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Home My WebLink About5.a. Update on Motel Market Feasibility StudyCITY OF ROSEMOUNT t J EXECUTIVE SUMMARY FOR ACTION PORE!' AUTHORITY COMMISSION MEETING DATE: APRIL 20, 1993 AGENDA ITEM: MOTEL MARKET FEASIBILITY REPORT AGENDA SECTION: UPDATE WORK SESSION PREPARED BY: JOHN MILLER, AGENDA ECONOMIC DEVELOPMENT COORDINATOR �Q TT ISI # ATTACHMENTS: PRELIMINARY DRAFT FROM CHASE APPRQYED BRACKETT de Today (Thursday) I visited with Janene McBride from Chase Brackett, Inc. She told me that I would receive some draft material Friday to include in the Port Authority packet. According to Ms. McBride she will be at the work session to discuss her preliminary findings with you. RECOMMENDED ACTION: None. Study item only. PORT AUTHORITY ACTION: 04/16/1993 13:04 FROM CHASE-BRACKETT CO. TO 4235203 P.02 NL&ILKET Ovmmw OF 'Y"m ROSEMOUNT LODGING . XL4RFT 04/16/1993 13:04 FROM CHASE-BRACKETT CO. TO 4235203 P.03 NLkI KET OVERVIEW THE ROSEMOUNT LODGING MARKET ROSEMOUNT, MWNESOTA r '7 MR. JOHN MILLER C1TY OF ROSEMOUNr BY CHASE-BRACETT COMPANY 04/16/1993 13:05 FROM CHASE-RRACKETT CO. TO 4235203 P.04 April 16, 1993 Mr. John Miller Economic nt go!" City of Rase o 3875 145th Rosemount, Minnesota 55068-5510 RE: Proposed Hotel Development in Rosemount, Minnesota Our file - 9304100 M" OEM " 0 U k � We have conducted a market overview of the Rosemount lodging market in accordance with our agreement. This analysis considers the development of a limited service lodging facility in Rosemount. In addition, you have asked us to consider and evaluate two alternative sites for development. Further, we assume the property will have quality construction, competent management, appropriate parking, an adjacent restaurant and will be properly marketed. The subject property will be marketed to all three demand segments: commercial, group, and tourist travelers. Our letter report is organized into the following: A brief overview of the Rosemount Area 0 An overview of the competitive lodging supply • A brief discussion of the historic and future lodging demand An estimate of prospective occupancy and average daily rate 04/16/1993 13:05 FROM CHASE-BRACKETT CO. TO 4235203 P.05 DESCRIPTION OF THE CITY OF ROSEMOUNT This section provides social, governmental, economic, physical and location information to set the overall background of the subject property's community environment. As this section covers many areas, topical su nyffTarity Copy Location Rosemount is located in the Southeastern corner of the Minneapolis/St. Paul Metropolitan Area, about 25 miles from both cities. It occupies approximately 35.25 square miles. Rosemount is surrounded by Fagan and Inver Grove Heights on the north, Apple 'Malley on the west, Empire and Vermillion Townships on the south and Cottage Grove and Nininger Township on the east. I L-A RD I L-4 Population YLP'(DIRD1 HNTL7'P'___1 MAL Ut'Z3iT9E9d Even though the population growth of the metropolitan area has been slow, the growth in Rosemount and Dakota County has been strong. Since 1960, Rosemount has realized a population growth of over app percent and is expected to grow to 30,000 by 2010. Dakota County has also attained a sizeable population growth, and is now the fastest growing county in the state. Presented in the following table is a summary of the historic population growth for Rosemount, Dakota County and the MSA. ::':::.:.. .::.......... a 1 1 Area 1960 1974 1980 1990 Compnd Ann1 Chng Census Census Census Ceases 1960-90 1980-90 Rosemount 2,012 4,034 5,083 8,622 5.0% 5.4% Dakota County 78,303 139,808 194,279 275,227 4.3%C 3.5% MSA 1,535,297 1,874,612 1,985,873 2,464,124 1.6% 2.2% Labor Force The labor force in Rosemount .has been glowing at a constant rate with the population. Due in part to the increasing levels of education, the jobs held by residents are charming from traditional blue collar jobs back in the 1970's to predominately white collar jobs in 1990. This change has further attributed to the sizeable growth in household income. iv 04/16/1993 13:06 FROM CHASE-BRACKETT CO. TO 4235203 P.06 Employment Rosemount has several large employers with 30 or more employees, which account for 93 percent of the City's employment base. The majority of these jobs are education related because both Dakota County Te6nical College and School District 196 are located in Rosemount. Together the two sch Most of the remaining jobs are located within e 1grmajC�= nsing and Greif Brothers Manufacturing. Presented in the following table is a list of the Major Employers in Rosemount. Rosemount sustains covered employment of approximately 3,350. Retail Rosemount has a very limited