J e ff Lugosi, M AI, C RE, F RICS, ISHC
Exec u tive Vice President | Pr actice Leader
CBRE Hotels Advisory
COMMERCIAL REAL ESTATE SERVICES
CBRE, Inc.
CBRE Hotels Advisory
400 South Hope Street, 25th Floor
Los Angeles, CA 90071
+1 213 613 3375 Office
[email protected]
www.cbrehotels.com
March 25, 2021
Paula J. Larmore, Esquire
Harding Larmore Kutcher & Kozal, LLP
1250 Sixth Street, Suite 200
Santa Monica, CA 90401
Email: [email protected]
Re: Economic and Fiscal Impact Analysis
Ocean Avenue Project
101 Santa Monica Boulevard, 129 Santa Monica Boulevard, 1327 Ocean Avenue, 1333 Ocean Avenue, and 1337 Ocean Avenue
Santa Monica, CA 90401
CBRE, Inc. File No. 20-414NH-0028
Dear Ms. Larmore:
Pursuant to your request, we have analyzed the economic and fiscal impact of the proposed Ocean Avenue Project (the “Project” or “Hotel”) to be located in Santa Monica, California under the jurisdiction of The City of Santa Monica. The conclusions reached are based on our present knowledge of local tax rates and visitor spending statistics, and a market analysis of the potential performance of the hotel project and its ancillary facilities.
We have analyzed the potential economic and fiscal impact of the Project to the City of Santa Monica based on the following development scenario:
• The proposed lodging component of the Project will represent a luxury hotel with 120 guestrooms, a 4,400-square-foot spa, 8,700 square feet of meeting space, a lobby lounge, an outdoor swimming pool with a pool deck, a pool bar, and ancillary facilities; • The Project will include 100 residential apartment units (including deed-restricted affordable units, replacement rent-controlled units, and market rate units); Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
• The Project will include approximately 36,110 square feet of leased retail and restaurant space on the ground floor;
• The Project will open in March of 2025; and,
• The Project will also include additional facilities and services, including an observation deck, 285 subterranean parking spaces, 231 long-term bicycle parking/storage spaces, and other minor departments to support the proposed facilities.
The scope of our work included an analysis of the following:
Market Analysis of the Potential Operating Performance
• Supply and Demand Analysis
• Projection of Operating Performance
Operational Phase (reoccurring annually)
• The flow of dollars through the economy into the City of Santa Monica attributable to hotel guest and resident spending induced by the project • The measurable taxes generated to the City of Santa Monica’s General Fund through the operations of the Ocean Avenue Project
• The number of jobs supported by the direct spending associated with the operations of the Project
It should be noted that our fiscal analysis was limited to direct revenues to the City of Santa Monica, as opposed to revenues collected and allocated by the State of California to the county, which provides additional revenue not detailed in this report.
The report was prepared for your internal use to assist you in analyzing the financial and economic impact of your development to the City of Santa Monica. As is customary in assignments of this type, neither our name nor the material submitted may be included in any prospectus or as part of any printed material or used in offerings or representations in connection with the sale of securities or participation interest to the public without prior written consent. We acknowledge that this report is being submitted to the City of Santa Monica as part of the development agreement application for the Project.
As in all studies of this type, the estimated results are based on competent and efficient management and presume no significant change in the status of the competitive lodging market from that as set forth in this report. The terms of our engagement are such that we have no obligation to revise our conclusions to reflect events or conditions that occur subsequent to the date Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
of completion of our fieldwork. However, we are available to discuss the necessity for revisions in view of changes in the economy or market factors impacting the competitive lodging market.
The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organization as a “Global Pandemic” on the 11th of March 2020, is causing heightened uncertainty in both local and global market conditions. Global financial markets have seen steep declines since late February largely on the back of the pandemic over concerns of trade disruptions and falling demand. Many countries globally have implemented strict travel restrictions and a range of quarantine and “social distancing” measures.
Market activity is being impacted in most sectors. As of the date of this report, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of potential future performance. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.
Our market analysis is, therefore, reported on the basis of ‘material uncertainty’. Consequently, less certainty – and a higher degree of caution – should be attached to our market analysis than would normally be the case. Performance may change more rapidly and significantly than during standard market conditions. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep this market analysis under frequent review.
This report is subject to the Statement of Assumptions and Limiting Conditions presented in the Addenda.
After you have had an opportunity to review this report, please feel free to contact us with any questions or comments. Thank you for the opportunity to work with you on this interesting engagement.
Yours sincerely,
CBRE Hotels Advisory
By: Jeff Lugosi
Executive Vice President | Practice Leader
[email protected]
Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
By: Brandon Feighner
Executive Vice President
[email protected]
By: Catherine Bolstad
Senior Vice President
[email protected]
Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
EXECUTIVE SUMMARY
INTRODUCTION
CBRE Hotels Advisory was formally retained by Ms. Paula Larmore of Harding Larmore Kutcher & Kozal, LLP to conduct an analysis of the economic and fiscal impact of the proposed Ocean Avenue Project to be located in Santa Monica, California, within the jurisdiction of The City of Santa Monica.
This report represents the culmination of our market research, analysis, and assessments relative to the proposed Project.
We have analyzed the economic and fiscal impact of a lodging development plan to include 120 guestrooms and 100 residential units. The development program evaluated is to also include appropriate supporting facilities, anticipated to include meeting space, a lobby lounge, pool-side bar, a spa, fitness facilities, retail, guest amenities, an observatory deck, and administrative space.
As discussed further in the Methodology section, our analysis does not include specific operating projections for the Cultural Uses Campus portion of the plan, which involves the preservation, relocation and adaptive use of two City-designated landmarks.
