HomeMy WebLinkAbout4.a. Hotel Market Study DiscussionEXECUTIVE SUMMARY
Port Authority Meeting Date: June 16, 2015
AGENDA SECTION:
AGENDA ITEM: Hotel Market Study Discussion
New Business
PREPARED BY: AGENDA NO.
Kim Lindquist, Deputy Director4.a.
ATTACHMENTS: APPROVED BY:
2010 Hotel Market Study ddj
RECOMMENDED ACTION:
Discussion
ISSUE
Recently the City sent four representatives to the ICSC conference. Several of the discussions at the
conference related to attraction of a hotel to the community. It was noted that attraction could be more
successful if the City could show there is a market for a hotel in the area. In 2010, the City conducted a
market study and forwarded that study to numerous hotel providers. The price of the Study was $5865. At
that time the market was still recovering from a poor economy although ultimately led to the formal
application for the Country Inn Suites, which was never built. The current economic climate is better and
Port Authority members indicated they may wish to update the study to facilitate hotel attraction.
As noted at the last meeting there was interest expressed at several of the ICSC meetings from various
ownership of a hotel. This raises the issue the City previously experienced with the Country Inn Suites
The Port Authority indicated they would like to discuss hotel attraction and whether they should consider
updating the existing study or obtaining a new study from a different consultant.
RECOMMENDATION
Rosemount.
HMI Inc.
COMMUNITY OVERVIEW
MARKET STUDY REPORT
ROSEMOUNT, MINNESOTA
OCTOBER, 2010
Management
Research
Marketing
Prepared Exclusively For:
City of Rosemount
Ms. Kim Lindquist, Director
Member of
Community Development
Professionally Serving the
Prepared By:
United States & Canada for Over
28 Years with Offices in
Milwaukee, Wisconsin and
Hospitality Marketers International, Inc.
Fort Myers, Florida
Gregory R. Hanis, ISHC
President
5415 S. Majors Drive
New Berlin, WI 53146
Michael R. Hool, CPA, ISHA
President, SHR
10014 Majestic Avenue
Fort Myers, FL 33913
An HMI Network Representative
800-657-0835
Fax: 239-245-8161
hmi@hospitalitymarketers.com
www.hospitalitymarketers.com
Hotel Service Network
TABLE OF CONTENTS
Rosemount, Minnesota
Introduction/Objective...................................................................1-2
General Market Description..........................................................3-4
-Geographic Market Location
-General Market Characteristics
-Exhibits
Site Analysis ................................................................................5-6
-Site Characteristics
Economic Overview....................................................................7-12
-General Economic Characteristics
-Economic Data
-Employment Data
-Transportation
-Air Service
Lodging Demand......................................................................13-19
-Market Segmentation
-Market Segmentation Profiles
-Lodging Demand Potential Index
-Seasonality of Lodging Demand
-Rate Sensitivity
-Feeder Markets
-Unaccommodated Lodging Demand
Lodging Supply.........................................................................20-24
-Competitive Lodging Supply
-Projected Occupancy and Average Daily Room Rate
-Competitive Factor Analysis
-Competitive Operating Performance
Issues and Risks......................................................................25-27
-Competitive Pricing Pressures
-Growth in Lodging Supply
-Growth in Lodging Demand
-Support Services
-Property Taxes
-Political Climate
-Environmental Concerns
-Zoning and Architectural Concerns
-Labor Market, Supply and Wages
-Area of Franchise protection
Conclusions..............................................................................28-35
-Projected Property Performance
-Projected Performance
-Occupancy
-Average Daily Room Rate
-Projected Revenue
-Preliminary Operational Proforma
-Benchmark Development Cost Factor
-Property Recommendations
-Property Type
-Property Size
-Property Amenities
-Sleeping Room Configuration
-Brand Affiliation
-Rate Strategy
-Opening Date
EXHIBITS
EXHIBIT 1 - Geographic Relationship of the Subject
Market to the Greater United States
Including the Regional Market
EXHIBIT 2 - Subject Market Relationship to the State of
Minnesota and the Regional Area Including
the Regional Market
EXHIBIT 3 - Geographic Relationship of the Subject
Market to the Southern Minneapolis/St. Paul
Metropolitan Area Including the Locations of
the Primary Competitive Hotels
EXHIBIT 4 - Location of the Subject Site for the Proposed
Hotel as well as Other Key Factors in the
Greater Rosemount Market Area
Exhibit 1: The geographic location of Rosemount, Minnesota in relation to
the United States.
Exhibit 2: The Subject Site in relation to the State of Minnesota and the
Regional Area. The Regional Market Area Served is also shown.
Exhibit 3: The Subject Site in relation to the Minneapolis/St. Paul Southern
Metro Area and the Primary Competitive Hotels.
Exhibit 4: The Greater Rosemount Area
INTRODUCTION/OBJECTIVE
Hospitality Marketers International, Inc., (HMI) has been engaged to provide this
Community Overview Market Study for a possible development of a hotel facility in
the Rosemount, Minnesota market area. The site being considered isin the
southwest quadrant of the intersection of County Road 42 and State Highway 3 in
the Rosemount area. This site will be reviewed in this market study. The scope of
this market research is to determine the market’s ability to support a hotel project.
Based upon this research, recommendations will be provided for possible hotel
development.
A representative from Hospitality Marketers International, Inc. met with
representatives of the community and the surrounding area to gather information
pertinent to hotel development and operation in the community. Comprehensive
research was performed and reviewed regarding the community’s economic
indicators, competitive Lodging Supply, and Lodging Demand generators. HMI
conducted field research to determine the relationship between the community and
the proposed facility’s Lodging Supply competitors and Lodging Demand generators.
Economic indicators were studied to determine the stability and future growth
potential of the general market area. The research that was conducted focused on
both a macro- and micro-market analysis of the Dakota County market as well as the
Rosemount market to determine their viability to support the proposed hotel.
This Community Overview Market Study Report will present preliminary projections
for stabilized hotel operation based upon current operating performance in the
market area. Occupancy, Average Daily Room Rate, and Sales Revenue projections
for the hotel were based upon a detailed review of the field research data and
preliminary estimates of Average Daily Room Rate, Lodging Demand, and Lodging
Supply Growth. Also, preliminary recommendations as to the site location, property
type, property size, brand affiliation, and services and amenities to offer are included.
These preliminary projections and recommendations were based upon the market
demand research for the proposed facility.
This report is a Community Overview Market Study Report of the market area and its
ability to support the proposedhotel operations. This report may or may not be
acceptable for external investing and/or lending purposes and would depend upon
financial requirements and the desire for more specific information concerning the
market’s ability to support this hotel. More specific multi-year operational
performance projections and more specific community research may also be
required by investors and lenders for a specific hotel development. Thus, a
Comprehensive Market Study may be necessary. Hospitality Marketers
International, Inc. would assist a proposed hotel developer in expanding this report
into the required Comprehensive Market Study Report.
1
This report could be expanded, at a later date by a potential developer, to a
Comprehensive Market Study of the subject area. The Comprehensive Market Study
would provide more specific and comprehensive supportive information, statistical
data, observations, and research on the market. Also, more detailed property
recommendations and operational projections of property performance would be
presented.
2
GENERAL MARKET DESCRIPTION
GEOGRAPHIC MARKET LOCATION
Rosemount, Minnesota is located in the center of Dakota County
approximately 13.5 miles south of downtown St. Paul, the state capital of
Minnesota. It is also approximately 10.5 miles south/southeast of the
Minneapolis/St. Paul International Airport.
Rosemount is situated in the southeast part of the State of Minnesota,
approximately ten miles west of Hastings and approximately 16.5 miles
southeast of downtown Minneapolis.
It is accessed via County Road 42 which travels east/west through the
community to Apple Valley (State Highway 77) and Burnsville (I-35) to the
west and to U.S. Highway 52 to the east. Also, State Highway 3 runs
north/south through the community connecting with St. Paul to the north and
Northfield to the south.
Rosemount can also be accessed via U.S. Highway 52 that runs north/south
on the eastern side of the community connecting with St. Paul and
Interstates 494 and 94 as well as to Rochester and Interstate 90 to the south.
GENERAL MARKET CHARACTERISTICS
The Rosemount market is located at the southern end of the Minneapolis-St.
