HOTEL MARKET AND FEASIBILITY STUDY Proposed · PDF fileHOTEL MARKET AND FEASIBILITY STUDY Proposed Convention Center Hotel - Henderson Nevada 200 SOUTH WATER STREET HENDERSON, NEVADA

HOTEL MARKET AND FEASIBILITY STUDY

Proposed Convention Center Hotel - Henderson Nevada 200 SOUTH WATER STREET HENDERSON, NEVADA

SUBMITTED TO:PR OPOSED

Ms. Andrea Primo City of Henderson, Nevada 203 Water Street, Suite 300 Henderson, Nevada, 89015 +1 (702) 267-2171

PREPARED BY:

HVS Convention, Sports, & Entertainment Facilities Consulting 205 West Randolph Street, Suite 1650 Chicago, Illinois, 60606 +1 (312) 587-9900

February-2014

February 25, 2014 Ms. Andrea Primo City of Henderson, Nevada 203 Water Street, Suite 300 Henderson, Nevada, 89015

Re: Hotel Market and Feasibility Study HVS Reference: 2013250022

Dear Ms. Primo: Enclosed is a summary market and feasibility study of a proposed hotel adjacent to the Convention Center in Henderson, Nevada. The report is intended for the City of Henderson, Nevada. We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein. It has been a pleasure working with you.

Sincerely, HVS Convention, Sports & Entertainment Facilities Consulting

Brian Harris, [email protected], +1 (727) 347-1428 Thomas A Hazinski, [email protected], +1 (312) 587-9900 ext. 11

HVS Convention, Sports & Entertainment Facilities Consulting

205 West Randolph Street, Suite 1650

Chicago, Illinois, 60606

+1 (312) 587-9900

www.hvs.com

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Table of Contents

SECTION TITLE PAGE

1. Executive Summary 4 2. Description of the Site and Neighborhood 11 3. Market Area Analysis 16 4. Supply and Demand Analysis 35 5. Description of the Proposed Improvements 42 6. Projection of Occupancy and Average Rate 49 7. Projection of Income and Expense 58 8. Feasibility Analysis 66 9. Statement of Assumptions and Limiting Conditions 76 10. Certification 79

Addenda Penetration Explanation i Explanation of the Simultaneous Valuation Formula v

February-2014 Executive Summary Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 4

1. Executive Summary

The City of Henderson, Nevada engaged HVS Convention, Sports & Entertainment Facilities Consulting (“HVS”) to perform and market and feasibility analysis of a Proposed Convention Center Hotel - Henderson Nevada (“Proposed Hotel”) The Proposed Hotel would be a select-service lodging facility located at 200 South Water Street, Henderson Nevada, 89015. For the purposes of this study, we assume that the Proposed Hotel would open on July 1, 2018 and include: 150 rooms, a restaurant and lounge, 2,000 square feet of meeting space, an indoor pool, an indoor whirlpool, an exercise room, a business center, a gift shop, and a guest laundry room. Ownership and management of the Proposed Hotel were not known at the time of this report; therefore, our forecast fees assume a blended average of what would be expected on a base-fee and incentive-fee basis. We assume a market-appropriate total management fee of 3.0% of total revenues. Simultaneous with the construction of the Proposed Hotel a new Henderson Convention Center would be developed at the site of the existing convention center. The new facility would almost triple the size of the existing facility.

• Approximately 30,000 square feet of sellable event space, or 60,000 square feet of gross facility space.

• Site size would be approximately 3.5 acres (2.0 acres for convention center, 1.5 acres for hotel), not including the Plaza, and parking.

The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,1 Hotels, Motels and Restaurants: Valuations and Market Studies,2 The Computerized Income Approach to

1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies. (Chicago: American Institute of Real Estate Appraisers, 1983).

Subject of the Market and Feasibility Study

Ownership, Franchise, and Management Assumptions

New Convention Center

Scope of Work


Hotel/Motel Market Studies and Valuations,3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,4 and Hotels and Motels – Valuations and Market Studies.5 The figure below illustrates the steps in the hotel market and feasibility analysis process.

HOTEL MARKET ANALYSIS METHODOLOGY AND DATA SOURCES

HVS analyzed: 1) the historical performance of a competitive set of hotels, 2) estimated the amounts of induced and unaccommodated demand in the market, and 3) researched potential changes in room supply. Based on these hotel market trends and economic and demographic indicators of future changes in hotel demand, HVS projected the future performance of the competitive set. A market 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies. (Chicago: Appraisal Institute, 2001).

Competitive Set Analysis

InducedDemand

UnaccommodatedDemand

Room Supply Changes

Market ADR and Occupancy Estimate

CommercialLeisureGroup

Estimate Financial Operations

Comparable Hotel Operating Data

Subject Hotel

Market Penetration

Occupancy & ADRForecasts by Segment

Discounted Cash Flow Analysis

Feasibility Conclusion

Economic Indicators


penetration analysis determined the average daily room rate and occupancy of the Proposed Hotel in each of three market segments—Commercial, Meeting and Group, and Leisure demand segments. Estimates of average daily room rates and occupancies generates a projection of room revenues, which when combined with the operating data on comparable hotels yields a ten-year estimate of financial operations. Through a discounted cash flow analysis, HVS determine the feasibility of the project. That is, whether the net cash flows of the project would deliver an acceptable rate of return on investment. The figure below shows our estimates of market penetration of the Proposed Hotel in a stabilized year of operation. FIGURE 1-1 MARKET PENETRATION OF THE PROPOSED HOTEL

76%

211%

78%

106%

Commercial

Meeting and Group

Leisure

TOTAL

Fair Share

We estimate that the Proposed Hotel will achieve of overall market demand as it: under penetrates the Commercial market, over penetrates the Meeting and Group market, and under penetrates the Leisure market. At stabilization in 2021, the Proposed Hotel could achieve a 63 percent occupancy rate, and generate approximately $1.3 million in net operating income. The operating income of the hotel would be available to repay debt and provide a return on equity investment. Depending on the cost of the proposed hotel, the estimated net operating income is unlikely to support an adequate return on private investment. Given the gap between projected value and costs, successful development of the proposed hotel is likely to require some form of public subsidy. Many cities have entered into public private partnerships to attract private hotel investment and achieve their wider economic development goals. Public investment in hotel development may be in the

Projected Hotel Performance

Feasibility Conclusion


form of direct subsidies, land acquisition, favorable tax treatment, and the grant of other development rights. Selection of a development team through a competitive process can be useful in limiting the public sector investment. The effective date of the report is February 25, 2014. Brian Harris visited the market and inspected site on December 11, 2013. Thomas A Hazinski inspected the property on January 28, 2014, participated in the analysis, and reviewed the findings. All information was collected and analyzed by HVS staff. We used sources deemed to be reliable but we did not confirm the accuracy of all information provided to HVS. Henderson benefits from the tourism activity that drives most of the Las Vegas area economy. Gaming, conventions, and other leisure tourism feed the retail and restaurant sectors in Las Vegas. According to the Las Vegas Convention and Visitors Authority, nearly 40 million tourists visited Las Vegas last year. While Henderson does not offer one of the primary tourism attractions, it benefits directly from the employment opportunities in the tourism industry and the income of its residents is generated in large part by participation in the tourism industry. The City of Las Vegas and Clark County have made efforts to encourage diversification of the Las Vegas economy by attracting light manufacturing, banking, and other commercial interests. The diversification of the local economy will also benefit Henderson by creating new demand sources for group meeting events. A convention center and hotel in Henderson would provide an alternative destination within the larger Las Vegas market that would be removed from the heart of tourism activity and offer a place for a quiet retreat. None-the-less, event attendees could take advantage of excellent airport access and the offsite amenities and attractions in Las Vegas for pre- and post-event activities. HVS assessed the location, brand, service level, and quality of a set of local area hotels to determine their potential level of competitiveness with the Proposed Hotel. We consider hotels that are 100% competitive to be primary competitors and those that are less than 100% competitive to be secondary competitors. The following figures illustrate trends in lodging the supply and demand trends among the competitive hotels.

Pertinent Dates

Local Area Market

Summary of Hotel Market Trends


FIGURE 1-2 HISTORICAL SUPPLY AND DEMAND TRENDS

0

50

100

150

200

250

300

350

400

Thou

sand

s of R

oom

Nig

hts

Available Room Nights

Occupied Room Nights

0%10%20%30%40%50%60%70%80%90%

$0

$20

$40

$60

$80

$100

$120

ADR RevPAR Occupancy

Source: Smith Travel Research

The following figures reflect our forecast of the operations of the competitive set. We present these trends and the rationales for our assumptions about future performance in the Supply and Demand Analysis chapter of this report.

FIGURE 1-3 PROJECTED MARKET PERFORMANCE

60% 58% 59% 60% 60%53% 57% 62% 63% 63%

2018* 2019 2020 2021 2022

Estimated Occupancy

Competitive Set Subject Property

91 93 96 98 101

106 109 112 115 117

2018 2019 2020 2021 2022

Estimated ADR ($)

Market ADR Subject Property ADR

Based on our analysis presented in the Projection of Occupancy and Average Rate chapter, we estimate a stabilized occupancy level of 63% and a base-year rate position of $95.00 for the Proposed Hotel. By the time of opening in 2018, the ADR of the proposed hotel would inflate along with the overall growth in the market. We assume an ADR of $106 during the first year of operation in 2018. Our positioning of each revenue and expense level is supported by comparable operations or trends specific to this market. The figure below shows our forecast of financial operations in the stabilized year of 2020/21.

Summary of Forecast Income and Expense Statement


FIGURE 1-4 STABILIZED FINANCIAL OPERATIONS IN 2020/21

Number of Room s: 150

Occupancy: 63.0%Average Rate: $113.00

RevPAR: $71.00Days Open: 365

Occupied Room s: 34,493

($000) (%) ($0) ($0)

REVENUE Ro o m s $3,905 72.3 $26,033 $113 Fo o d & Be ve ra ge 0 0.0 0 0 Fo o d 1,245 23.1 8,302 36 Be ve ra ge 208 3.8 1,384 6 Re n ta l s & Oth e r I n co m e 42 0.8 277 1 Total Revenues 5,399 100.0 35,996 157

D EPARTMENTAL EXPENSES * Ro o m s 937 24.0 6,248 27 Fo o d & Be ve ra ge 944 65.0 6,296 27 Total 1,882 34.8 12,544 55

D EPARTMENTAL INCOME 3,518 65.2 23,452 102

UND ISTRIBUTED OPERATING EXPENSES Ad m i n i s tra ti ve & G e n e ra l 433 8.0 2,888 13 Ma rke ti n g 325 6.0 2,166 9 Fra n ch i s e Fe e 332 6.1 2,213 10 Prop . Op e ra ti o n s & Ma i n t. 226 4.2 1,504 7 Uti l i ti e s 253 4.7 1,685 7 Total 1,568 29.0 10,456 45

H OUSE PROFIT 1,949 36.1 12,996 57

Ma n a ge m e n t Fe e 162 3.0 1,080 5

INCOME BEFORE FIXED CH ARGES 1,787 33.1 11,916 52

FIXED EXPENSES Prop e rty Ta xe s 141 2.6 940 4 I n s u ra n ce 50 0.9 331 1 Re s e rve fo r Re p l a ce m e n t 216 4.0 1,440 6 Total 407 7.5 2,711 12NET INCOME $1,381 25.6 $9,205 $40

*De pa rtm e nta l expe nse s a re e xpre sse d a s a perce nta ge of depa rtm enta l reve nue s .

Percent of Gross

Per Available

Room

Per Occupied

Room Night

The following figure shows our ten-year forecast of revenue, expense, and net operating income.


FIGURE 1-5 TEN-YEAR FORECAST OF FINANCIAL OPERATIONS

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Mill

ions

Revenue Expense Net Operating Income

As illustrated above, the hotel is expected to stabilize at a profitable level of over $1.3 million. Please refer to the Forecast of Income and Expense chapter of our report for a detailed explanation of the methodology used in deriving this forecast.

February-2014 Description of the Site and Neighborhood Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 11

2. Description of the Site and Neighborhood

The suitability of the land for the operation of a lodging facility is an important consideration affecting the economic viability of a property and its ultimate marketability. Factors such as size, topography, access, visibility, and the availability of utilities have a direct impact on the desirability of a particular site. The subject site is located in downtown Henderson, in the southeast quadrant of the intersection formed by West Atlantic Avenue and South Water Street. The subject site measures approximately 1.50 acres, or 65,340 square feet. The parcel's adjacent uses include: 1) Henderson Convention Center on the North, 2) Henderson City Hall on the South, 3) City Parking Garage on the East, and 4) Henderson Event Plaza on the West.

SITE PHOTOS

Street View of the Site Aerial View of Site View from Site to the North

View from Site to the South View from Site to the East View from Site to the West

Physical Characteristics


South Water Street will provide primary vehicular access to the Proposed Hotel. Access will also be available from East Atlantic Avenue. The topography of the parcel is generally flat, and the site’s shape is rectangular. Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. The site is expected to be fully developed with site or building improvements, which will contribute to the overall profitability of the hotel. Access from regional and local transportation routes and demand generators is key to the success of the Proposed Hotel. The following map demonstrates that the subject site is readily accessible to a variety of local and county roads, and state and interstate highways.

MAP OF REGIONAL ACCESS ROUTES

Primary regional access through the area is provided by north/south Interstate 15, which extends to such cities as Salt Lake City, Utah to the northeast and Riverside, California to the southwest. North/south U.S. Highway 93 is another major highway, providing access to such cities as Twin Falls, Idaho to the north and Kingman, Arizona to the south. Additionally, U.S. Highway 95 connects Las Vegas with a variety of small towns in western and northern Nevada, as well as a small portion of southeastern California. State Route 146/Lake Mead Drive serves as an additional access route.

Site Utility

Access and Visibility


From Interstate 515, motorists take the West Lake Mead Drive exit and proceed east on this thoroughfare for approximately two miles to South Water Street. Motorists execute a right turn onto South Water Street and travel for approximately 1/2 mile to the subject site, which is located on the motorists’ right-hand side. The subject site is located near a busy intersection. The Proposed Hotel will have adequate signage at the street; thus, the hotel should benefit from very good visibility from within its local neighborhood. Overall, the subject site benefits from excellent accessibility, and the Proposed Hotel would enjoy very good visibility attributes. The McCarran International Airport, located approximately 14 miles to the west of the subject site, would serve the Proposed Hotel. From the airport, motorists would follow signs to Interstate 215 and travel 12 miles on this thoroughfare to West Lake Mead Drive. Motorists will then continuing to the subject site as previously noted. The neighborhood surrounding a lodging facility often has an impact on a hotel's status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. This section of the report investigates the subject neighborhood and evaluates any pertinent location factors that could affect its future occupancy, average rate, and overall profitability. The neighborhood surrounding the subject site is generally defined by West Lake Mead Drive to the north, South Bolder Highway to the east, South Major Avenue to the south, and East Van Wagenen Street to the west. This neighborhood is in the revitalization stage of its life cycle, with pockets of moderate growth occurring in the commercial sector. Within the immediate proximity of the site, land use is primarily governmental in nature. The neighborhood consists of government facilities, restaurants, office buildings, and retail shopping centers along the primary thoroughfares, with residential areas located along the secondary roadways.

Airport Access

Neighborhood


MAP OF NEIGHBORHOOD

The subject site will reportedly be served by all necessary utilities. Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent. We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors. According to the Federal Emergency Management Agency, the subject site is located in flood zone X. The flood zone definition for the X designation is as follows: areas outside the 500-year flood plain; areas of the 500-year flood; areas of the 100-year flood with average depths of less than one foot or with drainage areas less than one square mile and areas protected by levees from the 100-year flood. According to the local planning office, the subject property is zoned as follows: PD-RD. This zoning designation does not allow for most commercial uses, including hotels and motels. The zoning would need to be change to downtown DCC or DHC zoning to permit the construction of a hotel. We assume that all necessary zoning

Utilities

Soil and Subsoil Conditions

Nuisances and Hazards

Flood Zone

Zoning


changes, permits and approvals will be secured (including the appropriate liquor license if applicable) and that the subject property will be constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the site.

MAP OF DOWNTOWN HERNDERSON ZONING

We are not aware of any easements attached to the property that would significantly affect the utility of the site or marketability of this project. We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is located in downtown Henderson with easy access to McCarran International Airport, dining and entertainment within walking distance, and generous parking in the city parking garage. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.

Easements and Encroachments

Conclusion

February-2014 Market Area Analysis Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 16

3. Market Area Analysis

The economic vitality of the market area and neighborhood surrounding the subject site is an important consideration in forecasting lodging demand and future income potential. Economic and demographic trends that reflect the amount of visitation provide a basis from which to project lodging demand. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will undergo economic growth, stabilize, or decline. In addition to predicting the direction of the economy, the rate of change must be quantified. These trends are then correlated based on their propensity to reflect variations in lodging demand, with the objective of forecasting the amount of growth or decline in visitation by individual market segment (e.g., commercial, meeting and group, and leisure). The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of Henderson, the county of Clark, and the state of Nevada. In the 1940’s, the township of Henderson was the location of the Basic Magnesium Plant and the area became a main supplier of magnesium in the United States during World War II. Following the war and due to the lack of need for magnesium, the United States War Asset Administration planned to offer Henderson for sale as war surplus property. The Nevada Legislature approved a bill giving the Colorado River Commission of Nevada the authority to purchase the industrial plants, which included the Township of Henderson. Henderson was officially incorporated on April 16, 1953 as the City of Henderson. Originally only about 13 square miles in size, the city quickly grew to its current 94 square miles. The proposed subject property’s market area can be defined by its Combined Statistical Area (CSA): Las Vegas-Paradise-Pahrump, NV. The CSA represents adjacent metropolitan and micropolitan statistical areas that have a moderate degree of employment interchange. Micropolitan statistical areas represent urban areas in the United States based around a core city or town with a population of 10,000 to 49,999; the MSA requires the presence of a core city of at least 50,000 people and a total population of at least 100,000 (75,000 in New England). The following map illustrates the market area.

