CITY OF JEFFERSON, WISCONSIN Market Feasibility Study for ......Oct 13, 2017 · Market Feasibility Study for a Proposed Midscale Limited-Service Hotel to be located in Jefferson,

CITYOFJEFFERSON,WISCONSIN MarketFeasibilityStudyforaProposed MidscaleLimited-ServiceHoteltobelocatedin Jefferson,Wisconsin October2017

Patek Hospitality Consultants, Inc. N57 W27841 Walnut Grove Court

Sussex, Wisconsin 53089 (262) 538-0445

October13,2017

Mr.TimFreitag

CityAdministrator

317SouthMainStreet

Jefferson,Wisconsin53549

DearMr.Freitag:

In accordance with our agreement, Patek Hospitality Consultants, Inc. has completed a study of

potentialmarketdemandandhasprepareda statementof estimatedannualoperating results fora

proposed50-roommidscalelimited-servicehoteltobelocatedinJefferson,Wisconsin.

Asinallstudiesofthistype,theestimatedresultsarebaseduponcompetentandefficientmanagement

andaneffectivemarketingprogramandpresumenosignificantchangeinthecompetitivepositionof

thehotelindustryfromthatsetforthinthisreport.Wehavenoresponsibilitytoupdatethisreportfor

eventsandcircumstancesoccurringaftercompletionofourfieldworkconductedlateJuly2017.These

projectionsarebasedonestimates,assumptionsandotherinformationdevelopedfromourresearch

and we do not warrant that they will be attained. We did not consider the legal and regulatory

requirementsapplicable to thisproject, includingzoning,permits, licensesandotherstateand local

governmentregulations.

Thisreporthasbeenprepared foryouruseandguidance indeterminingwhetherahotelshouldbe

pursuedinJefferson.Weunderstandthisdocumentcouldbeusedtoattractadeveloper,afranchiseor

management agreement, and for financing and investment purposes. Neither our name nor the

material submitted may be used in any prospectus or used in offerings or representations in

connection with the sale of securities or participation interests without our express written

permission.

Pleasedonothesitatetocallifwemaybeoffurtherassistanceintheinterpretationandapplicationof

our findings,recommendationsandconclusions. Weappreciatethecooperationyouextendedtous

duringthecourseofourengagement.

Sincerely,

PatekHospitalityConsultants,Inc.

3 TABLEOFCONTENTS

EXECUTIVESUMMARY ..................................................................................................... 4

PROJECTCONCEPTANDRECOMMENDATIONS ................................................................ 5

SITEANALYSIS .................................................................................................................. 5

MARKETAREAOVERVIEW ............................................................................................. 11

HOTELSUPPLYANDDEMANDANALYSIS ....................................................................... 20

PROJECTEDMARKETPOSITIONANDPENETRATIONOFTHEPROPOSEDHOTEL ......... 29

CONCLUSION .................................................................................................................. 37

PROJECTIONSOFINCOMEANDEXPENSE ....................................................................... 38

ASSUMPTIONSANDLIMITINGCONDITIONS ................................................................. 46

4 EXECUTIVESUMMARYBrandName: Tobedetermined

NumberofRooms: 50

OpeningDate Mid-2019

Occupancy(Stabilized): 64%

AverageDailyRate(ADR2017dollars): $96.00

StabilizedYear: Thirdyearofoperation(2021)

SiteAnalysis–Wereviewedandevaluatedfourpotentialsites in Jeffersonandconsideredaccess, visibility,proximity todemandsources, andproximity to supportamenitiesof each

oneandrankedthemasexcellenttopoor.Weprovidedanoverallrankinginordertoassist

theCityofJeffersonintheirassessmentofaproposedhotellocation.

CompetitiveLodgingSupply: HolidayInnExpress&Suites-FortAtkinson 78Rooms

ComfortSuites-JohnsonCreek 100

HolidayInnExpress–Watertown 79

Super8-Watertown 45

BaymontInn–Whitewater 60

Super8–Whitewater 51

TotalRooms 413

CompetitiveMarketPerformance(STR) Occup. ADR RevPARYear-end2011 54.2% $72.99 $39.56

Year-end2012 51.3% $76.40 $39.17

Year-end2013 49.7% $84.05 $41.76

Year-end2014 50.9% $86.22 $43.87

Year-end2015 54.5% $89.32 $48.64

Year-end2016 56.2% $92.86 $52.19

YTDJuly2016 55.1% $91.95 $50.70

YTDJuly2017 52.1% $95.32 $49.66

Projections–ProposedMidscaleLimited-ServiceHotelJefferson,Wisconsin

Year Occupancy ADR RevPAR*Year1 54.0% $101.90 $55.03

Year2 59.0 104.90 61.89

Year3 64.0 108.00 69.12

Year4 64.0 111.30 71.23

Year5 64.0 114.60 73.34

*RevPAR=RevenuePerAvailableRoom(occupancyxaveragedailyrate(ADR)) Estimatedopeningdateofmid-2019 Source:PatekHospitalityConsultants,Inc.

5 PROJECTCONCEPTANDRECOMMENDATIONS

It is recommended the proposed midscale limited-service hotel be developed with

approximately50 guest rooms. As amidscale limited-serviceproperty type, the proposed

hotelshouldoffercomplimentarybreakfast,freehighspeedInternet,businesscenter,on-

siteconveniencestore,on-sitefitnesscenter,guestlaundry,indoorpoolandwhirlpool,and

anon-sitewineandbeerbar. Someorallof theguestroomsshould includerefrigerator

andmicrowave;flatpanelTVs,coffeemaker,ironandironingboard,andhairdryers.The

guest rooms should include a mix of double queen and king bedded rooms. We also

recommendfourextended-staysuitesthatwouldincludesmallkitchenfacilitiesthatcould

accommodatethoseguestsstayingforanextendedperiodoftimeorfamiliesneedingextra

space.Werecommendtheguestroombreakdownbeasfollows:

GuestRoomBreakdownProposedMidscaleLimited-ServiceHotel

Jefferson,WisconsinRoomType NumberofRooms PercenttoTotalDoubleQueen 25 50.0%

King 21 42.0

Extended-StaySuite 4 8.0

Total 50 100.0%

Source:PatekHospitalityConsultants,Inc.

Inadditiontotheabove-mentionedfacilitiesandamenities,werecommendameetingroom

to accommodateup to 30people that couldbeutilizedby the community aswell as hotel

guests. Thiscouldbeusedforcorporatemeetings,training,receptions,reunions,andother

smallerevents.

Adequateparkingper local zoning shouldbeprovided. Oversizedparkingmayneed tobe

consideredforguestswithlargervehicles/trailers.

SITEANALYSISDuring our meeting and tour of the community we discussed four potential sites for

developmentofanewhotelinJefferson.Wereviewedeachofthefoursitesandconsidered

factorssuchasaccessandvisibilityandproximitytodemandandsupportamenities. We

discuss the location of these four sites below and weigh the four criteria on a scale of

ExcellenttoPoor.

Site #1 Pitzner Parkway near Jefferson County Fair Park This site is located in thenortheastquadrantofSTH26BypassandU.S.Highway18,justnorthofUSH18onPitzner

Parkway. TheJeffersonCountyFairPark is located just totheeastandisaccessedoffof

NorthJacksonAvenue.Thereisabout18acresofvacantlandalongPitznerParkwaythatis

ownedbySpanglerandiswithinaTIFDistrict.Thepotentialsitewouldbelocatednorthof

6 a fitness center that was partially built but never opened. The surrounding area is

farmlandtothewestofSTH26Bypassandresidentialandsomecommercial to theeast.

STH18(RacineStreet)isamajoreast/westthoroughfarethroughJeffersonandintersects

withBusiness26indowntownJefferson.Accesswouldbeveryconvenientandvisibilityis

excellent for southbound travelers on Bypass 26 with limited visibility for northbound

travelersuntilexitingthehighway.Proximitytocorporateandotherdemandgeneratorsis

convenient as this site is centrally located in Jefferson; proximity to the fair park is

excellent. Theclosest foodandbeverageoperationistheFairviewSportsBar&Banquet

HalljustwestofJacksonAvenueonSTH18.DowntownJeffersonisaboutonemileeastof

thissite.

Site #2 Riverfront Location (former County shops site)This is a 20-acre site that iscurrently owned by Jefferson County however the City of Jefferson is interested in

purchasingthesiteandhavebeguntalkstodoso.ItislocatedonthewestsideofBusiness

Highway26atPuernerStreetandsituatedontheRockRiver.Discussionshavetakenplace

to re-develop this parcelwith a boat launch, a restaurant, andpossibly residentialwhile

keeping river frontage as green space. TheRockRiver offers recreational opportunities

throughoutJefferson,JeffersonCounty,andbeyond,asitrunsfor320milesfromFonddu

Lac County, Wisconsin to Rock Island, Illinois. Access to the site is convenient off of

BusinessHighway26. Thesite is locatedabout fiveblocksnorthofdowntown Jefferson

wherethereareafewdiningspots;demandgeneratorswouldfindthissiteconvenient,as

itiscentrallylocatedandiswalkabletodowntown,areaneighborhoods,andtheFairPark.

Site#3 InterchangeofBusinessandBypass26 (north sideof Jefferson)This site islocatednorthoftheNorthIndustrialParkandiscomprisedofabout40acresoffarmland

thatisprivatelyowned.ByFall2017,allutilitieswillbeextendedtothisarea.Thissiteis

inthevicinityofa100-acreparcelownedbythecityofJeffersonthathasbeenmentioned

asapossiblelocationfortheCollegeofOsteopathicMedicine.The100-acreparcelisoneof

twopotentialsitesthatarestillbeingconsideredbyJeffersonfortheCollege. Thissiteis

close to Valero Renewable Fuels and Jefferson Mid-State Auto Auction. Within the

Industrial Park, Generac, Kendall Packaging Corp., Carrico Aquatic Resources, and

AmericanWeldDesignshavefacilitiesalongwithsomesmallerbusinesses.Thesitewould

havegoodaccessandvisibilityfromBusiness26andwouldbetheclosesttoI-94,whichis

about six miles north of Jefferson and is the primary route between Milwaukee and

Madison.Thereareafewdemandgeneratorsintheimmediateareaasmentionedhowever

therearenorestaurantsorsupportamenitiesnearthesite.DowntownJeffersonisabout

twomilessouth.

Site#4 SouthEndof Jefferson (whereBusiness andBypass26 intersect)There are200 acres that Jefferson County owns in the northeast quadrant of the interchange of

Business and Bypass 26, on the north side of Business 26. This area is also a potential

location for the College of Osteopathic Medicine. The southern sector of Jefferson is

comprisedoftheSouthIndustrialParkwhereAmericold,LDFoods,andGenerac’s600,000

squarefootlogisticsfacilityarelocatedtonameafewofthebusinesses.Thereisalsomore

7 commercial development to the northeast of this interchange including a Wal-Mart

Supercenter,McDonalds,LittleCaeser’sPizza,ShellandKwikTripservicestations. A41-

roomRodewayInnislocatedonBusiness26,acrossfromtheWal-Mart.ACountryMarket

grocery store is closed and the strip centerwhere it is locatedwill be redeveloped into

severalnewstores.Accesswouldbeconvenient to thissiteand thesitewouldbevisible

fromBypass26.Thesiteisproximatetodemandsourcesandafewsupportamenitieslike

fastfoodandretail.