Paul-Bloomington metropolitan area. This area has experienced significant
residential growth in recent years with the Population experiencing an
estimated growth rate of 55.6% from 2000 through 2009.
Retail growth has been less robust due to significant retail facilities being
located in the adjacent communities of Apple Valley to the west and Eagan
to the north.
Retail in Rosemount is primarily located in two areas, in the downtown area
and along County Road 42 west of State Highway 3. The downtown retail is
primarily smaller local style shops while the retail along County Road 42 is
medium sized strip mall type facilities.No large big box retailers are located
here at this time.
Thus far, Rosemount has developed as a commuter community with
residents working in many of the corporate locations in either Eagan,
immediately to the north, or to other locales in the Minneapolis-St. Paul-
Bloomington metropolitan area.
Approximately two-thirds of Rosemount’s space is undeveloped (primarily on
its east and south sides), enabling it to maintain a more rural character with a
3
small town feel and not having its identity merged into the gradually occurring
metropolitan suburban sprawl.
The community is committed to maintaining the historic downtown area.
The eastern one-third of Rosemount, while currently being primarily
agricultural land, is home to the largest employer, Flint Hills Resources, a
refinery that serves the Twin Cities and is located on U.S. Highway 52.
The Dakota County Technical College (DCTC) is located approximately two
miles east of the intersection of State Highway 3 and County Road 42 and is
a major employer and potential Lodging Demand generator.
There are numerous areas identified for developing commerce industrial
parks along County Road 42 as well in the eastern part of the community
around U.S. Highway 52. At this time, small to mid-size companies appear
to be found in this market.
The “U More Park”, a University of Minnesota outreach agricultural area, is
located approximately two miles east of State Highway 3 along County Road
42 on the south side. Multiple development concepts have been discussed
for this land including an $8 million wind turbine research project, a
university-led business park, and housing over the next ten years.
There are numerous parks in the area that offer recreational activities such
as hiking and biking, along with youth/amateur sports activities involving
softball, soccer, hockey and baseball.
EXHIBITS
The following exhibits describe the geographic location of this market and subject
site.
Exhibit 1 of this report shows the geographic relationship of the subject
market to the Greater United States. The regional market is also highlighted.
Exhibit 2 of this report relates the subject market to the State of Minnesota
and the regional area. The regional market is also highlighted.
Exhibit 3 of this report shows the geographic relationship of the subject
market to the southern Minneapolis/St. Paul Metropolitan area. Also
highlighted are the locations of primary competitive hotels in Eagan, Apple
Valley and Inver Grove Heights, which serve the Rosemount market.
Exhibit 4 of this report shows the location of the subject site for the proposed
hotel as well as other key factors in the greater Rosemount market area.
4
SITE ANALYSIS
This section of the report highlights the geographic site identified for the proposed
hotel facility. Key elements of the site will be discussed including Visibility,
Accessibility, Support Services, and Competitive Position.
Discussions with city personnel indicated that one specific site was under
consideration, the southwest corner of the intersection of County Road 42 and State
Highway 3. In addition, the general area along U.S. Highway 52 in proximity to the
intersection with County Road 42 was also an area to consider for the site. The
following is an analysis of this site area. See Exhibit 4 of this report for the location of
this site and how it relates to key elements in the Rosemount market area.
The area along U.S. Highway 52 in proximity to the intersection with County Road 42
was eliminated. It is felt that these sites lacked the dynamics to support hotel
development including close proximity to restaurants, gas/convenience stores and
retail. It was felt that the State Highway 3 and County Road 42 intersection area
provided support services, entertainment, restaurants and retail activity.
A review of the key elements for the site at the southwest quadrant of the intersection
of County Road 42 and State Highway 3 included the following:
SITE CHARACTERISTICS
At 5.85 acres, this site is sufficient to develop a modest sized limited-service
hotel as well as a pad for other potential development.
The site appears to be relatively flat, requiring minimal grading/land
preparation, and is right at the above referenced intersection, providing it
with excellent visibility to traffic on both routes covering east/west and
north/south.
The site’s location on these two main routes will also provide it with excellent
access to traffic arriving to the area on the two main access routes to
Rosemount.
Support services are numerous in the area. On the north side of County
Road 42 there is a shopping area that includes an Aldi, a Starbucks, other
smaller retail and a restaurant. West on County Road 42, beginning almost
immediately and all on the south side, there is a wide variety of restaurants
including McDonald’s, Burger King, Applebee’s, Pizza Hut, Wendy’s and
others. Retail includes a Walgreens, Cub Foods, Blockbuster, Goodyear
and a Holiday gas/convenience store.
5
Across State Highway 3 on its east side after crossing the railroad tracks is
the Rosemount Business Park. The northeast quadrant of the intersection is
vacant with single family residences east and north of it.
Environmental factors were not studied within the scope of this report. The
future developer should conduct the necessary environmental testing to
assess the viability of the site for hotel development. Environmental
concerns include, but are not limited to, water drainage, water seepage, flood
plain, previous use, contamination, and soil integrity.
Zoning and architectural control issues were not researched in depth for
these sites. The developer should research these accordingly with the
appropriate agencies. At this time, zoning appears to be commercial in the
area of the subject site due to surrounding commercial development and is
not perceived to be a problem at any of the sites. Also, architectural controls
at the sites should be within normal requirements set by the city.
The competitive position places this site at a central location within
Rosemount in close proximity to many support services. Its location at the
intersection of two primary traffic arteries in Rosemount provides great
visibility to those arriving via either route as well as easy access to
communities to the south such as Northfield and visitors to that community
who require overnight lodging. The site is relatively close to DCTC as well
as U More Park with the University of Minnesota, however, the site is an
estimated three miles from U.S. Highway 52 and Flint Hills Resources, the
largest employer in the city. This distance will suggest the need to provide a
complimentary shuttle van for guests.
6
ECONOMIC OVERVIEW
This section describes the preliminary general economic conditions observed in this
area through various research sources.
GENERAL ECONOMIC CHARACTERISTICS
The Rosemount area is driven by several economic factors. The
community’s residential base has been growing over the past several years
(55.6% from 2000 to 2009). This growth is due, in part, to the sprawl of the
Bloomington and southern Minneapolis/St. Paul metropolitan area.
However, there has also been growth within the community. The quality of
life in the Rosemount area and the character of the community has attracted
residential growth. There is substantial vacant land available for additional
residential development.
The community is developing a base for industrial growth in the Rosemount
Business Park just east of the subject site. Current companies are small in
nature. However, there is room for additional growth and attracting larger
companies in the future.
There are several key venues that draw external economic impact to the
area and are outlined below.
Flint Hills Resources is a refinery complex that services the Twin cities
o
metropolitan area and is on the national security watch list. It is the
largest employer in Rosemount. It has an estimated five to ten visitors
per week year-round and 500 to 1,000 contract workers in for three to six
weeks twice a year.
DCTC is a growing campus with an estimated 2,000 individuals in over
o
the year for two nights training for GM and Chrysler and discussions
indicated that this is expected to grow. Also, this collegiate facility has a
growing involvement in sports tournaments that generates an estimated
700 room nights room nights this year and is expected to grow.
Also, there is a youth/amateur sports market operating in Rosemount
o
that is attracting teams on a regional basis.
Rosemount appears to be poised for future growth. It is positioned for
growth as the communities of Eagan and Apple Valley fill in as the Twin
Cities suburban sprawl continues to move south and east. Future growth
should be expected in industry, commerce, retail and housing. Professional
services will also develop to support this growth.
7
ECONOMIC DATA
The Population of Rosemount was estimated at 20,956 people in 2008. This
is up from 14,619 people in the 2000 census and reflects an annual growth
rate of 5.4%. The Dakota County area had an estimated Population of
398,487 in 2008. Rosemount represents 5.3% of the County’s Population.
In the 2000 census, the County had a Population of 355,904 people. This is
a growth rate of 1.5%. The City appears to be growing at a rate three times
faster than that of the County. In 2000, Rosemount represented 4.1% of the
County’s Population.
The Number ofHouseholds estimated in Rosemount in 2008 in the 2006-
2008 American Community Survey was 7,341. This is up from 4,845 in
2000, for an annual growth rate of 6.4%. During this same period, the
County’s Number of Households grew at an annual rate of 1.9%. The City is
growing at a rate more than three times as fast as the County. In 2008, it is
estimated that the City had 4.9% of the County’s Households. In 2000, this
percentage was 3.9%.