Market Area Definition


MAP OF MARKET AREA

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

Economic and Demographic Review


FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

Economic Indicator/AreaBeginning Amount

2000 2010 2014 2020Ending

Amount

Resident Population (millions)

Clark County 1.4 2.3 1.8%

Las Vegas-Paradise-Pahrump, NV CSA 1.4 2.4 1.8%

State of Nevada 2.0 3.2 1.7%

United States 282.2 340.6 1.0%

Per-Capita Personal Income* (thousands)

Clark County $33.6 $35.4 1.5%

Las Vegas-Paradise-Pahrump, NV CSA $33.4 $35.3 1.5%

State of Nevada $34.5 $36.3 1.4%

United States $33.8 $40.2 1.3%

W&P Wealth Index

Clark County 103 93 0.1%

Las Vegas-Paradise-Pahrump, NV CSA 103 93 0.1%

State of Nevada 107 96 0.0%

United States 100 100 0.0%

Food and Beverage Sales* (billions)

Clark County $2.4 $5.8 2.5%



United States $341.4 $512.8 1.8%

Total Retail Sales* (billions)

Clark County $21.5 $37.7 2.7%



United States $3,612.3 $4,803.2 1.9%

* Inflation AdjustedSource: Woods & Poole Economics, Inc.

Estimate Annual Compound Change

2014 to 2020

The Las Vegas/Henderson economy is likely to continue to experience stronger population growth than the nation as a whole. The local economy is dominated by service sector jobs in the hospitality sector, which is dependent on a recovering tourism industry. Due to the concentration of jobs in the hospitality sector, income


is growing at a slower rate than the United States as a whole. The continued expansion of the tourism industry caused higher growth rates for food and beverage sales, and total retail sales as compared to national averages. Woods and Poole forecasts that the Las Vegas/Henderson economy will continue to grow at a higher rate than the United States as a whole. The characteristics of an area's workforce indicate the type and amount of transient visitation likely to be generated by local businesses. Sectors such as finance, insurance, and real estate (FIRE); wholesale trade; and services produce a considerable number of visitors who are not particularly rate-sensitive. The government sector often generates transient room nights, but per-diem reimbursement allowances often limit the accommodations selection to budget and mid-priced lodging facilities. Contributions from manufacturing, construction, transportation, communications, and public utilities (TCPU) employers can also be important, depending on the company type. The following figure shows the estimated change in employment in the top ten sectors in the county workforce distribution by business sector in 2000, 2010, and 2014, and a forecast for 2020. FIGURE 3-2 TOP TEN EMPLOYMENT SECTORS IN THE COUNTY

Sector/Geographic AreaBeginning Amount

(thousands)2000 2010 2014 2020

Ending Amount

(thousands)

Clark CountyAccommodation And Food Services 220 291

Retail Trade 89 137

Health Care And Social Assistance 45 93

State And Local Government 60 90

Administrative And Waste Services 59 89

Real Estate And Rental And Lease 37 77

Finance And Insurance 45 77

Professional And Technical Services 38 67

Other Services, Except Public Administration 34 57

Construction 76 55

Other 146 216

Total Clark County 851 1,249

U.S. 165,371 197,077

Workforce Characteristics


Growth in tourism visitation should drive more accommodation and food service and retail sales. The health care, finance, insurance, professional, and government sectors of the economy should continue to expand along with the overall growth in the local area economy. The construction sector should stabilize after a significant decline due to the downturn in home prices during the recent recession. Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 2.2%. This trend was on par with the growth rate recorded by the MSA and also outpaced the national average. More recently, the pace of total employment growth in the county slowed to 1.2% on an annual average from 2010 to 2014. Employment reached a low point of 717 thousand in 2003 and peaked at 928 thousand in 2007. The Las Vegas/Clark County market employs roughly 849 thousand persons. The following table illustrates historical and projected employment, households, population, and average household income data as provided by REIS for the overall Las Vegas/Clark County market. FIGURE 3-3 EMPLOYMENT TRENDS IN LAS VEGAS/CLARK COUNTY

Indicator 2001 through 2013 CAGR*

Total Employment 1.4%

Office Employment 2.0%

Industrial Employment 0.4%

Households 2.7%

Population 2.7%

Household Avg Income 1.9%

*Compound Annual Growth Rate from 2001 through 2013Source: REIS


Las Vegas/Clark County will experience significant growth in employment and population, after the recent slowing in growth due to the recession. Growth in office employment will be five times the rate of growth in industrial employment as the economy grows to support the expanding population. The following table presents historical unemployment rates for the Proposed Hotel’s market area. FIGURE 3-4 UNEMPLOYMENT STATISTICS

Year

2003 4.0 % 5.4 % 5.2 % 6.0 %2004 3.3 4.5 4.4 5.52005 3.4 4.4 4.5 5.12006 3.3 4.2 4.2 4.62007 3.7 4.7 4.7 4.62008 5.5 7.0 7.1 5.82009 9.6 11.9 11.7 9.32010 13.2 14.2 13.8 9.62011 12.6 13.5 13.2 8.92012 10.5 11.2 11.1 8.1

Recent Month - Nov2012 9.0 % 9.8 % 9.6 % 7.8 %2013 8.2 8.6 8.5 7.0

* Letters shown next to data points (if any) reflect revised population controls and/or model re-estimation implemented by the BLS.

Source: U.S. Bureau of Labor Statistics

U.S.StateCity MSA

The unemployment rate for the U.S. fluctuated within the narrow range of 4.6% to 6.0% in the period spanning from 2003 to 2007. The recession and financial crisis in 2007 and 2008 resulted in heightened unemployment rates, which peaked at 10.0% in October of 2009. Job growth resumed in late 2009; the national unemployment rate has steadily declined since 2010. Total nonfarm payroll employment increased by 74,000 jobs in December of 2013, which brought the unemployment rate down to 6.7%, falling to the lowest level in over four years. In 2013, nonfarm payroll employment increased by 182,000 jobs on average each month, similar to the 183,000 average of 2012. In December of 2013, job growth was strongest in retail and wholesale trade. This positive trend reflects steady progress by the U.S. economy.

Unemployment Statistics


Locally, the unemployment rate was 10.5% in 2012; for this same area in 2013, the most recent month’s unemployment rate was registered at 8.2%, versus 9.0% for the same month in 2012. Unemployment rates remained relatively stable mid-decade before rising in 2008. Unemployment then almost doubled in 2009, concurrent with the economic slowdown; the pace of unemployment increases slowed in 2010, with a 2.3-point rise for the year. In 2011, the unemployment rate declined modestly from the peak in 2010, and unemployment levels fell just over two points in 2012, as rehiring resumed concurrent with higher visitor levels. The most recent comparative period illustrates further improvement, as indicated by the latest data for 2013, which is in line with gains in key tourism-sector statistics provided in this chapter. The resurgence of the service, tourism, and gaming industries should provide significant employment opportunities over the long term as visitation continues to climb. Our interviews with economic development officials reflect a promising long-term outlook for the area. Providing additional context for understanding the nature of the regional economy, the following table presents a list of the major employers in the subject property’s market.

Major Business and Industry


FIGURE 3-5 MAJOR EMPLOYERS

FirmClark County School District 25,000+Clark County 5,000-9,999Las Vegas Metropolitan Police Department 5,000-9,999University of Nevada Las Vegas 5,000-9,999University Medical Center 2,500-4,999City of Henderson 2,500-4,999Sunrise Hospital 2,500-4,999City of Las Vegas 2,500-4,999St. Rose Dominican Siena 1,000-2,400Green Valley Ranch Station Casino 1,000-2,400M Resort Spa and Casino 1,000-2,400Sunset Station Hotel and Casino 1,000-2,400College of Southern Nevada 1,000-2,400St. Rose Dominican Hospital 700-799Fiesta Henderson Casino Hotel 600-699Medco Health LLC 500-599Titanium Metals Corp of America 500-599Unilever Manuf. (Breyers/Good Humor) 400-499Barclaycard US 400-499Credit Acceptance Corp. 300-399Poly-West 300-399Levi Strauss & Co. 200-299Touro University 200-299Your Vitamins Inc. 200-299

Number of Employees

The market's economy experienced significant losses associated with the economic downturn. However, the latest year-to-date data indicate that the negative effects appear to be slowly dissipating. Unemployment rates are falling and the pace of decline in home values has tapered significantly. The Las Vegas economy is primarily driven by the tourism and entertainment sectors, which typically rebound at a slower pace during economic recovery periods. Nevertheless, Las Vegas remains a vibrant center for gaming and entertainment. New developments will likely change the landscape of the city again during the next decade, maintaining its standing as a premier destination in the world. Examples of planned developments include the Caesars Entertainment's Linq Project, and the Sahara


Hotel & Casino redevelopment, as well as Echelon Resort, which is expected to come online within the next three to five years. This pipeline of new development activity and the concurrent availability of land should provide for a positive economic situation over the long term. The outlook for the market area is cautiously optimistic, with current national economic conditions and indicators pointing to a recovery within the local tourism industry. Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or in the amount of occupied office space may have a proportional impact on commercial lodging demand and a less direct effect on meeting demand. The Las Vegas/Clark County market currently supports a total of 25.5 million square feet of office space. For the year 2013, the market reported a vacancy rate of 26% and an average asking rent of approximately $24. The figure below shows trends in key office market metrics from 2001 through 2013. FIGURE 3-6 HISTORICAL OFFICE SPACE METRICS

Office Space 2001 through 2013 CAGR*

Inventory (SF/Units) 3.2%

Vacant Stock 7.6%

Occupied Stock 2.1%

Net Absorption -8.0%

*Compound Annual Growth Rate from 2001 through 2013

The Las Vegas/Clark County office market experienced a significant decline in demand during the recent recession. The office market has entered the recovery phase, with modest increases in demand. The following table shows REIS projections of office market performance.

Office Space Statistics


FIGURE 3-7 REIS PROJECTION OF OFFICE MARKET PERFORMANCE

Office Space 2014 through 2017 CAGR*

Inventory (SF/Units) 1.8%

Vacant Stock -4.2%

Occupied Stock 3.2%

Net Absorption 35.7%

The office market will continue to recover as the local economy expands. A convention center serves as a gauge of visitation trends to a particular market. Convention centers also generate significant levels of demand for area hotels and serve as a focal point for community activity. Typically, hotels within the closest proximity to a convention center—up to three miles away—will benefit the most. Hotels serving as headquarters for an event benefit the most by way of premium rates and hosting related banquet events. During the largest of conventions, peripheral hotels may benefit from compression within the city as a whole. The city of Las Vegas is consistently ranked among the nation's top convention and meeting destinations. The Las Vegas Convention Center (“LVCC”) is a state-of-the-art facility, which has been expanded in 1992, 1998, and 2002 to its current offering of 3.2 million square feet of meeting and exhibit space. In addition to this capacity, the center offers 144 meeting rooms (more than 243,000 square feet), which handle seating capacities ranging from 20 to 2,500. A grand lobby and registration area (more than 225,000 square feet) efficiently link existing exhibit halls with new exhibit and meeting rooms, allowing simultaneous setup, breakdown, and exhibiting of multiple events. The LVCC has restarted an expansion that will increase its meeting space and improve the building's overall design. Originally slated to open in 2011, the momentum of the project slowed given the decline in tourism trends tied to the overall state of the economy; the project was put on hold in 2009. However, the planning and design phase of the $890-million enhancement

Convention Activity


resumed in 2012, and the project will be incorporated into the $2.5-billion Global Business District Plan. In addition, several small parcels of land adjoining the current facility have been acquired to improve access to the facility. The timing of the expansion has not been determined as of the date of this report. The number of convention attendees declined from 2008 through 2010, with the most significant declines beginning in the second half of 2008. Industry participants confirmed that meetings and gatherings were canceled, and the ability to attract meetings and groups to Las Vegas properties was hindered by the residual effects of the Great Recession and the negative connotation of meetings in resort destinations. Additionally, the decline in attendance during that period was also due to companies sending fewer delegates as a result of cost-saving measures. However, similar to overall visitor and gaming revenue data, the number of events and attendees increased in 2011, when compared to 2010, as economic trends strengthened. In 2012, the number of events held at the center substantially increased, while only a slight uptick was realized in the total number of delegates. 2013 continued the trend of high number of events with a modest increase in delegates. According to the Las Vegas Convention and Visitors Authority, bookings for 2014 are on pace with 2013. Given Las Vegas’ premier convention center facilities, attendance and facility use should continue to improve along with stronger national and global economic conditions. The following table illustrates recent use statistics for the LVCC facility. FIGURE 3-8 LVCC STATISTICS

Percent PercentYear Change Change

2006 23,825 — 6,307,961 — 2007 23,847 0.1 % 6,209,253 (1.6) %2008 22,454 (5.8) 5,899,725 (5.0)2009 19,394 (13.6) 4,492,275 (23.9)2010 18,004 (7.2) 4,473,134 (0.4)2011 19,029 5.7 4,865,272 8.82012 21,615 13.6 4,944,014 1.62013 22,027 1.9 5,107,416 3.3

Number of Participants

Source: Las Vegas Convention Center

Number of Events

The Henderson Convention Center (“HCC”) is owned and operated by the City of Henderson. The HCC serves an important role in the community, hosting a wide variety of mostly local meeting and event business. However, after more than 30


years of service, the HCC’s space is considered outdated in industry terms and is challenged with its marketability and functionality. In 2013, the City commissioned a study to evaluate future options for the HCC. The following table provides demand data for the HCC. FIGURE 3-9 HCC STATISTICS

Fiscal Year Meetings Social Shows

03-04 540 113 21 67404-05 575 117 50 74205-06 541 118 20 67906-07 583 105 85 77307-08 517 85 134 73608-09 321 44 106 47109-10 286 88 123 49710-11 264 82 112 45811-12 348 79 86 51312-13 279 87 82 448

Source: City of Henderson

Total

Airport passenger counts are important indicators of lodging demand. Depending on the type of service provided by a particular airfield, a sizable percentage of arriving passengers may require hotel accommodations. Trends showing changes in passenger counts also reflect local business activity and the overall economic health of the area. The McCarran International Airport (LAS), located approximately 14 miles to the west of the subject site, would serve the Proposed Hotel. Approximately 30 airlines service the airport, which is a hub for Allegiant Air and US Airways. Southwest Airlines operates more flights out of McCarran than at any other airport and is the airport’s largest carrier in terms of total passengers. Nearly half of all visitors to Las Vegas arrive through McCarran, and the annual economic benefits of the airport to the city are estimated at $25 billion. Terminal 3 opened in June of 2012 and is the first post-9/11 terminal to be constructed in the United States. This terminal contains 14 gates, half of which can be used for international arrivals. The project added 1.9-million square feet of space, 6,000 parking spaces, and over a dozen stores and restaurants to the airport. Terminal 3 increases the capacity of the airport to approximately 53 million passengers annually; the previous peak passenger volume occurred in 2007 with 48 million.

Airport Traffic


The following table illustrates recent operating statistics for the McCarran International Airport, which is the primary airport facility serving the Proposed Hotel’s submarket. FIGURE 3-10 AIRPORT STATISTICS - MCCARRAN INTERNATIONAL AIRPORT

Year

2003 36,265,932 — — 2004 41,441,531 14.3 % 14.3 %2005 44,267,362 6.8 10.52006 46,193,329 4.4 8.42007 47,729,527 3.3 7.12008 44,074,642 (7.7) 4.02009 40,469,012 (8.2) 1.82010 39,757,359 (1.8) 1.32011 41,479,814 4.3 1.72012 41,667,596 0.5 1.6

Year-to-date, Oct2012 35,178,542 — — 2013 35,239,944 0.2 % —

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

Change**Passenger

Change*TrafficPercent Percent

Source: McCarran International Airport

This facility recorded 41,667,596 passengers in 2012. The change in passenger traffic between 2011 and 2012 was 0.5%. The average annual change during the period shown was 1.6%. The market benefits from a variety of tourist and leisure attractions in the area. Las Vegas normally enjoys high tourism levels year-round given its marketing as a tourist destination and desert-like climate. Primary attractions in the area include the following:

• The Las Vegas Strip represents a roughly four-mile stretch of Las Vegas Boulevard South that features the area's most popular casino properties. The elaborate entrances of these hotel and casino properties have become attractions themselves, including the Fountains at Bellagio and the volcano at The Mirage.

Tourist Attractions


• Located in Downtown Las Vegas, the Fremont Street Experience (FSE) is a pedestrian mall and attraction under a barrel vault canopy, spanning four blocks in length. Nightly light and sound shows are presented on the LED display canopy and the attraction is home to city's annual New Year's Eve party.

• Standing at 1,149 feet, the Stratosphere Tower at Stratosphere Hotel Casino features popular thrill-seeking rides, a restaurant, and indoor and outdoor observation decks.

• Thomas & Mack Center hosts the University of Nevada – Las Vegas Rebels basketball team, as well as other sporting events such as boxing, the National Final Rodeo, and Professional Bull Riders, Inc.'s World Finals. The multi-purpose facility also hosts family shows, Supercross, Monster Trucks, special event concerts, festivals, and conventions.

• Lake Mead is a National Recreational Area operated by the National Park Service year-round. Lake Mead is the largest reservoir in the United States, impounded by Hoover Dam, and a popular retreat for camping, boating, hiking, biking, fishing and other nature-related recreational pursuits. Lake Mead has 6.2 million visitors a year.

• Built during the Great Depression, the Hoover Dam is one of America’s major tourist destinations and a renowned architectural feat. The Hoover Dam impounds Lake Mead, provides hydroelectricity and irrigation water, and controls the Colorado River, which flooded in years prior to the creation of Hoover Dam. Hoover Dam has approximately one million visitors a year.

• The Clark County History Museum is located in Henderson and offers a timeline exhibit of southern Nevada from pre-historic to modern times. It also showcases a collection of restored historic buildings that depict daily life from different decades in Las Vegas, Boulder City, Henderson, and Goldfield.

• The Henderson Events Plaza is an outdoor event space located along Water Street in downtown Henderson, adjacent to the Henderson Convention Center and City Hall. The Plaza was built in 2006 and includes a 4,000-square-foot canopy amphitheater with seating for 400, lawn seating for 200, and perimeter seating for an additional 200; approximately 4,000 square feet of open space under the patio canopy; and another 22,000 square feet of shaded event space under the Paseo Canopy. In fiscal year 2012-13, events held at the Plaza attracted over 303,000 people.


• The Henderson Pavilion, built in 2002, is Nevada’s largest outdoor amphitheater. The venue offers over 2,400 fixed seats, with total capacity including lawn seating of approximately 4,000. The Pavilion hosts a wide variety of events including concerts, entertainment events, symphony orchestra concerts, performing arts, and other events.

