millenium Hilton (10/22/12) Marriott Marriott Westin

Hyatt Regency Hyatt Regency Westin Galt House CourtyardCincinnatian Drury Inn Canterbury Courtyard Omni Wm. Penn

Hampton Inn Stes. Courtyard Galt HouseCourtyard SpringHill EconoLodgeRed Roof Inn Omni Severin 21c Museum

Crowne Plaza Hilton SeelbachHampton Inn Fairfield InnHilton Hampton InnHomewood Stes. SpringHill Stes.Holiday Inn Exp.

The above information/data indicate many things:

• All of the cities have one or more hotels directly attached to their convention centers, either abutting or by walkways/bridges.


• Convention center attendance per square foot of exhibit space ranged from 1.6 to 4.1, with the average being 2.9. (Applying this average to Cleveland’s 226,000 square feet of exhibit space would produce a total attendance of some 655,000.)

• Three of the four convention centers reported between .65 and 1.1 room-nights for every square foot of exhibit space with the fourth, Pittsburgh, ac-knowledging that their actual room-night generation is higher. (The overall average of .78 room-nights per exhibit square foot, if applied to Cleveland’s 226,000 square feet of exhibit space, would produce some 176,000 room-nights of demand.)

• The five cities averaged 1,090 rooms attached to their convention centers and 2,900 rooms within a 0.3-mile radius.

• Similarly, the five cities averaged 3.4 rooms attached to their centers for eve-ry 1,000 square feet of exhibit space and 9.2 rooms within 0.3 miles for every 1,000 square feet.

• The hotels attached to the convention centers generally experienced slightly

lower occupancies and average room rates than the surrounding downtown markets as a whole.

• The hotels within the 0.3-mile radii of the convention centers averaged 49 percent of their business from “groups”, ranging from a low of 40 percent to a high of 58 percent.

• The hotels within the 0.3-mile radii of the centers average 1,238 “group” room-nights for every 1,000 square feet of center exhibit space, ranging from a low of 648 to a high of 2,123.

Further, the following table summarizes room count data for those hotels attached to the convention centers in the five cities.

City Hotel # of Rooms

Cincinnati: Millenium 872Hyatt Regency 486

Columbus: Hilton 532Hyatt Regency 633

Indianapolis: Hyatt Regency 499Marriott 622Westin 573

Louisville: Marriott 616 Pittsburgh: Westin 616

Average Number of Rooms 605

HOTELS ATTACHEDTO CONVENTON CENTERS

Section III: Comparable/Competitive Convention Centers & Convention Center Hotels III-17 Excluding the independent Millenium Hotel in Cincinnati, which is underperforming the market, the average size of the branded “headquarter” hotels in the above sample is 572 rooms.

SECTION IV: LODGING MARKET ANALYSIS


MAY 2013

Section IV: Lodging Market Analysis IV-1

This section of the report discusses the historical, current and prospective aspects of the lodging market most relevant to the proposed convention center hotel in downtown Cleveland, Ohio. EXISTING LODGING MARKET As defined herein, the “downtown” Cleveland market consists of the hotels located in the area east of the Cuyahoga River and north and west of Interstate 90 (except for the University Inn & Suites which is slightly east of I-90). We have further identified a subset of these hotels that lie within a 0.3-mile radius of the new convention center. The hotels located in these areas are listed in the table below.

Hotel Map Key Rooms Opened Hotel Rooms Opened

Marriott at Key Center 1 400 1991 Marriott at Key Center 400 1991Hyatt Regency 2 293 2001 Hyatt Regency 293 2001Renaissance 3 491 1918 Renaissance 491 1918DoubleTree 4 379 1974 DoubleTree 379 1974Hampton Inn 5 194 1998 Hampton Inn 194 1998Radisson 6 142 1998 Total Rooms 1,757Wyndham 7 205 1995Ritz-Carlton 8 205 1990Hilton Garden Inn 9 240 2002Holiday Inn Express 10 141 1999Residence Inn 11 175 2000Comfort Inn 12 130 1995University Inn & Suites 13 160 1996 Total Rooms 3,155

Downtown "Convention Center Area"

DOWNTOWN CLEVELAND HOTELS

There are also several hotels at and around the world-renowned Cleveland Clinic, some four miles east of downtown via Euclid Avenue. The primary hotel in this area is the 299-room InterContinental Conference Center Hotel. This hotel, one of three InterContinental hotels at or near the Clinic, is one of the highest quality hotels in the overall market and, due to its popularity with the thousands of medical professionals and non-price-sensitive patient and patient family visitors to the Clinic, it performs at occupancy levels somewhat lower than those of the downtown hotels but at average room rates in excess of $200, well above the average rates of the downtown hotels. The InterContinental hosts many conferences, meetings and symposia related to the health-care field. (Note: It is expected that the subject convention center hotel, with its location adjacent to the new Global Center for Health Innovation, will attract some of the individual medical professional and group meeting business currently patronizing the InterContinental.) The map on the following page indicates the approximate locations of these hotels utilizing the map key numbers in the preceding table. The location of the new convention center is marked with the letter “C”. The site of the proposed hotel is marked with a red dot and the three hotels not included in the above list, the new aloft hotel, the new Westin


(former Crowne Plaza Hotel) and the proposed Drury Hotel, are indicated by numbers 14 through 16, respectively. The 0.3-mile radius line from the new convention center site is also indicated.

The following table provides information on the primary full-service hotels that are located in the downtown area.

Fitness/Hotel Opened Rooms Ballroom Other Total Rest. Lounge Spa Pool Parking*

Marriott at Key Center 1991 400 9,700 7,300 17,000 2 1 Fitness Indoor S & VHyatt Regency 2001 293 0 14,100 14,100 1 1 Spa No VRenaissance 1918 491 14,500 55,600 70,100 1 1 Fitness Indoor S & VDoubleTree 1974 379 5,600 10,400 16,000 1 1 Fitness Indoor SRadisson 1998 142 1,800 3,600 5,400 1 0 Fitness No VWyndham at Playhouse Sq. 1995 205 5,100 8,000 13,100 1 1 Fitness Indoor VRitz-Carlton 1990 205 4,400 2,600 7,000 1 1 Spa No VHilton Garden Inn 2002 240 5,500 8,000 13,500 1 1 Fitness Indoor S

Highlighted hotels considered to be in the "Convention Center Area" along with Hampton Inn and new Westin (former Crowne Plaza). * "S" = self-parking; "V" = valet.Hyatt Regency "Arcade" space not indicated as true ballroom, as only available at selected times (included in total sf, however).Renaissance ballroom space without balcony space (included in total sf, however). Exclusions: Embassy Suites converted to Ernst & Young use in December 2012; Crowne Plaza closed in October 2011.

PRIMARY DOWNTOWN FULL-SERVICE HOTELSCLEVELAND, OHIO

Banquet/Meeting Space (sf)

In 2012, the four hotels highlighted above are estimated to have experienced occupancies ranging from 70 to 73 percent (excluding one hotel undergoing a room renovation) at average room rates ranging from $100 to $150, with two hotels in the $140 to $150 range.


As has downtown Cleveland in general, the lodging market in downtown Cleveland has experienced many changes in recent years. Some of these changes include:

• The closing of the 472-room Crowne Plaza in October 2011 for conversion to a Westin Hotel;

• The effective closure of the 252-unit Embassy Suites Hotel in November 2012 for use by Ernst & Young as a training facility; and,

• The effective removal of the 205-room Ritz-Carlton Hotel from the transient room supply beginning in May 2012 for primary use of Harrah’s Horseshoe Casino to house its premium players.

