MARKET STUDY Proposed otel at the Orlando- Melbourne … Airport... · Construction & Pre-Opening of Hotel Opening of the Hotel. July 2018 August 2018 - March 2019 April 2019 - September

MARKET STUDY

Proposed Hotel at the Orlando-Melbourne International Airport 650 WEST NASA BOULEVARD MELBOURNE, FLORIDA

SUBMITTED TO:PR OPOSED

Mr. Mark Busalacchi Orlando-Melbourne International Airport One Air Terminal Parkway, Suite 220 Melbourne, Florida 32901 +1 (321) 723-6277 ext. 132

PREPARED BY:

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

July-2018

July 17, 2018

Mr. Mark Busalacchi Orlando-Melbourne International Airport One Air Terminal Parkway, Suite 220 Melbourne, Florida 32901

Re: Proposed Hotel at the Orlando-Melbourne International Airport

650 West NASA Boulevard

Melbourne, Florida

HVS Reference: 2018021135/2019020088 (Revised)

Dear Mr. Busalacchi:

Pursuant to your request, we herewith submit our market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Melbourne, Florida area. We have studied the proposed project, and the results of our fieldwork and analysis are presented in this report.

The objective of this assignment is to perform a market study for the purpose of forecasting occupancy, average daily rate (ADR), and resulting RevPAR (revenue per available room) for a proposed 200-key, full-service lodging facility; it has been assumed that the hotel will be affiliated with a nationally-recognized hotel brand and managed by a competent management team familiar with operational experience in Central Florida. HVS recommends the prospective hotel be positioned within the upper upscale price/quality tier of STR’s chain scales ranking, with optional branding considerations in the lower-tiered upscale segment.

We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein.

Sincerely, HVS Consulting & Valuation

Donald C. Stephens Jr., Managing Director [email protected], +1 (407) 203-1122 State-Certified General Real Estate Appraiser RZ 3699

HVS ORLANDO

111 Granada Court

Orlando, Florida 32803

+1 (407) 203-1122 (Office)

+1 (407) 405-4363 (Mobile)

+1 (516) 742-3059 FAX

www.hvs.com

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Table of Contents

SECTION TITLE PAGE

1. Executive Summary 1

Subject of the Market Study 1

Ownership, Franchise, and Management Assumptions 3

Summary of Hotel Market Trends 3

Summary of Forecast Occupancy and Average Daily Rate 10

Scope of Work 13

2. Description of the Site and Neighborhood 14

Physical Characteristics 14

Access and Visibility 20

Airport Access 21

Neighborhood 23

Proximity to Local Demand Generators and Attractions 25

Flood Zone 27

Zoning 28

3. Market Area Analysis 29

Workforce Characteristics 33

Unemployment Statistics 36

Major Business and Industry 37

Office Space Statistics 41

Airport Traffic 42

Orlando-Melbourne International Airport 43

Orlando International Airport 45

Orlando Sanford International Airport 46

Tourist Attractions 47

4. Supply and Demand Analysis 51

Definition of Subject Hotel Market 51

National Trends Overview 51

Brevard County Lodging Market 55

Historical Supply and Demand Data 57

Seasonality 59

Patterns of Demand 62

Primary Competitors 64

Secondary Competitors 70

Supply Changes 72

Demand Analysis Using Market Segmentation 74

Base Demand Growth Rates 76

Latent Demand 77

Unaccommodated Demand 77

Induced Demand 79

Accommodated Demand and Market-wide Occupancy 79

5. Description of the Proposed Improvements 82

Project Overview 82

Summary of the Facilities 82

Site Improvements and Hotel Structure 83

Lobby 83

Food and Beverage Facilities 83

Meeting and Banquet Space 84

Recreational Amenities 84

Guestrooms 84

Back-of-the-House, ADA, and Environmental 84

Capital Expenditures 85

6. Projection of Occupancy and Average Rate 86

Historical Penetration Rates by Market Segment 86

Forecast of Subject Property’s Occupancy 87

Average Rate Analysis 90

Competitive Position 90

7. Statement of Assumptions and Limiting Conditions 96

July-2018 Executive Summary Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 1

1. Executive Summary

The subject of the market study is a 261,360-square-foot (6.00-acre) parcel to be improved with an upper upscale, full-service lodging facility; it has been assumed that the hotel will be affiliated with a nationally-recognized hotel brand and managed by a competent management team familiar with operational experience in Central Florida. The property, which is expected to open on October 1, 2020, will feature 200 rooms, two restaurants and a lounge, a rooftop bar, appropriately-sized banquet and meeting facilities (±15,000 square feet), an outdoor pool, an outdoor whirlpool, a fitness center, a business center, a gift shop, a market pantry, a guest laundry room, an outdoor patio and lounge areas, and a vending area. In addition, one floor in the hotel will offer concierge level service. The hotel will also contain the appropriate parking capacity (±200 surface spaces) and all necessary back-of-the-house space. The subject site’s location is 650 West NASA Boulevard, Melbourne, Florida, 32901.

MELBOURNE-ORLANDO INTERNATIONAL AIRPORT

Subject of the Market Study

Subject Site


The Orlando-Melbourne International Airport (MLB) is planning to bring to market a vacant 12.458-acre parcel of land situated along the north side of West NASA Boulevard and the west side of Air Terminal Parkway, the latter of which serves as the main departure road from the airport’s terminal building. The site is cleared and ready for immediate development.

Development within the Orlando-Melbourne International Airport is regulated by the Federal Aviation Authority (FAA). As such, the prospective hotel site will be subject to a long-term ground lease. While final contractual terms of the ground lease will be procured by interested parties through the selection process, we are informed that the initial term of the ground lease will be for a period on 50 years.

In conjunction with the subject hotel site, it is our opinion that complementary supporting uses could readily be developed on the parent tract. Based on our review of FAA regulatory height constraints (see Description of Site - Page 18), its size, shape, and physical characteristics, accommodating on-site surface parking for both the prospective hotel and envisioned ancillary uses is deemed reasonable. Therefore, we have assumed a smaller dedicated site area for the proposed hotel. The site area prescribed to the hotel project, which comprises roughly half of the overall parcel, may change due to height restrictions mandated by FAA flight path rules. However, while our site size is considered reasonable for the development of a 200-room hotel, maximizing the utility of the site that reflects regulated height constraints will require an architectural design that encompasses these factors and may result in a smaller or larger site area requirement.

The effective date of the report is July 17, 2018. The subject site was inspected by Donald C. Stephens Jr. on June 21, 2018.

We have assumed a 6-8-month due diligence period allowing for brand selection, pre-design and permitting, and an 18-month construction period including pre-opening, as shown in the following table.

FIGURE 1-1 PRE-DEVELOPMENT TIMELINE AND CONSTRUCTION CYCLE

Date of

Market Study

Pre-Developm ent Des ign

and Perm itting Period

Construction & Pre-

Opening of Hotel

Opening of the

Hotel

July 2018 August 2018 - March 2019 Apri l 2019 - September 2020 October 1, 2020

6-8 months 18 months

(including 2-month pre-opening)

The forecasts of occupancy, average rate, and resulting RevPAR’s reflects years beginning on October 1, 2020, which corresponds with our expected date of

Pertinent Dates


opening. An adequate period of time should be allocated in order to solve any potential operational issues that may occur before the peak demand season begins in 2021.

The subject property is currently owned by the Melbourne Airport Authority - City of Melbourne. The site is neither listed nor under contract for sale, and we have no knowledge of any recent listings.

We recommend that the proposed subject hotel operate as an upper upscale, full-service property. While a specific franchise affiliation and/or brand has yet to be finalized, the proposed hotel is assumed to be managed by the brand throughout the forecast period; as such, it would not be subject to franchise fees.

Details pertaining to management terms were not yet determined at the time of this report; however, we assume that the proposed hotel will be managed by a professional hotel-operating company, with fees deducted at rates consistent with current market standards.

The STR Trend report that we custom-ordered for this assignment includes seven (7) upscale and upper upscale properties collectively containing 1,382 rooms thatform the majority of the higher-tiered hotel product in the Melbourne market.

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

Ownership, Franchise, and Management Assumptions

Summary of Hotel Market Trends


FIGURE 1-2 HISTORICAL SUPPLY AND DEMAND TRENDS (STR)

Year

Average Daily

Room Count

Available Room

Nights Change

Occupied Room

Nights Change Occupancy

Average

Rate Change RevPAR Change

2006 971 354,357 — 187,377 — 52.9 % $126.24 — $66.75 —

2007 1,145 417,925 17.9 % 255,081 36.1 % 61.0 125.92 (0.3) % 76.86 15.1 %

2008 1,340 489,020 17.0 280,401 9.9 57.3 120.33 (4.4) 69.00 (10.2)

2009 1,360 496,400 1.5 299,540 6.8 60.3 106.03 (11.9) 63.98 (7.3)

2010 1,360 496,400 0.0 336,405 12.3 67.8 102.88 (3.0) 69.72 9.0

2011 1,360 496,461 0.0 356,053 5.8 71.7 105.43 2.5 75.61 8.4

2012 1,376 502,265 1.2 344,585 (3.2) 68.6 106.74 1.2 73.23 (3.1)

2013 1,370 500,087 (0.4) 341,920 (0.8) 68.4 108.43 1.6 74.13 1.2

2014 1,367 499,076 (0.2) 386,437 13.0 77.4 113.10 4.3 87.58 18.1

2015 1,378 502,970 0.8 396,715 2.7 78.9 120.49 6.5 95.03 8.5

2016 1,378 503,063 0.0 410,538 3.5 81.6 130.33 8.2 106.36 11.9

2017 1,381 504,065 0.2 388,629 (5.3) 77.1 136.72 4.9 105.41 (0.9)

Year-to-Date Through May

2017 1,381 208,531 — 176,969 — 84.9 % $144.32 — $122.47 —

2018 1,381 208,562 0.0 % 158,255 (10.6) % 75.9 163.79 13.5 % 124.28 1.5 %

Average Annual Compounded Change:

2006 - 2017 3.3 % 6.9 % 0.7 % 4.2 %

2010 - 2015 0.3 3.4 3.2 6.4

2011 - 2017 0.3 1.5 4.4 5.7

2013 - 2017 0.2 3.3 6.0 9.2

Hotels Included in Sample

Hi l ton Melbourne Ria l to Place Upper Upscale Class Primary 238 Aug 1985 Aug 1985 Non-Beachfront

Courtyard Melbourne West Upscale Class Primary 146 Mar 1987 Mar 1987 Non-Beachfront

Res idence Inn Melbourne Upscale Class Primary 133 Jan 2008 Jan 2008 Non-Beachfront

Hi l ton Melbourne Beach Oceanfront Upper Upscale Class Secondary 201 Aug 2006 Jan 1986 Beachfront

Crowne Plaza Melbourne Oceanfront Upscale Class Secondary 290 Jan 2006 Jun 1979 Beachfront

DoubleTree Suites Melbourne Beach Oceanfront Upscale Class Secondary 207 Jul 2006 Jan 1987 Beachfront

Radisson Suite Hotel Oceanfront Upscale Class Secondary 167 Feb 1987 Feb 1987 Beachfront

Total 1,382

Source: STR

Class

Number

of Rooms

Year

Opened

Competitive Year

Status Affiliated Comments

Positive RevPAR growth over the past five years has brought the competitive market from the depth of the Great Recession to performance levels not seen in some time. Apart from a slight dip in demand in 2017 due to an impactful hurricane season, all three indices recorded record-breaking performance levels in 2016, and have now surpassed historic highs. Double-digit RevPAR growth was recorded in two of the past five years and has been on an increasing trajectory since 2013 with strong year-over-year gains (9.2% per year). Similarly, average daily rates have been robust with strong growth trends being recorded since 2011 (4.4% per year). Demand has risen over the evaluation period at 6.9% per year, which was greater than supply growth over the evaluation period at 3.3% per year.


The subject lodging market bottomed out in 2009, reflecting the impacts of the most recent recession, when occupancy fell to 60.3% and an average rate of $106, for a RevPAR of approximately $64, 83% of the pre-recession peak, $77. The data reveals that while occupancy rebounded relatively quickly after the recession, average rates were slow to gain momentum. In fact, it was not until two years after occupancy rates hit its lowest point in the past decade that average rates finally bottomed out in 2010. Over the next five years, 2010 through 2015, RevPAR grew at an average annual rate of 6.4%, reflecting rapid expansion primarily paced by growth in the market’s occupancy rate that peaked at 78.9%. It is important to note that the space program began the process of privatization in 2014. Double-digit RevPAR growth was recorded in 2014 at 18.1%, 8.5% in 2015, and 11.9% in 2016.

FIGURE 1-3 REVPAR PERCENTAGE CHANGE

15.1%

-10.2%

-7.3%

9.0%

8.4%

-3.1%

1.2%

18.1%

8.5%

11.9%

-0.9%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

13 Months

16 Months

10 Months

46 Months

14 Months

32 Months


FIGURE 1-4 REVPAR – COMPOUNDED AVERAGE GROWTH RATES (CAGR)

5-Year RevPAR 10-Year RevPAR RevPAR

Annual Growth Annual Growth Annual Growth

9.2% 3.2% 6.4%

5-Year ADR 10-Year ADR ADR

Annual Growth Annual Growth Annual Growth

5.1% 0.8% 3.2%

Post-Recession

Post-Recession

Since 2016, the competitive set’s trends have been less positive. RevPAR decreased slightly in 2017, with declining occupancy levels offsetting modest gains in average rate. Through May 2018, the trend continues, led by a significant decline in occupancy, yet average rate surged by increasing 13.5% (nearly a $20 gain) breaking an all-time seasonal rate increase. We attribute the decline in demand, in part, to the temporary closure of the 290-room Crown Plaza Melbourne Oceanfront. While one tower has been closed since Hurricane Irma last September, the entire inventory closed on May 14th resulting in the competitor’s aggregate inventory to decline by of over 20%. According to representative at the hotel, plans are to reopen the resort next month (mid-August). Our analysis accounts for this temporary room closure.

The competitive set’s most recent new hotel opening was the 133-room extended-stay Residence Inn Melbourne, which opened in January 2008. Since 2010, the competitive set’s inventory has varied moderately from year to year, reflecting periodic increases and decreases in the competitors’ inventory. Rates of change in supply have been moderate in scale since 2010, ranging from a decrease of 0.4% in 2013 to an increase of 1.2% in 2012. Another increase of 0.8% was recorded in 2015. It should be noted that the Hilton Melbourne Beach Oceanfront added a single room to its inventory in May 2018. No new full-service hotels have been introduced to the Melbourne market in over 25 years.

After seven consecutive years of ADR growth, market participants appear confident that going forward RevPAR growth will be in the form of modest average rate increases through aggressive yield management amid steady growth in room night demand levels and a minimal amount of new supply entering the market in 2018. HVS Orlando expects the Melbourne hotel market to breach the $108 aggregate RevPAR level by the end of 2018 and enter unfamiliar territory.

The following tables reflect our estimates of operating data for hotels on an individual basis. These trends are presented in detail in the Supply and Demand Analysis chapter of this report.


FIGURE 1-5 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Property Occ. RevPAR RevPAR

Occupancy

Penetration

Yield

Penetration

Hi l ton Melbourne At Ria l to Place 238 45 % 20 % 35 % 235 75 - 80 % $115 - $120 $90 - $95 238 75 - 80 % $125 - $130 $95 - $100 100 - 110 % 90 - 95 %

Courtyard by Marriott Melbourne 146 55 5 40 146 80 - 85 110 - 115 90 - 95 146 80 - 85 115 - 120 95 - 100 100 - 110 85 - 90

Res idence Inn by Marriott Melbourne 133 60 5 35 133 85 - 90 115 - 120 100 - 105 133 75 - 80 120 - 125 90 - 95 95 - 100 85 - 90

Sub-Totals/Averages 517 52 % 12 % 36 % 514 81.3 % $115.84 $94.14 517 79.6 % $121.77 $96.94 102.6 % 91.9 %

Secondary Competitors 864 47 % 17 % 36 % 778 82.3 % $139.18 $114.53 778 76.2 % $145.99 $111.25 98.2 % 105.4 %

Totals/Averages 1,381 49 % 15 % 36 % 1,292 81.9 % $129.96 $106.42 1,295 77.6 % $136.06 $105.54 100.0 % 100.0 %

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

Average RateCom

mer

cial

Mee

ting

and

Gro

up

Leisu

reNumber of

Rooms Average Rate Occ.

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


FIGURE 1-6 SECONDARY COMPETITORS – OPERATING PERFORMANCE


Leisu

re

Com

mer

cial

Mee

ting

and

Gro

up

Total

Competitive

Level

Weighted

Annual

Room

Count

Weighted

Annual

Room

CountProperty

Number of

Rooms Occ. Average Rate RevPAR Occ. Average Rate RevPAR

Hi l ton Melbourne Beach Oceanfront 200 45 % 20 % 35 % 90 % 180 85 - 90 % $150 - $160 $130 - $140 180 75 - 80 % $150 - $160 $125 - $130

Crowne Plaza Melbourne Oceanfront 290 45 20 35 90 261 75 - 80 120 - 125 95 - 100 261 65 - 70 125 - 130 85 - 90

DoubleTree by Hi l ton Guest Suites Melbourne

Beach Oceanfront207 45 20 35 90 186 80 - 85 140 - 150 115 - 120 186 80 - 85 140 - 150 125 - 130

Radisson Suite Hotel Oceanfront 167 55 5 40 90 150 75 - 80 150 - 160 115 - 120 150 70 - 75 150 - 160 115 - 120

Totals/Averages 864 47 % 17 % 36 % 90 % 778 82.3 % $139.18 $114.53 778 76.2 % $145.99 $111.25

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

Leisu

re

Com

mer

cial

Mee

ting

and

Gro

up

Total

Competitive

Level

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


FIGURE 1-7 MONTHLY OCCUPANCY TRENDS (2015- YTD 2018)

It is important to recognize that the occupancy rate for 2017 declined due to the negative effects of Hurricane Irma. Several hotels were closed in the month of September, which caused a decline in occupancy rate.