• The City’s Cultural Arts and Tourism Department sponsors a number of special events throughout the year, held primarily at Event Plaza on Water Street and throughout the downtown. These events include: - St. Patrick’s Parade - Art Festival of Henderson - Henderson Heritage Parade - Bike Swap & Ride - Fourth of July Celebration - Ho'olaule'a Pacific Island Festival - Ironman - SuperRun Classic Car Show - Crazy Spokes - Shakespeare in the Park - Henderson 250 Desert Race - Henderson Stroll 'n Roll - WinterFest - Gospel Fest - Super Run

The following developments are planned for Henderson: • Henderson’s Water Street District, the historic center of the city, stretches

south from Ocean Avenue to Lake Mead Parkway to the north. Recent improvement of the Water Street District include widening sidewalks, improving landscaping, upgrading street signage and sound system, new pedestrian level and street level lights to match prior improvement on the south end of Water Street. The City’s Redevelopment Agency is working to create a refined vision for the Water Street District. The vision creates an authentic downtown core and provides community gathering space, as well as a mix retail, professional services, entertainment uses, employment centers, educational opportunities and residential. The final Downtown Master Plan of

Planned Developments


Henderson is slated to be accepted by the Planning Commission in March 2014 and adopted by City Council in April. The adoption of the Downtown Master Plan is intended to act as a development incentive for new construction and also for economic development and new business start-ups and job growth in the Downtown, and increase flexibility in zoning to encourage growth.

Source: Tate Snyder Kimsey Architects

• A new master planned community known as Cadence is located on the

former site of a magnesium-processing plant located between Lake Mead Parkway and Boulder Highway. The project, developed by the LandWell Co., will include an urban village design, with residential, shopping centers and stores. When built out, Cadence will include 13,000 new homes, office spaces, and a 50-acre park. The primary entry into Cadence will be from West Lake Mean Drive at South Water Street, providing a new source of demand for South Water Street and downtown. The first phase of development will begin in 2014. Cadence will be developed in nine districts as shown in the following figure.


FIGURE 3-11 CADENCE MASTER DEVELOPMENT PLAN BY DISTRICT

District Type of Proposed Development Parks, Open Space, and Schools

District One 871 residential units 41 acres of parks and open space

District Two 174 acres park

District Three 3,100 residential units 31 acres parks and open space

190,000 SF retail space elementary school

215,000 SF commercial/Office space

District Four 877 residential units 7 acres parks and open space

District Five 2,500 residential units 41 acres of parks and open space

District Six 2,200 residential units 50 acres of parks and open space

elementary school

District Seven 1,500 residential units 5 acres parks and open space

440,000 SF of retail space

640,000 SF of commercial/office space

District Eight 1,900 residential units 29 acres of parks and open space

District Nine 1,300 residential units

374,000 SF of retail space

1,314,000 SF of commercial/office space

Source: Candance

• Union Village is a planned $1.5 billion mixed-use development anchored by a senior retirement community and hospital in Henderson. The 2011 master plan states the complex will also include entertainment, specialty retail space, and a civic and cultural arts center. Construction is expected to take between four to eight years. The project took a major step forward in January of 2014 when the city of Henderson sold 170 acres of land at the northeast corner of U.S. 95 and Galleria Drive to Union Village LLC, developers of Union Village. Union Village then sold 38.5 acres of the land to Valley Health System, for a planned acute-care hospital. Valley Health


System said it planned to build its sixth hospital in the valley at the Union Village site, offering general surgery, emergency, and specialty services.

Tourism is an important factor for Clark County area hotels. This demand is typically strongest during key weekends and during the summer vacation season. The following figure depicts the number of visitors to Las Vegas from 2000 through 2013. FIGURE 3-12 VISITATION STATISTICS

PercentYear Change

2000 35,846,691 — 2001 35,017,317 (2.3) %2002 35,071,504 0.22003 35,540,125 1.32004 37,388,781 5.22005 38,566,717 3.22006 38,914,889 0.92007 39,196,761 0.72008 37,481,552 (4.4)2009 36,351,469 (3.0)2010 37,355,436 2.82011 38,928,708 4.22012 39,727,022 2.12013 39,668,221 (0.1)

Annual Compounded Rate of Change pf .78%

Total Visitors

Source: Las Vegas Convention & Visitors Authority

Visitation declined in 2001, 2008 and 2009 due to recessions. As evidenced by the preceding data, Las Vegas has a history of consistent growth. Las Vegas experienced year-over-year increases in the total number of visitors from 2002 to 2007, peaking at roundly 39,200,000 visitors in 2007. The 4.4% decline in visitation in 2008 was the largest year-over-year percentage decrease during the period examined, and the visitation decline continued through 2009, at 3%. The significant decline in visitation to the Las Vegas area is directly attributable to the recent economic downturn. Visitation grew 2.8% in 2010, 4.2% in 2011, and 2.1% in 2012, positive signs of recovery for the tourism-dominated destination. The market stabilized in 2013 with a modest .1% decline in total visitors.

Visitation Statistics


In predicting future hotel market growth rates, HVS considered the historical annual rate of change in visitation of 0.78% from 2000 to 2013. Clearly, the Las Vegas market has matured and it no longer experiences the rapid growth rates of prior decades. The growth of gaming options both nationally and worldwide, including the emergence of Macau and Singapore as worldwide gaming market leaders and the legalization of online gaming in the U.S., has changed the gaming marketplace. The visitation habits of U.S. gaming patrons also changed during the recent recession as the proliferation of local and regional casinos offered closer destinations for many gamers. These trends have most likely constrained Las Vegas’ recovery and will continue to influence the rate of growth in tourist visitation. This section discussed a wide variety of economic indicators for the pertinent market area. Las Vegas/Clark County is experiencing a period of economic strength and expansion, led by the accommodation, food service, and retail sectors. Our market interviews and research revealed that local economy is still recovering from the recent recession, with strong grow expected over the next few years. The outlook for the market area is positive.

Conclusion

February-2014 Supply and Demand Analysis Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 35

4. Supply and Demand Analysis

HVS investigated the current supply of hotel rooms and room night demand trends, for a set of potentially competitive hotels. This analysis provides a basis for the projection of future supply and demand growth. The North American lodging market bottomed out in late 2009, at which time demand rebounded and the supply pipeline diminished. In 2010, occupancy rebounded strongly, and by 2011, average rates in most U.S. markets showed increases. In many urban markets, strong occupancy levels are allowing hotel operators to continue to make aggressive average rate gains in 2013, while in some less-robust markets, average rate growth is still constrained by weak demand levels. With demand largely recovered from the correction in 2009, and new supply remaining muted in 2013 and 2014, markets should be able to support healthy average rate gains in the near term. HVS selected a set of hotels that would compete with the 150-room Proposed Hotel based on the following factors;

• the brand scale of the hotel (budget, economy, select-service, full-service or luxury),

• its proximity to the site of the Proposed Hotel, • the condition of the hotel, and • the services levels within the hotel.

Hotels most proximate and similar to the Proposed Hotel are shown in the figure below.

National Trends

Definition of Competitive Set


FIGURE 4-1 MAP OF COMPETITION

The competitive hotels are located in three primary areas. The Hampton Inn & Suites Las Vegas South and the Springhill Suites are located on Interstate 215, which connects Henderson to McCarran International Airport. The Hampton Inn & Suites Las Vegas Henderson, Hilton Garden Inn, Holiday Inn Express, Comfort Inn & Suites, and Courtyard by Marriott are located along West Sunset Road, which connect into Interstate 515. The Hawthorn Suites is located near downtown Henderson and the subject site. HVS relied on Smith Travel Research (“STR”) data to determine the room count of each hotel. We applied competitive weights to the secondary competitors as shown in the figure below.


FIGURE 4-2 THE WEIGHTED COMPETITIVE SET

HotelNumber of

RoomsCompetitive

Level

Weighted Room Count

Primary CompetitorsHampton Inn & Suites Las Vegas Henderson 99 100% 99 Hawthorn Suites Las Vegas Henderson 72 100% 72 Hilton Garden Inn Las Vegas Henderson 139 100% 139 Holiday Inn Express Henderson 101 100% 101

Sub-total 411 411

Secondary CompetitorsComfort Inn & Suites Henderson 127 60% 76 Courtyard by Marriott Las Vegas Henderson 155 60% 93 Hampton Inn & Suites Las Vegas South 133 50% 67 Springhill Suites by Marriott Las Vegas Henderson 120 50% 60

Sub-total 535 296

Totals 946 707

Sources: STR and HVS

The weighted competitive set currently includes 411 rooms in primary competitors and 707 rooms in the weighted secondary competitors. Since 2013 was the most complete year of available data at the time of this study, we used this as the base year of our analysis. The figures below summarize hotel market performance in the base year including room count, occupancy percentage, ADR, and RevPAR.


FIGURE 4-3 ROOMS, ADR, OCCUPANCY AND REVPAR IN THE COMPETITIVE SET

535

139

101

99

72

Secondary Competitors

Hilton Garden Inn Las Vegas Henderson

Holiday Inn Express Henderson

Hampton Inn & Suites Las Vegas Henderson

Hawthorn Suites Las Vegas Henderson

Room Count

$94.00

$89.00

$82.20

$79.79

$54.00

Hilton Garden Inn Las VegasHenderson


Hampton Inn & Suites Las VegasHenderson


Hawthorn Suites Las VegasHenderson

Average Daily Room Rate

66%

64%

62%

61%

57%






Occupancy Rate

$58.74

$53.58

$50.14

$49.37

$34.56






Revenue per Availabe Room (RevPAR)

The figure below shows year-to-date occupancy and average daily room rates compared to the prior year.


FIGURE 4-4 MARKET PERFORMANCE YEAR-TO-DATE THROUGH NOVEMBER

63% 63%

2012 2013

YTD Occupancy

$79 $80

2012 2013

YTD ADR

STR data has certain limitations. Hotels are occasionally added to or removed from the sample, and not every property reports data in a consistent and timely manner; these factors can influence the overall quality of the information by skewing the results. These inconsistencies may also cause the STR data to differ from the results of our competitive survey. Nonetheless, STR data provide the best indication of aggregate growth or decline in existing supply and demand; thus, these trends have been considered in our analysis. The figure below shows historical performance of the competitive set including the occupancy rates, average daily room rates (“ADR”) and revenue per available room (RevPAR).

Historical Market Performance


FIGURE 4-5 HISTORICAL ROOM NIGHT DEMAND, ADR, AND REVPAR

0%10%20%30%40%50%60%70%80%90%

$0

$20

$40

$60

$80

$100

$120

ADR RevPAR Occupancy

Source: STR

The market is a world-renowned tourist destination with major casinos, resorts, restaurants, thrill rides, and retail centers; as such, convention groups and leisure travelers serve as consistent sources of demand. Additionally, Henderson and Las Vegas are in the midst of a corporate growth period, with many recent and planned projects attracting high-tech companies to the area. The latest year-to-date data for 2013 show a steady occupancy rate, as the market stabilized from the recent strong growth. The figure below shows anticipated changes in the weighted competitive room supply.

Future Supply


FIGURE 4-6 WEIGHTED ANNUAL AVERAGE DAILY ROOM SUPPLY TRENDS

Sources: STR and HVS

The Proposed Hotel is the only known addition to new supply. The Las Vegas/Henderson market is overbuilt and until the existing supply of rooms is fully absorbed, we do not anticipate that new competitive properties will enter the market.

510 511 511 510 510 510 510 573 635 635 635 635 635

296 296 296 296 296 296 296 296

296 296 296 296 296

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Primary Weighted Secondary

Proposed Hotel OpensJuly 1, 2018125 rooms

February-2014 Description of the Proposed Improvements Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 42

5. Description of the Proposed Improvements

The quality of a lodging facility's physical improvements has a direct influence on marketability, attainable occupancy, and average room rate. The design and functionality of the structure can also affect operating efficiency and overall profitability. This section investigates the subject property's proposed physical improvements and personal property in an effort to determine how they are expected to contribute to attainable cash flows. The Proposed Hotel adjacent to the convention center, will be a select-service lodging facility containing 150 rentable units. The four-story property will open on July 1, 2018. The subject property is not affiliated with any recognized brand name. TYPICAL NONE EXTERIOR

As of the date of this report, the developer has not been identified, a brand has not been chosen for the Proposed Hotel, and no architectural plans exist. Based on the Proposed Hotel’s focused-service market segment, the following table summarizes the facilities normally available in a focused-service hotel.

Project Overview

Summary of the Facilities


FIGURE 5-1 PROPOSED FACILITIES SUMMARY

Guestroom Configuration Number of Units

King 80Queen/Queen 65Suite 5

Total 150

Food & Beverage FacilitiesSeating

Capacity

Restaurant 60Lounge 30

Indoor Meeting & Banquet FacilitiesSquare

Footage

Meeting Rooms 2,000

Amenities & Services

Indoor Swimming Pool Fitness CenterIndoor Whirlpool Business CenterVending Areas Market PantryGuest Laundry Facility

Infrastructure

Parking Spaces Off Site Dedicated ParkingElevators 2 Guest, 0 ServiceLife-Safety Systems Sprinklers, Smoke DetectorsConstruction Details Unknown

Due to the limited size of the site, the city parking garage should be used for guest parking. Guest will walk across South Water Street to the hotel site. Site improvements should include freestanding signage on South Water Street. Landscaping should allow for a positive guest impression and competitive exterior appearance. Sidewalks will be present along the front entrance and around the perimeter of the hotel. Due to the limited site size, the hotel structure should comprise one single building. The style of the exterior of the hotel has not yet been determined. Two stairways and two elevators should provide internal vertical transportation within the main structure. Through-the-wall units and several large units for the public areas normally provide heating and cooling.


TYPICAL LOBBY

The lobby area should be of an appropriate size for a focus-service hotel and feature contemporary décor and distinctive architecture. The lobby walls and floor should be attractively finished with materials in line with the focus-service hotel brand standards. The furnishings and finishes in this space should offer an appropriate first impression, and the design of the space should lend itself to adequate efficiency.


TYPICAL DINING AREA

A focused-service hotel’s restaurant is normally located on the ground floor. A coffee and wine café counter should be located near the restaurant. The furnishings should be of a similar style and finish as lobby and guestroom furnishings. The hotel should offer an indoor pool and an exercise room as recreational facilities. Restrooms should be present off of the pool area.


TYPICAL MEETING ROOM

The hotel is expected to feature standard and suite-style guestroom configurations, and guestrooms will be present on all levels of the property (above the lobby level) within the single building. The guestrooms are expected to be of a standard size, offering typical amenities for this upscale product type. In addition to the standard furnishings, rooms should also feature an iron and ironing board, a coffeemaker, and high-speed Internet access. Suites are expected to feature a larger living area and other upgraded amenities. Overall, the guestrooms should offer a competitive upscale product for this part of the Henderson area. Guestroom bathrooms should be of a standard size, with a shower-in-tub, commode, and single sink with vanity area, featuring a stone countertop. The floors should be finished with tile, and the walls will be finished with wall covering. Bathroom amenities should include a hairdryer and complimentary toiletries.


TYPICAL GUESTROOM

The interior guestroom corridors should be wide and functional, permitting the easy passage of housekeeping carts. Corridor carpet, wall covering, signage, and lighting should be in keeping with the overall look and design of the rest of the property. The hotel should be served by the necessary back-of-the-house space, including an in-house laundry facility, administrative offices, and a small commercial kitchen to service the needs of the restaurant. These spaces should be adequate for a hotel of this type and should allow for the efficient operation of the property under competent management. We assume that the property will be built according to all pertinent codes and brand standards. Moreover, we assume its construction will not create any environmental hazards (such as mold) and that the property will fully comply with the Americans with Disabilities Act. Our analysis assumes that, after its opening, the hotel will require ongoing upgrades and periodic renovations in order to maintain its competitive level in this market and to remain compliant with brand standards. These costs should be adequately funded by the forecasted reserve for replacement, as long as a successful, ongoing preventive-maintenance program is employed by hotel staff.

ADA and Environmental

Capital Expenditures


The estimated construction budget for the 150-room subject hotel is illustrated in the following table.

FIGURE 5-2 SUBJECT PROPERTY CONSTRUCTION BUDGET

Item Cost per Room Cost

Building $80,000 $12,000,000Furniture, Fixtures, & Equipment 13,000 $1,950,000Pre-Opening & Working Capital 6,000 $900,000Soft Costs 19,000 $2,850,000Land 6,000 $900,000

Total $124,000 $18,600,000Plus Developer's Incentive 6,200 930,000

Total Cost New Estimate $130,200 $19,530,000

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

Construction Budget

Conclusion

February-2014 Projection of Occupancy and Average Rate Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 49

6. Projection of Occupancy and Average Rate

Occupancy levels and average daily room rate form the foundation of a hotel’s financial performance and market value. Most of a lodging facility's other revenue sources (such as food, beverage, other operated departments, and rentals and other income) are driven by the number of guests. Many expense levels vary with occupancy. To a certain degree, hotel managers can manipulate occupancy. For example, they may choose to lower rates in an effort to maximize occupancy. Our forecasts reflect an operating strategy that would be implemented by a typical, professional hotel management team to achieve an optimal mix of occupancy and average rate. To estimate the occupancy and average rate of the Proposed Hotel, we first estimated the occupancy and average in the competitive set for a ten-year period. Through a penetration analysis, we determined the relative position of the Proposed Hotel among the competitors, which generates an estimate of the Proposed Hotel’s occupancy and average rate. The following table presents our estimate of demand in the subject market including base accommodated demand, unaccommodated, and induced demand. The induced room night demand results from the opening of the new Henderson Convention Center.