Our analysis is focused on presenting the economic and fiscal impact in a representative year of operation, stated in 2021 value dollars. In addition, we will also present a fiscal 25-year forecast for the Project beginning March 1, 2025, in line with the development timeline for the proposed Project. Our estimates of economic and fiscal impacts are based upon projected cash flows and operating levels for the proposed Hotel, residential, and ancillary facilities, as presented herein.
It should be noted that we obtained data regarding visitor levels, spending, and the Regional InputOutput Modeling System (RIMS), economic multipliers from Los Angeles County Economic Development Corporation (LAEDC), and the California Travel and Tourism Commission (CTTC) in order to complete our analysis and compile this report. The input data used to detail the fiscal impact on The City of Santa Monica taxes were derived from various local, state, and federal sources during this study.
In addition, it is important to note that our fiscal analysis of sales and use tax is limited to revenue generated from operations at the Ocean Avenue Project. This includes the leased retail and restaurant space. We have limited our analysis of fiscal impact to measurable on-site spending but with an understanding that the operations of the Ocean Avenue Project would include additional tax revenues from hotel visitor spending off-site. Accordingly, our analysis does reflect the economic impact associated with overnight hotel visitor spending outside of the Hotel.
Harding Larmore Kutcher & Kozal, LLP
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March 25, 2021
Summary of Findings
The following tables summarize our findings for a representative year and a 25-year fiscal period as noted herein. The Project is assumed to open on March 1, 2025. The representative year assumes a stabilized year of impact in 2021 value dollars. Please note that some calculations may not foot due to rounding.
TOTAL ANNUL ECONOMIC IMPACT
(BASED UPON A STABILIZED YEAR OF OPERATION, 2021 DOLLARS) Proposed Ocean Avenue
Project Hotel
Hotel Guests
Occupied Hotel Rooms 35,040
Double Occupancy Factor 1.4
Total Hotel Visitor Days 49,056
Total Visitor Spending $103,395,511
Multiplier 1.3
TOTAL ECONOMIC IMPACT Direct and Indirect $134,414,164
NUMBER OF JOBS SUPPORTED by Direct and Indirect Spending 999 Note: Numbers have been rounded.
Rooms Revenue $27,051,000
TOT Rate 14.00%
TOT Generated, Rounded $3,787,000
Direct Sales Revenue (Meals & Beverages, Non-Food Retail, Entertainment, Transportation, Other) $61,884,000
Tax Rate 1.75%
Sales and Use Tax Generated, Rounded $1,082,970
Real Estate Tax $3,715,000
(All components of the mixed-use Project) 14.00%
Property Taxes Generated to the City $520,100
Hotel Gross Revenue $41,875,000
Business Tax Rate1 $1.25
Business Tax Generated to the City, Rounded $52,000
Stabilized Utility Expense $708,000
Utility Tax (10%), Rounded $70,800
Stabilized Parking Revenue $1,086,000
Parking Tax (10%) $108,600
Total Measurable Tax Revenues to City of Santa Monica Local Agencies, Rounded $5,621,000
1 Tax equates to $75 for the first $60,000 in Gross Revenues plus $1.25 per additional $1,000 of Gross Revenues over $60,000.
(STABILIZED YEAR OF OPERATION, 2021 DOLLARS)
PROPOSED OCEAN AVENUE PROJECT
OPERATIONAL PHASE MEASURABLE TAX REVENUES
Harding Larmore Kutcher & Kozal, LLP
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• In a representative year, the proposed Hotel will have an estimated economic impact, which includes both direct and indirect visitor spending, of $134,414,000 (rounded). • The proposed Hotel is projected to have a direct fiscal impact to The City of Santa Monica of $5,621,000 (rounded) in a representative year, which includes revenues to the city from TOT, business license, utility, parking, sales, and property taxes. • It is estimated that 999 jobs will be supported annually by the direct and indirect spending associated with the proposed Project.
• Over a 25-year period beginning fiscal year 2025/26, the estimated fiscal impact of the proposed Project is approximately $229,619,000, while the economic impact is estimated to be approximately $3.94 billion.
The following tables present a 25-year projection of economic and fiscal impact associated with the proposed Ocean Avenue Project development.
For the reader’s clarification, the term “representative year” is utilized herein to note hypothetical current value dollars. A representative year illustrates the Project’s performance as if it were at a stabilized level of operations today, after the anticipated real growth in operating metrics, with all revenues and expenses expressed in current value dollars.
