Ohio Chapter of the Appraisal I nstitute 4 0 th Annual Econom ic Sem - - PowerPoint PPT Presentation

Ohio Chapter of the Appraisal I nstitute 4 0 th Annual Econom ic Sem inar Ohio and National Lodging I ndustry Overview : Statistics, Appraisal I ssues, and New Supply

Presented by: David J. Sangree, MAI , CPA, I SHC

Presentation by David J. Sangree, MAI, CPA, ISHC

Presentation Outline:

• National Hotel Overview
• Cleveland Market Overview
• Columbus Market Overview
• Cincinnati Market Overview
• Dayton Market Overview
• National Hotel Pipeline and Forecasts
• Appraisal Process for Hotels

Presentation by David J. Sangree, MAI, CPA, ISHC

Occupa ncy % Cha nge ADR % Cha nge Re v PAR % Cha nge 2012 61.4% 4.2% $106.02 3.8% $65.10 8.1% 2013 62.3% 1.5% $109.98 3.7% $68.47 5.2% 2014 64.4% 3.4% $114.92 4.5% $74.02 8.1% 2015 65.5% 1.7% $120.01 4.4% $78.63 6.2% 2016 65.5% 0.0% $123.97 3.3% $81.19 3.3% Source: STR

Overall U.S. Lodging Performance

Presentation by David J. Sangree, MAI, CPA, ISHC

Year Occ % change ADR % change REVPAR % change 2012 58.4% 4.8% $82.98 4.8% $48.42 9.8% 2013 58.5% 0.2% $86.98 4.8% $50.89 5.1% 2014 59.8% 2.2% $90.42 4.0% $54.12 6.3% 2015 60.2% 0.7% $94.59 4.6% $56.98 5.3% 2016 59.7%

• 0.8%

$97.40 3.0% $58.16 2.1% Source: STR Ohio Pe r for m a nce Sum m a r y

Presentation by David J. Sangree, MAI, CPA, ISHC Year Occ % change ADR % change REVPAR % change 2012 61.0% 6.7% $88.79 5.4% $54.18 12.4% 2013 61.8% 1.3% $93.94 5.8% $58.06 7.2% 2014 61.2%

• 1.0%

$98.64 5.0% $60.33 3.9% 2015 62.9% 2.9% $102.45 3.9% $64.49 6.9% 2016 61.2%

• 2.8%

$109.39 6.8% $66.95 3.8% Source: CBRE Hotels Am ericas Research, STR, Q2 2017 Cle v e la nd MSA Sum m a r y

Presentation by David J. Sangree, MAI, CPA, ISHC

Date Occ % change ADR % change REVPAR % change Aug-17 60.9%

• 3.8%

105.30 $

• 4.6%

64.15 $

• 8.2%

Source: STR Cle v e la nd MSA YTD Sum m a r y

• YTD occupancy and ADR decline from fewer major events (no RNC

Convention) and large supply increases (600-room Hilton and others)

Presentation by David J. Sangree, MAI, CPA, ISHC

Hotel Location Num ber of Room s Open Date Hotel Location Num ber of Room s Open Date Avon Place Residence Inn Avon 116 Mar 2016 Home2 Suites by Hilton Middleburg Heights 112 Mar 2017 Kimpton Hotel Downtown Cleveland 123 Mar 2016 aloft Hotel North Olmsted North Olmsted 135 Aug 2017 Drury Plaza Hotel Downtown Cleveland 180 Apr 2016 Hampton Inn & Suites Oakwood Village Oakwood Village 86 Sep 2017 Holiday Inn Cleveland Clinic Cleveland 276 May 2016 Crowne Plaza at Playhouse Square Cleveland (downtown) Unchanged Sep 2017 Hilton Hotel Cleveland Convention Center Downtown Cleveland 600 Jun 2016 Four Points by Sheraton Cleveland-Eastlake Eastlake Unchanged 1Q 2018 Hyatt Place Hotel Legacy Village Lyndhurst 135 Jun 2016 Comfort Suites Brunswick 84 1Q 2018 Springhill Suites by Marriott Independence 121 Jun 2016 Residence Inn by Marriott Middleburg Heights 100 2Q 2018 Holiday Inn Express Westlake 91 Jun 2016 TownePlace Suites by Marriott Solon 101 2Q 2018 Holiday Inn Express & Suites Medina 92 Jun 2016 Innova Residence Inn by Marriott Cleveland 175 4Q 2018 Fairfield Inn & Suites Medina 76 Oct 2016 AC Hotel by Marriott Pinecrest Orange 145 1Q 2019 Hampton Inn North Olmsted Cleveland Airport North Olmsted 118 Nov 2016 Curio Collection by Hilton Cleveland (downtown) 279 1Q 2019 Home2 Suites by Hilton Independence 120 Nov 2016 Tru by Hilton Cleveland Midtown Cleveland 114 1Q 2019 Four Points by Sheraton Cleveland Airport Cleveland Unchanged Dec 2016 Total 3,470 Home2 Suites by Hilton Beachwood 91 Feb 2017 Source: Hotel & Leisure Advisors