FIGURE 6-1 FORECAST OF DEMAND IN THE COMPETITIVE SET

Source 2014 2015 2016 2017 2018 2019 2020 2021 2023

Base 160,725 162,515 164,325 166,156 167,932 169,727 171,541 173,376 173,376Unaccommodated 0 0 0 0 0 0 0 0 0Induced 0 0 0 0 3,899 10,397 12,996 12,996 12,996Total Demand 160,725 162,515 164,325 166,156 171,831 180,124 184,537 186,372 186,372

Market demand forecasts assume a level of base market growth that would occur without the introduction Proposed Hotel. HVS evaluated growth rates for three segments: Commercial, Meeting and Group, and Leisure demand. Commercial demand consists mainly of individual business travelers and volume corporate accounts generated by local firms. Brand loyalty (particularly frequent-traveler programs) and location near to businesses influence lodging choices in this

Forecast of Market Occupancy

Commercial Segment


segment. Companies typically designate hotels as “preferred” accommodations in return for more favorable rates, which are discounted in proportion to the number of room nights produced by a commercial client. Commercial demand is strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases somewhat on Sunday night. It is relatively constant throughout the year, with marginal declines in late December and during other holiday period. The meeting and group augment includes meetings, seminars, conventions, trade association shows, and similar gatherings of ten or more people. Peak convention demand typically occurs in the spring and fall. The primary categories of meeting and group business are corporate groups, associations, and SMERFE (social, military, ethnic, religious, fraternal, and educational) groups. Corporate groups typically meet during the business week most commonly in the spring and fall months. These groups tend to be the most profitable for hotels, as they typically pay higher rates and usually generate ancillary revenues including food, beverage, and banquet revenue. SMERFE groups are typically price-sensitive and tend to meet on weekends and/or during the summer months or holiday season, when greater discounts are usually available. These groups generate limited ancillary revenues. The profile and revenue potential of associations varies depending on the group and the purpose of their meeting or event. In the greater Las Vegas market, all three sub-segments of meeting and group demand are present, but the association and corporate meeting sub-segments are the strongest. Overall, the greater Las Vegas market has been successfully promoted as an easily accessible destination with a wide range of available activities. A property's location either on or off the Las Vegas Strip is an important consideration for planners booking events. For example, all the competitive properties in the competitive set are off-Strip locations and lack of on-site gaming, are appealing to certain business groups for a combination of meetings, social functions, and recreational outings. Leisure demand consists of individuals and families spending time in an area or passing through en route to other destinations. Travel purposes include sightseeing, recreation, or visiting friends and relatives. Leisure demand also includes room nights booked through Internet sites such as Expedia, Hotels.com, and Priceline; however, leisure may not be the purpose of the stay. This demand may also include business travelers and group and convention attendees who use these channels to take advantage of any discounts that may be available on these sites. Leisure demand is strongest Friday and Saturday nights, and all week during holiday periods and the summer months. These peak periods represent the inverse of commercial visitation trends, underscoring the stabilizing effect of capturing weekend and summer tourist travel. Future leisure demand is related to the overall economic health of the region and the nation. Trends showing changes in state and

Commercial Segment

Leisure Segment


regional unemployment and disposable personal income correlate strongly with leisure travel levels. The figure below shows estimated growth rates by market segment. FIGURE 6-2 BASE DEMAND GROWTH ASSUMPTIONS

1.1%1.1%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Commercial

Meeting and Group

Leisure

Base Demand Change

We based growth rate estimates on interviews with hotel managers, assessment of data on occupancy trends, economic and demographic data, and identification of demand generators. Latent demand reflects potential room night demand that the existing competitive supply does not realize. Latent demand includes induced and unaccommodated demand. Induced demand refers to additional room nights attracted to the market by a new demand generator such as a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities. Induced demand will fall into the meeting and group segment.

Latent Demand

Induced Demand


FIGURE 6-3 INDUCED DEMAND CALCULATION

Induced Room NightsMarket Segment

Commercial 0 0 0 0 0Meeting and Group 0 3,899 10,397 12,996 12,996Leisure 0 0 0 0 0

Total 0 3,899 10,397 12,996 12,996

2017 20212019 20202018

Accordingly, we have incorporated 13,000 room nights (rounded) into our analysis, phased-in over an appropriate ramp-up period. Unaccommodated demand refers to individuals who are unable to secure accommodations in the market because all the local hotels are filled. These travelers must defer their trips, settle for less desirable accommodations, or stay in properties located outside the market area. Because this demand did not yield occupied room nights, it is not included in the estimate of historical accommodated-room-night demand. If additional lodging facilities are expected to enter the market, it is reasonable to assume that these guests will be able to secure hotel rooms in the future, and it is therefore necessary to quantify this demand. Hotel markets with seasonal fluctuations in demand and with occupancy rates excess of 70% may be sold out on many nights during the year. Due to low occupancy in the market, we forecast no unaccommodated demand equivalent in the base-year. The figure below shows the forecast of accommodated market demand by segment. Accommodated demand may be less than total demand, as some demand may remain unaccommodated. The Proposed Hotel opens in July 2018, increasing the available room night supply.

Unaccommodated Demand

Market Demand Forecasts


FIGURE 6-4 FORECAST OF ACCOMODATED ROOM NIGHTS IN THE COMPETITIVE SET

2014 2015 2016 2017 2018 2019 2020 2021 2023

Available Room Nights 258,000 257,946 257,946 257,946 285,546 312,696 312,696 312,696 312,696

Room Night Demand by SegmentCommercial 99,000 99,799 100,797 101,805 102,823 103,852 104,890 105,939 105,939Meeting and Group 25,000 25,713 25,970 26,230 30,391 37,154 40,020 40,291 40,291Leisure 36,000 37,002 37,557 38,121 38,616 39,118 39,627 40,142 40,142

Total Market Demand 161,000 162,515 164,325 166,156 171,830 180,124 184,537 186,372 186,372

Estimated Occupancy 62% 63% 64% 64% 60% 58% 59% 60% 60%

Segmentation PercentageCommercial 61% 61% 61% 61% 60% 58% 57% 57% 57%Meeting and Group 16% 16% 16% 16% 18% 21% 22% 22% 22%Leisure 23% 23% 23% 23% 22% 22% 21% 22% 22%

HVS estimates that accommodated room night demand will grow from 161 thousand in 2014 to 186.372 thousand in 2023. HVS analyzed the market penetration of each of the properties in the competitive set. The following figure ranks the market penetration of each hotel by market segment.

Market Penetration of the Proposed Hotel


FIGURE 6-5 ESTIMATED MARKET PENETRATION OF THE COMPETITIVE SET

Commercial PenetrationHawthorn Suites Las Vegas Henderson 118%

Holiday Inn Express Henderson 104%Secondary Competition 100%

Hampton Inn & Suites Las Vegas Henderson 97%Hilton Garden Inn Las Vegas Henderson 90%

Proposed Hotel 77%

Meeting and Group PenetrationProposed Hotel 211%

Holiday Inn Express Henderson 169%Hilton Garden Inn Las Vegas Henderson 117%

Secondary Competition 95%Hampton Inn & Suites Las Vegas Henderson 94%

Leisure PenetrationHawthorn Suites Las Vegas Henderson 138%

Hampton Inn & Suites Las Vegas Henderson 110%Secondary Competition 106%

Hilton Garden Inn Las Vegas Henderson 82%Proposed Hotel 78%

Holiday Inn Express Henderson 71%

Due to its location away from sources of commercial and leisure demand, the Proposed Hotel would under penetrate these segments. The Proposed Hotel’s proximity to the convention center and adjacent meeting space would allow it to over penetrate the meetings and groups segment. The figure below shows our estimates of market penetration of the Proposed Hotel.


FIGURE 6-6 MARKET PENETRATION OF THE PROPOSED HOTEL

76%

211%

78%

106%

Commercial

Meeting and Group

Leisure

TOTAL

Fair Share

We estimate that the Proposed Hotel will achieve of overall market demand as it: under penetrates the Commercial market, over penetrates the Meeting and Group market, and under penetrates the Leisure market. At stabilization in 2021, the Proposed Hotel could achieve a 63 percent occupancy rate, as shown in the table below.

FIGURE 6-7 PROPOSED HOTEL ROOM NIGHTS AND OCCUPANCY ESTIMATES

2018* 2019 2020 2021 2022

Available Room Nights 27,600 54,750 54,750 54,750 54,750

Absorption by SegmentCommercial 5,715 12,591 13,905 14,213 14,213Meeting and Group 6,415 13,377 14,820 14,920 14,920Leisure 2,511 5,060 5,441 5,512 5,512

Total Absorption 14,641 31,028 34,166 34,645 34,645

Projected Occupancy 53% 57% 62% 63% 63%

Percent SegmentationCommercial 39% 41% 41% 41% 41%Meeting and Group 44% 43% 43% 43% 43%Leisure 17% 16% 16% 16% 16%

* 2018 includes only a half year of operation.


In its first half-year of operation in 2018 , the Proposed Hotel would only achieve 53 percent occupancy. As is typical of new hotels, it may take several years to ramp-up to its stabilized occupancy level. HVS assumes a five-year ramp up because a large portion of its demand is from group business, some of which has long-term booking windows. Based on our analysis of the Proposed Hotel and market area, we have selected a stabilized occupancy level of 63%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given all changes in the life cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the Proposed Hotel may operate at occupancies above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability. The following table illustrates the projected average rate and the growth rates assumed. As a context for the average rate growth factors, note that we have applied underlying inflation rates of 2.5%.

FIGURE 6-8 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

YearAverage

RateAverage

Rate

Base Year 62 % $81.39 — — $95.00 — 116.7 %2014 62 83.02 2.0 % — 96.90 2.0 % 116.72015 63 84.68 2.0 — 98.84 2.0 116.72016 64 86.80 2.5 — 101.31 2.5 116.72017 64 88.97 2.5 — 103.84 2.5 116.72018 60 91.19 2.5 53 % 106.44 2.5 116.72019 58 93.47 2.5 57 109.10 2.5 116.72020 59 95.81 2.5 62 111.83 2.5 116.72021 60 98.21 2.5 63 114.62 2.5 116.7

Average Rate Growth

Area-wide Market (Calendar Year) Subject Property (Calendar Year)Average Rate PenetrationOccupancyOccupancy

Average Rate Growth

HVS positioned the ADR of the Proposed Hotel as it were opening the base year. The growth rates shown in the above figure were applied to the base rate in each year until opening. We expect the Henderson market to enjoy positive rate growth through the near term. The Proposed Hotel's rate position should reflect growth similar to market trends because of the proposed hotel's new facility, strong brand affiliation, and downtown location. The Proposed Hotel’s penetration rate is forecast to reach 116.7% by the stabilized period.

Average Rate Analysis


A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the Proposed Hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast 3.0% and 1.0% discounts to the Proposed Hotel’s forecast room rates in the first two operating years, which would be typical for a new operation of this type. The following occupancies and average rates will be used to project the Proposed Hotel's rooms revenue; this forecast reflects years beginning on July 1, 2018, which correspond with our financial projections. FIGURE 6-9 FORECAST OF OCCUPANCY, AVERAGE RATE, AND REVPAR

Year

2018/19 55 % $107.76 3.0 % $104.52 $57.492019/20 60 110.45 1.0 109.35 65.612020/21 63 113.21 0.0 113.21 71.32

OccupancyAverage Rate

Before Discount DiscountAverage Rate After Discount RevPAR

February-2014 Projection of Income and Expense Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 58

7. Projection of Income and Expense

In this chapter, we present a forecast of income and expense for the Proposed Hotel. This forecast is based on the facilities program and our occupancy and average rate forecasts. In order to project future income and expense for the Proposed Hotel, we have included a sample of individual comparable operating statements from our database of hotel statistics. All financial data are presented according to the three most common measures of industry performance: ratio to sales (RTS), amounts per available room (PAR), and amounts per occupied room night (POR). These historical income and expense statements will be used as benchmarks in our forthcoming forecast of income and expense. FIGURE 7-1 COMPARABLE OPERATING STATEMENTS--RTS

RANK 1 2 3 4 5 6

REVENUE Rooms 93.8 93.4 84.4 79.7 72.3 63.3

Food 29.8 23.1 19.0 11.3 4.4 3.7 Beverage 6.2 3.8 2.0 1.8 0.3 0.0

Food & Beverage 36.0 26.9 19.0 13.3 5.4 4.6 Rentals & Other Income 2.3 1.6 1.3 0.8 0.1 0.0

DEPARTMENTAL EXPENSES* Rooms 32.7 28.4 24.2 24.0 16.8 15.2

Food 81.7 80.5 65.0 64.7 55.7 27.0 Food & Beverage 81.7 80.9 65.0 64.7 55.7 27.0

Total 35.1 34.8 32.5 30.8 29.1 26.5

OPERATING EXPENSES Administrative & General 10.7 9.3 8.9 8.0 7.1 6.4

Marketing 10.4 6.0 5.9 5.8 5.6 4.6 Franchise Fee 8.3 7.1 6.5 6.4 6.1 5.9

Utilities 5.4 5.0 4.7 4.7 4.4 4.1 Total 35.0 32.2 31.4 29.0 28.5 27.2

HOUSE PROFIT 46.3 40.7 36.1 35.9 35.3 33.5

indicates position of Proposed Hotelindicates comparable hotel

Comparable Operating Statements


FIGURE 7-2 COMPARABLE OPERATING STATEMENTS--PAR

AMOUNTS PER AVAILABLE ROOM (THOUSANDS)RANK 1 2 3 4 5 6

REVENUE Rooms 28,319 26,388 25,518 22,897 21,901 21,554

Food 13,333 6,984 6,070 3,062 1,033 1,005 Beverage 2,785 1,164 541 500 59 0

Food & Beverage 16,119 8,148 6,070 3,603 1,533 1,064 Rentals & Other Income 616 421 356 233 39 0

DEPARTMENTAL EXPENSES* Rooms 7,507 7,045 5,541 5,256 4,319 4,289

Food 8,978 5,296 3,930 2,945 856 414 Food & Beverage 8,978 5,296 3,930 2,945 861 414

Total 13,785 10,553 8,822 8,500 8,231 8,059

OPERATING EXPENSES Administrative & General 2,897 2,874 2,618 2,430 2,263 2,045

Marketing 2,934 2,659 1,860 1,822 1,527 1,050 Franchise Fee 3,696 2,281 1,862 1,803 1,603 1,495

Property Operations & Maintenance 1,415 1,396 1,363 1,289 1,266 1,018 Utilities 2,089 1,417 1,342 1,298 1,250 1,233 Total 12,733 9,895 8,797 8,733 8,719 7,218

HOUSE PROFIT 18,215 14,807 10,933 10,133 9,562 7,713



FIGURE 7-3 COMPARABLE OPERATING STATEMENTS—P0R

AMOUNTS PER OCCUPIED ROOM NIGHT (THOUSANDS)RANK 1 2 3 4 5 6

REVENUE Rooms 117 108 103 100 95 85

Food 55 30 26 13 4 4 Beverage 11 5 2 2 0 0

Food & Beverage 66 35 26 16 6 4 Rentals & Other Income 3 2 1 1 0 0

DEPARTMENTAL EXPENSES* Rooms 29 28 24 23 18 18

Food 37 23 17 13 3 2 Food & Beverage 37 23 17 13 3 2

Total 57 46 38 36 32 32OPERATING EXPENSES

Administrative & General 13 12 11 10 10 8 Marketing 11 11 8 8 7 4

Franchise Fee 15 10 8 7 7 6 Property Operations & Maintenance 6 6 6 6 5 4

Utilities 9 6 6 5 5 5 Total 52 39 38 38 37 29

HOUSE PROFIT 75 62 48 42 39 31


As the above figures illustrate, we position the financial operations of the Proposed Hotel between the high cost and low cost for each category. In consideration of the most recent trends and our assessment of probable property appreciation levels, we have applied underlying inflation rates of 2.5%, throughout the projection period. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlying inflation rate are discussed in our write-up of individual income and expense items. Based on an analysis that will be detailed throughout this section, we have formulated a forecast of income and expense. The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten-year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years that begin on July 1, 2018, expressed in inflated dollars for each year.

Inflation Assumption

Summary of Projections


FIGURE 7-4 DETAILED FORECAST OF INCOME AND EXPENSE

2018/19 Begins July 2019/20 Stabilized 2021/22 2022/23

Number of Rooms: 150 150 150 150 150Occupancy: 55% 60% 63% 63% 63%Average Rate: $104.52 $109.35 $113.21 $116.04 $118.94RevPAR: $57.49 $65.61 $71.32 $73.11 $74.93Days Open: 365 365 365 365 365Occupied Rooms: 30,113 %Gross PAR POR 32,850 %Gross PAR POR 34,493 %Gross PAR POR 34,493 %Gross PAR POR 34,493 %Gross PAR POR REVENUE Rooms $3,147 70.9 % $20,980 $104.51 $3,592 71.8 % $23,947 $109.35 $3,905 72.3 % $26,033 $113.21 $4,003 72.3 % $26,687 $116.05 $4,103 72.3 % $27,353 $118.95 Food 1,072 24.1 7,149 35.61 1,172 23.4 7,810 35.66 1,245 23.1 8,302 36.10 1,276 23.1 8,510 37.01 1,308 23.1 8,722 37.93 Beverage 183 4.1 1,223 6.09 197 3.9 1,314 6.00 208 3.8 1,384 6.02 213 3.8 1,418 6.17 218 3.8 1,454 6.32 Rentals & Other Income 38 0.9 253 1.26 40 0.8 266 1.22 42 0.8 277 1.20 43 0.8 284 1.23 44 0.8 291 1.26 Total Revenues 4,441 100.0 29,606 147.48 5,001 100.0 33,337 152.22 5,399 100.0 35,996 156.54 5,535 100.0 36,898 160.46 5,673 100.0 37,820 164.47DEPARTMENTAL EXPENSES * Rooms 847 26.9 5,645 28.12 897 25.0 5,979 27.30 937 24.0 6,248 27.17 961 24.0 6,404 27.85 985 24.0 6,564 28.55 Food & Beverage 862 68.6 5,745 28.62 907 66.3 6,047 27.61 944 65.0 6,296 27.38 968 65.0 6,453 28.06 992 65.0 6,614 28.76 Total 1,708 38.5 11,390 56.73 1,804 36.1 12,026 54.92 1,882 34.8 12,544 54.55 1,929 34.8 12,857 55.91 1,977 34.8 13,179 57.31DEPARTMENTAL INCOME 2,732 61.5 18,216 90.74 3,197 63.9 21,310 97.31 3,518 65.2 23,452 101.99 3,606 65.2 24,041 104.55 3,696 65.2 24,641 107.16UNDISTRIBUTED OPERATING EXPENSES Administrative & General 398 9.0 2,656 13.23 417 8.3 2,782 12.70 433 8.0 2,888 12.56 444 8.0 2,961 12.87 455 8.0 3,035 13.20 Marketing 299 6.7 1,992 9.92 313 6.3 2,087 9.53 325 6.0 2,166 9.42 333 6.0 2,220 9.66 341 6.0 2,276 9.90 Franchise Fee 267 6.0 1,783 8.88 305 6.1 2,035 9.29 332 6.1 2,213 9.62 340 6.1 2,268 9.86 349 6.1 2,325 10.11 Prop. Operations & Maint. 207 4.7 1,383 6.89 217 4.3 1,449 6.62 226 4.2 1,504 6.54 231 4.2 1,542 6.71 237 4.2 1,580 6.87 Utilities 232 5.2 1,549 7.72 243 4.9 1,623 7.41 253 4.7 1,685 7.33 259 4.7 1,727 7.51 266 4.7 1,770 7.70 Total 1,404 31.6 9,363 46.64 1,496 29.9 9,976 45.55 1,568 29.0 10,456 45.47 1,608 29.0 10,718 46.61 1,648 29.0 10,986 47.78HOUSE PROFIT 1,328 29.9 8,853 44.10 1,700 34.0 11,334 51.75 1,949 36.2 12,996 56.51 1,998 36.2 13,323 57.94 2,048 36.2 13,655 59.38Management Fee 133 3.0 888 4.42 150 3.0 1,000 4.57 162 3.0 1,080 4.70 166 3.0 1,107 4.81 170 3.0 1,135 4.93INCOME BEFORE FIXED CHARGES 1,195 26.9 7,965 39.68 1,550 31.0 10,334 47.19 1,787 33.2 11,916 51.82 1,832 33.2 12,216 53.12 1,878 33.2 12,521 54.45FIXED EXPENSES Property Taxes 134 3.0 895 4.46 138 2.8 917 4.19 141 2.6 940 4.09 145 2.6 964 4.19 148 2.6 988 4.30 Insurance 47 1.1 315 1.57 48 1.0 323 1.47 50 0.9 331 1.44 51 0.9 339 1.48 52 0.9 348 1.51 Reserve for Replacement 89 2.0 592 2.95 150 3.0 1,000 4.57 216 4.0 1,440 6.26 221 4.0 1,476 6.42 227 4.0 1,513 6.58 Total 270 6.1 1,802 8.98 336 6.8 2,240 10.23 407 7.5 2,711 11.79 417 7.5 2,779 12.09 427 7.5 2,849 12.39NET INCOME $924 20.8 % $6,163 $30.70 $1,214 24.2 % $8,094 $36.96 $1,381 25.7 % $9,205 $40.03 $1,415 25.7 % $9,437 $41.04 $1,451 25.7 % $9,672 $42.06

*Departmental expenses are expressed as a percentage of departmental revenues.


