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2014-11 HMI Inc. Comprehensive Market StudyManagement Research Marketing Gregory R. Hanis, ISHC President ,hanis@hospitatitymarketers.com 262-490-5063 <' Member of ISHC INTERNATIONAL SOCIETY OF HOSPITALRY CONSULTANTS Professionally Serving the United States & Canada for Over 32 Years with Offices in Milwaukee, Wisconsin and Fort Myers, Florida 5415 S. Majors Drive New Berlin, WI 53146 10014 Majestic Avenue Fort Myers, FL 33913 800.657-0835 Fax: 239-245-8161 hmi@hospitatitymarketers.com www.hospitatitymarketers.com Hotel Service Network TABLE OF CONTENTS Blair, Nebraska Introduction...................................................................................1-2 General Market Description..........................................................3-6 General Market Location General Market Characteristics Exhibits SiteAnalysis..............................................................................7-14 Site Area 1: Hayden Place Site Area 2: Highway 30/Highway 133 Site Area 3: Highway 30 and Pleasant Valley Boulevard Overall Rating Economic Overview..................................................................15-26 Market Economic Demographics 2 -Mile Radius 5 -Mile Radius 8 -Mile Radius General Observations Workforce Characteristics Unemployment Rates Labor Supply and Wages Transportation Highway Traffic Commercial Air Service LodgingDemand......................................................................27-47 Market Segmentation Profiles Social/Leisure Lodging Demand Highlights Corporate/Commercial Lodging Demand Highlights Lodging Demand Potential Index Seasonality of Lodging Demand Rate Sensitivity Feeder Markets Unaccommodated Lodging Demand Primary Unaccommodated Lodging Demand Secondary Unaccommodated Lodging Demand LodgingSupply.........................................................................48-60 Primary Competitive Properties — Projected Occupancy and Average Daily Room Rates Overall Competitive Set Rate Positioning Competitive Factor Analysis Competitive Lodging Performance Lodging Supply Growth Lodging Demand Growth Absorption of Lodging Supply Occupancy Average Daily Room Rates Revenue Per Available Room (RevPAR) Issues, Risks and Opportunities...............................................61-64 Competitive Pricing Pressures Growth in Lodging Supply Growth in Lodging Demand Property Taxes Political Climate Zoning and Architectural (Building Codes) Controls Environmental Concerns Labor Market, Supply and Wages Area of Franchise Protection Subject Site Location Conclusions..............................................................................65-72 Projected Property Performance Occupancy Average Daily Room Rate Projected Sales Revenue Property Recommendations Property Type Property Size Property Amenities Sleeping Room Configuration Brand Affiliation Rate Strategy Opening Date EXHIBITS EXHIBIT 1 - Geographic Location of the Blair Market Within the United States and State of Nebraska Including the Primary Regional Market Served EXHIBIT 2 - Blair and the Surrounding Competitive Markets Including the Primary Competitive Set as well as the Potential Lodging Demand Generators EXHIBIT 3 - Detailed View of the Immediate Blair Market Area EXHIBIT 4 - Detailed View of the Subject Site Areas EXHIBIT 5 - Economic Radii Analyzed in this Report ztr'7, r 0 W 0 d CA 00 0 CD CL ow om CD L - Z3 cr T 77 CL 0 < CD d CA 00 0 C ow > L - Z3 cr 77 d CA 00 to ro C ow L - Z3 cr d CA 00 to ro cr CA) m X (D Dw (D (D rrtM (D 0 k (D 3 2 CD 0- Ei, P -P (D I a CD 0 w C') 0 o 3 CD ro co F- I 0 CD Z7 ILI 9 Cn Q. 0 0 8,0 Z < (DR Q1 a 0 (D N EM �x tD �- 0� W ..I.Q ID CL r( s 0 (D cm.' 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INTRODUCTION The following Comprehensive Market Study Report reviews the proposed development of a limited -service, mid -priced hotel in Blair, Nebraska. Hospitality Marketers International, Inc., (HMI) was engaged by the Gateway Development Corporation to provide this Comprehensive Market Study Report for the proposed hotel in the Blair, Nebraska market. Based upon the research completed for this Comprehensive Hotel Market Study, it was determined that a limited -service, mid -priced hotel could be added to the City of Blair. For purposes of this report, this hotel will be researched as a 60 -room property. An opening date of 2016 was utilized for the proposed hotel in this report. Recommendations for the style, type and size of this hotel are based on the preliminary operational projections presented in this report. There are three sites being considered for this proposed hotel. All three sites are located on the southwest side of the city along Highway 30. These sites are located in a retail and commercial area which includes the recently opened Wal-Mart. The specifics of these subject sites will be reviewed in this report and recommendations will be provided to assist in determining the strength of each site for development. Information concerning the subject market for the proposed hotel is also included. This report was written to verify this market's potential to support the proposed hotel. This Comprehensive Hotel Market Study is focused on developing a proposed hotel that will match the Lodging Demand characteristics and competitive hotel supply that serves this subject market. Recommendations for brand selection will be provided in this market study. This report was written to project the strongest development in the city by verifying the feasibility of a hotel in the Blair market area. Recommendations for all development factors are provided in this report based on the market researched performed. Special features, amenities and services were reviewed and recommendations were made accordingly in this report. At this time, the proposed property will not include any food and beverage services beyond the typical limited -service, complimentary breakfast options. Additional recommendations for the subject market's ability to support the proposed hotel are provided in this report. The characteristics of the proposed hotel are also further defined in this report. Lindsey Kaptur, Midwest Regional Director of Hospitality Marketers International, Inc., met with representatives of the community and surrounding area to gather information pertinent to the proposed hotel's development and operation in the community. Comprehensive market research was performed and reviewed regarding the community's economic indicators, competitive Lodging Supply, and Lodging Demand generators. HMI conducted field research to determine the relationship between the community and the proposed facility's Lodging Supply competitors and Lodging Demand generators. Economic indicators were studied to determine the stability and future growth potential of the subject market area. The research conducted focused on a macro -and micro -market analysis of the Blair and Washington County markets to determine its ability to support the proposed hotel. This Comprehensive Hotel Market Study Report presents operational projections for the proposed hotel's stabilized operation based upon current operating performance in the subject market. Multi-year Occupancy, Average Daily Room Rate, and Sales Revenue projections for the proposed hotel are presented in this report. They are based upon a detailed review of field research data and estimates of Average Daily Room Rate, Lodging Demand, and Lodging Supply Growth. Again, recommendations as to the site location, property type, property size, brand affiliation, and services and amenities are included in this Comprehensive Hotel Market Study. These projections and recommendations were based upon the market demand research performed for the proposed hotel facility. This Comprehensive Hotel Market Study includes detailed statistics and narrative to formulate the Conclusions section regarding the subject market area's ability to support the proposed hotel. This report should be acceptable for external investing and/or lending purposes. Hospitality Marketers International, Inc. will be available to review the specific hotel development and perform any required revision to this Comprehensive Hotel Market Study. HMI will also be available to answer any questions relating to this Comprehensive Market Study Report. This report is the property of the Gateway Development Corporation. The approval of the authorized representative of the Gateway Development Corporation must be obtained prior to any distribution or use of this Comprehensive Hotel Market Study by any other person, party, entity or organization. HMI cannot discuss this Comprehensive Hotel Market Study with any person, party, entity or organization without prior approval of the Gateway Development Corporation. 2 GENERAL MARKET OVERVIEW This section of the report will highlight the general market characteristics of the Blair, Nebraska area. GENERAL MARKET LOCATION • The general market for this hotel is the City of Blair, Nebraska -centrally located on the eastern edge of the state along the Nebraska/Iowa boarder. Blair is located on the eastern side of Washington County. The city is approximately 25 miles north of Omaha, Nebraska. The proposed hotel is intended to serve the City of Blair as well as the overall market area which includes the Cities of Fort Calhoun to the south and Missouri Valley to the east. The overall surrounding area is a rural, agriculture focused market with very limited lodging options. Currently, Blair serves as the closest commercial hub providing retail and dining for these communities without traveling into the more urban Omaha area. • Blair is located along Highway 75 which travels south to Dallas, Texas and north to the Canadian border in Minnesota. This highway also provides access to the downtown Omaha area. • US Highway 30 travels east and west through this area. US Highway 30 travels west to Astoria, Oregon and east to Atlantic City, New Jersey. This highway intersects Highway 133 on the south edge of the city. Highway 133 begins in Blair and travels south to Omaha. • Highway 30 is the connection to Missouri Valley, Iowa located eleven miles to the east. The nearest connection to the interstate, 1-29 is also located in Missouri Valley. 1-29 travels north and south beginning in Kansas City, Missouri and traveling north to the Canadian border in North Dakota. • The Missouri River travels along the eastern border of the city. GENERAL MARKET CHARACTERISTICS • The immediate market for this proposed hotel will be the City of Blair however there is the potential for this hotel to serve and be marketed to the overall rural area north of Omaha. Blair is a mix of residential, retail, agricultural and industrial land. The leading industries in the market include Manufacturing, Retail Trade, and Health and Social Services. 3 i� 1 • The Manufacturing industry is led by Cargill and the companies located within the Cargill campus. This campus is considered to be one of Cargill's most advanced and largest corn milling plants and therefore is commonly used as a showcase for their processes and products. This draws guests from around the world to this market area. • The Fort Calhoun Nuclear Power Plant is also a very large employer in this market area as well as the manufacturing companies located in the heart of Blair which all have national and international ties. • The Retail Trade segment consists of the main street downtown area as well as the newer Highway 30 corridor which includes the newer Wal-Mart. o It should be noted that while the downtown Main Street area is very well occupied, it does suffer from the hundreds of trucks that pass through continuously throughout the day. These trucks are traveling to and from the Cargill Plant and it was reported that the traffic on Main Street has hindered the growth of the downtown area due to the noise and safety concerns caused by these trucks. There are talks of creating a bypass in the future however no specific plans or timeline has been put in place. • The Health and Social Service sector is led by the Memorial Community Medical Center and Health System which serves as a full service hospital in the city. This hospital serves the regional area and also offers clinics and private practice offices throughout the area. The medical sector in Blair is locally and regionally focused due to the advanced medical offerings in Omaha, Nebraska. • Blair and the surrounding communities have a large residential base, with a collection of single family and multi -family residences. • At the time of this report, the tourism market was struggling but primed for growth. There are tourism events, sites, and attractions in the area. However due to the lack of a quality hotel in the city, the tourism segment has not been marketed. Blair is prepared to market tourism in the city and regional area, showcasing the area's sites and outdoor recreation. The addition of a quality hotel in the city was reported to be the first step in growing the tourism industry. • The sports market is fairly strong in the city and the surrounding communities with numerous tournaments held throughout the year. Again, while there are numerous sports facilities in the city, these events are slightly limited by the city's lack of quality hotel rooms. 4 • Outdoor recreation is very popular in this market area due to the DeSoto National Wildlife Refuge located just east of the city in Missouri Valley, Iowa on Highway 30. This refuge consists of over 8,000 acres available for hiking, hunting, fishing, bird watching and photography. There is also a boat ramp to the Missouri River located on the east side of the city. • This market area also offers tourism opportunities at the Fort Atkinson State Historical Park, the Steamboat Bertrand Museum, and the Tower of the Four Winds monument. • The wedding, family reunion, funeral, and general family gathering market segments were reported to be very strong in this market. Due to the rural area surrounding the city, Blair serves the surrounding region as a commercial hub and a location for these larger events. However, the lack of a quality hotel currently limits these events and many are forced to be held in Omaha which is a more urban setting and tends to have a higher price point. • There are Corporate/Commercial group events, meetings, seminars, and trainings held in the city due to the large size and technical nature of the area companies. Currently, this segment was reported to be limited due to the lower quality of the hotels in the subject market. At this time, most of the attendees stay in Omaha and in some cases the meetings are held in Omaha for the convenience of out of town visitors. • There is meeting space available in Blair, including a new South Creek conference center. However, it was reported that all the meeting rooms in the city are occupied on a regular basis making scheduling a challenge. Adding meeting and banquet space of any size to the proposed hotel would have the potential to greatly benefit this market. • There is currently one nationally branded hotel in the City of Blair, a Super 8. This property was reported to be originally built to serve the construction market and this continues to be its main purpose. The quality of this hotel was reported to be low and the majority of visitors to the city are not referred to this property but are told to stay in the Omaha area. There are also three independently operated hotels in the city which are also of very low quality and again, not commonly used by visitors to the area. • It should be noted that in June, 2014, the city suffered extensive damage from a very large hail storm. Most buildings in the city were damaged having broken widows, roof damage, and siding left in shreds. At the time of this report, there had been significant progress in repairing many of the buildings and it is expected that all repairs should be complete in the very near future. EXHIBITS • Exhibit 1 of this report shows the geographic location of the Blair market within the United States and the State of Nebraska. The primary regional area served by this market is also highlighted. • Exhibit 2 is a map of Blair and the surrounding competitive lodging markets, with the hotels in the competitive set highlighted. The potential Lodging Demand generators are also highlighted. • Exhibit 3 shows a detailed view of the immediate Blair market area. • Exhibit 4 shows a detailed view of the subject site areas. • Exhibit 5 shows the economic radii analyzed in this report. SITE ANALYSIS This section of the report reviews the geographic location of the three potential subject sites for the proposed hotel. Key elements of the subject site analysis are discussed including visibility, accessibility, land preparation, environmental aspects, support services, and competitive position. The location of the subject sites are highlighted in Exhibits 3 and 4 of this report. All three sites are located along Highway 30 on the southwest side of the city. Highway 30 is one of the main routes connecting the city to Omaha. • Highway 30 is a main traffic route through the city. It also connects the market area with downtown Omaha via Highway 133 which joins Highway 30 less than a mile south of the subject site. • The downtown Blair area is located less than two miles north of all three subject sites. • Major utilities were reported to be in place at all three sites including water, sewer, electric, telephone, etc. • Zoning was reported to be in place for commercial development at all three subject site areas and this would be compatible with other commercial developments currently in the area. Additionally, architectural controls were reported to be within the normal guidelines of the community. • These three sites would be close to the DeSoto Inn and Suites which is one of the independently owned and operated hotels in the market area and also located on Highway 30. While this property was previously an Econo Lodge, it was reported to be older and in need of repairs and service upgrades. The proposed hotel should have a strong competitive advantage over this nearby property. 