Thus, in recent months, some 929 rooms were effectively removed from the downtown transient supply, some 457 of which likely on a long-term basis. These closings were key reasons why market occupancies and average room rates increased in 2012 and market occupancy is projected to temporarily increase significantly in 2013. The following table summarizes the supply, demand, occupancy, average room rate and RevPAR (room revenue per available room per day) performance of all and a sub-set of the hotels in the Cleveland downtown market from pre-recession 2007 through March 2013 according to data acquired from Smith Travel Research, the nation’s pre-eminent source for hotel performance information.

Occ.RNs % Chg. RNs % Chg. % Amt. % Chg. Amt. % Chg.

CC Area:2007 812,855 482,034 59.3% $118.90 $70.512008 812,855 0.0% 451,378 -6.4% 55.5% 118.17 -0.6% 65.62 -6.9%2009 812,855 0.0% 436,551 -3.3% 53.7% 112.74 -4.6% 60.55 -7.7%2010 812,855 0.0% 435,088 -0.3% 53.5% 110.92 -1.6% 59.37 -1.9%2011 798,285 -1.8% 445,710 2.4% 55.8% 110.91 0.0% 61.92 4.3%2012 641,305 -19.7% 428,652 -3.8% 66.8% 124.77 12.5% 83.40 34.7%3 Mos.:

2012 158,130 80,122 50.7% 112.87 57.192013 158,130 0.0% 92,069 14.9% 58.2% 121.59 7.7% 70.79 23.8%

Downtown:2007 1,410,402 856,708 60.7% 118.15 71.772008 1,415,470 0.4% 812,812 -5.1% 57.4% 115.78 -2.0% 66.48 -7.4%2009 1,415,470 0.0% 797,403 -1.9% 56.3% 111.09 -4.1% 62.58 -5.9%2010 1,415,317 0.0% 818,197 2.6% 57.8% 109.37 -1.5% 63.23 1.0%2011 1,400,535 -1.0% 833,166 1.8% 59.5% 108.80 -0.5% 64.72 2.4%2012 1,230,583 -12.1% 842,335 1.1% 68.5% 115.00 5.7% 78.72 21.6%3 Mos.:

2012 302,259 161,235 53.3% 110.94 59.182013 283,950 -6.1% 170,325 5.6% 60.0% 109.47 -1.3% 65.66 10.9%

Note: Supply decreases comprised of: Crowne Plaza closing in October 2011 for conversion to Westin; Embassy Suites ceased reporting in December 2012 when fully utilized by Ernst & Young.

Source: Smith Travel Research.

CONVENTION CENTER AREA & DOWNTOWN HOTEL MARKETS - CLEVELAND, OHIOSUPPLY, DEMAND, OCCUPANCY, AVERAGE ROOM RATE & RevPAR

2007 THROUGH MARCH 2013

Area/Period

Supply Demand Average Room Rate RevPAR


The data in the preceding table indicates, among other things, the following:

• The downtown hotel supply decreased materially in 2012 and into 2013, as discussed in the previous pages.

• Demand fell somewhat during the recent recession, but not as materially as in other major cities, and began to rebound in 2010.

• Occupancy levels for both sets of hotels were lackluster until 2012 and into 2013.

• Average room rate levels fell materially during the recession and did not begin to truly recover until 2012.

• RevPAR levels began to recover in 2010 and the recovery is continuing in 2013.

Additional insight into the characteristics of the downtown Cleveland market can be gleaned from a review of its recent monthly and day-of-the-week performance levels, as summarized in the following table. The highlighted figures in the table represent above-average levels of performance.

Period CC Area Downtown CC Area Downtown CC Area Downtown

January 2013 51.7% 52.1% $116.99 $103.98 $60.48 $54.17 February 2013 57.1% 60.1% 120.93 108.60 69.05 65.27 March 2013 65.7% 67.7% 125.72 114.39 82.60 77.44 April 2012 61.9% 66.5% 123.77 118.77 76.61 78.98 May 2012 70.3% 75.2% 128.05 114.99 90.02 86.47 June 2012 81.5% 80.4% 131.52 117.30 107.19 94.31 July 2012 77.7% 78.8% 127.24 115.74 98.87 91.20 August 2012 84.5% 82.7% 128.99 119.26 109.00 98.63 September 2012 75.0% 75.3% 128.91 117.57 96.68 88.53 October 2012 80.4% 81.2% 132.68 118.72 106.67 96.40 November 2012 62.8% 64.1% 122.57 111.16 76.97 71.25 December 2012 54.8% 55.6% 119.18 106.86 65.31 59.41 Annual 68.7% 70.2% $126.27 $114.66 $86.75 $80.49

Monday 67.7% 68.8% $131.70 $117.84 $89.16 $81.07 Tuesday 75.9% 76.2% 134.17 120.42 101.84 91.76 Wednesday 75.5% 75.9% 132.20 119.19 99.81 90.47 Thursday 60.9% 65.3% 125.89 113.54 76.67 74.14 Friday 68.7% 70.0% 116.15 107.84 79.80 75.49 Saturday 83.5% 83.5% 121.26 113.60 101.25 94.86 Sunday 49.2% 52.4% 120.52 107.89 59.30 56.53


Occupancy Average Room Rate RevPAR

CONVENTION CENTER AREA & DOWNTOWN HOTEL MARKETS - CLEVELAND, OHIOMONTHLY & DAILY OCCUPANCY, AVERAGE ROOM RATE & RevPAR

FISCAL YEAR ENDED MARCH 31, 2013


The data in the table on the preceding page would indicate that the downtown Cleveland market experiences stronger levels of demand in the spring, summer and fall months more amenable to travel. The stronger performances in the spring and fall months are a combination of peak periods for individual commercial (business) travel and group business. Also, individual leisure demand is strong on the spring and fall weekends with tourism and events at the areas colleges and universities. The strengths in the summer months can be attributed primarily to stronger levels of individual leisure and group leisure demand (SMERF, or social, military, educational, religious and fraternal group meeting events). The following table indicates the annual contributions of demand for the downtown hotels from the “transient” (individual commercial and leisure travelers), “group” (business and social meetings/conventions with blocks of 10 rooms or more) and “contract” (primarily airline crews) market segments.

Period CC Area Downtown CC Area Downtown CC Area Downtown

2007 58% 61% 39% 37% 3% 2%2008 60% 61% 36% 35% 4% 4%2009 61% 60% 34% 35% 5% 5%2010 63% 62% 32% 33% 5% 5%2011 60% 61% 35% 34% 5% 5%2012 59% 62% 33% 31% 8% 7%

3 Mos.:2012 68% 71% 23% 23% 9% 6%2013 65% 66% 22% 24% 13% 10%


CONVENTION CENTER AREA & DOWNTOWN HOTEL MARKETS -

HOTEL MARKET MIXES2007 THROUGH MARCH 2013

Transient Group Contract

CLEVELAND, OHIO

Interestingly, even without a competitive state-of-the-art convention center, the downtown hotels still reported close to or over one-third of their business coming from the group segment. In our view, this speaks to Cleveland’s pre-eminent roles as the State’s second largest city, and one of the largest cities in the region, and the importance of Cleveland as a leader in all forms of healthcare-related meetings business. Finally, the data in the following table indicate that the total number of group-related room-nights accommodated by the downtown hotels waned during the recession, bounced back in 2011, fell off again in 2012 then appears to be recovering somewhat in 2013.


Period RNs % Chg. RNs % Chg.