Thesearethefoursitesthatwerediscussedandshowntousduringourtourandarethe

foursitesweconsideredfordevelopmentoftheproposedhotel. Followingisatablethat

showsthefoursitesandthefactorsusedtoevaluateeachsiteastheycurrentlyexistwitha

ratingofexcellenttopoor.

EvaluationoftheFourPotentialHotelSitesJefferson,Wisconsin

Site Access Visibility ProximitytoDemand

ProximitytoSupportAmenities

Intangibles* OverallEvaluationandRank

#1PitznerParkway

Excellent VeryGood VeryGood Fair Privately

owned

VeryGood

#2Riverfront

Good Good VeryGood Good County

owned,city

wantstobuy

Unique

opportunity

ontheRock

River

GoodtoVeryGood

#3NorthEnd

VeryGood VeryGood VeryGood Poor Cityowned Good

#4SouthEnd

Excellent VeryGood VeryGood VeryGood County

owned

VeryGood

*Intangiblesincludeotherfactorsthanthoseevaluated,mainlyownershipstatusSource:PatekHospitalityConsultants,Inc.Itisdifficulttorecommendaparticularsitefordevelopmentoftheproposedhotel,asallof

thesesiteshavetheirstrengthsandweaknesses.Itisouropinionthatallfoursitescould

be considered fordevelopment of thehotel and that there is not a “bad” site among the

four.

Sites1,3,and4arerightoffofBypass26andwouldprovideverygoodaccess,which is

somethingthattravelersunfamiliarwithanareawouldappreciateandeventhosevisitors

familiarwithJeffersonwouldfindconvenient.Site3islackinginsupportamenitiessuchas

restaurantsandisfurthestfromanyexistingcommercialdevelopmentwhileSites1,2and

4 are within a reasonable drive of existing dining establishments. Sites 3 and 4 are

potentiallocationsfortheCollegeofOsteopathicMedicine,whichisnotadonedealandit

would be difficult for us to recommend either one of these sites based on a significant

8 developmentlikethecollegethatisstillpreliminary.Site1islocatedimmediatelyadjacent

toprobablythelargestdemandgenerator,theJeffersonCountyFairParkandthatmakes

this an attractive site for that reason. Site 3 is the closest to Interstate 94, which is a

potentialdemandgeneratorasJeffersonislocatedbetweenMilwaukeeandMadison.Site2

is intriguing, as it offers something unique being located on the Rock River. If the city

purchases this 20-acre site from the County and the riverfront is redeveloped with

commercial development such as a boat launch, restaurant, and other projects that the

mayor discussed with us, this could be a viable site offering recreational opportunities,

proximitytodowntownJeffersonanddiningspots,walkability,andcentrallylocatedwithin

thecommunityandthearea’sdemandgenerators.WhileitlacksalocationonBypass26,it

isaccessibleviatheBusiness26ortheUSH18interchangeswiththeBypass.

Site3isownedbytheCityofJefferson,whichmaybeanadvantagewhennegotiatingwith

ahoteldeveloper;thesamecouldbesaidaboutSites2and4thatareownedbyJefferson

County.WeunderstandthattheownerofSite1isinterestedindiscussingtheopportunity

ofahotelbeingdevelopedontheirvacantparcel.

Withanyofthesesites, itwillbekeytodeveloptheareaaroundthehotelwithat leasta

restaurant and other commercial development suitable for the particular location.

Additional research would need to be conducted to check the parcels for availability,

zoning,cost,andinfrastructure/utilities.

AmapofthefourpotentialsiteswithinJeffersonandasecondmapidentifyingthelocationof

potentialdemandgeneratorsfollow.

POTENTIALSITESFORPROPOSEDMIDSCALELIMITED-SERVICEHOTELJEFFERSON,WISCONSIN

POTENTIALDEMANDGENERATORSJEFFERSON,WISCONSIN

MARKETAREAOVERVIEW

JeffersonandJeffersonCounty

TheCityofJeffersoniscentrallylocatedinJeffersonCountyandisthecountyseat.TheCityofJeffersonislocatedmidwaybetweenWisconsin’stwolargestcities,MilwaukeeandMadison,45milesand35miles,respectivelyviaInterstate94orUSH18. JeffersonissurroundedbyJohnsonCreekandWatertowntothenorth,LakeMillstothewest,FortAtkinsontothesouth,Whitewatertothesoutheast,andthetownofJeffersonandruralJeffersonCountytotheeast. Demographics,BusinessandEconomicBase

Although there isnocorrelationbetween thesizeofanarea’spopulationand its leveloftransientvisitation,historicalandprojectedpopulation trendsoftenreflect theeconomicclimateofalocale.PopulationtrendsforthecitiesofJefferson,FortAtkinson,Watertown,andWhitewater,aswellas JeffersonCountyandthestateofWisconsin,arepresented inthefollowingtable.

PopulationEstimates

Location

Census

2000

Census

2010

%Change

2000-2010

Estimated

2016

%Change

2010-2016

CityofJefferson 7,338 7,973 8.6% 8,024 1.6%

CityofFortAtkinson 11,621 12,368 6.4% 12,541 1.2%CityofWatertown 21,598 23,861 10.5% 23,817 (0.2%)CityofWhitewater 13,437 14,390 7.1% 14,517 0.9%JeffersonCounty 74,021 83,686 13.1% 84,625 0.6%StateofWisconsin 5,363,675 5,686,986 6.0% 5,778,708 1.6%

Source:U.S.CensusBureauAccording to theU.S. CensusBureau, themedianhousehold income in2015 for the cityofJeffersonwas$47,817ascomparedtoJeffersonCountyat$56,877,andthestateofWisconsinat$53,357. Themedianhousehold incomeforFortAtkinsonwas$50,072,Watertownwas$49,442,andWhitewaterwas$30,173.Laborforceestimatesfor2015,2016,andthemonthofJuly2017forJeffersonCountyandthestateofWisconsinispresentedinthefollowingtable:

LaborForceEstimates

JeffersonCountyandStateofWisconsin

2015,2016andMonthofJuly2017

Category 2015 2016 MonthofJuly2017

County State County State County StateLaborForce 45,688 3,094,857 47,748 3,120,229 46,256 3,136,701Employed 43,748 2,953,580 43,902 2,991,033 44,787 3,049,015Unemployed 1,940 141,277 1,846 129,196 1,469 87,686

UnemploymentRate 4.2% 4.6% 4.0% 4.1% 3.2% 2.8%Source:worknet.wisconsin.gov

12 The quarterly census of employment (QCEW) is presented in the following table forJeffersonCountyfortheaveragemonthlyemploymentforfirstquarter2017.

QCEW

JeffersonCounty,Wisconsin

FirstQuarterAverage2017

Industry Employment PercentofTotal

Manufacturing 8,399 26.6%Trade,Transportation,Utilities 6,999 22.1Education&HealthServices 5,571 17.1

Leisure&Hospitality 2,932 9.3Professional&BusinessServices 2,622 8.3

PublicAdministration 1,304 4.1Construction 1,181 3.6

FinancialActivities 844 2.7OtherServices 667 2.1

NaturalResources/Mining 604 1.9Information 500 1.6

Total 31,621 100.0% Numbersmaynotaddduetorounding Source:WisconsinDepartmentofWorkforceDevelopmentThetopthreeindustries,manufacturing,trade/transportation/utilities,andeducationandhealthservicescomprisednearly66.0percentoftheaveragefirstquarteremploymentinJeffersonCounty.According to the JeffersonChamberofCommerce, the largestemployers in JeffersonandJeffersonCountyareasfollows:

13 LargestEmployers

JeffersonandJeffersonCounty,Wisconsin

Employer Location NumberofEmployees

FortHealthCare FortAtkinson 700WatertownRegionalMedicalCenter Watertown 600

JeffersonCounty Jefferson 430Nasco FortAtkinson 430Generac Jefferson 290

St.Coletta's Jefferson 290Wal-Mart Jefferson 200

JeffersonCountySheriffDept. Jefferson 138Nestle Jefferson 125

KendallPackaging Jefferson 125HighwayLandscapers Jefferson 125BasinMachining Jefferson 125

LDFoods Jefferson 100ValeroRenewables Jefferson 88

Source:JeffersonChamberofCommerce TransportationThecityofJeffersoniswellconnectedtotheregionthroughtheexistingroadwaynetwork.Interstate 94, State Highway Business 26 and Bypass 26, U.S. Highway 18 (West RacineStreet),andseveralcountyhighways,J,W,K,N,andYserveJeffersonandJeffersonCounty.Interstate94isaneast/westinterstatehighwaylocatedaboutsixmilesnorthofthecityofJeffersonandtravelseast45miles toMilwaukeeandwest35miles toMadison,where itconnects with other highways or continues to major markets like Chicago andMinneapolis/St.Paul,respectively.State Highway 26 is a two-lane north/south highway that begins in Rock County andextends northeast to Winnebago County; along the route are a few urban multi-lanearterials includingJeffersonandFortAtkinson. Inbothcommunities,Business26travelsthrough the downtown andBypass 26 passes on thewest side of each citywith severalexitsprovided.InJefferson,therearethreeexitsthatprovideaccesstothesouth,central,and north sectors of the city. The Bypass was completed in 2011, which has reroutedcommercialtruckandpass-throughtrafficfromdowntowntothecity’swesternedge.U.S.Highway18runseast/westthroughthesouthernportionofthestateofWisconsinandeast of Madison, the highway runs parallel with Interstate 94 ending in downtownMilwaukeeatLincolnMemorialDrive.InJefferson,USH18isknownasRacineStreetandintersectswithBusinessHighway26inthedowntowncore.The closest commercial airportswould beGeneralMitchell InternationalAirport locatedabout 60 miles east of Jefferson on the south side of Milwaukee or the Dane CountyRegionalAirportlocatedontheeastsideofMadison,approximately40mileswest.

14 EconomicDevelopment

Jefferson County is surrounded by Dodge County to the north,Waukesha County to theeast,WalworthCountytothesoutheast,RockCountytothesouthwest,andDaneCountytothewest. ProximitytothesesurroundingcountiesuniquelypositionsJeffersonCountytocommunitiessuchasMadison,thestatecapitolandhomeoftheUniversityofWisconsininDaneCounty,Janesville/BeloitinRockCounty,andWaukeshaandproximitytothemajormetropolitanareaofMilwaukeeandMilwaukeeCountyinWaukeshaCounty.

Jefferson County offers a diversified economywith just over 25 percent of its economicbase in manufacturing, a figure that is higher than both the state and the nation. Theservice industry also represents a significant employment sector. Over 10,000 jobs arelinkedtoagriculture,whichisa$1.5billionindustryintheCounty.JeffersonCountyoffersseveral “niche” economic sectors that include advancedmanufacturing, food processing,andbiofuels.SomeofthelargeremployersintheCountyincludeFortHealthcare,Inc.,Nasco,JonesDairyFarm,Spacesaver,OSI,JeffersonCounty,MasterMold,StandardProcess,TrekBicycleCorp.,Watertown Regional Medical Center, Bethesda Lutheran Communities, Generac, andUniversalElectronics,Inc.