FIGURE 1-8 MONTHLY AVERAGE RATE TRENDS (2015- YTD 2018)

90.1 91.489.1

80.6

94.6 95.092.3

83.686.7

89.387.0

76.0

46.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2015 2016 2017 2018

Occupancy Trends

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

$148.05

$165.86 $163.26

$190.45

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

2015 2016 2017 2018

Average Rate Trends

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


The following table illustrates year-to-date occupancy, average rate and RevPAR performance metrics for the selected primary and secondary competitors. While double-digit average rate growth rates highlight 2018’s performance indices, occupancy rates for non-beachfront, select-service hotel has been flat as compared to the same four-month period last year. Relative to the beachfront hotels, excluding the Radisson that experienced a negative 12.5% decline in occupancy, the remaining properties are indicating strong year-to-date gains in captured demand.

FIGURE 1-9 PRIMARY AND SECONDARY COMPETITORS – YEAR-TO-DATE OPERATING PERFORMANCE

Property

Data

Through Occupancy

Average

Rate RevPAR Occupancy

Average

Rate RevPAR Occupancy

Average

Rate RevPAR

Primary Competitors

Hi l ton Melbourne At Ria l to Place Apri l 84 % $134.00 $112.56 87 % $151.00 $131.37 3.6 % 12.7 % 16.7 %

Courtyard by Marriott Melbourne Apri l 88 127.00 111.76 88 141.00 124.08 0.0 11.0 11.0

Res idence Inn by Marriott Melbourne Apri l 90 127.00 114.30 90 147.00 132.30 0.0 15.7 15.7

Secondary Competitors

Hi l ton Melbourne Beach Oceanfront Apri l 88 176.00 154.88 93 199.00 185.07 5.7 13.1 19.5

Crowne Plaza Melbourne Oceanfront June 80 170.00 136.00 85 175.00 148.75 6.3 2.9 9.4

DoubleTree by Hi l ton Guest Suites Melbourne Beach OceanfrontApri l 86 164.00 141.04 91 186.00 169.26 5.8 13.4 20.0

Radisson Suite Hotel Oceanfront June 80 163.00 130.40 70 184.00 128.80 -12.5 12.9 -1.2

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

In summary, the market experienced peak occupancy of 81% in 2016. In 2017, occupancy softened moderately, largely due to the impact of Hurricane Irma, which hit the area in September of that year. However, average rate continued to grow, and RevPAR achieved a modest decline. The year-to-date data through May 2018 reveals a 10.6% decrease in occupancy and a 13.5% increase in average rate. These data exclude the performance of the Crowne Plaza, as this property was closed in 2018.

Rate positioning considers, among other factors, the quality of the site and the proposed project, selected branding, on- and off-site amenities, and the level of service offered. HVS has assumed that the subject proposed hotel would incorporate the highest standards similar to other upper upscale hotels elsewhere in Central Florida. Our estimates of occupancy and average rate contained in this study are based on the development vision, as articulated herein, being executed.

The hotel product to be developed on this site needs to be able to offer a prospective guest something that the competitive market does not offer. We acknowledge that the surrounding hotel uses are ‘upscale’ to ‘upper upscale’ in nature and that the hotel development should complement these existing hotels. There is sufficient evidence that has been revealed in our investigation for us to suggest that an upper

Summary of Forecast Occupancy and Average Daily Rate


upscale hotel product would be the ‘best-fit’. Relative to price and quality of facilities, this positioning represents a strong product-market fit.

Overall, the historical data presented in the STR Trend report reflects strong occupancy levels in recent years for both beachfront and non-beachfront hotels, while the beachfront submarket benefits from a rate premium and command the highest average daily rates of hotels in both submarkets. The selected set of hotels located in the Melbourne submarket proximate to the airport experience higher levels of competition from hotels in that submarket given lower barriers to entry. This increased competition results in a lower overall average rate level for the market. Additionally, numerous hotels in the Melbourne submarket compete for lower rated groups and SMERF (Social, Military, Educational, Religious, and Fraternal) demand on the weekends and during holidays throughout the year. These groups are typically able to negotiate lower average rates for groups that provide hotels in that submarket with occupancy. Additionally, several hotels within the Melbourne set were constructed over 30 years ago; as such, their older physical plants, relative to their quality of construction, have a negative effect on average rate.

While the proposed subject site at the Orlando-Melbourne International Airport is located on the fringe of “downtown” Melbourne, we consider the beachfront set of hotels and the neighboring full-service Hilton Melbourne at Rialto Place to be of greater relevance and importance in our forecasts for the proposed subject hotel.

Based on our analysis presented in the Projection of Occupancy and Average Rate chapter, we have chosen to use a stabilized occupancy level of 78% and a base-year (2017) rate position of $150.00 for the proposed subject hotel. The following tables reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections.

FIGURE 1-10 MARKET AND SUBJECT PROPERTY OCCUPANCY AND AVERAGE RATE FORECAST

Year

Base Year 77.6 % — $136.06 — — $150.00 110.2 %

2018 70.8 10.0 % 149.66 — 10.0 % 165.00 110.2

2019 70.7 5.0 157.15 — 5.0 173.25 110.2

2020 67.8 2.5 161.08 65.0 % 2.5 177.58 110.2

2021 66.1 2.0 164.30 68.0 2.0 181.13 110.2

2022 67.9 3.5 170.05 72.0 3.5 187.47 110.2

2023 69.7 3.0 175.15 76.0 3.0 193.10 110.2

2024 71.3 3.0 180.40 78.0 3.0 198.89 110.2

Area-wide Market (Calendar Year) Subject Property (Calendar Year)

Occupancy

Average Rate

Growth

Average

Rate Occupancy

Average Rate

Growth

Average

Rate

Average Rate

Penetration


A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast 5.0% and 3.0% discounts to the proposed subject hotel’s forecast room rates in the first two operating years, which would be typical for a new operation of this type.

FIGURE 1-11 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Calendar Year 2017 2018 2019 2020 2021 2022 2023 2024

Market ADR $136.06 $149.66 $157.15 $161.08 $164.30 $170.05 $175.15 $180.40

Projected Market ADR Growth Rate — 10.0% 5.0% 2.5% 2.0% 3.5% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabi l i zed) $150.00 $165.00 $173.25 $177.58 $181.13 $187.47 $193.10 $198.89

ADR Growth Rate — 10.0% 5.0% 2.5% 2.0% 3.5% 3.0% 3.0%

Proposed Subject Stabi l i zed ADR Penetration 110% 110% 110% 110% 110% 110% 110% 110%

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

Proposed Subject Property Average Rate $180.24 $185.87 $191.68 $197.43 $203.35

Opening Discount 5.0% 3.0% 0.0% 0.0% 0.0%

Average Rate After Discount $171.23 $180.30 $191.68 $197.43 $203.35

Real Average Rate Growth — 5.3% 6.3% 3.0% 3.0%

Market ADR $163.49 $168.60 $173.86 $179.08 $184.45

Proposed Subject ADR Penetration (After Discount) 105% 107% 110% 110% 110%

ADR Expressed in Base-Year Dol lars Deflated @ Inflation Rate $158.23 $161.76 $166.96 $166.96 $166.96

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

FIGURE 1-12 FISCALIZED OCCUPANCY, AVERAGE RATE AND REVPAR

Year

2020/21 67 % $180.24 5.0 % $171.23 $114.72

2021/22 71 185.87 3.0 180.30 128.01

2022/23 75 191.68 0.0 191.68 143.76

2023/24 Stabilized 78 197.43 0.0 197.43 154.00

Occupancy

Average Rate

Before Discount Discount

Average Rate

After Discount RevPAR


The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,1 Hotels, Motels and Restaurants: Valuations and Market Studies,2 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,4 and Hotels and Motels – Valuations and Market Studies.5

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

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

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

4. Dividing the market for hotel accommodations into individual segmentsdefines specific market characteristics for the types of travelers expected toutilize the area's hotels. The factors investigated include purpose of visit,average length of stay, facilities and amenities required, seasonality, dailydemand fluctuations, and price sensitivity.

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

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

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

Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies.

(Chicago: American Institute of Real Estate Appraisers, 1983). 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and

Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment

Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies.

(Chicago: Appraisal Institute, 2001).

Scope of Work

July-2018 Description of the Site and Neighborhood Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 14

2. Description of the Site and Neighborhood

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

The subject site is located proximate to the terminal of the Orlando-Melbourne International Airport, in the northwest quadrant of the intersection formed by West NASA Boulevard and Air Terminal Parkway. This site is in the city of Melbourne, Florida. A clear advantage of the proposed hotel site is its proximity to the airport’s main terminal facilities with general aviation access to the back of the hotel. In addition, the subject site is within a close walking distance to the airport’s surface parking facilities, rental car lots, and a high-end steakhouse restaurant.

AERIAL VIEW OF SUBJECT SITE

The subject site measures approximately 6.00 acres, or 261,360 square feet. As previously noted, the site area dedicated to the hotel project may change due to FAA height restrictions.

Physical Characteristics

Subject Site


The parcel's adjacent uses are set forth in the following table.

FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES

Direction

North Orlando-Melbourne International Airport - a i rfield

South NASA Boulevard - Kindred Hospita l Melbourne

East Orlando-Melbourne International Airport - long-term parking lots

West Harris Corporation

Adjacent Use

VIEW OF SUBJECT SITE

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

Topography and Site Utility


FIGURE 2-2 AERIAL VIEW OF THE SUBJECT PARCEL

Subject Site


FIGURE 2-3 SITE SURVEY PLAN


MAXIMUM FAA HEIGHT RESTRICTION PLAN

Subject Site


AERIAL PHOTOGRAPH

VIEW FROM AIR TERMINAL PARKWAY LOOKING WEST ALONG WEST NASA BOULEVARD

VIEW FROM AIR TERMINAL PARKWAY LOOKING EAST ALONG WEST NASA BOULEVARD

Subject Site


VIEW TO THE NORTH ALONG AIR TERMINAL PARKWAY – SUBJECT SITE ON LEFT

VIEW TO THE SOUTH ALONG AIR TERMINAL PARKWAY – SUBJECT SITE ON RIGHT

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

Primary regional access through the area is provided by Interstate 95, a major north/south thoroughfare located approximately 13 miles west of Cape Canaveral. This interstate provides access to such cities as Jacksonville to the north and Miami to the south. State Highway 528 is another major regional highway, providing access to the greater Orlando area to the west. We note that State Highway 528 becomes State Highway A1A upon reaching Cape Canaveral. State Highway A1A provides access to numerous coastal communities to the south, including Cocoa Beach, Patrick Air Force Base, and Melbourne Beach.

The subject market is served by a variety of additional local highways, which are illustrated on the map.

Access and Visibility


MAP OF REGIONAL ACCESS ROUTES

Primary vehicular access to the subject site is provided by Air Terminal Parkway. Access will also be available from West NASA Boulevard and indirect access from Harry Sutton Road. The subject site is located at a busy intersection and is relatively simple to locate from Interstate 95, which is the nearest major highway. The proposed subject hotel is anticipated to have adequate signage at the street, as well as on its façade. Overall, the subject site benefits from excellent accessibility, and the proposed hotel is expected to enjoy excellent visibility from within its local neighborhood.

The proposed subject hotel will be served by the Orlando-Melbourne International Airport, which is located directly adjacent to the subject site. A clear advantage of the proposed hotel site is its proximity to the airport’s main terminal facilities, primary surface parking areas, and rental car lots (returning rentals), with general aviation access to the back of the proposed hotel.

Airport Access


FIGURE 2-4 ORLANDO-MELBOURNE INTERNATIONAL AIRPORT – FUTURE LAND USE AND AVAILABLE LOTS

Subject Site


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

The neighborhood that surrounds the subject site is generally defined by Eau Gallie to the north, Indian River to the east, New Haven Avenue to the south, and Wickham Road to the west. The defined area contains about seven square miles and includes parts of Melbourne, West Melbourne and unincorporated Brevard County. The neighborhood is characterized by restaurants, office buildings, and retail shopping centers along the primary thoroughfares, with residential areas located along the secondary roadways. The market area is dominated by the Orlando-Melbourne International Airport in the central and western region, and the Holmes Regional Medical Center in the southeast region of the defined area. Along NASA Boulevard there are a number of office buildings and corporate headquarters, as well as R&D facilities. The immediate neighborhood is high-tech aviation orientated complemented with an array of commercial uses. Hotels in the vicinity include the Hilton Melbourne Rialto Place, Residence Inn by Marriott, Courtyard by Marriott, and Suburban Extended-Stay, while most restaurants are located south of the subject site along U.S. Highway 192 proximate to Melbourne Square; the proximity of these restaurants is considered supportive of the operation of a full-service lodging property. A "high-tech" industrial park surrounds the Orlando-Melbourne International Airport.

In general, this neighborhood is in the revitalization stage of its life cycle, with significant development occurring in the retail and residential sectors. In addition, a multitude of major corporations within the aerospace industry are in the process of expanding their operations. Some of these companies include Northrop Grumman, Embraer, Harris Corporation, Thales, Rockwell International, and STS Mod Center. Melbourne is home to Grumman's "Joint Stars" project, which played an important role in the Gulf War victory.

Orlando-Melbourne International Airport comprises a total land area of 2,800 acres. Facilities include three asphalt paved runways: 9R/27L measuring 10,181 x 150 feet, 9L/27R measuring 6,000 x 150 feet, and 5/23 measuring 3,001 x 75 feet. The largest runway has a maximum capacity of 220,000 pounds. The terminal facilities were completed in 1991 and an international terminal and air freight facility opened in 1995 at a cost of about $35-million. Other amenities include cafés/deli’s, gift shops, on-site parking, and rental car providers.

Neighborhood


There are eight gates and seven jet ways currently in operations with an average passenger flow in excess of 450,000 per year. Reportedly, the current facilities are designed to support a passenger flow of 2,000,000 per year. The airport also provides services including charter passenger flights, private aviation, and air freight flights. The airport offers full navigation and air traffic control facilities, as well as two fixed-based operators and flight schools. A NEXRAD weather facility is located on the airfield. International services include U.S. Customs, U.S.C.I.S, and U.S.D.A. The airport is part of Free Trade Zone #136.

MAP OF NEIGHBORHOOD

According to the Federal Department of Transportation (FDOT), a Project Development and Environmental (PD&E) Study for the I-95 Interchange / Ellis Road project is in advanced stages. The project includes a new interchange at the confluence of Interstate 95 (I-95) and Ellis Road and the widening and upgrading Ellis Road from John Rhodes Boulevard to Wickham Road. The project is planned to connect to NASA Boulevard at the southwest corner of the Orlando-Melbourne International Airport providing improved access between the airport and I-95. The project was funded under the State of Florida’s Strategic Intermodal System program.


The following map depicts the location of the planned interchange and road widening project in relation to the airport.

NEIGHBORHOOD’S WORLD LEADING AEROSPACE CORPORATIONS

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

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

Proximity to Local Demand Generators and Attractions


ACCESS TO DEMAND GENERATORS AND ATTRACTIONS


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

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

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

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

COPY OF FLOOD MAP AND COVER

Utilities

Soil and Subsoil Conditions

Nuisances and Hazards

Flood Zone

Subject Site


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

According to the local planning office, the subject property is zoned as follows: M-1 - Light Industrial. Additional details pertaining to the proposed subject property’szoning regulations are summarized in the following table.

FIGURE 2-5 ZONING

Municipal i ty Governing Zoning Brevard County - Ci ty of Melbourne

Current Zoning M-1 Light Industria l

Current Use Vacant land

Is Current Use Permitted? Yes

Is Change in Zoning Likely? Yes

Permitted Uses Industria l , Commercia l uses

Hotel Al lowed Yes

Legal ly Non-Conforming Not Appl icable

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

We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is centrally located within Melbourne and part of the greater Orlando-Melbourne International Airport campus, which is proximate to all the major companies in the space industry. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.

Zoning

Easements and Encroachments

Conclusion

July-2018 Market Area Analysis Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 29

3. Market Area Analysis

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

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

DOWNTOWN MELBOURNE

Market Area Definition


Cape Canaveral, Cocoa Beach, and Melbourne are part of the greater Brevard County economic base, an area that is also referred to as the "Space Coast." This nickname is derived from the presence of the Kennedy Space Center, which was established on Merritt Island in 1962 as part of NASA's lunar program. The area has a rich history reaching back long before the arrival of the space program; Native Americans are believed to have inhabited the area as early as 10,000 B.C. It was not until 1513, when Ponce de Leon arrived, that the first Europeans reached the shores of what is now Brevard County. In modern times, the area has developed into a center for military and aerospace operations, as well as a major tourist destination.