2007 187,671 319,7042008 162,037 -13.7% 286,667 -10.3%2009 146,142 -9.8% 275,040 -4.1%2010 139,163 -4.8% 272,607 -0.9%2011 155,036 11.4% 286,404 5.1%2012 139,928 -9.7% 261,639 -8.6%

3 Mos.:2012 18,726 37,0152013 20,437 9.1% 41,549 12.2%


CC Area Downtown

CONVENTION CENTER AREA & DOWNTOWNHOTEL MARKETS - CLEVELAND, OHIO

HOTEL GROUP DEMAND2007 THROUGH MARCH 2013

ADDITIONS TO THE HOTEL SUPPLY There are two new hotels currently under construction in the “downtown” market that will enter the supply in the coming two years. One of these hotels will be materially impactful on the lodging market, while the other will be less so. A third hotel project has been announced but is not yet certain.

• The 150-room aloft Hotel is under construction on West 10th Street in the Flats East Bank development and is scheduled to open in June 2013. While this hotel will be a welcomed addition to the City’s hotel inventory, its size, style, brand and market orientation will likely not generate significant amounts of new hotel demand for the City.

• The former 472-room Crowne Plaza Hotel is being converted into a 484-room Westin Hotel scheduled to open in April 2014. This hotel will again be a participant in the group meeting market and will add a vibrant upper-upscale brand to the City’s lodging mosaic. With some 26,000 square feet of meeting and banquet space, the Westin should attract new group demand into the City and offer a significant block of rooms to be marketed along with the Convention Center.

Further, Drury Hotels has apparently won the bidding for the Cleveland Metropolitan School District Building on East 6th Street across the Mall from the Marriott Hotel which they have indicated they intend to convert to an upper-upscale full-service hotel of between 170 and 180 rooms. For the purposes of the projections herein, we have assumed that this hotel will be built with 180 rooms and open around January 1, 2016. Due to its relatively small number of rooms, this hotel would likely not generate significant amounts of new demand for the City, but would, again, provide some additional room support for the nearby Convention Center.


Once these new hotels open, including a new convention “headquarters” hotel, it is hoped that the downtown hotels could be convinced to commit reasonable room “blocks” to be made available to assist Positively Cleveland and MMPI in selling larger groups and conventions that require more than one hotel to satisfy their peak-night room requirements. The stated threshold of both Positively Cleveland and MMPI is to be able to offer a 2,000-room block, on peak, to groups, concentrated among as few hotels as possible proximate to the Convention Center. The following table indicates possible room-block commitments that one would hope could be achieved once the Convention Center becomes accepted in the regional convention/association market and the resulting “shortage” of committable rooms to be met by a new headquarters hotel.

Hotel Rooms % Rooms

Renaissance 491 60% 295 Westin (new) 484 60% 290 Marriott 400 50% 200 Doubletree 379 60% 227 Hyatt Regency 293 40% 117 Hilton Garden Inn 240 40% 96 Ritz-Carlton 205 0% 0 Wyndham 205 20% 41 Hampton Inn 194 20% 39 Residence Inn 175 20% 35 Drury Hotel (new) 175 40% 70 University Inn 160 20% 32 aloft (new) 150 10% 15 Radisson 142 20% 28 Holiday Inn Express 141 10% 14 Comfort Inn 130 10% 13 Totals/Averages 3,964 38% 1,513

"Shortage" to 2,000 Goal 487 Commitment % of HQ Hotel 80% Rooms Supported at HQ Hotel 609

Convention "Block"

THEORETICAL ROOM BLOCKSDOWNTOWN CLEVELAND HOTEL MARKET

Thus, this theoretical estimate would provide an aggregate room block some 500 rooms short of the desired threshold to be hopefully filled by a convention center hotel of some 600 rooms. PROJECTIONS OF MARKET PERFORMANCE Projections of supply, demand and occupancy were prepared for the downtown market based on the preceding assumptions concerning the downtown hotel supply, the opening of the new Cleveland Convention Center in June 2013 and estimated increases in room demand, by segment. As will be discussed in the following section of this report, we have assumed the subject convention center hotel will enter the market with 600 rooms on July 1, 2017. The estimates of room demand by segment were based on the historical trends in segment demand through the first quarter of 2013, allowing for the recent recession,


tempered to reflect the probable impacts that the new downtown hotels, the Global Center and the Convention Center will have on demand levels in the coming years. The downtown hotel supply was projected to be as follows through 2022. (No additions to supply were assumed from 2018 through 2021 and, concurrently, no material increases in demand were projected over that same period. Should additional hotels come to fruition during that period, appropriate upward adjustments to projected market demand would be appropriate.)

Proposed Cleveland Convention Center Hotel

Historical and Current Competitive Supply

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

EXISTING SUPPLY 3,362 3,362 3,362 3,362 3,362 3,362 3,362 3,362 3,362 3,362 3,362

ADDITIONS/ADJUSTMENTS TO SUPPLY:

Adjustments to Average 2012 Supply -207

aloft Hotel (6/13/13) 83 67

Westin Hotel (4/1/14) 365 119

Drury Hotel (1/1/16) 180Subject Hotel (7/1/17) 300 300

Total Cumulative Additions 0 -124 308 427 607 907 1,207 1,207 1,207 1,207 1,207

Cumulative Rooms Supply 3,362 3,238 3,670 3,789 3,969 4,269 4,569 4,569 4,569 4,569 4,569

Annual Rooms Supply 1,230,583 1,181,870 1,339,550 1,382,985 1,452,654 1,558,185 1,667,685 1,667,685 1,672,254 1,667,685 1,667,685

% Change -12.1% -4.0% 13.3% 3.2% 5.0% 7.3% 7.0% 0.0% 0.3% -0.3% 0.0%Source: PKF Consulting.

Two types of increases to demand were projected in our analyses: increases in “base” demand; and, “induced” increases in demand. “Base” demand is generated by sources already in place in the downtown area. “Induced” demand, in this instance, is incremental demand generated by new hotels entering the market through the efforts of their local sales staffs and the regional and national sales efforts of their brands. Based on the pre- and post-recession trends in room-night demand as reported by Smith Travel Research and the impact that the new Convention Center and Global Center are expected to have on demand levels, the following percentage increases in “base” demand were projected from each of the three segments:

• Transient demand: Minor increases in base demand were projected in most years, consistent with past trends, with modest to moderate increases concurrent with the opening of the Global Center in 2013 and increased hotel capacity in the City to handle more demand during peak periods, including Saturday nights. The percentage increases ranged from 1.0 to 4.0 percent per year, with most years projected to increase by 1.0 or 2.0 percent. No “induced” demand was estimated for this segment.

• Group demand: Based on the strong early 2013 results and the imminent

opening of the Convention Center, “base” group demand was projected to increase 5.0 percent in 2013, then at the same percentages as transient demand except in 2017 (at 6.0 percent) when the Convention Center’s sales efforts should begin to come to fruition with the substantial amount of new hotel supply. Induced demand from the new hotels is projected for this segment from 2014 through 2020 as is discussed in a following paragraph.


The overall growth in accommodated group demand from 2012 through 2022 is projected to be some 131,000 room-nights, much of which is attributable to the new Convention Center and the new hotels in the market supporting the Center. This level of additional demand is consistent with the expectations of Positively Cleveland.

• Contract demand: With the significant jump in contract demand in early 2013,

demand from this segment was projected to increase 30.0 percent this year, then at only modest rates, generally lower than the other segments, for the remaining years. No “induced” demand was estimated for this segment.