19 The following chart rates the potential subject sites for the proposed hotel development. It shows the subject site's ability to support hotel development. This chart is followed by an analysis of each site. Site Area 1 Havden Place • This subject site area consists of a cluster of three sites available for development in the Hayden Place retail and commercial area located on the east side of Highway 30. Kellie Drive borders this cluster of sites on the north side of the site and Holly Drive borders this site area on the south side. All three sites are located adjacent to one another. At this time Lot 1 and 2 are each slightly smaller than typically preferred for a hotel development and Lot 3 is slightly larger than is typically needed for a hotel development. All three lots have the same owner and it was reported that there is the potential for these lot sizes to be altered slightly to accommodate a potential development. • The new Wal-Mart is located immediately north of the subject site across Holly Drive. Immediately to the west of the site is a small retail center which includes a coffee shop, Jimmy John's, and Anytime Fitness. There is also a Casey's gas station and convenience store in the Hayden Place development. • The site is currently vacant and the land was likely used for agriculture. There are no existing structures that would need to be removed prior to development. U .:SUBJECT SITE EVALUATION :Biair,�NE.� CATEGORY Site 1: Hayden Place Site 2: Highway 133/30 Roundabout Site 3: Hwy 30 and Pleasant Valley Visibility Good Excellent Excellent -Conditional Accessibility Excellent Very Good -Investigate Excellent Parking Excellent Excellent Excellent Site Prep Very Good -Investigate Good -Investigate Fair -Investigate Environmental Very Good -Investigate Very Good -Investigate Very Good -Investigate Major Utilities Excellent Excellent Excellent Zoning Excellent Excellent Excellent Architectural Controls Very Good -Investigate Very Good -Investigate Very Good -Investigate Area Support Services Excellent Good Good Competitive Position Excellent Very Good Very Good Overall Very Good Very Good Very Good Ranking 1 3 2' Source: HMI Site Area 1 Havden Place • This subject site area consists of a cluster of three sites available for development in the Hayden Place retail and commercial area located on the east side of Highway 30. Kellie Drive borders this cluster of sites on the north side of the site and Holly Drive borders this site area on the south side. All three sites are located adjacent to one another. At this time Lot 1 and 2 are each slightly smaller than typically preferred for a hotel development and Lot 3 is slightly larger than is typically needed for a hotel development. All three lots have the same owner and it was reported that there is the potential for these lot sizes to be altered slightly to accommodate a potential development. • The new Wal-Mart is located immediately north of the subject site across Holly Drive. Immediately to the west of the site is a small retail center which includes a coffee shop, Jimmy John's, and Anytime Fitness. There is also a Casey's gas station and convenience store in the Hayden Place development. • The site is currently vacant and the land was likely used for agriculture. There are no existing structures that would need to be removed prior to development. U At this time, it appears that the subject site would not require substantial site and land preparation due to the minimal previous use of the land. The subject site is generally flat and would require minimal grading or fill. • Environmental concerns were not addressed in this market study. The developer should assess the environmental condition of the subject site being considered. o Issues concerning water drainage, seepage, or flood plains should also be investigated by the developer. o Toxic waste issues were not specifically addressed. This should be thoroughly investigated by the developer prior to beginning development. Visibility of the subject site was rated as Good because it is set back slightly from Highway 30 and the retail center to the west of the site is in the property sight line from Highway 30. Additionally, there is an additional lot available for development between the subject site and the retail center which would also be in the sight line of the proposed property from Highway 30. For this reason, signage would be required on Highway 30 with directional signage leading guests to the property. Still, being located on a main traffic route will assist in raising awareness of the property in this market. Accessibility to the subject site is rated as Excellent. There is easy access to the overall Wal-Mart development and traffic congestion does not appear to be overly concerning. Being located on Highway30 provides this site with excellent access to the downtown area of Blair as well as access to the surrounding regional area. This site location would also allow for good accessibility to the large industries in the market. The subject site is not currently part of a Tax Incremental Financing District (TIF). The developer should contact the city for specific details about any potential TIF benefits available to this development. • As mentioned earlier in this section, there are numerous support services in the area immediately surrounding the subject site. These support services include Jimmy John's, Scooter's Coffee Shop, and Casey's gas and convenience store. There is also an Anytime Fitness in the immediate area as well as the Wal-Mart which includes a food and retail store. There are additional local residential support services and dining options located further north and south of the site along Highway 30. • The Competitive Position of the subject site appears to be very positive. It would be located at the main southern entrance to the city in one of the newest growth areas of the city. The presence of the new Wal-Mart and other retail and dining venues in the immediate surrounding area will also serve as a competitive advantage. Site Area 2: Highway 30/Highway 133 • This subject site consists of approximately 10.31 acres on the corner of Highway 30 and Highway 133. This is the southernmost point of the City of Blair. • This site is located on the south side of a roundabout which connects Highway 30 and Highway 133. • Highway 133 is one of the main traffic routes between Omaha and Blair with Omaha being located 22.5 miles to the south. Highway 133 is also set to be expanded by 2015, adding traffic lanes to ease travel to and from Omaha. • Fremont, Nebraska is located 20 miles southwest of this roundabout on Highway 30 and serves as another commercial hub in this area. • The size of this site would also allow for additional commercial, retail and potential food and beverage development on this site. • At this time, there is limited development surrounding this site with no support services within walking distance. To the north of this site on the west side of Highway 30 is the Blair Auto Mall and the Sid Dillon car dealership, two of the largest car dealerships in the United States. • The site is currently vacant and the land likely had very little previous use. There are no existing structures that would need to be removed prior to development. • At this time, it appeared that the subject site would not require substantial site and land preparation due to the minimal previous use of the land. The subject site is generally flat and would require minimal grading or fill. There is the potential for some trees and brush to be cleared prior to development. 10 • Environmental concerns were not addressed in this market study. The developer should assess the environmental condition of the subject site being considered. o Issues concerning water drainage, seepage, or flood plains should also be investigated by the developer. o Toxic waste issues were not specifically addressed. This should be thoroughly investigated by the developer prior to beginning development. Visibility of the subject site was rated as Excellent because it is located on the roundabout with clear visibility from Highway 30 and Highway 133. Being located on the southernmost edge of the city, directional signage in the downtown area should be considered to direct travelers to this area of the city. This is especially true for travelers accessing the city on Highway 75 on the north and east side of the city. Accessibility to the subject site is rated as Very Good. There is little traffic congestion in this area of the city, however being located on a roundabout could cause minor confusion to guests trying to enter this property. Additionally, access points would need to be added to this site off of the roundabout or off of Highway 133 or Highway 30. At this time, access points have not been established and the location of these access points could help or hinder accessibility to this site. • This site location would also allow for good accessibility to the large industries in the market and excellent access to the main traffic route to and from Fremont and Omaha. The subject site is not currently part of a Tax Incremental Financing District (TIF). The developer should contact the city for specific details about any potential TIF benefits available to this development. • As mentioned earlier in this section, there are currently no support services within walking distance of this subject site. The closest support services would be located slightly over a half mile north of the site at the Hayden Place development which includes, Wal-Mart, Scooter's coffee shop, Jimmy John's, Casey's gas station, and Anytime Fitness. There are additional local residential support services and dining options north of Hayden Place along Highway 30. There is also the potential for some support services to be added to the subject site area due to its larger size. Developing a restaurant or convenience store in conjunction with the proposed hotel is highly recommended to service guests. 11 • The Competitive Position of the subject site appears to be very positive. It would be the first development seen at the southern entrance to the city. The planned expansion of Highway 133 in 2015 is planned to assist in making this area of the city one of the newest growth areas in the city. The presence of the new Wal-Mart and other retail and dining venues also in the southern area of the city will serve as a competitive advantage. Site Area 3: Highway 30 and Pleasant Valley Boulevard • This subject site consists of three sites totaling approximately 5.63 acres on the east side of Highway 30 and on the south side of Pleasant Valley Boulevard. • Immediately north of the site is an auto detailing company and across Pleasant Valley Boulevard is Bomgaars Retail Store which sells, farm and garden supplies, hardware, clothing, toys, and housewares. To the west of the site across Highway 30 is a garden center and movie theater. • The site is currently vacant and the land was likely used for agriculture. There are no existing structures that would need to be removed prior to development. • At this time, there is a retention wall on the south side of the site which is incomplete. It is likely that a second level would need to be added to this wall. An engineering analysis was beyond the scope of this report. A complete inspection of this wall and a cost estimate to complete the wall should be completed prior to development. Other than the retention wall, it appeared that the subject site would not require substantial site and land preparation due to the minimal previous use of the land. The subject site is generally flat and would require minimal grading or fill. • Environmental concerns were not addressed in this market study. The developer should assess the environmental condition of the subject site being considered. o Issues concerning water drainage, seepage, or flood plains should also be investigated by the developer. o Toxic waste issues were not specifically addressed. This should be thoroughly investigated by the developer prior to beginning development. 12 • Visibility of the subject site was rated as Excellent -Conditional because there are three sites available for development in this area. If the site area located immediately adjacent to Highway 30 was purchased, the visibility would be excellent, however the sites which are set back from Highway 30 would allow for another structure to be built in front of the proposed hotel, blocking its visibility. Being located on a main traffic route will assist in raising awareness of the property in this market. • Accessibility to the subject site is rated as Excellent. There is easy access to Pleasant Valley Boulevard from Highway 30 and there is minimal traffic congestion in this area of the city. Being located on Highway 30 provides this site with excellent access to the downtown area of Blair and to the surrounding regional area. This site location would also offer good accessibility to the large industries in the market. The subject site is not currently part of a Tax Incremental Financing District (TIF). The developer should contact the city for specific details about any potential TIF benefits available to this development. • In addition to Bomgaars and the movie theater immediately surrounding this subject site there are a number of support services located less than a quarter- mile south of the site in the Hayden Place development. These support services include Wal-Mart, Jimmy John's, Scooter's Coffee Shop, and Casey's gas and convenience store. There is also an Anytime Fitness and additional local residential support services and dining options located further north and south of the site along Highway 30. • The Competitive Position of the subject site appears to be very positive. It would be located in the growing southern sector of the city with easy access to support services on Highway 30 and the downtown area. Overall Rating • The analysis of the three site areas allowed for a numerical rating to be determined for each site. Site 1 received the highest rating at 4.73 (out of 5 points, with 5 being the highest rating) and Sites 2 and 3 were very close in their ratings of 4.45 and 4.46, respectively. Site 1 would be the strongest site based largely on the strong support services within walking distance of the site. However, the cost of this land may hinder development. This would need to be evaluated prior to development of the proposed property. 13 • Sites 2 and 3 have a similar rating, however, both sites do have some challenges. The biggest challenge for Site 2 is the lack of support services in the immediate area. The biggest challenge for Site 3 is the potential site preparation needed if the existing retaining wall was determined to be incomplete or unsafe. • At the time of this report, if Site 1 is not selected, it is recommended that an evaluation of the site preparation for Site 2 be completed. If this site does not require extensive or costly site preparation, it is recommended that this site serve as the second most favorable site due to its support services and central location along the Highway 30 commercial corridor. 14 ECONOMIC OVERVIEW This section of the report provides a preliminary composite analysis of the economic environment in which the proposed hotel would operate. This economic analysis does not conclusively determine how successful the proposed hotel will be in the Blair market. However, it offers valuable insight into the economic stability and growth potential of the subject market. It will directly affect the Conclusions formulated later in this report. The economic health of the community can be important to the success of the hotel. PKF Hospitality estimates that 80% of a hotel's operating performance is strongly influenced by the local market conditions. (Hotel Management- July 15, 2013- PKF- Budgeting for a Local Affair, So Understand Your Market- Article). Therefore, this section highlights several key components of the Blair market and the economics which drive this market. • The economics of the subject market are supported by various factors. These include manufacturing, residential, medical, and agricultural segments. • There is a well-established residential base in Blair with a mix of economic demographics, and a mix of single family and multi -family homes. • The Cargill Campus serves as a source for many jobs in the city and county. Cargill alone employs 420 people and has a constant flow of visitors coming to the Blair location as this property is one of Cargill's largest and most advanced locations. There are also a number of manufacturing companies associated with Cargill which are located on the Cargill Campus as well as manufacturing companies located throughout the city. • The agriculture industry is largely led by the corn processing industry in the area due to the large Cargill plant. This industry also includes dairy, beef, and other crop farms which surround the city. • It was reported that the subject market was minimally affected by the recent recession due to the nature of its manufacturing and agricultural industries. • The medical market in the city is represented by Memorial Community Hospital. • It should also be noted that there is the strong potential for the educational market to grow in the near future as Midland University may move into Blair. Potentially, this school could have up to 500 students and specialize in Polytech degree programs 15 • Blair's economy is anticipated to remain stable with the potential for future growth because of the consistent strength and the national and international nature of the major employers in the city. It was noted that Blair has a high percentage of commuters on a daily basis due to the substantial number of high quality jobs in Blair. The close proximity of the downtown Omaha area assists in filling this employment demand. MARKET ECONOMIC DEMOGRAPHICS The following section highlights the results of the new demographic data obtained from Claritas/Nielsen, a nationally known research data company. This data was set up in three radius areas around Blair. The radii chosen were 2 miles, 5 miles and 10 miles. This takes into account the immediate City of Blair market as well as the surrounding Washington County market that could have an impact on Blair. These radii were determined to reflect the economic stability of the local and regional markets served by Blair. Exhibit 6 of this report shows these radii and the primary local market area. Highlights of each radius will be provided followed by an analysis of the overall economic trends in the subject market. 