Cleveland MSA Hotel Supply Changes & Conversions Cleveland MSA Hotel Supply Changes & Conversions

Presentation by David J. Sangree, MAI, CPA, ISHC

Year Occ % change ADR % change REVPAR % change 2012 56.6% 1.1% $86.27 1.8% $48.85 2.9% 2013 58.5% 3.4% $89.59 3.8% $52.44 7.4% 2014 60.6% 3.6% $95.01 6.1% $57.60 9.8% 2015 63.2% 4.3% $98.58 3.8% $62.32 8.2% 2016 64.3% 1.7% $101.32 2.8% $65.13 4.5% Source: CBRE Hotels Am ericas Research, STR, Q2 2017 Cincinna ti MSA Sum m a r y

Presentation by David J. Sangree, MAI, CPA, ISHC

Date Occ % change ADR % change REVPAR % change Aug-17 66.2% 0.7% 105.56 $ 3.1% 69.93 $ 3.8% Source: STR Cincinna ti MSA YTD Sum m a r y

• 2017 achieving modest occupancy growth and above inflationary ADR

growth

Presentation by David J. Sangree, MAI, CPA, ISHC

Hote l Loca tion Num be r of Room s Ope n Da te AC Hotels by Marriott Cincinnati at Liberty Center Liberty Township 130 Feb 2016 Ham pton I nn & Suites by Hilton Cincinnati Kenwood Cincinnati, OH 118 Feb 2016 Ham pton I nn by Hilton Cincinnati Blue Ash Blue Ash, OH 118 Jun 2016 Ham pton I nn & Suites by Hilton Cincinnati Mason Mason, OH 112 Jun 2016 Hom e2 Suites by Hilton Cincinnati Liberty Township Center Liberty Township 91 Aug 2016 Hotel Cov ington Cov ington, KY 114 Aug 2016 Fairfield I nn & Suites Cincinnati Uptown Univ ersity Area Cincinnati, OH 115 Sep 2016 The Blu Hotel, An Ascend Collection Hotel Blue Ash, OH Unchanged Oct 2016 Holiday I nn & Suites Cincinnati Cincinnati, OH 117 Dec 2016 Ham pton I nn & Suites by Hilton Newport/ Cincinnati Newport, KY 122 Dec 2016 Aloft Newport on the Lev ee Newport, KY 144 Jan 2017 Best Western Plus Cincinnati Riv erfront Downtown Cov ington, KY 20 Jun 2017 Hy att Place Sharonv ille Conv ention Center Sharonv ille, OH 119 Jun 2017 SpringHill Suites Cincinnati Blue Ash Blue Ash, OH 100 Jul 2017 Residence I nn Rook wood Ex change Cincinnati, OH 118 Sep 2017 Hom e2 Suites by Hilton Florence Florence, KY 109 Sep 2017 AC Hotels by Marriott The Bank s Cincinnati, OH 171 Oct 2017 Holiday I nn Ex press & Suites Wilder Wilder, KY 93 Q1 2018 The Sum m it, A Dolce Hotel Madisonv ille, OH 239 Q1 2018 Hom ewood Suites by Hilton Oak ley Station Cincinnati, OH 108 Q1 2018 The Ly tle Park Hotel, Autograph Collection by Marriott Cincinnati, OH 106 Q2 2018 The Cincinnatian Hotel, Curio Collection by Hilton Cincinnati, OH Unchanged Q2 2018 Sonesta ES Blue Ash Blue Ash, OH Unchanged Q2 2018 Tota l 2 ,3 6 4 Source: Hotel & Leisure Adv isors