Adiversifiedandstableeconomyisgoodnewsfor JeffersonCountyafter fourcompaniesannouncedin2015that1,000peoplewouldbe laidoffbeginning in2015andinto2016.ThecompaniesincludedMcCainFoodsinFortAtkinson,LittlefuseInc.formerlyHamlinInc.ofLakeMills,TysonFoodsinJefferson,andEatonCorp.inWatertown.Thelargestclosureimpacted the cityof JeffersonwhenTysonFoods announced inNovember2015 that theplantwouldbeclosingand400employeeswouldbe laidoffbeginning inmid-2016afterbeinginbusinessfor141years.ThelayoffsinJeffersonCountyaccountedfor10percentoftheplannedlayoffsinthestateofWisconsinin2015.Althoughtheselayoffsweredifficulttomanageatthetime,thecurrentunemploymentrateof3.2percentreflectsarecovery.Jefferson, thecountyseat, is locatednearlymidwaybetween the two largest cities in thestateofWisconsinandissixmilessouthofInterstate94,thehighwaythatconnectsthetwocities. There are two business parks in Jefferson, North and South Industrial Parks.Companies located in those parks include American Weld Design, Carrico AquaticResources,Inc.,Generac,KendallPackaging,MilwaukeeDelivery,SlewfootSigns,ParkwayCenter, Remis Power Systems, Americold Logistics, LD Foods, Jefferson Current Electric,Peter Brothers Trucking, Koenig Concrete, United Drilling Co., and Basin PrecisionMachining. Someof Jefferson’searliestmanufacturingand industrialcompaniesthatstillexist today include Nestle Purina PetCare, Arrow Inc., Foremost Buildings, Inc., andWisconsinPlasticDrainTile.Inadditiontothesecompanies,JeffersonisalsohometoSt.Coletta,aproviderofsupportservices for adultswith developmental disabilities by offering residential and vocational

15 programs. The company is headquartered in Jefferson and has locations throughoutsouthernWisconsinandnorthernIllinois. Asthecountyseat,thecityofJeffersonretainsabout 95 percent of the county’s operations within the city limits with about 430employees.Accordingtocityofficials,thecompaniesandorganizationsmentionedinthisreportarestable.InAugust2017,Generacannounceda$73millionexpansionthatcouldcreate400jobsoverthenextfiveyearsatseveralofitsfacilitiesinthestateofWisconsinincludingJefferson.TheotherfacilitiestobeexpandedincludeditscorporateheadquartersinWaukeshaandplantsinOshkosh,Eagle,Whitewater,andBerlin.

AsmentionedintheSiteAnalysissection,thecityofJeffersonowns100acresonthenorthsideofthecity,justnorthoftheNorthIndustrialPark.Thissitehasbeenmentionedasapossible location for theCollegeofOsteopathicMedicine that isbeingconsidered for thecity of Jefferson. The alternative site for the College is a 200-acre parcel located on thesouthsideofthecommunitythat isownedbyJeffersonCounty,specificallythenortheastquadrant of Business and Bypass Highway 26. While this is a significant project ($125million) for the city of Jefferson and Jefferson County, the development of the Collegecontinues to have challenges with funding and no further information has been madeavailablesinceOctober2016asto ifandwhenitwillbebuilt. Accordingtocityofficials,theCollege isattemptingtoraise fundsthroughphilanthropyandbondfundingand is intheearlystagesofaccreditation;thecityofJeffersonhasindicatedthattheCollegeneedstobeopenby2020,whichmeanstheprojectwouldneedtobeginconstructionin2018.IftheCollege opens, it would be a significant development for this area however due to itsuncertainty,wehavenotmadeitafocusofourhotelanalysis.The former CountryMarket strip center in the southern sector of Jefferson is slated forredevelopmentthatwillincludeTheisens,anIowa-basedretailer,anautopartsstore,andDollarGeneral;afourthretaileristobelocatedinaformerbankbuilding.

Tourism

JeffersonCountyranked#29of72countiesinWisconsinbasedondirectvisitorspendingin 2016. Direct visitor spending in 2016 totaled $94.2million, up 4.0 percent from the2015figureof$90.6million. Totalbusinesssaleswerealsoup4.0percent in2016from$159.6millionto$165.9million.Tourism-relatedemploymentwasup2.2percent.The Jefferson County area is known as the Glacial Heritage Area (GHA), an area that ispromoted by the Jefferson County Economic Development Corporation as the “outdoorrecreationepicenteroftheMidwest”.TheGHAisanetworkofparks,wildlifeandnaturalareas, historic and cultural sites, waterways and preserves, all connected by trails andwaterways. GHA has a formal partnership with the Wisconsin Department of NaturalResources. The focus is to increase the area’s exposure of recreation opportunities toroughly half the state’s population between the Madison and Milwaukee corridor thatincludeshiking,biking,fishing,watchingwildlife,camping,hunting,horsebackriding,crosscountryskiing,wintersports,andotheroutdooractivities.

16 Jefferson County is also the closest rural outdoor recreation hub to those largermetropolitanareasmentionedintheprevioussectionandisdesignedtoconnectvisitorstothe recreation, conservation, and tourism offered in the area. The GHA is primarily inJeffersonCountywithsomeportionsinRock,Dodge,andDanecounties.TheRockandCrawfishRiversrunthroughJefferson.TheRockRiverTrailwasdesignatedaNationalTrailsWaterSystemin2013topromotethe320milesoftheRockRiver. Thetrails runs along the Rock River beginning in Fond du Lac County in the north to theMississippiRiverinRockIsland,Illinoisinthesouth.EachcommunityinJeffersonCountyhasitsownrecreation,shopping,dining,andtheartsthat theypromote. Otherpopular tourismactivities include the52-mileGlacialDrumlinStateBikeTrailthatparallelsI-94betweenWaukeshaandDanecounties,FiresideDinnerTheater, Kettle Moraine State Forest, Harry Potter Festival, Jefferson County Fair, LakeMills Main Street, the Trek Bicycle Tour, and the University of Wisconsin Whitewatercampus. The agri-tourism industry has seen growth with the opening of wineries,distilleries,andbreweriesthroughoutthecounty.The JeffersonCountyFairPark is located in Jeffersonnear the intersectionofBypass26andUSH18onthewestsideofJefferson. Thefairparkhasbeeninexistencesince1853andtheJeffersonCountyFairisconsideredoneofthepremiercountyfairsinthestateofWisconsin. Approximately43,000peopleattendthecountyfairannuallywhichisheldinJuly.Overthelastfiveyears,attendancehasrangedfromalowof37,927in2016toahighof47,547in2013.The facilities at the fairparkarevariedand include theActivityCenter, a12,000 squarefoot multi-purpose building that can be rented and has hosted receptions, dances,GemuetlichkeitDays,auctions,fleamarkets,tradeshows,andanimalshowsandseminars.Other exhibit/meeting/banquet facilities include the Commercial ExhibitHallwith 6,720squarefeet,theEastExhibitHallwith8,960squarefeet,theWestExhibitHallwith6,400squarefeetthatcanbeopeneduptotheActivityCenter for largerconventionspace,andM.A.P. Exhibit Hall with 6,000 square feet that can be used for horse shows and tradeshows. In addition to the exhibit halls, there are seven barns, a grandstand, and horsearena.Therearealso199RVcampingsitesandtenacresfortentcamping.Overthepast20+years, the fairparkhasmadeextensive improvements to the facilities that areusedthroughouttheyear.In2016,216eventswerehostedatthefairparkover241days.Ofthoseevents,125werepaid events, 64 were UW Extension/4-H events, and 27 were other interdepartmentalevents. It was estimated between 200,000 and 250,000 people drive into the fair parkannually. Accordingtothewebsiteandourdiscussionswithparkmanagement,activitiesandeventsthattakeplaceinclude:

17 • HorseshowseveryweekendbetweenMayandOctober• SpringandfallCarShowandSwapMeet• GemuetlichkeitDaysFestival• DairylandClassicDogShow–May• WisconsinLivestockSpringPreview• JeffersonCountyFair-July• WisconsinSheep&WoolFestival–September• The Activity Center is rented almost every weekend for flea markets, family

reunions,auctions,dances,banquets,HomeShow,SnowmobileGrassDrags,picnics,dairy shows, rabbit shows, dog shows, llama and alpaca, rabies clinics, campingrallies,youthrally,meetings,dairybreakfast,petswaps,4-Hprojectmeetings,andanumberofotheruses.

Management of the fair park discussed a feasibility study that would be conducted todeterminetheneedforadditionalconvention/arenaspaceatthepark.Itisenvisionedthata new facility could be two levels, where the main floor would houseconference/meeting/banquet space and the lower levelwould be a show ring/arena. Apermanent restaurant is also being considered. If developed, it would be built in thenorthwest cornerof thepark. If thisbuildingwere tobebuilt and if theproposedhotelweretobebuiltonSite#1(fromourSiteAnalysissection),ithasalreadybeendeterminedthatadditionalinfrastructureworkwouldhavetobeundertakentoimprovetheroadwaysaroundtheFairPark.Meeting and banquet venues aside from the fair park include Fairview Sports Bar &Banquet Hall that has a capacity for about 125 people. The Jefferson Golf Course isexpandingtheirbanquetspace.Thegolfcoursecancurrentlyseatabout100peopleintheNeighborsRestaurantthatisalsousedforbanquets,whichisnotanidealsituation.BytheendofOctober2017,thegolfcoursewillhavenewbanquetspaceforabout300peopleaswell as an outdoor wedding site. Other banquet/wedding venues in Jefferson CountyincludetheBusinessCenterindowntownJefferson,WindwoodofWatertownGolfCourse,MilfordHillsHuntClubinJohnsonCreek, Jansen’sBanquetHall inFortAtkinson,andtheComfortSuitesJohnsonCreek.AuniqueeventbeingheldforthefirsttimeinJeffersonin2017istheHarryPotterFestival.DuringthethirdweekendinOctober,thecityofJeffersonwillplayhosttofansoftheHarryPotterseries. This is thethirdyear for the festival; for the first twoyears, itwasheld inEdgerton,whichitquicklyoutgrew.Attendanceforthefirstyearwasabout5,500people,inthesecondyearattendancewasestimatedtobeabout40,000peopleand38stateswererepresented.ItisanticipatedthefestivalcouldbecomeanannualeventinJefferson.Sporting events are popular throughout Jefferson County ranging from youth sports tocollegeathleticsatUW-Whitewater.

18 To further increase tourismandvisitors to Jefferson, theChamberofCommerce and thecityofJeffersonhavebegunanewmarketingprogramthatincludesnewpromotionsandbrandingefforts.AregionalmapofJeffersonandJeffersonCountyfollow.