retail sector, as the community is adjacent to several large communities with established retail markets. Rosemount offers a variety of neighborhood shops and services. Neighborhood convenience centers are in fact, the prime recruitment target for the retail sector. In addition, Rosemount has a number of auto -related businesses, including repair shops, salvage yards and body shops. IndicaWd Rosemount has a tremendous investments in industrial property. In 1992, the total property VA 04/16/1993 13:07 FROM CHASE-BRACKETT CO. TO 4235203 P.07 value for land used for industrial purposes was $59.6 Million. The majority of the northeastern section of the city is completely used for industrial purposes. Industrial areas to the east do not have, access to city utilities at the present time, except the 1TSPCI site in the pine Fend Industrial Area. Government D R 0 T CC G(_-" I P The City of Rosemount has a mayor -council with four coancxl members elected to overlapping four-year terms. The city administrator and finance director are appointed positions. The Port Authority is governed by an appointed seven member board of commissioners, two of whom are council members and the City Administrator serves as executive director. Proposed Airport In December.�`i" the general area within w 'ch a potential new major airpor or a ixt x es w" a oca , if a decision is made to build a new airport. Seven sites have been identified for the potential replacement airport. Three of the sites are located east of the Vermillion River,. with the .remaining four located west of the river in the central portion of the search area. A preferred site will be identified by mid to late 1993. The proposed airport is in the preIiminairy planning stage with the intention to provide a development plan for 2010 and a conceptual plan for 2020. Conclusion The long-term economic climate for Rosemount is good. The area is experiencing rapid growth reflecting the continuing outward expansion of the metropolitan area. Most of the growth is residential in nature, however the city has a substantial industrial component as well. Additionally, Rosemount has a reputation for an enlightened public and governmental climate which contributes to the quality of life. COMPETITIVE ]LODGING SUPPLY Exia tag Hotels The competitive hotel supply consists of 16 hotels with a total of 832 rooms. The year end 1492 estimated occupancy for the competitive supply was estimated to be 64 percent at an estimated average daily rate of $37.67. For the purpose of our analysis, the lodging supply has been identified as primary and secondary supply. Competitiveness is based on age, location, market orientation, and quality of facilities and services. The primary competitive supply consists of those properties which are located within close proximity to the Rosemount area and are oriented to transient commercial travellers, Foch refinery and the transient/tourist market. These facilities are primarily independently operated vi 04/16/1993 13:08 FROM CHASE-BRACKETT CO. TO 4235203 P.08 properties without a chain affiliation and have a limited amount of ancillary services or amenities. The primary supply consists of 147 rooms in 7 properties. The 1992 year end occupancy for these properties was approximately 63 % with an estimated average rate of $26.75, The secondary competitive supply includes those full service franchise and limited service properties in Burnsville rooms s su market represents 685 rooms with a year end c VW an a of $40.25. The chart on the following page depicts the primary competitive supply. Future Additions to Competitive Hotel Room Supply Other than the subject property, there has been no discussions regarding new lodging properties in the competitive market. We believe the opening of the subject hotel will force older hotels to reposition and capture more of the extended stay market. Compeftfte Lodging Demand The competitive lodging demand is divided into three segments: individual commercial, group and tourist/other. The individual commercial market segment consists of sales people, area company representatives, airline business, people doing business with local educational vii Address # of Current Published. Rates Occupancy Average Rste b Cloverleaf . $20.00- 1155 Courthouse Blvd. 30.00 $25.00 Airliner 59 $25.56 $31.95- 60-65% $25.00- 2788 Highway 55 $35.15 $30.00 Tcrx=o 17 $26.00 $31.85 60-65% $25.00- 2745 Highway 55 $30.00 Mendota Heights 17 $24.95 $32.95 60-65% $25.00- 2180 Highway 55 $30.00 Prue Bend 8 $25.00 $30.00 65-70% $25.00- 10900 East Courthouse $30.00 131vd. Silver Bell 12 $32.00 $34.95- 60-65% $30.00 - Highway 52 Hampton $37.95 $35.00 Restwell 25 $27.00 $32.00 60-65% $25.00 - Highway 3 North $30.00 Future Additions to Competitive Hotel Room Supply Other than the subject property, there has been no discussions regarding new lodging properties in the competitive market. We believe the opening of the subject hotel will force older hotels to reposition and capture more of the extended stay market. Compeftfte Lodging Demand The competitive lodging demand is divided into three segments: individual commercial, group and tourist/other. The individual commercial market segment consists of sales people, area company representatives, airline business, people doing business with local educational vii 04/16/1993 13:09 FROM CHASE-BRACKETT CO. TO 4235203 P.09 institutions and persons dealing with the government. The group market segment consists of regional group and association meetings, trade shows, and meeting for area commercial firms. Tourist/other consists of vacationers, persons visiting Twin Cities attractions, overnight travelers and shoppers visiting the area. Based on interviews wi a mpe"�arket segmentation for the competitive supply c e belo �I7'''• IIIN18181!1!AI!OTST,1:172. Esx'imated Market Growth Our estimates of growth in the market are computed by market segment. .A table showing our estimates appears below, followed by a short discussion of our growth rate analysis. We have estixnated commercial room nights will decrease 1 percent during 1993 as the special contract which Peoples Gas has with Dakota County has terminated. The contract was for one year and involved the training of individuals throughout the midwest at Dakota County Technical College. We estimate 1994 growth at 0 percent as the customized training program at Dakota County Technical College stabilizes. We estimate 1995 growth at 1 percetlt and 2 percent thereafter throughout the forecast period. These growth rates are based on historical commercial room night demand as well as local economic and demographic trends. viii �r .. .... p a r 1993 _1% -.5 % 3% 1994 0% 1% 2% 1995 1% 1 % 1% 1996 2% 1 % I % 1997 2% 1% I% 1998 2% 1 % 1 % We have estixnated commercial room nights will decrease 1 percent during 1993 as the special contract which Peoples Gas has with Dakota County has terminated. The contract was for one year and involved the training of individuals throughout the midwest at Dakota County Technical College. We estimate 1994 growth at 0 percent as the customized training program at Dakota County Technical College stabilizes. We estimate 1995 growth at 1 percetlt and 2 percent thereafter throughout the forecast period. These growth rates are based on historical commercial room night demand as well as local economic and demographic trends. viii 04/16/1993 13:10 FROM CHASE-BRACKETT CO. TO 4235203 P.10 Growth rates for group room night demand have been estimated at -.5 percent in 1993 and 1 percent in 1994 and thereafter throughout the remainder of the forecast period. The growth associated with the group segment tends to somewhat follow the commercial growth rate as a portion of the market's activity is related to corporate demand. In addition to the .indicators used in the commercial segment analysis, historic group demand patterns were also evaluated. We have estimated tou"il► ill g w 3 sen 2 percent and 1 percent Qthereafter, throughout the forecast period. We see continued growth in the tourist market with the addition of new metropolitan pleasure and cultural attractions (i.e. Mall of America) and the increase of local motor coach bus tour traffic. These growth rates are based on historic tourist demand growth as well as local economic and demographic trends. Induced and Unsadsied Demand Induced ded w i� n c ns in a but could be persuad to canter t e mar et thoug a avails ty a a new room p uc or introduction of a new sales effort. Unsatisfied demand is demand that is being turned away or denied at existing hotels and is therefore staying at accommodations outside of the competitive market. The National Guard Armory is currently developing, in conjunction with the City of Rosemount, a new facility which will serve the regional need of the Guard as well as the local needs of the community. The facility includes a 25,000 square foot meeting and banquet room to accommodate groups of 200 to 300 in size as an a competition length skating facility. The development costs of the facility are estimated to be $10,000,000. This facility will introduce two new types of travelers into the market: the National Guard personnel, recruits and individuals visiting the facility and the potential for tournaments (hockey, skating etc.) exhibitors (potential for smaller trade shows when the ice is not