TOT
Sales and Use
Tax Utilities Business Parking
Property Tax
(Hotel)
Property Tax
(Non-Hotel) Total
2021 Rep Yr. $3,787,140 $1,082,970 $70,800 $52,344 $108,600 $223,580 $296,520 $5,621,954 2025/26 3,702,160 1,190,280 80,100 51,329 106,000 246,820 327,320 5,704,009 2026/27 4,254,180 1,253,827 82,500 58,953 121,800 251,720 333,900 6,356,880 2027/28 4,552,380 1,299,519 85,000 62,883 130,400 256,760 340,620 6,727,561 2028/29 4,684,820 1,338,511 87,500 64,733 134,300 261,940 347,480 6,919,284 2029/30 4,822,160 1,378,669 90,100 66,646 138,300 267,120 354,480 7,117,475 2030/31 4,969,440 1,420,017 92,800 68,669 142,500 272,440 361,620 7,327,486 2031/32 5,116,580 1,462,619 95,600 70,710 146,700 277,900 368,900 7,539,009 2032/33 5,273,520 1,506,498 98,500 72,863 151,100 283,500 376,320 7,762,300 2033/34 5,430,460 1,551,682 101,400 75,038 155,700 289,240 383,880 7,987,400 2034/35 5,592,440 1,598,233 104,500 77,280 160,300 294,980 391,580 8,219,313 2035/36 5,760,160 1,646,195 107,600 79,599 165,100 300,860 399,420 8,458,934 2036/37 5,932,920 1,786,175 110,800 81,986 170,100 306,880 407,400 8,796,261 2037/38 6,110,860 1,839,771 114,100 84,446 175,200 313,040 415,520 9,052,937 2038/39 6,294,120 1,894,966 117,500 86,980 180,500 319,340 423,780 9,317,186 2039/40 6,482,980 1,951,823 121,000 89,590 185,900 325,780 432,320 9,589,393 2040/41 6,677,440 2,010,370 124,600 92,278 191,500 332,360 441,000 9,869,548 2041/42 6,877,780 2,070,689 128,300 95,046 197,200 338,940 449,820 10,157,776 2042/43 7,084,140 2,132,810 132,100 97,898 203,100 345,660 458,780 10,454,487 2043/44 7,296,660 2,196,795 136,100 100,835 209,200 352,520 468,020 10,760,130 2044/45 7,515,620 2,262,694 140,200 103,860 215,500 359,520 477,400 11,074,794 2045/46 7,741,020 2,330,588 144,400 106,976 222,000 366,660 486,920 11,398,564 2046/47 7,973,280 2,400,491 148,700 110,185 228,700 373,940 496,720 11,732,016 2047/48 8,212,540 2,472,487 153,200 113,490 235,600 381,360 506,660 12,075,337 2048/49 8,458,940 2,546,659 157,800 116,895 242,700 388,920 516,740 12,428,654 2049/50 8,712,760 2,623,039 162,500 120,401 250,000 396,760 527,100 12,792,560 Total 25 Years $155,529,360 $46,165,408 $2,916,900 $2,149,566 $4,459,400 $7,904,960 $10,493,700 $229,619,294 *Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue
PROPOSED OCEAN AVENUE PROJECT
REPRESENTATIVE YEAR AND 25-YEAR PROJECTION OF REVENUES AND FISCAL IMPACT Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
Lastly, we present the incremental economic and fiscal impact (i.e. net of the existing economic and fiscal impact of the site and current improvements) of the proposed redevelopment in the following table.
Direct Indirect Total
2021 Rep Yr $103,395,511 $31,018,653 $134,414,164
2025/26 $72,197,724 $21,659,317 $93,857,041
2026/27 $82,962,509 $24,888,753 $107,851,261
2027/28 $88,777,789 $26,633,337 $115,411,125
2028/29 $91,360,763 $27,408,229 $118,768,992
2029/30 $94,039,403 $28,211,821 $122,251,224
2030/31 $96,909,375 $29,072,813 $125,982,188
2031/32 $99,779,347 $29,933,804 $129,713,151
2032/33 $102,840,650 $30,852,195 $133,692,845
2033/34 $105,901,953 $31,770,586 $137,672,539
2034/35 $109,058,922 $32,717,676 $141,776,598
2035/36 $112,330,689 $33,699,207 $146,029,896
2036/37 $115,700,610 $34,710,183 $150,410,793
2037/38 $119,171,628 $35,751,488 $154,923,117
2038/39 $122,746,777 $36,824,033 $159,570,810
2039/40 $126,429,180 $37,928,754 $164,357,934
2040/41 $130,222,056 $39,066,617 $169,288,672
2041/42 $134,128,717 $40,238,615 $174,367,333
2042/43 $138,152,579 $41,445,774 $179,598,353
2043/44 $142,297,156 $42,689,147 $184,986,303
2044/45 $146,566,071 $43,969,821 $190,535,892
2045/46 $150,963,053 $45,288,916 $196,251,969
2046/47 $155,491,945 $46,647,583 $202,139,528
2047/48 $160,156,703 $48,047,011 $208,203,714
2048/49 $164,961,404 $49,488,421 $214,449,825
2049/50 $169,910,246 $50,973,074 $220,883,320
Total 25 Years $3,033,057,248 $909,917,174 $3,942,974,423 25-YEAR DIRECT AND INDIRECT SPENDING
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TOT
Sales and Use
Tax Utilities Business Parking
Property Tax
(Hotel)
Property Tax
(Non-Hotel) Total
2021 Rep Yr $3,787,140 $768,880 $65,800 $29,284 $58,600 $190,000 $296,520 $5,196,104 2025/26 3,702,160 835,030 74,400 25,246 49,400 206,000 327,320 5,224,376 2026/27 4,254,180 887,920 76,600 32,088 63,500 223,000 333,900 5,862,907 2027/28 4,552,380 922,621 78,900 35,211 70,400 241,000 340,620 6,218,893 2028/29 4,684,820 950,309 81,200 36,231 72,500 261,000 347,480 6,395,480 2029/30 4,822,160 978,829 83,600 37,290 74,600 283,000 354,480 6,578,079 2030/31 4,969,440 1,008,172 86,100 38,431 76,900 306,000 361,620 6,772,104 2031/32 5,116,580 1,038,419 88,700 39,565 79,100 331,000 368,900 6,967,164 2032/33 5,273,520 1,069,575 91,400 40,784 81,500 358,000 376,320 7,173,599 2033/34 5,430,460 1,101,652 94,100 41,996 84,000 388,000 383,880 7,381,328 2034/35 5,592,440 1,134,711 97,000 43,248 86,400 420,000 391,580 7,595,358 2035/36 5,760,160 1,168,760 99,900 44,545 89,000 455,000 399,420 7,816,645 2036/37 5,932,920 1,294,425 102,900 45,881 91,700 493,000 407,400 8,135,106 2037/38 6,110,860 1,333,269 106,000 47,258 94,400 534,000 415,520 8,372,346 2038/39 6,294,120 1,373,256 109,200 48,675 97,300 578,000 423,780 8,616,671 2039/40 6,482,980 1,414,468 112,500 50,136 100,200 626,000 432,320 8,868,384 2040/41 6,677,440 1,456,898 115,800 51,640 103,200 678,000 441,000 9,127,338 2041/42 6,877,780 1,500,609 119,200 53,190 106,300 734,000 449,820 9,393,839 2042/43 7,084,140 1,545,615 122,700 54,785 109,500 795,000 458,780 9,668,180 2043/44 7,296,660 1,591,978 126,400 56,429 112,800 861,000 468,020 9,950,807 2044/45 7,515,620 1,639,729 130,200 58,121 116,200 932,000 477,400 10,241,790 2045/46 7,741,020 1,688,933 134,100 59,865 119,700 1,009,000 486,920 10,541,198 2046/47 7,973,280 1,739,586 138,100 61,660 123,300 1,092,000 496,720 10,849,586 2047/48 8,212,540 1,791,754 142,300 63,509 127,000 1,182,000 506,660 11,167,123 2048/49 8,458,940 1,845,504 146,600 65,414 130,800 1,279,000 516,740 11,493,917 2049/50 8,712,760 1,900,849 151,000 67,375 134,700 1,384,000 527,100 11,830,544 Total 25 Years $155,529,360 $33,212,870 $2,708,900 $1,198,573 $2,394,400 $15,649,000 $10,493,700 $212,242,763