The Per Capita Effective Buying Income in the Rosemount area was not
available. In Dakota County, the Per Capita Effective Buying Income was
reported at $25,851 in 2008. This represents a yield of 115.2% to the State
of Minnesota Effective Buying Income. The average annual growth in Per
Capita Effective Buying Income for the County, from 1998 to 2008, has been
2.4% per year for the past ten years. This is below the State of Minnesota
annual growth rate of 3.1%.
In the 2000 census, the Per Capita income was reported at $23,116 in
Rosemount. In the County it was $27,008. This indicates that the County
had a 16.8% higher Per Capita Income in 2000. The Per Capita Income for
the City was estimated at $33,317 in 2008, yielding an average annual
increase of 5.5%. Based on the most recent statistics, this would indicate
that the estimated Per Capita Income in Rosemount in 2008 was 3.5%
higher than the amount estimated for the County at $32,155. It appears that
the City has surpassed the County in the last eight years based upon
estimated data, a potentially positive factor.
Detailed Retail Sales data for Rosemount was not available. Rosemount’s
retail base currently consists of local residential support retail. Most is
located in the downtown area and on County Road 42 west of State Highway
3. No major malls, big box retailers or destination retail was noted.
Therefore, this analysis could not be completed in detail for Rosemount.
The City of Apple Valley, immediately west has currently developed as the
retail and commercial hub in this area. Extensive retail, including big box
8
stores, is located west of Rosemount along County Road 42 where it
intersects with State Highway 77.This growth has not entered Rosemount
at this time.
Dakota County, which includes Apple Valley, Eagan, Rosemount and
Burnsville, has seen extensive Retail Sales growth. The annual rate of
growth from 1998 to 2008 was 6.6%. In the state, this growth was 6.1%. On
a per capita basis, the Retail Sales in the County represents 65.2% of the
Effective Buying Income. In the State, this ratio is 67.8% and in the United
States, it is 72.5%. These figures are up substantially from 1998 when the
County ratio was only 55.9%, meaning its residents were leaving the County
to shop. However, this would have to be higher than the State or National
averages to indicate potential external economic impact coming to the
County for Retail Sales. Basically, this indicates that the County is serving
its residential base, on average, with the State and Nation. Based on the
retail outlets that are currently located in Rosemount compared to what is
located in the other previously referenced cities in the County, it appears that
Retail Sales in Rosemount currently lags behind those of the County.
Eating and Drinking Place Sales data was also not available for the City.
There are a few restaurants in the immediate area. For a wider selection of
restaurants, diners must go to Apple Valley, Eagan or Burnsville.
Dakota County, which again includes Apple Valley, Eagan, Rosemount and
Burnsville, has seen extensive Eating and Drinking Place Sales growth. The
annual rate of growth from 1998 to 2008 was 11.5%. In the State, this
growth was 8.0%. On a per capita basis, the Eating and Drinking Place
Sales in the County represents 5.6% of the Effective Buying Income. In the
State, this ratio is 6.8% and in the United States, it is 6.9%. These figures
are up substantially from 1998 when the County ratio was only 3.8%,
meaning its residents were leaving the County for dining and entertainment.
The current ratio shows the County’s growth. Again, this would have to be
higher than the State or National averages to indicate potential external
economic impact coming to the County for Eating and Drinking Sales.
Basically, this indicates that the County is serving its residential base. It is
catching up with the other areas in the ratio of sales to income. Based upon
the style and number of restaurants and bars that are currently located in
Rosemount compared to the wide variety that is located in the other
previously referenced cities in the County, it appears that Eating & Drinking
Place Sales in Rosemount currently lags behind those of the County.
9
EMPLOYMENT DATA
In this report, the Employment by Industry was researched to show the depth
of the commerce in the market, however, this information was only available
for Dakota County and not for Rosemount. The proposed hotel would draw
primarily from this industry base. There are numerous other hotels in Apple
Valley, Eagan, Burnsville and Inver Grove Heights that would serve the more
developed areas to the north, west and east of the market.
The Workforce Distribution for the County indicates the following top three
employment industries: 1) Trade Transportation & Utilities (23.9%), 2)
Government (11.9%) and 3) Health Education & Social Services (11.8%).
These three industries represent 47.6% of the community employment. This
is slightly above the national average of the top three industries at 45.7%.
This indicates that the market represents slightly less than average diversity
of employment. It also shows the dominance and importance of the Trade,
Transportation and Utilities industries in the community.
Adding the fourth largest industry, Manufacturing (10.7%), the distribution is
58.3%. This is also slightly above the national average of 55.0%. One of the
contributors to this is most likely Flint Hills Resources, discussed previously
in this report.
Adding the fifth largest industry, Business Professionals (10.5%), the
distribution is 68.8%. This is also above the national average of 62.9%.
Overall, the fact that the employment distribution is slightly above national
averages indicates that employment in the community is not as diverse and
is dominated by multiple industries. The top three industries are good
Lodging Demand generators for any community.
Specific Unemployment data for Rosemount is not available, however, this
information is available for Dakota County. The County shows an average
Unemployment Rate of 4.1% over the past ten year, compared to the State
at 4.7%. This lower trend appears to be the same during all of the past ten
years. Year-to-Date, the County has an Unemployment Rate of 6.9%
compared to the State at 7.3%.
Labor Supply was felt to be adequate to support a hotel development. In
addition to the Labor Supply in Rosemount, the hotel could draw employment
from the broad geographic area of Dakota County. Even with lower
unemployment levels to the State, Labor availability should not be a factor.
There was no shortage of labor currently reported in the market.
Wage pressures were not reported to be a concern in attracting Service
employees for a hotel. Wage competition was indicated as normal.
10
However, there could be some wage pressures from the Trade,
Transportation and Utility sector.
TRANSPORTATION
Access to the area will be via one of three north/south highways and one
east/west route that serves this market. The north/south highways include:
To the west of Rosemount, State Highway 77 connects with interstates
o
494 (relative proximity to the Minneapolis/St. Paul International Airport
and adjacent to the Mall of America) and 35E to the north, which is a
four-lane divided highway from the north until Apple Valley where it has
cross traffic (becomes County Route 23) and intersects with County
Road 42.
State Highway 3, which is primarily a two-lane main route running
o
through downtown and the center of the city that connects to the north
with U.S. Highway 52 and I-494 in Inver Grove Heights and to the south
provides access to Northfield.
U.S. Highway 52, a four lane highway with cross traffic which is on the
o
east side of the city and connects with I-494 and downtown St. Paul to
the north and to Rochester and I-90 to the south. The primary east/west
traffic route is County Road 42, which is four lanes from Apple Valley
where it connects with State Highway 77 until it intersects with State
Highway 3 on the south side of downtown, and then becomes two lanes
further east as it connects with U.S. Highway 52, State Route 55 and on
to the Mississippi River, Hastings, Minnesota and US Route 61.
The traffic counts on State Highway 3 and County Road 42 were analyzed.
On County Road 42 east of State Highway 3, traffic counts indicated there
were approximately 15,300 vehicles per day in this area in 2007. This was
an increase of 3.4%, or 1.7% per year since 2005 when the last count was
taken. West of State Highway 3, there was a (0.6%) decline in vehicles for
the same period or 90.3%) per year.On State Highway 3 north of County
Road 42, the traffic counts were approximately 18,000 vehicles per day in
2007, reflecting an increase of 9.4%, or 4.7% per year. South of County
Road 42, there was a decrease in vehicles of (5.9%) or (2.95%) annually.
These traffic counts ranged from just slightly less than, to dissimilar, to the
annual Population growth rate of 5.4% from 2000 to 2009. Normally traffic
counts increase in proportion to Population growth.
11
Air Service
The closest major commercial airport is the Minneapolis/St. Paul
International Airport. The entrance to the airport is approximately twelve
miles north/northwest of Rosemount. This airport has well-developed
domestic and some international air service with most major domestic
airlines represented. The Rosemount market may be too far away to serve
as an airport market. However, the proximity of the airport to the community
should assist in attracting future economic growth to the area.