2 -Mile Radius The following chart highlights the demographic characteristics of the subject market area within a 2 -Mile Radius. ",GENERAL MARKET QEMOGRAPHICS Blair, Nebraska RADIUS: 2 Mile ANNUAL ANNUAL 2000 2014 PERCENT PERCENT 2019 PERCENT PERCENT CENSUS ESTIMATE CHANGE CHANGE PROJECTION CHANGE CHANGE POPULATION 8,269 8,237 -0.4% 0.0% 8,269 0.4% 0.1% HOUSEHOLDS 3,217 3,236 0.6% 0.0% 3,272 1.1% 1 0.2% AVERAGE HOUSEHOLD SIZE 2.57 2.55 2.53 AVERAGE HOUSEHOLD INCOME $49,084 $77,205 57.3% 4.1% $64,802 -16.1% -3.2% MEDIAN HOUSEHOLD INCOME $41,808 $66,944 60.1% 1 4.3% $56,395 1 -15.8% -3.2% AVERAGE PER 1 1 CAPITA INCOME $19,096 $30,331 58.8% 4.2% $25,642 -15.5% -3.1% Source: Claritas • The Blair market area within the two-mile radius had an estimated population of 8,237 in 2014 versus a population of 8,269 in 2000. This was a decrease of (0.4%) from 2000 to 2014 or 0.0% per year. 16 • The 2019 population is expected to be 8,269. This would be an increase of 0.4% from 2000 to 2019 or 0.1 % per year. • The number of households is estimated to be 3,236 in 2014. This compares to 3,217 households in 2000 for an increase of 0.6% for the 4 -year period or 0.0% per year. • The number of households in 2019 is expected to be 3,272 and would be an increase of 1.1 % for the 9 -year period or 0.2% per year. This would be greater than the increase in population. • The average family size is estimated to be 2.55 people in 2014. It was 2.57 in 2000. The 2019 average family size is expected to be 2.53 which would be slightly lower than 2014. • The average per capita income was estimated to be $30,331 in 2014 compared to an average per capita income of $19,096 in 2000. This is an increase of 58.8% or 4.2% per year. • The 2019 per capita income is estimated to be $25,642 for a decrease of (15.5%) from 2014 or (3.1 %) per year. This is less than the annual rate of growth in 2014. 5 -Mile Radius The following chart highlights the demographic characteristics within a 5 -Mile Radius of the subject market area. ANNUAL ANNUAL 2000 I 2014 I PERCENT I ER ENT ( 2019 I PERCENT ( PERCENT AVERAGE AVERAGE HOUSEHOLD MEDIAN HOUSEHOLD AVERAGE PER CAPITAINCOME I S19.956 1531.363 I 57.2% 17 • The Blair market area in this 5 -mile radius had an estimated population of 10,672 in 2014 compared to the 2000 population of 10,672 indicating no change. This radius is performing slightly better than the 2 -mile radius which had a decrease in population. • The estimated 2019 population is expected to be 10,760 for an increase of 0.8% for this 9 -year period or 0.2% per year. This increase in population is slightly lower than the increase in the 2 -mile radius and higher than the increase in 2014 in this radius. • The number of households is estimated to be at 4,150 in 2014 compared to 4,115 households in 2000. This is an increase of 0.9% for this 4 -year period or 0.1% per year and is greater than the increase in the 2 -mile radius. • The number of households in 2019 is expected to be 4,209 for an increase of 1.4% for this 9 -year period or 0.3% per year. This rate of growth would be higher than the 2 -mile radius and higher than the 2014 rate of growth in this radius. • The average family size is estimated to be 2.57 people in 2014. It was 2.59 in 2000. The 2019 average family size is expected to be 2.56 which is similar to 2014. This radius has a family size that is approximately the same as the 2 -mile radius. • The average per capita income was estimated at $31,363 in 2014 compared to an average per capita income of $19,956 in 2000. This is an increase of 57.2% for the 4 -year period or 4.1 % per year which is approximately the same as the 2 -mile radius. The actual dollar value, however, is slightly higher in the 5 -mile radius. • The 2019 per capita income is estimated to be $26,332 for a decrease of (16.0%) from 2014 or (3.2%) per year. This decrease is slightly higher than in the 2 -mile radius and the actual dollar amount is slightly higher. 18 8 -Mile Radius The following chart highlights the demographic characteristics within an 8 -Mile Radius of the subject market area. • The Blair market area in this radius had an estimated population of 14,675 in 2014 as compared to the 2000 population of 14,592. This is an increase of 0.6% in the 4 -year period or 0.0% per year. It is less than the increase in the 2- and 5 -mile radii. • The 2019 population is expected to be 14,892 for an increase of 1.5% for the 9 -year period or 0.3% per year. This rate of growth is higher than both the 2 - mile radius and 5 -mile radius and is higher than the 2014 rate of growth in this radius. • The number of households is estimated to be 5,618 in 2014 compared to 5,548 households in 2000. This is an increase of 1.3% over the 4 years studied or 0.1% per year which is higher than the increase in the 2 -mile and 5 -mile radii. • The number of households in 2019 is expected to be 5,728 for an increase of 2.0% over the 9 years studied or 0.4% per year. This increase would be higher than the increase in the 2 -mile and 5 -mile radii. It is higher than the increased growth rate in this radius in 2014. IN • The average family size is estimated to be 2.61 people in 2014. It was 2.63 in 2000. The 2019 average family size is expected to be 2.60. This radius has a slightly higher family size than both the 2 -mile and 5 -mile radii. • The average per capita income was estimated at $32,677 in 2014 compared to a per capita income of $20,997 in 2000. This is an increase of 55.6% over the 4 years studied or 4.0% per year which is slightly lower than the 2 -mile and 5 -mile radii. The actual dollar amount is slightly higher than in the 2 -mile and 5 -mile radii. • The 2019 per capita income is estimated to be $27,545. This would be a decrease of (-15.7%) from 2014 or (3.1 %) per year. This is a lower decrease than the 5 -mile radius and is similar to the decrease in the 2 -mile radius. The actual dollar amount is higher than in the 2 -mile and 5 -mile radii. GENERAL OBSERVATIONS • Population Growth — Population growth seems to be fairly stable with just a minor decrease in the 2 -mile radius. Additionally, this market is showing consistent projected growth in all radii for 2019. • Household Growth - Household Growth is showing increases in all areas. At the time of this report, there is still residential land available for new development. • Average Household Size — This category remained fairly consistent in all three radii. In the United States, the decreasing size of the average household is a common trend as Baby Boomers are getting older and their children are moving away from home. This trend will continue for several years however it does not appear to have a strong effect on this subject market. • Per Capita Income - Per Capita Income showed very strong growth rates in 2014, however, it seems that decreases are projected in all radii in 2019. It should be noted that this does not coincide with reports from area business leaders who reported multiple corporate expansions and job openings offering very competitive wages. It is possible that the projections seen in the above chart are somewhat based on national trends for rural market areas. These projections may not fully take into account the high level of industry in Blair. • Overall, the economic data in these radii show the subject market immediately within the city is performing and growing well in recent years with future growth expected. 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O 0 Z CD CD C1 O 7 w C C7 ,O.t N cn (D in d CD 0= OC S WCWCD Z < CD - :_ N w O- `2 CD ccD S CD 0 S all Q CD GO G C2 n CD cn m 3 .O O l< 3 CD Q (Z cn fn w m T • In 2006 and 2011, the top three industries in Blair were: 1) Manufacturing in 2006 at 17.4% and in 2011 at 15.8%; 2) Retail Trade in 2006 at 13.4% and Health and Social Services in 2011 at 11.5%; 3) Health and Social Services in 2006 at 10.6% and Retail Trade in 2011 at 11.4%. o The Manufacturing sector is led by the large Cargill campus and the companies associated with the Cargill processes and products. The Fort Calhoun Power Plant is also a large employer in this segment. Additionally, there are manufacturing companies within the city which have national and international ties. o The Retail Trade sector is mainly focused on the retail in Blair. The main street downtown area offers smaller, local retailers, while the Highway 30 corridor offers the newer Wal-Mart and other newer retailers. o The Health and Social Assistance market is led by the Memorial Community Medical Center and Health System which serves as a full- service hospital, emergency room, and clinic to the City of Blair as well as the surrounding region. This industry also includes the area's private practice doctors and area nursing homes. • In 2011, Educational Services was the fourth largest employment sector at 8.8%. This brings the top four employment sectors to a distribution of 47.6% of the city's total employment. This continues to show good diversity as it is preferred that the top four industries represent less than 60% of the total employment. • Adding the fifth largest employment sector, Construction, with 8.4% of the total distribution, increases the city's total to 56.0%. Preferably the top five industries should be less than 65% to 70% for good diversity. • The fourth and fifth largest employment sectors in 2006 were Construction at 8.9% and Educational Services at 8.1 %. This resulted in a total distribution of 58.4%. Again, it is preferable for the top five industries to be less than 65% to 70% for good diversity. • The percentage of employment distribution in this subject market among the top industries shows that while the local economy does have a strong reliance on these industries, there is strong diversity without an over reliance on any one industry. Additionally, there is strength in this market due to the diverse products and markets served within each of the top industries. 22 • In the chart above, twelve industries increased their employment (highlighted in Green) and seven industries decreased their employment (highlighted in Red). The industries with the largest increases were Agriculture, Other Services, Accommodation and Food Services, and Transportation and Warehousing. These increases show some of the potential future economic growth of the overall subject market area. Information and Mining, Oil and Gas Extraction had some of the most notable decreases in employment in the subject market. o It should be noted that this data covers a major recession period which could have had a major impact on several industries in the chart above. UNEMPLOYMENT RATES The following chart highlights the Unemployment trends in this subject market. This will assist in analyzing the employment health and the availability of labor supply in this market. Unemployment trends in the city, county and state will be compared. ;.. ; "HISTORICAL UNEMP,,LOXMENT RATES CITYOF WASHINGTON STATE OF YEAR BLAIR COUNTY NEBRASKA 2014 -YTD (August) 3.9% 3.9% 3.8% 2013 -YTD (August) 4.1% 4.1% 4.1% 2013 3.9% 3.9% 3.9% 2012 3.9% 3.9% 4.0% 2011 4.6% 4.6% 4.5% 2010 4.8% 4.8% 4.7% 2009 4.7% 4.6% 4.7% 2008 3.1% 3.1% 3.3% 2007 2.8% 2.8% 3.0% 2006 2.8% 2.8% 3.0% 2005 3.4% 3.4% 3.9% 2004 3.3% 3.3% 3.9% Source: U.S. Bureau of Labor Statistics, homefacts.com • Unemployment Rates in Washington County and the City of Blair averaged slightly lower than those in the State of Nebraska over the past ten years. The average unemployment in the county and city is 3.7% compared to 3.9% for the state. The rates in all areas are lower than 4%-5% which is considered to be the range of maximized employment. 23 The highest rate of unemployment in the city and county occurred in 2010 at 4.8%, and this was likely due to the national recession. The rate in the state was 4.7% in 2010. It should be noted that the highest levels of unemployment in the city, county and state are all relatively low compared to the majority of the United States. They are still within the range of maximized employment. The lowest unemployment rate in the city and county was 2.8% in 2006 and 2007 while the state rate was 3.0% The year-to-date unemployment through August, 2013 was 4.1% in all areas. This compares to the year-to-date unemployment in the city and county in 2014 of 3.9% and 3.8% in the state. All the unemployment rates in this area are lower than the national unemployment rate of 6.3%. The lower unemployment rates in this market area are a testament to the reported stability of the agricultural and manufacturing industry. Large companies in this market area, like Cargill, provide a significant amount of jobs in this market area. LABOR SUPPLY AND WAGES With the current unemployment figures indicating the general health of the labor market in the area, employment in the Service/Retail sector may be slightly challenged due to the significant number of jobs available in this market area and the anticipation for future growth. The current 3.9% unemployment rate is lower than the national rate of 6.3% and is lower than the 4-5% rate considered as full employment by national economists. Being in close proximity to the more heavily populated Omaha market should assist in lessening any labor supply pressures. Additional jobs in the service industry may not directly compete with the large employment sector generated by the manufacturing industry. Area representatives did not report that employment would be a main concern for the proposed hotel. While Service/Retail jobs will not directly compete with the jobs in the manufacturing industry, it is advised that operators of the hotel remain aware of the wages within other industries in the city to avoid any difficulties caused by Wage Pressures in the subject market. With the low present unemployment rate, there could be a potential change in the wage scales of the subject market. This would be true if Service and Retail labor supply became tighter. At this time, no wage pressures were indicated, however, this should be monitored for accuracy and potential change in the future. 24 TRANSPORTATION Highway Traffic • Highway 75 serves as one of the main traffic routes to and from the city. This highway travels south to Dallas, Texas and north to the Canadian border in Minnesota. It also provides access to the downtown Omaha area approximately 25 miles to the south. US Highway 30 travels east and west through this area. US Highway 30 travels west to Astoria, Oregon and east to Atlantic City, New Jersey. This highway intersects Highway 133 on the south edge of the city. Highway 133 begins in Blair and travels south to Omaha. • The main downtown area is located along Highway 30 while the newer commercial corridor, including the newer Wal-Mart, is located along Highway 30. The following are current average traffic counts near the subject site areas in Blair. They were obtained from the Nebraska Department of Transportation. Highway 30 was researched for current traffic volume. °TRAFFIC COUNTS Blair,` IVeb�a§ka LOCATION YEAR COUNT CHANGE On Highway 30 North of intersection with Highway 133 2011 18,365 21.2% 2009 15,150 1.5% 2007 14,925 10.4 2005 13,515 - South of Intersection with Highways 30175 2011 16,815 13.8 2009 14,775 1.0% 2007 14,630 4.3 2005 14,025 - North of Intersection with Highways 30/75 2011 12,495 -10.4 2009 13,945 2.2 2007 13,640 -1.1 2005 13,785 On Highways 30175 -West of intersection with Highway 30 2011 4,285 8.2 2009 3,960 -9.3 1/6 2007 4,365 1.9 2005 4,285 -- - East of intersection with Highway 30 2011 16,120 9.6 2009 14,710 25.6 2007 11,715 -5.5 2005 12,395 -West of intersection with Highway 75 2011 16,815 11.3% 2009 15,105 -1.9 2007 15,405 -3.6 2005 15,980 - East of intersection with Highway 75 2011 19,235 26.1 2009 15,255 -0.7 2007 15,370 2.4 2005 15,005 -- Source: /JE Department of Transportation 25 o Traffic counts on Highway 30 increased in the areas near the commercial area surrounding the new Wal-Mart as well as on the route heading south to the Omaha area. The counts near Wal-Mart increased by 13.8% from 2009 to 2011, and 1.0% from 2007 to 2009 Along the southern section of Highway 30 which is the beginning of the route to Omaha, the counts increased by 21.2% from 2009 to 2011 and 1.5% from 2007 to 2009. o The area north of the Highway 75 and Highway 30 intersection experienced the only decrease of (10.4%) from 2009 to 2011. o Increases were also seen along Highway 75 with an increase of 8.2% from 2009 to 2011 west of Highway 30 and an increase of 9.6% from 2009 to 2011 east of Highway 30. o With the subject site being located immediately along Highway 30, it is very encouraging to see increases in traffic counts. Commercial Air Service • While the Blair Municipal Airport is located on the southwest side of the city, the nearest commercial air service is provided by Eppley Airfield in Omaha, NE, approximately 24 miles south of Blair. This airport offers service from all major carriers and offers services to all major hub cities. LODGING DEMAND This section of the report is a detailed overview of the Lodging Demand identified in this subject market. The preliminary Market Segmentation identified for the proposed hotel is in the Lodging Demand areas shown in the following chart. MARKET SEGMENTATION SUBJECT MARKET PROPOSED PROBABLE PROPERTY PERCENT PROBABLE MARKET OF MARKET RANGE MARKET PENET. RANGE Individual Travel Markets 75.0% 72.5%77.5% 75.0% 100.0% 72.5%77.5% Corporate/Commercial 50.0% 47.5%52.5% 50.0% { 100.0% 47.5%52.5% Social/Leisure 25.0% 122.5%27.5% 25.0% 100.0% 22.5%27.5% Group Markets 25.0% 22.5%27.5% 25.0% 100.0% 22.5%27.5% Business Related 20.0% 17.5%22.5% 20.0% 100.0% 17.5%22.5% Social/ Leisure Related 5.0% 2.5%7.5% 5.0% 100.0% 2.5%7.5% TOTAL r 100.0% 100.0% Source: HMI • At this time, the proposed hotel is expected to have the same market segmentation as the Overall subject market. This is due mainly to the fact that there is currently no high quality lodging property in the city. Therefore, the proposed hotel will have the advantage of being the newest hotel in the City of Blair and Washington County, allowing it to serve the demand generated in the city as well as the surrounding regional area. o The Social/Leisure Lodging Demand in Blair consists mainly of visiting family and friends. The outdoor recreation available in the subject market area also generates this demand segment. There is the potential for additional Lodging Demand to be generated from the tourism market and the youth sports market if a newer, higher quality hotel were added to the city. o The Individual Corporate/Commercial Lodging Demand in the city will be generated mainly by its Manufacturing, Retail Trade, and Healthcare industries. 