The subject property’s market area can be defined by its Metropolitan Statistical Area (MSA): Palm Bay-Melbourne-Titusville, FL MSA. The MSA is the most standard definition used in comparative studies of metropolitan areas. The federal government defines an MSA as a large population nucleus, which, together with adjacent counties, has a higher degree of social integration. The following exhibit illustrates the market area.

MAP OF MARKET AREA


MAP OF THE CITY OF MELBOURNE

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

Economic and Demographic Review


FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

Average Annual

Compounded Change

2000 2010 2017 2020 2000-10 2010-17 2017-20

Resident Population (Thousands)

Brevard County 477.8 544.0 572.9 589.6 1.3 % 0.7 % 1.0 %

Palm Bay-Melbourne-Ti tusvi l le, FL MSA 477.8 544.0 572.9 589.6 1.3 0.7 1.0

State of Florida 16,047.5 18,852.2 20,731.7 21,620.6 1.6 1.4 1.4

United States 282,162.4 309,347.1 327,505.1 336,690.4 0.9 0.8 0.9

Per-Capita Personal Income*

Brevard County $33,482 $35,851 $37,592 $39,643 0.7 0.7 1.8

Palm Bay-Melbourne-Ti tusvi l le, FL MSA 33,482 35,851 37,592 39,643 0.7 0.7 1.8

State of Florida 35,603 38,089 41,121 43,088 0.7 1.1 1.6

United States 36,812 39,622 44,290 46,375 0.7 1.6 1.5

W&P Wealth Index

Brevard County 93.2 91.6 86.2 86.8 (0.2) (0.9) 0.2

Palm Bay-Melbourne-Ti tusvi l le, FL MSA 93.2 91.6 86.2 86.8 (0.2) (0.9) 0.2

State of Florida 100.4 100.8 96.9 97.0 0.0 (0.6) 0.0

United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0

Food and Beverage Sales (Millions)*

Brevard County $551 $706 $881 $931 2.5 3.2 1.8

Palm Bay-Melbourne-Ti tusvi l le, FL MSA 551 706 881 931 2.5 3.2 1.8

State of Florida 22,183 28,727 37,430 39,997 2.6 3.9 2.2

United States 368,829 447,728 571,731 602,635 2.0 3.6 1.8

Total Retail Sales (Millions)*

Brevard County $6,361 $6,579 $7,643 $8,039 0.3 2.2 1.7

Palm Bay-Melbourne-Ti tusvi l le, FL MSA 6,361 6,579 7,643 8,039 0.3 2.2 1.7

State of Florida 241,567 268,761 328,454 349,959 1.1 2.9 2.1

United States 3,902,830 4,130,414 4,932,756 5,181,433 0.6 2.6 1.7

* Inflation Adjusted

Source: Woods & Poole Economics , Inc.


The U.S. population has grown at an average annual compounded rate of 0.8% from 2010 through 2017. The county’s population has grown more slowly than the nation’s population; the average annual growth rate of 0.7% between 2010 and 2017 reflects a gradually expanding area. Following this population trend, per-capita personal income increased slowly, at 0.7% on average annually for the county between 2010 and 2017. Local wealth indexes have remained stable in recent years, registering a relatively modest 86.2 level for the county in 2017.

Food and beverage sales totaled $881 million in the county in 2017, versus $706 million in 2010. This reflects a 3.2% average annual change, which is stronger than the 2.5% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. Over the long term, the pace of growth is forecast to moderate to a more sustainable level of 1.8%, which is forecast through 2020. The retail sales sector demonstrated an annual increase of 0.3% registered in the decade 2000 to 2010, followed by an increase of 2.2% in the period 2010 to 2017. An increase of 1.7% average annual change is expected in county retail sales through 2020.

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

The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2017, as well as a forecast for 2020.

Workforce Characteristics


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

Average Annual

Compounded Change

Percent Percent Percent Percent

Industry 2000 of Total 2010 of Total 2017 of Total 2020 of Total

Farm 0.8 0.3 % 0.5 0.2 % 0.5 0.2 % 0.5 0.2 % (4.1) % 0.2 % 0.3 %

Forestry, Fishing, Related Activi ties And Other 0.7 0.3 0.5 0.2 0.6 0.2 0.6 0.2 (2.7) 1.1 1.1

Mining 0.2 0.1 0.4 0.1 0.6 0.2 0.6 0.2 5.2 7.4 0.8

Uti l i ties 0.5 0.2 0.4 0.1 0.3 0.1 0.3 0.1 (3.5) (0.9) 0.1

Construction 16.2 6.6 12.4 4.7 15.0 5.3 16.1 5.5 (2.6) 2.8 2.4

Manufacturing 24.9 10.2 21.4 8.2 22.2 7.8 22.6 7.7 (1.5) 0.5 0.6

Total Trade 38.8 15.9 35.8 13.7 40.3 14.2 41.0 13.9 (0.8) 1.7 0.6

Wholesa le Trade 6.8 2.8 6.0 2.3 7.0 2.5 7.3 2.5 (1.3) 2.1 1.3

Retai l Trade 31.9 13.1 29.8 11.4 33.3 11.8 33.8 11.5 (0.7) 1.6 0.5

Transportation And Warehous ing 3.8 1.5 4.2 1.6 5.0 1.8 5.2 1.8 1.0 2.7 1.4

Information 3.8 1.6 3.7 1.4 3.4 1.2 3.5 1.2 (0.3) (1.1) 0.2

Finance And Insurance 6.5 2.7 10.1 3.8 11.4 4.0 12.3 4.2 4.5 1.8 2.5

Real Estate And Rental And Lease 9.5 3.9 14.9 5.7 16.5 5.8 17.6 6.0 4.5 1.5 2.2

Total Services 108.3 44.5 125.1 47.7 134.9 47.7 141.2 47.9 1.5 1.1 1.5

Profess ional And Technica l Services 14.6 6.0 18.6 7.1 20.2 7.1 21.0 7.1 2.5 1.2 1.3

Management Of Companies And Enterprises 0.5 0.2 1.4 0.5 2.3 0.8 2.4 0.8 10.7 7.2 2.4

Adminis trative And Waste Services 32.7 13.4 26.3 10.1 21.5 7.6 22.0 7.5 (2.1) (2.9) 0.7

Educational Services 2.9 1.2 6.0 2.3 6.8 2.4 7.4 2.5 7.7 1.8 2.7

Health Care And Socia l Ass is tance 23.6 9.7 32.3 12.3 35.7 12.6 37.7 12.8 3.2 1.4 1.9

Arts , Enterta inment, And Recreation 4.4 1.8 6.2 2.4 7.3 2.6 7.8 2.7 3.5 2.4 2.2

Accommodation And Food Services 16.4 6.7 19.1 7.3 22.8 8.1 23.8 8.1 1.6 2.6 1.4

Other Services , Except Publ ic Adminis tration 13.3 5.5 15.1 5.8 18.3 6.5 19.1 6.5 1.3 2.7 1.4

Total Government 29.4 12.1 32.8 12.5 32.3 11.4 33.0 11.2 1.1 (0.2) 0.8

Federa l Civi l ian Government 5.7 2.3 6.8 2.6 6.2 2.2 6.2 2.1 1.8 (1.2) 0.2

Federa l Mi l i tary 3.3 1.4 3.0 1.1 2.8 1.0 2.8 1.0 (0.9) (0.8) 0.1

State And Local Government 20.5 8.4 23.0 8.8 23.2 8.2 24.0 8.1 1.2 0.1 1.1

TOTAL 243.4 100.0 % 262.2 100.0 % 282.9 100.0 % 294.7 100.0 % 0.7 % 1.1 % 1.4 %

MSA 243.4 — 262.2 — 282.9 — 294.7 — 0.7 % 1.1 % 1.4 %

U.S. 165,370.9 — 173,034.7 — 194,801.7 — 203,418.4 — 1.0 1.7 1.5

Source: Woods & Poole Economics , Inc.

2000-

2010

2010-

2017

2017-

2020


Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 0.7%. This trend was on par with the growth rate recorded by the MSA and also lagged the national average. More recently, the pace of total employment growth in the county accelerated to 1.1% on an annual average from 2010 to 2017, reflecting the initial years of the recovery.

Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2017, increasing by 9,769 people, or 7.8%, and rising from 47.7% to 47.7% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Accommodation And Food Services were the largest employers. Strong growth was also recorded in the Total Trade sector, as well as the Construction sector, which expanded by 12.4% and 21.2%, respectively, in the period 2010 to 2017. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.4% on average annually through 2020. The trend is below the forecast rate of change for the U.S. as a whole during the same period.

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

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

Year

2015 203,170 — 55,954 — 29,379 — 243,030 — 574,800 — $97,181 —

2016 212,730 4.7 % 58,437 4.4 % 31,071 5.8 % 247,040 1.7 % 584,020 1.6 % 99,488 2.4 %

2017 213,070 0.2 58,863 0.7 31,873 2.6 251,840 1.9 591,110 1.2 103,826 4.4

Source: REIS Report, 1st Quarter, 2018

% Chg

Total

Employment % Chg

Office

Employment % Chg

Industrial

Employment % Chg Households % Chg Population % Chg

Household

Avg. Income

For the Melbourne market, of the roughly 213,000 persons employed in 2017, 28% work in offices and are categorized as office employees, while 15% are categorized as industrial employees. Total employment increased by 0.2% from 2016 to 2017. By comparison, office employment reflected expansion of 0.7% from 2016 to 2017.

The number of households in this market in 2017 totaled 252,000, reflecting an increase of 1.9% from the level registered in 2016. Population expanded during this same time frame, at a rate of 1.2%. Household average income grew by 4.4% in 2017, ending the year at roughly $104,000.


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

FIGURE 3-4 UNEMPLOYMENT STATISTICS

Year

2008 6.7 % 6.7 % 6.3 % 5.8 %

2009 10.4 10.4 10.4 9.3

2010 11.3 11.3 11.1 9.6

2011 10.9 10.9 10.0 8.9

2012 9.4 9.4 8.5 8.1

2013 8.3 8.3 7.2 7.4

2014 7.0 7.0 6.3 6.2

2015 6.0 6.0 5.5 5.3

2016 5.1 5.1 4.8 4.9

2017 4.2 4.2 4.2 4.4

Recent Month - May

2017 4.2 % 4.2 % 4.0 % 4.3 %

2018 3.4 3.4 3.4 3.8

Source: U.S. Bureau of Labor Statis tics

U.S.City MSA State

Current U.S. unemployment levels are now firmly below the annual averages of the last economic cycle peak of 2006 and 2007, when annual averages were 4.6%. National unemployment registered 4.1% each month during the first quarter of 2018, as well as the last quarter of 2017, roughly six points below the October 2009 peak of 10.0%. In April, May, and June of 2018, the rate remained low at 3.9%, 3.8%, and 4.0%, respectively. Total nonfarm payroll employment increased by 175,000, 244,000, and 213,000 jobs in April, May, and June of 2018, respectively. Gains in June occurred in the professional and business services, manufacturing, and healthcare sectors. Unemployment has remained under the 5.0% mark since May 2016, reflecting a trend of relative stability and the overall strength of the U.S. economy.

Locally, the unemployment rate was 4.2% in 2017; for this same area in 2018, the most recent month’s unemployment rate was registered at 3.4%, versus 4.2% for the same month in 2017. Unemployment rose in 2009 because of the economic slowdown, and this trend continued through 2010 as the height of the national recession took hold. However, unemployment declined in 2011 as the economy rebounded, a trend that continued through 2017. The most recent comparative period illustrates improvement, indicated by the lower unemployment rate in the

Unemployment Statistics


latest available data for 2018. Our interviews with economic development officials reflect a positive outlook, primarily attributed to the strength of the area's aerospace sector, despite the discontinuation of the manned-shuttle program.

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

FIGURE 3-5 MAJOR EMPLOYERS

Number of

Rank Firm Employees

1 Brevard County Schools 8,535

2 Health Fi rs t 6,391

3 Harris Corporation 6,300

4 Brevard County Government 6,000

5 U.S. Department of Defense 4,174

6 NASA 3,000

7 Wuesthoff Health System, Inc. 2,500

8 Eastern Florida State Col lege 2,400

9 Rockwel l Col l ins , Inc. 2,000

10 Florida Insti tute of Technology 1,962

Source: Space Coast Economic Development, 2017

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

• The United States government is a major demand generator for the greatermarket area. Government operations in Brevard County include Kennedy SpaceCenter, Cape Canaveral Air Force Station, Patrick Air Force Base, a NavalOrdnance Test Unit, and the Air Force's Malabar Test Facility.

• The aerospace and military technology industries represent a major source ofemployment for Brevard County. Many of the top companies in these fieldsmaintain significant operations in the area, including Harris Corporation,Northrop Grumman Corporation, Rockwell Collins, Boeing, Lockheed Martin,and Raytheon. Most of these companies work closely with the area'sgovernment institutions as contract engineers, consultants, and manufacturers.

• Port Canaveral is another vital component of this market. In addition to itsextensive tourism and leisure facilities, the Port is home to a number of majorcargo importing and exporting operations, as well as a naval test facility. ThePort contains over 750,000 square feet of covered freight storage, 40 acres ofopen-air storage, and one of the nation's largest Foreign Trade Zones, which

Major Business and Industry


covers more than five square miles. Additionally, Norwegian Cruise Line's Norwegian Sun has been home-ported at Port Canaveral since late 2010, offering seven-night winter cruises with alternating eastern and western itineraries. In June 2017, city officials announced plans to build a new cruise terminal that would open by late 2019.

• Harris corporation is ranked number 407 on the Fortune 500 list of companies,with a total revenue of $6.9 billion. It has its world headquarters in Melbourne.It is a technology company,defense contractor andinformation technology servicesprovider that produces wirelessequipment, tactical radios,electronic systems, night visionequipment and both terrestrialand spaceborne antennas foruse in the government, defenseand commercial sectors.

• Rockwell Collins, Inc. is amultinational companyheadquartered in Cedar Rapids,Iowa providing avionics andinformation technology systemsand services to governmentalagencies and aircraftmanufacturers. It was acquiredby United Technologies for asum of $23 billion in March 2018after approval from Europeanregulators. The company startedits Melbourne operations in1974 and employs over 2,000people.

• Northrop Grumman is rankednumber 119 on the Fortune 500list of companies, with a totalrevenue of $25.8 billion.Northrop Grumman Corporationis a global aerospace and defensetechnology company formed byNorthrop's 1994 purchase ofGrumman. It built a new Manned Aircraft Design Center of Excellence in


Melbourne, which created 300 jobs in 2015. upcoming expansion at Orlando Melbourne International Airport will include three new office and laboratory buildings totaling 545,000 square feet, increasing the aerospace giant's campus at Orlando-Melbourne International Airport to 157 acres. This facility is expected to create another 1,900 jobs.

• Embraer S.A. is a Brazilianaerospace conglomerate thatproduces commercial, military,executive and agricultural aircraft and provides aeronautical services. It is headquartered in Brazil. It started operations in Melbourne in 2008, and in 2009 completed the final assembly of its Phenom 100 executive jets. In 2011, it opened a manufacturing and assembly facility for the final assembly of its Phenom 100 and 300 executive jets. It also established the headquarters of its executive jets division in Melbourne, as well as its customer delivery center (where plane buyers order, customize, and take delivery of their aircraft). More recently, it started to complete the final assembly of its Legacy 450 and 500 executive jets in Melbourne.

• The Florida Institute ofTechnology (Florida Tech orFIT) is a private nonprofitdoctoral/research university inMelbourne, Florida. FloridaTech has four main academicdivisions with emphases onscience, technology,engineering, mathematics(STEM), business, psychology,and aviation. The university's130-acre primary residential campus is located near the Orlando MelbourneInternational Airport and the Florida Tech Research Park. The university wasfounded in 1958 as Brevard Engineering College and has been known by itspresent name since 1966. In 2017, Florida Tech had an on-campus student bodyof 8,939, with 4,852 undergraduate-level students, 3,053 graduate levelstudents, and 617 doctoral candidates. Students. The majority of the studentsfocus on studies on engineering and the sciences.


• DRS Technologies is a majordefense contractor that providessolutions, services and supportto armed forces, intelligenceagencies, and commercialcontractors in areas including:avionics, communication,computing, defense systems,intelligence, security, andsurveillance, among others. InMelbourne, the companyoperates major facilities for its Command, Control, Communications,Computers, Intelligence, Surveillance & Reconnaissance (C4ISR) Group.

Harris Corporation, Rockwell Collins, Northrop Grumman, Embraer, Florida Institute of Technology and DRS Technologies are all located within two miles of the subject site. Other corporations located within a five-mile radius include Boeing, General Electric, Lockheed Martin, Holmes Regional Medical Center, Raytheon Corporation, Nuance, and L3 Communications.

The Brevard County economy continues to rely on the government's military and space operations in the area, as well as the contractors and support services working with them. In recent years, growth within the private space industry has led to expansions and new developments at various manufacturers, suppliers, and research facilities associated with this industry in the region. Some of these companies include Lockheed Martin, Blue Origin, Harris Corporation, and Northrop Grumman Corporation. Port Canaveral continues to grow and benefit from increased cruise-ship tourism; moreover, additional expansions were announced in June 2017. Furthermore, Palm Bay is home to various leisure destinations including numerous beaches, Turkey Creek Sanctuary, and Three Forks Marsh; recently, a Bass Pro Shop opened in the area to cater to people visiting the area's natural attractions. In West Melbourne, the Hammock Landing power retail center continues to draw demand from locals, as well as motorists traveling along Interstate 95.