REGIONALLOCATIONJEFFERSON,WISCONSIN

HOTELSUPPLYANDDEMANDANALYSIS LodgingSupplyThecityofJeffersoncurrentlyofferstwolodgingproperties,the41-roomRodewayInnandthe30-roomHilltopMotel.TheRodewayInnisaneconomyconceptandpartoftheChoiceHotels International brand of hotels. The property is not considered competitive to theproposed hotel due to its low rate structure, orientation toward the price conscioustraveler,andproductquality. TheHilltopMotel isconsiderednon-competitivedueto itsproductqualityandlowrates.BothpropertiesarelocatedinthesouthsectorofJefferson.Basedonourdiscussionswith local officials and the interviewswe conductedwith localdemand generators, we determined that demand generated in Jefferson is seekingaccommodationsoutsideofJeffersonandstayinginFortAtkinson,JohnsonCreek,andtoalesserextentWatertownandWhitewater(mostlyduringpeakperiodsofdemandsuchastheJeffersonCountyFair).BasedonourresearchinJeffersonandJeffersonCounty,weassembledacompetitivesetofsix hotels with 413 guest rooms that we believe would provide competition to theproposed midscale limited-service hotel. This competitive set was selected based onlocation,brandaffiliation,ratestructure,and/orpropertytype.Whileeachpropertywouldprovidevaryingdegreesofcompetition,webelievecollectivelythiscompsetincludesthehotelsbeingutilizedbyJeffersondemandgenerators.

CompetitiveLodgingPropertiesJefferson,Wisconsin

Property Location Property Class Number of Rooms

Year Open/Change

HolidayInnExpress&Suites

FortAtkinson UpperMidscale 78 2000

ComfortSuites JohnsonCreek

UpperMidscale 100 2005/2012

HolidayInnExpress Watertown UpperMidscale 79 1996Super8 Watertown Economy 45 1992

BaymontInn Whitewater Midscale 60 1997/2007Super8 Whitewater Economy 51 1991/2013

Total 413

Property Class as defined by STR, Inc. Source: STR, Inc. TheHolidayInnExpress&SuitesinFortAtkinsonisconsideredthemostdirectcompetitorforahoteldevelopmentinJefferson.ThehotelislocatedattheinterchangeofHighway12andBypass26,about fivemilessouthof thesouthernmostexitof Jefferson. TheHolidayInn Express & Suites is locally owned and the ownership group is currently underconstructionwitha78-roomCountry Inn&Suitesadjacent to theHoliday InnExpress&Suites. TheHoliday InnExpress&Suites iswellmanagedand is affiliatedwitha strong

21 brand.Eventhoughthehotelis17yearsold,thepropertyiswellmaintained.TheComfortSuites in JohnsonCreek isalsoconsideredadirectcompetitordue to itsbrandaffiliationandlocationneartheinterchangeofI-94andStateHighway26,alittleoversixmilesnorthof Jefferson. The hotel is located off of I-94 however the access to the hotel is ratherchallengingforfirsttimevisitorsasitisnotattheinterchangebutslightlywestandnorthofHighway26. TheComfortSuitesinouropinionwasoverbuiltforthemarketbasedonthenumberofrooms(100)andittooklongerthanexpectedforthehoteltorampup.Thislikelyhadanimpactontheoverallhistoricperformanceofthecompset. Inaddition,theComfort Suites has been sold three times since it’s opening in 2005with the latest saleoccurring inAugust2016. Changeofownershipand/or change inmanagement canalsohaveanegativeimpactonahotel’sperformanceinadditiontoeconomicfactors.TheHolidayInnExpressinWatertownwouldalsobealikelycompetitorduetoitslocationin JeffersonCountyalthoughwewouldexpect this tooccurmoreduringpeakperiodsofdemandratherthanonaregularbasis.Accordingtopropertytaxrecords,theHolidayInnExpressWatertownwassoldinAugust2017.TheBaymontInnandthetwoSuper8sarenotconsideredverycompetitivewithabrandnewhotelduetotheirlowerratestructure,theirproductofferingandquality,andmarketorientationtothemorepriceconscioustraveler.TheSuper8Whitewaterconvertedtothisbrandin2013afteropeningastheeconomybrandofAmerica’sBestValueInn.TheywereincludedinthecompsetprimarilysothataSTRreportcouldberun(inordertomeetSTRInc.’srules)andwebelievetheinclusionofthesethreehotelshashadanegativeimpactontheperformanceoftheoverallcompset.Inouropinion,thefactthattheownersoftheHolidayInnExpress&SuitesinFortAtkinsonarebuildingasecondhotelisanindicationtousthatthemarketisinneedofnewqualityhotelproduct.We anticipate the Holiday Inn Express & Suites in Fort Atkinson and the Holiday InnExpress Watertown as well as the Comfort Suites Johnson Creek to provide the mostcompetitiontotheproposedmidscalelimited-servicehotelbasedontheirbrandaffiliation,facilities/amenitiesoffered,andratestructure.Thefollowingcompetitivepropertyprofileshows thedisparity inposted rack rates between the first threehotels thatwe considerdirectcompetitionandthelastthreehotelsthatshowalowerratestructure.WehavepreparedacompetitivepropertyprofiledescribingthefeaturesofthecompetitivesetfollowedbyalocationmapoftheJeffersoncompetitivehotels.

COMPETITIVEHOTELPROPERTIESJEFFERSON,WISCONSIN

AdditionstoSupplyDuringthecourseofourresearch,welearnedofonehotelthatisunderconstructioninthecompetitivemarketareaandthat isa78-roomCountry Inn&Suites inFortAtkinson. Theuppermidscalelimited-servicehotelisbeingdevelopedadjacenttotheHolidayInnExpress&Suitesbythesameowner.Wehaveestimatedthehotelwouldopenmid-2018asithadjuststarted construction during our fieldwork inmid-June. We considered the Country Inn &Suitesasadirectcompetitortotheproposedhotel forJeffersonbasedonlocation, facilitiesandamenitiesoffered,brandaffiliation,andratestructure.WeareawarethathotelshavebeendiscussedforbothWatertownandWaterlooalthoughwebelievetheyareearlyinthediscussionstageandhavenotincludedanyadditionalroomsinour supply and demand analysis besides the Country Inn & Suites in mid-2018 and theproposed50-roomhotelforJeffersoninmid-2019.Basedontheopeningofthe50-roomSubjectHotelandthe78-roomCountryInn&SuitesinFortAtkinson,itisestimatedacompoundannualgrowthrateof3.9percentwillberealizedbetween2016and2023. Onanannualbasis,supplyisestimatedtoincrease0.0percentin2017,9.4percentin2018,14.2percentin2019,and4.8percentin2020.Thebasenumberofcompetitive roomswould increase from413 rooms to541 roomsor128 rooms. Demandduring this sameperiod is estimated to increase at a compoundannual growth rate of 4.4percent.AreaRoomDemandHotelroomdemandiscategorizedas“demonstrated”demand,orthatdemandwhichcanbequantifiedbyexaminingoccupanciesatexistinghotels;“unsatisfied”demand,orthatdemandwhich is turned away or denied at existing hotels because of capacity limits and findingaccommodationsoutsidethedefinedcompetitivemarket;and“induced”demand,definedasthatdemandwhichdoesnotnowseekaccommodationsinthemarketbutwhichwould,givenanacceptablequalityhotel, thepropersaleseffortsandtheavailabilityofadditionalroomssupply.Inthismarket,allthreetypesofdemandhavebeenevaluated.Demandforhotelroomsinanygivenareaismeasuredbyoccupancypercentagesandaveragedailyrates(ADR).Althoughthesestatisticsvarybetweenpropertiesbecauseofage,location,condition,marketingeffortsandseasonality,areaaveragesareusefulinanalyzinghistoricaltrendsandprojectingfutureconditionsastheyrelatetothemarketpotentialofaproposedproject. STR Inc. tracks room supply and demand characteristics in markets across thecountry, maintains an up-to-date inventory of all hotels and receives actual operatingstatistics froma largesample ineachmarket. Weusedthis informationtosupplementourresearchfindings. InformationfromtheSTRreport ispresented inthe followingtablethatshowssupply,demand,occupancy,averagedailyrate,andRevPARonanannualbasisfortheperiod2011-2016andyear-to-datethroughJuly2016and2017.ThefullSTRreporthasbeenretainedinourfiles.

25 StandardHistoricalTrend

ProposedMidscaleLimited-ServiceHotelJefferson,Wisconsin

Year

RoomSupply

%Change

RoomDemand

%Change

Occupancy

ADR1

RevPAR2

2011 151,110 --% 81,900 --% 54.2% $72.99 $39.562012 151,110 0.0 77,470 (5.4) 51.3 76.40 39.172013 150,620 (0.3) 74,837 (3.4) 49.7 84.05 41.762014 150,594 0.0 76,623 2.4 50.9 86.22 43.872015 150,745 0.1 82,087 7.1 54.5 89.32 48.642016 150,745 0.0 84,720 3.2 56.2 92.86 52.19

2016* 87,556 -- 48,280 -- 55.1 91.95 50.702017* 87,556 0.0 45,618 (5.5) 52.1 95.32 49.66

1–ADR=AverageDailyRate2–RevPAR=RevenuePerAvailableRoom(OccupancyxADR)*ThroughJulySource:STR,Inc.TheSTRreportincludedthesixhotelswith413roomsmentionedpreviouslyandservedasthebasisforouranalysisgoingforward.Occupancy has shown steady growth from 2013-2016 however the competitive set’soccupancyisbelowthenationalaverageasshowninthetablebelow.Wementionedearlierin this section that the competitive set includesproperties thatwebelieve are capturing agreatershareofthecorporateandoveralldemandinthismarketwhileatleastthreeofthepropertiesare,inouropinion,performingatlessthanthemarketaverageoccupancy,whichbringstheoveralloccupancydown. Inparticular,webelievetheBaymontInn&SuitesandthetwoSuper8sserveadifferentcustomerbasethantheotherthreehotelsinthecompsetandwhatwebelievetheproposedmidscalelimited-servicehotelinJeffersonwouldpursue.Becauseofsomeofthelodgingproductofferedinthecompset,weestimatethatdemandisgoingoutsidethecompetitivemarkettocommunitieseastlikeOconomowocandDelafieldorwest to Madison depending on where travelers are coming from and what type ofaccommodationstheyarelookingfor.TheSTRreportprovidesusabasefromwhichtobeginouranalysis,howeverwebelievethataquality,brandnewhotelcaninducedemandintothemarketthatiscurrentlyleavingduetoproductqualityandthisisdiscussedinalatersection.Averagedailyrateduringthissix-yearperiodhassteadilyincreased.IncreasesinADRhaverangedfromalowof2.6percentin2014toahighof10.0percentin2013.TheaverageADRincreaseoverthehistoricalsix-yearperiodwas5.0percent,whichisconsideredveryhealthyrategrowth.TheincreaseinADRhashelpedtheRevPARtosteadilyincreaseaswell,whichisafactorconsideredimportantbyhoteloperatorsandinvestors.

26 Forcomparisonpurposesonly,wepresentnationalperformancefiguresfrom2007-2016asprovidedbySTR, Inc. Thedata includesproperties from largemetropolitanareas to smallcommunitiesandchainscalesrangingfromluxurytoeconomy. Thetablebelowshowstheimpact the recessionhadon thenational hotel industry from2008-2010 and the recoverybeginningin2011thathascontinuedthroughmid-2017.