27 o The Individual Social/Leisure market segment is projected to generate 20% of the Lodging Demand, with the Group Social/Leisure segment contributing an additional 5% mainly from weddings, family reunions and other family gatherings. o The Individual Corporate/Commercial segment is projected to generate 50% of the overall Lodging Demand. The Group Corporate/Commercial segment would add an estimated 20% to this demand segment. At this time this market segment is strong with numerous groups coming into the area including training groups, seminars, board meetings, and management and development teams from partner locations. If a new hotel was added to the city, it would serve this current demand and have the potential to encourage new group demand to come into market area. At this time, it was reported that most Corporate/Commercial guests stay on the north side of Omaha. Adding a new hotel to the city will help to keep these room nights in the city. • These Market Segmentation characteristics are explained briefly in the section below. 28 MARKET SEGMENTATION PROFILES To further define the Market Segmentation of the area, profiles for each Market Segment were defined. The following outline provides a Market Segmentation Profile that corresponds with the proposed hotel's projected Market Segmentation. The rating of each segment in the chart below is an indication of how likely this category is to generate Lodging Demand, but is not an indication of the volume of Lodging Demand that may be generated. The volume of Lodging Demand could be further evaluated with a customized Lodging Demand Analysis. MARKET SEGMENTATION PROflLES Demand Potential Transient = T Subject Extended= E Property Group= G Potential Social/Leisure Markets Visiting Friends & Relatives T, E Excellent Blair Area Sites& General Tourism T,G VeryGood Area Events and Festivals T,G VeryGood Area Recreation T,G VeryGood Potential M Idland University T,G Excellent Visiting Familyand Friends T Excellent Special Events (le. M ove-In Weekend, Homecoming, Graduation, etc.) T Excellent Sporting Events T,G Excellent Distressed, Social Interim Housing & Relocation T,E VeryGood Transient Traffic T Good Weddings G Excellent Reunions G Excellent Funerals G Excellent Other G Excellent M otorcoach Tours G Fair Amateur and Youth Sports G Excellent Very Good Potential Corporate/Commercial Markets Agriculture T Very Good Manufacturing T,E,G Excellent Retail/Commercial T VeryGood Professional Services T Excellent Government/Military T Good Health Care T,E,G Excellent Distribution T Good Utilities T,G,E Good Construction T,G,E VeryGood Real Estate T, E VeryGood Potential Midland University T,G Excellent Prospective Students and Families T Excellent Vendors, Suppliers, and Technicians T Excellent Visiting Professors and Speakers T,E Excellent Board M embers and Donors T,G Excellent M emorial Community Hospital T,E,G Excellent Visiting Doctors and Speakers T, E VeryGood Human Resources T, E Excellent Visiting Patients and Families T, E Very Good Vendors &Suppliers to Local Market T Very Good Transient Traffic T,G Good Meetings and Seminars G Excellent Corporate G Excellent Association G VeryGood Government/Mllitary G Good Inventory and Auditing Companies G,E Excellent Potential Very Good Overall Potential Excellent Source: HMI 29 • The Market Segmentation presented earlier in this report is supported by the Market Segmentation Profiles listed above. The Social/Leisure Market Segments and the Corporate/Commercial Market Segments have Very Good ratings in the chart above. This shows the similar strength of both of these market segments. o It should be noted that while Midland University is listed on the chart above, the university's lodging demand potential is not included in the ratings provided above. This demand was excluded due to the uncertain opening date of this school. • Based on a five -point scale with 1 being Fair and 5 being Excellent, the Social/Leisure Market's estimated rating is 3.83, with Very Good running from 3.0 to 3.99. • The Corporate/Commercial Market's estimated rating is 3.64, with Very Good running from 3.0 to 3.99. • Overall, the Market Segmentation Profile shows a Very Good rating at an estimated 3.73. • Lodging Demand in the above chart indicates that there is diversification in the subject market and this diversification appears to be spread throughout all market segments. • It should be noted that there is the potential for additional Lodging Demand to be added to this market and this potential will be discussed later in this section of the report. Social/Leisure Lodging Demand Highlights This section highlights the main characteristics of the Social/Leisure Market in the Blair market. • Social/Leisure Lodging Demand has ratings ranging from Excellent to Good with only one Fair rating. This Lodging Demand is produced by the following sources: • At this time, one of the highest Lodging Demand generators predicted for this market segment is Visiting Friends and Families. The current lodging supply within the city consists of an older Super 8, which caters largely to construction crews and the Desoto Inn and Suites, which was formerly an Econo Lodge. Both of these properties were reported to be older and in a need of repair. Additionally the quality of service at these properties was 30 reported to be low. There are also three independently owned properties in the city and a small bed and breakfast. It was reported that the low level of quality at these properties lead the majority of friends and family members to stay in Omaha. These guests would prefer to stay in Blair and not commute into Omaha, however. • Some Festivals and Events are held in Blair and these would be times when there would be some potential for increased lodging demand in the city. The largest event in the city is currently the four-day Gateway to the West festival held annually in early June. If a new hotel was added to the city, there would be the potential for these events to grow as visitors could stay in the city rather than in Omaha. • There is also a variety of tourism sites in the area including the Desoto Bend National Wildlife Refuge, which consists of 8,365 acres just beyond the eastern border of the city. This area offers hiking, bird watching, fishing, and nature photography. Additionally, the Bertrand Steamboat Museum is located at Desoto Bend and features recovered artifacts from a historical riverboat. Also located in the nearby surrounding area is the Tower of the Four Winds monument and Fort Atkinson which is a replica historical fort. It was reported that visitors to these sites stay in Omaha and the marketing of these sites has been slightly limited due to the lack of a quality hotel for visitors. • Being located along the Missouri River also offers outdoor recreation in the market area. The chart above shows potential lodging demand generated by the opening of Midland University. The campus for this university was previously home to Dana College which has closed. Midland University has plans to move into this campus and eventually enroll approximately 500 students. It was reported that this school would focus its degree programs on Poly Tech jobs to cater to the employment needs of Cargill and the companies associated with Cargill. If this university was added to the city, there would be the potential for this to become one of the stronger Social/Leisure generators in the city. This campus was reported to offer on -campus housing units, making Graduation, Homecoming, and move -in weekends times when lodging could be in high demand in the regional area. It was also reported that this university would likely have a sports program and these events would be another time when lodging is needed. At this time, an exact date for the opening of this university has not been set. For this reason, the potential lodging demand generated by this source is not being included in the ratings discussed earlier in this section. 31 • The city offers a number of parks with hiking and biking trails, sports facilities, and a golf course. Outdoor Recreation was noted to be a strong demand generator in the city as it is a very popular pheasant hunting area. This area also offers public hunting grounds for deer, duck, and coyote as well as excellent fishing. • Due to the residential population in the city and surrounding area, there is the potential for the proposed hotel to gain some Lodging Demand from the Distressed, Social Interim Housing & Relocation market segment. Being the newest and highest quality hotel in the city will give this proposed property a competitive edge in this market. • There is potential for the proposed hotel to gain Social/Leisure Lodging Demand from traffic passing through the area since Blair is surrounded by a very rural area. The lack of many commercial areas in the surrounding region has the potential to make Blair a stopping point for travelers heading to Omaha. For some travelers who come from more rural areas, staying in Blair may be more desirable than the more urban and expensive Omaha market. Additionally, it was reported that there are times when the Omaha lodging market reaches high levels of occupancy due to large events in the city. Transient traffic coming through the area may be forced to stay outside of Omaha due to a lack of rooms. The winter months are times when this could occur more frequently as snow and ice covered roads become too dangerous to travel. • The Weddings, Reunions and Funeral market was reported to have strong Lodging Demand. While some of these events are currently held at the new South Creek Conference Center in Blair and some outdoor locations, the majority of these events are forced to be held in Omaha due to the lack of a quality hotel in the city. It was reported that this is a market segment which would have a very strong potential to grow if a new hotel was added to the city. It was also mentioned that a small meeting room would be useful at the proposed hotel to serve guests of these gatherings for events such as gift openings, baby showers, family dinners, etc. • The Youth Sports market was noted to be a Lodging Demand generator in the city with the potential for growth in the near future. Currently, there are excellent sports facilities in the city including softball and baseball fields which are used on a regular basis for tournaments involving teams from the region and from outside the state. The city has also hosted state high school baseball tournaments. There is also a YMCA in the city which regularly hosts swim meets. It was noted that the city could host larger, multi -day events if a higher quality hotel was added to the city. 32 • It should be noted that the motor coach market received a Fair rating due to the current lack of a high quality hotel in the city. As noted earlier in this section, there are a number of tourism and educational opportunities available in the city which are currently not being marketed due to the lack of a reliable hotel. Corporate/Commercial Lodging Demand Highlights This section highlights the main characteristics of the Corporate/Commercial market in the Blair area. • Corporate/Commercial Lodging Demand is ranked very similar to the Social/Leisure Lodging Demand and has strong diversification in Blair and the surrounding area. Additionally, the Corporate/Commercial demand in the market is very consistent throughout the year with much less seasonality than the Social/Leisure market segments. • This market segment has ratings ranging from Excellent to Fair. These are represented by the following Lodging Demand sources: • Manufacturing o The Manufacturing market segment is located throughout Blair as well as the nearby communities. The largest manufacturing employer in the city is Cargill which has its most advanced bio -refinery plant on the southeast side of the city. This plant was reported to have 600 truckloads of corn brought into the plant each day. It distributes its products nationally and internationally. Additionally, a number of companies which are customers of Cargill are located on the Cargill campus. These companies also have national and international ties. Since the Cargill plant is one of Cargill's most advanced and largest plants and with the highly technical nature of the surrounding companies, there is a constant flow of clients, employees, administration, technicians and inspectors coming into the area. It was noted that the majority of these corporate visitors are currently staying in Omaha due to the lack of a quality hotel in Blair. Additionally, the majority of these hotel rooms are booked through the companies. Therefore the hotels must be approved by the company and they use a corporate rate. At this time, the hotels in Blair do not offer a level of quality high enough to be approved by these companies. While most of these visitors commute to and from Omaha, there are some who choose to stay in Blair because they visit the plant at all hours of the night and day in order to meet with all the shift managers and to observe all aspects of daily operation. These visitors stay in Blair only to avoid commuting from Omaha in the middle of the night. There 33 are also many contracted workers who need to be at the plant as much as possible during a short stay and they prefer to stay in Blair so their time is not spent driving into town. Lastly, when international visitors come into the area, they tend to stay for an extended period of time. Offering some suite style rooms in Blair would help to accommodate these guests. It was reported that international guests currently find it very frustrating to stay outside of the city and would greatly appreciate and make use of a new, quality hotel in the city. ■ It was reported that it is very common for Cargill to require over 30 rooms per week for one to five night stays. A rough estimation indicates that Cargill could require over 1,000 room nights per year. o Just across the southern border of the city in Fort Calhoun is the Fort Calhoun Nuclear Power Plant. This nuclear power plant is one of the larger employers in the county and it generates significant lodging demand. This is especially true during scheduled shutdowns which can occur as often as every 18 months and can last as long as four to six weeks. These shut downs are held to perform routine and major maintenance on the plant and require a significant number of employees, contractors and technicians to come to the plant. While some of these employees choose to stay in travel trailers, there is also a need for hotel rooms. It should be noted that the Cargill campus holds similar shutdowns and brings in 500 people each year for a four-day shutdown. o Overall, it was reported that there is a tremendous need for a quality hotel in Blair to accommodate the visitors to the Cargill campus as well as the manufacturing companies located throughout the city and county. o It was reported that the overall economy in Blair remained very strong throughout the recent national recession due to the diversity and nature of the companies in the city. Additionally, the industry in Blair has the likely potential to grow in the near future with expansions at area companies currently being proposed to the city. 34 The chart below highlights the county's largest and most influential employers. Major Employers Washington Count ,NE Employer City Employees Woodhouse Auto Group Blair 741 HunTel Systems, Inc. Blair 500 Cargill, Inc. Blair 420 Memorial Community Hospital & Health System Blair 300 Wilkinson Industries Fort Calhoun 300 Blair Community Schools Blair 250 Mid America Computer Corp. Blair 250 CON -E -CO Blair 200 Great Plains Communications Blair 200 Johansen Manor Retirement Community Blair 140 Crowell Memorial Home Blair 130 Washington County Blair 109 Novozymes Blair 100 Pinnacle Customer Solutions (PCSI) Blair 100 Arlington Public Schools Arlington 95 Purac America Inc. Blair 88 Fort Calhoun Community Schools Ft. Calhoun 80 Nature Works LLC Blair 80 Ewnik Industries Blair 79 Blair Family YMCA Blair 75 D.L. Blair, Inc. Blair 75 Blair's Superfoods & Deli Blair 60 Kelly Ryan Equipment Co. Blair 60 Sid Dillon of Blair Blair 55 City of Blair Blair 54 Enterprise Publishing Blair 50 Eriksen Construction Inc. Blair 50 Source: Gateway Development Corporation o It should be noted that the chart above shows a number of large employers in the market area other than the companies on the Cargill campus. There are a number of strong companies in this market area which were reported to have international and national ties. Specifically strong in this market area is the telecommunications industry and car sales, including the largest dealership in the state. These two industries, as well as the other large employers in the