Group “induced” demand was estimated almost entirely to result from the openings of the Westin Hotel in 2014 and the subject convention center hotel in 2017. Both hotels, with at least one and possibly two new lodging brands entering the market with some 1,100 modern guest rooms, should successfully attract new group business to the City, mostly to be accommodated entirely by their own properties. Based on our experience with similar hotel openings, we estimated that a total of some 61,500 new group room-nights will be attracted to these two hotels over their first several years of operation. (This volume of room-nights would equate to less than 16 points of occupancy for the two hotels combined, but would be a material boost to a group market that totaled some 262,000 room-nights in 2012, including weddings, reunions and other events not necessarily booked by/involving Positively Cleveland.) The table on the following page summarizes these estimates of room demand for the downtown hotels and, when combined with the supply projections previously discussed, presents the resulting estimates of downtown hotel occupancy through 2022. As indicated in the table, overall downtown occupancy is projected to peak in 2013 prior to the assumed openings of several new hotels in the market. Thereafter, occupancies are projected to decline to the 60 percent level before rebounding to the mid-60’s as the new hotels become absorbed and their marketing efforts come to fruition. As previously indicated, the market occupancies for 2012 and 2013 in the table are temporarily inflated due to the closures/conversions of hotels in the market that diluted the available supply for parts of these two years on onward (with respect to the Embassy Suites hotel). Once these anomalous supply factors no longer apply, the defined market is expected to experience increases in supply that will temporarily dilute the market. The positive marketing impacts of these hotels, plus the new Convention Center, however, will combine to return the overall market occupancy to close to its 2012 level by the end of the projection period. (Further, the expected comparatively high average room rate of the subject hotel should enable other hotels in the defined market to “slipstream” their rates somewhat, thus resulting in higher overall average room rates in the market.)


In terms of market mix, the downtown market is projected to stabilize at some 56 percent transient (versus 62 percent in 2012), 36 percent group (versus 31 percent in 2012) and 8 percent contract (versus 7 percent in 2012).

Downtown Cleveland Lodging MarketEstimated Future Growth in Lodging Supply and Demand

2012 - 20222012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

EXISTING ROOM SUPPLY 3,362ADDITIONS (DELETION) IN ROOM SUPPLY:

Adjustments to Average 2012 Supply (207)aloft Hotel (6/13/13) 83 67Westin Hotel (4/1/14) 365 119Drury Hotel (1/1/16) 180Subject Hotel (7/1/17) 300 300

Cumulative Rooms Supply 3,362 3,238 3,670 3,789 3,969 4,269 4,569 4,569 4,569 4,569 4,569Total Annual Rooms Supply 1,230,583 1,181,870 1,339,550 1,382,985 1,452,654 1,558,185 1,667,685 1,667,685 1,672,254 1,667,685 1,667,685Growth Over the Prior Year -12.1% -4.0% 13.3% 3.2% 5.0% 7.3% 7.0% 0.0% 0.3% -0.3% 0.0%

DEMONSTRATED DEMAND IN 2012:Transient 521,490 62%Group 261,639 31%Contract 59,206 7%

TOTAL DEMONSTRATED DEMAND 842,335 100%

GROWTH RATES IN BASE DEMAND:Transient 1.0% 2.0% 1.0% 2.0% 4.0% 3.0% 2.0% 1.0% 1.0% 1.0%Group 5.0% 2.0% 1.0% 2.0% 6.0% 3.0% 2.0% 1.0% 1.0% 1.0%Contract 30.0% 2.0% 1.0% 2.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0%

PROJECTED DEMAND:Transient

Demonstrated 521,490 526,705 537,239 542,611 553,464 575,602 592,870 604,728 610,775 616,883 623,051Induced/(Unsatisfied) 0 0 0 0 0 0 0 0 0 0 0

Total 521,500 526,700 537,200 542,600 553,500 575,600 592,900 604,700 610,800 616,900 623,100Growth Over Prior Year N/A 1.0% 2.0% 1.0% 2.0% 4.0% 3.0% 2.0% 1.0% 1.0% 1.0%

GroupDemonstrated 261,639 274,721 280,215 283,018 288,678 305,999 315,179 321,482 324,697 327,944 331,223Induced/(Unsatisfied) 0 0 11,191 20,435 24,124 35,770 54,166 61,524 61,524 61,524 61,524


ContractDemonstrated 59,206 76,968 78,507 79,292 80,878 83,304 84,137 84,979 85,829 86,687 87,554Induced/(Unsatisfied) 0 0 0 0 0 0 0 0 0 0 0


Total Market Demand 842,300 878,400 907,100 925,400 947,200 1,000,700 1,046,300 1,072,700 1,082,800 1,093,100 1,103,400Growth Over Prior Year 1.1% 4.3% 3.3% 2.0% 2.4% 5.6% 4.6% 2.5% 0.9% 1.0% 0.9%

MARKET OCCUPANCY 68.4% 74.3% 67.7% 66.9% 65.2% 64.2% 62.7% 64.3% 64.8% 65.5% 66.2%

Source: PKF Consulting CONCLUSIONS The downtown Cleveland lodging market has undergone numerous changes in the recent past and suffered, along with the rest of the nation, through the recent severe recession. With imminent enhancements to the quality level of the hotel supply, particularly in the vicinity of the new Global Center and Convention Center, it is anticipated that the downtown lodging market will absorb the new rooms and quickly return to levels of acceptable and supportable room demand and occupancy.

SECTION V: HOTEL SITE & RECOMMENDATIONS


MAY 2013

Section V: Hotel Site & Recommendations V-1

Based on the preceding market analyses of comparable convention center hotels in the region and the downtown Cleveland lodging market, we have prepared recommendations for the subject hotel (“the Hotel”). First, we briefly describe the environs in which the Hotel would be developed then our recommendations as to facilities’ scope, branding and management for the Hotel. SITE AND SITE AREA The site for the subject hotel is bound by West Lakeside Avenue to the north, the new Global Center for Health Innovation (formerly referred to as the Medical Mart) to the south, Ontario Street to the west and the new Convention Center to the east. The site is currently occupied by offices of Cuyahoga County which are to be relocated and the building demolished. The total area of the site is approximately 90,000 square feet with a 60,000-square-foot buildable area. Reportedly the site will be able to accommodate a high-rise tower of 20 floors or more. The following GoogleEarth photograph indicates the relative location of the site.

The Hotel will hopefully be physically connected to the new Convention Center and/or to the Global Center for Health Innovation. These two facilities, which were discussed earlier in the report, will constitute major demand generators for the subject hotel. The immediate area around the site is dominated by office buildings, other hotels, retail space, including restaurants, parking garages and sports, music and entertainment


venues, including the Horseshoe Casino. As downtown Cleveland is relatively compact, the site is within easy walking distance of all of these downtown features. FACILITY RECOMMENDATIONS An important element of this study is the recommendation of a facilities’ scope for the proposed convention center hotel. The most important facilities’ component to the marketability and financial successes of the Hotel is its number of guest rooms (and suites). If too many rooms are built for the market, the Hotel will suffer financially and the market will be excessively diluted. If too few rooms are built, potential profits are unrealized. Unfortunately, there is no single formula or exercise to precisely determine how many rooms should be built to address a particular lodging opportunity. Rather, one must take into account and weigh: the experiences in other comparable markets; what has transpired and is projected to transpire in the subject lodging market (both in terms of competitive supply and demand); define and quantify, to the extent possible, the demand sources for the subject hotel; and, consider the risks inherent in either overbuilding or underbuilding. Our interviews with various civic and business leaders, representatives of Positively Cleveland and MMPI (the operators of the Convention Center and the Global Center) and downtown hoteliers and our review of prior studies prepared by PricewaterhouseCoopers relating to this project produced a range of sizing opinions and assumptions ranging from a low of 400 rooms to a high of 850 rooms. In arriving at our recommendation as to an appropriate number of guest rooms (and suites) for the Hotel, we considered numerous factors, most particularly:

• The physical proximity of the Hotel to the Convention Center and its proximity to the Global Center will make the Hotel the obvious choice for first consideration by any users/patrons of the Convention Center for the thousands of visitors expected at the Global Center.