PROPOSED OCEAN AVENUE PROJECT
*Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue Incremental (Net) Fiscal Impact
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March 25, 2021
METHODOLOGY
ECONOMIC IMPACT METHODOLOGY
The total economic impact of the proposed development in the City of Santa Monica consists of direct spending by hotel guests that includes lodging, food and beverage, souvenirs, attractions, transportation, and incidentals, as well as indirect spending. Indirect spending is a function of monies spent by visitors in area businesses, which in turn these businesses utilize to operate and spend on other items. We have applied our economic analysis to the operational phase of the development. In addition to this impact, the proposed development will create additional impact such as jobs and spending during the construction phase, which we have not incorporated into this analysis.
Projected Operating Performance
We have estimated the supply and demand for hotel room nights and have estimated the share of the market that the proposed Hotel should reasonably be expected to capture for its first five years of operation.
Based on our analysis of market demand and the estimated occupancy and average daily room rates for the proposed Hotel, we have estimated revenues and expenses for the Hotel for its first ten years of operation. These estimates result in a “bottom line” of income before fixed charges of interest, depreciation, amortization, and income taxes.
We have utilized these projections as the basis for the economic impact. The economic impact projections include an allocation for spending on entertainment. It should be noted that we have not developed specific operating projections for the Cultural Use Campus component, which is proposed to include a museum, gallery, and event space, given that it is in the concepting phase, but we have factored in visitor spending within entertainment. Given the anticipation that the museum (and the project as a whole) will have an international appeal given its world class architect, our projections in this regard should be understood as conservative in nature. The Hotel operating projections also serve as the basis for fiscal impact, which also includes real estate tax from the residential component.
Operational Phase Economic Impact
The methodology used to determine the economic impact of the operational phase of the Project in the City of Santa Monica includes an estimation of visitor spending within the different categories.
This allocation of visitor spending is performed by taking the overall hotel visitor spending data for The City of Santa Monica and applying it to the average daily rate and number of occupied rooms of the proposed Project. We have also analyzed the number of jobs directly supported by this visitor Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
spending utilizing Regional Travel Impact Model (RTIM) developed by Dean Runyan Associates, Inc. and information from their California Travel Impacts by County report prepared for Visit California.
FISCAL IMPACT METHODOLOGY
Fiscal impact is the amount of tax revenue generated directly to the City of Santa Monica by spending within the hotel and by hotel operations. This includes an estimation of the associated tax revenues (transient occupancy tax, sales and use tax, and property tax) generated during a representative year (2021) and a 25-year period for the proposed development from its projected opening in March of 2025. This net result is the fiscal impact to the City of Santa Monica. Please note, this reflects the fiscal impact generated directly by the proposed Project and does not factor in fiscal impacts created by spending outside the project except as noted.
ASSUMPTIONS AND CONDITIONS OF THE STUDY
It should be noted that our economic impact analysis is limited to overnight visitors who stay in the City of Santa Monica at the Hotel, as well as those tenants residing in the residential units of the Project, and does not incorporate day visitors that come to the area due to the new facilities and positioning of the Project.
DEFINITIONS
Hotel/Motel Guests - those overnight visitors who stay at lodging facilities in The City of Santa Monica. The primary purpose of their visits to the city varies and includes leisure, convention, business, and self-contained groups.
Multiplier - a means to determine the indirect economic benefits of visitor expenditures in a community, such as spending by hotels and restaurants and their employees. The multiplier is applied to direct spending by visitors to measure the total flow of visitor dollars through the economy.
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SITE AND PROJECT DESCRIPTION
SITE DESCRIPTION
The proposed Project will be located at the corner of Ocean Avenue and Santa Monica Boulevard with physical addresses of 101 Santa Monica Boulevard, 129 Santa Monica Boulevard, 1327 Ocean Avenue, 1333 Ocean Avenue, and 1337 Ocean Avenue, Santa Monica, California 90401.
The site encompasses 82,569-square feet (1.89 acres). Based on our assessment, the identified site located in the Downtown District of the City of Santa Monica is deemed to benefit from an excellent location with respect to access, visibility, and proximity to local sources of demand and nearby amenities. Overall, we are of the opinion that the long-term strategic potential for the proposed Project is also considered to be excellent. A regional map and aerial view of the Project site are presented on the follow pages.