market, consistently bring technicians, administration, and customers into the market and these guests are currently staying outside of the city. 35 • Education o At this time there are plans for Midland University to open in the city. This university would be located on a campus which was the previous home of Dana College. At this time, a specific opening date has not been set for Midland however it is planned that this school will have an approximate enrollment of 500 students and focus on poly tech degrees. If this school was added to the city there would be the potential for lodging demand to be generated from prospective students and their families as they come to visit the school. As an industry standard, there are approximately four accepted prospective students for every one enrolled freshman at a college or university. This does not include those who visit but do not apply. Those who apply frequently make several visits to the college as they decide and go through orientation. It was reported that this school will likely draw students from across the country so there is the potential for these prospective families to require an overnight stay. Offering a high quality hotel in the city will not only be convenient but will also provide a beneficial image for the school and the city. o Additionally, there is the potential for board members, donors, visiting speakers, vendors, and suppliers to visit the campus. • Healthcare Memorial Community Hospital is located in the city and offers a full- service hospital. This hospital serves the surrounding county and offers clinics and specialty offices throughout the area. There is some potential for lodging demand generated by the medical market to stay overnight in Blair. However, this is slightly limited due to the regional nature of this hospital and the major medical market provided in Omaha. Still there may be some minimal demand generated by visiting physicians, speakers, donors, board members, technicians, vendors, and suppliers. • Similar to the Social/Leisure market, there is the potential for the Blair market to draw some demand from transient traffic. This market segment is aided by the rural nature of the surrounding region and the current lack of many lodging options other than those in Omaha. This transient demand would be especially present in inclement weather during the winter months. • Additionally, it was reported that there are times when large events are held in Omaha and it is very difficult to find a hotel room. Travelers coming into the area without a reservation or on a last minute business trip may use Blair as a nearby lodging alternative if a quality hotel was added to the city. 36 • The Group Corporate/Commercial market segment will have the potential to generate Lodging Demand because of the industry in the subject market. The Manufacturing and Agriculture industries will have the potential to attract meetings, seminars, trainings, and administrative groups to the subject market. Adding a new hotel with a small meeting room in Blair would serve the existing group demand and could potentially generate Lodging Demand since some companies may not currently hold group events because of the lack of a quality hotel in the city. Lastly, due to the number of larger companies and banks in the city, there is substantial potential for inventory and auditing teams to come to the area. These teams generally consist of more than 3 people and typically require more than a 3 -night stay. These teams may come to service the manufacturing, wholesale trade, warehousing companies, and financial institutions in the city. 37 LODGING DEMAND POTENTIAL INDEX The Lodging Demand Potential for the proposed hotel was also analyzed. This analysis relates Lodging Demand Potential to the Market Segmentation previously projected for the proposed hotel and this area's industry distribution. This is a rating based on a scale of 0 to 5, with 5 indicating excellent Lodging Demand Potential and 2.5 indicating average Lodging Demand Potential. The following section explains the results of this preliminary Lodging Demand Potential Index analysis. Again, the rating in each segment is an indication of how likely this category is to generate Lodging Demand, but is not an indication of the volume of demand that may be generated. The volume of Lodging Demand could be further evaluated with a customized Lodging Demand Analysis. LODGING DEMAND POTENTIAL INDEX LODGING DEMAND PERCENT POTENTIAL MARKET SEGMENTATION OF MARKET INDEX Individual Travel Markets - Corporate/Commercial Markets 50.0% ® 2.5 - Social/Leisure Markets 25.01/6 2.3 Group Markets - Business Related 20.0% 2.5 - Social Leisure Related 5.0% 2.5 TOTAL 100.0% 2.5 LODGING DEMAND PERCENT POTENTIAL INDUSTRY DISTRIBUTION OF MARKET INDEX Agriculture, Forestry, Fishing & Hunting 1.9% 1.0 Mining, Quarrying, & Oil and Gas Extraction 0.5% 0.2 Utilities 6.6% 1.5 Construction 8.4% 2.5 Manufacturing 15.8% 4.5 Wholesale Trade 3.7% 2.0 Retail Trade 11.4% 3.0 Transportation and Warehousing 3.1% 2.0 Information 4.0% 2.0 Finance and Insurance 3.5% 2.0 Real Estate, Rental & Leasing 0.3% 1.0 Services 40.7% - Professional, Scientific & Technical Services 2.6% 1.0 - Management of Companies and Enterprises 2.4% 0.5 - Administrative and Support and Waste Management and Remediation Services 4.3% 1.0 - Educational Services 8.8% 3.0 - Health and Social Assistance 11.5% 3.5 - Arts, Entertainment & Recreation 0.2% 0.5 - Accommodation & Food Services 5.0% 1.0 - Other Services 2.2% 1.5 - Public Administration 3.7% 1.0 Total: 100.0% 2.5 Source: HMI, Inc. 38 • Based upon the research performed, the subject market demonstrated the potential for just slightly below average Lodging Demand. The above average rating was estimated at 2.5, yielding 100% to the average. o The strength of this subject market is in the Individual Corporate/Commercial segment. This segment was estimated to yield 100% to average with an estimated 2.5 rating. o The Individual Social/Leisure segment was rated at 2.3 for a 92% yield to average. o The Group Corporate/Commercial and Social/Leisure market segments were each estimated to have ratings of 2.5 and 2.4 Lodging Demand Potential, respectively. This equates to a 100% and 96% yield to the average in each segment. o It is encouraging that the Individual and Group Corporate/Commercial segment is estimated to be average and the Individual and Group Social/Leisure segment to be just slightly below average. It was reported that the lack of a quality hotel is severely limiting the ability to market the city to the Social/Leisure markets. The addition of a new hotel may have the potential to generate additional new lodging demand for Blair in these segments as well. o The Social/Leisure market segments are estimated to perform slightly below average and this is due largely to the fact that the city does not currently have a quality lodging facility to offer these guests. There are tourism opportunities in the area however without a quality hotel in the city it is difficult to market these sites and events. Additionally, there are few group events held in the city despite the addition of a new, high quality conference center in the city. These events are not held in the city because guests do not want to drive to Omaha at the end of the event. Adding a new hotel to the market would allow these events to remain in the city. o These estimated ratings support the Market Segmentation and the Market Segmentation Profiles previously presented in this market study. CW SEASONALITY OF LODGING DEMAND Seasonality of Lodging Demand was reviewed for the subject market. This analysis shows the market's potential to attract Lodging Demand during various seasons. It will help to determine the proposed hotel's strengths and weaknesses during its operational year. In order to research the seasonality and historical performance trends of the subject market, a Competitive Set of hotels was established. The Competitive Set for this report consists of five hotels in Blair and Omaha, Nebraska and in Missouri Valley, Iowa. A listing of these properties is shown below. Super 8 Missouri Valley <' ;Missouri Valley, IA Super 8 Blair JBlair, NE Holiday Inn Express &Suites Cherry Hills 10maha, NE La Quinta Inns & Suites Omaha Northwest 10maha, NE Comfort Suites Omaha ;Omaha, NE The properties in the Statistical Competitive Set above were selected for a number of specific reasons with the ultimate goal of generating a lodging performance snapshot which will assist in projecting the potential performance of the proposed hotel. The Blair Super 8 was selected since it is the most direct competitor of the proposed hotel and it is currently the only nationally franchised hotel in the city. The Super 8 in Missouri Valley was selected due to being located in the regional area and in a similar sized and commercialized market. The hotels in Omaha were selected for two reasons. The Holiday Inn Express and Suites Cherry Hill was reported to be very commonly used by Blair visitors. The other two Omaha hotels are located in the same general area as the Holiday Inn Express and would be some of the most conveniently located Omaha hotels relative to the City of Blair. Additionally, the northwest Omaha location of these three hotels lessens the influence of the main downtown area or the busier airport area. The independently operated hotels in Blair were not included in the competitive set as they do not report to Smith Travel Research and are not felt to accurately represent the lodging performance in the market as most guests choose not to stay at these properties. It should also be noted that there is a portion of lodging demand generated in Blair which stays at the hotels near the Omaha airport or in the upscale hotels in downtown Omaha. While these hotels were not included in the Statistical Competitive Set, the Blair specific demand served by these properties will be taken into account in the projections presented later in this report. The hotels included in the Competitive Set will be explained in detail in the Lodging Supply section of this report. 40 The following chart shows the Seasonality of the subject market's Lodging Demand, ADR, and Revenue potential. It also reflects Seasonality in the surrounding regional market areas. SEASONALITY,OF LODGING DEMAND Deviation From Average Monthly Demand MONTH DEMAND ADR REVPAR January 65.2% 93.59/6 59.8% February ® 71.2% 96.7% r 74.7% March r 88.8% 95.4% 83.1% April 102.5% 96.5% 100.4% ® May 120.3% 103.7% 122.4% June 139.7% 128.4% ®181.9% July ■ 125.9% 101.6% r 125.5% August F 118.5% r 98.1% 114.1% September 105.3% 96.6% 103.1% October 104.4% 94.5% 96.8% November r 88.1% 94.7% . 84.6% December . 67.9% 93.6% ® 62.3% ITALICS = RevPAR Exceeds at Least One Factor BOLD = RevPAR Exceeds Both Factors Source: Smith Travel Research and HMI In analyzing the Seasonality of Lodging Demand in this subject market, it appears that the subject market follows the seasonal demand pattern of the region. The strongest Lodging Demand occurs in the summer months with additional strong demand occurring in spring and fall. The winter months have typically lower demand in this region. • The subject market performs above average in demand from April through October. Seven months with above average demand indicates a good seasonal demand pattern for this market with five months of the year below average in Lodging Demand. • The period from May through July is the strongest quarter of the year with 32.2% of the annual Lodging Demand, which is slightly above average. • The six-month period from May through October has the highest Lodging Demand and generates 59.5% of the annual Lodging Demand, which is slightly above average. 41 • The strongest months are June and July with 11.6% and 10.5% of the annual Lodging Demand, respectively. This is followed by May with 10.0% of the annual Lodging Demand. • The weakest months are January with 5.4% and December with 5.7%. December to February is the weakest quarter of the year with 17.0% of the annual Lodging Demand, which is slightly below average. • Revenue is maximized in only two months of the year, May and June, with above average Lodging Demand. There is the potential for additional revenue maximization in April, and from July through October when the gap is more than 5% points. This indicates that ADR is conservative and Lodging Demand is strong. Overall it appears this subject market maintains a strong rate structure in the winter months when demand is weaker. However, it appears that the rate structure could be more aggressive in the higher demand periods of the year with increases in rates relative to the increases in demand. Also it should be noted that lowering rates in weaker months does not always support increased room sales and revenue could be potentially lost. • Throughout the year, it appears the subject market holds rates relatively steady with little fluctuation when lodging demand is rising or falling. During the year, there is more of a swing in Lodging Demand than in ADR. Lodging Demand fluctuates 74.5 percentage points while ADR fluctuates only 34.9 percentage points. This fluctuation in ADR is considerably lower than that of the overall industry. While this indicates that a higher rate structure is maintained during the slower demand periods, it also indicates that there may be the potential to increase rates during higher demand periods. • On a three-year average, Weekends generate higher Occupancies than Weekdays. Weekends are averaging about 57.2% Occupancy while Weekdays are averaging about 52.3%. The chart below shows the weekly pattern of three-year average Occupancy rates from the competitive set. NEMS, Sun Mon Tue Wed Thu Fri Sat Total Yaw Sep 11 • Aug 12 ' 37.2 50.8 55.8 56.8 52.5 56.3 59.2 52.7 3ep 12 - Aug 13 38.4 50.6 54.3 56.5 52.9 56.0 59.5 52.E 3e 13 - Aug14 35.7 46.5 51.5 51.4 48.3 54.0 58.0 4U Total 3 Yr 37.1 49.3 53.9 54.9 51.3 55.4 56.9 51.'. Source: Smith Travel Research 42 ADR is slightly higher on Weekends with a three-year average ADR of $74.60, while the three-year average ADR on Weekdays is $71.80. The chart below shows the three-year average weekly pattern in ADR for the competitive set. Source: Smith Travel Research The following charts show the Seasonality of Occupancy and ADR. Source: Smith Travel Research ,- Sun Mon Tue Wed Thu Fri Sat Total Month Sep - 13 39.9 50.0 62.0 65.1 57.1 60.0 65.0 56.2 Oct -13 38.9 55.8 59.2 56.0 53.2 55.9 62.0 - 54.6 Nov -13 29.3 44.6 46.8 48.4 44.4 44.7 45.4 43.5 Dec - 13 21.2 30.3 31.6 32.4 31.3 35.9 37.7 31.1 Jan - 14 17.1 29.9 34.6 32.3 27.2 26.3 31.8 28.5 Feb - 14 27.6 37.4 42.5 42.0 36.6 40.8 42.3 38.5 Mar -14 29.0 42.9 44.0 42.9 40.2 45.1 44.6 41.0 Apr -14 31.2 44.0 50.9 52.0 45.5 57.7 58.5 48.7 May -14 41.2 39.9 49.7 52.6 58.2 73.2 76.9 57.3 Jun - 14 53.4 66.4 75.5 74.8 - 73.0 77.6 84.9 71.4 Jul -14 48.8 60.6 59.5 59.1 56.9 66.8 72.1 60.4 Aug -14 47.4 55.8 63.3 60.4 55.9 65.6 72.7 60.3 Total Year 35.7 46.5 51.5 51.4 48.3 54.0 58.0 49.3 Source: Smith Travel Research ,- Sun Mon Tue Wed Thu Fri Sat Total Month Sep - 13 67.21 68.37 70.66 71.32 69.43 70.11 71.38 69.88 Oct =13 64.28 67.14 67.68 67.55 65.26 67.78 69.48 67.17 Nov - 13 65.91 67.89 68.58 69.23 67.44 65.58 68.72 67.70 Dec - 13 63.36 67;45 67.64 67.53 " 66.60 65.83 66.01 66.46 Jan -14 67.43 68.84 70.90 68.74 67.50 66.38 67.86 68.32 Feb - 14 71.17 70.31 70.42 70.96 70.72 71.66 71.70 71.00 Mar- 14 65.42 68.56 69.41 68.87 68.89 69.24 69.39 68.65 Apr -14 66.94 68.77 69.28 68.92 66.82 , 70.85 72.45 69.40 May -14 71.40 71.67 73.08 72.30 74.87 92.08 90.63 80.72 Jun - 14 89.33 94.64 100.21 102.27 102.63 105.99 104.59 100.14 Jul - 14 71.33 74.73 72.93 73.35 71.52 76.78 77.98 74.18 Aug -14 66.17 71.07 71.89 71.02 69.40 72.09 72.07 70.73 Total Year 70.54 73.06 73.67 73.76 73.17 76.96 77.471 74.35 Source: Smith Travel Research 43 RATE SENSITIVITY Similar to the Lodging Demand Potential Index, a preliminary Rate Sensitivity analysis was performed. This ranks the Market Segmentation planned for the proposed hotel and the anticipated Rate Sensitivity within the Market Segments. It utilizes a 5 -point scale, with 5 indicating extreme sensitivity and 2.5 indicating average sensitivity. The following chart shows the results of this analysis. RATE 'SENSITIVITY FACTOR Rate Sensitivity Market Segmentation %of Market Factor Individual Travel Markets - Corporate/Commercial 50.0% 2.2 - Social/Leisure 25.0% 2.3 Group Markets - Business Related 20.0% 2.2 -Social/Leisure Related 5.0% 2.3 TOTAL 100.0% 2.3 Source: HMI • The overall preliminary Rate Sensitivity will be 2.3 yielding 92.0% to the average in this subject market. This below average Rate Sensitivity is due largely to the below average sensitivity of the Corporate/Commercial market segments. This was confirmed by the Weekday and Weekend ADR analysis presented above. • Additionally, the average annual historical rate yields 113% to the advertised low single rate of the competitive set. This indicates that this market is gaining a higher than advertised rate which is very encouraging and demonstrates lower rate sensitivity. • As previously identified in the ADR analysis of the subject market, the Corporate/ Commercial market segment's ADR (Weekdays) is slightly lower than the Social/Leisure market segment's (Weekends) ADR. 44 • Typically, Social/Leisure market segments are more Rate Sensitive than Corporate/Commercial market segments. Discounting and packaging are common practices in attracting the Social/Leisure market segment. In the subject market, the Social/Leisure segment may be offering packages and weekend discounts. The discounts offered to the Corporate/Commercial segment appear to be slightly greater since Weekend ADR averages are 103.9% of the Weekday ADR averages. o The Social/Leisure market segments, both Individual and Group, will generate Rate Sensitivity yielding 92.0% to average. The Individual and Group Social/Leisure market segments will each have a rating of 2.3. o The Corporate/Commercial market segment, both Individual and Group, will generate Rate Sensitivity yielding 88.0% to average. The Individual and Group Corporate/Commercial market segments will each have a rating of 2.2. o This below average level of rate sensitivity is expected to be seen at the proposed hotel as representatives reported that guests to the area would likely be more than willing to pay a slight price premium for the convenience of a high quality hotel within the City of Blair. FEEDER MARKETS • Corporate/Commercial and Social/Leisure Feeder Markets will differ in content for the proposed hotel. The primary regional Feeder Market identified for the subject market will be the State of Nebraska, western Iowa, northeast Kansas, and northwest Missouri. The secondary regional Feeder Market will be the entire United States as well as numerous international markets. • In general, the Feeder Markets for Corporate/Commercial demand will be regional, national, and international because of Blair's focus on manufacturing and agriculture. These industries have national and international ties. Vendors, suppliers, technicians, corporate offices, and clients will dictate the Feeder Market sources. Social/Leisure Market Lodging Demand will be determined mostly by the cities where friends and relatives live. While some of this demand will be generated by the primary regional market area of Nebraska, there will also be a large segment from the overall United States. 