• Experienced developers and national lodging chains in other cities in the region with “comparable” convention centers elected to build adjoining hotels averaging some 605 rooms in size, or 572 rooms excluding one large under-performing independent hotel.

• The comparable convention centers averaged some 3.4 “attached” hotel rooms for every 1,000 square feet of exhibit space in the adjoining center. With 226,000 square feet of exhibit space in the Cleveland Convention Center, this metric would support some 768 rooms.

• The comparable convention centers averaged some 9 hotel rooms within a 0.3-mile radius for every 1,000 square feet of exhibit space in the nearby center, albeit with a wide range of results. With 226,000 square feet of exhibit space in the Cleveland Convention Center, this metric would indicate support


for 2,034 rooms. With some 2,413 rooms expected within this radius in downtown Cleveland with the new Westin and Drury Hotels, this metric would indicate an oversupply of some 379 rooms before the subject hotel is considered.

• The room-block analysis in the Lodging Market Analysis section of this report indicated that, to routinely provide the desired/targeted 2,000 rooms on-peak groups, the subject hotel should range in size from 600 to 650 rooms, assuming it would commit 80 percent of its rooms on average to groups.

• With several other new hotels entering the overall downtown market and the historically lackluster performance track record of the downtown lodging supply (albeit without a true convention center and a less-rejuvenated downtown), there is some risk that the market could be overbuilt if the subject hotel is too large and/or the Convention Center and Global Center do not deliver significant numbers of room-nights.

Based on all of the proceeding, we believe the optimal number of rooms (and suites) for the proposed convention center “headquarters” hotel to be 600. As many as 700 rooms could be viable and as few as 500, but between 600 and 650 rooms would appear to provide the best opportunity to achieve efficient levels of occupancy at the most reasonable and supportable average room rates without significant risks of overbuilding the asset and over-diluting the market. For the remainder of this report, and the projections herein, we have selected and assume a total room count, including suites, of 600 for the subject property. Assuming a total of 600 “keys” and based on the facilities available in the other downtown hotels and the Convention Center, we would recommend the following facilities and services for the Hotel. (Obviously, design considerations, site constraints and/or brand standards would eventually refine/dictate the facilities’ program.)

• 600 rentable accommodations, all with first-class amenities including high-speed internet and wi-fi, consisting of:

o Some 570 standard guest rooms (95 percent) of at least 300 square feet in size

o Some 30 suites (five percent) including one Presidential/VIP suites and several one-bedroom suites with an additional connecting bedroom (to function as two-bedroom suites)

o Some concierge/club rooms on one or more floors and an attendant club lounge

• Two restaurants, consisting of: o A fine-dining restaurant of some 120 seats o A casual restaurant of some 200 seats o A café or coffee kiosk

• One separate cocktail lounge of some 120 seats • Banquet and meeting facilities, consisting of:

o A divisible main ballroom of approximately 15,000 square feet


o A junior ballroom of some 8,000 square feet o Meeting and conference rooms totaling some 12,000 square feet

• Room service • A fitness center with indoor pool if possible • A business center • Guest laundry and valet • Sundries shop • On-site parking (for valet and possibly self-park) to the extent possible,

hopefully of 200 spaces or more Such a hotel should be able to effectively perform as a “headquarters” hotel and work with the other hotels in the area to handle larger groups that require more than this hotel to accommodate their needs. MANAGEMENT We have assumed that professional third-party management, either independent or franchisor-related, would market and operate the Hotel. It was further assumed that management of the Hotel would work closely and joint-market with the Convention Center and, to the extent applicable, the Global Center for Health Innovation. Again, the projections herein are based on this assumption. TIMING We assume herein that the Hotel would open on July 1, 2017. The County is reportedly moving out of the existing building in early to mid-2014. The building must then be demolished and construction of the Hotel should require approximately 2.5 years. If planning can be completed prior to the completion of demolition, the assumed timeframe to opening could be accelerated.

SECTION VI: ESTIMATED PERFORMANCE – THE PROPOSED HOTEL


MAY 2013

Section VI - Estimated Performance – The Proposed Hotel VI-1

This section of the report presents our estimates of the performance of the subject convention center hotel (“the Hotel”): occupancy, average room rate and net operating income after reserve. Our projections assume that the Hotel will be fully open for operation by July 1, 2017, although it possibly could open sooner. MARKET POSITION OF THE PROPOSED HOTEL Market penetration is a term used to evaluate a property's ability to compete within its defined market, and within the various demand segments, and is based on a "fair share" analysis. Fair share is simply the ratio of the number of rooms in a particular property to the number of rooms in the defined competitive supply. The subject hotel’s fair share would be 13.13 percent (600 rooms out of the 4,569 rooms in the expanded competitive set) in a stabilized year. Market penetration, or the penetration rate, is the ratio of captured demand to fair share of demand. Factors indicating competitive advantages are reflected in penetration rates above 100 percent, while, conversely, competitive disadvantages are reflected in penetration rates below 100 percent. In estimating market penetrations for the Hotel, we gave strong overall consideration to the following general non-segment-specific characteristics of the proposed property:

• Its age, being one of only seven hotels in downtown Cleveland built since 2000. Generally, newer hotels have a competitive advantage over similar older properties.

• Its status as the only hotel connected to the new Convention Center and one of only two hotels adjacent to the new Global Center (the other being the Marriott).

With the above in mind and having the actual penetration experiences of each of the hotels in the downtown hotel market to utilize as benchmarks, we estimate that the Hotel will be able to achieve the following penetrations of each of the three market segments based on the factors indicated:

• Transient Demand: We estimate that the Hotel will initially penetrate this market segment at 95 percent of its proportionate share due to its assumed brand, location and amenities. The Hotel’s penetration of this segment is then projected to increase to 98 percent in year two then stabilize at 100 percent in year three. Positive factors considered in penetrating this segment were the Hotel’s proximity to the Global Center, the Convention Center and the downtown office buildings, including the Key Center, for individual commercial demand and to the Convention Center and the Rock and Roll Hall of Fame and First Energy Stadium for individual leisure demand. Somewhat impeding its penetration of this segment is the Hotel’s focus on group demand, which could result in displaced commercial business during the mid-week periods.

• Group Demand: We estimate that the Hotel will initially penetrate this market segment at 120 percent of its proportionate share due to its assumed brand, location attached to the Convention Center and assumed extensive array of meeting and banquet facilities to complement and augment those in the Global


Center and the Convention Center. The Hotel’s penetration of this segment is then projected to increase to 125 percent in year two, then stabilize at 130 percent in year three. (The projected group capture by the subject hotel of between 60,000 and 67,000 room-nights per year appears reasonable in light of Positively Cleveland’s group room-night of over 130,000 room-nights.)

• Contract Demand: We estimate that the Hotel will bid for only a small amount of this business to help bolster occupancy levels during soft group business periods. Thus, we project that the Hotel will penetrate this market segment at 25 percent of its proportionate share in all years of the projections.

The table below summarizes the estimates of occupancy for the Hotel resulting from the application of these penetration percentages to the overall demand levels previously discussed and presented.