Cincinnati MSA Hotel Supply Changes & Conversions

Presentation by David J. Sangree, MAI, CPA, ISHC

Year Occ % change ADR % change REVPAR % change 2012 62.0% 3.8% $85.74 5.5% $53.14 9.5% 2013 62.1% 0.3% $89.81 4.7% $55.80 5.0% 2014 63.0% 1.4% $94.07 4.8% $59.28 6.2% 2015 64.8% 2.9% $99.26 5.5% $64.38 8.5% 2016 65.9% 1.7% $101.93 2.7% $67.18 4.4% Source: CBRE Hotels Am ericas Research, STR, Q2 2017 Colum bus MSA Sum m a r y

Presentation by David J. Sangree, MAI, CPA, ISHC

Date Occ % change ADR % change REVPAR % change Aug-17 67.0% 0.1% 103.55 $ 2.0% 69.40 $ 2.1% Source: STR Colum bus MSA YTD Sum m a r y

• 2017 will finish with stable occupancy and ADR will be consistent with

inflationary growth

Presentation by David J. Sangree, MAI, CPA, ISHC

Hote l Loca tion Num be r of Room s Ope n Da te Ham pton I nn & Suites New Albany Colum bus New Albany 114 Feb 2016 Staybridge Suites University Area OSU Colum bus 90 Sep 2016 Courtyard Colum bus OSU Colum bus 135 Oct 2016 Ham pton I nn & Suites Colum bus Scioto Downs Lockbourne 118 Mar 2017 Autograph Collection Hotel LeVeque Colum bus 149 Mar 2017 Courtyard Colum bus Grove City Grove City 104 Aug 2017 Residence I nn Colum bus OSU Colum bus 114 Aug 2017 Marriott Colum bus OSU Colum bus 240 Aug 2017 Staybridge Suites Colum bus Polaris Polaris 119 Sep 2017 Hom e2 Suites by Hilton Dublin, OH 129 Sep 2017 AC Hotel by Marriott Colum bus Dublin Dublin 150 Sep 2017 Aloft Hotel Westerville Westerville 99 1Q 2018 Hom e2 Suites by Hilton Colum bus Airport East New Albany 90 1Q 2018 Renaissance Hotel & Conference Center Westerville 224 2Q 2018 Hom e2 Suites by Hilton Colum bus Downtown Colum bus 107 2Q 2018 BrewDog Hotel Canal Winchester 125 4Q 2018 Canopy by Hilton Downtown Colum bus Colum bus 168 1Q 2019 Aloft Hotel Colum bus 164 1Q 2019 Moxy Hotel Short North Colum bus 111 2Q 2019 Tota l 2 ,5 5 0 Source: Hotel & Leisure Advisors

Columbus MSA Hotel Supply Changes & Conversions

Presentation by David J. Sangree, MAI, CPA, ISHC

Year Occ % change ADR % change REVPAR % change 2012 55.6% 0.2% $71.41 3.8% $39.67 4.0% 2013 54.3%

• 2.2%

$73.79 3.3% $40.08 1.0% 2014 57.3% 5.4% $76.06 3.1% $43.55 8.7% 2015 61.1% 6.6% $77.31 1.7% $47.21 8.4% 2016 63.3% 3.6% $81.39 5.3% $51.48 9.1% Source: CBRE Hotels Am ericas Research, STR, Q2 2017 Da y ton MSA Sum m a r y

Presentation by David J. Sangree, MAI, CPA, ISHC

Date Occ % change ADR % change REVPAR % change Sep-17 64.6%

• 1.7%

85.75 $ 4.8% 55.36 $ 3.0% Source: STR Da y ton MSA YTD Sum m a r y

• 2017 will finish with a decline in occupancy and ADR will be above

inflationary growth

Presentation by David J. Sangree, MAI, CPA, ISHC Hote l Loca tion Num be r of Room s Ope n Da te Mills Park Hotel Yellow Spring 28 Apr 2016 Springhill Suites Dayton Beavercreek Beavercreek 118 Sep 2016 Springhill Suites Dayton North Dayton 91 Dec 2016 Dayton Grand Hotel (closed) Dayton