FIGURE 7-5 TEN-YEAR FORECAST OF INCOME AND EXPENSE

2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28

Number of Rooms: 150 150 150 150 150 150 150 150 150 150Occupied Rooms: 30,113 32,850 34,493 34,493 34,493 34,493 34,493 34,493 34,493 34,493Occupancy: 55% 60% 63% 63% 63% 63% 63% 63% 63% 63%Average Rate: $104.52 % of $109.35 % of $113.21 % of $116.04 % of $118.94 % of $121.92 % of $124.97 % of $128.09 % of $131.29 % of $134.57RevPAR: $57.49 Gross $65.61 Gross $71.32 Gross $73.11 Gross $74.93 Gross $76.81 Gross $78.73 Gross $80.70 Gross $82.71 Gross $84.78REVENUE Rooms $3,147 70.9 % $3,592 71.8 % $3,905 72.3 % $4,003 72.3 % $4,103 72.3 % $4,205 72.3 % $4,310 72.3 % $4,418 72.3 % $4,529 72.3 % $4,642 72.3 % Food 1,072 24.1 1,172 23.4 1,245 23.1 1,276 23.1 1,308 23.1 1,341 23.1 1,375 23.1 1,409 23.1 1,444 23.1 1,480 23.1 Beverage 183 4.1 197 3.9 208 3.8 213 3.8 218 3.8 224 3.8 229 3.8 235 3.8 241 3.8 247 3.8 Rentals & Other Income 38 0.9 40 0.8 42 0.8 43 0.8 44 0.8 45 0.8 46 0.8 47 0.8 48 0.8 49 0.8 Total 4,441 100.0 5,001 100.0 5,399 100.0 5,535 100.0 5,673 100.0 5,814 100.0 5,959 100.0 6,109 100.0 6,262 100.0 6,418 100.0 DEPARTMENTAL EXPENSES* Rooms 847 26.9 897 25.0 937 24.0 961 24.0 985 24.0 1,009 24.0 1,034 24.0 1,060 24.0 1,087 24.0 1,114 24.0 Food & Beverage 862 68.6 907 66.3 944 65.0 968 65.0 992 65.0 1,017 65.0 1,042 65.0 1,068 65.0 1,095 65.0 1,123 65.0 Total 1,708 38.5 1,804 36.1 1,882 34.8 1,929 34.8 1,977 34.8 2,026 34.8 2,077 34.8 2,129 34.8 2,182 34.8 2,237 34.8DEPARTMENTAL INCOME 2,732 61.5 3,197 63.9 3,518 65.2 3,606 65.2 3,696 65.2 3,788 65.2 3,883 65.2 3,980 65.2 4,080 65.2 4,182 65.2UNDISTRIBUTED OPERATING EXPENSES Administrative & General 398 9.0 417 8.3 433 8.0 444 8.0 455 8.0 467 8.0 478 8.0 490 8.0 502 8.0 515 8.0 Marketing 299 6.7 313 6.3 325 6.0 333 6.0 341 6.0 350 6.0 359 6.0 368 6.0 377 6.0 386 6.0 Franchise Fee 267 6.0 305 6.1 332 6.1 340 6.1 349 6.1 357 6.1 366 6.1 376 6.1 385 6.1 395 6.1 Prop. Operations & Maint. 207 4.7 217 4.3 226 4.2 231 4.2 237 4.2 243 4.2 249 4.2 255 4.2 262 4.2 268 4.2 Utilities 232 5.2 243 4.9 253 4.7 259 4.7 266 4.7 272 4.7 279 4.7 286 4.7 293 4.7 300 4.7 Total 1,404 31.6 1,496 29.9 1,568 29.0 1,608 29.0 1,648 29.0 1,689 29.0 1,731 29.0 1,775 29.0 1,819 29.0 1,864 29.0HOUSE PROFIT 1,328 29.9 1,700 34.0 1,949 36.2 1,998 36.2 2,048 36.2 2,099 36.2 2,151 36.2 2,205 36.2 2,261 36.2 2,317 36.2Management Fee 133 3.0 150 3.0 162 3.0 166 3.0 170 3.0 174 3.0 179 3.0 183 3.0 188 3.0 193 3.0INCOME BEFORE FIXED CHARGES 1,195 26.9 1,550 31.0 1,787 33.2 1,832 33.2 1,878 33.2 1,925 33.2 1,973 33.2 2,022 33.2 2,073 33.2 2,125 33.2FIXED EXPENSES Property Taxes 134 3.0 138 2.8 141 2.6 145 2.6 148 2.6 152 2.6 156 2.6 160 2.6 164 2.6 168 2.6 Insurance 47 1.1 48 1.0 50 0.9 51 0.9 52 0.9 53 0.9 55 0.9 56 0.9 58 0.9 59 0.9 Reserve for Replacement 89 2.0 150 3.0 216 4.0 221 4.0 227 4.0 233 4.0 238 4.0 244 4.0 250 4.0 257 4.0 Total 270 6.1 336 6.8 407 7.5 417 7.5 427 7.5 438 7.5 449 7.5 460 7.5 472 7.5 483 7.5NET INCOME $924 20.8 % $1,214 24.2 % $1,381 25.7 % $1,415 25.7 % $1,451 25.7 % $1,487 25.7 % $1,524 25.7 % $1,562 25.7 % $1,601 25.7 % $1,641 25.7 %

1 1 1 1 1 1 1 1 1 1*Departmental expenses are expressed as a percentage of departmental revenues.

% ofGross


The following description sets forth the basis for the forecast of income and expense. We anticipate that it will take three years for the Proposed Hotel to reach a stabilized level of operation. Each revenue and expense item has been forecast based upon our review of the Proposed Hotel's operating budget and comparable income and expense statements. The forecast is based upon fiscal years beginning July 1, 2018, expressed in inflated dollars for each year. The Proposed Hotel's food and beverage operation is expected to be an important component of the hotel. Therefore, based upon our review of comparable operating statements, we have positioned an appropriate revenue level given the hotel's planned facility and price point. We would expect future moderate growth to occur within this category after the hotel's opening. Property (or ad valorem) tax is one of the primary revenue sources of municipalities. Based on the concept that the tax burden should be distributed in proportion to the value of all properties within a taxing jurisdiction, a system of assessments is established. Theoretically, the assessed value placed on each parcel bears a definite relationship to market value, so properties with equal market values will have similar assessments and properties with higher and lower values will have proportionately larger and smaller assessments. Depending on the taxing policy of the municipality, property taxes can be based on the value of the real property or the value of the personal property and the real property. We have based our estimate of the Proposed Hotel's market value (for tax purposes) on an analysis of assessments of comparable hotel properties in the local municipality.

Forecast of Income and Expense

Property Taxes


FIGURE 7-6 COUNTY-ASSESSED VALUE OF COMPARABLE HOTELS

Number Total AssessmentHotel of Rooms Total

Hampton Inn & Suites Las Vegas Henderson 99 $515,193 $2,199,057 $0 $2,714,250Comfort Inn & Suites Henderson 127 215,054 1,211,846 0 1,426,900Hampton Inn & Suites Las Vegas South 134 229,452 957,098 0 1,186,550

Assessments per RoomHampton Inn & Suites Las Vegas Henderson $5,204 $22,213 $0 $27,417Comfort Inn & Suites Henderson 1,693 9,542 0 11,235Hampton Inn & Suites Las Vegas South 1,712 7,143 0 8,855

Positioned Subject - Per Room 150 $6,000 $22,000 $2,000 $30,000

Positioned Subject - Total $900,000 $3,300,000 $300,000 $4,500,000

Personal Land Improvements

Source: Clark County Assessor's Office

We have positioned the future assessment levels of the subject site and proposed improvements, as well as the planned personal property, based upon the illustrated comparable data. We have positioned these assessments closest to the Hampton Inn & Suites because of the similarities, including product type. Overall, the positioned assessments are well supported by the market data. Tax rates are based on the city and county budgets, which change annually. The most recent tax rate in this jurisdiction was reported at 2.89680%. The following table shows changes in the tax rate during the last several years. FIGURE 7-7 COUNTY TAX RATES

Personal PropertyYear Tax Rate

2011/12 2.8975 2.897502012/13 2.8958 2.895802013/14 2.8968 2.89680

Source: Clark County Assessor's Office

Tax RateReal Property

Based on comparable assessments and the tax rate information, the Proposed Hotel's projected property tax expense levels are calculated as follows. Based on comparable assessments and the tax rate information, the proposed subject property's projected property tax expense levels are calculated as follows.


FIGURE 7-8 PROJECTED PROPERTY TAX EXPENSE

Year

Positioned $900,000 $3,300,000 $300,000 $4,500,000 2.90 2.90 $130,356

2018/19 $900,000 $3,300,000 $300,000 $4,500,000 3.19 2.97 $134,2672019/20 900,000 3,300,000 300,000 4,500,000 3.27 3.04 137,6232020/21 900,000 3,300,000 300,000 4,500,000 3.35 3.12 141,064

Total ForecastAssessed Value

PersonalLand ImprovementsPers. Prop. Tax

Tax RatePropertyTax Rate

In conclusion, our analysis reflects a profitable operation, with net income expected to total 25.7% of total revenue by the stabilized year. The stabilized total revenue comprises primarily rooms and food and beverage revenue, with a secondary portion derived from other income sources. On the cost side, departmental expenses total 34.8% of revenue by the stabilized year, while undistributed operating expenses total 29.0% of total revenues; this assumes that the property will be operated competently by a well-known hotel operator. After a 3.0% of total revenues management fee, and 7.5% of total revenues in fixed expenses, a net income ratio of 25.7% is forecast by the stabilized year.

Conclusion

February-2014 Feasibility Analysis Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 66

8. Feasibility Analysis

Return on investment can be defined as the future benefits of an income-producing property relative to its acquisition or construction cost. The first step in performing a return on investment analysis is to determine the amount to be initially invested. For a proposed property, this amount is most likely to be the development cost of the hotel. Based on the total development cost, the individual investor will utilize a return on investment analysis to determine if the future cash flow from a current cash outlay meets his or her own investment criteria and at what level above or below this amount such an outlay exceeds or fails to meet these criteria. As an individual or company considering investment in hotel real estate, the decision to use one’s own cash, an equity partner's capital, or lender financing will be an internal one. Because hotels typically require a substantial investment, only the largest investors and hotel companies generally have the means to purchase properties with all cash. We would anticipate the involvement of some financing by a third party for the typical investor or for those who may be entering the market for hotel acquisitions at this time. In leveraged acquisitions and developments where investors typically purchase or build upon real estate with a small amount of equity cash (20% to 50%) and a large amount of mortgage financing (50% to 80%), it is important for the equity investor to acknowledge the return requirements of the debt participant (mortgagee), as well as his or her own return requirements. Therefore, we will begin our rate of return analysis by reviewing the debt requirements of typical hotel mortgagees. Because the subject property is a proposed hotel, we have referred to the capital budgets or similar hotel projects, the HVS Development Cost Survey, and our general knowledge of the local market to provide a preliminary cost analysis for the Proposed Hotel. This budget takes into consideration general physical, structural, and design elements of similar focused-service hotels. This preliminary cost estimate should be confirmed prior to the expenditure of funds on the Proposed Hotel. The following figure provides a high-level summary budget.

Construction Cost Estimate


FIGURE 8-1 SUBJECT PROPERTY CONSTRUCTION BUDGET

Item Cost per Room Cost

Building $80,000 $12,000,000Furniture, Fixtures, & Equipment 13,000 1,950,000Pre-Opening & Working Capital 6,000 900,000Soft Costs 19,000 2,850,000Land 6,000 900,000

Total $124,000 $18,600,000

Plus Developer's Incentive $6,200 $930,000

Total Cost New Estimate $130,200 $19,530,000

Based on our analysis of the current lodging industry mortgage market and adjustments for specific factors, such as the property’s site, proposed facility, and conditions in the Henderson hotel market, it is our opinion that a 5.50% interest, 25-year amortization mortgage with a 0.073690 constant is appropriate for the Proposed Hotel. In the mortgage-equity analysis, we have applied a loan-to-value ratio of 65%, which is reasonable to expect based on this interest rate and current parameters. The following chart summarizes the average mortgage interest rates of the hotel loans. For the purpose of comparison, the average-A corporate bond yield (as reported by Moody's Bond Record) is also shown.

Mortgage Component


FIGURE 8-2 AVERAGE MORTGAGE INTEREST RATES AND AVERAGE-A CORPORATE BOND YIELDS

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2004

-1s

t

2004

-3r

d

2005

-1s

t

2005

-3r

d

2006

-1s

t

2006

-3r

d

2007

-1s

t

2007

-3r

d

2008

-1s

t

2008

-3r

d

2009

-1s

t

2009

-3r

d

2010

-1s

t

2010

-3r

d

2011

-1s

t

2011

-3r

d

2012

-1s

t

2012

-3r

d

2013

-1s

t

2013

-3r

d

Rate

(%)

Sources: American Council of Life Insurance, Moody's Bond Record, HVS

Avg. Interest Rate (%) Avg. A Corp. Bond Yield (%)

The relationship between hotel interest rates and the yields from the average-A corporate bond can be detailed through a regression analysis, which is expressed as follows.

Y = 0.93110700 X + 1.02995700 Where: Y = Estimated Hotel Mortgage Interest Rate

X = Current Average-A Corporate Bond Yield (Coefficient of correlation is 93%) The January 15, 2014 average yield on average-A corporate bonds, as reported by Moody’s Investors Service, was 4.64%. When used in the previously presented equation, a factor of 4.64 produces an estimated hotel/motel interest rate of 5.35% (rounded). Yields on U.S. treasuries and average-A corporate bonds remain at low levels despite their recent uptick, providing a very favorable financing environment. Interest rates for single hotel assets are currently ranging from 5.5% to 7.0%, depending on the type of debt, loan-to-value ratio, and the quality of the asset and its market.


In addition to the mortgage interest rate estimate derived from this regression analysis, HVS constantly monitors the terms of hotel mortgage loans made by our institutional lending clients. Fixed-rate debt is being priced at roughly 200 to 500 basis points over the corresponding yield on treasury notes. As of January 15, 2014, the yield on the ten-year T-bill was 3.0%, indicating an interest rate range from 5.0% to 8.0%. While hotel mortgage interest rates have risen from their recent historic low, they are still at favorable levels due to the low interest rate environment being maintained by the Federal Reserve. At present, we find that lenders who are active in the market are using loan-to-value ratios of 50% to 75% and amortization periods of 20 to 30 years. Based on our analysis of the current lodging industry mortgage market and adjustments for specific factors, such as the proposed property’s location and conditions in the Henderson hotel market, it is our opinion that a 5.50% interest, 25-year amortization mortgage with a 0.073690 constant is appropriate for the proposed subject hotel. In the mortgage-equity analysis, we have applied a loan-to-value ratio of 65%, which is reasonable to expect based on this interest rate and current parameters. The remaining capital required for a hotel investment generally comes from the equity investor. The rate of return that an equity investor expects over a ten-year holding period is known as the equity yield. Unlike the equity dividend, which is a short-term rate of return, the equity yield specifically considers a long-term holding period (generally ten years), annual inflation- adjusted cash flows, property appreciation, mortgage amortization, and proceeds from a sale at the end of the holding period. To establish an appropriate equity yield rate, we have used two sources of data: past appraisals and investor interviews. Hotel Sales – Each study performed by HVS uses a mortgage-equity approach in which income is projected and then discounted to a current value at rates reflecting the cost of debt and equity capital. In the case of hotels that were sold near the date of our valuation, we were able to derive the equity yield rate and unlevered discount rate by inserting the ten-year projection, total investment (purchase price and estimated capital expenditure and/or PIP) and debt assumptions into a valuation model and solving for the equity yield. The overall capitalization rates for the historical income and projected first-year income are based on the sales price “as is.” The following table shows a representative sample of hotels that were sold on or about the time that we performed a study on them, along with the derived equity return and discount rates based on the purchase price and our forecast.