As part of a deal with Brevard County, the U.S. Specialty Sports Association's (USSSA) decision to move its operations from Kissimmee to Viera in 2018 has guaranteed 75,000 room nights a year from its sports activities, increasing to 100,000 nights a year after three years.


USSSA SPORTS COMPLEX

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

FIGURE 3-6 OFFICE SPACE STATISTICS – MARKET OVERVIEW

Submarket Year

Metro Area 2015 16.5 % $18.12

2016 15.8 17.99

2017 15.6 18.05

CBD 2015 14.5 % $22.25

2016 12.5 22.65

2017 12.9 22.76

Non-CBD 2015 17.0 % $17.20

2016 16.5 16.95

2017 16.2 17.00

Vacancy Rate

Average Asking

Lease Rate

Source: REIS Report, 1st Quarter, 2018

In greater Melbourne market, REIS reported a vacancy rate of 15.6% and an average asking rent of $18.05 for 2017. The subject property is located proximate to the CBD

Office Space Statistics


submarket. The submarket's vacancy rate of 12.9% is below the overall market average. The average asking lease rate of $22.76 is above the average for the broader market.

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

The Orlando-Melbourne International Airport (MLB) serves the Central Florida coast with three runways, a 200,000-square-foot terminal and a 40,000-square-foot customs facility. The airport is conveniently located near the beaches of Melbourne, Orlando, Kennedy Space Center, and Port Canaveral.

FIGURE 3-7 BIGGEST FLORIDA AIRPORTS

The number of passengers traveling through the Orlando International Airport surpassed Miami International Airport passenger data in 2017 for the first time.

Location Passengers

Orlando International Airport 44.611,265

Miami International Airport 44,071,313

Fort Lauderdale-Hollywood International Airport 32,469,557

Tampa International Airport 19,624,284

Southwest Florida International Airport 8,842,549]

Palm Beach International Airport 6,322,452

Jacksonville International Airport* 5,508,933

Orlando Sanford International Airport 2,922,446

St. Petersburg-Clearwater International Airport 2,055,269

Pensacola International Airport 1,668,897

Sarasota-Bradenton International Airport 1,181,332

Destin-Fort Walton Beach Airport 1,175,894

Punta Gorda Airport 1,164,949

Northwest Florida Beaches International Airport 939,437

Key West International Airport 763,557

Tallahasee International Airport 731,600

Daytona Beach International Airport* 720,485

Orlando-Melbourne International Airport 467,096

Gainsville Regional Airport* 436,184

Northeast Florida Regional Airport 22,244

Note: Ranked by 2017 total passengers

* Jacksonvi l le International Ai rport and Gainesvi l le Regional

Airport passenger counts are for the 12 months ending September 30, 2017.

* Daytona Beach International Ai rport passenger count i s for the 12 months

ending Jan 30, 2018.

Source: Individual Ai rports / HVS Orlando

Airport Traffic


Orlando-Melbourne International Airport (MLB) is serviced by Delta Airlines, American Airlines, and Elite Airways, which fly direct routes to Atlanta, Charlotte, and Portland, Maine. Passengers can connect to nearly any U.S. city from the Atlanta and Charlotte hubs. Additionally, Porter Airlines, Canada's third largest carrier, flies non-stop seasonally to downtown Toronto's Billy Bishop Airport, Ottawa, and Windsor. As the international airport closest to Port Canaveral, one of the world's busiest cruise ports, MLB generates over $1 billion per year in economic activity for the area. The small yet modern full-service terminal features eight gates; it is operated by the Melbourne Airport Authority. The airport is also home to a 130-acre business and industrial park with more than 75 tenant corporations, including Embraer, Harris Corporation, General Electric, Northrop Grumman Corporation, Rockwell Collins, and Thales.

The following table illustrates recent operating statistics for the Orlando-Melbourne International Airport, which is the primary airport facility serving the proposed submarket.

FIGURE 3-8 AIRPORT STATISTICS - ORLANDO-MELBOURNE INTERNATIONAL

AIRPORT

Year

2008 285,684 — —

2009 229,093 (19.8) % (19.8) %

2010 366,848 60.1 13.3

2011 412,812 12.5 13.1

2012 435,077 5.4 11.1

2013 443,717 2.0 9.2

2014 444,844 0.3 7.7

2015 460,155 3.4 7.0

2016 465,082 1.1 6.3

2017 467,096 0.4 5.6

Year-to-date, May

2017 205,215 — —

2018 203,171 (1.0) % —

*Annual average compounded percentage change from the previous year

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

Source: Orlando Melbourne International Airport

Passenger

Change*Traffic

Percent Percent

Change**

This facility recorded 467,096 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 0.4%. The average annual change during the period shown was 5.6%.

Orlando-Melbourne International Airport


FIGURE 3-9 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Cha

nge

in P

ass

enge

r Act

ivit

y

Source: HVS, Local Airport Authority

Local Passenger Volume National Passenger Volume

One of the world’s most famous airport runways re-opened in April 2018 after undergoing a complete rehaul – its first in nearly 25 years. Orlando-Melbourne International Airport’s Runway 5-23 serves nearly 2,000 general aviation operations a week at the coastal Florida commercial airport. The airport’s approach was once again voted as the most beautiful airport approach in the USA and moved up to sixth in the world by Private Fly magazine. Aircraft to and from MLB fly over Florida’s gulf stream, tropical barrier islands and the Indian River Lagoon. Runway 5-23 is the primary runway for Florida Institute of Technology’s flight training school. The runway rehabilitation cost nearly $1.3 million, of which the State of Florida Department of Transportation contributed half. According to airport officials, the total funding of $20,147,321 will provide for the design and construction of the mill and overlay of the airport’s primary runway 9R/27L and runway lights project for the airport which serves a significant number of tourists, aircraft assembly and DOD contractors.

As the fastest-growing fixed base operator (FBO) at Orlando-Melbourne International Airport, Apex EJC has become accustomed to supporting the flight operations of the United States Air Force Thunderbirds, Embraer Executive Jets and many of the 1,900 general aviation operations a week at the coastal Florida commercial airport. In March 2018, Apex opened the center’s new 28,000-square-foot hangar; with an additional 8,400 square feet of new office space with an upscale pilot and passenger lounge.


Orlando International Airport (MCO) is located approximately six miles southeast of Downtown Orlando. Many major airlines service MCO, and the modern terminal facility offers a convenient passenger transportation system linking the concourse gates to the multilevel terminal. Orlando International Airport offers a variety of retail outlets and services, including numerous restaurants and bars. In January 2015, a $1.1-billion expansion/modernization project commenced at the airport. Initial changes will include the expansion of the automated people mover, a $215-million intermodal transportation hub, upgraded ticket lobbies, and a $114-million expansion and refurbishment of Airside 4. Construction on the initial improvements is scheduled for completion by 2018. Future plans call for the addition of up to 120 domestic and international gates at the South Terminal, a 1,000-room hotel, and over 750,000 square feet of additional retail space. The following table illustrates recent operating statistics for the Orlando International Airport, which is the secondary airport facility serving the proposed subject property’s submarket.

FIGURE 3-10 AIRPORT STATISTICS – ORLANDO INTERNATIONAL AIRPORT

Year

2008 35,661,269 — —

2009 33,693,649 (5.5) % (5.5) %

2010 34,877,899 3.5 (1.1)

2011 35,426,006 1.6 (0.2)

2012 35,273,036 (0.4) (0.3)

2013 34,768,945 (1.4) (0.5)

2014 35,714,091 2.7 0.0

2015 38,809,337 8.7 1.2

2016 41,923,399 8.0 2.0

2017 44,611,265 6.4 2.5

Year-to-date, May

2017 18,897,959 — —

2018 20,118,371 6.5 % —



Passenger Percent

Source: Orlando International Airport

Traffic Change*

Percent

Change**

Air traffic registered 44,611,265 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 6.4%. The recent uptick in passenger traffic is largely attributable to the addition of several new routes (on various air carriers), including Havana, Cuba; Dusseldorf, Germany; Niagara Falls, New York; and Oklahoma City, Oklahoma. As one of the most visited cities in the world, Orlando boasts an ever-expanding route network. Healthy increases in domestic and international travel have been partly due to the substantial growth in seating

Orlando International Airport


availability in the market. Additionally, new routes and additional flights by many of the major airlines contributed to the growth in 2015, 2016, and 2017. Most recently, nonstop flights to/from Paris, Rio de Janeiro, and Santiago were introduced during the summer of 2017, while additional routes continue to be added.

The Orlando Sanford International Airport (SFB) is the second-largest airport servicing central Florida. The airport is located north of the Orlando metropolitan area and primarily serves as a secondary entry point for international travelers. The airport is managed by TBI Airport Management, Inc., which owns London Luton Airport, Cardiff International Airport, and Belfast International Airport in the United Kingdom. The airport is owned by the Sanford Airport Authority. International cities served include London, Paris, Stockholm, Frankfurt, Glasgow, Belfast, and Shannon, among others. The airport is serviced by several major and charter airlines. It is also home to Aerosim Flight Academy (formerly Delta Connection Academy), a training center for commercial pilots. The airport is scheduled to undergo a $44-million expansion and was awarded a $5.6-million federal grant for the project. The expansion, which will include widening the taxiway and adding four new gates, is slated for completion by 2020. The following table illustrates recent operating statistics for the Orlando Sanford International Airport, which is the third airport facility serving the proposed subject property’s submarket.

FIGURE 3-11 AIRPORT STATISTICS – ORLANDO SANFORD INTERNATIONAL AIRPORT

Year

2008 1,837,247 — —

2009 1,702,412 (7.3) % (7.3) %

2010 1,165,435 (31.5) (20.4)

2011 1,577,307 35.3 (5.0)

2012 1,815,729 15.1 (0.3)

2013 2,032,680 11.9 2.0

2014 2,184,701 7.5 2.9

2015 2,480,122 13.5 4.4

2016 2,752,410 11.0 5.2

2017 2,922,446 6.2 5.3

Year-to-date, May

2017 1,197,573 — —

2018 1,310,241 9.4 % —



Passenger Percent

Change*Traffic Change**

Percent

Source: Orlando Sanford International Airport

Orlando Sanford International Airport


Air traffic registered 2,922,446 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 6.2%. The increase in passenger traffic shown by the most recent data can be attributed in large part to the addition of several daily international and domestic routes. In April 2015, the Orlando Sanford International Airport received the U.S. ANNIES award for Fastest Growing U.S. Airport. In 2017, this airport facility offered over 2,000 more domestic and international flights than in 2016.

The market benefits from a variety of tourism and leisure attractions in the area. Visitors frequent the area year-round; however, the peak season for tourism runs from January through April, while September through November is the slowest time of year for tourism. During the winter and spring, the area welcomes a large number of national and international travelers, and in the summer months, a significant amount of tourism is generated by in-state visitors. Primary attractions in the area include the following:

• Port Canaveral is a major tourism and leisure-demand generator. The Port,which is the second-busiest cruise port in the world, serves as the homeport forships in the Carnival, Disney, and Royal Caribbean cruise lines, as well as a port-of-call for several other lines. The Port is also home to two casino lines, whichoffer daily casino cruises. In addition to these pleasure ships, the port is hometo five marinas, numerous restaurants, a time-share resort, and three publicparks that offer beach access and fishing piers.

• Highlighted by Cocoa Beach as the most recognized and visited beach in BrevardCounty, the Space Coast is home to over 70 miles of pristine sandy shoreline,which serves as a year-round attraction, with warm southern waters providingan average daytime temperature of 73 degrees. A wide variety of leisureactivities also draws visitors from around the world. For instance, the SpaceCoast is home to some of the best surfing spots on the East Coast, including theworld-renowned waves of Cocoa Beach.

• Although a majority of the Kennedy Space Center is off-limits to the generalpublic, the center's visitor complex gives millions of tourists each year an up-close and hands-on look at NASA and the history of the United States spaceprogram. In addition to exploring exhibits and displays, visitors can tour thelaunch and assembly facilities, hear about space travel from veteran astronauts,and watch a shuttle lift off on a five-story, 3-D, IMAX screen. The Shuttle LaunchExperience also allows visitors to take part in a simulated launch aboard areplica space shuttle. The visitor complex has remained a popular attraction inthe region despite the discontinuation of NASA's manned space flight programin June of 2011.

Tourist Attractions


• Melbourne Beach, located four miles east of the subject site, is a very popularattraction for surfing related activities. The Melbourne Beach Pier is a historicpier located at Ocean Avenue and Riverside Drive and the pier extends onto theIndian River. It was added to the U.S. National Register of Historic Places in1984.

MELBOURNE BEACH PIER

• Located approximately 50 miles to the west, major attractions in the Orlandoarea serve as significant demand generators for Cape Canaveral and CocoaBeach hotels. Port Canaveral and Cocoa Beach provide the closest cruise portand beach to these attractions, making them the most convenient destinationsfor tourists who desire to combine a cruise or beach visit with a trip to theseOrlando-area attractions. Walt Disney World Resort, Sea World, and UniversalStudios are some of the most visited tourist attractions in the world.


ORLANDO-MELBOURNE INTERNATIONAL AIRPORT

This section discussed a wide variety of economic indicators for the pertinent market area. The Space Coast is experiencing a period of economic strength and expansion, led by the privatization of the space industry. The significant presence of federal and local governmental entities also supplies consistent economic benefits to the city. Furthermore, many of the corporations or institutions that support this area, such as NASA, Harris Corporation, Northrop Grumman Corporation, Rockwell Collins, and Embraer, are renowned entities working with a multitude of clients. The outlook for the market area is positive.

Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy expanded during the last three years, with a relatively low point in growth occurring during the fourth quarter of 2015 and the first quarter of 2016, as well as the first quarter of 2017. Most recently, the U.S. economy expanded by 2.9% and 2.3% in the fourth quarter of 2017 and first quarter of 2018, respectively. The recent growth reflected strong nonresidential fixed investments, personal consumption expenditures (PCE), exports, private inventory investments, federal government spending, and state and local government spending.

Conclusion


FIGURE 3-12 UNITED STATES GDP GROWTH RATE

-1.2

4.0

5.0

2.0

3.22.7

1.6

0.5 0.6

2.22.8

1.81.2

3.1 3.2 2.92.3

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018

Source: tradingeconomics.com, Bureau of Economic Analysis

U.S. economic growth continues to support expansion of lodging demand. In 2017, demand growth through November registered 2.7%, stronger than the 1.6% level recorded in 2016. The economic growth, low unemployment, higher levels of personal income, and stability in the U.S. economy as of mid-year 2018 is helping to maintain strong interest in hotel investments by a diverse array of market participants.

July-2018 Supply and Demand Analysis Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 51

4. Supply and Demand Analysis

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

The subject site is located in the greater Brevard County lodging market. This greater lodging market spans 111 open and operating lodging facilities totaling roughly 9,000 guestrooms. Within this greater market, the proposed subject hotel is expected to compete primarily with three hotels based on location, price point, branding, and product offering. We have considered an additional four full-service hotels as future secondary competitors given differences in location (beachfront), price point, targeted clientele, and product offering.