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REGIONAL MAP
Subject Site
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AERIAL VIEW
Subject Site
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PROJECT DESCRIPTION
The development will represent architecture by highly acclaimed Frank Gehry and his established practice, Gehry Partners, LLP. Proposed developments for the Project include a hotel; residential apartments; cultural uses; a publicly accessible rooftop observation deck; restaurant and retail uses; open space; and a three-level subterranean parking garage to accommodate up to 285 vehicles and long-term bicycle parking/storage (231 spaces). Specifically, the proposed development would provide 122,400 square feet for the 120-room Hotel, including 8,700 square feet of meeting facilities and a 4,400-square-foot spa. The residential component of the Project will feature 100 units comprised of deed-restricted affordable units, replacement rent-controlled units, and market-rate units. Approximately 36,110 square feet of restaurant and retail uses are proposed to be developed (including outdoor dining areas), as well as a 35,500-square-foot Cultural Use Campus, which incorporates two City-designated landmarks and we understand will include a museum, gallery, and event space.
Our analysis assumes that the proposed Hotel will represent a 120-room luxury-tiered lodging property inclusive of ancillary support amenities to be open by March 1, 2025. Additionally, our projections assume the development of the proposed ground floor restaurant and retail developments, as well as the Cultural Use Campus, will be completed by March 1, 2025. This development timeline is in line with the timeline proposed by the developer.
Furthermore, our analysis assumes the proposed Hotel would be operated as a luxury, boutique lodging property with a “soft brand” affiliation, which would provide access to a central reservation system and global distribution system. Furthermore, our projections for the proposed Hotel assume a professional management company would be retained to operate the 120-room luxury Hotel at a market-level management fee (3.0 percent of projected gross revenues).
Architectural renderings of the Ocean Avenue Project are presented on the following pages. Floor plans and additional renderings for the proposed Project are included in the EIR Submission provided in the Addenda of this report.
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ARCHITECTURAL RENDERING
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ARCHITECTURAL RENDERING
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HOTEL MARKET ANALYSIS
NATIONAL MARKET OVERVIEW
In addition to our advisory and valuation group, our Firm contains a research division, CBRE Hotels’ Americas Research (“CBRE Hotels’ Research”). CBRE Hotels’ Research owns the database for Trends® in the Hotel Industry, the statistical review of U.S. hotel operations, which first appeared in 1935 and has been published every year since. Beginning in 2007, CBRE Hotels’ Research unveiled its powerful Hotel Horizons®, an economics-based hotel forecasting model that projects five years of supply, demand, occupancy, ADR, and revenue per available room (“RevPAR”) for the U.S. lodging industry with a high degree of accuracy. Hotel Horizons® reports are published on a quarterly basis for 60 markets and six national chain-scales.
As a result of the COVID-19 Pandemic, the December 2020 – February 2021 National Edition of Hotel Horizons® publication prepared by CBRE Hotels’ Research reported that the U.S. lodging sector has been negatively impacted by two headwinds in 2020: a contraction in overall economic activity and the need for social distancing. Accordingly, CBRE anticipates a 36.2 percent reduction in the number of occupied room nights occupied in 2020 compared to 2019. The resulting 37.4 percent decrease in occupancy combined with a forecasted 21.5 percent decrease in average daily room rate (ADR), results in a projected annual decline in revenue per available room (RevPAR) of
50.9 percent through year-end 2020.
Based on CBRE’s current forecast, the pace of decelerating occupancy, ADR, RevPAR, and demand begins to lessen in the coming months. By Q2 2021, CBRE anticipates year-over-year growth in the top line revenue performance of the U.S. lodging sector. The expected declines in RevPAR will be more severe than those experienced in the 2001 and 2009 economic downturns combined.
However, given the expected quick rebound in economic growth and historic resiliency of travel demand, CBRE is forecasting a strong hotel revenue recovery in 2021 and 2022, with the anticipation that RevPAR could recover to pre-pandemic levels by 2024.
The CBRE Hotels’ Research baseline scenario forecast, which outlines the impact that COVID-19 is projected to have on hotels throughout the nation, is presented in the following table.
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REGIONAL LODGING MARKET OVERVIEW
In addition to publishing quarterly Hotel Horizons® reports for the nation, CBRE Hotels’ Research also publishes reports on a quarterly basis for 65 national hotel markets (“MSA’s”), including the Los Angeles-Long Beach MSA market. The Los Angeles Edition of Hotel Horizons® MSA includes more than 103,000 hotel rooms throughout the geographic areas encompassing Hollywood/Beverly Hills; Long Beach; the Central Business District; the Los Angeles International Airport district; the East, North, and Southeast districts; Pasadena/Glendale/Burbank; Santa Monica/Marina Del Rey; and the South Bay district.
Based on the December 2020 – February 2021 Edition of Hotel Horizons®, RevPAR for the MSA increased by 0.2 percent in 2019 over prior year levels, attributable to a modest increase in accommodated demand. RevPAR for this market is projected to decline by 55.2 percent through year-end 2020 based on data ending Q3 2020. Consistent with the current forecasts for the performance of the overall U.S. lodging market, it is anticipated that the Los Angeles MSA lodging market will achieve RevPAR levels in line with those experienced in 2019 by 2024 with significant gains expected in the coming years as vaccines become more widely distributed.
The CBRE Hotels’ Research baseline scenario forecast, which outlines the impact that COVID-19 is projected to have on hotels throughout the Los Angeles-Long Beach MSA, is presented below.