In 2009, the Minneapolis/St. Paul airport reported a passenger count of
almost 32.4 million, a decrease from the prior year of 4.9%. Since 2004, the
airport has reported annual decreases in passenger counts ranging from
(1.3%) to (5.4%), with an average decrease of (3.7%).
12
LODGING DEMAND
This section of the report is a brief overview of the Lodging Demand identified for this
market. A Comprehensive Market Study would enhance this information.
MARKET SEGMENTATION
The preliminary Lodging Demand for the proposed hotel is shown in the following
chart.
MARKET SEGMENTATION
SUBJECT
MARKETPROPOSED
PROBABLEPROPERTY
PERCENTPROBABLEMARKET
OF MARKETRANGEMARKETPENET.RANGE
Individual Travel Markets70.0%60.0%-72.5%60.0%85.7%55.0%-62.5
Corporate/Commercial45.0%40%-48%45.0%100.0%40%-48%
Social/Leisure25.0%22%-28%15.0%60.0%12%-18%
Group Markets30.0%25.0%-35.0%40.0%133.3%37.5%-43.5%
Corporate/Commercial20.0%16.0%-24.0%20.0%100.0%17%-23%
Social/Leisure Related10.0%8%-13%20.0%200.0%17%-23%
TOTAL 100.0%100.0%
Source: HMI
At this time, the proposed hotel should expect slightly different Market
Segmentation as the overall market primarily due to the GMC and Chrysler
training taking place at DCTC being considered group corporate business by
this consultant. If it were treated as individual, then it would expect
segmentation similar to the market.Since there is currently no hotel in
Rosemount, the proposed hotel would be positioned to serve a broad range
of Lodging Demand. Also, as a possible mid-priced hotel, it would be able to
adjust rates, facilities and services to accommodate a full range of Lodging
Demand identified for this market.
The strength of this overall Dakota County market would be in the Individual
Corporate/Commercial segment with 45.0% of Lodging Demand. Combined
with the Group Business market, this allocation will be 65.0%of the Lodging
Demand.
The Individual and Group Social/Leisure are estimated to be 35.0% of the
greater Dakota County Lodging Demand.
13
It is estimated that the Rosemount market area will differ slightly from the
overall Dakota County market area as seen in the chart above. There is
anticipated to be a slight shift to the Group Segments and in particular, the
Social/Leisure Groups, which is primarily due to the lack of major
Corporate/Commercial demand generators as compared to the areas of
Eagan and Apple Valley.
MARKET SEGMENTATION PROFILES
The following chart details the diversity of Lodging Demand identified in this market.
MARKET SEGMENTATION PROFILES
Demand Potential
ransent = uect
TiTSbj
Extended= EProperty
Group= GPotential
Corporate/Commercial Markets
Area Companies
AdministrationT, G, EAverage
Sales & MarketingT, GAverage
Visiting Customers & ClientsTAbove
Human ResourcesT, EAverage
Product TransportationTAverage
Contract Workers - Flint HillsEAverage
Vendors & Suppliers to Local MarketTAverage
Meetings and Seminars
CorporateGAverage
Training Groups - DCTCGAbove
Inventory and Auditing CompaniesG, EAverage
Potential Average
Social/Leisure Markets
Visiting Friends & RelativesTAbove
US Highway 52 TravelersTBelow
Area Sites, Activities & RecreationTBelow
Relocation-Real EstateT, EAverage
Distressed Social-Interim HousingT, EAverage
Social, Military, Educational, Religious, Fraternal (S.M.E.R.F.) Groups
WeddingsGAbove
ReunionsGAbove
OtherGAverage
AssociationGAverage
Amateur Sports
Visiting Teams - DCTC - Softball & Soccer - RegionalGAbove
Visiting Teams - Youth - Baseball, Softball, Soccer & HockeyGAbove
Potential Average
Overall Potential Average
Source: HMI
As described in the above chart, the overall market potential appears to be
about average. However, the Lodging Demand rating is on the higher end of
average at this time. Both the Corporate/Commercial market and the
Social/Leisure market produce slightly above average Lodging Demand.
The following will highlight the ratings in the chart.
14
The Lodging Demand Potential Index will be presented later in this report to
further clarify key Market Segment ratings.
In the above chart, the Corporate/Commercial markets were rated slightly
above average overall. This includes the Individual and Group Market
Segments. The Group Business markets pull this rating up due to the
number of trainees at DCTC from Chrysler and GM that are included here.
The Individual Corporate Commercial market is above average due to the
contract workers that come into Flint Hills twice a year for three to six weeks.
In the above chart, the Social/Leisure market potential, both Individual and
Group, was rated as slightly above average to above average. This is due to
there being no other hotel located in Rosemount resulting in the proposed
hotel being the property of choice for this group business. However it should
be noted that the anticipated total amount of Social/Leisure business is
considered to be less than the Corporate/Commercial business.
The following are key Lodging Demand characteristics of this market.
The Flint Hills Resource Center has the potential to generate significant
Lodging Demand in two areas. First, it was reported that it has five to ten
visitors from Wichita and other sites for overnight visits year-round. Second,
in the spring and fall, 500 to 1,000 contract workers come in for a period of 3
to 6 weeks. This generates significant extended-stay business. This
demand is significant enough that it was reported locals have rental
properties that they rent out to these contract workers.
Dakota County Technical College (DCTC) was reported to generate two
types of group business. First, they generate a conservatively estimated
1,000 room nights due to their training groups for trainees from Chrysler and
GM. It was estimated that there over 900 technicians for GM and double that
amount for Chrysler, however, attendees are both local and regional,
resulting in the estimate of 1,000 room nights. Second, DCTC is very active
in collegiate athletics, hosting softball and soccer tournaments, which this
past year required an estimated almost 700 rooms.
There are three trucking transportation companies located on the eastern
side of Rosemount on U.S. Highway 52. One company reported needing to
house an estimated 5 to 10 drivers for three nights on a weekly basis. The
others reported an estimated two to three room nights per week on average.
The Rosemount Parks Department indicated that they operate multiple
facilities which generate room nights. These range from youth sports
facilities including hockey and soccer that attract teams on a regional basis
15
to a large social hall for weddings and reunions. It was reported that they
host 20 – 30 weddings per year with an average size of 300 attendees.
The Rosemount Business Park is located just east of the proposed site.
Currently, the park is home to smaller companies such as Cannon
Equipment, Webb Properties, Associated Wood Products and Geometrix
Company. There is room for growth within the park.
The University of Minnesota has been awarded a $7.9 million wind energy
research grant through the American Recovery and Reinvestment Act to
develop a wind turbine for wind energy research and education activities in
its U More Park, less than two miles east of the subject site.
Typical area residential demand is present in the market in the form of
visiting friends and relatives as well as group events such as weddings,
reunions, anniversaries, etc. As the Population grows, residential
development could produce Lodging Demand. Also, distressed housing for
funerals, natural disasters, divorces and separations could be present.
LODGING DEMAND POTENTIAL INDEX
Preliminary Lodging Demand Potential is rated at 2.6 or slightly above
average. The yield is 104.0% to average. The reason for this slightly above
average rating is due to the combined effect of there currently being no
lodging facility in the Rosemount market area and the amount of Lodging
Demand currently being generated and having to stay elsewhere.
The proposed hotel’s strength will lie in the overall Group markets. The
Lodging Demand Potential Index in these markets is rated at 3.0, or above
average. The yield is 120.0% to average.
The Social/Leisure group market will be above average in its Lodging
Demand Potential Index at 3.0, or yielding 120% to average. Weddings,
reunions, youth sports as well as collegiate sports from DCTC will provide
the base in this market.
The Individual Social/Leisure markets will be slightly above average with a
2.8 Lodging Demand Potential Index rating. This is a yield of 112.0% to
average. Visiting friends and relatives will produce average Lodging
Demand compared to the residential base in the market. However, tourism
needs to develop to create more impact on this market. As the market
grows, the Real Estate market will grow as well. With additional Retail
development, this will be another market that should provide strength for the
hotel. Continued Residential growth will create the need for more
Professional services to support the community.
16
The training groups at DCTC are what is driving the above average Group
Business market with a 3.0 Lodging Demand Potential Index rating yielding
120.0% to average.