Equity Component & Equity Yield Rate


FIGURE 8-3 SAMPLE OF HOTELS SOLD – SELECT-SERVICE/EXTENDED-STAY

Hotel Location

Residence Inn Bellevue, WA 231 Oct-13 9.7 % 16.5 % 8.4 % 8.0 %Courtyard Raleigh Raleigh, NC 109 Sep-13 11.2 18.6 7.8 7.8Holiday Inn New York, NY 226 Jun-13 10.0 16.6 7.8 7.8Residence Inn Coconut Grove Miami, FL 140 Jun-13 10.0 16.1 7.2 6.7Holiday Inn Express & Suites Elk Grove, CA 116 Jun-13 10.8 17.4 7.6 8.2Hyatt Place North Shore Pittsburgh, PA 178 Jun-13 10.6 18.8 7.1 7.5Courtyard by Marriott San Diego, CA 245 May-13 9.8 16.1 4.7 6.2Hilton Garden Inn Dublin, OH 100 Apr-13 12.5 20.5 9.2 10.5Hyatt Place Germantown, TN 127 Apr-13 11.9 20.8 7.5 9.1Courtyard Shadyside Pittsburgh, PA 132 Mar-13 10.5 16.5 8.3 8.7Courtyard Medical Center Houston, TX 197 Feb-13 10.2 16.0 5.7 7.1Courtyard Santa Rosa, CA 138 Feb-13 12.9 22.5 10.2 9.5Holiday Inn Express & Suites San Francisco, CA 252 Feb-13 11.5 16.6 5.6 6.7Holiday Inn Express South Minot, SD 66 Feb-13 12.2 19.9 14.2 14.8Hampton Inn & Suites Ontario, CA 91 Feb-13 11.7 17.1 2.5 9.4Candlewood Suites Victoria, TX 82 Feb-13 13.9 27.9 25.2 18.1Holiday Inn Express Tucson, AZ 98 Jan-13 11.5 18.7 4.4 8.5Hampton Inn Portland, OR 122 Dec-12 10.0 17.1 9.6 10.1Holiday Inn Southaven Memphis, TN 121 Dec-12 13.0 20.6 11.7 12.6Homewood Suites Conversion New York, NY 241 Nov-12 9.5 13.8 — 11.9Hilton Garden Inn Fort Worth, TX 96 Oct-12 10.7 17.1 6.9 9.3Hilton Garden Inn Clarksville, TN 111 Sep-12 11.1 18.4 9.5 10.0Courtyard Ventura Oxnard, CA 166 Aug-12 12.1 19.1 5.6 8.2Hilton Garden Inn Odessa, TX 100 Aug-12 14.1 24.1 9.6 10.9Homewood Suites Egg Harbor Twnshp, NJ 120 May-12 12.1 19.9 — 8.7Hilton Garden Inn Dowell, MD 100 May-12 11.2 18.4 8.4 8.7Hampton Inn & Suites Smyrna, TN 83 May-12 12.0 19.5 9.1 9.1Residence Inn Dallas Arlington Arlington, TX 96 May-12 10.1 16.5 7.9 7.3Courtyard Dallas Arlington Arlington, TX 103 May-12 10.8 17.1 6.5 7.1Hilton Garden Inn Smyrna, TN 112 May-12 11.2 17.9 7.4 8.5Courtyard Upper East Side New York, NY 226 May-12 10.3 14.3 4.4 5.7Courtyard Atlanta, GA 150 Mar-12 10.6 17.7 4.0 7.5Springhill Suites Boise, ID 119 Feb-12 12.4 19.4 6.3 8.3Hilton Garden Inn Lakeshore Birmingham, AL 95 Feb-12 11.2 17.4 9.0 8.2Hilton Garden Inn SE Liberty Birmingham, AL 130 Feb-12 12.1 19.3 7.4 8.7Holiday Inn Express Burlingame Burlingame, CA 146 Dec-11 12.5 19.1 8.7 8.5Springhill Suites Lincolnshire, IL 161 Nov-11 13.1 20.3 8.8 10.5

Numberof Rooms of Sale

HistoricalTotal

Property Equity ProjectedYear Year One

DateYield Yield

Overall RateBased on Sales Price

Source: HVS

The following table summarizes the range of equity yields indicated by hotel sales and investor interviews. We note that sales data lag current market conditions, and thus and the full effect of the change in the economy and capital markets may not yet be reflected in the above data.


FIGURE 8-4 SUMMARY OF EQUITY YIELD OR INTERNAL RATE OF RETURN REQUIREMENTS

Source Data Point Range Average

HVS Hotel Sales - Full-Service & Luxury 13.4% - 19.7% 16.9%HVS Hotel Sales - Select-Service & Extended-Stay 13.8% - 27.9% 18.5%HVS Hotel Sales - Budget/Economy 16.7% - 26.2% 20.6%

HVS Investor Interviews 12% - 22%

Based on the assumed 65% loan-to-value ratio, the risk inherent in achieving the projected income stream, and the age, condition, and anticipated market position of the Proposed Hotel, it is our opinion that an equity investor is likely to require an equity yield rate of 16.0%. The lack of attainable yields on alternate investments has continued to put downward pressure on equity yield rates, despite the desire of investors to yield higher returns. Competition for quality assets is increasing amongst all hotel asset types. These influences are keeping equity yields from increasing significantly. Equity return requirements remain elevated for the more challenged hotel assets. We have reviewed several recent investor surveys, and the following table summarizes the data. Note that survey data lag the market and do not necessarily reflect the most current market conditions. FIGURE 8-5 TERMINAL CAPITALIZATION RATES DERIVED FROM INVESTOR

SURVEYS

Source Data Point Range Average

PWC Real Estate Investor Survey - 3rd Quarter 2013 Select-Service Hotels 5.0% - 12.0% 8.6% Full-Service Hotels 6.5% - 12.0% 8.8% Luxury Hotels 6.0% - 12.0% 8.5%

USRC Hotel Investment Survey - Mid-Year 2013 Full-Service Hotels 6.5% - 9.5% 8.2%

CRE/RERC Real Estate Report - Fall 2013 First Tier Hotels 6.4% - 13.0% 9.2%

Terminal Capitalization Rate


For purposes of this analysis, we have applied a terminal capitalization rate of 9.0%. Our final position for the terminal capitalization rate reflects the current market for hotel investments. In tandem with overall lower return expectations, terminal capitalization rates for quality hotel assets in markets with high barriers to entry have returned to their 2005 to 2007 lows, while terminal capitalization rates for older assets or for those suffering from functional obsolescence and/or weak market conditions remain elevated, reflecting the market's recognition that certain assets have less opportunity for significant appreciation. As the two participants in a real estate investment, investors and lenders must evaluate their equity and debt contributions based on their particular return requirements. After carefully weighing the risk associated with the projected economic benefits of a lodging investment, the participants will typically make their decision whether or not to invest in a hotel or resort by determining if their investment will provide an adequate yield over an established period. For the lender, this yield will typically reflect the interest rate required for a hotel mortgage over a period of what can range from seven to ten years. The yield to the equity participant may consider not only the requirements of a particular investor, but also the potential payments to cooperative or ancillary entities such as limited partner payouts, stockholder dividends, and management company incentive fees. The return on investment analysis in a hotel acquisition would not be complete without recognizing and reflecting the yield requirements of both the equity and debt participants. The analysis will now calculate the yields to the mortgage and equity participants during a ten-year projection period. The yield to the lender based on a 65% debt contribution equates to an interest rate of 5.50%, which is calculated as follows.

Mortgage-Equity Method – Opinion of Net Present Value


FIGURE 8-6 RETURN TO THE LENDER

Total Annual Present Worth of $1 DiscountedYear Debt Service Factor at 5.4% Cash Flow

2018/19 $735,000 x 0.948495 = $697,0002019/20 735,000 x 0.899643 = 661,0002020/21 735,000 x 0.853307 = 627,0002021/22 735,000 x 0.809358 = 595,0002022/23 735,000 x 0.767672 = 564,0002023/24 735,000 x 0.728133 = 535,0002024/25 735,000 x 0.690631 = 508,0002025/26 735,000 x 0.655060 = 481,0002026/27 735,000 x 0.621321 = 457,0002027/28 8,234,000 * x 0.589320 = 4,852,000

Value of Mortgage Component $9,977,000

*10th year debt service of $735,000 plus outstanding mortgage balance of $7,499,000

The following table illustrates the cash flow available to the equity position, after deducting the debt service from the projected net income. FIGURE 8-7 NET INCOME TO EQUITY

Net IncomeAvailable for Total Annual Net Income

Year Debt Service Debt Service to Equity

2018/19 $924,000 - $735,000 = $189,0002019/20 1,214,000 - 735,000 = 479,0002020/21 1,381,000 - 735,000 = 646,0002021/22 1,415,000 - 735,000 = 680,0002022/23 1,451,000 - 735,000 = 716,0002023/24 1,487,000 - 735,000 = 752,0002024/25 1,524,000 - 735,000 = 789,0002025/26 1,562,000 - 735,000 = 827,0002026/27 1,601,000 - 735,000 = 866,0002027/28 1,641,000 - 735,000 = 906,000

In order for the present value of the equity investment to equate to the $5,374,000 capital outlay, the investor must accept a 16.0% return, as shown in the following table.


FIGURE 8-8 EQUITY COMPONENT YIELD

Net Income Present Worth of $1 DiscountedYear to Equity Factor at 16.0% Cash Flow

2018/19 $189,000 x 0.862038 = $163,0002019/20 479,000 x 0.743110 = 356,0002020/21 646,000 x 0.640589 = 414,0002021/22 680,000 x 0.552212 = 376,0002022/23 716,000 x 0.476028 = 341,0002023/24 752,000 x 0.410354 = 309,0002024/25 789,000 x 0.353741 = 279,0002025/26 827,000 x 0.304938 = 252,0002026/27 866,000 x 0.262868 = 228,0002027/28 11,722,000 * x 0.226602 = 2,656,000

Value of Equity Component $5,374,000

*10th year net income to equity of $906,000 plus sales proceeds of $10,816,000

In determining the potential feasibility of the Proposed Hotel, we analyzed the lodging market, researched the area’s economics, reviewed the estimated development cost, and prepared a ten-year forecast of income and expense, which was based on our review of the current and historical market conditions, as well as comparable income and expense statements. The project would be a profitable operation with an estimated $1.3 million of net income in the first stabilized year. FIGURE 8-9 FEASIBILITY CONCLUSION

Allocation Yield ValuesEquity 35% 5.50% $5,374,000Debt 65% 16.00% 9,977,000Project Value $15,351,000Project Cost 19,500,000Shortfall ($4,149,000)

Based on these parameters and the estimated cost of development of $19,500,000, the subject project is not feasible. We have made no assumptions of hypothetical conditions in our report. The analysis is based on the extraordinary assumption that the described improvements have been completed as of the prospective "when complete" date of value. The reader should understand that the completed subject property does not yet, in fact, exist as of the date of report. We do not address unforeseeable events

Conclusion


that could alter the proposed project and/or the market conditions reflected in the analyses; we assume that no significant changes, other than those anticipated and explained in this report, will take place between the date of inspection and date of prospective value. We have made no other extraordinary assumptions specific to this report. However, several important general assumptions have been made that apply to this report and our valuations of proposed hotels in general. These aspects are set forth in the Assumptions and Limiting Conditions chapter of this report. The Proposed Hotel is not feasible under existing market conditions as a privately funded hotel project. Hotels that function as an anchor for room nights for a convention center often require a public/private partnership to succeed. In order to achieve the benefits of locating a hotel in downtown Henderson adjacent to the convention center, a private developer may require incentives. In order to be successful, the project would need a public/private partnership with the City that would reduce the cost of the project. This public/private partnership could include;

• a favorable land lease on the site, • reinvestment of lodging or real estate taxes generated by the Proposed

Hotel, • granting the hotel the right to food and beverage operations in the

proposed convention center, • granting the hotel the overall management of the convention center, and • allowing the hotel operator priority access to meeting spaces in the

convention center. The Proposed Hotel and convention center would be a major investment in downtown Henderson. The guests of the hotel and convention center would significantly increase traffic in downtown and in conjunction with the other planned investments in downtown Henderson provide a positive basis for future growth.

Public Private Partnership Opportunities

February-2014 Statement of Assumptions and Limiting Conditions Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 76

9. Statement of Assumptions and Limiting Conditions

1. This report is set forth as a feasibility study of the Proposed Hotel; this is not an appraisal report.

1. This report is to be used in whole and not in part. 2. No responsibility is assumed for matters of a legal nature, nor do we

render any opinion as to title, which is assumed to be marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated.

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

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

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

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

7. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Convention, Sports & Entertainment Facilities Consulting are assumed to be true and correct. We can assume no liability resulting from misinformation.

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

9. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including a liquor license where appropriate), and that all


licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser.

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

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

12. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per-diem fees and travel costs are paid prior to the appearance.

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

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

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

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

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

18. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity,


most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors.

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

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

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

February-2014 Certification Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 79

10. Certification

The undersigned hereby certify that, to the best of our knowledge and belief: 1. the statements of fact presented in this report are true and correct; 2. the reported analyses, opinions, and conclusions are limited only by the

reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions;

3. we have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved;

4. we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment;

5. our engagement in this assignment was not contingent upon developing or reporting predetermined results;

6. our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined result or direction in performance that favors the cause of the client, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this study;

7. Brian Harris and Thomas A Hazinski personally inspected the property described in this report;

8. Brian Harris provided significant assistance to Thomas A Hazinski, and that no one other than those listed above and the undersigned prepared the analyses, conclusions, and opinions concerning the real estate that are set forth in this report; and

9. Brian Harris and Thomas A Hazinski have not performed consulting work on this property within the past three years;

February-2014 Certification Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada 80

Brian Harris HVS Convention, Sports & Entertainment Facilities Consulting

Thomas A Hazinski HVS Convention, Sports & Entertainment Facilities Consulting

February-2014 Penetration Explanation Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada i

Penetration Explanation

Let us illustrate the penetration adjustment with an example. A market has three existing hotels with the following operating statistics:

BASE-YEAR OCCUPANCY AND PENETRATION LEVELS

Based upon each hotel’s room count, market segmentation, and annual occupancy, the annual number of room nights accommodated in the market from each market segment can be quantified, as set forth below. MARKET-WIDE ROOM NIGHT DEMAND

The following discussion will be based upon an analysis of the commercial market segment. The same methodology is applied for each market segment to derive an estimate of a hotel’s overall occupancy. The table below sets forth the commercial demand accommodated by each hotel. Each hotel’s commercial penetration factor is computed by:

PropertyNumber

of Rooms Fair Share CommercialMeeting and

Group Leisure Occupancy

Hotel A 100 23.5 % 60 % 20 % 20 % 75.0 % 100.8 %Hotel B 125 29.4 70 10 20 65.0 87.4Hotel C 200 47.1 30 60 10 80.0 107.5

Totals/Average 425 100.0 % 47 % 38 % 15 % 74.4 % 100.0 %

Penetration

Market Segment

Annual Room Night

Demand

Commercia l 54,704 47.4 %Meeti ng and Group 43,481 37.7Leis ure 17,246 14.9

Total 115,431 100.0 %

Percentage of Total

February-2014 Penetration Explanation Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada ii

1) calculating the hotel’s market share % of commercial demand (commercial room nights accommodated by subject hotel divided by total commercial room nights accommodated by all hotels) and

2) dividing the hotel’s commercial market share % by the hotel’s fair share %. The following table sets forth each hotel’s fair share, commercial market share, and commercial penetration factor. COMMERCIAL SEGMENT PENETRATION FACTORS

If a new 100-room hotel enters the market, the fair share of each hotel changes because of the new denominator, which has increased by the 100 rooms that have been added to the market. COMMERCIAL SEGMENT FAIR SHARE

The new hotel’s penetration factor is projected for its first year of operation. It is estimated that the hotel will capture (penetrate) only 85% of its fair share as it establishes itself in the market. The new hotel’s market share and room night capture can be calculated based upon the hotel’s estimated penetration factor. When the market share of the existing hotels and that of the new hotel are added up, they no longer equal 100% because of the new hotel’s entry into the market. The market share of each hotel must be adjusted to reflect the change in the denominator that comprises the sum of each hotel’s market share.

PropertyNumber

of Rooms Fair ShareCommercial

Capture

Hotel A 100 23.5 % 16,425 30.0 % 127.6 %Hotel B 125 29.4 20,759 37.9 129.0Hotel C 200 47.1 17,520 32.0 68.1

Totals/Average 425 100.0 % 54,704 100.0 % 100.0 %

Commercial Penetration

Commercial Market Share

PropertyNumber of

Rooms

Hotel A 100 19.0 %Hotel B 125 23.8Hotel C 200 38.1New Hotel 100 19.0

Total 525 100.0 %

Fair Share

February-2014 Penetration Explanation Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada iii

This adjustment can be mathematically calculated by dividing each hotel’s market share percentages by the new denominator of 97.1%. The resulting calculations reflect each hotel’s new adjusted market share. The sum of the adjusted market shares equals 100%, indicating that the adjustment has been successfully completed. Once the market shares have been calculated, the penetration factors can be recalculated (adjusted market share divided by fair share) to derive the adjusted penetration factors based upon the new hotel’s entry into the market. Note that each existing hotel’s penetration factor actually increases because the new hotel is capturing (penetrating) less than its fair share of demand.

COMMERCIAL SEGMENT PROJECTIONS (YEAR 1)

In its second year of operation, the new hotel is projected to penetrate above its fair share of demand. A penetration rate of 130% has been chosen, as the new hotel is expected to perform at a level commensurate with Hotel A and Hotel B in this market segment. The same calculations are performed to adjust market share and penetration factors. Note that now the penetration factors of the existing hotels decline below their original penetration rates because of the new hotel’s above-market penetration. Also, note that after the market share adjustment, the new hotel retains a penetration rate commensurate with Hotel A and Hotel B, though the penetration rates of all three hotels have declined by approximately nine percentage points because of the reapportionment of demand. Once the market shares of each hotel have been adjusted to reflect the entry of the new hotel into the market, the commercial room nights captured by each hotel may be projected by multiplying the hotel’s market share percentage by the total commercial room-night demand. This calculation is shown below.