As the data in the table indicates, we estimate estimates of occupancy for the Hotel to be approximately 63 percent in calendar 2017, 64 percent in 2018, 67 percent in 2019, 68 percent in 2020 and 69 percent in 2021 and 2022. The Hotel’s market stabilized market mix is projected to be approximately 54 percent transient, 44 percent group and 2 percent contract. Average room rates for the subject property were estimated by market segment by year in 2012 dollars based on the 2012 annual rate levels of the most comparable hotels in the

Proposed Convention Center HotelMarket Penetration and Projected Occupancy

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

TOTAL ROOMS AVAILABLESubject Hotel 0 0 0 0 0 110,400 219,000 219,000 219,600 219,000 219,000Competitive Market 1,230,583 1,181,870 1,339,550 1,382,985 1,452,654 1,558,185 1,667,685 1,667,685 1,672,254 1,667,685 1,667,685

Fair Share of Supply 7.09% 13.13% 13.13% 13.13% 13.13% 13.13%

ESTIMATED TOTAL MARKET DEMANDTransient 521,500 526,700 537,200 542,600 553,500 575,600 592,900 604,700 610,800 616,900 623,100Group 261,600 274,700 291,400 303,500 312,800 341,800 369,300 383,000 386,200 389,500 392,700Contract 59,200 77,000 78,500 79,300 80,900 83,300 84,100 85,000 85,800 86,700 87,600

TOTAL 842,300 878,400 907,100 925,400 947,200 1,000,700 1,046,300 1,072,700 1,082,800 1,093,100 1,103,400842,300 878,400 907,100 925,400 947,200 1,000,700 1,046,300 1,072,700 1,082,800 1,093,100 1,103,400

SUBJECT PENETRATIONS:Transient 95% 98% 100% 100% 100% 100%Group 120% 125% 130% 130% 130% 130%Contract 25% 25% 25% 25% 25% 25%

ROOM-NIGHTS CAPTURED:Transient 38,700 76,300 79,400 80,200 81,000 81,800Group 29,100 60,600 65,400 65,900 66,500 67,000Contract 1,500 2,800 2,800 2,800 2,800 2,900

TOTAL CAPTURED DEMAND 69,300 139,700 147,600 148,900 150,300 151,700

MARKET SHARE CAPTURED 6.93% 13.35% 13.76% 13.75% 13.75% 13.75%

OVERALL MARKET PENETRATION 98% 102% 105% 105% 105% 105%

SUBJECT OCCUPANCY 62.8% 63.8% 67.4% 67.8% 68.6% 69.3%

MARKET MIX:Transient 56% 55% 54% 54% 54% 54%Group 42% 43% 44% 44% 44% 44%Contract 2% 2% 2% 2% 2% 2%

TOTAL 100% 100% 100% 100% 100% 100%

Source: PKF Consulting


competitive set and the expectation that rates throughout the area will continue to post above-average increases as rate “lost” during the recession is recouped. As a backdrop and an indication of the “real” increases in average room rate expected in the area over the coming years, we present below the forecasts by PKF Hospitality Research of changes in average room rate for the “upper tier” hotels in the Cleveland Metropolitan Statistical Area over the next several years. As indicated by the data in the table, the hotels in the MSA are expected to outperform inflation in terms of room rate growth in the coming years. This trend is expected to apply to the hotels in the competitive set as well.

FORECASTED CHANGES IN ADR

CLEVELAND MSA “UPPER-TIER” HOTELS

MAY 2013

Year ADR % Change

2012 $110.74 5.1% 2013 117.09 5.7 2014 124.88 6.7 2015 132.27 5.9 2016 138.63 4.8 2017 144.09 3.9

Source: PKF Hospitality Research.

Based on the 2010 recession-affected and 2011 and 2012 recovering segment room rates of the competing hotels in the market, we estimated the average room rates per segment for the Hotel to be as follows, expressed in 2012 dollars as if the Hotel was open in 2012, rounded to the nearest $.25: Transient - $150.00; Group - $130.00; and, Contract - $80.00. Based on the projected demand contributions by segment in a stabilized year, these segment rates result in an overall average rate of $140.00 in 2012 dollars, again if the Hotel was open in 2012 at 2012 rates. (Note: This average room rate is some 5 to 10 percent lower than that of the Marriott in 2012, with the Marriott hosting less lower-rated group business than is projected for the subject hotel.) After consideration of the “real” increases anticipated in area rates through 2017 as the recovery from the recent recession gains momentum, the weighted adjusted overall average room rate for the Hotel in a stabilized year would be approximately $148.50 in 2012 dollars. The table on the following page summarizes our estimates of adjusted average room rate for the Hotel, expressed in both 2012 and inflated dollars (at a rate of 3.0 percent per year) and rounded to the nearest $0.25, for its first five calendar years of operation.


PROPOSED CONVENTION CENTER HOTEL

ESTIMATED AVERAGE ROOM RATES 2017 THROUGH 2021

Year 2012 $ Inflated $

2017 $148.50 $172.25 2018 148.50 177.25 2019 148.50 182.75 2020 148.50 188.25 2021 148.50 193.75

The preceding estimates of occupancy and average room rate represented calendar years of operation. As the Hotel is not assumed to open until July 1, 2017, we adjusted these estimates to reflect full fiscal years of operation beginning on July 1 and ending on June 30. The following table summarizes these fiscal-year estimates.

PROPOSED CONVENTION CENTER HOTEL ESTIMATED OCCUPANCIES AND

AVERAGE ROOM RATES FISCAL YEARS 2017/18 THROUGH 2021/22

Fiscal Average Rate Year Occupancy In Inflated $

2017/18 63.5% $174.75 2018/19 65.5 180.00 2019/20 67.5 185.50 2020/21 68.5 191.00 2021/22 69.0 196.75

ESTIMATES OF NET OPERATING INCOME AFTER RESERVE Estimated statements of net operating income after a reserve for replacement (or EBITDA) were then prepared for the proposed property on the basis of the assumed facilities and services and the estimates of occupancy and average room rate previously discussed. The Uniform System of Accounts for Hotels, recommended by the American Hotel & Lodging Association and in general use throughout the industry, has been used in the classification of the various items of income and expenses. In conformity with this system of classification, direct expenses, or departmental expenses, are charged to the appropriate revenue-producing departments of the hotel. General overhead items, which are applicable to the operations of the hotel as a whole, are classified as undistributed expenses and include administrative and general expenses, marketing, franchise fees, property operations and maintenance, and utility costs. Fixed expenses are those necessary to maintain the property's availability to potential guests and include property taxes, insurance and management fees. In preparing our estimates of net operating income for the proposed hotel, we used the following actual operating results as benchmarks: five full-service hotels located in/around Cleveland; and, five convention-oriented hotels located in the cities identified herein as “comparable”. For confidentiality reasons, these hotels are not specifically identified in the analyses to follow.


Inflation While we are unable to provide a definitive estimate of future inflation trends, inflation will affect the ongoing performance of a hotel operation. In general, hotels tend to adapt more quickly and easily to inflation than other investment properties, since room rates can usually be adjusted in response to changes in costs. To more accurately assess the potential operating performance of the subject hotel, we have projected operating income and expenses in inflated dollars. Economists differ in their estimates of inflationary pressure in the foreseeable future. To portray price-level changes, we have assumed a 3.0 percent annual inflation rate over the projection period. This rate reflects the current long-term outlook for the future movement of prices. Except where otherwise noted, estimated dollar amounts for the subject hotel are expressed in 2012-value dollars to enable same-year dollar comparisons with the 2012 results of the comparable hotels, while the actual results are expressed in amounts consistent with the year indicated. These estimates were then adjusted for the effects of inflation, and fixed and variable relationships within certain expense items, for our multi-year projection. Revenue items, which tend to vary with occupancy, have been generally projected on a per-occupied-room basis, while undistributed and fixed expenses, which tend to be more fixed in nature, have been generally projected on a per-available-room basis. Income Rooms Revenue. The projected room revenues, summarized in the table on the following page, were based on the occupancy and average room rate levels discussed previously.