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CD cn N (Q O � � 7 (S C1 cn 0 (n N cn • m D Z Marketing the proposed hotel throughout the region is strongly recommended since guests in this subject market area will likely be in need of lodging during these higher Occupancy periods. Secondary Unaccommodated Lodging Demand • The secondary definition of Unaccommodated Lodging Demand is Lodging Demand that is currently staying in the existing market area but preferring hotel accommodations in other hotel markets. There is little potential for this to be occurring in this market due to the lower quality and older age of the hotels in Blair. It is more likely that during times of high occupancy in Omaha, visitors would seek lodging in Fremont, northwest of Blair. The potential to draw this type of demand could increase if a new hotel were added to the city as Blair is located conveniently near Omaha. 47 LODGING SUPPLY This section of the report describes in more detail the Competitive Hotel Set used in the previous Lodging Demand section. There is an emphasis on how the competitive Lodging Supply will affect the proposed hotel, particularly for hotel room usage. Currently in the City of Blair, there is one nationally branded hotel, a Super 8, and three independently operated hotels, the Perfect Stay Inn, Starlite Motel, and DeSoto Inn & Suites (formerly an Econo Lodge). There is also one small bed and breakfast, Baker's Bed and Breakfast. • The Super 8 was reported to be dated and offers an economy level of service. The independently owned hotels were noted to also offer a lower level of quality and service. The DeSoto Inn & Suites was reported to be the strongest independently owned hotel in the city however guests still consistently chose to stay in Omaha despite offering four hotels in Blair. • These three independently owned properties were not included in this competitive set due to their lower level of quality and the lack of use by Blair guests. These types of properties are not expected to be overly competitive with the proposed property. The hotel reported to be most commonly used by guests to the Blair market is the Holiday Inn Express and Suites Cherry Hill, in northwest Omaha. In order to form a competitive set which would be representative of the potential lodging performance of the proposed hotel, the nearby Comfort Suites and La Quinta Inn and Suites in northwest Omaha were also selected. While these properties were not reported to be used as regularly as the Holiday Inn Express and Suites Cherry Hill, they were selected due to their mid -priced, limited -service style and their location which is slightly removed from the downtown Omaha market and the airport market. These two markets possess unique lodging performance attributes which could skew the competitive set. For this reason, hotels in these areas of Omaha were avoided despite the fact that many Blair visitors were reported to stay there. • The Super 8 in Missouri Valley was also selected as it is located in a similar sized, rural community. • The three northwest Omaha hotels, one Blair hotel, and one Missouri Valley hotel make up the Overall Competitive Set for this market study. This competitive set was also used for the Statistical Competitive Set as all five properties report to the Smith Travel Research firm. 48 The lack of lodging demand staying in the city and regularly spreading throughout numerous hotels in the regional area makes it difficult to gather lodging data specific only to the City of Blair. While this Overall/Statistical Competitive Set will offer a similar representation of lodging performance in Blair, it should be noted that the lodging demand patterns unique to Blair will be taken into account and noted where appropriate. • At this time, there are no new hotels proposed to be added to this market area. The following chart highlights the hotels in Blair's Overall/Statistical Competitive Set. PRIMARY COMPETITIVE HOTELS Nurrberof Hotels: 5 Nunberof Hotel Rooms: 392 Chain Related: Hotels: 5 %Overall Madre 100.0% Roorru: 392 %Overall Markey 100.0'/6 Non -Chain Related: Hotels: 0 %Overall Marker' 0.0% Roorrs: 0 %Overall Marker 0.01/6 PRODUCT DIFFERENTIATION ANAN IS NUMBER PERCENT NUMBER PERCENT CATEGORY OF HOTELS OF MARKET OF ROOMS OF MARKT Bu et 0 0.00/6 0 0.00/. Economy 2 40.01/. 113 28.8% Blair- Super 8 - 43 ms. Missouri Valle - Super8 - 70 ms. Econorry Suite 0 0.0% 0 0.0% Mid -Priced 0 0.01/6 0 0.00/6 LirritedService Mid -Priced 0 0.01/6 0 0.01/6 (Full -Service) Mid -Priced Suite 3 60.01/6 279 71.21/. (United -Service) Ckraha - Comfort Suites 66 ms., Holida Inn ress & Suites- 84 nm, La Quinta Inn & Suites- 129 rms. Mid -Priced Extended Stay 0 0.01/6 0 0.0% Upscale 0 0.01/6 0 0.01/. (Select -Service) Upscale 0 0.00/6 0 0.0% (Boutique) Upscale Suite 0 r 0.01/6 0 0.01/0 Full -Service Upscale Extended Stay 0 0.01/6 0 0.0% TOTALS 5 100.0% 392 100.0% Avera - e Room Size: 78.4 Source: HMI 49 • The following are some of the highlights from the above chart. o The Overall Competitive Set is a mix of economy and mid -priced properties. The mid -priced category makes up 71.2% of the available rooms in the Overall/Statistical Competitive Set and the economy properties make up 28.8% of the available rooms in the Overall Competitive Set. o All the mid -priced properties in the Overall/Statistical Competitive Set offer suite -style rooms. o The average -sized hotel in the Overall Competitive Set has 78.4 rooms. • Exhibit 3 of this report shows the location of hotels identified in the Overall Competitive Set for the Blair market. PRIMARY COMPETITIVE PROPERTIES — PROJECTED OCCUPANCY and AVERAGE DAILY ROOM RATES Overall Statistical Competitive Set The following chart highlights hotel rates and preliminary anticipated Occupancy and ADR performance for the Overall/Statistical Competitive Set properties in the Blair market area. This competitive set consists of the hotel properties most commonly used by visitors to Blair and best represents the style and service level required to serve the Blair lodging demand. Additionally, all of the hotels in the chart below report to Smith Travel Research. COMPETITIVE"HOTEL'OCCUPAN CY &RATES Occ. RATE ANALYSIS PROJECTED PROPERTY Perform. SINGLE DOUBLE WEEKEND ADR Blair E Super 8 Blair Below $60-$70 $60-$70 $60-$70 $67.60 Omaha. NE LaQuinta Omaha NW Average $49-$60 $49-$60 $49-$65 $56.31 Comfort Suites Omaha Above $80-$95 $80-$95 $80-$95 $92.75 Holiday Inn Express Cherry Hills Above $82-$110 $82-$110 $100-$123 $113.09 Missouri Valley, NE Super 8 Missouri Valley Below $59-$69 $59-$69 $59-$69 $64.64 COMPETITIVE MARKET AVERAGE DAILY ROOM RATE (ADR): $77.23 Source: HMI 50 • There are basically two rate tiers operating in the subject market. o The highest tier consists of the Holiday Inn Express and Suites Cherry Hill and the Comfort Suites Omaha with an ADR of $113.09 and $92.75, respectively. This is generated by a rate range of $80 to $123 for single and double occupancy rooms. o The second ADR tier is represented by the Super 8 in Blair, La Quinta Omaha NW, and the Super 8 Missouri Valley. These properties have an ADR range of $56.31 to $67.60 and a rate range from $49 to $70. o It should also be noted that a large hail storm caused extensive damage to the majority of the buildings in the city. At the time of this report, the Super 8 still needed considerable repairs and the condition of this property may have resulted in the slightly lower rates shown in the chart above. Still, this property was reported to offer a lower rate structure prior to the hail storm damage. • The hotels in the Overall/Statistical Competitive Set are expected to have a fairly balanced mix of single occupancies and multiple occupancies. The Corporate/Commercial market segment is expected to be slightly stronger in Blair due to the large amount of industry in the city. The Group Corporate/Commercial and Group Social/Leisure markets will also help to strengthen this subject market and both areas were reported to have the potential to grow if a higher quality hotel were added to the city. • Therefore, guests at the proposed hotel in Blair will likely require a balance of double -queen beds and king -bedded rooms. Additional double -queen bedded rooms could be considered as these rooms can accommodate single as well as double occupancies. 51 RATE POSITIONING For this Comprehensive Hotel Market Study, the following would be the initial projected rate positioning for the proposed hotel in Blair. COMPETITIVE HOTEL OCCUPANCY &RATES' Occ. RATE ANALYSIS PROJECTED PROPERTY Perform. SINGLE DOUBLE WEEKEND ADR Blair, NE Super 8 Blair Below $60-$70 $60-$70 $60-$70 $67.60 Omaha. NE Comfort Suites Omaha Above $80-$95 $80-$95 $80-$95 $92.75 Holiday Inn Express Cherry Hills Above $82-$110 $82-$110 $100-$123 $113.09 COMPETITIVE MARKET AVERAGE DAILY ROOM RATE (ADR): $96.00 Source: HMI • To attain this rate positioning for the proposed hotel, the lower priced La Quinta Inn in Omaha and the Super 8 in Missouri Valley were removed since the proposed hotel is planned to be a mid -priced property. The economy - priced Super 8 in Blair was included due since it is the only nationally branded hotel currently in the city and therefore is the nearest competitor. Based on the rate positioning of the properties in the chart above, the proposed hotel would yield an average of 124.3% to the Overall/Statistical Competitive Set. This would rate position the proposed hotel higher than the Comfort Suites and lower than the Holiday Inn Express and Suites Cherry Hill. Due to the rural nature of the City of Blair and its being removed from the more urban area of Omaha and the airport, it was felt that the proposed hotel should be conservatively positioned similar to the Comfort Suites with an ADR of $92.75 and yielding 102.1 % to the Overall/Statistical Competitive Set. • It was reported that the Holiday Inn Express and Suites Cherry Hill was the hotel most commonly used by Blair guests. Being rate positioned slightly lower than this hotel should provide a competitive advantage for the proposed property. Additionally, being a new, high quality hotel in Blair will offer an advantage as guests have repeatedly stated that they would prefer to stay within the city and avoid driving to Omaha. This location convenience should also negate any rate sensitivity of the proposed hotel being the highest priced property within the City of Blair. • Additionally, being associated with a strong national or regional brand would assist in driving this rate positioning. 52 COMPETITIVE FACTOR ANALYSIS To further understand the hotels in the Statistical Competitive Set, a Competitive Factor Analysis was performed. This analysis is based upon a scale of 0 to 5, with 5 indicating strong competitive factors and 2.5 being average. The following chart highlights the analysis of the primary competitive hotels in the categories of Rate, Facility, Brand, Location, and Market Segmentation. It also highlights the overall competitive factor for each property and the subject market area. This report provides an overview of the respective competitive position each hotel occupies within the market. COMPETITIVE FACTOR ANALYSIS AGE # OF AAA MKT. COMP. PROPERTY NAME (Yrs.)ROOMS RATING RATE FACILITY BRAND LOCAT. SEG. FACTOR Blair, NE Superb 19 43 NR 2.9 2.0 2.0 4.0 3.0 2.8 Missouri Valley, IA Super8 18 70 NR 3.0 2.0 2.0 2.0 2.0 2.2 Omaha, NE Comfort Suites Omaha 18 66 3 2.1 3.0 3.5 2.5 2.0 2.6 Holiday Inn Express & Suites Cherry Hills 7 84 3 1.7 4.0 4.0 2.5 2.5 2.9 La Quinta Inn & Suites Omaha NW 33 129 3 3.4 2.5 2.5 2.5 2.0 2.6 COMBINED RATING 19.0 1 3.0 k 2.6 k 2.7 k 2.8 k 2.7 k 2.3 2.6 Source: HMI • The average Ape of the Overall Competitive Hotel Set is 19.0 years with an age span of 7 to 33 years. The Super 8 in Blair is equal to this average age of 19 years. • The newest hotel in this subject market is the 7 -year old Holiday Inn Express and Suites Cherry Hill in Omaha. o The first major renovation period normally occurs at 5 to 7 years. The Holiday Inn Express and Suites Cherry Hill is the only hotel currently at this stage in the competitive set. o There are no hotels in the second major renovation period of 12 to 15 years. At this stage, soft and hard goods are replaced and some major mechanical and maintenance issues need to be addressed. o After this stage, on-going renovation is required to remain competitive. All of the hotels in the Overall Competitive Set, other than the Holiday Inn Express and Suites, are beyond the second major renovation period. The La Quinta Inn and Suites in Omaha is the oldest property at 33 years. 53 • Quality Assurance Ratings by AAA indicate that of the hotels that are AAA - rated, all are in the 3 -diamond range. A 3 -diamond rating would be preferable for the new hotel in Blair to have a competitive advantage. • Rate Competition was addressed previously with rate positioning. The hotels in the chart above are a mix of above average to below average in rate competition. Overall, these hotels will offer slightly above average rate competition as a set. Previously in this report, Rate Sensitivity was shown to be below average. The Super 8 in Missouri Valley and the La Quinta Inn in Omaha offer the highest level of rate competition in this set. However, its lower quality, older style, and location outside of the City of Blair negate much of the advantage of these lower rates. The other hotels have a higher rate structure and therefore will offer less competition. Overall, rates are competitive and proper rate positioning of the proposed hotel should be analyzed as was noted in the previous section. Still, being a new, mid - priced, limited -service hotel should help to mitigate this competition. This would be because the current lodging supply is older and the proposed hotel would be the newest limited -service, mid -priced property and the highest quality hotel in the City of Blair. • The Facilities of these hotels are generally rated as being slightly above average mainly because of the presence of the Holiday Inn Express and Suites and the Comfort Suites brands in Omaha which maintain higher facility standards. It was reported that the Super 8 and the independently operated hotels in Blair all offer a lower level of facilities and this is one of the main reasons for guests staying outside of the city. The newer Holiday Inn Express and Suites Cherry Hill in Omaha will offer the highest level of competition in this area. A new hotel with a national or regional brand should also maintain a high rating in this category. The overall Facilities rating from AAA reflects the Quality Assurance Ratings of the franchise brands represented. The proposed hotel should compete well in this category especially due to the older age and lower quality of the hotels in Blair. Brand Competition will be present in the subject market because of strong brands like Holiday Inn Express and Comfort Suites however this competition will be mitigated by the fact that these brands are not located in the city. Still, the proposed property will need to be aware of these brands as these will offer competition in this market as they have above average brand recognition. It is recommended that the proposed hotel be affiliated with a well -represented regional or national brand as it will greatly assist in drawing Blair -generated lodging demand out of Omaha and back to Blair. Affiliation with a well-recognized brand will also assist in achieving the Rate Positioning and Operational Projections presented in this market study. 54 Location will be an average competitive factor as all of the hotels, with the exception of the Super 8 in Blair, are located outside of the City of Blair. While these hotels were reported to currently serve visitors to Blair, a new hotel located immediately in the city would have the potential to draw these visitors back to Blair. The close proximity of the Super 8 and the independently operated hotels currently in the City of Blair will offer some competition, however their lower quality and older style will lessen this competitive advantage. The location of the subject site along Highway 30 will place this proposed hotel along a main traffic route through the city and in an area with the city's newest support services. • In regard to Market Segmentation, a new limited -service, mid -priced hotel will cater to market segments which are currently leaving Blair. So while the existing hotels may serve currently similar market segments, a new hotel in Blair would cater very specifically to the lodging demand generated within the city and close surrounding area. Being the highest quality and newest hotel in this market area should allow this hotel to capitalize on this market segmentation. • The hotels in this analysis will produce a slightly above average overall competitive factor rating. The Holiday Inn Express and Suites Cherry Hill and the Super 8 in Blair will be the most competitive with the proposed hotel. The Super 8 in Missouri Valley will offer the least competition. Brand, Location and Facilities will be the most competitive factors for the proposed hotel. 