The Individual Corporate/Commercial market reflected a below average 2.1
Lodging Demand Potential Index rating, yielding 120.0% to average. This is
due to the lack of a diversified business base as well as the community’s
proximity to the larger businesses which are located in neighboring Eagan
and Apple Valley. As residential growth in the community continues, both
retail and commercial Lodging Demand generation should grow as well.
SEASONALITY OF LODGING DEMAND
A Seasonality of Lodging Demand analysis was performed. This demand analysis is
based on Lodging Demand performance of the competitive set located in Apple
Valley, Eagan and Inver Grove Heights.
The market’s Seasonality of Lodging Demand patterns are strong. There is
significant strength from March through October with good balance in
Lodging Demand during this period, while incurring a modest dip in April and
May from the strength of the other months during this period.
The strongest month is August with 10.5% of the annual Lodging Demand
followed by July with 10.2%. June has the third highest Lodging Demand at
9.5% of the annual demand. September and October are the next strongest
months with 9.0% of the annual demand. March as well as June through
October all have above average Lodging Demand.
June through August is the strongest quarter with 30.3% of the annual
demand generated during this period. May through October is the strongest
period of the year generating 56.5% of the annual Lodging Demand, which is
typical for the Upper Midwest region of the US.
The weakest month is December with 6.6% of the annual Lodging Demand
which again is typical for the Upper Midwest region of the US.
December through February is the weakest quarter at 20.3%. This is about
average for the region.
Overall, this is a fairly normal seasonal pattern for this part of the Midwest.
RATE SENSITIVITY
In this preliminary analysis, there is evidence of Rate Sensitivity in the
market. It appears to be primarily in the Corporate/Commercial and weekday
markets. The ADR in the market is 11.4% lower than the average single rate
17
in the market. This gap indicates rate discounting in the market. Negotiated
rates for area companies and discounted weekend rates should be
expected.
Rate Sensitivity is anticipated to be much higher in the
Corporate/Commercial market than in the Social/Leisure market. This is
primarily due to anticipated negotiated rates with the larger demand
generators such as GM and Chrysler for the training business at DCTC.
It is anticipated that the Social/Leisure market’s below average Rate
Sensitivity is being and will be mitigated by the youth/amateur sports market
which traditionally uses multiple Occupancy rooms. This tends to keep ADR
higher while lowering per person room costs.
As a result, proper rate positioning will be critical to effectively market this
hotel.
FEEDER MARKETS
The Social/Leisure Feeder Markets for this hotel will be primarily regional.
Exhibit 2 highlights the regional market for the Social/Leisure segment. The
DCTC collegiate sports competitions draw teams and fans from Iowa, Illinois
and Michigan.
The Corporate/Commercial Feeder Markets for the proposed hotel is also
primarily on a regional. The regional technician courses offered at DCTC
draw from the north-central region. The Flint Hills Resources demand is
regional as well as national, attracting contract workers from across the U.S.
as well as locally and regular visitors from other sites including Wichita and
elsewhere from around the U.S.
UNACCOMMODATED LODGING DEMAND
One definition of Unaccommodated Lodging Demand is described as
demand desiring to stay in the market but having to find accommodations in
other areas due to high Occupancy or the lack of available Lodging Supply.
Currently, this type of Unaccommodated Lodging Demand occurs in this
market. With no hotels currently in the immediate Rosemount market area
and with the Lodging Demand Potential indicated in this section, there is the
potential for Unaccommodated Lodging Demand.
The second definition of Unaccommodated Lodging Demand is travelers
desiring to stay in other market areas but staying in the Rosemount market
due to the lack of Lodging Supply in the desired market. Again, with no
hotels in Rosemount, this Lodging Demand does not exist at this time.
18
The competitive set, located in Apple Valley, Eagan and Inver Grove
Heights, achieved monthly Occupancy levels of 75.9% to 82.8% during the
three-month period of June, July and August of 2010. This is a level at which
newer and better hotels may be reaching maximum Occupancy and an
indication that there could be some of this type of Unaccommodated Lodging
Demand if there were a hotel. Also, Northfield, which is twenty miles south
on State Highway 3 and the home to St. Olaf College and Carlton College,
has a limited number of hotels and might require additional hotel rooms
during peak Lodging Demand periods.
19
LODGING SUPPLY
This section of the report describes the primary competitive Lodging Supply that will
affect the subject property, particularly for hotel room usage. A Comprehensive
Market Study would enhance this information.
COMPETITIVE LODGING SUPPLY
Smith Travel Research indicated that there were forty-eight hotels with 3,837
rooms in Dakota County. Discussions with major demand generators
previously identified as well as with the Eagan CVB, indicated that there are
nine primary competitive properties to the proposed hotel development in
Rosemount with 835 rooms in the market area.
Of these hotels, two are economy style hotels with 208 rooms. They
represent 24.9% of the competitive Lodging Supply.One of these two hotels
is an extended-stay style hotel with 104 rooms.
There are six mid-priced hotels with 527 rooms and one upscale hotel with
100 rooms. They represent 75.1% of the primary competitive Lodging
Supply. Of these six hotels, five are traditional mid-priced properties with
449 rooms. They represent 53.8% of the total Lodging Supply. One of these
mid-priced hotels is also an extended-stay style hotel with 78 rooms. The
one upscale hotel has 100 rooms.
The two extended-stay style hotels total 182 rooms or 21.8% of the total
rooms in the competitive set.
The average sized hotel in the market/competitive set is 92.8 rooms. In the
economy product category the average property size is 104 rooms and in the
mid-priced category the average size is 87.8 rooms. The average size of the
extended-stay style hotels was 91.0.
All of the hotels are regionally or nationally branded. A strong regional or
national brand affiliation is recommended for the proposed hotel. This would
assist in positioning the hotel in the market and allow the hotel to compete in
the broader market area.
20
PROJECTED OCCUPANCY AND AVERAGE DAILY ROOM RATE
The following chart highlights the competitive rate structure currently in this market.
COMPETITIVE HOTEL OCCUPANCY & RATES
Occ.RATE ANALYSISPROJECTED
PROPERTYPerform.SINGLEDOUBLEWEEKENDCORP.ADR
Apple Valley
AmericInnAverage$75-$87$75-$87$89-$113Same$73.00
GrandStay SuitesAverage$89-$109$89-$109$89-$109Same$82.17
Eagan
BW Dakota RidgeAverage$81-$90$81-$90$72-$80Same$68.64
Country Inn & SuitesAbove$94-$114$94-$114$101-$139Same$84.00
Days InnAverage$61-$82$61-$82$61-$79Same$56.60
Extended StayAverage$63-$80$63-$80$58-$75Same$55.20
Hilton Garden InnAbove$85-$100$85-$100$93-$110Same$86.13
Holiday Inn Express&SuitesAverage$97-$105$97-$105$77-$93Same$74.40
Inver Grove Heights
AmericInnAverage$70-$80$70-$80$80-$100Same$70.13
COMPETITIVE MARKET AVERAGE DAILY ROOM RATE (ADR):$71.56
Source: HMI
In this preliminary review of the market rates, there are three rate tiers
operating in the market.
The first tier is the highest at $82 to $86. There are three hotels in this
o
tier.
The next rate tier is the $68 to $74 range with four hotels.
o
The last tier is the $55 to $57 range with two hotels.
o
The suggested preliminary rate positioning for the proposed hotel in
Rosemount is at the middle of upper half of the all the rate tiers in the
market. This positioning would be verified in more detail in a more
comprehensive market study when a specific hotel brand is identified.
21
COMPETITIVE FACTOR ANALYSIS
A Competitive Factor Analysis was performed to determine the competitive
environment and positioning of the hotel.The competitive hotels used for rate
positioning were the basis for this analysis. The following chart will highlight the
competitive factors of these hotels. This rating is based upon a scale of 0 to 5 with
2.5 being average and 5 being the highest rating possible.
COMPETITIVE FACTOR ANALYSIS
AGE# OFAAAMKT.COMP.