FIGURE 4-1 BREVARD COUNTY LODGING DATA – REVPAR COMPARISON

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

Definition of Subject Hotel Market

National Trends Overview


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

FIGURE 4-2 NATIONAL OCCUPANCY, AVERAGE RATE, AND REVPAR TRENDS

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

$0

$20

$40

$60

$80

$100

$120

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: STR

RevPAR Average Rate Occupancy


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

United States 63.7 % 64.2 % 0.8 % $125.19 $128.57 2.7 % $79.72 $82.57 3.6 % 2.0 % 2.9 %

Region

New England 57.2 % 58.8 % 2.9 % $140.68 $140.99 0.2 % $80.48 $82.97 3.1 % 2.0 % 4.9 %

Middle Atlantic 62.8 65.2 3.9 149.60 152.70 2.1 93.89 99.56 6.0 2.3 6.3

South Atlantic 68.3 68.4 0.1 128.94 133.07 3.2 88.02 90.96 3.3 1.6 1.7

East North Centra l 56.2 56.7 0.8 103.22 105.37 2.1 58.05 59.74 2.9 2.1 3.0

East South Centra l 59.7 59.8 0.2 96.09 99.08 3.1 57.34 59.25 3.3 2.1 2.3

West North Centra l 53.4 53.0 (0.7) 93.77 96.32 2.7 50.06 51.06 2.0 2.1 1.4

West South Centra l 62.0 63.8 2.9 102.71 105.63 2.8 63.70 67.41 5.8 2.7 5.7

Mountain 64.4 64.3 (0.2) 122.17 123.40 1.0 78.73 79.35 0.8 1.5 1.3

Paci fic 72.0 71.8 (0.2) 157.56 163.85 4.0 113.40 117.71 3.8 2.2 2.0

Class

Luxury 69.6 % 70.6 % 1.5 % $288.71 $297.68 3.1 % $200.96 $210.25 4.6 % 2.2 % 3.7 %

Upper-Upscale 71.8 71.9 0.1 181.67 184.85 1.7 130.49 132.92 1.9 2.2 2.3

Upscale 70.8 71.1 0.5 139.65 142.46 2.0 98.83 101.29 2.5 4.5 5.0

Upper-Midscale 65.0 65.7 1.1 112.32 114.55 2.0 72.98 75.23 3.1 3.9 5.0

Midscale 57.6 58.1 0.9 90.38 93.08 3.0 52.02 54.06 3.9 0.4 1.3

Economy 56.0 56.4 0.6 68.48 70.85 3.5 38.36 39.94 4.1 (0.2) 0.4

Location

Urban 71.8 % 71.7 % 0.0 % $172.79 $176.83 2.3 % $124.01 $126.87 2.3 % 3.3 % 3.2 %

Suburban 65.1 65.5 0.7 106.81 109.72 2.7 69.52 71.91 3.4 2.4 3.1

Airport 73.3 74.0 1.1 116.19 119.33 2.7 85.11 88.34 3.8 1.5 2.6

Interstate 53.4 54.3 1.7 81.66 83.95 2.8 43.60 45.59 4.6 1.6 3.3

Resort 70.0 70.5 0.7 180.52 187.74 4.0 126.31 132.28 4.7 0.6 1.3

Smal l Metro/Town 52.6 53.4 1.6 94.74 96.85 2.2 49.80 51.72 3.8 1.5 3.1

Chain Sca le

Luxury 73.9 % 75.2 % 1.7 % $327.45 $340.69 4.0 % $242.04 $256.10 5.8 % 1.9 % 3.6 %

Upper-Upscale 73.7 73.8 0.1 182.84 186.16 1.8 134.79 137.36 1.9 2.4 2.5

Upscale 72.4 72.6 0.3 139.25 142.03 2.0 100.82 103.14 2.3 5.5 5.8

Upper-Midscale 65.1 65.8 1.0 110.26 112.48 2.0 71.81 73.99 3.0 4.0 5.1

Midscale 57.0 57.6 1.0 84.10 86.51 2.9 47.91 49.79 3.9 0.9 2.0

Economy 55.6 55.9 0.6 59.77 61.86 3.5 33.24 34.61 4.1 0.2 0.9

Independents 60.0 60.5 0.8 122.68 126.37 3.0 73.63 76.49 3.9 0.2 1.1

Rms.

Avail. Rms. Sold20172017 2018

Source: STR - May 2018 Lodging Review

2017 20182018

%

Change

%

Change

%

Change

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


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

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

Region

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

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

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

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

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

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

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

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

Paci fic 73.8 73.9 0.3 158.63 162.60 2.5 116.99 120.23 2.8 1.6 1.9

Class

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

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

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

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

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

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

Location

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

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

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

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

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

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

Chain Sca le

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

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

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

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

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

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

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

2017

RevPAR

%

Change

Rms.

Avail. Rms. Sold

Percent Change

%

Change

Occupancy Average Rate

2017

%

Change2016 20162016 2017

Source: STR - December 2017 Lodging Review


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

In 2015, demand growth continued to outpace supply growth, a relationship that has been in place since 2010. With a 2.9% increase in room nights, the nation's occupancy level reached a record high of 65.4% in 2015. Supply growth intensified modestly in 2015 (at 1.1%), following annual supply growth levels of 0.7% and 0.9% in 2013 and 2014, respectively. Average rate posted another strong year of growth, at 4.7% in 2015, in pace with the annual growth of the last four years. Robust job growth, heightened group and leisure travel, and waning price-sensitivity all contributed to the gains. In 2016, occupancy showed virtually no change, as demand growth kept pace with supply additions. Occupancy then moved even higher in 2017, to a new peak of 65.9%. Average rate increased roughly 3% and 2% in 2016 and 2017, respectively. By year-end 2017, the net change in RevPAR was 3.0%, reflecting a healthy lodging market overall. However, we note that industry experts report that the strong 2017 industry performance was enhanced by demand generated by the hurricanes, floods, and fires experienced throughout the U.S. in September and October. The performance of several major markets indicates that many areas continue to benefit in 2018 from the demand generated by insurance adjusters, displaced residents, and contractors. Year-to-date statistics through May reflect a 0.5-point occupancy increase, while average rate increased by just over $3.00, resulting in a 3.6% upward change in RevPAR.

According to STR Global, as of June1, 2018, the greater Brevard County area had 111 hotels with a total of 9,123 guestrooms.

The following tables present the historical occupancy, average rate, and RevPAR data for Brevard County for the years 2015 through 2017, as well as year-to-date period ending in May 2018.

Brevard County Lodging Market


FIGURE 4-5 BREVARD COUNTY LODGING MARKET DATA – 2015 TO YTD MAY 2018

FIGURE 4-6 BREVARD COUNTY OCCUPANCY RATE YTD MAY 2018


FIGURE 4-7 BREVARD COUNTY AVERAGE RATE YTD MAY 2018

FIGURE 4-8 SIX-MONTH YOY REVPAR % CHANGE BY MARKET (SEPTEMBER 2017-FEBRUARY 2018)

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

-5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

Daytona Beach

Florida Central

Florida Keys

Florida Panhandle

Fort Lauderdale

Fort Myers

Jacksonville

Melbourne / Titusville

Miami / Hialeah

Orlando

Sarasota/Bradenton

Tampa / St. Petersburg

West Palm Beach / Boca Raton

Historical Supply and Demand Data


FIGURE 4-9 HISTORICAL SUPPLY AND DEMAND TRENDS

Year

Average Daily

Room Count

Available Room

Nights Change

Occupied Room

Nights Change Occupancy

Average

Rate Change RevPAR Change

2006 971 354,357 — 187,377 — 52.9 % $126.24 — $66.75 —

2007 1,145 417,925 17.9 % 255,081 36.1 % 61.0 125.92 (0.3) % 76.86 15.1 %

2008 1,340 489,020 17.0 280,401 9.9 57.3 120.33 (4.4) 69.00 (10.2)

2009 1,360 496,400 1.5 299,540 6.8 60.3 106.03 (11.9) 63.98 (7.3)

2010 1,360 496,400 0.0 336,405 12.3 67.8 102.88 (3.0) 69.72 9.0

2011 1,360 496,461 0.0 356,053 5.8 71.7 105.43 2.5 75.61 8.4

2012 1,376 502,265 1.2 344,585 (3.2) 68.6 106.74 1.2 73.23 (3.1)

2013 1,370 500,087 (0.4) 341,920 (0.8) 68.4 108.43 1.6 74.13 1.2

2014 1,367 499,076 (0.2) 386,437 13.0 77.4 113.10 4.3 87.58 18.1

2015 1,378 502,970 0.8 396,715 2.7 78.9 120.49 6.5 95.03 8.5

2016 1,378 503,063 0.0 410,538 3.5 81.6 130.33 8.2 106.36 11.9

2017 1,381 504,065 0.2 388,629 (5.3) 77.1 136.72 4.9 105.41 (0.9)

Year-to-Date Through May

2017 1,381 208,531 — 176,969 — 84.9 % $144.32 — $122.47 —

2018 1,381 208,562 0.0 % 158,255 (10.6) % 75.9 163.79 13.5 % 124.28 1.5 %

Average Annual Compounded Change:

2006 - 2017 3.3 % 6.9 % 0.7 % 4.2 %

2010 - 2015 0.3 3.4 3.2 6.4

2011 - 2017 0.3 1.5 4.4 5.7

2013 - 2017 0.2 3.3 6.0 9.2

Hotels Included in Sample

Hi l ton Melbourne Ria l to Place Upper Upscale Class Primary 238 Aug 1985 Aug 1985 Non-Beachfront

Courtyard Melbourne West Upscale Class Primary 146 Mar 1987 Mar 1987 Non-Beachfront

Res idence Inn Melbourne Upscale Class Primary 133 Jan 2008 Jan 2008 Non-Beachfront

Hi l ton Melbourne Beach Oceanfront Upper Upscale Class Secondary 201 Aug 2006 Jan 1986 Beachfront

Crowne Plaza Melbourne Oceanfront Upscale Class Secondary 290 Jan 2006 Jun 1979 Beachfront

DoubleTree Suites Melbourne Beach Oceanfront Upscale Class Secondary 207 Jul 2006 Jan 1987 Beachfront

Radisson Suite Hotel Oceanfront Upscale Class Secondary 167 Feb 1987 Feb 1987 Beachfront

Total 1,382

Source: STR

Class

Number

of Rooms

Year

Opened

Competitive Year

Status Affiliated Comments


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

The STR data for the competitive set reflect a market-wide occupancy level of 2017 in 77.1%, which compares to 81.6% for 2016. The STR data for the competitive set reflect a market-wide ADR level of $136.72 in 2017, which compares to $130.33 for 2016. These occupancy and ADR trends resulted in a RevPAR level of $105.41 in 2017. It is important to recognize that the occupancy rate for fourth quarter 2017 declined due to the negative effects of Hurricane Irma. Several hotels were closed in the month of September which caused a drop-in occupancy rate.

The STR trend data begin in 2006, as newly affiliated hotels on the beach re-entered the market causing supply to increase 17.9% in 2007 and 17% in 2008, and as the new Residence Inn Melbourne opened the year of the onset of the financial crisis. In 2009, operators focused on filling rooms; occupancy levels increased modestly, and average rates declined by double digits. The market bounced back strongly in 2010 and 2011 due to the reliance on government demand, as the private sector was still in recovery mode. Occupancy rates reached a healthy level beyond 71% in 2011. Occupancy then declined modestly in 2012 and 2013, while average rates increased modestly. As the local economy began to strengthen, demand and occupancy recorded strong year-over-year growth from 2014 through 2016. This increase, coupled with notable average rate growth, caused RevPAR to increase at strong levels during this three-year period. It is also important to note that the space program began the process of privatization in 2014. The market experienced peak occupancy of 81.6% in 2016. In 2017, occupancy softened moderately, largely due to the impact of Hurricane Irma, which hit the area in September of that year. However, average rate continued to grow, and RevPAR achieved a modest decline. The year-to-date data through May 2018 reveals a 10.6% decrease in occupancy and a 13.5% increase in average rate. These data exclude the performance of the Crowne Plaza, as this property was closed in 2018. According to representative at the hotel, plans are to reopen the resort next month in mid-August. Our analysis accounts for the temporary closure.

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

Seasonality


FIGURE 4-10 MONTHLY OCCUPANCY TRENDS

Month 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

January 43.3 % 56.4 % 59.8 % 46.5 % 59.9 % 57.8 % 61.7 % 58.3 % 70.7 % 78.0 % 76.9 % 76.3 % 73.2 %

February 60.1 66.9 69.1 66.2 80.2 85.4 82.6 70.7 88.7 90.1 91.4 89.1 80.6

March 72.5 79.5 78.1 73.1 85.3 89.9 89.5 83.1 91.2 94.6 95.0 92.3 83.6

Apri l 66.7 69.7 64.8 63.3 79.7 81.3 77.4 72.7 80.3 86.7 89.3 87.0 76.0

May 61.7 61.3 64.0 63.8 74.9 77.0 68.2 69.5 75.9 75.9 81.7 80.1 66.5

June 63.5 67.8 58.5 67.6 66.5 72.5 70.0 69.1 78.8 80.0 85.4 83.2 —

July 62.6 61.9 60.8 71.1 69.5 76.9 70.1 77.9 83.9 84.0 86.3 85.5 —

August 41.5 63.0 53.9 60.9 63.9 69.0 66.7 70.2 77.9 75.4 81.9 79.5 —

September 40.7 47.6 42.0 49.3 58.4 64.3 60.8 57.3 63.9 69.0 76.8 46.6 —

October 47.0 56.3 51.2 56.9 61.2 62.1 62.8 59.9 74.1 72.6 70.8 67.1 —

November 45.5 53.0 45.5 55.6 62.9 68.2 61.6 68.0 72.1 70.7 77.3 70.6 —

December 44.8 49.4 42.9 50.4 51.9 57.7 53.4 63.8 72.2 70.2 67.6 68.3 —

Annual Occupancy 52.9 % 61.0 % 57.3 % 60.3 % 67.8 % 71.7 % 68.6 % 68.4 % 77.4 % 78.9 % 81.6 % 77.1 % —

Year-to-Date 61.0 % 66.7 % 67.1 % 62.5 % 75.9 % 78.1 % 75.7 % 70.8 % 81.2 % 85.0 % 86.7 % 84.9 % 75.9 %

Hurricane Irma

Source: STR

FIGURE 4-11 MONTHLY ADR TRENDS

Month 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

January $144.06 $130.49 $124.22 $108.91 $98.95 $98.33 $102.48 $104.39 $104.50 $111.44 $119.06 $128.34 $140.42

February 138.48 134.86 129.11 112.59 104.93 109.29 112.67 117.94 117.75 132.58 145.69 154.28 174.61

March 139.56 137.56 134.22 112.65 108.40 111.50 117.58 127.10 134.28 148.05 165.86 163.26 190.45

Apri l 126.99 132.09 123.44 107.70 108.89 112.51 112.40 112.53 118.96 133.77 139.91 141.01 161.32

May 127.73 125.94 123.99 106.86 103.86 106.78 109.41 107.97 114.76 120.56 129.18 131.16 146.87

June 124.61 124.24 118.13 107.10 102.92 105.21 105.72 106.88 111.38 115.25 124.59 126.90 —

July 125.35 121.88 120.21 106.71 102.51 114.14 106.05 108.15 114.90 119.92 130.38 134.13 —

August 119.59 122.51 114.94 104.08 98.12 100.28 101.71 104.59 110.77 110.29 118.93 128.47 —

September 120.64 120.35 115.21 103.83 99.46 100.05 101.71 101.15 104.64 109.07 116.83 129.22 —

October 119.54 119.75 113.14 101.63 102.90 101.48 102.16 102.01 107.74 110.94 120.56 133.52 —

November 119.41 118.79 107.88 99.66 102.29 99.15 101.69 102.23 103.65 112.12 121.57 131.61 —

December 113.71 113.88 105.57 96.73 95.86 98.50 99.28 99.09 105.67 109.72 119.20 128.36 —

Annual Average Rate $126.24 $125.92 $120.33 $106.03 $102.88 $105.43 $106.74 $108.43 $113.10 $120.49 $130.33 $136.72 —

Year-to-Date $134.76 $132.50 $127.26 $109.86 $105.37 $108.31 $111.49 $114.74 $118.86 $130.17 $141.01 $144.32 $163.79

Hurricane Irma

Source: STR


FIGURE 4-12 SEASONALITY

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

High Season - February, March, April

Occupancy 66.7 % 72.2 % 70.7 % 67.6 % 81.8 % 85.6 % 83.2 % 75.7 % 86.8 % 90.5 % 91.9 % 89.5 % 80.1 %

Average Rate $135.01 $134.99 $129.21 $111.07 $107.49 $111.13 $114.41 $119.69 $124.18 $138.59 $151.06 $153.16 $176.12

RevPAR 90.00 97.46 91.31 75.10 87.93 95.07 95.21 90.58 107.73 125.48 138.87 137.11 141.04

Shoulder Season - January, May, June, July, December

Occupancy 54.8 % 59.3 % 57.2 % 59.8 % 64.5 % 68.3 % 64.7 % 67.7 % 76.3 % 77.6 % 79.5 % 78.7 % 69.9 %

Average Rate $125.83 $123.56 $119.22 $105.48 $101.16 $105.28 $104.89 $105.49 $110.47 $115.54 $124.80 $129.89 $143.50

RevPAR 68.99 73.27 68.15 63.08 65.30 71.94 67.83 71.41 84.27 89.69 99.26 102.16 100.24

Low Season - August, September, October, November

Occupancy 43.7 % 55.1 % 48.2 % 55.7 % 61.6 % 65.9 % 63.0 % 63.9 % 72.1 % 71.9 % 76.7 % 66.1 % — %

Average Rate $119.77 $120.46 $112.87 $102.31 $100.69 $100.22 $101.82 $102.60 $106.89 $110.61 $119.45 $130.73 —

RevPAR 52.35 66.34 54.43 57.00 62.03 66.05 64.15 65.54 77.03 79.57 91.61 86.38 —

Source: Smith Travel Research


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

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

Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month

Jun - 17 64.9 % 84.5 % 92.7 % 92.4 % 78.3 % 82.0 % 89.0 % 83.2 %

Jul - 17 72.9 85.6 86.0 87.2 85.0 89.2 94.0 85.5

Aug - 17 61.3 80.6 88.4 89.1 74.9 76.2 82.6 79.5

Sep - 17 46.1 39.3 45.9 47.8 42.6 47.0 55.3 46.6

Oct - 17 49.4 66.9 72.2 74.0 66.1 69.9 74.2 67.1

Nov - 17 52.7 68.0 71.6 74.2 70.7 78.0 78.4 70.6

Dec - 17 58.4 70.1 73.4 74.4 66.8 68.3 69.0 68.3

Jan - 18 60.8 70.5 77.9 79.7 74.0 71.5 75.5 73.2

Feb - 18 67.1 83.1 86.8 85.8 79.0 79.8 82.4 80.6

Mar - 18 71.5 84.7 86.2 85.9 82.6 85.7 87.7 83.6

Apr - 18 60.2 75.6 81.8 83.1 77.6 76.8 80.6 76.0

May - 18 52.9 63.6 72.0 72.1 64.6 67.8 70.5 66.5

Average 59.9 % 72.9 % 77.9 % 78.8 % 72.1 % 74.1 % 78.1 % 73.4 %

Source: STR

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


Jun - 17 $119.13 $122.96 $126.19 $127.60 $124.20 $130.43 $135.22 $126.90

Jul - 17 126.72 132.35 134.10 131.60 127.37 138.62 144.91 134.13

Aug - 17 120.28 127.38 132.14 131.14 124.86 127.12 132.49 128.47

Sep - 17 129.09 125.54 126.87 130.10 133.42 125.99 132.48 129.22

Oct - 17 124.82 133.13 137.56 138.16 132.61 131.99 133.89 133.52

Nov - 17 125.84 131.39 134.20 134.27 127.38 135.22 131.35 131.61

Dec - 17 127.33 130.36 132.06 134.23 129.27 123.30 123.71 128.36

Jan - 18 134.19 141.43 147.92 146.85 138.91 132.79 134.82 140.42

Feb - 18 169.76 176.97 183.75 180.12 164.49 172.67 172.36 174.61

Mar - 18 173.08 184.61 192.99 191.09 188.01 196.08 200.60 190.45

Apr - 18 148.60 159.05 163.87 165.06 161.72 165.82 164.69 161.32

May - 18 142.60 143.01 145.84 146.03 141.91 153.48 155.27 146.87

Average $137.31 $143.47 $147.05 $146.54 $142.10 $145.95 $148.33 $144.66

Source: STR

The market area is highly seasonal in nature, with occupancy levels typically exceeding 90% during the months of February, March, and April. Demand softens in the summer months, as "snowbird" travelers return to the northern states for the warmer months. Though leisure demand from families with school-aged children picks up during this period. In August, when school begins, demand levels drop until October, when snowbird travel begins to pick up again.