Food and Beverage Revenue. Food and beverage revenues were projected on a meal period-by-meal period basis by outlet to be generated by the restaurant, lounge and meeting/banquet space in the Hotel, as well as room service. We projected Hotel guest food sales at $34.00 per occupied room and banquet and outside restaurant food sales at $4,200,000. Beverage sales were estimated at 31 percent of total food sales. Public room rentals and service charges were projected at 10 percent of banquet food and beverage sales.

Estimated Rooms RevenueFiscal Annual Average RoomsYear Occupancy Daily Rate Revenue

2017/18 63.5% $174.75 $24,302,0002018/19 65.5% 180.00 25,821,0002019/20 67.5% 185.50 27,497,0002020/21 68.5% 191.00 28,654,0002021/22 69.0% 196.75 29,731,000


Other Operated Departments Revenue. Income in this category is derived from garage parking by guests, in-room movies, guest laundry services, vending machine operations, pantry sales and guest telephone/internet revenues. Total income from these sources was estimated at $13.70 per occupied room for these items, consisting of the following: 20 percent of the occupied rooms making telephone calls/utilizing the internet at $15.00; 10 percent of the occupied rooms renting a movie at $12.00; 30 percent of the occupied rooms either self- or valet parking a vehicle at an average of $25.00 (with 25 percent of the parking fee remitted by the garage operator to the Hotel); 50 percent of the occupied rooms buying sundries from the pantry at $2.00; and, 10 percent of the guests utilizing the laundry and valet service at $10.00.

Rentals and Other Income. Income in this category is derived from “no-show” or cancellation fees, cash discounts earned and all miscellaneous sources of income and was estimated to total $0.50 per occupied room, and is expected to vary with inflation.

Total Amount Per Occupied Room F&B Rev.: Rm. Rev.Cleveland Hotels

Hotel A $6,646,883 $64.00 42.8%Hotel B 11,159,837 161.06 80.0%Hotel C 2,428,512 24.82 25.3%Hotel D 3,367,514 43.19 36.5%Hotel E 5,502,552 56.91 53.9%Weighted Average 5,821,060 65.31 49.7%

Comparable HotelsHotel F $12,177,523 72.56 58.1%Hotel G 4,748,220 39.13 32.9%Hotel H 6,587,434 55.13 35.3%Hotel I 6,867,833 46.09 35.2%Hotel J 9,170,733 69.95 53.9%Weighted Average 7,910,349 57.43 43.7%Subject Stabilized Year $12,974,000 $85.50 57.7%

Food & Beverage Revenue

Other Operated Departments RevenuePer Occupied Room

Cleveland HotelsHotel A $7.91Hotel B 11.65Hotel C 7.34Hotel D 0.68Hotel E 2.22Weighted Average 5.87

Comparable HotelsHotel F $8.24Hotel G 0.73Hotel H 7.39Hotel I 8.04Hotel J 1.11Weighted Average 5.37Subject Stabilized Year $13.70


Expenses Departmental Expenses Rooms Expense. Rooms departmental expenses, which include wages and salaries for the front desk and housekeeping staffs, employee benefits, in-house laundry costs, cleaning supplies’ expenses, uniform costs and guest room supplies’ and amenities’ expenses, have been estimated at 27.3 percent of room revenue or $40.50 per occupied room in the stabilized year. A payroll staffing schedule was prepared to assist in estimating the expenses for this department.

Food and Beverage Department Expenses. Expenses associated with the food and beverage department include the costs of goods sold, payroll and related expenses and the costs of uniforms, kitchen, dining room and lounge supplies and other miscellaneous costs. These expenses were estimated at 70 percent of food and beverage revenues in a stabilized year of operation.

Rentals and Other IncomePer Occupied Room Per Day

Cleveland HotelsHotel A $1.02 $291Hotel B 0.37 71Hotel C 0.39 104Hotel D 0.61 131Hotel E 0.31 83Weighted Average 0.56 679

Comparable HotelsHotel F $2.19 $1,006Hotel G 3.94 1,309Hotel H 5.99 1,961Hotel I 4.35 1,778Hotel J 2.85 1,022Weighted Average 3.75 1,415Subject Stabilized Year $0.50 $208

Rooms ExpensePer Occupied Room % of Rm. Rev.

Cleveland HotelsHotel A $39.49 26.4%Hotel B 55.05 27.4%Hotel C 28.85 29.4%Hotel D 35.09 29.7%Hotel E 29.90 28.3%Weighted Average 29.90 28.3%

Comparable HotelsHotel F $33.60 26.9%Hotel G 34.33 28.8%Hotel H 31.48 20.2%Hotel I 32.47 24.8%Hotel J 36.87 28.4%Weighted Average 33.74 25.7%Subject Stabilized Year $41.50 28.0%


Other Operated Departments Expenses. Expenses associated with the individual revenue sources in the other operated departments were estimated to aggregate to 102 percent of other operated department revenues in all years of the projections. Expense percentages for each component of this department were projected to be as follows: telephone/internet expenses at 200 percent; and, in-room movie, sundries shop and laundry and valet expenses all at 75 percent. (All garage expenses would be covered by the garage operator.)

Undistributed Operating Expenses Undistributed operating expenses are necessary to the operation of the property though not directly chargeable to a revenue-producing department. Administrative and General Expenses. Expenses in this category include administrative staff salaries and related costs, contract services, data processing, personnel training, travel, administrative telephone expenses, professional fees and credit card commissions, and were estimated at $5,245 per available room, or 8.4 percent of total revenue, in the

Food & Beverage Expense% of F&B Rev.

Cleveland HotelsHotel A 73.6%Hotel B 83.1%Hotel C 85.0%Hotel D 67.2%Hotel E 72.8%Weighted Average 77.3%

Comparable HotelsHotel F 68.0%Hotel G 89.8%Hotel H 70.7%Hotel I 66.0%Hotel J 70.4%Weighted Average 71.3%Subject Stabilized Year 70.0%

Other Operated Departments Expense% of OOD Rev.




stabilized year, and are expected to vary with inflation. A payroll staffing schedule was prepared to assist in estimating the expenses for this department.

Marketing. Marketing expenses reflect the level of expenditure necessary to properly promote and maintain the Hotel in the competitive market area. These expenses include all sales and marketing-related payroll and related expenses, all advertising and promotion expenses and all fees relating to the franchise (royalty, corporate sales and marketing, frequent guest program charges, etc.). Total marketing expenses have been projected at $4,889 per available room, or 7.8 percent of total revenue, in the stabilized year, and are expected to vary with inflation. (Total franchise-related costs were estimated to total 9.0 percent of room sales.) A payroll staffing schedule was prepared to assist in estimating the expenses for this department.

Property Operations and Maintenance. Property operations and maintenance expenditures, which include payroll and related costs and maintenance expenses for the building and mechanical systems, were estimated at $2,574 per available room, or 4.1 percent of total revenue, in the stabilized year, and are expected to vary with inflation. A

Administrative and GeneralPer Available Room % of Total Rev.

Cleveland HotelsHotel A $5,087 8.8%Hotel B 9,341 10.8%Hotel C 2,455 7.3%Hotel D 5,873 13.6%Hotel E 4,301 10.0%Weighted Average 5,210 10.0%

Comparable HotelsHotel F $4,294 7.8%Hotel G 4,178 10.3%Hotel H 4,958 8.4%Hotel I 4,078 8.3%Hotel J 5,421 10.1%Weighted Average 4,546 8.8%Subject Stabilized Year $5,245 8.4%

MarketingPer Available Room % of Total Rev.




payroll staffing schedule was prepared to assist in estimating the expenses for this department.