NationalHotelPerformanceData2007-2016,Year-to-dateAugust2017

Year Occupancy ADR RevPAR2007 62.9% $104.05 $65.592008 60.4 106.55 64.372009 55.1 97.51 53.712010 57.6 98.08 56.472011 60.1 101.64 61.062012 61.4 106.10 65.172013 62.3 110.35 68.692014 64.4 115.79 74.572015 65.6 120.01 78.672016 65.5 123.97 81.19

YTDAugust2016 66.3 124.08 82.24YTDAugust2017 66.6 126.81 84.46

Source:STR,Inc.The competitive set STR report presents analysis for the day of week, weekday versusweekendthatispresentedinthefollowingtablefortheselectcompetitiveset.Thethree-yeartrailingtwelve-monthperiodstartsAugust2014andendsJuly2017.

27 DayofWeekAnalysisSelectCompetitiveSetJefferson,Wisconsin

Period Sun. Mon. Tues. Wed. Thurs. Fri. Sat. Avg.8/14-7/15 Occupancy 31.5% 46.5% 53.5% 52.0% 50.5% 60.1% 71.9% 52.3%

ADR $79.54 $80.83 $82.49 $82.42 $84.15 $95.64 $99.78 $87.82RevPAR $25.07 $37.66 $44.15 $42.82 $42.51 $57.45 $71.71 $45.93

8/15-7/16 Occupancy 33.3% 52.0% 59.8% 57.5% 57.1% 62.5% 72.5% 56.4%

ADR $83.73 $83.50 $84.16 $85.13 $86.53 $102.13 $106.76 $91.56RevPAR $27.92 $43.41 $50.35 $48.94 $49.41 $63.84 $77.43 $51.62

8/16-7/17 Occupancy 32.5% 48.3% 56.3% 56.5% 53.5% 60.7% 73.2% 54.4%

ADR $84.41 $87.13 $87.04 $88.59 $89.74 $104.80 $110.52 $94.76RevPAR $27.42 $42.12 $49.01 $50.09 $48.02 $63.65 $80.94 $51.58

3-yrAvg. Occupancy 32.5% 48.9% 56.6% 55.3% 53.7% 61.1% 72.5% 54.4%

ADR $82.61 $83.87 $84.59 $85.46 $86.85 $100.86 $105.73 $91.43RevPAR $26.81 $41.03 $47.84 $47.28 $46.64 $61.62 $76.70 $49.71

Source:STR,Inc.ThecompetitivesetachievesstrongeroccupanciesandaveragedailyratesonFridayandSaturdaynightsthantherestoftheweek,particularlySaturdaynights.Weekenddemandis generated by the Jefferson County Fair Park, weddings, UW Whitewaterfootball/athletics/events, and during the summer months, outdoor recreational visitors.TuesdayandWednesdaynightsareusuallypeaknightsforcorporatetravelers.The seasonality of demand is evident in this competitive market. The months of JunethroughOctoberachievehigheroccupanciesascomparedtoNovemberthroughMay.JunethroughOctoberoccupanciesranged,onaverageover thesix-yearperiod, in the low60spercent while the remaining months achieved occupancies ranging from the mid 30spercent to themid 50s percent. However, looking atmonthly occupancies in 2015 and2016,thepeakdemandmonthsofJunethroughOctoberreflectedhigheroccupancies.DemandMixandProjectedGrowthinDemandWe estimate the 2016 market mix of the competitive supply to be 60 percent CorporateIndividual,5percentGroup/SMERF,and35percentTourist/Other.Corporate Individual is the largest segment of demand (51,300 room nights) for thecompetitive market. This segment includes executives, salespeople, vendors, buyers,consultantsandothertypesofpeopledoingbusinesswiththecorporationsandinstitutions

28 located in Jefferson, Jefferson County, and the surrounding communities. Based on ourknowledgeofthecompetitivemarket,discussionswithcityofficials,andlocalhoteloperators,weestimatedthatthismarketsegmentcouldexperienceacompoundannualgrowthrateof3.3percentovertheperiod2016-2023.Ourestimatesreflecttheopeningoftheadditionstosupplywhichcouldattractdemandthathasnotpreviouslybeenaccommodatedinanyofthecompetitivehotels,induceddemandwhichisdemandthatisloyaltothefranchisesenteringthemarket and/or that previously did not patronize the hotels in the competitive supplybecausetheydidnotmeettheirneeds.Theestimatedgrowthintransientindividualshouldvarybyyear,butbestrongestin2018-2019,reflectingtheopeningoftheproposedhotels.Group/SMERFdemandisdefinedascorporategroups,conventionsandassociationbusinessthatareattending trainingsessions, retreats, salesmeetings,educational/technicalsessionsand other general types of meetings. Also included in this segment are SMERF (social,military,educational,religious,andfraternal)groupsandsportsgroups.Thecompetitivesetislikelynotcapturingthetypicalmeetingsorconventionbusinessduetothelimitedamountofmeetingspaceofferedateachofthesehotels,withtheexceptionoftheComfortSuitesthatoffersmeeting/banquetspaceforseatingupto350people.Weestimatethatweddingsandsportsgroups/teamsgeneratemuchof thegroupbusiness forthiscompset. Basedonourlocal interviewsandknowledgeof themarketarea,weestimatedthat thismarketsegmentcouldexperienceacompoundannualgrowthrateof3.9percentovertheperiod2016-2023.Weestimatedthegroupsegmentgenerated3,900roomnightsin2016.The Tourist/Other segment with 29,600 room nights is the second largest segment ofdemand and is comprised of those individual travelers visiting the attractions, festivals,sportingevents,andculturaleventsinJeffersonandJeffersonCounty.Thissegmentcanalsoinclude individual SMERF (social, military, educational, religious, and fraternal) travelers.Thoseattendingweddingsbutnotpartofagroupblockwouldbeincludedinthissegment.JeffersonCounty’slocationjustsouthofI-94andnearlymidwaybetweentheMilwaukeeandMadison metropolitan markets provides an alternative lodging location for those visitorstraveling between the two cities or for those looking for lodging during peak periods ofdemand.Transient traffic typically grows at a lower rate unless there is a new attraction ormajordevelopmentorotherspecificreasonforsignificantincreasesinvisitation.Anewhotelwilltypically induce demand that has previously not been accommodated by the competitiveproperties.Thisisoftenbecauseofloyaltytoachain,amoredesirablelocationorsimplytheavailabilityofanewproperty. Thisdemandsegmentisthemostvolatilebecausevisitationcanbedependentontheweather,scheduledactivities,nation-wideeconomicconditionsandsuch. Basedonallofthesefactorsandourdiscussionswithareahoteloperatorsandotherknowledgeablesources,weestimatedthatthismarketsegmentcouldexperienceacompoundannualgrowthrateof6.2percentannuallyovertheperiod2016-2023.Thefollowingtablesummarizesourestimatesregardingmarketsupplyanddemandduringtheprojectionperiod;thedemandestimatesincludeinduceddemandfortheproposedhotels.

29 TotalCompetitiveMarket


Year

AnnualAvailableRooms

AnnualGrowthSupply

AnnualOccupiedRooms

AnnualGrowthDemand

MarketOccupancy

2016 150,745 --% 84,800 --% 56.0%2017 150,745 0.0 86,800 2.4 58.02018 164,980 9.4 90,600 4.4 55.02019 188,340 14.2 99,200 9.5 53.02020 197,465 4.8 105,700 6.6 54.02021 197,465 0.0 109,200 3.3 55.02022 197,465 0.0 111,800 2.4 57.02023 197,465 0.0 114,500 2.4 58.0

Note:Numbershavebeenrounded.AdditionstosupplywerediscussedinaprevioussectionSource:PatekHospitalityConsultants,Inc.It should be noted that we did not take into consideration in our analysis the proposeddevelopment of the College of Osteopathic Medicine, as it is too preliminary. Should theCollegebedeveloped in Jefferson andopenby2020, it is expected tohave a verypositiveimpact on a new hotel in Jefferson and would likely provide demand that exceeds ourestimates.Between2016and2023,supplyisestimatedtogrowatacompoundannualgrowthrateof3.9percentwhiledemandisestimatedtogrow4.4percentduringthissameperiod.Whilewebelieve that occupancies can exceed our estimates stated above, we also know thatunforeseen circumstances can cause occupancies to fall below our estimates. From anhistorical perspective, a stabilized occupancy of 58.0 percent for the competitive set isreasonableinouropinion.PROJECTEDMARKETPOSITIONANDPENETRATIONOFTHEPROPOSEDHOTELDemandInterviewsA table summarizing our demand interviews is included on the following twopages. InconductingmarketresearchforaproposedhotelinJefferson,webelieveitisimportanttoconductdemandinterviewswithcompaniesandorganizationsthataregeneratorsofhotelroom demand. These interviews provide us with insight into the travel volume, needs,hotel preferences, desired room rates, and types of travelers (i.e. executives, sales reps,vendors,meetings,etc.)foreachorganization.Inaddition,theinterviewshelpustogaugethe prospective interest in a proposed hotel and provide helpful input for the facilities,amenities, and services for a property. The demand interviews provide us with morequalitativeinformationratherthanquantitativedata.Wedidaskcompaniestoestimatethenumberofroomnightsgeneratedbytheircompany

30 as best as they could. This can sometimes be a difficult task as the company’s need forhotel rooms canvarybasedonproduction schedules, trainingandmeetings, seasonality,various individuals making the reservation, and whether customers/distributors arevisiting other facilities in the region and choose to stay elsewhere. Gathering thisinformation on roomnights is very helpful in determining the potential for a new hoteldevelopment,howeverthereareotherfactorsthataretakenintoconsiderationinmakinganassessmentona community’sability to supportadditional rooms. A summaryofourdemandinterviewsfollows.

Demand Generator Interviews – Jefferson, Wisconsin (conducted July/August 2017) Company/Contact Hotels Used/Rate

paid Est. Room Nights* (Range)

Facilities/Amenities Preferred

Location/Comments

Nestle David

Holiday Inn Express – Fort Atkinson. Rate - NA

Varies, 0-40 people/week, training 2-3x/year is higher, other plant visitors 5-10 people/month that may stay 3-4 nights, other visitors may visit 1-2 people/week for 1-2 nights

There is a need for a restaurant. Would like to be closer to amenities like restaurants within walking distance

Most visitors fly into Milwaukee and rent a car. Sees a need for a hotel in Jefferson

Generac John Chris – Corporate Travel Coordinator for Generac

Holiday Inn Express – Fort Atkinson, Comfort Suites Johnson Creek. Rate $109 at HIEX.

15-20/month for 2-3 nights = 360-720/ room nights/year.

None provided. Believes there is a need as the area is short on restaurants and hotels and it is hard to entertain visitors without these amenities

Corporate HQ is in Waukesha so much of the visitors stay in Waukesha, Pewaukee, Delafield, and Oconomowoc. About 75-80% of their visitors are international

Basin Machining Eric

Holiday Inn Express – Fort Atkinson, $95.00

Estimated 50-60 room nights annually

None Some corporate stays in Madison and some corporate jets fly into Watertown. Sees company growth in the next couple years. Likes the Rock River location, as it is walkable to downtown and other places.