PROPERTY NAME(Yrs.)ROOMSRATINGRATEFACILITYBRANDLOCAT.SEG.FACTOR
Apple Valley
12.06332.52.52.52.82.4
2.5
AmericInn
3.07832.22.82.02.82.8
2.5
GrandStay Suites
Eagan
27.310832.62.02.52.52.5
2.4
BW Dakota Ridge
8.37832.13.03.52.83.0
2.9
Country Inn & Suites
11.510423.22.02.02.02.0
2.2
Days Inn
13.510423.22.02.02.52.3
2.4
Extended Stay
12.310032.13.53.52.52.5
2.8
Hilton Garden Inn
16.512032.43.03.52.53.0
2.9
Holiday Inn Express & Suites
Inver Grove Heights
12.58032.62.52.52.02.4
2.4
AmericInn
14.62.72.62.62.82.42.52.6
COMBINED RATING
Source: HMI
The Overall Competitive Factor is 2.6, or slightly above average. The
Country Inn & Suites, the Hilton Garden Inn and the Holiday Inn Express &
Suites are the only hotels above average.
The AmericInn and the GrandStay Suites in Apple Valley achieved an
average rating here, primarily due to their location, the closest to Rosemount,
east on County Road 42.
The age of these hotels is an average of 14.6 years. Eight of the nine hotels
are greater than seven years old, indicating that they either have had, or are
likely to incur, their first major renovation due in the first five to seven years.
Three of these hotels have reached their second major renovation period of
twelve to fifteen years, and one is well beyond that. The proposed hotel will
compete with relatively new hotels in the market.
As result of their age, the hotel’s facilities are rated as being above average.
Developing a highly competitive hotel with quality facilities will be necessary
in order to compete in this market.
The quality rating is at 3 diamonds by AAA. Developing a hotel with a similar
quality rating is suggested.
22
Rate competition and positioning were already addressed in this section.
The location factor will be mitigated by the fact that the proposed hotel will be
in Rosemount and not in Eagan, Apple Valley or Inver Grove Heights where
the other hotels are located, making it the most proximate to the demand
generators in Rosemount.
The proposed hotel will directly serve the Rosemount market by attracting
the Lodging Demand identified in this report. It will be the newest as well as
the only hotel in Rosemount. As a result, it should be received as the
premier property in Rosemount and should attract any Unaccommodated
Lodging Demand being displaced elsewhere in the market due to a lack of
accommodations. Its facilities should match the expectations of today’s
travelers. A national or regional brand is advised. This will establish quality
assurance for the hotel. Its rate positioning, as previously defined, should
establish the property as a highly competitive hotel for the market’s Lodging
Demand. Location and easy access to the market will also be critical.
COMPETITIVE OPERATING PERFORMANCE
The operating performance information was obtained from Smith Travel
Research data for the greater Dakota County area. With no hotels in
Rosemount, specific operating performance was unavailable. Operating
performance for competitive hotels in the adjacent cities of Apple Valley,
Eagan and Inver Grove Heights was researched. Data from 2004 through
year-to-date August, 2010 was studied.
Lodging Demand Growth was impacted by the national recession which
began in mid-2008. Lodging Demand increased 3.0% in 2005, decreased
3.4% in 2006, and increased 5.3% in 2007. However, it declined in 2008 by
(5.7%) and by (9.1%) in 2009. Year-to-date Lodging Demand Growth was
up 12.8% for 2010. It appears that the market has stabilized and is enjoying
a strong rebound.
Lodging Supply Growth was strong in this market for the period researched.
Supply increased 10.3% in 2007/2008 with the opening of the 78-unit
GrandStay Suites in Apple Valley. Discussions with local officials did not
indicate new competitive properties under consideration for development in
the market area. The subject hotel will serve the Rosemount market directly
and will capture the Unaccommodated Lodging Demand currently staying at
Apple Valley, Eagan and Inver Grove Heights hotels. With strong demand
growth in 2010, despite the negative impact of the recession, the absorption
rate is 3.7 years.
23
Occupancy data shows the competitive set at its highest in 2005 at 68.7%
with a low of 54.3% in 2009. Year-to-date, Occupancy is up to 63.1% from
55.9% for the same eight-month period in 2009.
Average Daily Room Rate trends showed that the market grew by an annual
average rate of 4.5% for the period 2005 – 2008. It declined by (12.2%) in
2009 and by another (2.4%) in 2010 year-to-date. This decline is no doubt in
response to two factors: the national recession and the 2009 decline in
demand on market rates. However, the decline is showing signs of
stabilizing with a much smaller decrease year-to-date in 2010 than in 2009.
Revenue per Available Room (RevPAR) trends showed that the market grew
by an annual average rate of 4.6% for the period 2005 – 2007. Decreases
were experienced in 2008 of (6.8%) and (20.2%) in 2009. This was due to
the decrease in demand and ADR. Year-to-date, RevPAR is up 10.2% with
a strong increase in demand and a decrease in ADR.
24
ISSUES AND RISKS
The following section of the report deals with topics that should be addressed when
developing a property such as the subject hotel. Many of these topics are common
to hotel development and are addressed here as a matter of due diligence in
evaluating the subject market and subject site for the proposed hotel. Also
highlighted are concerns uncovered during the research for this report that would
directly affect the hotel development. This may require additional research by the
developer when pursuing the development of the property.
COMPETITIVE PRICING PRESSURES
Regarding Competitive Pricing Pressures, this market and the subject hotel
will need to be sensitive to the pricing strategies established in the
competitive market. This market has the potential to be slightly above
average in Rate Sensitivity for the Corporate/Commercial market. Rate
Sensitivity in the Corporate/Commercial market will be due to negotiated
corporate rates. Traditional discounting and rate packaging for weekend
business should be expected. Higher rates during the peak months will
offset some of this Rate Sensitivity.
It is recommended that the subject hotel have the flexibility to increase rates
during peak demand periods and to offer solid price/value at lower rates
during slower demand periods.
A well-positioned, mid-priced hotel product is recommended for this market
positioning. Rate Positioning was addressed in this report. It was
recommended that positioning in the $78 - $84 ADR range (i.e. $81) would
be suggested in 2012 when the hotel opens. This would position the hotel
above the ADR in the overall market and in the upper half of the rate tiers in
the market.
The proposed hotel yield to the overall market is anticipated to be about
113.0%. This is similar to what this rate tier is currently achieving to the
market and should be achieved by the third year of operation.
Modest growth in ADR is expected. At this time, the (2.4%) decrease in ADR
in 2010 was factored into the projections in this report. An increase of 2.25%
was factored for 2011. This percentage increases to 4.5% in 2012 and
beyond. This trend is based upon the average annual rate of change for the
four-year period 2005 – 2008 of 4.5%, which is what was experienced prior
to the impact of the current recessionary times.
25
GROWTH IN LODGING SUPPLY
Growth in New Lodging Supply in the immediate Dakota County area was
limited to the 2007 – 2008 period when the market grew by 10.3% from the
addition of the 78-unit GrandStay Suites. Future supply growth supply is
expected as this is a developing area. As the United States economy
improves from the current recession, additional hotels will enter this market.
In addition, future hotel growth in Rosemount is expected as this market
develops once the first hotel entering this market is successfully absorbed.
GROWTH IN LODGING DEMAND
Growth in Lodging Demand has been inconsistent over the past five years
with declines in three years and growth in two years, resulting in an average
annual decrease over the last five years of (2.0%). While both 2008 and
2009 experienced declines of (5.7%) and (9.1%), respectively, year-to-date
2010 through August has grown at 12.8% versus a decline of (10.4%) in
2009, indicating a strong reversal of the declines in 2010.
In this preliminary report, Lodging Demand Growth factored into the
projection of 14.0% growth in 2010.This modified the year-to-date 12.8%
market growth for the balance of the year based upon comparing the same in
2009. Growth in future years was estimated to produce 2.0% average
demand growth over the term of these projections. This was felt to be a
realistic expectation of this market and is more in-line with the 1.6% growth
seen in 2008 prior to the recession.
SUPPORT SERVICES
Currently, a modest supply of support services are located west and north of
the subject site. These are comprised primarily of smaller casual and fast
food type of restaurants and smaller retail. Big Box retail as well as
entertainment and a greater selection of restaurants are located
approximately four miles east on County Road 42 in Apple Valley or north in
Eagan.
Developing a free-standing national chain restaurant adjacent to or in relative
close proximity to the hotel site would be a distinct advantage so pursuing a
potential restaurant developer should be considered.
PROPERTY TAXES
A detailed analysis of the Property Tax structure in the Rosemount and
Dakota County area was not within the scope of this report. The developer
should analyze the property tax structure within the Rosemount and Dakota
County markets.