• 184

Jan 2017 Staybridge Suites Miam isburg Miam isburg 109 May 2017 Holiday I nn Express Dayton Dayton 95 Q4 2017 Hom e2 Suites by Hilton Dayton Vandalia Dayton 106 Q2 2018 Fairfield I nn & Suites Water Street Dayton 115 Q4 2018 Tota l 4 7 8 Source: Hotel & Leisure Advisors

Dayton MSA Hotel Supply Changes & Conversions

Updated October 18, 2017

Presentation by David J. Sangree, MAI, CPA, ISHC

Occ ADR RevPAR Occ ADR RevPAR Occ ADR RevPAR United States 65.5% 120.01 78.63 65.5% $123.97 $81.19 67.4% $127.14 $85.70 Ohio 60.2% 94.59 56.98 59.7% $97.40 $58.16 62.2% $97.99 $61.00 Cleveland 62.9% 102.45 64.49 61.2% $109.39 $66.95 60.9% $105.30 $64.15 Cincinnati 63.2% 98.58 62.32 64.3% $101.32 $65.13 66.2% $105.56 $69.93 Colum bus 64.8% 99.26 64.38 65.9% $101.93 $67.18 67.0% $103.55 $69.40 Dayton 61.1% 77.31 47.21 63.3% $81.39 $51.48 64.6% $85.75 $55.36 Source: STR YTD 2017 Com pa r ison of Ohio Citie s to Sta te a nd Na tiona l Pe r for m a nce 2015 2016

Presentation by David J. Sangree, MAI, CPA, ISHC

• Ohio performance lags behind the nation for occupancy and ADR
• Cincinnati and Columbus offer the strongest of Ohio’s four markets

in terms of ADR and Occupancy

• Cleveland has experienced the most supply growth in recent years,

which accounts for its lower performance figures

• Cincinnati, Columbus, and Dayton have all seen steady supply

growth over the past three years

• All Ohio markets expect continued supply additions, which will

impact overall performance metrics heading into 2018 and beyond

Presentation by David J. Sangree, MAI, CPA, ISHC

• H&LA is tracking proposed new hotel development in each major

Ohio market:

• Cincinnati: 20 projects
• Cleveland MSA: 18 projects
• Columbus: 25 projects
• Dayton: 7 projects
• Numerous proposals for hotels in all markets will affect demand

and overall occupancy levels

Presentation by David J. Sangree, MAI, CPA, ISHC

Ye a r

• No. of Room s

Gr owth Ra te 2014 63,468

• 2015

82,094 29.3% 2016 99,872 21.7% 2017 (Forecast) 114,906 15.1% 2018 (Forecast) 133,880 16.5% 2019 (Forecast) 137,393 2.6% Source: Lodging Econom etrics

Hotel Openings 2 0 1 4 - 2 0 1 8

Presentation by David J. Sangree, MAI, CPA, ISHC

STR CBRE PwC STR CBRE PwC Supply 2.0% 1.9% 1.9% 2.1% 2.0% 1.9% Dem and 2.0% 2.2% 2.1% 1.9% 2.0% 1.6% Occupancy 0.0% 0.3% 0.1%

• 0.2%
• 0.1%

0.0% ADR 2.3% 2.5% 2.1% 2.5% 2.3% 2.1% RevPAR 2.3% 2.8% 2.3% 2.3% N/ A 2.0% Source: STR/ CBRE/ PWC 2 0 1 8 2 0 1 7

I ndustry Forecasts

Presentation by David J. Sangree, MAI, CPA, ISHC

Hotel and Leisure Property Appraisals have Unique Challenges

• Going concerns
• Very management intensive
• Hotels and waterparks have new customers every single day as

compared to apartments and office buildings which have annual leases

• Waterparks are riskier than hotels as they are entertainment-based

leisure real estate and are seasonal

Presentation by David J. Sangree, MAI, CPA, ISHC

Econom ics and Dem ographics When gathering economic and demographic data, the appraiser should look within a market of the subject property and gather the following data:

• Population trends
• Household growth
• Household economics
• Area economics
• Area transportation
• Major employers
• New Developments