Patterns of Demand


Over the last 12 months, RevPAR ranged from a low of $60.21 in September (the height of hurricane season) to a high of $159.28 in March. The range is exceptionally wide, with the off season of August through November balanced by a peak season of February through mid-April. The remaining months (January, May, June, July, and December) represent shoulder periods.

FIGURE 4-15 OCCUPANCY, AVERAGE RATE, AND REVPAR BY DAY OF WEEK (MULTIPLE YEARS)

Occupancy (%)

Jun 15 - May 16 60.8 % 77.4 % 85.1 % 85.7 % 78.5 % 82.7 % 86.8 % 79.6 %

Jun 16 - May 17 63.7 79.2 86.9 87.0 79.1 82.3 87.6 80.8

Jun 17 - May 18 59.9 72.9 77.9 78.8 72.1 74.1 78.1 73.4

Change (Occupancy Points)

FY 15 - FY 16 2.9 1.8 1.7 1.3 0.5 (0.5) 0.8 1.2

FY 16 - FY 17 (3.8) (6.4) (9.0) (8.2) (7.0) (8.2) (9.5) (7.5)

ADR ($)

Jun 15 - May 16 $122.38 $123.09 $124.86 $125.18 $123.50 $127.73 $130.27 $125.46

Jun 16 - May 17 125.37 128.73 132.29 132.24 128.65 134.88 137.49 131.68

Jun 17 - May 18 137.31 143.47 147.05 146.54 142.10 145.95 148.33 144.66

Change (Dollars)

FY 15 - FY 16 $2.98 $5.64 $7.42 $7.06 $5.15 $7.14 $7.21 $6.21

FY 16 - FY 17 11.94 14.74 14.76 14.30 13.46 11.07 10.84 12.99

Change (Percent)

FY 15 - FY 16 2.4 % 4.6 % 5.9 % 5.6 % 4.2 % 5.6 % 5.5 % 5.0 %

FY 16 - FY 17 9.5 11.4 11.2 10.8 10.5 8.2 7.9 9.9

RevPAR ($)

Jun 15 - May 16 $74.38 $95.30 $106.30 $107.33 $96.98 $105.70 $113.09 $99.88

Jun 16 - May 17 79.86 101.97 114.92 115.08 101.70 110.96 120.45 106.44

Jun 17 - May 18 82.23 104.52 114.53 115.49 102.42 108.10 115.88 106.16

Change (Dollars)

FY 15 - FY 16 $5.48 $6.66 $8.62 $7.75 $4.71 $5.26 $7.35 $6.57

FY 16 - FY 17 2.37 2.55 (0.39) 0.41 0.72 (2.86) (4.56) (0.28)

Change (Percent)

FY 15 - FY 16 7.4 % 7.0 % 8.1 % 7.2 % 4.9 % 5.0 % 6.5 % 6.6 %

FY 16 - FY 17 3.0 2.5 (0.3) 0.4 0.7 (2.6) (3.8) (0.3)

Sunday Monday Tuesday Wednesday

Sunday Monday Tuesday Thursday

Total YearSaturday

Friday

Thursday Friday

Source: STR

Total Year

Sunday Monday Tuesday Total Year

Wednesday Saturday

Wednesday Thursday Friday Saturday

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


majority of demand on Friday and Saturday nights. The influence of the corporate segment, particularly demand generated by the space industry, is evident in the occupancy and ADR levels recorded on Tuesday and Wednesday nights. The influence of the leisure segment is also evident in the occupancy and ADR levels recorded on Friday and Saturday nights.

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

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

SUPPLY

Primary Competitors


FIGURE 4-16 PRIMARY COMPETITORS – OPERATING PERFORMANCE


Property Occ. RevPAR RevPAR

Occupancy

Penetration

Yield

Penetration

Hi l ton Melbourne At Ria l to Place 238 45 % 20 % 35 % 235 75 - 80 % $115 - $120 $90 - $95 238 75 - 80 % $125 - $130 $95 - $100 100 - 110 % 90 - 95 %

Courtyard by Marriott Melbourne 146 55 5 40 146 80 - 85 110 - 115 90 - 95 146 80 - 85 115 - 120 95 - 100 100 - 110 85 - 90

Res idence Inn by Marriott Melbourne 133 60 5 35 133 85 - 90 115 - 120 100 - 105 133 75 - 80 120 - 125 90 - 95 95 - 100 85 - 90

Sub-Totals/Averages 517 52 % 12 % 36 % 514 81.3 % $115.84 $94.14 517 79.6 % $121.77 $96.94 102.6 % 91.9 %

Secondary Competitors 864 47 % 17 % 36 % 778 82.3 % $139.18 $114.53 778 76.2 % $145.99 $111.25 98.2 % 105.4 %

Totals/Averages 1,381 49 % 15 % 36 % 1,292 81.9 % $129.96 $106.42 1,295 77.6 % $136.06 $105.54 100.0 % 100.0 %

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

Average RateCom

mer

cial

Mee

ting

and

Gro

up

Leisu

reNumber of

Rooms Average Rate Occ.

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


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

MAP OF COMPETITION

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


PRIMARY COMPETITOR #1 - HILTON MELBOURNE AT RIALTO PLACE

FIGURE 4-17 ESTIMATED HISTORICAL OPERATING STATISTICS

Year

Wtd. Annual

Room Count Occupancy RevPAR

Occupancy

Penetration

Yield

Penetration

Est. 2015 235 75 - 80 % $100 - $105 $75 - $80 95 - 100 % 80 - 85 %

Est. 2016 235 75 - 80 115 - 120 90 - 95 90 - 95 80 - 85

Est. 2017 238 75 - 80 125 - 130 95 - 100 100 - 110 90 - 95

Average Rate

This hotel benefits from its well-known brand name, myriad of facilities and amenities, and location near the Orlando-Melbourne International Airport. The Hilton Melbourne at Rialto is an upper-upscale, full-service hotel and is considered the primary comparable to the proposed hotel. The Hilton at Rialto Place is reportedly owned and operated by HHP Melbourne. Facilities include LaFitte's New Orleans Food (open for breakfast, lunch, and dinner), an outdoor pool, an exercise room, a basketball court, a tennis court, a guest laundry facility, a gift and convenience store, a business center, and approximately ±14,000 square feet of meeting space. The hotel, which was built in 1985, was renovated in 2006 following hurricane damage. This hotel benefits from its location proximate to the Orlando-Melbourne International Airport, consistent demand from negotiated contracts with airlines, and its relatively high amount of meeting space per guestroom. Overall, the property appeared to be in good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Hotel at the Orlando-Melbourne International Airport.

Hilton Melbourne At Rialto Place 200 Rialto Place Melbourne, FL


PRIMARY COMPETITOR #2 - COURTYARD BY MARRIOTT MELBOURNE


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 146 75 - 80 % $95 - $100 $75 - $80 95 - 100 % 80 - 85 %

Est. 2016 146 80 - 85 110 - 115 90 - 95 100 - 110 80 - 85

Est. 2017 146 80 - 85 115 - 120 95 - 100 100 - 110 85 - 90

Average Rate

This hotel benefits from its well-known brand affiliation and location proximate to Melbourne Square Mall. However, this hotel is somewhat disadvantaged by its inferior physical condition due to its construction over 30 years ago. Overall, the property appeared to be in good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Hotel at the Orlando-Melbourne International Airport.

Courtyard by Marriott Melbourne 2101 West New Haven Avenue Melbourne, FL


PRIMARY COMPETITOR #3 - RESIDENCE INN BY MARRIOTT MELBOURNE


Year

Wtd. Annual


Occupancy

Penetration

Yield

Penetration

Est. 2015 133 80 - 85 % $105 - $110 $85 - $90 100 - 110 % 90 - 95 %

Est. 2016 133 85 - 90 115 - 120 100 - 105 100 - 110 95 - 100

Est. 2017 133 75 - 80 120 - 125 90 - 95 95 - 100 85 - 90

Average Rate

The Residence Inn by Marriott is an all-suite, extended-stay hotel. This hotel benefits from its well-known brand affiliation and location just 1.5 miles from the airport. However, this hotel is somewhat disadvantaged by its inferior physical condition due to its construction over 10 years ago. Overall, the property appeared to be in good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the Proposed Hotel at the Orlando-Melbourne International Airport.

Residence Inn by Marriott Melbourne 1430 South Babcock Street Melbourne, FL


We have also reviewed other area lodging facilities to determine whether any may compete with the proposed subject hotel on a secondary basis. The room count of each secondary competitor has been weighted based on its assumed degree of competitiveness in the future with the proposed subject hotel. By assigning degrees of competitiveness, we can assess how the proposed subject hotel and its future competitors may react to various changes in the market, including new supply, changes to demand generators, and renovations or franchise changes of existing supply. The following table sets forth the pertinent operating characteristics of the secondary competitors.

Secondary Competitors


FIGURE 4-20 SECONDARY COMPETITORS – OPERATING PERFORMANCE


Property

Number of

Rooms Occ. Average Rate RevPAR Occ. Average Rate RevPAR

Hi l ton Melbourne Beach Oceanfront 200 45 % 20 % 35 % 90 % 180 85 - 90 % $150 - $160 $130 - $140 180 75 - 80 % $150 - $160 $125 - $130

Crowne Plaza Melbourne Oceanfront 290 45 20 35 90 261 75 - 80 120 - 125 95 - 100 261 65 - 70 125 - 130 85 - 90

DoubleTree by Hi l ton Guest Suites Melbourne

Beach Oceanfront207 45 20 35 90 186 80 - 85 140 - 150 115 - 120 186 80 - 85 140 - 150 125 - 130

Radisson Suite Hotel Oceanfront 167 55 5 40 90 150 75 - 80 150 - 160 115 - 120 150 70 - 75 150 - 160 115 - 120

Totals/Averages 864 47 % 17 % 36 % 90 % 778 82.3 % $139.18 $114.53 778 76.2 % $145.99 $111.25

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

Leisu

re

Com

mer

cial

Mee

ting

and

Gro

up

Total

Competitive

Level

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


We have identified four hotels that are expected to compete with the proposed subject hotel on a secondary level. The Hilton, DoubleTree, Crowne Plaza, and Radisson have been positioned secondarily due to their beachfront locations.

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

FIGURE 4-21 AREA DEVELOPMENT ACTIVITY

Proposed Hotel Name Hotel Product Tier Development Stage AddressProposed Hotel 0

West Melbourne

Proposed SpringHi l l Sui tes by Marriott 128 Upscale Early Development Q2 '19 4255 Norfolk Parkway, West Melbourne

WoodSpring Suites 123 Economy Recently Opened Q3 '17 4650 West New Haven Ave, West Melbourne

Hampton Inn & Suites West Melbourne Palm Bay Road 87 Upper-Midscale Recently Opened Q4 '17 4698 Durham Drive, West Melbourne

Hol iday Inn Express Hotel & Suites West Melbourne 100 Upper-Midscale Recently Opened Q1 '18 4615 West New Haven Ave, West Melbourne

Viera

Fairfield Inn & Suites by Marriott Melbourne Viera 117 Upper-Midscale Under Construction Q2 '18 2400 Town Center Ave, Melbourne/Viera

Proposed Home2 Suites by Hi l ton Viera 117 Upper-Midscale Early Development Q3 '19 Melbourne/Viera

Melbourne/Palm Bay

Proposed Tapestry by Hi l ton Downtown Melbourne 180 Upscale Planning/Franchise Obtained Q1 '20 Strawbridge Avenue & Waverly Place, Melbourne

Melbourne/Melbourne Beach/Indialantic/Satellite Beach

Fairfield Inn & Suites by Marriott Melbourne 85 Upper-Midscale Planning/Franchise Obtained Q4 '19 South of Highway 518 (near beach), Melbourne

Estimated

Number

of Rooms

Expected

Qtr. & Year

of Opening

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

FIGURE 4-22 NEW SUPPLY

Total

Proposed Property

Number

of Rooms Address/Location

Competitive

LevelEstimated Opening

Date Development Stage

Proposed Hotel Orlando-Melbourne International Airport 200 650 West NASA Boulevard, Melbourne 100 % 200 October 1, 2020 Early Development

Hampton Inn & Suites West Melbourne Palm Bay Road 87 4698 Durham Drive, West Melbourne 50 44 January 1, 2018 Recently Opened

Hol iday Inn Express Hotel & Suites West Melbourne 100 4615 West New Haven Ave, West Melbourne 50 50 January 1, 2018 Recently Opened

Proposed Tapestry by Hi l ton 180 SE Corner of Strawbridge Ave. & Waverly Place 75 135 March 1, 2020 Early Development

Totals/Averages 567 429

Weighted

Room

Count

Supply Changes


The recently opened Hampton Inn & Suites by Hilton and Holiday Inn Express have been included as future secondary competitors, due to their branding and location, both located within five miles of the subject site. The recently opened WoodSprings Suites, an extended-stay hotel, is not considered to be competitive due to its product positioning at the economy tier, and the Fairfield Inn & Suites by Marriott Melbourne Viera is not considered to be competitive due to its location 16 miles north of the subject site. The developer of the proposed Tapestry hotel, Willow Street Capital (based in Miami, Florida), are now under contract to purchase a site in downtown Melbourne for a reported price of $500,000 (or $2,780 per key). The site is currently owned by the City of Melbourne. The land is being provided under an incentive package by the City to Willow Street Capital for the development of the hotel. The site includes two contiguous parcels; one has been owned by the City of Melbourne since September 1985, and the other has been owned by Maguire, Michael F. Trust since January 2010. Reportedly, the developer is expected to obtain a Tax Increment Reimbursement (TIF) from the City of Melbourne. The term of this TIF is expected to last 20 years, with 43% of property taxes reimbursed during the first three years and 29% of the property taxes reimbursed the following 17 years. Given its anticipated upscale product type and location, it has been weighted fully competitive in our analysis.

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

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

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

Supply Conclusion

DEMAND


FIGURE 4-23 HISTORICAL MARKET TRENDS

Year

Est. 2015 373,067 — 471,434 — 79.1 % $119.65 — $94.68 —

Est. 2016 386,021 3.5 % 471,434 0.0 % 81.9 129.96 8.6 % 106.42 12.4 %

Est. 2017 366,522 (5.1) 472,529 0.2 77.6 136.06 4.7 105.54 (0.8)

Avg. Annual Compounded

Chg., Est. 2015-Est. 2017: (0.9) % 0.1 % 6.6 % 5.6 %

Accommodated

Room Nights

%

Change

Market

Occupancy Market ADR% Change

Room Nights

Available

%

Change

%

Change

Market

RevPAR

It is important to recognize that the occupancy rate for 2017 declined due to the negative effects of Hurricane Irma. Several hotels were closed in the month of September which caused a drop-in occupancy rate. The year-to-date data through May 2018 indicates a decrease of 10.6%, which will cause occupancy rates to decline by the end of the calendar year. As previously noted, we attribute the decline in demand, in part, to the temporary closure of the 290-room Crown Plaza Melbourne Oceanfront causing inventory to decline by of over 20%. Average rate for the year-to-date period has increased by 13.5% for the selected set of hotels.

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

FIGURE 4-24 ACCOMMODATED-ROOM-NIGHT DEMAND

Marketwide

Market Segment

Commercia l 179,079 49 %

Meeting and Group 54,891 15

Leisure 132,551 36

Total 366,522 100 %

Accommodated

Demand

Percentage

of Total

The market’s demand mix comprises commercial demand, with this segment representing roughly 49% of the accommodated room nights in this Melbourne submarket. The meeting and group segment comprises 15% of the total, with the final portions leisure in nature, reflecting 36%. Using the distribution of accommodated hotel demand as a starting point, we will analyze the characteristics

Demand Analysis Using Market Segmentation


of each market segment in an effort to determine future trends in room-night demand.