26
POLITICAL CLIMATE
The Political Climate in the market was reported to be very supportive of
hotel development. Discussions with representatives in the area were very
favorable to new hotel development. This hotel is seen as a key economic
support factor for Rosemount as a commercial destination.
ENVIRONMENTAL CONCERNS
No unusual Environmental Concerns were noted for the hotel site highlighted
in this report. A detailed Environmental Impact study was not within the
scope of this report. Toxic waste issues, wetland, water drainage, water
seepage, flood plain, soil integrity and other environmental issues were not
addressed as well. The developer should conduct necessary environmental
impact testing to ensure the subject site is in compliance with local
ordinances and environmental regulations.
ZONING AND ARCHITECTURAL CONCERNS
Appropriate zoning for a hotel appears to be in place but this should be
confirmed by the developer.
Research interviews did not indicate any architectural controls that would
affect hotel development at the subject sites.
LABOR MARKET, SUPPLY AND WAGES
The area’s Labor Market was reported to be adequate to support hotel
development.
No Wage Pressures which would affect hotel operations were reported.
Wage scales would need to be competitive with other employers in the
Service and Retail sectors of the regional market.
AREA OF FRANCHISE PROTECTION
When a hotel franchise is chosen, an Area of Franchise Protection is
advisable. This will ensure that there is no encroachment by a similar brand
property in the market area.
27
CONCLUSIONS
The following conclusions are based upon the research performed for this market
study in relation to the construction of the proposed hotel at the subject site.
Performance will be projected for a proposed 70-room, limited-service, mid-priced
hotel at the identified subject site. These projections are provided for the developer’s
consideration in determining the feasibility of building and operating a hotel facility at
the subject sites. Effects of Occupancy, Revenue, Preliminary Operational
Performance and Benchmark Development Costs will be reported accordingly along
with recommendations for the hotel.
Additional details regarding the proposed hotel type and size are outlined in the
Property Recommendations section of this report. However, the projections were
based on developing the hotel as outlined above. Other support amenities
associated with the hotel should be considered part of this hotel development as
well.
In this projected scenario, the subject hotel is scheduled to open in 2012 with 2013
as the first full year of operation. The opening schedule of this hotel is discussed
further in this section.
PROJECTED PROPERTY PERFORMANCE
The following charts show the subject hotel’sprojected performance in Occupancy,
Average Daily Room Rates, and Projected Revenue.
Projected Performance
The following chart depicts the Projected Performance of the limited-service
property based on the Occupancy and Average Daily Room Rates
established in this report.
PROJECTED PERFORMANCE
70-ROOM, MID-PRICED, LIMITED-SERVICE PROPERTY
PROJECTED
PROJECTED
MARKET
HOTEL
PERFORMANCE PROJECTED
PERFORMANCE
PRESENTMARKET
MARKETPENETRATION70 ROOMS
OCCUPANCY
Probable59.3%125.0%74.2%
ADR
Probable$81.20113.0%$91.76
RevPAR
Probable$48.19141.3%$68.07
REVENUE
ProbableNANA$1,739,062
Projected performance is +/- 5 percentage points and will be affected by changes in
Lodging Supply and Demand growth levels used to formulate these projections.
Source: HMI
28
Occupancy
In the above calculations, performance of the competitive set was used to
estimate the performance of the proposed limited-service hotel. It is believed
that this hotel would represent the trends in the overall market.
It is anticipated that the proposed limited-service hotel would have a 100.0%
impact factor on the overall competitive set. This is because the subject
hotel will be attracting business that is currently staying at members of the
competitive set in Apple Valley, Eagan and Inver Grove Heights. Also, the
Unaccommodated Lodging Demand preferring to stay in Rosemount will be
attracted to this hotel. This demand will become an exclusive base for the
subject hotel.
The average sized property in the competitive set has 92.8 rooms. A 70-
room property will yield at 132.5% to the average sized property in the
competitive set. This would allow the hotel to better achieve the projected
Occupancy with fewer rooms to fill.
The Lodging Demand Growth was factored to grow at an average rate of
4.48%. It was estimated to grow 14.4% in 2010 and 2.0% in 2011 through
2014. This will generate future average annual Lodging Demand Growth of
4.48% through 2014.
This property is projected to yield 125.0% to the market Occupancy. This will
take into account the new room impact and the lower number of rooms
adjustment. The smaller hotel size will assist in generating this level of
Occupancy yield.
A discount of 25 percentage points to the stabilized Occupancy yield factor in
the third year was utilized in the first year of performance as the hotel. This
was decreased to a 10 percentage point factor in the second year. It was
believed this would adequately enable the hotel to establish awareness in
the area. As the first hotel in Rosemount, its acceptance may justify a faster
ramp up of Occupancy.
Discussions did not indicate that any new hotel development projects were
being considered in the market area, so Lodging Supply does not reflect any
increases except for the addition of the proposed hotel in 2012.
Average Daily Room Rate
These projections were based on comparing the proposed limited-service
hotel with the market’s competitive set. Again, this hotel should represent
the operational trends established in this market.
29
A 2.67% annual average rate of increase in ADR was forecasted. This
includes the (2.4%) decrease in ADR expected for 2010. A conservative
2.25% estimated increase was forecasted for 2011 with a 4.5% increase for
2012 and all future years. For the period 2005 – 2008 (prior to the
recession), the market/competitive set experienced an average annual
increase in ADR of 4.5% which it is felt the market should achieve as it
recovers from the current recession.
With the rate positioning highlighted in this report, ADR should achieve a
113.0% yield to the overall market. This would position the hotel in the lower
part of the highest rate tier identified in this market. At this time, no
additional ADR premium was added to this rate positioning
A discount of 8 percentage points was factored into the third year stabilized
ADR yield factor in the opening year.This is due to discounting to attract
business and create awareness of the hotel in the market. This was
decreased to a 4 percentage point deviation in the second year. As the first
hotel in Rosemount, its acceptance may justify a faster ramp up of ADR.
To attain these ADR projections, the hotel must be properly positioned in the
market. The hotel product must meet the mid-priced to upper mid-priced,
limited-service positioning established in this report. This includes facility,
product, and services offered. Also, the rates established for the hotel must
be competitive with the overall market rate structure and competitive hotel
positioning.
Projected Revenue
The revenue projections in this report are based on the Occupancy and ADR
projections discussed above.
The performance of the hotel should allow the property to outperform the
market in Revenue Per Available Room. The yield by the third year should
produce a performance level that is 141.3% to the market.
30
PRELIMINARY OPERATIONAL PROFORMA
The following Preliminary Operating Proforma chart depicts the Projected
Performance of the limited-service property based on the Occupancy and Average
Daily Room Rates established in this report.
PRELIMINARY OPERATIONAL PROFORMA
201220132014
Revenue$1,174,092$1,425,604$1,786,202
Departmental
Expenses$292,852$355,586$445,530
Undistributed
Operating
Expenses$292,517$355,179$445,019
Gross
Operating
Profit$588,723$714,839$895,653
*Note: GOP is before Fixed Costs of P&I, Real Estate Tax,
Insurance, Management Fees, Franchise Fees & Reserve for
Replacement.
Source: HMI
The expense amounts and the GOP in the chart above were calculated by applying
the performance results for the mid-priced segment as reported in the Smith Travel
Research Host Report - 2009 on the US Lodging Market. In a full Operational
Proforma and Investment Analysis, the results in the above chart would be expanded
to show greater detail and would forecast the cash-flow after debt service.
Benchmark Development Cost Factor
Based upon preliminary Occupancy and Average Daily Room Rate projections,
Benchmark Development Costs were calculated. These provide a preliminary
indication of viability for developing this hotel. More comprehensive feasibility
research should be performed to obtain anticipated operational expenses and fixed
cost structuring such as debt service, property taxes, insurance, depreciation, and to
formulate a more thorough analysis of the financial viability of this hotel project. Land
cost is another factor that will have significant impact on Benchmark Development
Costs.
Benchmark Development Costs include all costs associated with the hotel’s
development up to its stabilized year of operation: land costs; land preparation costs;
development costs; construction/renovation costs; furniture, fixtures and equipment
31
(FF&E); pre-opening operational and marketing expenses; and cash flow shortages
to a stabilized year of operation. Any other associated development costs would also
be part of this calculation. A developmental Occupancy factor of 60.0% was used for
this mid-priced, limited-service hotel.