Presentation by David J. Sangree, MAI, CPA, ISHC

• A thorough market analysis of the local hospitality and resort market is

an essential component of a hotel appraisal

• The value conclusion will depend heavily upon the data gathered for

this section

• Market research encompasses a large range of data
• Requires interviews with various competitors, brokers, CVB, and other

knowledgeable people in the market

Presentation by David J. Sangree, MAI, CPA, ISHC

Smith Travel Research Trend report profiles the daily, monthly, and annual occupancy, average daily rate, and RevPAR of a market area. The information is used to answer the following questions:

• Existing competitors: How many competitors exist in the market? To what

degree are they competitive? How have they performed in past years in terms of

• ccupancy, ADR and RevPAR?
• Recent hotel openings: How many hotels have opened in the past few years in

the market?

• Potential hotel openings: How many hotel projects are in the works? What types
• f hotels will they be? How many rooms? What is their projected impact?
• Market segmentation and market penetration: What is the market segmentation

and penetration of each competitor in the market?

• Projections: Synthesize the data gathered in the previous steps and project the

performance potential for the subject property. Based on the current market situation, is the subject likely to perform well in terms of occupancy and ADR? What are its potential penetration rates and market segmentation?

Presentation by David J. Sangree, MAI, CPA, ISHC

Information specific to the subject property is collected in the following areas.

• Financial data: When appraising an existing property one needs to interview the

management and obtain historical financial statements from them. For a proposed property, the interview will be with the developer, and the appraiser will need to obtain the financial forecast and the development budget.

• Performance data: If the property is existing, historical market segmentation

reports, usage figures, and other performance statistics are needed.

• Physical plant information: For an existing property one will look at the building
• plans. For a proposed property, the appraiser will obtain the architectural plans.
• Governmental impacts: The subject’s ad valorem taxes, zoning information, sales

history, governmental restrictions, environmental regulations and other factors which may affect the subject property should be collected.

Presentation by David J. Sangree, MAI, CPA, ISHC

• The discounted cash flow (DCF) analysis is most appropriate for hospitality

properties

• The appraiser should analyze and estimate various revenue and expense

departments in determining the projected net operating income and value for the property

• Direct capitalization approach appropriate for stabilized property only
• Capitalization and discount rates are higher for hotels than apartments and other

commercial real estate (even higher for waterparks)

• Franchise fee, management fee, reserve for replacement should be deducted for

a hotel analysis

• Many data sources – STR, CBRE, PwC, etc.

Presentation by David J. Sangree, MAI, CPA, ISHC

• Because of this heavy reliance on market data, this approach is more difficult for

properties with limited sales in the immediate area, but there is a lot of hotel sales data available regionally. Limited sales data available for many leisure properties such as waterparks.

• When using the sales comparison approach, the appraiser should fully analyze

sales of comparable quality.

• Information should be obtained on sale price, historical performance, occupancy

and ADR or per capita spending, financial performance, renovation cost information, amenity offerings of the property, and special circumstances concerning the sale.

• Once the sales data have been fully analyzed, the appraiser will probably find a

wide range of values.

• Use an adjustment grid to account for differences in location, size of the property,

time and circumstances of the sale, etc.

Presentation by David J. Sangree, MAI, CPA, ISHC

• The cost to replace the improvements is estimated. Once replacement costs are

determined, a deduction is made for any depreciation. The result is then combined with the estimated value of the underlying land. This approach is most appropriate when appraising a proposed development where development budgets and land cost are available.

• It is typically not appropriate for an older hotel due to the difficulty in estimating

depreciation.

Presentation by David J. Sangree, MAI, CPA, ISHC

All three approaches to value are reconciled to a final value conclusion:

• The income approach is generally given greatest consideration, while the sales

comparison approach and the cost approach support the value conclusion

Presentation by David J. Sangree, MAI, CPA, ISHC

Breakdow n of the Going Concern

• Personal Property
• Real Estate
• Business Value

David J. Sangree, MAI , CPA, I SHC Hotel & Leisure Advisors, LLC Phone: 2 1 6 -8 1 0 -5 8 0 0 dsangree@hladvisors.com w w w .hladvisors.com

Presentation by David J. Sangree, MAI, CPA, ISHC