55 COMPETITIVE LODGING PERFORMANCE The following section highlights the Competitive Lodging Performance for the subject market. This Competitive Lodging Performance is based upon the Statistical Competitive Set Hotels identified in this report. The Competitive Lodging Performance of Occupancy, Lodging Demand Growth, Lodging Supply Growth, Average Daily Room Rate, and Revenue Per Available Room (RevPAR) are analyzed below. Lodging Supply Growth The following chart highlights the Lodging Supply Growth that has occurred in the Competitive Set market defined in this section. COMPETITIVE LODGING PERFORMANCE Lodging SuppIy,Growth' YTD YTD 2008 2009 2010 2011 2012 2013 2013 2014 Primary Competitive Lodging Supply - Percentage Change NIA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2008-2013 - Annualized Growth Rate: 0.0% Source: Srrrth Travel Research & HMI • This subject market has not seen any lodging growth since December, 2007 when the 84 -room Holiday Inn Express and Suites Cherry Hill was added in Omaha. • At the time of this report, there was no additional new Lodging Supply identified for the Blair market area. 56 Lodging Demand Growth The following chart highlights the Lodging Demand Growth that occurred in the Overall/Statistical Competitive Hotel Set defined in this section. 2008 2009 1 2010 1 2011 1 2012 1 2013 1 2013 1 2014 Primary Competitive Lodging Demand - Percentage Change N/A -9.0% -9.1% 16.4% 5.6% -2.8% -1.0% -6.1% 2008-2013 -Annualized Growth Rate: 0.2% Source: Snrth Travel Research & HMI • The Overall/Statistical Competitive Set saw decreases in demand in 2009 and 2010. These two years of negative growth were followed by a large growth rate of 16.4% in 2011 and an increase of 5.6% in 2012 before a decrease of (2.8%) in 2013. • At this time, this negative growth pattern seems to be continuing with a (6.1 %) growth rate for the 2014 year-to-date data. • The average annual Lodging Demand growth from 2008 through 2013 was 0.2%. • While Lodging Demand performance does not appear overly strong in this Overall/Statistical Competitive Set, it can be anticipated that Lodging Demand in Blair would perform slightly better based on the room usage reported by area representatives. Additionally, the major lodging demand sources in the city were reported to have plans for growth in the near future which will also increase lodging demand. Absorption of Lodging Supply The historic Lodging Supply growth absorption rate for the subject market could not be calculated due to the lack of supply growth during the years analyzed. Based on the demand growth since 2008 the absorption rate would be within range as the added 60 -rooms of the proposed hotel combined with the historic lodging demand growth rate should allow for an absorption rate within two years. An absorption rate of three years is considered an acceptable timeline. 57 Occupancy The following chart highlights the Occupancy that has occurred in the Overall/Statistical Competitive Set defined in this section. YTD YTD 2008 2009 1 2010 2011 2012 2013 2013 2014 Primary Competitive Hotels 52.1% 47.4% 43.1% 50.2% 53.0% 51.5% 54.1% 50.8% Source: Srrrth Travel Research & HMI • Occupancy decreased in 2009 to a rate of 47.4% followed by another decrease in 2010 to its lowest rate of 43.1 %. In 2011 and 2012, Occupancy regained strength to a rate of 53.0% in 2012 which was higher than the pre - recession rate of 52.1% in 2008. • The market saw a small decrease in 2013 to a rate of 51.5%. • The year-to-date numbers for 2014 show a lower number than year-to-date 2013 with a rate of 54.1% in 2013 and a rate of 50.8% in 2014. While this market seems to run consistently in the low 50% range, it is possible than the two Super 8 properties could be holding this Occupancy down due to their older age and facilities. • As noted in the Lodging Demand performance section above, a new hotel in Blair could be anticipated to have slightly higher Occupancy rates. This is because it would be the highest quality hotel in the city and it would have the ability to capture a large amount of consistent lodging demand that is currently leaving the city. 58 Average Daily Room Rates The following chart highlights the Average Daily Room Rate trends that have occurred in the Overall Statistical Competitive Hotel Set defined in this section. 2008 I 2009 I 2010 I 2011 I 2012 I 2013 12 13 12 1D4 Primary Competitive Average Daily Room Rates $64.69 $66.54 $69.99 $68.32 $70.89 1 $73.22 $75.47 $77.27 Percentage Change N/A 2.9% 5.2% -2.4% 3.8% 3.3% 4.1% 2.4% 2008-2013 -Annualized Growth Rate: 2.5% Source: Smith Travel Research & HMI • ADR saw growth in 2009 and 2010 despite this time period experiencing Lodging Demand and Occupancy decreases. It is likely that the (2.4%) in 2011 was an attempt to regain some Lodging Demand. • Since 2012 this market has seen steady ADR growth with its highest ADR of $73.22 in 2013. • In 2014 year-to-date, ADR is $77.27 compared to $75.47 for the same period last year. It has increased by 2.4%. • There is the potential for the Blair market to maintain the higher rate structure as the main competition for these room nights is in the higher priced Omaha market. Additionally, rate sensitivity should be lessened if a new, higher quality hotel located within the City of Blair were offered. Still, it should be noted that major employers like Cargill do have a corporate rate with the Holiday Inn Express and Suites Cherry Hill and this may limit raising rates too high in order to maintain this relationship. • The annual average ADR growth from 2008 through 2013 was 2.5% which includes the lower performing years during the recession. This includes the recession period and indicates the ADR strength of this market area. Previously in this report, it was noted that this market has slightly below average rate sensitivity. Average weekday rates are historically higher than average weekend rates in this market. It was reported that corporate rates are present in this market but are not causing undue pressure to increase rate sensitivity. Due to the ADR growth in this market, it appears that these rates are regularly modified and increased. ADR is showing a pattern of growth and this is expected to continue. 59 Revenue Per Available Room (RevPAR) The following chart highlights the Average Revenue Per Available Room (RevPAR) trends that have occurred in the Competitive Hotel Set defined in this section. • RevPAR is showing an average annual increase of 2.6% which includes two years, 2009 and 2010, of negative growth with growth rates of (6.4%) and (4.4%), respectively. The decrease in lodging demand during these years was the reason for these decreases as ADR continued to increase during these years. • Following 2010, RevPAR grew with its highest growth rate in 2011 at 13.6%. This market continued to grow and reached its highest RevPAR in 2013 at $37.72. Similar to ADR, RevPAR in 2013 and year-to-date 2014 has surpassed the RevPAR seen prior to the recession. Year-to-date 2014, RevPAR is at $39.28 which is a (3.9%) decrease from the $40.85 RevPAR in year-to-date 2013. COMPETITIVE LODGING PERFORMANCE- Revenue Per Available Room YTD YTD 2008 2009 2010 2011 2012 2013 2013 2014 Primary Competitive Revenue Per Available Room (RevPAR) $33.70 $31.56 $30.18 $34.29 $37.56 $37.72 $40.85 $39.28 Percentage Change N/A -6.4% -4.4% 13.6% 9.6% 0.4% 3.0% -3.9% 2008-2013 - Annualized Growth Rate: 2.6% Source: Smith Travel Research & HMI • RevPAR is showing an average annual increase of 2.6% which includes two years, 2009 and 2010, of negative growth with growth rates of (6.4%) and (4.4%), respectively. The decrease in lodging demand during these years was the reason for these decreases as ADR continued to increase during these years. • Following 2010, RevPAR grew with its highest growth rate in 2011 at 13.6%. This market continued to grow and reached its highest RevPAR in 2013 at $37.72. Similar to ADR, RevPAR in 2013 and year-to-date 2014 has surpassed the RevPAR seen prior to the recession. Year-to-date 2014, RevPAR is at $39.28 which is a (3.9%) decrease from the $40.85 RevPAR in year-to-date 2013. ISSUES. RISKS AND OPPORTUNITIES The following section deals with topics that should be addressed when developing a hotel project such as the one studied in this report. Many of these topics are common to hotel development and are addressed here as a matter of due diligence in evaluating the subject market and subject site for the proposed hotel. Also highlighted in this section are any concerns which may have arisen during the research portion of this report that would have a direct effect on the hotel development. These may require additional research by the developer when pursuing the development of the proposed hotel. COMPETITIVE PRICING PRESSURES • There is an indication of below average Rate Sensitivity in the subject market. There is slightly less Rate Sensitivity in the Corporate/Commercial market segments, and just slightly higher Rate Sensitivity occurring in the Social/Leisure segments. Weekday ADR is slightly higher than Weekend ADR, with a yield of 103.2%. • Despite the below average Rate Sensitivity in the Corporate/Commercial market segments it was reported that there are corporate and negotiated rates in this market area. Still, this market appears to hold a very strong rate structure throughout the year and has had positive historical growth each year with the exception of 2011. • Area representatives stated that clients and customers of the companies in Blair would not be opposed to paying a higher rate than the other hotels in the city if they were offered a new, high quality hotel within the City of Blair. • The rate structure in the subject market also reflects this Rate Sensitivity. The average low single rate is 88.8% of the ADR reported to Smith Travel Research which reflects the actual rate attained. This indicates that the advertised rates are lower than the actual rate attained. • As a result, while the proposed hotel's management will need to be aware of Rate Sensitivity and some of the slightly lower rate structures of the older hotels in the area, it should be able to achieve a strong rate position in this market. Being the newest property in a market with older competitive properties should help to give this hotel a competitive advantage and justify a slightly higher rate in the mid -priced market segment. The proposed hotel should look to increase rates during peak demand periods and possibly offer a slightly lower rate during slower Lodging Demand periods. 61 • The proposed hotel should be positioned similar to the Comfort Suites in Omaha and below the Holiday Inn Express and Suites Cherry Hill in Omaha. This was addressed in the Lodging Supply section of this market study report. This positioning would provide a 120.1% yield to the average ADR of the Overall/Statistical Competitive Set. GROWTH IN LODGING SUPPLY • At this time, no future Growth in Lodging Supply is expected in the City of Blair. • The proposed hotel in Blair would have an exclusive competitive edge in attracting Lodging Demand seeking a limited -service, mid -priced hotel in the City of Blair. • An impact factor of 25% was applied to the Statistical Competitive Set when the proposed hotel's rooms are added. This impact factor was applied since most guests to Blair stay outside of the city. The hotels where these guests are currently staying also serve demand sources other than Blair. Thus, if these guests begin to stay at the proposed hotel in Blair, the projected loss of these rooms would have a 25% impact on these existing hotels. GROWTH IN LODGING DEMAND • The subject market appears to be decreasing slightly at this time however it is anticipated that there is the potential for future growth. Lodging Demand in recent years, including the years of the national recession, has shown a (0.92%) average annual growth rate from 2008-2013. If the negative growth years during the recession were removed, the average annual growth rate increases to 3.54% from 2011-2014. • The subject market's largest increase was seen in 2011 with a 16.4% rate of growth. 2014 year-to-date Lodging Demand growth is (6.1%) compared to (1.0%) for the same period last year and a (4.45%) growth rate is projected for 2014. This should not be overly concerning as the pattern has been strong and while decreasing, lodging demand growth is still predicted for this market. • Overall, this shows that the subject market went through a period of recovery from the recent national recession. It should also be noted that this historical performance is slightly skewed due to the inclusion of three Omaha hotels in the competitive set. City officials reported that Blair was not severely affected by the national recession mainly due to the strength and consistency of Blair's industry segments. This will also allow for predicted future growth to occur. 62 ■ As mentioned earlier in this report, Cargill is one of the largest employers in the market and provided a rough estimation indicating that Cargill could require over 1,000 room nights per year. This also has the potential to grow as Cargill continues to grow and expand. • The Social/Leisure markets are also anticipated to grow since the tourism and youth sports markets are currently limited because there are no high quality hotels in the city to serve these types of guests. • The city's continued economic stability and growth will assist in absorbing any new rooms that enter the regional market, including a new hotel in Blair. PROPERTY TAXES • A detailed analysis of the Property Tax structure in Blair was not within the scope of this report. From preliminary indications, these taxes were not excessive. The developer should analyze the property tax structure within the city and county accordingly. POLITICAL CLIMATE • The Political Climate and attitude of the subject market was defined as very pro -growth. Blair is actively seeking new commercial growth in all areas. • The local government agencies are reported to be supportive and encouraging to growth that will further diversify and expand this market. • No unusual local government hurdles or requirements for approval/development of a new hotel in the subject market were reported. • It should be noted that at the time of this report, the proposed subject sites are not located in a TIF district within the city. The hotel developer should consult the city to verify any TIF potential for any of the subject site areas. ZONING AND ARCHITECTURAL (BUILDING CODES) CONTROLS • Zoning in the subject site area was reported to be in place to support hotel development. The subject site area appears to be zoned for commercial use. This should be verified by the hotel developer. • Architectural Controls (Building Codes) should not be a problem for the subject site area. The city appears to have standard building codes, design, and construction requirements in this area. These should be verified by the hotel developer. 63 ENVIRONMENTAL CONCERNS • There do not appear to be any Environmental Concerns reported for development of Subject Site Area 1 and 2. Still, topics to be evaluated by the developer include, but are not limited to, land preparation, water drainage, water seepage, flood plain, wetland, previous use, soil integrity, etc. It should be noted that Site Area 2 may require additional environmental evaluation due to the large retaining wall located on this site. Toxic waste issues were not within the scope of this study. The developer should conduct necessary environmental impact testing to make sure the subject site is in compliance with ordinances and regulations for the area. LABOR MARKET, SUPPLY AND WAGES • At this time, no Labor Supply problems were reported for this subject market. Adequate labor supply is apparent in the Service and Retail areas. Unemployment rates in the county are lower than the state however this was not reported to be an overwhelming concern by area representatives. • At the time of this report, Wage Scales in Blair could be considered competitive with other service and retail businesses. However, if labor supply issues arise, there could be increased wage pressure as competition for available labor occurs. This could have an impact on the proposed hotel's operating costs. AREA OF FRANCHISE PROTECTION • An Area of Franchise Protection is advisable to ensure that there is no encroachment on the subject market by a similarly branded property. Having protection within the close neighboring communities is recommended. Blair is located a significant distance from Omaha which should remove any impact issues. SUBJECT SITE LOCATION • The Subject Site Location in the City of Blair is considered to serve the overall needs of the city very well. Subject site area 1 is located within walking distance to the newer Wal-Mart store and additional support service. Additionally, this site being located on Highway 30 will be in one of the main commercial areas and traffic routes in the city. • As noted earlier in this report, if Site Area 1 is not feasible, Site Area 2 and 3 are also strong sites as they are also located on Highway 30 in this same commercial area. Site Area 3 did prove to be slightly stronger due to the fact that this site currently has utilities and access points in place. Site Area 2 would be a good third choice, however there is a lack of support service within walking distance from this site. 64 CONCLUSIONS The following Conclusions are based upon the analysis of the research performed for this market study in relation to the construction of the proposed hotel at the subject site. These conclusions project performance of a mid -priced, limited -service hotel with 60 rooms that will serve the subject market. It will compete for traditional Lodging Demand sources identified in the subject market area. These recommendations are based upon the research performed for this Comprehensive Hotel Market Study report. These projections are provided for the consideration of the developer in determining the size of the proposed hotel to be developed at the subject site. Effects of Occupancy, Average Daily Room Rates and Hotel Room Sales Revenue are reported accordingly. Information regarding the proposed hotel's type and size is detailed in the Property Recommendations section of this report. These projections are based upon developing a 60 -room limited -service, mid -priced hotel at the subject site. The proposed hotel would have the features recommended in this section. Also, it would be Rate Positioned as suggested in this market study. Any variations to these recommendations may potentially require revisions to these Operational Projections. PROJECTED PROPERTY PERFORMANCE The following series of charts show the preliminary projected hotel's performance, specifically in Occupancy, Average Daily Room Rates, and Projected Revenue. Occupancy The following chart shows the preliminary Projected Occupancy of the proposed hotel. 