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

Commercial demand within this market is primarily generated by the aerospace industry. The continued growth in the aerospace industry surrounding Orlando-Melbourne International Airport should bolster demand growth in the commercial segment in the near term. Government and military demand, as well as the healthcare sector, also contributes to this demand segment.

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

Group demand is predominantly composed of SMERFE groups; however, these groups generally utilize local venues for events and seek hotels for corresponding room nights only. A limited amount of corporate-related group demand is also

Commercial Segment

Meeting and Group Segment


generated by training groups from nearby companies. The expected influx of new supply, as well as the relocation of USSSA's operations to Viera in 2018, should result in stronger SMERFE-related group demand in the first and second projection years.

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

Leisure demand is highly driven by local beaches, the John F. Kennedy Space Center, and the U.S. Space Walk of Fame Museum. Additional leisure demand is generated by motorists on Interstate 95 seeking a convenient stopover en route to destinations such as Miami, Daytona Beach, and Orlando, as well as pre- and post-cruise stayovers for Port Canaveral.

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

FIGURE 4-25 AVERAGE ANNUAL COMPOUNDED MARKET-SEGMENT GROWTH RATES

Annual Growth Rate

Market Segment

Commercia l -5.0 % 3.0 % 5.0 % 5.0 % 2.5 % 2.5 %

Meeting and Group -5.0 3.0 5.0 5.0 2.5 2.5

Leisure -5.0 3.0 5.0 5.0 2.5 2.5

Base Demand Growth -5.0 % 3.0 % 5.0 % 5.0 % 2.5 % 2.5 %

2018 2019 2020 2021 2022 2023

Leisure Segment

Base Demand Growth Rates


The opening of the 200-room subject hotel in late 2020 will increase the existing competitive set’s inventory by 15.4% in 2021. We have projected a 5.0% increase in the competitive set’s demand in the first year of the hotel’s operations, with another 5.0% increase projected in 2022. The demand growth in these years reflects the phenomenon known as supply-induced demand. When a new hotel opens, demand (represented by the number of occupied room nights) tends to increase as well, though generally not in direct proportion to the supply increase. The increment of additional occupancy results from several factors, depending on the market circumstances and the subject property’s physical characteristics.

Where the market is concerned, the additional inventory allows for the accommodation of demand that was previously turned away by the market during peak periods due to a lack of capacity. This excess demand exists but is not accommodated until capacity increases. Some degree of excess demand is typically considered common during months when occupancy exceeds 70% to 75%, with the likelihood increasing as occupancy increases above this level. The subject lodging market, as indicated in Figure 4-26 (see following page), realized occupancy rates exceeding 80% in the months of February, March, June, and July; thus, significant excess demand is likely in these periods. Where the proposed subject property is concerned, the capacity for induced demand is also a material consideration here.

Quantifying these factors requiring estimating variables that are difficult to objectively support. The preceding demand forecast is based primarily on our experience and reflects the perspective we would expect an investor in the subject hotel to employ as part of its underwriting strategy.

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

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

Latent Demand

Unaccommodated Demand


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

FIGURE 4-26 OCCUPANCY BY NIGHT OF THE WEEK


Jun - 17 64.9 % 84.5 % 92.7 % 92.4 % 78.3 % 82.0 % 89.0 % 83.2 %

Jul - 17 72.9 85.6 86.0 87.2 85.0 89.2 94.0 85.5

Aug - 17 61.3 80.6 88.4 89.1 74.9 76.2 82.6 79.5

Sep - 17 46.1 39.3 45.9 47.8 42.6 47.0 55.3 46.6

Oct - 17 49.4 66.9 72.2 74.0 66.1 69.9 74.2 67.1

Nov - 17 52.7 68.0 71.6 74.2 70.7 78.0 78.4 70.6

Dec - 17 58.4 70.1 73.4 74.4 66.8 68.3 69.0 68.3

Jan - 18 60.8 70.5 77.9 79.7 74.0 71.5 75.5 73.2

Feb - 18 67.1 83.1 86.8 85.8 79.0 79.8 82.4 80.6

Mar - 18 71.5 84.7 86.2 85.9 82.6 85.7 87.7 83.6

Apr - 18 60.2 75.6 81.8 83.1 77.6 76.8 80.6 76.0

May - 18 52.9 63.6 72.0 72.1 64.6 67.8 70.5 66.5

Average 59.9 % 72.9 % 77.9 % 78.8 % 72.1 % 74.1 % 78.1 % 73.4 %

Source: STR

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

FIGURE 4-27 UNACCOMMODATED DEMAND ESTIMATE

Market Segment

Commercia l 179,079 2.1 % 3,671

Meeting and Group 54,891 1.5 816

Leisure 132,551 2.8 3,671

Total 366,522 2.2 % 8,159

Unaccommodated

Demand Percentage

Unaccommodated

Room Night Demand

Accommodated Room

Night Demand


Accordingly, we have forecast unaccommodated demand equivalent to 2.2% of the base-year demand, resulting from our analysis of monthly and weekly peak demand and sell-out trends.

Induced demand represents the additional room nights that are expected to be attracted to the market following the introduction of a new demand generator. Situations that can result in induced demand include the opening of a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities.

With the introduction of new “branded” hotel developments, such as the Tapestry by Hilton planned for downtown Melbourne, alongside new demand generators, additional room night demand (induced demand) will escalate in the coming years as new product is introduced. The proposed subject hotel is expected to be a demand generator. The following table summarizes our estimate of induced demand.

FIGURE 4-28 INDUCED DEMAND CALCULATION

Market Segment

Commercia l 3,353 9,799 10,588 11,044

Meeting and Group 1,490 4,112 4,442 4,625

Leisure 2,608 6,648 7,180 7,454

Total 7,450 20,559 22,210 23,123

2020 2021 2022 2023

The opening of the proposed hotel, which is recommended to contain banquet and meeting facility, should induce considerable demand into this market. The selected brand should draw new groups to this market, as these groups with planned meetings would have likely chosen an alternate destination if it were not for the availability of the new facility.

Accordingly, we have incorporated 23,000 room nights (rounded) into our analysis, phased in over an appropriate ramp-up period.

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

Induced Demand

Accommodated Demand and Market-wide Occupancy


Local economic development officials note that the relocation of the U.S. Specialty Sports Association (USSSA) from Kissimmee to Viera in 2018 has guaranteed 75,000 room nights a year from its sports activities, increasing to 100,000 nights a year after three years. The delivery and subsequent ramp-up of this development should induce considerable group and leisure demand into this market. We have estimated that the selected set of competitive hotels will benefit from a portion of this demand, given that its location will most strongly impact Viera, compressing outward to Cocoa, Cocoa Beach, and Melbourne. In addition, the expansion and relocation of businesses as detailed in the Market Area Analysis section of this report will also induce considerable corporate demand into this market, a benefit which will directly flow to the competitive set of hotels.

Based on the year-to-date trends through May 2018, the competitive set is on pace to finish the current year with an occupancy rate of approximately 67%. We expect the competitive set’s occupancy rate to dip temporarily following the opening of the subject property, then return to the historical levels after the absorption of the new rooms is completed.

Residual demand is a form of excess demand that develops as a result of seasonality of demand patterns in the hotel market. The seasonality occupancy patterns are shown in Figure 4-9 and vary from a low of 46.6% in September (impacted by Hurricane Irma) to a high of 83.6% in March 2018. Our room night analysis model holds the amount of forecast room night demand in any month that exceeds the historical maximum monthly occupancy rate, as residual demand. Consequently, the total amount of residual room night demand being “held” in the residual demand category will actually be absorbed when a new hotel enters the market. In simpler terms, residual demand is defined as “total potential demand”.

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


FIGURE 4-29 FORECAST OF MARKET OCCUPANCY

170,125 175,229 183,991 193,190 198,020 202,970

Unaccommodated Demand 3,488 3,592 3,772 3,961 4,060 4,161

0 0 3,353 9,799 10,588 11,044

173,613 178,822 191,115 206,950 212,667 218,176

Growth Rate (3.1) % 3.0 % 6.9 % 8.3 % 2.8 % 2.6 %

52,147 53,711 56,397 59,216 60,697 62,214

775 798 838 880 902 925

0 0 1,490 4,112 4,442 4,625

52,922 54,509 58,725 64,208 66,041 67,763

(3.6) % 3.0 % 7.7 % 9.3 % 2.9 % 2.6 %

125,924 129,702 136,187 142,996 146,571 150,235

3,488 3,592 3,772 3,961 4,060 4,161

0 0 2,608 6,648 7,180 7,454

129,412 133,294 142,566 153,605 157,811 161,851

(2.4) % 3.0 % 7.0 % 7.7 % 2.7 % 2.6 %

Base Demand 348,196 358,642 376,574 395,403 405,288 415,420

Unaccommodated Demand 7,751 7,983 8,382 8,801 9,022 9,247

Induced Demand 0 0 7,450 20,559 22,210 23,123

Total Demand 355,947 366,625 392,407 424,763 436,519 447,790

less : Res idual Demand 13,988 7,983 8,382 8,801 9,022 9,247

Total Accommodated Demand 341,958 358,642 384,024 415,961 427,498 438,543

Overall Demand Growth (6.7) % 4.9 % 7.1 % 8.3 % 2.8 % 2.6 %

Market Mix

48.8 % 48.8 % 48.7 % 48.7 % 48.7 % 48.7 %

14.9 14.9 15.0 15.1 15.1 15.1

36.4 36.4 36.3 36.2 36.2 36.1

1,294 1,295 1,295 1,295 1,295 1,295

Proposed Hotel Orlando-Melbourne International Airport ¹ 50 200 200 200

Hampton Inn & Suites West Melbourne Palm Bay Road ² 43 44 44 44 44 44

Hol iday Inn Express Hotel & Suites West Melbourne ³ 50 50 50 50 50 50

Proposed Tapestry by Hi l ton 4 113 135 135 135

Change to Existing Hotels

Hi l ton Melbourne Beach Oceanfront A 1 1 1 1 1 1

Crowne Plaza Melbourne Oceanfront B -174 -261 -261 -261 -261 -261

Crowne Plaza Melbourne Oceanfront C 109 261 261 261 261 261

Avai lable Room Nights per Year 482,865 506,985 566,695 629,260 629,260 629,260

Nights per Year 365 365 365 365 365 365

Total Supply 1,323 1,389 1,553 1,724 1,724 1,724

Rooms Supply Growth 2.2 % 5.0 % 11.8 % 11.0 % 0.0 % 0.0 %

Marketwide Occupancy 70.8 % 70.7 % 67.8 % 66.1 % 67.9 % 69.7 %

¹ Opening in October 2020 of the 100% competi tive, 200-room Proposed Hotel Orlando-Melbourne International Airport² Opening in January 2018 of the 50% competi tive, 87-room Hampton Inn & Suites West Melbourne Palm Bay Road³

Opening in January 2018 of the 50% competi tive, 100-room Hol iday Inn Express Hotel & Suites West Melbourne4 Opening in March 2020 of the 75% competi tive, 180-room Proposed Tapestry by Hi l tonA Change of room count in May 2018 of the 90% competi tive, Hi l ton Melbourne Beach OceanfrontB Change of room count in May 2018 of the 90% competi tive, Crowne Plaza Melbourne OceanfrontC Change of room count in August 2018 of the 90% competi tive, Crowne Plaza Melbourne Oceanfront

Commercial

2018 2019 2020 2021 2022


2023

Base Demand

Induced Demand

Total Demand

Meeting and Group

Base Demand

Induced Demand

Total Demand

Growth Rate

Leisure

Base Demand


Induced Demand

Total Demand

Growth Rate

Leisure

Existing Hotel Supply

Proposed Hotels

Totals

Commercia l

Meeting and Group

July-2018 Description of the Proposed Improvements Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 82

5. Description of the Proposed Improvements

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

The Proposed Hotel at the Orlando-Melbourne International Airport will be an upper upscale, full-service lodging facility containing 200 rentable units. The multi-story property will open on October 1, 2020.

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

FIGURE 5-1 PROPOSED FACILITIES SUMMARY

Guestroom Configuration

TBD 200

Total 200

Food & Beverage Facilities

TBD TBD

Indoor Meeting & Banquet Facilities

Meeting and Banquet 15,000

Total 15,000

Amenities & Services

Outdoor Swimming Pool Gi ft Shop

Outdoor Whirlpool Market Pantry

Fi tness Center Vending Area(s )

Bus iness Center Outdoor Sundeck

Infrastructure

Parking Spaces 200

Elevators

Li fe-Safety Systems

Guest, Service

Sprinklers , Smoke Detectors

Square Footage

Number of Units

Seating Capacity

Project Overview

Summary of the Facilities


Once guests enter the site, ample parking will be available on the surface lot around the perimeter of the hotel. Site improvements will include freestanding signage, which will be located on the southern and eastern sides of the site (additional signage will be placed on the exterior of the building). We assume that all signage will adequately identify the property and meet brand standards. Planned landscaping should allow for a positive guest impression and competitive exterior appearance. Sidewalks will be present along the front entrance and around the perimeter of the hotel. Other site improvements will include an outdoor pool with sundeck and a trash area toward the rear of the property. The expected site improvements for the property should be adequate to provide for an upper upscale lodging experience.

Construction details were not provided for our review. It is expected that the hotel structure will be constructed of reinforced concrete. Several elevators and stairways will provide internal vertical transportation within the main structure as needed. Given the proximity of the subject site to the airport runways, we assume that double-paned windows and other sound-proofing elements will be installed to reduce noise transmission into the rooms. The planned building components should be normal for an airport-adjacent hotel of this type, meeting the standards for the chosen brand and this market. We assume that all structural components will meet local building codes and that no significant defaults will occur during construction that would affect the future operating potential of the hotel or delay its assumed opening date.

Guests are expected to enter the hotel through a single set of automatic doors, which will open to a vestibule, and then through a second set of automatic doors. The lobby should be spacious, appropriate for a similar upper-upscale, full-service brand. The lobby walls should be attractively finished with an upscale material that is in line with brand standards. The front desk should feature a granite countertop, installed with appropriate property management and telephone systems. The furnishings and finishes in this space should offer an appropriate first impression, and the design of the space should lend itself to adequate efficiency. The specific design concept will be finalized with input from the pursued future brand for the proposed subject property. We assume that all property management and guestroom technology will be appropriately installed for the effective management of hotel operations.

The hotel is expected to offer two restaurants and a lounge, which will all be located on the first floor, offering curbside appeal; one restaurant will feature outside patio seating. The size and layout of each facility should be appropriate for the hotel. The furnishings of these spaces are anticipated to be of a similar style and finish as lobby and guestroom furnishings. In addition, facilities proposed include a rooftop bar.

Site Improvements and Hotel Structure

Lobby

Food and Beverage Facilities


Overall, the hotel is expected to provide a competitive offering of food and beverage facilities for an upper upscale, full-service property.

Under a full-service, upscale scope, the proposed hotel should offer a significant amount of modern and technologically advanced meeting space. We would expect the integration of a fully divisible grand ballroom and primary meeting space along with additional smaller breakout rooms, secondary meeting rooms, and boardroom-type spaces. We anticipate that public restrooms and a small business center, as well as additional reception and hallway areas, will be incorporated into this space. We recommended the meeting and banquet space should contain roughly ±15,000 square feet.

The hotel is expected to offer an outdoor pool with sundeck, an outdoor whirlpool, and a fitness area as recreational facilities. Restrooms should be present off of the pool area.

The hotel is expected to feature standard and suite-style guestroom configurations, with guestrooms present on all floors above the lobby level within the single building. The guestrooms are anticipated to be of a standard size, offering typical amenities for this upper-upscale product type. In addition to the standard furnishings, rooms should also feature an iron and ironing board, a coffeemaker, and high-speed Internet access, among other amenities. Suites are expected to feature a larger living area and other upgraded amenities. Overall, the guestrooms should offer a competitive product for this neighborhood.

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

In addition, one floor in the hotel will offer concierge level service.

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

The hotel will be served by the necessary back-of-the-house space, including administrative offices, an in-house laundry facility, and a full-service kitchen to serve the needs of the restaurants and lounge. These spaces should be adequate for

Meeting and Banquet Space

Recreational Amenities

Guestrooms

Back-of-the-House, ADA, and Environmental


a hotel of this type and should allow for the efficient operation of the property under competent management.

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

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

Overall, the proposed subject hotel should offer a well-designed, functional layout of support areas and guestrooms. All typical and market-appropriate features and amenities should to be included in the hotel's design. We assume that the building will be fully open and operational on the stipulated opening date and will meet all local building codes and brand standards. Furthermore, we assume that the hotel staff will be adequately trained to allow for a successful opening and that pre-marketing efforts will have introduced the product to major local accounts at least six months in advance of the opening date.

Capital Expenditures

Conclusion

July-2018 Projection of Occupancy and Average Rate Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 86

6. Projection of Occupancy and Average Rate

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

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

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

FIGURE 6-1 HISTORICAL PENETRATION RATES

Property

Hi l ton Melbourne At Ria l to Place 94 % 136 % 99 % 102 %

Courtyard by Marriott Melbourne 120 36 118 107

Res idence Inn by Marriott Melbourne 122 33 96 99

Secondary Competition 94 112 98 98

Ove

rall

Com

mer

cial

Mee

ting

and

Gro

up

Leisu

re

The Residence Inn by Marriott Melbourne achieved the highest penetration rate within the commercial segment. The highest penetration rate in the meeting and group segment was achieved by the Hilton Melbourne At Rialto Place, while the Courtyard by Marriott Melbourne led the market with the highest leisure penetration rate.