St. Coletta Robin

Holiday Inn Express – Fort Atkinson, Comfort Suites. Rate – NA, as a non-profit, they negotiate rates

Figure NA. August-2-day celebration. Families don’t typically live nearby and will visit monthly and holidays. Conduct board meetings

None Like the site close to the Fair Park

Jefferson Golf Course Jill

NA NA NA Believes a hotel is needed, particularly as they are in the process of expanding their banquet space to accommodate up to 300 people. Thinks shuttle service between the hotel and the golf course would be good for the hotel to offer.

32 Company/Contact Hotels Used/Rate

paid Est. Room Nights* (Range)

Facilities/Amenities Preferred

Location/Comments

Jefferson Cty. Fair Park Dave

Holiday Inn Express – Fort Atkinson, Comfort Suites and Days Inn Johnson Creek

NA NA Likes the location near the fair park. As the fair park continues to bring people in on a regular basis and is looking to expand the conference/banquet business, the need for a hotel becomes even greater. See Tourism section for more discussion on the fair park

Harry Potter Festival Scott

NA NA NA This is the first year that the Festival will be in Jefferson, however, based on last year’s figures held in Edgerton, the potential is great for this one weekend in October.

NA–NotAvailableNote:WeplacedcallstobothKendallPackagingandValeroandhadtoleavemessages;wedidnotreceiveacallback Source: Patek Hospitality Consultants, Inc. and Company Interviews

MethodologyandAssumptionsWe assessed the prospective competitive status of the Subject hotel as compared to thedefined competitive lodging supply and as it will be affected by such factors as location,setting,natureandqualityof facilitiesandtheextenttowhichthehotelcouldcaptureeachdemandsegmentbyperformingafairshare/penetrationanalysis.Ahotel'sfairshareofthemarketisdefinedasthenumberofroomsinthehoteldividedbythetotalsupplyofroomsinthemarket including the subject hotel. Theproperty is estimated to reach stabilization in2021(thethirdyearofoperation)andtherewillbe541availableroomsinthecompetitivemarket.Thereforethesubject’sfairshareinthemarketbeginninginthestabilizedyearis50dividedby541or9.2percent.Themethodologyusedinthisanalysisconsideredthefactorsthatwebelievecouldinfluencetheprospectivesuccessoftheproposedmidscalelimited-servicehotel.

• Atthepresenttime,thelodgingproductlocatedinJeffersonisnotmeetingtheneedsofthecorporatetravelerandforthemostpart, the leisuretravelereither. Visitorsarehaving to travel outside the community for lodging, which is lost tax dollars toJefferson.

• Thehotelwillbeaffiliatedwithanationalhotelbrandwithagoodreservationsystem

and guest loyalty program. The brand is to be determined and will be furtherdiscussedwiththecityofJefferson.

• The city of Jefferson and surrounding communities have a good base of corporate

business thatbelievesanewhotel isneeded for Jefferson. Ourdiscussionswith theJeffersonChamberofCommerceandtheJeffersonCountyFairParkalsoprovideduswithinformationindicatingthatanewhotelwouldbesupported.

• WediscussedfoursitesforthecityofJeffersontoconsiderforhoteldevelopmentand

allhaveadvantagesanddisadvantages.To project occupancy for the proposed hotel we considered the property’s recommendedfacilities, services, and amenities; the site’s location; the competitive properties and thecompetitiveenvironmentinwhichthehotelwilloperate.Theadvantagesanddisadvantagesof thesitewerediscussed in theSiteAnalysissectionof thisreport. Otheradvantagesanddisadvantages, aswell as other factors thatwill influence the property’s ability to capturemarketdemand(andthereforeachievetheprojectedoccupancyandADRlevels)are:1. TheSubjectHotelwillbeopenonorbeforemid-2019.Ifthehotelopeningisdelayed,our

estimatesregardingfutureperformancecouldbeaffected.2. The Subject Hotel will feature about 50 guest rooms and suites and will include the

amenitiesandfacilitiesdiscussedintheProjectConceptsectionofthisreport.

34 3. Agroupyettobedeterminedwillownthehotel.Itisexpectedandassumedareputable

andexperiencedmanagementcompanywilloperatethehotel.4. Theadditionstosupplyhavebeentakenintoaccountinouranalysis.Ifadditionalhotels

enter themarket during our projection period, our occupancy and average daily rateestimatesfortheproposedhotelcouldbeimpacted.

PenetrationAnalysisFactors indicating that a hotel would possess competitive advantages suggest a marketpenetration rate in excess of 100 percent of fair share while competitive weaknesses arereflected in penetration levels of less than 100 percent. There is usually a period of timerequiredafteropeningforanewhoteltoreachitsfullmarketpenetration.Weestimatethattheproposedhotelwillachieveastabilizedpenetrationof116percentof fair share that isslightlylessthanitsfairshare.Stabilizationisestimatedtooccurinthehotel'sthirdyearofoperationin2021.Theprojectedpenetrationlevelsreflectthefollowingconsiderations.

• CorporateIndividual -Weestimatedthesubjecthotelwouldachieveabove its fairshare in this segment due to the lack of quality hotel product in Jefferson, a hotelconcept thatwould appeal to business travelers, the facilities and amenities offeredandthelocationwithinastableeconomicenvironment.Webelievethesubjecthotelcan induce demand into the market based on it being a brand new hotel with anational chain affiliation that offers a guest loyaltyprogramand reservation systemthat can generate a higher percentage of occupancy. We estimated the penetrationratestorangebetween107percentand122percentthroughouttheprojectionperiod.Ourprojectionsforthisdemandsegmentareforapproximately7,000roomnightstobeaccommodatedattheSubjecthotelinthestabilizedyearofoperation(2021),whichrepresentsapproximately60percentofthehotel’soverallcapturedroomnights.Thispercentageremainsstablethroughouttheprojectionperiod.

• Group/SMERF–Weestimatedthesubjecthotelwouldachieveaboveitsfairsharein

thissegment,asthepropertyisestimatedtocapturedemandfromweddings,sportsgroups, and blocks of visitors to the Jefferson County Fair Park. We estimated thepenetration rates to range between 100 percent and 108 percent throughout theprojectionperiod.Ourprojectionsforthisdemandsegmentareforapproximately500room nights to be accommodated at the Subject hotel in the stabilized year ofoperation(thirdyear),whichrepresentsapproximately4percentofthehotel’soverallcapturedroomnights.Thispercentageremainsfairlystablethroughouttheprojectionperiod.

• Tourist/Other-Weestimatethesubjecthotelwillachievejustaboveitsfairsharein

this segment mainly due to the proximity to the Jefferson County Fair Park, theoutdoor recreational activities, UW Whitewater, and location near I-94. Therecommended facilities and amenities will appeal to tourists and families alike,

35 particularly if suites are offered that are typically a larger guest roomand all guestrooms would offer refrigerators and microwaves. Weekend getaways and SMERFgroupscouldalso find the locationandproductattractive. Weestimatepenetrationratestorangebetween100percentand107percentfrom2019-2023.Theproposedhotel isexpectedtoaccommodateapproximately4,200roomnightsinthestabilizedyearofoperationandthatfigureremainsfairlyconstantthroughouttheremainderoftheprojectionperiod.Theseroomnightsrepresentapproximately36percentoftotaldemand.

Weestimatethepenetrationandsegmentationofdemandfortheproposedmidscalelimited-servicehoteloverthefive-yearperiod,2019-2023tobeasfollows:

EstimatedPenetrationandMarketSegmentationProposedMidscaleLimited-ServiceHotel

Jefferson,Wisconsin

Year/Category Corporate/Individual Group/SMERF Tourist/Other Overall

Year1 Penetration 107% 100% 100% 102%RoomNights 2,900 200 1,800 4,900

Segmentation% 59% 4% 37% 100%








Segmentation% 59% 4% 37% 100%Numbersmayberounded


36 ProjectedPerformanceWe have chosen to use a stabilized occupancy of 64 percent, which we believe will beachievedinthethirdyearofoperation(2021).Thestabilizedoccupancyisintendedtoreflectthe anticipated results of the property over its remaining economic life, given any and allchanges in the life cycle of the hotel. Therefore, the stabilized occupancy excludes fromconsideration any abnormal relation of supply and demand as well as any favorable orunfavorablenon-recurringconditionsthatmayresult inunusuallyhighor lowoccupancies.AlthoughtheSubjecthotelmayoperateatoccupanciesabovethisstabilizedlevel,webelieveit equally possible for new competition and temporary economic downturns to force theoccupancybelowthisanticipatedstabilizedlevel.Based on the rate structures at the competitive facilities and their locations, quality levels,chain affiliations, services and facilities offered in comparison to the proposed hotel, weestimatetheproposedmidscalelimited-servicehotelwillbeabletoachieveanaveragedailyroomrateof$96.00in2017valuedollars.Itisouropiniontheproposedhotelwillbeabletocompeteveryfavorablywiththeotheruppermidscalehotelsinthemarketbecauseitwillbea brand newhotel. In addition, the competitive hotelmarket has experienced steady rategrowthoverthepastsixyearsasdiscussedpreviously.The projected rate takes into account rack rates, discounted rates offered to preferredcustomers,transientdiscountedrates,andfranchisecorporaterates.Italsoconsidersthemixof demand and achievable rate by market segment. The proposed hotel’s ADR will beinfluencedbythemixofdemandandcanbemaximizedbycarefulbalanceofroomavailabilityand corporate individual, group, and tourist/leisure demand. Rack rates for the proposedhotel are estimated to range from$89.00-$139.00depending on the demand segment andtimeofyear.Basedonthelocal,regional,andnationaleconomicrecessionarytrends,wehaveforecasttherate increase to be 3.0 percent throughout the projection period. This growth level isintended to reflect the long-termaverage growth inADR; actual year-to-year changesmayvary.Assumingamid-2019opening,thefollowingoccupancyandaveragedailyratesareprojectedfortheproposedhotelbasedonacalendaryear.

37 ProspectivePerformance


Year

MarketOccupancy

HotelOccupancy

AverageDailyRate

RevPAR

2016 56.0% 2017 58.0 2018 55.0

2019/Year1 53.0 54.0% $101.90 $55.032020/Year2 54.0 59.0 104.90 61.892021/Year3 55.0 64.0 108.00 69.122022/Year4 57.0 64.0 111.30 71.232023/Year5 58.0 64.0 114.60 73.34


CONCLUSION Based on our market research and the information presented in this report, it is ouropinion thatdevelopmentofa50-roommidscale limited-servicehotel ismarket justifiedandwouldbewellsuitedfortheJefferson,Wisconsinmarket.Ourassumptionsarebasedonthehotelbeingaffiliatedwithanationalhotelcompanywithastrongreservationsystemandguest loyaltyprogramaswellasanaggressivesalesandmarketing effort in place prior to the hotel’s opening and aggressive and competentmanagement once the hotel is open. We have assumed that the local economy willcontinue to experience steady growth that will continue to bring corporate and leisurevisitors to Jeffersonand JeffersonCounty. Shouldanyof theseassumptionsnotoccurasprojectedorifunforeseencircumstancesoccurlocallyoronanationallevel,ourestimatescouldbenegativelyaffected.