PropertyNumber

of Rooms Fair Share

Hist./Proj. Penetration

Factor

Hist./Proj. Market

Share

Adjusted Market

Share

Adjusted Penetration

FactorProjected

Capture

Hotel A 100 19.0 % 127.6 % 24.3 % 25.0 % 131.4 % 13,688Hotel B 125 23.8 129.0 30.7 31.6 132.8 17,299Hotel C 200 38.1 68.1 25.9 26.7 70.1 14,600New Hotel 100 19.0 85.0 16.2 16.7 87.5 9,117

Totals/Average 525 100.0 % 97.1 % 100.0 % 54,704

February-2014 Penetration Explanation Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada iv

COMMERCIAL SEGMENT PROJECTIONS (YEAR 2)

PropertyNumber

of Rooms Fair Share

Hist./Proj. Penetration

Factor

Hist./Proj. Market

Share

Adjusted Market

Share

Adjusted Penetration

FactorProjected

Capture

Hotel A 100 19.0 % 131.4 % 25.0 % 23.1 % 121.5 % 12,662Hotel B 125 23.8 132.8 31.6 29.3 122.9 16,004Hotel C 200 38.1 70.1 26.7 24.7 64.8 13,507New Hotel 100 19.0 130.0 24.8 22.9 120.3 12,531

Totals/Average 525 100.0 % 108.1 % 100.0 % 54,704

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada v

Explanation of the Simultaneous Valuation Formula

The algebraic equation known as the simultaneous valuation formula, which solves for the total property value using a ten-year mortgage and equity technique, was developed by Suzanne R. Mellen, CRE, MAI, FRICS, ISHC, Senior Managing Director of the San Francisco office of HVS. A complete discussion of the technique is presented in her article entitled “Simultaneous Valuation: A New Technique.”6 The process of solving for the value of the mortgage and equity components begins by deducting the annual debt service from the projected income before debt service, leaving the net income to equity for each year. The net income as of the eleventh year is capitalized into a reversionary value using the terminal capitalization rate. The equity residual, which is the total reversionary value less the mortgage balance at that point in time and less any brokerage and legal costs associated with the sale, is discounted to the date of value at the equity yield rate. The net income to equity for each projection year is also discounted back to the date of value. The sum of these discounted values equals the value of the equity component. Because the equity component comprises a specific percentage of the total value, the value of the mortgage and the total property can be computed easily. This process can be expressed in two algebraic equations that set forth the mathematical relationships between the known and unknown variables using the following symbols.

6Suzanne R. Mellen. "Simultaneous Valuation: A New Technique," Appraisal Journal, April, 1983.

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada vi

NI = Net income available for debt service V = Value M = Loan-to-value ratio f = Annual debt service constant n = Number of years in the projection period de = Annual cash available to equity dr = Residual equity value b = Brokerage and legal cost percentage P = Fraction of the loan paid off during the projection

period fp = Annual constant required to amortize the entire loan

during the projection period Rr = Overall terminal capitalization rate that is applied to

net income to calculate the total property reversion (sales price at the end of the projection period)

1/Sn = Present worth of $1 factor (discount factor) at the equity yield rate

Using these symbols, the following formulas can be used to express some of the components of this mortgage and equity valuation process. Debt Service – A property's debt service is calculated by first determining the mortgage amount that equals the total value (V) multiplied by the loan-to-value ratio (M). Debt service is derived by multiplying the mortgage amount by the annual debt service constant (f). The following formula represents debt service.

f x M x V = Debt Service Net Income to Equity (Equity Dividend) – The net income to equity (de) is the property's net income before debt service (NI) less debt service. The following formula represents the net income to equity.

NI - (f x M x V) = de Reversionary Value – The value of the hotel at the end of the tenth year is calculated by dividing the eleventh-year net income before debt service (NI11) by the terminal capitalization rate (Rr). The following formula represents the property's tenth-year reversionary value.

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada vii

(NI11/Rr) = Reversionary Value Brokerage and Legal Costs – When a hotel is sold, certain costs are associated with the transaction. Normally, the broker is paid a commission and the attorney collects legal fees. In the case of hotel transactions, brokerage and legal costs typically range from 1% to 4% of the sales price. Because these expenses reduce the proceeds to the seller, they are usually deducted from the reversionary value in the mortgage and equity valuation process. Brokerage and legal costs (b), expressed as a percentage of reversionary value (NI11/Rr), are calculated by application of the following formula.

b (NI11/Rr) = Brokerage and Legal Costs Ending Mortgage Balance – The mortgage balance at the end of the tenth year must be deducted from the total reversionary value (debt and equity) in order to determine the equity residual. The formula used to determine the fraction of the loan remaining (expressed as a percentage of the original loan balance) at any point in time (P) takes the annual debt service constant of the loan over the entire amortization period (f) less the mortgage interest rate (i), and divides it by the annual constant required to amortize the entire loan during the ten-year projection period (fp) less the mortgage interest rate. The following formula represents the fraction of the loan paid off (P).

(f - i)/(fp - i) = P If the fraction of the loan paid off (expressed as a percentage of the initial loan balance) is P, then the remaining loan percentage is expressed as 1 - P. The ending mortgage balance is the fraction of the remaining loan (1 - P) multiplied by the initial loan amount (M x V). The following formula represents the ending mortgage balance.

(1 - P) x M x V Equity Residual Value – The value of the equity upon the sale at the end of the projection period (dr) is the reversionary value less the brokerage and legal costs and the ending mortgage balance. The following formula represents the equity residual value.

(NI11/Rr) - (b (NI11/Rr) - ((1 - P) x M x V) = dr Annual Cash Flow to Equity – The annual cash flow to equity consists of the equity dividend for each projection year plus the equity residual at the end of the tenth year. The following formula represents the annual cash flow to equity.

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada viii

NI1 - (f x M x V) = de1 NI2 - (f x M x V) = de2

NI10 - (f x M x V) = de10 (NI11/Rr) - (b (NI11/Rr) - ((1 - P) x M x V) = dr

Value of the Equity – If the initial mortgage amount is calculated by multiplying the loan-to-value ratio (M) by the property value (V), then the equity value is one minus the loan-to-value ratio multiplied by the property value. The following formula represents the value of the equity.

(1 - M) V Discounting the Cash Flow to Equity to the Present Value – The cash flow to equity in each projection year is discounted to the present value at the equity yield rate (1/Sn). The sum of these cash flows is the value of the equity (1 - M) V. The following formula represents the calculation of equity as the sum of the discounted cash flows.

(de1 x 1/S1) + (de2 x 1/S2) + . . . + (de10 x 1/S10) + (dr x 1/S10) = (1 - M) V Combining the Equations: Annual Cash Flow to Equity and Discounting the Cash Flow to Equity to the Present Value – The last step is to arrive at one overall equation that shows that the annual cash flow to equity plus the yearly discounting to the present value equals the value of the equity.

((NI1 - (f x M x V)) 1/S1) + ((NI2 - (f x M x V)) 1/S2) + . . . ((NI10 - (f x M x V)) 1/S10) +

(((NI11/Rr) - (b (NI11/Rr)) - ((1 - P) x M x V)) 1/S10) = (1 -M) V Because the only unknown in this equation is the property's value (V), it can be solved readily. Ten-Year Projection of Income and Expense – Because the fixed and variable forecast of income and expense is carried out only to the stabilized year, it is necessary to continue the projection to the eleventh year. In most cases, net income before debt service beyond the stabilized year is projected at an assumed inflation rate. By increasing a property's revenue and expenses at the same rate of inflation, net income remains constant as a percentage of total revenue, and the dollar amount escalates at the annual inflation rate. The ten-year forecast of

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada ix

income and expense illustrates the subject property's net income, which is assumed to increase by 2.5% annually subsequent to the hotel's stabilized year of operation. The following values are assigned to the variable components for the purposes of this valuation. SUMMARY OF KNOWN VARIABLES

Annual Net Income NI See Ten-Year ForecastLoan-To-Value Ratio M 65 %Interest Rate i 5.50 %Debt Service Constant f 0.073690Equity Yield Ye 16.0 %Transaction Costs b 2.0 %Annual Constant Required to Amortize the Loan in Ten Years fp 0.130232Terminal Capitalization Rate Rr 9.0 %

The following table illustrates the present worth of a $1 factor at the 16.0% equity yield rate. PRESENT WORTH OF $1 FACTOR AT THE EQUITY YIELD RATE

Year Present Worth of $1Ending Factor at 16.0%

2018/19 0.8620382019/20 0.7431102020/21 0.6405892021/22 0.5522122022/23 0.4760282023/24 0.4103542024/25 0.3537412025/26 0.3049382026/27 0.2628682027/28 0.226602

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada x

Using these known variables, the following intermediary calculations must be made before applying the simultaneous valuation formula. The fraction of the loan paid off during the projection period is calculated as follows.

P = ( 0.07369 - 0.0550 ) / ( 0.13023 - 0.0550 ) = 0.248440 The annual debt service is calculated as f x M x V.

(f x M x V)= 0.07369 x 0.65 x V = ( 0.0479 )V Inserting the known variables into the hotel valuation formula produces the following.

( 924,000 - 0.04790 V ) x 0.86207 +( 1,214,000 - 0.04790 V ) x 0.74316 +( 1,381,000 - 0.04790 V ) x 0.64066 +( 1,415,000 - 0.04790 V ) x 0.55229 +( 1,451,000 - 0.04790 V ) x 0.47611 +( 1,487,000 - 0.04790 V ) x 0.41044 +( 1,524,000 - 0.04790 V ) x 0.35383 +( 1,562,000 - 0.04790 V ) x 0.30503 +( 1,601,000 - 0.04790 V ) x 0.26295 +( 1,641,000 - 0.04790 V ) x 0.22668 +

FINAL ECONOMIC IMPACT ANALYSIS

Proposed Henderson Conference Center HENDERSON, NEVADA

SUBMITTED TO:EXISTING

Ms. Andrea Primo City of Henderson Nevada 203 Water Street, Suite 300 Henderson, Nevada, 89015 [email protected] +1 (702) 267-2171

PREPARED BY:

HVS Convention, Sports & Entertainment Facilities Consulting 205 West Randolph Suite 1650 Chicago, Illinois 60606 312-587-9900

March 18, 2014


Convention, Sports & Entertainment Facilities Consulting Chicago, Illinois

March 18, 2014 Ms. Andrea Primo City of Henderson Nevada 203 Water Street, Suite 300 Henderson, Nevada, 89015 [email protected]

Re: Proposed Henderson Conference Center Henderson, Nevada

Dear Ms. Primo: Pursuant to your request, we herewith submit our Economic Impact Analysis of the Proposed Henderson Conference Center in Henderson, Nevada. We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein. It has been a pleasure working with you. Please let us know if we can provide any additional services.

Sincerely, HVS Convention, Sports & Entertainment Facilities Consulting Thomas A Hazinski Managing Director

Alex Moon Analyst

205 West Randolph

Suite 1650

Chicago, Illinois 60606

+1 312-587-9900

+1 312-488-3631 FAX

www.hvs.com

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Table of Contents

SECTION TITLE

1. Introduction and Executive Summary 2. Demand and Financial Analysis 3. Economic Impact 4. Statement of Assumptions and Limiting Conditions 5. Certification


March 18, 2014 Introduction and Executive Summary Economic Impact Analysis - Henderson, Nevada 1-1

1. Introduction and Executive Summary

The City of Henderson engaged HVS Convention, Sports & Entertainment Facilities Consulting (“HVS”) to conduct an Economic Impact Analysis of the Proposed Henderson Conference Center (“Proposed HCC”) in Henderson, Nevada. The purpose of the study is to estimate the increase in economic spending in the City of Henderson from a Proposed HCC. HVS used event demand forecasts from the 2013 Feasibility Study of a Combined-Use Cultural and Events Center in Henderson by CSL International. To estimate the economic impact of the Proposed HCC, HVS followed the methodology outlined in the figure below.

FIGURE 1-1

HVS used event demand projections from CSL International’s prior study for the Proposed HCC. HVS then estimated spending from overnight visitors, day trip visitors, and attendees to the Proposed HCC. The percent of demand that comes from outside the market area (net new demand) has associated spending that would be new to the City of Henderson. HVS used estimates of the amounts of spending per visitor or attendee to estimate gross direct spending or income imported into the market. Gross direct spending

Demand of

Proposed HCC

Percent New to Market

Net New Demand

Overnight Visitors

Day Trip Visitors

Attendees

Gross Direct

Spending

Net DirectSpending

IndirectSpending

InducedSpending

IMPLAN IMPLAN Job Impacts

ECONOMIC IMPACT ANALYSIS PROCESS

Spending per Visitor

Day or Attendee

Nature of the Assignment

Economic Impact Methodology



provides the inputs into the IMPLAN model of the local area economy. IMPLAN then generates estimates of total net spending. Spending falls into three categories: net direct spending, indirect spending, and induced spending. Many refer to indirect and induced impacts as multiplier effects. The sum of direct, indirect, and induced spending estimates make up the total estimated spending impact of the Proposed HCC’s operations. HVS used the IMPLAN model to estimate the increase in employment associated with the total net spending. HVS Convention, Sports & Entertainment staff collected and analyzed all information contained in this report. HVS sought out reliable sources and deemed information obtained from third parties to be accurate. HVS assumes that the recommended convention center and hotel development would begin operations by July 1, 2018. We approximate that event demand would stabilize two and a half years after completion, in 2020. The figure below shows event demand projections for the Proposed HCC in a stabilized year. The table below provides the forecast by type of event.

FIGURE 1-2 DEMAND PROJECTION IN A STABILIZED YEAR

Number of Events/Attendees

EventsConventions & Tradeshows 10 Conferences 17 Consumer Shows 12 Meetings 120 Banquets 90 Other 10

Total 259 Total Attendance

Conventions & Tradeshows 3,000 Conferences 4,250 Consumer Shows 18,000 Meetings 12,000 Banquets 18,000 Other 4,000

Total 60,000

Source: CSL International

The Proposed HCC would gain most of its attendees from public consumer shows, banquets, and smaller meetings. HVS forecasts that the Proposed HCC would draw approximately 60,000 attendees in a stabilized year.

Event Demand Analysis



HVS calculated economic impacts of the Proposed HCC. See the figure below for the increased net spending in the City of Henderson in a stabilized year.

FIGURE 1-3 NET SPENDING IMPACTS ($ MILLIONS)

City of Henderson

Spending EstimatesDirect $12.4Indirect $2.0Induced $3.8

Total $18.2

Job EstimatesDirect 131Indirect 14Induced 25

Total 170

In a stabilized year, the City of Henderson could expect a net spending impact of over 18 million dollars, with indirect and induced spending making up over 30 percent of that impact. HVS estimates that the City of Henderson would create approximately 170 full-time equivalent permanent jobs. Based on a multi-year economic impact model, HVS calculated the net present value of increased spending over the first 20 years after opening to be approximately 266 million dollars. The Proposed HCC has potential to draw significant business through conferences and banquets. HVS used CSL estimates of event demand forecasts for economic impact analysis. Throughout the next 20 years, the city could experience an increase of over 250 million dollars in net direct, indirect, and induced spending.

Economic Impact

Conclusion


March 18, 2014 Demand and Financial Analysis Economic Impact Analysis – Henderson, Nevada 2-1

2. Demand and Financial Analysis

Event demand forecasts for the Proposed Henderson Conference Center (“Proposed HCC”) provide the foundation for the economic impact analysis. HVS used CSL International’s demand estimates from its 2013 study on Henderson. For the purposes of this study, HVS assumes that all recommendations throughout this report are completed by July 1, 2018. HVS estimates that event demand would stabilize in 2020. Demand projections also assume the continued presence of a highly qualified, professional sales and management team for the Proposed HCC. HVS classified events in the following categories. Conventions & Tradeshows -- Conventions involve associations, government, and SMERFE organizations that register attendees for multi-day events. HVS assumes that only corporations and enterprises can sponsor and produce tradeshows. Facility setup includes breakout, banquet, and exhibit space set-up and may include plenary sessions. Typically, conventions and tradeshows function as events for attendants to exchange information. Conferences -- Conferences require a mix of banquet and breakout space set-up with occasional assembly space, but do not require any exhibit set-up. Any organization type can hold a conference, but it always requires registered attendees. Consumer Shows -- Consumer Shows are public, ticketed events featuring the exhibitions of merchandise for sale or display. Exhibition companies produce consumer shows, as they provide a means of product distribution and advertising. They only require exhibit space set-up. Banquets -- Banquets only require a banquet set-up for food and beverage meal service. Any organization type can also produce these events, and they either hold the event privately or require guests to register. Meetings -- Meetings only require breakout space set-up. Like conferences, any organization type can produce a meeting. But unlike conferences, they are private invitation-only events. Meetings generate limited food and beverage revenue from coffee breaks or lunch service in the meeting room.

Demand Projections



Other -- Other events include local-oriented facility rentals such as exams, charity events, radio/television broadcasts, and other civic uses. HVS’s analysis suggests that the Proposed HCC should allow the City of Henderson to hold tradeshows, conventions, and other group businesses from state associations and local corporations. The Proposed HCC should attract a small number of conventions, larger conferences, and consumer shows. HVS projects the following demand for the Proposed HCC. HVS based demand projections on information from the City of Henderson and assuming the completion of the Proposed HCC by July 1, 2018. HVS estimates that following completion, incremental event demand would ramp up and stabilize in the calendar year 2020. The figure below breaks down event projections by type of event. Total and average attendance figures represent individual event attendees.



FIGURE 2-1 SUMMARY OF DEMAND PROJECTIONS

2018 2019 2020 2021 2022

EventsConventions & Tradeshows 4 8 10 10 10 Conferences 5 14 17 17 17 Consumer Shows 6 10 12 12 12 Meetings 60 108 120 120 120 Banquets 45 81 90 90 90 Other 5 9 10 10 10

Total 125 230 259 259 259

Average AttendanceConventions & Tradeshows 300 300 300 300 300 Conferences 250 250 250 250 250 Consumer Shows 1,500 1,500 1,500 1,500 1,500 Meetings 100 100 100 100 100 Banquets 200 200 200 200 200 Other 400 400 400 400 400

Total AttendanceConventions & Tradeshows 1,200 2,400 3,000 3,000 3,000 Conferences 1,275 3,400 4,250 4,250 4,250 Consumer Shows 9,000 15,000 18,000 18,000 18,000 Meetings 6,000 10,800 12,000 12,000 12,000 Banquets 9,000 16,200 18,000 18,000 18,000 Other 2,000 3,600 4,000 4,000 4,000

Total 30,000 50,000 60,000 60,000 60,000

Source: CSL International

The figure below presents the five-year financial operating revenue projections for the Proposed HCC. The projections are in inflated dollars beginning July 1, 2018.