down), and additional friends and family (utilizing the meeting space for weddings, reunions, etc.). We have estimated that 1,000 commercial and 400 tourist room nights will be induced into the market in 1994 with the active marketing of the facility. Minimum Sappoftble Rooms Based upon the existing market conditions the table on the following page has been prepared which indicates the minimum supportable rooms at various occupancy levels. ix 04/16/1993 13:11 FROM CHASE-BRACKETT CO. TO 4235203 NMarket Ocepnoy At 60% 69% 71% 73% 74% 128 152 176 200 At 65% At 70% At 75% -7 -6 7 13 8 00 33 -29 -82 54 -9 -64 76 11 -45 98 32 -26 121 53 -6 Based on the above we have prepared an analysis for three sized hotels, 42, 50 and 60. Presented in the following paragraphs is a summary of the "fair share" and "penetration" analysis for a 42 room hotel. A summary of the results for the three sizes is presented on page 11. Lstdrnated 1►2arket Per of the Proposed Hotel A hotel's fair market share is based upon the proportion of total supply represented by the property. 'Therefore, if the property has 10 percent of the competitive hotel rooms, they should in theory, be able to capture 10 percent of the room night demand in the competitive market. Occupancy for the subject property is based upon the percentage of the hotel's fair market share, in each market segment, that the hotel is estimated to capture. Factors indicating a hotel will possess competitive advantages suggest penetration into fair market share in excess of 100 percent, while competitive disadvantages are reflected in penetrations of fair market share less than 100 percent. We expect the penetration levels to stabilize in the subject hotel's second year of operation because the property of the market orientation of the proposed property, i.e. limited service commercially oriented property. Commercial Penetration We estimate the subject property will capture 95 percent of its fair market share of commercial room nights during its first year of operation, 1995. We estimate individual commercial penetration will stabilize at 105 percent. We expect the property to achieve a moderate premium in the commercial segment due to rate, market orientation, perceived price -value, location and X 04/16/1993 13:12 FROM CHASE-BRACKETT CO. TO 4235203 P.12 national franchise and reservation system Group Penetration We estimate the subject propexty will. capture 50 percent of its fair market share of group room nightZDA disco 1n 1994, incE p s e=50rie .�rtgto achieve slight discount in the u s s onrn Tourist/Other Penetration We estimate the subject property will capture 100 percent of its fair market share of tourist/other room nights during its first full year of operation, 1995. We estimate tourist/other penetration will increase until. 1995 when it stabilized at 110 percept. We expect the property to achieve a slightp s M27'Uc tionship and amenities. 70 J �� Given the relative scales of the market segments and estimated penetration levels of the property, we estimate the subject property will have the following market mix: The resulting occupancy for the subject party is presented in the following table. :...:..:.:..:..:...:.:.. . .........::. :...:.:...:....:. 1993 55-60% 48-53% 44-43% 1994 63.68% 57-62% 50-55% 1995 65-70% 58-62% 53-S8% 1996 65-70% 60-55% 54-55% 1997 68-72% 62-65% 5459% M 04/16/1993 13:13 FROM CHASE-BRACKETT CO. TO 4235203 P.13 Market NichelPosldoni Ing We believe the proper niche for the, proposed hotel is a limited service franchised hotel. The proposed hotel should be price below the full service hotel in terms of rack and average, rates. In this Market, rack rates are approximately 25 percent higher than average rates. 'Mere is discounting for corpora n�up =�ness. We believe the rposubject hotel should t�,:=in range and rack rates from $40-00 to $70.00. Estimated Published Rates used on conversations with the management of competitive properties and perceptions of the Rosemount market area, the rack rates have been estimated for the subject hotel in 1993 dollars: 7 IMUL 7 A IT single $40.00-$50.00 Double $45.00-$55.00 Suites $65.00-$70.00 Estimated Pub Whed Rates With discounting to attract business, the following daily rates have been estimated (for illustration purposes for each market segment. xii 0q/16z1993 13:14 FROM CHASE-BRACKETT CO. TO 4235203 P.14 This limited markot overview of the Rosemount Market area has bee prepared for your use in evaluating the potential development of a limited service hotel. If you have any questions or concerns, please do not hesitate to call. DRAIFT ',r.---'GIPY IWA /� ► ' AV • i 1 � 1.11 '+� _ � i 9 w � i ' i 1 TOTAL P.14