38 PROJECTIONSOFINCOMEANDEXPENSEMethodologyInordertoprojectfinancialoperatingresultsfortheproposedmidscalelimited-servicehotel,wehaveinourfilesacustomHOSTReportprovidedbySTRAnalytics,aSTR,Inc.company.Ourcriteriaincludedlimited-servicehotelslocatedintheMidwestwith60roomsorlesswithorwithout a national franchise. Themajority of the propertieswere chain affiliated. TheHOST Report included 15 hotels with 873 rooms located in the Upper Midwest states ofIllinois, Indiana, Iowa, Michigan, Minnesota, and Wisconsin. The custom HOST Reportpropertiesachievedoccupancyof66.5percentandanADRof$99.58in2016ascomparedto68.0percentand$96.60in2015.Theaveragesizepropertyforthecontributingpropertieswas58rooms.Wealsousedthe2017(2016data)HOSTAlmanacbySTRAnalyticsforlimited-servicehotelsthroughouttheU.S. ThecategorieswereferencedincludedtheEastNorthCentralregionofthecountry,SmallMetro/TownLocation,andUpperMidscaleandMidscale/Economyclass(basedonaveragedailyrate).Inadditionwereferredtoactualfinancialoperatingstatementsinourfiles.The following paragraphs provide a brief explanation of the basis used to prepare theprojectionforeachlineitem.DataispresentedasvariousinputformssuchasPerAvailableRoom (PAR), Per Occupied Room (POR), or Ratio to Sales. Critical factors for the variousproperties were taken into consideration when reviewing the comparable data andadjustmentsforthesubjecthotelweremadebasedonlocation,facility,occupancyandrate,andotherrelevantoperationalissues.Allamountshavebeenroundedtothenearestthousanddollarsandaccountclassificationsforthehotelcomponentconformtothedefinitionsprescribedbythe11threvisededitionoftheUniformSystemofAccountsfortheLodgingIndustry.InflationandGrowthinRevenuesandExpensesOur projections incorporate an estimate of general price inflationbasedupon econometricprojections fromvarioussources, temperedbyourobservationsandexpectationsbasedonhistoricalperspectivesbothlocallyandnationally.Toportraypricelevelchanges,wehaveassumedaninflationrateof3.0percentthroughoutour projection period. Overall, the 3.0 percent rate reflects our long-term outlook for thefuturemovementofpricesintheareaandisintendedonlytoportrayanexpectedlong-termtrendinpricemovements,ratherthanforaspecificintervalintime.Ourgrowthassumptionsfor average rate have been presented previously in this report, and all other line itemexpensesareprojectedtoincreaseatthelevelofgeneralinflation.

39 On the following pages, we provided information for various categories from the customHOSTReportfor2015and2016aswellasfromthe2017HOSTAlmanac(2016data). Forthese same categories, we provided our estimate in a stabilized year of operation for theproposedhotel.DepartmentalRevenuesandExpensesRoomsDepartment: Roomrevenueisestimatedbymultiplyingtheoccupancyratebytheaveragedailyrate(ADR)projectedintheHotelSupplyandDemandsectionofthereport.Theoccupancies, average daily rates and resulting room revenue projected for the hotel aresummarizedasfollows:

ProposedMidscaleLimited-ServiceHotelJefferson,WisconsinProjectedPerformance

Year Occupancy ADR RevPAR RoomRevenueYear1 54.0% $101.90 $55.03 $1,004,200Year2 59.0 104.90 61.89 1,129,500Year3 64.0 108.00 69.12 1,261,400Year4 64.0 111.30 71.23 1,300,000Year5 64.0 114.60 73.34 1,338,500

Hotelisestimatedtoopenmid-2019


RoomsDepartment expenses include payroll and related costs associatedwith the frontdesk and housekeeping, operating supplies, laundry, linens, guest supplies, complimentarybreakfast,reservationexpense,andotheritemsnecessarytomaintainguestrooms.

RoomsExpenseCategory(2016data) Limited-ServiceHotels

POR RatiotoSales

EastNorthCentralRegion $22.31 22.9%SmallMetro/TownLocation $24.31 23.9%

UpperMidscaleClass $30.58 25.0%Midscale/EconomyClass $14.43 20.1%

CustomHOST2015 $28.15 29.1%CustomHOST2016 $29.33 29.5%

PHCEstimate(Stabilized) $25.92 24.0% Source:HOSTAlmanac,STR,Inc.,PatekHospitalityConsultants,Inc.

FoodandBeverage–Theproposedmidscalelimited-servicehotelwillnotofferfoodserviceasidefromcomplimentarybreakfastandthecostsassociatedwithbreakfastareincludedintheRoomsExpense.Revenueandexpensesassociatedwithanon-sitewineandbeerbarareincludedintheMiscellaneousIncomeandExpensecategories.

40 MiscellaneousIncomeandExpense:Thiscategoryiscomprisedofpantrysales(foodandsundry), on-site wine and beer bar, interest income, vendingmachine commissions, guestlaundry,meetingroomrental,andothermiscellaneousincome.WeestimatedMiscellaneousIncometobe$37,100inthestabilizedyear,whichequatesto$3.18peroccupiedroom.Thecorrespondingexpenseof40.0percentisreflectedthroughouttheprojectionperiod.UndistributedOperatingExpensesOperating expenses that are not chargeable to a particular operating department arepresentedasundistributedoperatingexpensesinaccordancewiththe11thRevisedEditionoftheUniformSystemofAccountsfortheLodgingIndustry.Theseexpensesarediscussedinthefollowingparagraphs.Administrative andGeneral (A&G): This category covers expenses such as salaries andwagesformanagementstaff,bookkeeping,creditcardcommissions,dataprocessingcharges,corporate office charges, office supplies, legal, accounting, allowance for bad debts, travelexpenses,licensesandpermits,andsimilaritems.

A&GExpenseCategory(2016data) Limited-ServiceHotels

PAR RatiotoSales

EastNorthCentralRegion $2,416 9.3%SmallMetro/TownLocation $2,282 8.7%

UpperMidscaleClass $2,869 8.5%Midscale/EconomyClass $1,923 9.9%

CustomHOST2015 $2,620 10.8%CustomHOST2016 $2,639 10.7%

PHCEstimate(Stabilized) $2,857 11.0% Source:HOSTAlmanac,STR,Inc.,PatekHospitalityConsultants,Inc.

Information and Telecommunication Systems: This category includes the cost ofmanagement informationsystemservices, supplies,andequipmentaswellas theexpensesassociated with the maintaining these systems. These systems also includetelecommunicationsystemssuchaslocal,longdistance,andInternetcommunications.Inthestabilizedyearofoperation,thisexpensewasestimatedtobe$28,600or$571peravailableroom.Marketing: Marketing expenses include local advertising, the cost of printing brochures,salaries, entertainment, dues and subscriptions and other related items. This expenseexcludesFranchiseFees.

41 MarketingExpense

Category(2016data) Limited-ServiceHotels PAR Ratioto

SalesEastNorthCentralRegion $1,274 4.9%SmallMetro/TownLocation $1,112 4.2%

UpperMidscaleClass $1,686 5.0%Midscale/EconomyClass $717 3.7%

CustomHOST2015 $687 2.8%CustomHOST2016 $702 2.9%

PHCEstimate(Stabilized) $743 2.9% Source:HOSTAlmanac,STR,Inc.,PatekHospitalityConsultants,Inc.

FranchiseFees:Franchisefeeswerebasedonthehotelbeingaffiliatedwithanationalhotelfranchise. Weused5.0percentofroomrevenueasourbasisforamidscale,limited-servicebrandandthispercentageremainedconstantthroughouttheprojectionperiod. Inthefirstyear of operation, franchise fees were estimated to be $50,200 and in Year 5, fees wereestimatedtobe$66,900.UtilityCosts:Utilitycoststendtofluctuatebasedonlocation,weather,sizeofhotel,facilitiesandamenitiesoffered,andotherfactors.

UtilityCostsCategory(2016data) Limited-ServiceHotels

PAR RatiotoSales


UpperMidscaleClass $1,251 3.7%Midscale/EconomyClass $997 5.1%


PHCEstimate(Stabilized) $1,061 4.1% Source:HOSTAlmanac,STR,Inc.PatekHospitalityConsultants,Inc.

Property Operations andMaintenance: Property operations and maintenance expensesincludesalariesandwages,employeebenefits,normalmaintenanceofthebuilding,pool,andgroundsincludingelectricalandmechanicalequipment,landscaping,andwasteremoval.

42 PropertyOperations&MaintenanceExpenseCategory(2016data) Limited-ServiceHotels

PAR RatiotoSales


UpperMidscaleClass $1,536 4.6%Midscale/EconomyClass $1,088 5.6%


PHCEstimate(Stabilized) $1,273 4.9% Source:HOSTAlmanac,STR,Inc.,PatekHospitalityConsultants,Inc.

Management Fees: A management fee of 4.0 percent of gross sales has been deductedthroughouttheprojectionperiodbasedonindustrystandardsthattypicallyrangefromthreetofivepercentoftotalrevenue.FixedChargesPropertyTaxes:Weestimatedtaxesfortheproposedhotelbasedonpropertytaxespaidatthreeoftheuppermidscalehotels locatedinJeffersonCounty. Astherearenocomparablehotels located in Jefferson, we considered hotels in Fort Atkinson, Johnson Creek, andWatertown.Weunderstandthetaxingbodiesaredifferentforeachcommunityhoweverthiswas the information that came closest to our basis for estimating property taxes for theproposedhotel in Jefferson. Belowis informationfoundonthe JeffersonCountyAssessor’swebsiteforthethreehotelsbasedon2016taxespaidin2017.

PropertyTax–ComparableHotelsJeffersonCounty,Wisconsin

Property AssessedValue

AssessmentRatio

PropertyTax*

NumberofRooms

AmountPerRoom*

HolidayInnExpress&SuitesFortAtkinson

$3,370,600 1.0332 $75,889 78 $973

ComfortSuitesJohnsonCreek

$2,630,400 1.0109 $60,220 100 $602

HolidayInnExpressWatertown

$4,600,000 0.9996 $105,403 79 $1,334

*Figuresarerounded

Source:JeffersonCountyAssessor’swebsiteandPatekHospitalityConsultants,Inc.

Based on the assessor’s property data records, the Comfort Suiteswas last sold in August2016andtheHolidayInnExpressWatertownwassoldonAugust16,2017.

43 Basedoncomparableproperty tax informationpresented,weestimatedproperty taxes fortheproposedmidscalelimited-servicehoteltobe$25,000inYear1andinflatedthreepercentannuallyto$65,600byYear5.Insurance:Thisinsurancecategorycoversonlythecostofbuildingandcontentsinsurance.TheliabilityinsuranceisincludedintheA&Gexpense.

InsuranceExpenseCategory(2016data) Limited-ServiceHotels

PAR RatiotoSales

EastNorthCentralRegion $228 0.9%SmallMetro/TownLocation $298 1.1%

UpperMidscaleClass $317 0.9%Midscale/EconomyClass $244 1.3%

CustomHOST2015 $222 0.9%CustomHOST2016 $263 1.1%

PHCEstimate(Stabilized) $244 0.9% Source:HOSTAlmanac,STR,Inc.,PatekHospitalityConsultants,Inc.