Pro Forma of Operating Revenues



FIGURE 2-2 PROJECTED FIVE YEAR FINANCIAL OPERATING REVENUES

2018 2019 2020 2021 2022OPERATING REVENUE

Facility Rental $142,000 $290,000 $366,000 $375,000 $384,000Food & Beverage (Gross) 779,000 1,509,000 1,774,000 1,818,000 1,864,000Event Services (Gross) 332,000 633,000 740,000 759,000 778,000Advertising & Sponsorships 113,000 116,000 119,000 122,000 125,000

Total $1,366,000 $2,548,000 $2,999,000 $3,074,000 $3,151,000

Demand projections show the expected levels of event numbers, attendance, and room night generation with smooth growth over time. However, event demand and booking cycles do not always move smoothly. Business can shift due to unpredictable local and national economic factors. Event demand often runs in cycles based on rotation patterns and market conditions. Therefore, HVS recommends interpreting the demand projections as a mid-point of a range of possible outcomes and over a multi-year period, rather than relying on projections for any one specific year.


March 18, 2014 Economic Impact Economic Impact Analysis - Henderson, Nevada 3-1

3. Economic Impact

Based on the demand projections presented in this report, HVS identified the new spending that would occur in the local economy due to the construction of the Proposed Henderson Conference Center (“Proposed HCC”). HVS estimated the amounts of income and employment that new visitors, event organizers, and exhibitors would generate in the City of Henderson. Spending falls into three categories: • Direct spending includes the new spending of event attendees and organizers.

For example, an attendee’s expenditure on a restaurant meal is a direct spending impact. Direct spending includes only new spending that originates from outside the City of Henderson. Spending by attendees who live within the market area is a transfer of income from one sector of the area’s economy to another; therefore, this analysis does not count spending by local residents as a new economic impact.

• Indirect spending follows from the business spending resulting from the initial direct spending. For example, an event attendee’s direct expenditure on a restaurant meal causes the restaurant to purchase food and other items from suppliers. The portion of these restaurant purchases that remain within the City of Henderson count as indirect impacts.

• Induced spending represents the change in local consumption due to the personal spending by employees whose incomes change from direct and indirect spending. For example, a waiter at a local restaurant may have more personal income as a result of an event attendee dining at the restaurant. The amount of the increased income that the waiter spends in the local economy is an induced impact.

To generate direct spending estimates, HVS applied assumptions about the amounts of new spending generated by events at the Proposed HCC. HVS used the IMPLAN input-output model of the local economy to estimate indirect and induced spending. The sum of direct, indirect, and induced spending estimates make up the total estimated spending impact of the Proposed HCC. Some refer to indirect and induced impacts as multiplier effects. The relationship between direct spending and the multiplier effects vary based upon the specific size and characteristics of a local area’s economy.

Direct, Indirect, and Induced Spending



HVS identified four sources of new direct spending impact: • Overnight Guests: Visitors to the City of Henderson who require

overnight lodging, including convention delegates, meeting attendees, and attendees at other Proposed HCC events. Overnight delegate spending includes the spending on hotel catering by exhibitors and event organizers in addition to the personal spending of individual guests.

• Daytrip Attendees: Visitors to the Proposed HCC who do not require paid lodging. In most markets, day-trippers typically spend money on meals, shopping, local transportation, recreation and entertainment, and other goods and services while in town.

• Event Organizers: Individuals, associations, or other organizations that plan, sponsor, organize, and coordinate events that take place at Proposed HCC facilities. In addition to facility spending, event organizers also spend on lodging, meals, local transportation, facility rentals, equipment rentals, and other goods and services required to plan and organize a successful event.

• Exhibitors: Individuals or companies that rent exhibition space, typically from event organizers, to display information or products at events. In addition to spending at the facility, exhibitors purchase lodging, meals, local transportation, vendor services, meeting room rentals, equipment rentals, and other goods and services.

Estimation of new spending of each of these sources involves three sets of assumptions: 1) the number of new visitors to the market, 2) the geographic location of their spending, and 3) the amounts typically spent by each of the sources. HVS estimated the percentage of each visitor type that would come from outside the market rather than from the local area. The spending estimates only include new visitor spending because non-residents import income, whereas residents transfer income already in the market area.

• Overnight Guests – HVS assumes that 90% of overnight guests are new to the City of Henderson. Some overnight guests may stay with friends and family or outside the market.

• Day Trips – To estimate the percentage of daytrip visitors that come from outside Henderson, HVS calculated the percentage of the Clark County population residing outside of Henderson.

Sources of Direct Spending

New Visitors



• Exhibitor/Organizer spending on Attendees/Delegates – HVS based estimates on the percentage of attendees by events organized and exhibited by companies that would otherwise not hold or participate in an event in the City of Henderson.

The product of the visitor forecasts and the percent of demand new to the market yields an estimate of the sources of impact shown in the table below. That is:

Total Overnight Guests X Percent New = New Overnight Stays

Total Day Trips X Percent New = New Day Trips

Total Delegate Days X Percent New = New Delegate Days

The figure below shows the number of new visitors to the City of Henderson that generate new spending.

FIGURE 3-1 SOURCES OF SPENDING IMPACTS

Event TypeOvernight Visitor

DaysDay Trips

Convention Delegate Days*

City of Henderson

Conventions & Tradeshows 5,063 2,447 7,500Conferences 5,738 3,129 8,500Consumer Shows 1,620 15,058 18,000Meetings 1,296 9,438 0Banquets 1,620 14,509 0Other 432 3,842 0

Total 15,769 48,423 34,000

*Used to estimate organizer and exhibitor spending.

Delegates, attendees, event organizers, and exhibitors spend locally on lodging, meals, local transportation, facility rentals, vendor services, meeting room rentals, equipment rentals, and other goods and services. The “Daily Spending Parameters” include the daily spending by individual overnight delegates, day-trippers, event organizers, and exhibitors. Daily spending parameters exclude spending that occurs within the venue. We based estimates of facility related spending revenues that the Project receives from visitors, organizers, and exhibitors. Adjusted DMAI data provide estimates of exhibitor and organizer spending per attendee day. Facility revenue estimates include event organizer and exhibitor spending on facility rental, services, and event food and beverage. The figure below states all daily spending parameters in 2013 dollars.

Spending Parameters



FIGURE 3-2 DAILY SPENDING PARAMETERS (STATED IN 2013 DOLLARS)

Daily Spending Per Overnight Stay Amount $260.57Hotel Average Daily Room Rate $81.39 31%Food services and drinking places $64.61 25%Hotels and motels, including casino hotels $48.54 19%Retail stores - general merchandise $29.19 11%Museums, historical sites, zoos, and parks $10.06 4%Automotive equipment rental and leasing $8.18 3%Transit and ground passenger transportation $8.89 3%Scenic and sightseeing transportation $4.72 2%Retail stores - gasoline stations $1.95 1%

State and local government passenger transit $1.72 1%Motion picture and video industries $1.31 1%Daily Spending Per Daytrip Visitor Amount $113.57

Food services and drinking places $64.61 57%Retail stores - general merchandise $29.19 26%Museums, historical sites, zoos, and parks $10.06 9%Scenic and sightseeing transportation $4.72 4%Retail stores - gasoline stations $1.95 2%State and local government passenger transit $1.72 2%Motion picture and video industries $1.31 1%

Exhibitor Spending Per Delegate Amount $52.13Food services and drinking places $32.02 61%Lodging Costs $5.87 11%Advertising and related services $3.37 6%Other amusement and recreation industries $3.32 6%Automotive equipment rental and leasing $2.53 5%Commercial and industrial equipment $1.84 4%Retail stores - general merchandise $1.44 3%Transit and ground passenger transportation $1.07 2%Retail stores - gasoline stations $0.50 1%

State and local government passenger transit $0.16 0%Organizer Spending per Delegate Day Amount $3.61

Retail stores - general merchandise $1.30 36%Advertising and related services $1.01 28%Hotel Room Rate $0.77 21%Food services and drinking places $0.43 12%Automotive Equipment Rental and leasing $0.05 1%State and local government passenger transit $0.04 1%

Transit and ground passenger transportation $0.02 1%

Sources: DMAI, CITI, STR, and HVS



Event organizers and exhibitors create additional spending impacts through spending at the Proposed HCC through facility rentals, the purchase of event food and beverage services, and other spending at the venue. Using operating revenue histories, HVS estimated future spending by exhibitors and event organizers at the Proposed HCC including: Facility Rental—Facility rental revenue includes the revenue the Proposed HCC receives from clients that reserve one or more function areas in the District. Despite having published rates, facilities typically charge rental fees based on negotiated daily rental fees. Not all events incur a facility rental fee. A facility may waive the space rental charges if the event meets a certain minimum of food and beverage charges. Food and Beverage—Most events that use the Proposed HCC’s convention center’s function space would also arrange for food service for their attendees during their events. This food service includes catering, which can range from coffee breaks associated with a meeting to a full dinner associated with a convention or banquet. Consumer shows, theatre performances, and arena events may generate concession revenue. Most conventions and conferences generate demand for multiple meals during the course of these multi-day events. Meetings and banquets generally include a single meal or refreshment services. Events like conventions and tradeshows typically yield the most spending per attendee. Event Services—Event Services include the fees charged to tenants for services that could include business services, audio-visual rental and technical assistance, information technology set-up and take down of function spaces, cleaning services, security services, electricity and other utilities, commissions from decorators, and other services provided by third-party contractors at events. Banquets and other upscale events often require elaborate decorating services. Almost all events require cleaning services; cleaning of common areas may be complimentary for most events, while cleaning services offered to individual exhibitors can represent a significant source of revenue. Service charges vary by type of event. Some of these services may be included in the rental charges for using the facility, but others will be add-on service charges. Other Revenue—Other revenue could include damages billed to tenants, special fees or dues, interest income, and certain non-recurring income. Other revenue may also include daily parking charges for spaces in convention center lots. The following figure shows estimated organizer and exhibitor spending at the venue for a stabilized year.

Facility Revenue from Outside Spending



FIGURE 3-3 ESTIMATED SPENDING AT THE PROPOSED HCC

SPENDING CATEGORY Stabilized Year

Facility Rental $308,000Food & Beverage (Gross) 1,493,000Event Services (Gross) 623,000Advertising & Sponsorships 100,000

Total $2,524,000

*Stated in 2013 dollars

Source: HVS and based on historical Proposed HCC revenue

HVS applied the previous sources of spending impacts and spending parameters to estimate gross direct spending for a stabilized year. See the figure below.

FIGURE 3-4 GROSS DIRECT SPENDING FOR A STABILIZED YEAR*

City of Henderson

Direct overnight visitor spending = 15,768 overnight visitors x $260.57 = $4.1 M

Direct day trip spending = 48,421 daytrip visitors x $113.57 = $5.5

Exhibitor Spending = 34,000 attendees x $52.13 = $1.8

Organizer Spending = 34,000 attendees x $3.61 = $0.1

Venue Spending = $2.5

Total Gross Direct Spending = $14.0 M

*For the stablized year of 2020 and stated in 2013 dollars.

Sources: DMAI, CITI, STR, and HVS

The figure below shows the annual gross direct spending generated by construction of the Proposed HCC over a five-year period beginning in the first year of operation.

Gross Direct Spending



FIGURE 3-5 GROSS DIRECT SPENDING* BY SOURCE

2018 2019 2020 2021 2022

City of HendersonDelegate Overnight Spending 1,623,390 3,388,000 4,109,000 4,109,000 4,109,000 Daily Delegate Spending 2,650,751 4,772,000 5,499,000 5,499,000 5,499,000 Exhibitor Spending 758,529 1,449,000 1,773,000 1,773,000 1,773,000 Organizer Spending 52,526 100,000 123,000 123,000 123,000 Facility Revenue 1,208,146 2,197,000 2,523,000 2,523,000 2,523,000

Total 6,293,342 11,906,000 14,027,000 14,027,000 14,027,000

*Stated in constant 2013 dollars.

HVS uses the IMPLAN input-output model to estimate indirect and induced spending and employment impacts. IMPLAN is a nationally recognized model developed at the University of Minnesota and commonly used to estimate economic impacts. An input-output model generally describes the commodities and income that normally flow through the various sectors of a given economy. The indirect and induced spending and employment effects represent the estimated changes in the flow of income, goods, and services caused by the estimated direct spending. The IMPLAN model accounts for the specific characteristics of the local area economy and estimates the share of indirect and induced spending that it would retain. HVS categorized new direct expenditures into spending categories that we provide inputs into the IMPLAN model. Specifically, the IMPLAN model relies on spending categories defined by the U.S. Census according to the NAICS. Because the spending data from the spending surveys used by HVS do not match the NAICS spending categories, HVS translates the spending categories into the NAICS spending categories that most closely match. Not all of the gross direct spending counts as an economic impact because some of the spending does not generate income within the market area. HVS adjusts gross direct spending to account for income that leaks out of the local economy by estimating retail margins and local purchase parentages. As a result, the realized direct spending (“net direct spending”) is lower than the gross direct spending in the market area. Spending at retailers creates a smaller economic impact compared to spending in other industries. Retailers add value equal to the margin or price increase of the good above the original price paid to obtain the good. The IMPLAN model is product based, so HVS uses IMPLAN margin numbers to account for the discrepancy between retail purchaser prices and producer prices.

IMPLAN Impact Modeling

Annual Net Direct Spending

Retail Margins



To accurately measure spending impacts, HVS counts spending on products and services located in the market area. Some of the direct spending demand in the City of Henderson market area cannot be accommodated. For example, an event organizer may need to buy novelty items for all attendees, but find that the market area does not produce these items. This effect occurs for direct, indirect, and induced spending. HVS uses the IMPLAN SAM model values to track the percentage of a good purchased within the market area. The relationship between direct spending and the multiplier effects can vary based on the specific size and characteristics of a local area’s economy. HVS enters the gross direct spending estimate into the IMPLAN input output model of the local economy to estimate the net direct, indirect and induced spending. HVS obtained the most recent available data from IMPLAN for the City of Henderson. The following figures present the output of the IMPLAN model–the net new direct, indirect, and induced economic impacts and that are attributable to the Proposed HCC. HVS also used IMPLAN to estimate the jobs created based on the direct, indirect, and induced spending estimates. The figure below shows the annual net direct, indirect and induced spending generated for the City of Henderson.

FIGURE 3-6 NET DIRECT, INDIRECT, AND INDUCED SPENDING

2018 2019 2020 2021 2022

City of HendersonNet Direct 5,567,681 10,533,000 12,410,000 12,410,000 12,410,000 Indirect 893,285 1,690,000 1,991,000 1,991,000 1,991,000 Induced 1,708,636 3,232,000 3,808,000 3,808,000 3,808,000

Total City of Henderson 8,169,602 15,455,000 18,209,000 18,209,000 18,209,000

*Stated in constant 2013 dollars.

The proposed capital investment in the Proposed HCC would likely be repaid over a 20- to 30-year period that coincides with the useful life of the asset. As a point of comparison with the capital investment, HVS calculated the present value of the net spending that it would generate over a 20-year period. We assumed a 5% discount rate that approximates weighted cost of public sector capital. HVS estimates that the present value of net spending impact for the City of Henderson over a 20-year period is approximately 266 million dollars. The amounts of impact should be compared to the potential capital investment in the project.

Local Purchase Percentage

Indirect and Induced Spending

Annual Net Spending Impacts

Present Value of Net Spending



HVS calculated the full-time equivalent jobs supported by the spending in each economic sector. The figure below summarizes the results.

FIGURE 3-7 LOCAL NET DIRECT, INDIRECT, AND INDUCED JOB IMPACTS

2018 2019 2020 2021 2022

City of HendersonNet Direct 59 112 131 131 131 Indirect 6 12 14 14 14 Induced 11 21 25 25 25

Total City of Henderson 76 144 170 170 170

By a stabilized year of operation, the project would support approximately 170 permanent full-time equivalent jobs.

Employment Impacts


March 18, 2014 Statement of Assumptions and Limiting Conditions Economic Impact Analysis - Henderson, Nevada 4-1

4. Statement of Assumptions and Limiting Conditions

1. This report is to be used in whole and not in part. 2. All information, financial operating statements, estimates, and opinions

obtained from parties not employed by HVS are assumed to be true and correct. We can assume no liability resulting from misinformation.

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

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

5. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per-diem fees and travel costs are paid prior to the appearance.

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

7. We take no responsibility for any events or circumstances that take place subsequent to the date of our report.

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

9. The impact analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease due to market volatility and economic forces outside the control of the hotel’s management.


March 18, 2014 Statement of Assumptions and Limiting Conditions Economic Impact Analysis - Henderson, Nevada 4-2

10. We do not warrant that our estimates will be attained, but they have been developed on the basis of information obtained during the course of our market research and are intended to reflect reasonable expectations.

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

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

13. Although this analysis employs various mathematical calculations, the final estimates are subjective and may be influenced by our experience and other factors not specifically set forth in this report.

14. This report was prepared by HVS Convention, Sports & Entertainment Facilities Consulting. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of this organization, as employees, rather than as individuals.

15. This report is set forth as an impact study of the proposed subject project; this is not an appraisal report.


March 18, 2014 Certification Economic Impact Analysis - Henderson, Nevada 6-1

5. Certification

The undersigned hereby certify that, to the best of our knowledge and belief: 1. the statements of fact presented in this report are true and correct; 1. the reported analyses, opinions, and conclusions are limited only by the

reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions;

2. we have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved;

3. we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment;

4. our engagement in this assignment was not contingent upon developing or reporting predetermined results;

5. our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal;

6. our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice;

7. Thomas A Hazinski personally inspected the property described in this report; Alex Moon participated in the analysis and reviewed the findings, but did not personally inspect the property;

8. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute;

9. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; and


March 18, 2014 Certification Economic Impact Analysis - Henderson, Nevada 6-2

Thomas A Hazinski Managing Director

Alex Moon Analyst

February-2014 Explanation of the Simultaneous Valuation Formula Proposed Convention Center Hotel - Henderson Nevada – Henderson, Nevada xi

((( 1,682,000 / 0.090 ) - ( 0.020 x ( 1,682,000 / 0.090 )) - (( 1 - 0.248440 ) x 0.7 x V)) x 0.226684 )= ( 1 - 0.65 )V

Like terms are combined as follows.

$10,626,556 - 0.342244V = (1 - 0.65)V$10,626,556 = 0.69224V

V = $10,626,556 / 0.69224V = $15,350,881

Total Property Value as Indicated by the Income Capitalization Approach (Say) = $15,400,000

Documents

HOTEL MARKET AND FEASIBILITY STUDY Proposed · PDF fileHOTEL MARKET AND FEASIBILITY STUDY Proposed Convention Center Hotel - Henderson Nevada 200 SOUTH WATER STREET HENDERSON, NEVADA