65 PROJECTED OCCUPANCY,_ PROJECTED PROJECTED MARKET OCCUPANCY PROJ. HOTEL OCCUPANCY MKT. YEAR Low Probable High PENET. Low Probable High 2016 47.5% 01 50.0% 52.5% 117.3% 55.8% 58.7% ` 61.6% 2017 49.2% 51.8% 54.4% 130.3% 64.1% 67.5% ` 70.9% 2018 51.2% 53.9% ` 56.6% 137.2% r 70.2% r 73.9% ` 77.6% *Projected performance is t/- 5 percentage points and will be affected by changes in Lodging Supply and Demand growth levels used to formulate these projections. Source: HMI 65 • The above data is based on a 60 -room, mid -priced, limited -service hotel in the subject market. • A 25% impact factor is assumed for the proposed hotel's effect on the Overall/Statistical Competitive Set. This indicates that 25% of the annual room nights generated by the proposed hotel will have direct impact on these hotels in Blair, Omaha, and Missouri Valley. These impacted room nights represent the room nights that are currently being serviced by hotels in the Overall/Statistical Competitive Set. • The proposed 60 -room hotel will be 76.5% smaller than the 78.4 -room average sized hotel in the Overall/Statistical Competitive Hotel Set. This will allow for a maximum 130.7% size yield adjustment to the average size hotel in the Competitive Set. With fewer rooms to sell, the proposed hotel should outperform the Competitive Hotel Set in Occupancy. Likewise, an increase in the proposed hotel's room count would potentially decrease its Occupancy performance. • An Occupancy performance yield premium of 5% was added for the proposed hotel in Blair at this time. This was done to account for the proposed hotel being the newest hotel in the market and the highest quality hotel in the city. Additionally, this accounts for the strong demand reported for a hotel of this style and quality and likely high level of use. This 5% yield would allow for an Occupancy yield of 137.2% to the market in the third year and an average Occupancy of 73.9% in the third year of operation. • At this time, no new hotels are anticipated for the City of Blair or the surrounding market area. The (4.45%) Lodging Demand growth rate projected for 2014 was factored into these projections and was followed by a 2.50% Lodging Demand growth rate in 2015. In future years, Lodging Demand growth was conservatively estimated to increase 3.00% in 2016, 3.50% in 2017, and 3.50% in 2018. The estimated annual Lodging Demand growth rate from 2014 through 2017 is 1.72%. This rate of growth is conservative at about 50% or slightly lower than the average annual historic growth rate of 3.54% from 2011 to 2013. However it is higher than the historic growth rate of (0.92%) from 2008-2013. The projected growth rates were considered to be conservative and attainable if normal market conditions prevail. • Based on these projections, the future absorption rate of the new Lodging Supply would be 5 months with the Lodging Demand Growth projected. :. • The increase in Occupancy was staged from the first year to the third year. Yield adjustment factors of 90% and 95% of the third year projected Occupancy were utilized for the first and second years, respectively. This will generate yields of 117.3% the first year and 130.3% the second year to reach a 137.2% yield by the third, or stabilized, year of operation. It is anticipated that a new hotel in Blair will ramp -up its Occupancy rather quickly. The proposed hotel is anticipated to be well-positioned to serve the Lodging Demand of the immediate Blair market. It would have good access to surrounding support services as well as the commercial, retail and manufacturing markets in the city. Being the newest hotel in a market of older properties as well as being the only mid -priced property in the city will help to support these Occupancy projections. • The subject site's location will allow the proposed hotel to handle the Unaccommodated Lodging Demand generated by the subject market's demand sources identified in this report. Average Daily Room Rate The following chart highlights the preliminary Projected Average Daily Room Rate for the proposed hotel. PROJECTED AVERAGE DAILY ROOM RATE PROJECTED PROJECTED PROJECTED SUBJECT YEAR MARKET MARKET PROPERTY Probable ADR YIELD ADR" High $83.95 $86.21 2016 $79.96 102.7% $82.10 Low $75.96 $78.00 High $86.47 $98.66 2017 $82.35 114.1% ' $93.96 Low $78.24 $89.26 High $89.07 $106.97 2018 $84.82 120.1% $101.87 Low $80.58 $96.78 ` Net ADR equals room revenue plus restaurant, lounge, meeting & conference revenue. ** Projected performance is +/- 5 percentage points and will be affected by changes in Lodging Supply and Lodging Demand growth levels used to formulate these projections. Source: HMI ADR growth in 2014 is projected to be 2.93% for the year. The historic ADR growth rate was 2.75% per year from 2008 to 2013 and 3.44% from 2011 to 2013. The recent national recession had some effect on the ADR's in this subject market and growth is anticipated to continue. 67 • In this report, the future annual ADR growth rate was conservatively estimated at 3.17%. This was factoring an estimated conservative ADR growth of 2.93% in 2014, and 3.00% for each of the future years. This is conservatively below the historic 3.44% annual growth from 2011 to 2013. • The rate positioning strategy outlined in this report was utilized to position the proposed hotel with these projections. This would yield a projected ADR of 120.1 % by the third year of operation. • The increase in ADR was staged from the first year to the third year. It utilized a 97.5% yield factor in the first and second years based on the third year projected ADR. • The proposed hotel, being positioned as a mid -priced, limited -service hotel, should be able to perform similar to the Comfort Suites in Omaha and below the Holiday Inn Express and Suites Cherry Hill in Omaha. Proiected Sales Revenue The following chart depicts the preliminary Projected Sales Revenue based upon the Occupancy and Average Daily Room Rates established in this report. • Given the projections for Occupancy and ADR, the proposed hotel should achieve projected revenue levels that yield substantially higher than the current subject market. W: PROJECTED REVE,NUE',r YEAR PROBABLE ROOM REVENUE PROJECTED RevPAR MARKET RevPAR YIELD 2016 $1,055,383 $48.19 120.5% 2017 $1,389,002 $63.42 148.7% 2018 $1,648,641 $75.28 164.8% Projected performance is +/- 5percentage points and will be affected by changes in Projected Occupancy or Projected ADR. Source: HMI • Given the projections for Occupancy and ADR, the proposed hotel should achieve projected revenue levels that yield substantially higher than the current subject market. W: PROPERTY RECOMMENDATIONS The following Property Recommendations were based upon the research conducted in this report. The following are Property Recommendations for a 60 -room, limited -service, mid - priced, traditional -style hotel in the subject market. This type of hotel will address the Lodging Demand characteristics identified in the research performed for this market study. It will also address the Competitive Lodging Supply factors identified in this market study. Property Type • The focus of this report was on developing a limited -service, mid -priced, traditional style hotel in Blair, Nebraska. Based upon the research performed, this type of hotel would be supported at the performance levels established in this report. This type of property appears to match the Lodging Demand characteristics identified for this subject market area. There is an independently operated hotel and a nationally branded economy priced hotel in the city. However, these properties have a relatively high average age and a lower quality level. The proposed hotel in Blair would be the newest and only mid -priced hotel in the city. Additionally, there are mid -priced, limited -service hotels in the region. However these hotels are over 25 miles from the city and therefore lack convenience for visitors to Blair. This positioning should allow the proposed hotel to maximize rates by best serving the Lodging Demand characteristics in the subject market. It will allow the proposed hotel to raise rates in high demand periods and lower rates during softer demand periods. Property Size • The Property Size of the proposed hotel in this report is 60 -rooms. The average sized hotel in the Overall/Statistical Competitive Hotel Set is 78.4 rooms. Developing a hotel with 60 -rooms allows for a size adjustment of 130.67% to the operating performance (Occupancy) of the Overall/Statistical Competitive Hotel Set. As mentioned previously in this report, this entire yield was used as well as an additional premium to bring the yield to 143.8% in the third year. This premium was used to account for the proposed hotel being the newest property in the city and the only mid - priced, higher quality hotel in the city. A 60 -room hotel should perform well in the subject market. At this size, the proposed hotel should be able to achieve the operational projections presented above. Property Amenities Recommended preliminary Property Amenities should be compatible with the product type and the brand affiliation selected for the proposed hotel. Product offerings should be in line with the franchise affiliation selected for this hotel. Additional amenities to consider for the proposed hotel are listed below. • An indoor swimming pool should be considered for the proposed hotel. This will assist in attracting the Social/Leisure market. • Meeting and banquet space was mentioned as being a great need in the subject market and is currently one of the reasons why some lodging demand is leaving the subject market. It is suggested that a meeting/banquet room capable of seating approximately 50 people be considered by the developer. A larger room could also be considered if the developer deems it to be cost effective. This room could also be enlarged after a few years of operation. It could be built adjacent to the breakfast area to provide additional meeting space when the breakfast area is not being used. o The meeting room should be dividable to accommodate smaller groups. o It is suggested that the food and beverage amenities for these events be serviced by a local caterer or local restaurants. Providing in-house catering and/or dining service is not recommended for this meeting room. However a catering prep area could be included. • A fitness center could also be included at the proposed hotel as this will serve all market segments. • Parking for busses (i.e. Youth/Amateur, college sports) recreational vehicles and trailers (Social/Leisure market) could be considered in response to the area's recreation. Sleeping Room Configuration • The proposed hotel's recommended Sleeping Room Configuration should be compatible with the area's overall Market Segmentation. Given the fact that this property will have less Social/Leisure Lodging Demand, (70% Corporate/Commercial and 30% Social/Leisure), typically more single -king bedded rooms are recommended in anticipation of more single Occupancies. Still, double queen -bedded rooms allow for more flexibility, so a mix of 50% double queen bedded rooms and 50% king bedded rooms should be considered. 70 o There is the potential for there to be some extended stay demand in this market area and therefore it is recommended that a number of suites be considered with a potential of 15%-20% of the proposed hotel's total rooms being suites. Thus, an ample number of extended -stay suites could be offered at this hotel. These suites could include a sitting area, a separate sleeping area, and a small kitchen area. There is currently no other extended -stay lodging in the city and it is recommended that a strong marketing effort be made to area businesses to raise awareness of this offering. Brand Affiliation • It is suggested that Brand Affiliation be considered for the proposed hotel to enhance its marketability. The focus of this report was on developing a mid - priced hotel concept. A national or regional brand within this product category is suggested. The stronger the brand recognition, the more competitive the proposed hotel will be in the subject market. Operating the proposed hotel without a national or regional brand is not recommended. A national or regional brand will also assist in drawing Blair - generated demand away from the nationally branded hotels in Omaha. • Impact issues should be mitigated by the significant distance between the Blair market and the other hotels in the region. Rate Strategy • The Room Rate Strategy for the proposed hotel should be compatible with the attainment of the Average Daily Room Rate projections indicated in this report. The preliminary room rate positioning strategy of this hotel was outlined previously in the Lodging Supply section. • Seasonality of Room Rates will also need to be considered at this proposed hotel. • Given the Average Daily Room Rate research performed for this report and the projections subsequently established, it appears that the proposed hotel could compete directly if it were positioned with a 120.1 % yield to the Overall/Statistical Competitive Set as defined in this report. This would be the preliminary recommended rate positioning for the proposed hotel based on the positioning of the Comfort Suites in Omaha. This is a higher rate structure than the current structure in the city. This accounts for it being the newest hotel in the subject market area and the highest quality hotel in the city. It would position the proposed property similar to the Comfort Suites in Omaha and lower than the higher priced Holiday Inn Express Cherry Hill. 71 Opening Date • Based on the Seasonality of Lodging Demand, an Opening Date in mid to late winter is recommended for the proposed hotel as Lodging Demand begins to increase in March with a stronger increase in May. This would correlate with the improvement of Lodging Demand in the subject market on a seasonal basis and the opportunity to maximize revenue prior to entering the softer, off-season months beginning in November. 72 HMI lnc. DISCLAIMER The decisions presented herein were based upon the information available and received at the time this report was compiled. Hospitality Marketers International, Inc., (HMI) has taken every possible precaution to evaluate this information for its completeness, accuracy and reliability. To the best of its knowledge, HMI feels the information and decisions presented herein are sound and reliable. 5415 S. Majors Drive Lastly, HMI assumes that those who receive this report act in accordance with its New Berlin, WI 53146 recommendations. Any deviation from these recommendations is solely the responsibility of those receiving this report. 10014 Majestic Avenue Fort Myers, FL 33913 Further questions concerning this report should be directed to HMI. 800-657-0835 Fax: 239-245-8161 Sincerely, HOSPITALITY MARKETERS INTERNATIONAL, INC. ry hiChospitaitmarketers.com 9z" F, W44& www.hospitalitymarketers.com Gregory R. Hanis, ISHC President Hotel Service Network Lindsey E. Kaptur Midwest Regional Director At the present time of this report, the United States and world economies are in the midst of a recovery from a major recessionary period that ran from 2008 - 2010. This recovery appears to be continuing according to current news reports with most Management economic indicators indicating growth since 2011. Research Marketing HMI is not responsible for effects that occur from future political, economic or social events that ultimately alter these projections. These events should be monitored accordingly and potentially the results of this report may require updating to respond to future events. Gregory R. Hanis, ISHc Also, it should be understood that normal economic and marketplace conditions President change constantly. HMI assumes no responsibility for information that becomes Rhanis@hospitatitvmarketers.com outdated once this report is written; nor is it responsible for keeping this information 262-490-5063 current after November, 2014. Member of It should be understood that the results presented in this report are the professional I S H C opinion of HMI and are based upon the information available at this time. 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Any deviation from these recommendations is solely the responsibility of those receiving this report. 10014 Majestic Avenue Fort Myers, FL 33913 Further questions concerning this report should be directed to HMI. 800-657-0835 Fax: 239-245-8161 Sincerely, HOSPITALITY MARKETERS INTERNATIONAL, INC. ry hiChospitaitmarketers.com 9z" F, W44& www.hospitalitymarketers.com Gregory R. Hanis, ISHC President Hotel Service Network Lindsey E. Kaptur Midwest Regional Director