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As the proposed Hotel will represent a luxury property, we have also provided the historical performance and CBRE’s projected baseline COVID-19 performance for the luxury segment of hotels throughout the United States, as noted below. As can be seen, RevPAR for this segment of hotels is projected to have decreased by 67.4 percent through year-end 2020, with gains of 46.1 percent and 48.7 percent in 2021 and 2022, respectively. Between 2023 and 2024, RevPAR is projected to return to 2019 levels.
Therefore, as seen in the preceding data sets, the national, regional and luxury hotel markets are projected to be materially impacted in the short to mid-term, although all indications are that markets will have returned to pre-COVID-19 levels before or well before the proposed Hotel opens its doors to guests.
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Ocean Avenue Project
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COMPETITIVE LODGING MARKET OVERVIEW
In order to identify the competitive market for the proposed Hotel, we have analyzed the greater Santa Monica hotel market as well as the luxury West Los Angeles market and selected a competitive supply based on location; size; facilities and amenities; brand and affiliation; rate structure; and market orientation.
The following table summarizes the identified competitive set for the proposed Hotel. This table presents the luxury hotel set for Santa Monica and West Los Angeles and represents an appropriate competitive set based on the proposed facilities and anticipated very high quality level of the Project.
PROPOSED OCEAN AVENUE PROJECT
Summary of the Competitive Lodging Market
Hotel Location Rooms Open Date
Chain
Scale
Dorchester Collection Hotel Bel Air Los Angeles, CA 103 Jun 1946 Luxury Dorchester Collection Beverly Hills Hotel Beverly Hills, CA 210 Jun 1912 Luxury Waldorf Astoria Beverly Hills Beverly Hills, CA 170 Jun 2017 Luxury The Peninsula Beverly Hills Beverly Hills, CA 195 Aug 1991 Luxury Fairmont Miramar Santa Monica, CA 302 Jun 1921 Luxury
Oceana Santa Monica Santa Monica, CA 70 Jun 1957 Luxury Shutters On The Beach Santa Monica, CA 198 Jun 1993 Luxury Casa Del Mar Santa Monica, CA 129 May 1926 Luxury
Total 1,377
Source: STR, Inc.
A map of the competitive supply is presented below, followed by the historical aggregate performance of these properties.
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COMPETITIVE MARKET MAP
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ADDITIONS TO SUPPLY
It should be noted that the City of Santa Monica has experienced very few new luxury hotel openings in the last few decades. The 175-room JW Marriott Santa Monica Le Merigot opened in November of 1999 and, more recently, the 271-room Santa Monica Proper Hotel opened in June of 2019.
The JW Marriott Santa Monica Le Merigot and the Santa Monica Proper Hotel have been excluded from our supply and demand analysis for the Hotel as they are not deemed to be directly competitive due to their location and/or positioning within the market. Given the lack of new development sites and high barriers to entry, this development trend is anticipated to continue well into the future.
Based on discussions with planning representatives in the greater Santa Monica area, as well as interviews with hoteliers active in this area, we have not identified any planned additions to the competitive supply. As noted in the competitive supply table previously presented, the most recent addition to the identified competitive set is the 170-room Waldorf Astoria Beverly Hills, which is located in the City of Beverly Hills.
It should be noted that there are numerous other hotel projects that have been proposed, approved, or are currently under construction throughout the greater Los Angeles MSA lodging market. Many of these projects are either highly speculative at this point in time or will differ from the proposed Hotel with regard to location and/or positioning. Accordingly, they have been excluded from our analysis.
HOTEL ROOMS DEMAND
Demand for hotel rooms is categorized in three ways:
• Demonstrated Demand: the demand already captured at competitive hotels; • Induced Demand: the demand that does not presently seek accommodations in the competitive market, but could be persuaded to do so through marketing efforts, room rates, facilities, services and amenities; and,
• Unsatisfied Demand: the demand that seeks accommodations in the market but is not satisfied due to one of a number of factors: sell-outs; lack of a particular type of accommodation; lack of meeting space; or high room rates.
HISTORICAL PERFORMANCE OF THE COMPETITIVE SUPPLY
Presented in the following table is a summary of the historical supply and demand and the resulting occupancy percentages for the identified competitive market for the period 2012 to 2019 as well Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
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as through year-to-date (YTD) April 2019 and 2020. Also included are the competitive market’s average daily rate (ADR) and revenue per available room (RevPAR) figures. RevPAR is an industry standard which equates to the total revenue generated by available rooms and thereby measures the operational success of a market or individual property.
HISTORICAL MARKET PERFORMANCE OF THE COMPETITIVE SUPPLY Annual Percent Occupied Percent Market Average Percent Percent Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2012 439,095 N/A 342,969 N/A 78.1% $539.17 N/A $421.13 N/A 2013 439,429 0.1% 352,529 2.8% 80.2% 578.30 7.3% 463.94 10.2% 2014 439,460 0.0% 349,411 -0.9% 79.5% 624.52 8.0% 496.55 7.0% 2015 439,552 0.0% 350,072 0.2% 79.6% 657.88 5.3% 523.95 5.5% 2016 439,825 0.1% 356,319 1.8% 81.0% 692.78 5.3% 561.25 7.1% 2017 476,205 8.3% 378,879 6.3% 79.6% 724.49 4.6% 576.42 2.7% 2018 500,373 5.1% 402,907 6.3% 80.5% 765.95 5.7% 616.75 7.0% 2019 488,110 -2.5% 371,465 -7.8% 76.1% 788.05 2.9% 599.73 -2.8% CAAG/Avg. 1.5% 1.1% 79.3% 5.6% 5.2%
YTD 4/19 156,240 N/A 124,999 N/A 80.0% 780.30 N/A 624.27 N/A YTD 4/20 145,920 -6.6% 73,251 -41.4% 50.2% 771.11 -1.2% 387.09 -38.0% Source: CBRE Hotels Advisory
• As can be noted from the table above, supply in the competitive market has increased at a compound annual growth rate (CAAG)of 1.5 percent between 2012 and 2019. This supply increase is attributable to the opening of the 170-room Waldorf Astoria Beverly Hills in June of 2017, as well as fluctuations in room inventory at other identified competitive properties.