A factor of $1.35 of Average Daily Room Rate per thousand dollars of development
cost was utilized for this mid-priced, limited-service hotel. Deviations from the
developmental Occupancy and Average Daily Room Rate Factors were calculated
based upon Occupancy and Average Daily Room Rate Projections established in
this report.
These preliminary Benchmark Development Costs are based on a 30% equity
investment and an anticipated return of 15% on the equity investment. Adjusting this
rate of return will adjust the preliminary Benchmark Development Costs accordingly.
With that in mind, the following preliminary Benchmark Development Costs were
calculated.
BENCHMARK DEVELOPMENT COSTS
ALLOWABLE
ALLOWABLETOTAL
PER ROOM*PROJECT COST*
70
Rooms$83,179$5,822,548
*These projections will be affected by changes in
Projected Occupancy or Projected ADR.
Source: HMI
Ideally, as the developer calculates development costs for this property, their total
should not surpass these preliminary break-even Benchmark Development Costs.
Exceeding these Benchmark Development Costs may indicate that the property is
not financially feasible to pursue. However, projected development costs below
these Benchmark Development Costs may indicate that additional research should
be performed by the developer to determine the overall economic feasibility of
developing this hotel.
The Benchmark Development Cost calculation and the return calculations listed
above are only a few of many benchmarks the developer should utilize in
determining the feasibility of this project. This calculation does not take into account
any present value calculations. These would be calculated in an actual Operational
Proforma or in an Analysis of Cash Flow and Return on Investment. The actual
Return on Investment should include returns on both the projected sales value and
Cash Flow analysis for the property.
32
PROPERTY RECOMMENDATIONS
The following preliminary Property Recommendations were based on the research
conducted in this report.
Property Type
This report provides a preliminary recommendation and focus on developing
a mid-priced, limited-service hotel. The preliminary projections in this report
reflect this type of hotel positioning as well. It is expected that the required
support elements of a limited-service, mid-priced hotel will be provided. This
includes the appropriate product offerings and guest services such as a
health/fitness center and indoor pool.
The Market Segmentation outlined in this report reflects support for this type
of hotel product. Developing a mid-priced, limited-service hotel with
national/regional brand recognition fills a niche in this market.
The analysis of the Lodging Demand in the market area also indicated a
potential demand for extended-stay lodging as well which would indicate a
need for a hotel with a mix of traditional rooms and suite-type rooms. At this
time, developing an upscale hotel in the Rosemount market is not
recommended. The support levels for an upscale hotel were not identified.
As an entry level hotel in the Rosemount market, a mid-priced hotel would
best serve the market.
An upper-economy hotel could also be considered as an entry level hotel for
the Rosemount market.
Property Size
For this report, Property Size was calculated at 70 rooms. This is 24.6%
smaller than the average sized hotel. This size hotel, given the preliminary
projections, will produce an approximate 70.0% - 75.0% Occupancy level
when stabilized. A larger hotel would under-perform this Occupancy level.
Developing more than or fewer than 70 rooms would modify the projected
levels of performance. This size property should be well absorbed into this
market. The only addition to the Lodging Supply occurred in 2007/2008,
during the first half of the recession, making it difficult to predict how well this
market area would typically absorb new product in a non-recessionary
period.
33
Property Amenities
Recommended Property Amenities should be compatible with the product
type and national brand affiliation selected for the property.
Additional property amenities and services which may be required are as
follows:
The hotel should include internal recreational guest amenities such
o
as a health fitness facility/exercise room. An indoor pool with a
whirlpool could also be considered.
An enhanced pool area would add marketability to the Social/Leisure
o
markets in this area. It would give the hotel a competitive advantage
since it is not currently offered in greater market area. However, the
cost and benefit of this added amenity should be analyzed. It would
incur additional development and operational costs. It could add
some support with slightly higher ADR from the Social/Leisure
markets in the initial years of operation. However, this increase
would be minimal since the Social/Leisure market is projected at just
35% of the total Lodging Demand in Rosemount.
Adding a small conference area could add diversity to the hotel.
o
Although group business is not a large market in Rosemount at this
time, a conference facility could attract some business groups
desiring facilities at the hotel rather than having to go elsewhere.
The size of the conference facility would require some additional
research. It should be multi-functional and sub-dividable to best
accommodate diverse group demand. Food and beverage catering
would be out-sourced to local operators.
Sleeping Room Configuration
The Sleeping Room Configuration should be based on the Market
Segmentation Profiles. The rooms should be compatible to handle both the
Corporate/Commercial and the Social/Leisure markets. The Market
Segmentation for this hotel indicated a nearly equal amount of Lodging
Demand generated by the Corporate/Commercial and Social/Leisure
markets. Given this factor, a balance of double-queen-bedded and king-
bedded rooms is advised.
Developing some whirlpool suites is suggested. At least one to three of the
available rooms should be built in this configuration.
34
Building 25% to possibly 30% of the rooms in a suite-style configuration is
suggested. At least half of these rooms should include typical extended-stay
features to serve the extended-stay market in the area. Two members of the
competitive set were extended-stay style hotels (21.8% of the competitive set
rooms). This hotel will be the closest to Flint Hills Resources on U.S.
Highway 52, a significant demand generator of extended-stay needs twice a
year as previously discussed in this report.
Brand Affiliation
Brand Affiliation in this market is recommended and necessary to be
competitive. This affiliation will dictate the design of the property, amenities
offered, and rate positioning. A branded property would assist in positioning
the subject hotel to best capture the Corporate/Commercial and
Social/Leisure markets.
Brand affiliation should be within the mid-priced hotel product category.
Brand impact issues should be limited in Rosemount since the existing hotel
brands, except for the AmericInn and GrandStay Suites in Apple Valley, are
an estimated six to eight miles away. In addition, Rosemount is a separate
and emerging market in the Dakota County area. Unless existing branded
hotels have Areas of Franchise Protection that cover the Rosemount market,
there should not be much incremental impact within the brands.
Rate Strategy
The Room Rate Strategy for this property should be compatible with the
Average Daily Room Rate projections indicated in this report. Seasonality of
Room Rates is also a consideration for this property. Given the Average
Daily Room Rate research performed and the projections set forth in this
report, it appears that this property could compete directly with the other
middle to upper rate tiers for the mid-priced, limited-service hotels identified
in this market. This rate structure should be compatible with the traditional
rate structure of the market’s overall competitive set. To achieve this, the
proposed hotel product must match the quality of other hotel products in this
market with similar rate positioning.
Opening Date
The Opening Date for the hotel should be selected based on the seasonality
of the market. Ideally, opening the hotel in early spring would capture the
maximum revenue prior to the softer season beginning in November.
35
HMI Inc.
DISCLAIMER
The decisions presented herein were based upon the information available and
received at the time this report was compiled. Hospitality Marketers International,
Inc., (HMI) has taken every possible precaution to evaluate this information for its
completeness, accuracy and reliability. To the best of its knowledge, HMI feels the
information and decisions presented herein are sound and reliable.
At the present time of this report, the United States and world economies are in a
major recessionary period. The results of this recession have had significant effects
on the economy and social attitudes of the United States. This recession has also
altered normal travel patterns by various market segments generating potential
Lodging Demand. At the time of the writing of this report, the United States travel
industry, and specifically the hotel industry, are still adjusting to and potentially
recovering from this recession. The actual long-term results of the recession are still
Management
uncertain. There are expectations that the United States will ultimately recover from
Research
these events and their effects on the economy and society. There are further
expectations that some travel patterns could be changed indefinitely. This report will
Marketing
look at historical trends prior to these significant events. Performance since the start
of the recession to the time of this report will also be reviewed and will attempt to
factor the effects of these events into the future projections and conclusions
presented in this report. Given the present state of uncertainty, HMI is not
responsible for effects that occur from future political, economic or social events that
ultimately alter these projections. These events should be monitored accordingly
and potentially the results of this report may require updating to respond to future
events.
Also, it should be understood that normal economic and marketplace conditions
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outdated once this report is written; nor is it responsible for keeping this information
current after October, 2010.
It should be understood that the results presented in this report are the professional
opinion of HMI and are based upon the information available at this time. These
opinions infer proper and professional management of the business operation. The
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opinions also infer that market conditions do not change the information received
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