Utilities. Utility costs have been estimated at $2,763 per available room, or 4.4 percent of total revenue, in the stabilized year, and are expected to vary with inflation.

Gross Operating Profit Gross Operating Profit. The table on the following page compares the Gross Operating Profit (income before fixed charges) estimated for the Hotel to the results of the comparable hotels.

Property Operation and MaintenancePer Available Room % of Total Rev.



Utility CostsPer Available Room % of Total Rev.




Fixed Expenses and Reserve for Replacement Fixed expenses are necessary to maintain the property's availability to potential guests and, with the exception of management fees, do not necessarily vary with performance. We have also made provision for a reserve for the annual replacement of furniture, fixtures and equipment. Base Management Fee. We have included a base management fee to be paid to an independent hotel management company equal to 3.0 percent of total revenue throughout the projection period.

Property Taxes. We based our estimates of property taxes, at $2,500 per room per year, on the amounts reported by the most comparable hotels in Cleveland and comparable hotels in other cities.

Per Available Room % of Total Rev.Cleveland Hotels

Hotel A $17,257 29.7%Hotel B 17,395 20.1%Hotel C 10,756 31.9%Hotel D 12,408 28.6%Hotel E 11,481 26.6%Weighted Average 14,569 26.6%


Gross Operating Profit

Base Management Fee% of Total Rev.




Building and Contents Insurance. Building and contents insurance premiums were estimated at $200 per available room, or approximately 0.3 percent of total revenue in the stabilized year, and are expected to vary with inflation.

Reserve for Replacement. In order to account for the necessary periodic replacement of short-lived items, such as furnishings, fixtures and equipment necessary to the operation of the Hotel, annual reserves were projected at 2.0 percent of total revenue in the first year of operation, 3.0 percent in the second year and 4.0 percent per year thereafter. The resultant projections of income and expense for the proposed convention center hotel for its first five fiscal years of operation, 2017/18 through 2021/22, are presented on the following page.

Property TaxesPer Available Room % of Total Rev.

Cleveland HotelsHotel A $2,535 4.4%Hotel B 0 0.0%Hotel C 970 2.9%Hotel D 0 0.0%Hotel E 1,621 3.8%Weighted Average 1,137 2.2%

Comparable HotelsHotel F $0 0.0%Hotel G 0 0.0%Hotel H 2,424 4.1%Hotel I 2,516 5.1%Hotel J 2,217 4.1%Weighted Average 2,389 2.7%Subject Stabilized Year $2,500 4.0%

InsurancePer Available Room

Cleveland HotelsHotel A $142Hotel B 0Hotel C 205Hotel D 367Hotel E 246Weighted Average 191

Comparable HotelsHotel F $349Hotel G 404Hotel H 256Hotel I 316Hotel J 397Weighted Average 344Subject Stabilized Year $200


Proposed Cleveland Convention Center HotelProjected Operating ResultsFiscal Years Beginning July 1

2017/18 2018/19 2019/20 2020/21 2021/22Number of Units:Number of Annual Rooms Available:Number of Rooms Occupied:Annual Occupancy:Average Daily Rate:Revenue Per Available Room:

Amount Percent Amount Percent Amount Percent Amount Percent Amount PercentRevenues Rooms $24,302,000 58.9% $25,821,000 59.3% $27,497,000 59.6% $28,654,000 59.7% $29,731,000 59.8% Food & Beverage 14,612,000 35.4% 15,286,000 35.1% 16,011,000 34.7% 16,593,000 34.6% 17,156,000 34.5% Other Operated Departments 2,242,000 5.4% 2,382,000 5.5% 2,535,000 5.5% 2,642,000 5.5% 2,741,000 5.5% Rentals and Other Income 82,000 0.2% 87,000 0.2% 93,000 0.2% 96,000 0.2% 100,000 0.2% Total Revenues 41,238,000 100.0% 43,576,000 100.0% 46,136,000 100.0% 47,985,000 100.0% 49,728,000 100.0%

Departmental Expenses Rooms 7,109,000 29.3% 7,432,000 28.8% 7,782,000 28.3% 8,062,000 28.1% 8,334,000 28.0% Food & Beverage 10,411,000 71.2% 10,822,000 70.8% 11,259,000 70.3% 11,640,000 70.2% 12,016,000 70.0% Other Operated Departments 2,286,000 102.0% 2,429,000 102.0% 2,585,000 102.0% 2,695,000 102.0% 2,796,000 102.0% Total Departmental Expenses 19,806,000 48.0% 20,683,000 47.5% 21,626,000 46.9% 22,397,000 46.7% 23,146,000 46.5%

Departmental Profit 21,432,000 52.0% 22,893,000 52.5% 24,510,000 53.1% 25,588,000 53.3% 26,582,000 53.5%

Undistributed Expenses Administrative & General 3,596,000 8.7% 3,743,000 8.6% 3,899,000 8.5% 4,032,000 8.4% 4,164,000 8.4% Marketing 3,240,000 7.9% 3,414,000 7.8% 3,604,000 7.8% 3,744,000 7.8% 3,878,000 7.8% Property Operation and Maintenance 1,596,000 3.9% 1,732,000 4.0% 1,900,000 4.1% 1,955,000 4.1% 2,033,000 4.1% Utility Costs 1,877,000 4.6% 1,960,000 4.5% 2,052,000 4.4% 2,121,000 4.4% 2,192,000 4.4% Total Undistributed Operating Expenses 10,309,000 25.0% 10,849,000 24.9% 11,455,000 24.8% 11,852,000 24.7% 12,267,000 24.7%

Gross Operating Profit 11,123,000 27.0% 12,044,000 27.6% 13,055,000 28.3% 13,736,000 28.6% 14,315,000 28.8%

Base Management Fee 1,237,000 3.0% 1,307,000 3.0% 1,384,000 3.0% 1,440,000 3.0% 1,492,000 3.0%

Fixed Expenses Property Taxes 1,765,000 4.3% 1,818,000 4.2% 1,877,000 4.1% 1,928,000 4.0% 1,986,000 4.0% Insurance 141,000 0.3% 145,000 0.3% 150,000 0.3% 154,000 0.3% 159,000 0.3% Total Fixed Expenses 1,906,000 4.6% 1,963,000 4.5% 2,027,000 4.4% 2,082,000 4.3% 2,145,000 4.3%

Net Operating Income 7,980,000 19.4% 8,774,000 20.1% 9,644,000 20.9% 10,214,000 21.3% 10,678,000 21.5%

FF&E Reserve 825,000 2.0% 1,307,000 3.0% 1,845,000 4.0% 1,919,000 4.0% 1,989,000 4.0%

Net Operating Income After Reserve $7,155,000 17.4% $7,467,000 17.1% $7,799,000 16.9% $8,295,000 17.3% $8,689,000 17.5%

Source: PKF Consulting

600 600 602 600 600219,000 219,000 219,600 219,000 219,000139,070 143,450 148,230 150,020 151,11063.5% 65.5% 67.5% 68.5% 69.0%

$174.75 $180.00 $185.50 $191.00 $196.75$110.97 $117.90 $125.21 $130.84 $135.76

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MARKET STUDY WITH FINANCIAL PROJECTIONSpublicworks.cuyahogacounty.us/pdf_publicworks/en... · As you requested, we have prepared a market study with financial projections for, and