Through YTD April 2020, supply decreased by 6.6 percent over prior year levels. This decline is largely a result of the aforementioned COVID-19 Pandemic, which resulted in temporary closures of hotels, including the Fairmont Miramar, Casa Del Mar, and Shutters on the Beach.
• The average annual occupancy for these eight hotels was 79.3 percent over the past eight years, ranging from a low of 76.1 percent in 2019 to a high of 81.0 percent in 2016. The decline in accommodated demand experienced between 2018 and 2019 is largely a result of ongoing renovations at several of the competitive hotels. Through YTD April 2020, occupancy decreased significantly from 80.0 percent to 50.2 percent, due to the impact of the COVID-19 Pandemic. The decrease in occupancy experienced through YTD April 2020 is consistent with the performance of the overall U.S. hotel market and the greater Los Angeles-Long Beach MSA lodging market.
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• RevPAR for the competitive market increased at a CAAG of 5.2 percent over this historical period, increasing by a total of approximately $179. Those hotels that have historically achieved the highest RevPAR levels within the competitive set are the 210-room Dorchester Collection Beverly Hills Hotel, the 170-room Waldorf Astoria Beverly Hills, and the 195- room Peninsula Beverly Hills.
MIX OF DEMAND
The demand captured by the competitive supply is derived primarily from the transient commercial and leisure demand segments followed by the group travelers. The following table summarizes the estimated 2019 mix of demand for the competitive supply.
COMPETITIVE MARKET
2019 ESTIMATED MIX OF DEMAND
Market Segment Room Nights Ratio
Transient 297,100 80%
Group 74,300 20%
Total 371,400 100%
Source: CBRE Hotels Advisory
Using the historical growth in the market as a base and taking into account the current demonstrated and future projected economic conditions, we have estimated future growth in market demand. Each market segment is discussed in the following paragraphs, followed by a summary table setting forth our estimated growth in demand by market segment and overall.
Transient Segment
As outlined in the previous table, transient demand represents the single largest demand source for the competitive supply, with an estimated approximately 80.0 percent of the total occupied rooms in 2019. This equates to approximately 297,100 room nights of captured demand in the competitive set. The transient segment is comprised of both commercial and leisure demand.
The commercial demand in the competitive market generally is derived from conventional commercial demand, generated largely by the financial services, real estate, and law firms located in Santa Monica, Beverly Hills, Century City, Westwood, and West Los Angeles. These travelers appear to select hotels based on the proximity of the property to their office or place of business and usually have a shorter length of stay.
Additionally, this competitive market also has strong demand from entertainment-related businesses. The demand from entertainment and creative industries is generated by the motion picture, recording and related technology, advertising and design and fashion industries.
Historically, Santa Monica was host to the American Film Market which generated thousands of hotel room nights within the local market. While the pandemic has temporarily paused a significant Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
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portion of this industry, we anticipate that similar events return to the local market over the mid- to long-term, given large and growing number of companies and facilities in the area. Entertainmentrelated commercial travelers appear to select a hotel based on its location relative to area amenities such as restaurants and shopping or location and setting rather than its proximity to the company’s office. The entertainment and creative industry traveler typically has a longer length of stay.
The leisure portion of this segment consists of leisure travelers to and within Southern California for mostly recreational reasons. This segment is comprised of both domestic weekend travelers, as well as international travelers.
Group Segment
The group market is estimated to have represented approximately 20 percent of the market demand for the competitive supply in 2019 with approximately 74,300 group room nights. Within the competitive market, the group segment comprises various types of group demand categorized as follows:
• Traditional group business, such as executive corporate meetings and other high-end retreats; and,
• Catering-based social group business, such as wedding parties, which primarily utilize the hotels during weekends.
As previously discussed, the COVID-19 Pandemic has caused a negative impact on the overall U.S. lodging sector. A contraction in overall economic activity and the need for social distancing has resulted in unprecedented declines in occupancy, ADR, and, subsequently, RevPAR growth rates throughout all 65 major markets tracked by CBRE Hotels’ Research.
Hotels located within the Los Angeles-Long Beach MSA are projected to have experiences a decline in demand of 40.0 percent through year-end 2020, with increases of 33.4 percent, 19.1 percent, and 6.8 percent projected for 2021, 2022, and 2023, respectively. For the identified competitive market, we project accommodated demand to have decreased by approximately 48 percent through year-end 2020. We project the competitive market to experience increases of 50.3 percent in 2021, 22.4 percent in 2022, and 7.7 percent in 2023.
SUMMARY OF DEMAND GROWTH AND MARKET OCCUPANCIES
Based on the foregoing analysis, future demand growth is projected to be driven by increases in commercial, leisure, and group room nights. Although both supply and demand are expected to continue to grow, we have estimated a stabilized market occupancy of 80.0 percent over the longterm, in line with the average annual occupancy level achieved by the competitive market between 2012 and 2019 (79.3 percent). While the market will perform at occupancies above and below Harding Larmore Kutcher & Kozal, LLP
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this level, the stabilized occupancy is based on the historical performance of the competitive market, as well as the market orientations of the individual properties. As is shown in the following table, the market is projected to achieve this rate by 2027 and remain at this level for the duration of the projection period. Given the attractiveness of the current supply and destination, and the projected levels of unsatisfied demand present in the marketplace, we do not anticipate that future additions will materially impact the aggregate market occupancy.