Penetration Rate Analysis

Historical Penetration Rates by Market Segment


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

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

The reader should note that the numbers shown for the row labeled ‘Demand’ under each of the three market segments (i.e. commercial, leisure & meeting/group) in Figure 6-2 will not always match those numbers shown for each market segment in the row labeled “Base Demand’ in Figure 4-29. This is because the ‘Demand’ row shown for each market segment in Figure 6-2 is the sum of (Base Demand plus Unaccommodated Demand plus Induced Demand for said segment), less some allocated portion of the total Residual Demand shown in Figure 4-29, which is demand that is not absorbed. The Demand number shown in Figure 6-2 will only equal the Base Demand number shown in Figure 4-29 when none of the Unaccommodated Demand or Induced Demand can be absorbed. The proposed subject hotel's occupancy forecast is set forth as follows, with the adjusted projected penetration rates used as a basis for calculating the amount of captured market demand.

Forecast of Subject Property’s Occupancy


FIGURE 6-2 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY

Market Segment

Commercial

Demand 187,343 202,989 208,608 214,014 219,089

Market Share 4.2 % 15.4 % 15.8 % 16.0 % 16.0 %

Capture 7,803 31,273 32,861 34,299 35,112

Penetration 128 % 133 % 136 % 138 % 138 %

Meeting and Group

Demand 57,887 63,328 65,139 66,839 68,394

Market Share 3.9 % 15.3 % 16.3 % 17.5 % 17.5 %

Capture 2,267 9,713 10,591 11,727 12,000

Penetration 121 % 132 % 140 % 151 % 151 %

Leisure

Demand 138,794 149,644 153,751 157,689 161,445

Market Share 1.3 % 5.6 % 6.1 % 6.1 % 6.1 %

Capture 1,835 8,307 9,387 9,627 9,856

Penetration 41 % 48 % 53 % 53 % 53 %

Total Room Nights Captured 11,905 49,293 52,839 55,653 56,968

Avai lable Room Nights 18,400 73,000 73,000 73,000 73,000

Subject Occupancy 65 % 68 % 72 % 76 % 78 %

Market-wide Avai lable Room Nights 566,695 629,260 629,260 629,260 629,260

Fair Share 3 % 12 % 12 % 12 % 12 %

Market-wide Occupied Room Nights 384,024 415,961 427,498 438,543 448,928

Market Share 3 % 12 % 12 % 13 % 13 %

Market-wide Occupancy 68 % 66 % 68 % 70 % 71 %

Total Penetration 95 % 102 % 107 % 109 % 109 %

2020 2021 2022 2023 2024

We expect the subject property to stabilize with an overall penetration factor of 109%, slightly above the Courtyard, Hilton and Residence Inn and significantly above the market standard. Additional insights by segment are presented as follows:

• Within the commercial segment, the proposed subject hotel’s occupancy penetration is positioned at an above-market-average level by the stabilized period due to its proximity to the Orlando-Melbourne International Airport, as well as the expected strength of the brand in capturing corporate demand. The proposed subject hotel is anticipated to outperform the nearby full-service Hilton in the commercial market segment.

• The proposed subject hotel is expected to become the foremost choice for meeting and group demand in this Melbourne market. While the nearby Hilton encompasses 14,000 square feet of meeting space, the space is dated,


including some signs of functional obsolescence. Therefore, the proposed subject hotel should become a leading choice for mid-sized corporate meetings and/or banquet events given the upper upscale nature of the proposed function space and its modern, technologically advanced capabilities.

• The proposed subject hotel's leisure penetration level is positioned appropriately below the range of existing competitors.

The proposed subject hotel is expected to stabilize with a strong penetration rate due to its new facility, its nationally-recognized affiliation, and its upper upscale amenity package including appropriately-sized meeting space. Moreover, its favorable location within the Orlando-Melbourne International Airport campus and proximity to "downtown" Melbourne and being located near several demand generators within the aerospace industry are positive indicators that are expected result in an above-market-average penetration rate.

These positioned segment penetration rates result in the following market segmentation forecast.

FIGURE 6-3 MARKET SEGMENTATION FORECAST – SUBJECT PROPERTY

Commercia l 66 % 63 % 62 % 62 % 62 %

Meeting and Group 19 20 20 21 21

Leisure 15 17 18 17 17

Total 100 % 100 % 100 % 100 % 100 %

2020 2021 2022 2023 2024

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


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

Although the average rate analysis presented here follows the occupancy projection, these two statistics are highly correlated; in reality, one cannot project occupancy without making specific assumptions regarding average rate. This relationship is best illustrated by revenue per available room (RevPAR), which reflects a property's ability to maximize rooms revenue. The following table summarizes the historical average rate and the RevPAR of the subject property’s future primary competitors.

FIGURE 6-4 BASE-YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS

Property

Hi l ton Melbourne At Ria l to Place $125 - $130 90 - 95 % $95 - $100 90 - 95 %

Courtyard by Marriott Melbourne 115 - 120 80 - 85 95 - 100 85 - 90

Res idence Inn by Marriott Melbourne 120 - 125 85 - 90 90 - 95 85 - 90

Average - Primary Competitors $121.77 89.5 % $96.94 91.9 %

Average - Secondary Competitors 145.99 107.3 111.25 105.4

Overall Average $136.06 100.0 % $105.54 100.0 %

.

Subject As If Stabilized (In 2017 Dollars) $150.00 110.2 % $127.27 120.6 %

Estimated 2017

Average Room

Rate

Average Room

Rate Penetration

Rooms Revenue

Per Available

Room (RevPAR)

RevPAR

Penetration

The defined primarily competitive market realized an overall average rate of $121.77 in the 2017 base year, improving from the 2016 level of $115.84.

While comparing the selected hotels ADR’s to form a benchmark for a non-beachfront hotel, as in this case, a more in-depth review is necessary to provide a heightened level of reliability for an applied average rate to the proposed hotel. Obviously, the sample data is influenced by the inclusion of beachfront assets.

Average Rate Analysis

Competitive Position


Therefore, we have broken down the competitive set into groups. First, we have isolated rates for the beachfront properties to form the upper level of achievable rates in the market. Then, we reviewed ADR’s for the selected non-beach hotels. Actual ADR performance levels for each competitor is shown in the following table.

FIGURE 6-5 HISTORICAL AVERAGE RATE OF THE COMPETITORS

Estimated 2015 Estimated 2016 Estimated 2017

Property

No of

Rooms Occ

Average

Rate RevPAR Occ

Average

Rate RevPAR Occ

Average

Rate RevPAR

Hi l ton Melbourne At Ria l to Place 238 76 % $102 $78 77 % $117 $90 79 % $126 $100

Courtyard by Marriott Melbourne 146 79 99 78 82 111 91 83 115 95

Res idence Inn by Marriott Melbourne 133 82 108 89 88 119 105 77 122 94

Sub-Totals/Averages 517 78 % $103 $81 81 % $116 $94 80 % $122 $97

Hi l ton Melbourne Beach Oceanfront 200 86 % $138 $119 87 % $151 $131 80 % $159 $127

Crowne Plaza Melbourne Oceanfront 290 70 120 84 79 122 96 68 126 86

DoubleTree by Hi l ton Guest Suites Melbourne Beach Oceanfront207 85 130 111 85 141 120 85 148 126

Radisson Suite Hotel Oceanfront 167 82 138 113 79 151 119 75 158 119

Sub-Totals/Averages 864 80 % $131 $104 82 % $139 $115 76 % $146 $111

Totals/Averages 1,381 79 % $120 $95 82 % $130 $106 78 % $136 $106

FIGURE 6-6 % CHANGE IN ADR AND REVPAR – YEAR-OVER-YEAR METRICS

YOY Percentage Chg. YOY Percentage Chg.

Property RevPAR RevPAR

Hi l ton Melbourne At Ria l to Place 14.7% 16.2% 7.7% 10.5%

Courtyard by Marriott Melbourne 12.1% 16.4% 3.6% 4.9%

Res idence Inn by Marriott Melbourne 10.2% 18.2% 2.5% -10.3%

Hi l ton Melbourne Beach Oceanfront 9.4% 10.7% 5.3% -3.2%

Crowne Plaza Melbourne Oceanfront 1.7% 14.7% 3.3% -11.1%

DoubleTree by Hi l ton Guest Suites Melbourne Beach Oceanfront8.5% 8.5% 5.0% 5.0%

Radisson Suite Hotel Oceanfront 9.4% 5.4% 4.6% -0.7%

Totals/Averages 8.6% 12.4% 4.7% -0.8%

Average

Rate

Average

Rate

Estimated 2016 Estimated 2017

It is not uncommon for beachfront hotels to command at least a 15-25% ADR premium over non-beachfront hotels. Historically, aggregate ADR’s for the non-beach properties were roughly 79% to 83% of the beachfront properties.


The full-service Hilton Melbourne Beach, a secondary competitor, achieved the highest estimated average rate in the local competitive market, by a significant margin, because of its full-service product offering and its beachfront location. This property is followed by the DoubleTree Melbourne Beach, with an ADR around $10 lower. The DoubleTree is followed by the other beachfront hotels, namely the Radisson and the Crowne Plaza. Of the non-beachfront hotels, the Hilton Rialto Place achieved the highest average rate level in 2017 given its full-service product in the upper upscale tier. Another important rate aspect of this market is its moderate level of seasonality. The selected rate position for the proposed subject property, in base-year dollars, takes into consideration factors such as its new product offering (which is expected to be notably superior to the existing hotels), its central Melbourne location, and its superior facilities, including a full-service restaurant and meeting space.

While we have not included the 295-room Hilton Cocoa Beach Oceanfront property in the data set, the hotel achieved an average rate of $151 for period ending December 2017, up from $143 recorded in 2016.

Based on these considerations, the following table sets forth the basis for our projection of the proposed subject hotel’s average rate. We have positioned the proposed subject hotel’s stabilized average rate in base-year (2017) dollars at $150.00, which reflects an ADR penetration of 110.2% by the stabilized period.

This positioning of base year average rate is approximately a 20% premium over the Residence Inn Melbourne and the Hilton Melbourne at Rialto Place, both of which have inferior locations relative to the airport as compared to the proposed hotel. Our rate positioning is roughly $10 less than the two top beachfront properties in term of average rate.

Market-wide rates have increased over the historical period illustrated, with notable growth beginning in 2014. There was a drop in 2017 due to the impact of Hurricane Irma, which forced hotels to close for a brief period during the month of September. However, in the year-to-date period through May 2018, rates increased by 13.5%. We expect average rates to continue to improve initially because of the local developments, including expansion of existing companies and relocation of new companies in the space industry.

Based on these considerations, the following table illustrates the projected average rate and the growth rates assumed. As a context for the average rate growth factors, note that we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017. The proposed subject hotel’s projected average rate (as if stabilized) is then fiscalized to correspond with the hotel’s anticipated date of opening for each forecast year.


The forecast reflects years beginning on October 1, 2020, which corresponds with our expected date of opening, as shown below.

FIGURE 6-7 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Calendar Year 2017 2018 2019 2020 2021 2022 2023 2024

Market ADR $136.06 $149.66 $157.15 $161.08 $164.30 $170.05 $175.15 $180.40

Projected Market ADR Growth Rate — 10.0% 5.0% 2.5% 2.0% 3.5% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabi l i zed) $150.00 $165.00 $173.25 $177.58 $181.13 $187.47 $193.10 $198.89

ADR Growth Rate — 10.0% 5.0% 2.5% 2.0% 3.5% 3.0% 3.0%

Proposed Subject Stabi l i zed ADR Penetration 110% 110% 110% 110% 110% 110% 110% 110%

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

Proposed Subject Property Average Rate $180.24 $185.87 $191.68 $197.43 $203.35

Opening Discount 5.0% 3.0% 0.0% 0.0% 0.0%

Average Rate After Discount $171.23 $180.30 $191.68 $197.43 $203.35

Real Average Rate Growth — 5.3% 6.3% 3.0% 3.0%

Market ADR $163.49 $168.60 $173.86 $179.08 $184.45

Proposed Subject ADR Penetration (After Discount) 105% 107% 110% 110% 110%

ADR Expressed in Base-Year Dol lars Deflated @ Inflation Rate $158.23 $161.76 $166.96 $166.96 $166.96

As illustrated above, a 10.0%% rate of change is expected for the proposed subject hotel's positioned 2017 room rate in 2018. This is followed by growth rates of 5.0%% and 2.5%% in 2019 and 2020, respectively. The proposed subject hotel's rate position should reflect growth similar to market trends because of the proposed hotel's new facility, strong brand affiliation, and favorable location. The proposed subject hotel’s penetration rate is forecast to reach 110.2% by the stabilized period.

A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast 5.0% and 3.0% discounts to the proposed subject hotel’s forecast room rates in the first two operating years, which would be typical for a new operation of this type.


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

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

Proposed Hotel at the Orlando-Melbourne International Airport

Occupancy — % — % 66.8 % 71.2 % 75.3 % 77.6

Change in Points — — — 4.3 4.1 2.3

Occupancy Penetration — — 100.4 % 105.5 % 108.7 % 109.4

Average Rate $150.00 $171.17 $176.49 $171.23 $180.30 $191.68 $197.43

Change — 3.1 % (3.0) % 5.3 % 6.3 % 3.0

Average Rate Penetration 110.2 % 110.2 % 104.7 % 106.9 % 110.2 % 110.2

RevPAR — — $114.40 $128.30 $144.27 $153.17

Change — — — 12.1 % 12.4 % 6.2

RevPAR Penetration — — 105.2 % 112.8 % 119.8 % 120.6

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

Melbourne Submarket

Occupancy 79.1 % 81.9 % 77.6 % 70.8 % 68.5 % 66.5 % 67.5 % 69.2 % 70.9

Change in Points — 2.7 (4.3) (6.8) (2.2) (2.0) 1.0 1.8 1.7

Average Rate $119.65 $129.96 $136.06 $155.26 $160.09 $163.49 $168.60 $173.86 $179.08

Change — 8.6 % 4.7 % 14.1 % 3.1 % 2.1 % 3.1 % 3.1 % 3.0

RevPAR $94.68 $106.42 $105.54 $109.86 $109.68 $108.75 $113.76 $120.40 $127.01

Change — 12.4 % (0.8) % 4.1 % (0.2) % (0.8) % 4.6 % 5.8 % 5.5

* The forecast for the proposed subject property does not include rate discounts that are expected to occur during the initial year(s) of operation.

Projected

Historical (Estimated) Projected


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

FIGURE 6-9 FISCALIZED OCCUPANCY, AVERAGE RATE, AND REVPAR

Year

2020/21 67 % $180.24 5.0 % $171.23 $114.72

2021/22 71 185.87 3.0 180.30 128.01

2022/23 75 191.68 0.0 191.68 143.76

2023/24 Stabilized 78 197.43 0.0 197.43 154.00

Occupancy

Average Rate

Before Discount Discount

Average Rate

After Discount RevPAR

July-2018 Statement of Assumptions and Limiting Conditions Proposed Hotel at the Orlando-Melbourne International Airport – Melbourne, Florida 96

7. Statement of Assumptions and Limiting Conditions

1. This report is set forth as a market study of the proposed subject hotel; this is not an appraisal report.

2. This report is to be used in whole and not in part.

3. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated.

4. We assume that there are no hidden or unapparent conditions of the sub-soil or structures, such as underground storage tanks, that would affect the property’s development potential. No responsibility is assumed for these conditions or for any engineering that may be required to discover them.

5. We have not considered the presence of potentially hazardous materials or any form of toxic waste on the project site. We are not qualified to detect hazardous substances and urge the client to retain an expert in this field if desired.

6. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have assumed the proposed hotel would be designed and constructed to be in full compliance with the ADA.

7. We have made no survey of the site, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate will be within the boundaries of the property described, and that no encroachment will exist.

8. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Consulting & Valuation are assumed true and correct. We can assume no liability resulting from misinformation.

9. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property.

10. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including the appropriate liquor license), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser.


11. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise.

12. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media.

13. We are not required to give testimony or attendance in court because of this analysis without previous arrangements and shall do so only when our standard per-diem fees and travel costs have been paid prior to the appearance.

14. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us.

15. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspection.

16. The quality of a lodging facility's onsite management has a direct effect on a property's economic viability. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results.

17. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease because of market volatility and economic forces outside the control of the hotel’s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed based upon information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel investor as of the stated date of the report.

18. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first.

19. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors.


20. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client; the use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client.

21. Evaluating and comprising financial forecasts for hotels is both a science and an art. Although this analysis employs various mathematical calculations to provide value indications, the final forecasts are subjective and may be influenced by our experience and other factors not specifically set forth in this report.

22. This study was prepared by HVS Consulting & Valuation. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of HVS Consulting & Valuation as employees, rather than as individuals.

Documents

MARKET STUDY Proposed otel at the Orlando- Melbourne … Airport... · Construction & Pre-Opening of Hotel Opening of the Hotel. July 2018 August 2018 - March 2019 April 2019 - September