Reserve for Capital Replacement: As is standard for income-producing propertiesprovision has beenmade for a reserve for capital replacement for furniture, fixtures, andequipment,aswellasotherlong-liveditems.Thereserveforreplacementexpensehasbeenestimatedona“step-up”basisforthefirstyearofoperationat1.0percent;2.0percentinYear2andbeginninginthethirdyearandfortheremainderoftheprojectionperiod,4.0percentoftotalrevenuesisestimatedtoprovidesufficientfundsforfuturecapitalimprovements.CashFlowProjectionsOur projections for the subject property, before deductions for interest, income taxes,depreciation,andamortizationbutafterReserveforCapitalReplacement,arepresentedinthefollowingtable.Weprojectthat,afterreserveforreplacement,thesubjecthotelwouldhaveanetoperating incomeequal to31.9percentof total sales in the stabilizedyearofoperation(thirdfullyear);theNOIrangesbetween31.5percentand32.5percentoftotalsalesthroughouttheprojectionperiod.

44 NetOperatingIncome(NOI)

Category(2016data) Limited-ServiceHotels PAR POR Ratioto

SalesEastNorthCentralRegion $9,327 $36.01 36.0%SmallMetro/TownLocation $9,588 $37.89 36.6%

UpperMidscaleClass $11,599 $42.99 34.3%Midscale/EconomyClass $8,366 $31.65 43.2%

CustomHOST2015 $7,222 $29.12 29.7%CustomHOST2016 $7,231 $29.68 29.4%

PHCEstimate(StabilizedYear) $8,295 $35.51 31.9% Source:HOSTAlmanac,STR,Inc.PatekHospitalityConsultants,Inc.

TheStatementofEstimatedAnnualOperatingResults for theproposedmidscale limited-servicehotelforthefirstfiveyearsofoperationisshownonthefollowingpage.

STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS

RevPAR RevPAR RevPAR RevPAR RevPARTOTAL ROOMS/YEAR 18,250 Year 1 $55.03 18,250 Year 2 $61.89 18,250 Year 3 $69.12 18,250 Year 4 $71.23 18,250 Year 5 $73.34OCC. ROOMS/OCCUPANCY/ADR 9,855 54.0% $101.90 10,768 59.0% $104.90 11,680 64.0% $108.00 11,680 64.0% $111.30 11,680 64.0% $114.60

50 ROOMS Current % of POR's Current % of POR's Current % of POR's Current % of POR's Current % of POR'sDollars Sales or Dollars Sales or Dollars Sales or Dollars Sales or Dollars Sales or

(000's) Ratio PAR's (000's) Ratio PAR's (000's) Ratio PAR's (000's) Ratio PAR's (000's) Ratio PAR'sREVENUES

Rooms $1,004.2 96.6% $101.90 $1,129.5 96.9% $104.90 $1,261.4 97.1% $108.00 $1,300.0 97.1% $111.30 $1,338.5 97.1% $114.60Food & Beverage 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00Other Operated Income 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00Miscellaneous Income $35.0 3.4% $3.55 $36.1 3.1% $3.35 $37.1 2.9% $3.18 $38.2 2.9% $3.27 $39.4 2.9% $3.37

TOTAL REVENUES $1,039.2 100.0% $105.45 $1,165.6 100.0% $108.25 $1,298.6 100.0% $111.18 $1,338.2 100.0% $114.57 $1,377.9 100.0% $117.97

DEPARTMENTAL EXPENSESRooms $251.1 25.0% $25.48 $271.1 24.0% $25.18 $302.7 24.0% $25.92 $312.0 24.0% $26.71 $321.2 24.0% $27.50Food & Beverage 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00 0.0 0.0% 0.00Miscellaneous Expense $14.0 40.0% $1.42 $14.4 40.0% $1.34 $14.9 40.0% $1.27 $15.3 40.0% $1.31 $15.8 40.0% $1.35

TOTAL DEPARTMENTAL EXPENSES $265.1 25.5% $26.90 $285.5 24.5% $26.52 $317.6 24.5% $27.19 $327.3 24.5% $28.02 $337.0 24.5% $28.85DEPARTMENTAL PROFIT $774.2 74.5% $78.56 $880.1 75.5% $81.73 $981.0 75.5% $83.99 $1,010.9 75.5% $86.55 $1,040.9 75.5% $89.12

UNDISTRIBUTED OPERATING EXPENSESAdministrative & General $130.0 12.5% $2,600 $139.9 12.0% $2,797 $142.8 11.0% $2,857 $147.2 11.0% $2,944 $151.6 11.0% $3,031Information & Telecomm. Systems $22.9 2.2% $457 $25.6 2.2% $513 $28.6 2.2% $571 $29.4 2.2% $589 $30.3 2.2% $606Marketing $35.0 3.4% $700 $36.1 3.1% $721 $37.1 2.9% $743 $38.2 2.9% $765 $39.4 2.9% $788Franchise Fee $50.2 4.8% $1,004 $56.5 4.8% $1,130 $63.1 4.9% $1,262 $65.0 4.9% $1,300 $66.9 4.9% $1,338Utility Costs $50.0 4.8% $1,000 $51.5 4.4% $1,030 $53.0 4.1% $1,061 $54.6 4.1% $1,093 $56.3 4.1% $1,126Property Operations & Maintenance $60.0 5.8% $1,200 $61.8 5.3% $1,236 $63.7 4.9% $1,273 $65.6 4.9% $1,311 $67.5 4.9% $1,351

TOTAL UNDISTRIBUTEDOPERATING EXPENSES $348.1 33.5% $6,961 $371.4 31.9% $7,427 $388.3 29.9% $7,767 $400.1 29.9% $8,002 $412.0 29.9% $8,240

GROSS OPERATING PROFIT $426.1 41.0% $8,522 $508.7 43.6% $10,174 $592.6 45.6% $11,853 $610.8 45.6% $12,217 $628.9 45.6% $12,579

Management Fee $41.6 4.0% $831 $46.6 4.0% $932 $51.9 4.0% $1,039 $53.5 4.0% $1,071 $55.1 4.0% $1,102

INCOME BEFORE FIXED CHARGES $384.5 37.0% $7,691 $462.1 39.6% $9,242 $540.7 41.6% $10,814 $557.3 41.6% $11,146 $573.8 41.6% $11,476

FIXED CHARGESReal Estate Taxes $25.0 2.4% $500 $60.0 5.1% $1,200 $61.8 4.8% $1,236 $63.7 4.8% $1,273 $65.6 4.8% $1,311Insurance $11.5 1.1% $230 $11.8 1.0% $237 $12.2 0.9% $244 $12.6 0.9% $251 $12.9 0.9% $259

TOTAL FIXED CHARGES $36.5 3.5% $730 $71.8 6.2% $1,437 $74.0 5.7% $1,480 $76.2 5.7% $1,524 $78.5 5.7% $1,570

EBITDA* $348.0 33.5% $6,961 $390.2 33.5% $7,805 $466.7 35.9% $9,334 $481.1 36.0% $9,622 $495.3 35.9% $9,906

Reserve for Capital Replacement $10.4 1.0% $208 $23.3 2.0% $466 $51.9 4.0% $1,039 $53.5 4.0% $1,071 $55.1 4.0% $1,102

INCOME AVAILABLE FOR DEBT SERVICE $337.6 32.5% $6,753 $366.9 31.5% $7,338 $414.7 31.9% $8,295 $427.6 32.0% $8,551 $440.2 31.9% $8,804

*EBITDA - Earnings before Interest, Taxes, Depreciation and AmortizationNUMBERS MAY NOT ADD DUE TO ROUNDINGSOURCE: PATEK HOSPITALITY CONSULTANTS, INC.

PROPOSED MIDSCALE LIMITED-SERVICE HOTEL - JEFFERSON, WISCONSIN

ASSUMPTIONSANDLIMITINGCONDITIONS1. Thisdocumentistobeusedinwholeandnotinpart.2. Ourconclusionsareexplicitlybasedupon theassumption that theproposedhotelwill be developed and constructed to competitive standards, operated in a mannertypicalofahigh-qualityhotel,and include theassumed facilitiesandamenitiesassetforth in this report. It is expressly understood that the conclusions of this analysiscouldchangeuponanydeviationfromthisassumption.Furthermore,thechangesthatmightarisecouldbematerial. Forthepurposesofthisengagementwehaveassumedthat theproposedfacilitywillopenbymid-2019,andcontainapproximately50guestrooms and suites. The hotel will operate as a chain affiliated hotel, be operated bycompetent management, and be effectively marketed to the appropriate demandsegments identified in this report. We have no obligation to update our findingsregardingchangestothescopeoftheproposeddevelopmentincluding(butnotlimitedto) changes in the guestroom inventory, ancillary facilities program, and lodgingproductconcept.3. As inall studiesof this type, theestimatedresultsarebaseduponcompetentandefficientmanagementandeffectivemarketing.4. Estimatedresultsarealsobasedonanevaluationofthepresentgeneraleconomyoftheareaanddonot take intoaccount,ormakeprovisions for, theeffectofanysharpriseordeclineinlocalorgeneraleconomicconditions,whichmayoccur.Thereusuallywill be differences between the estimated and actual results, because events andcircumstancesfrequentlydonotoccurasexpected.Suchdifferencesmaybematerial.5. Itisexpresslyunderstoodthatthescopeofourstudyandreportthereondoesnotinclude the possible impact of zoning or environmental regulations, licensingrequirements or other such restrictions concerning the project except where suchmattershavebeenbroughttoourattentionanddisclosedinthereport.6. Wehavenoobligationtoupdateourfindingsregardingchangestothescopeoftheproposeddevelopmentorchangesinmarketconditionssubsequenttothecompletionofourfieldwork.Theinformationgatheredduringthecourseofthefieldworkandusedinthisanalysisisassumedtobeaccurate,althoughwecannotguaranteeitsaccuracy.7. Neitherallnorpartofthecontentsofthisreportshallbedisseminatedtothepublicthrough advertising media, news media, sales media, or any public means ofcommunicationwithout the prior written consent and approval of Patek HospitalityConsultants, Inc. The City of Jefferson has the permission of Patek HospitalityConsultants,Inc.topublishthereportbasedontheWisconsinPublicRecordsLaw.

47 8. No liability is assumed formatters legal innature. PatekHospitalityConsultants,Inc. cannot be held liable in any cause of action concerning this assignment for anycompensatory dollar amount over and above the total fees collected from thisengagement.9. Any and all legal expenses incurred in the defense or representation of PatekHospitalityConsultants,Inc.,itsprincipals,anditsemployeeswillbetheresponsibilityoftheclient.10.We are not required to give testimony or attendance in court by reason of thisassignment,withreferencetothepropertyinquestion,unlesspriorarrangementshavebeenmadeandagreedtoinwriting.11.Patek Hospitality Consultants, Inc. is not obligated, or qualified, to predict futurepolitical,economicorsocialtrendsthatmayormaynotoccurasaresult.Additionally,PatekHospitalityConsultants, Inc.reservestherighttomakesuchadjustmentstotheanalyses, opinions and conclusions set forth in this report as may be required byconsideration of additional data or more reliable data that may become availableoutsideofthescopeofthisinitialengagement.

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CITY OF JEFFERSON, WISCONSIN Market Feasibility Study for ......Oct 13, 2017 · Market Feasibility Study for a Proposed Midscale Limited-Service Hotel to be located in Jefferson,