The following table illustrates the projected growth in supply and demand for the projection period through 2029.
ESTIMATED MARKET PERFORMANCE OF THE SUBJECT HOTEL
Penetration Analysis
Our estimates of occupancy are based on our survey of competitive hotels, an analysis of the segmentation of demand in the market area and our assessment of the proposed property’s market position. The “penetration rate” of a hotel is the percentage of room nights captured relative to the property’s “fair share.” The hotel's “fair share” is determined by dividing the subject property’s number of guestrooms by the total number of guestrooms in the competitive market (including the subject property). Factors indicating that a hotel would possess competitive advantages suggest a market penetration in excess of 100 percent of fair market share, while competitive weaknesses
PROPOSED OCEAN AVENUE PROJECT
Competitive Market
Estimated Future Growth in Lodging Supply and Demand
2019 - 2029
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
ROOMS SUPPLY 1,371
Cumulative Rooms Supply 1,337 1,206 1,377 1,377 1,377 1,377 1,477 1,497 1,497 1,497 1,497 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Annual Rooms Supply 488,005 440,190 502,605 502,605 502,605 502,605 539,105 546,405 546,405 546,405 546,405 Growth Over the Prior Year -2.5% -9.8% 14.2% 0.0% 0.0% 0.0% 7.3% 1.4% 0.0% 0.0% 0.0%
DEMONSTRATED DEMAND IN BASE YR
Transient 297,097 80%
Group 74,274 20%
--------- ---------
TOTAL DEMONSTRATED DEMAND 371,372 100%
--------- ---------
PROJECTED DEMAND
Transient
Demonstrated 297,097 178,258 267,388 320,865 346,534 356,930 367,638 386,393 397,984 409,924 422,222 Induced/(Unsatisfied) 0 0 0 0 0 0 7,500 0 (1,520) (13,460) (25,758) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 297,100 178,300 267,400 320,900 346,500 356,900 375,100 386,400 396,500 396,500 396,500 Growth Over Prior Year N/A -40.0% 50.0% 20.0% 8.0% 3.0% 5.1% 3.0% 2.6% 0.0% 0.0% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Group
Demonstrated 74,274 14,855 23,025 34,538 36,264 37,352 38,473 39,627 40,816 42,040 43,302 Induced/(Unsatisfied) 0 0 0 0 0 0 0 0 (156) (1,380) (2,642) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 74,300 14,900 23,000 34,500 36,300 37,400 38,500 39,600 40,700 40,700 40,700 Growth Over Prior Year N/A -79.9% 54.4% 50.0% 5.2% 3.0% 2.9% 2.9% 2.8% 0.0% 0.0% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Market Demand 371,400 193,200 290,400 355,400 382,800 394,300 413,600 426,000 437,200 437,200 437,200 Growth Over Prior Year N/A -48.0% 50.3% 22.4% 7.7% 3.0% 4.9% 3.0% 2.6% 0.0% 0.0% Market Occupancy 76% 44% 58% 71% 76% 78% 77% 78% 80% 80% 80% Source: CBRE Hotels Advisory
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are reflected in penetration rates of less than 100 percent. However, other factors besides competitive weaknesses could result in penetrations of less than 100 percent. The actual penetration of each market segment by the proposed property may deviate from fair market share for the following reasons:
• The competitive advantages or disadvantages of the subject Hotel versus the competition taking into consideration such factors as location, room rate structure, quality and extent of amenities offered, chain affiliation, quality of management, marketing efforts, image, and the hotel’s world-class architecture;
• The characteristics, composition and needs of each market segment; • The restraint on demand captured due to capacity constraints during certain periods of the week or season, or due to the accommodation of certain market segments; and, • Management decisions concerning target markets.
The proposed Hotel will be one the newest property in the competitive set as well as in Santa Monica upon its opening, with a luxury hotel positioning and extensive amenities and facilities. Estimated occupancy levels for the proposed Hotel have been projected on the basis of a penetration analysis.
Our estimate of the Hotel’s performance utilizes a March 1, 2025 opening date.
Penetration of the Subject Hotel
Due to its location in Santa Monica, as well as its Frank Gehry design; anticipated luxury positioning; proposed facilities; unique amenities such as the museum and observation deck; restaurant offerings; terraces; spa and fitness center; as well as its premier oceanfront location in the heart of Downtown Santa Monica; the proposed Hotel is expected to penetrate the competitive market at 89 percent in its first year of operation, increasing to a stabilized penetration level of 100 percent by 2027. On a stabilized basis, we project the proposed Hotel to capture approximately 84 percent of its demand from the transient market segment with the balance of demand captured from the group market segment.
The following table presents our projection of occupancy and penetration for the proposed Hotel for its first five years of operation.
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PROPOSED OCEAN AVENUE PROJECT
Market Penetration and Projected Occupancy
2025 2026 2027 2028 2029
TOTAL ROOMS AVAILABLE
PROPOSED OCEAN AVENUE PROJECT 36,500 43,800 43,800 43,800 43,800 Competitive Market 539,105 546,405 546,405 546,405 546,405 ==== ==== ==== ==== ====
Fair Share of Supply 6.8% 8.0% 8.0% 8.0% 8.0%
==== ==== ==== ==== ====
ESTIMATED TOTAL MARKET DEMAND
Transient 375,100 386,400 396,500 396,500 396,500
Group 38,500 39,600 40,700 40,700 40,700
------- ------- ------- ------- -------
TOTAL 413,600 426,000 437,200 437,200 437,200
------- ------- ------- ------- -------
FAIR SHARE OF DEMAND
Transient 25,400 31,000 31,800 31,800 31,800
Group 2,600 3,200 3,300 3,300 3,300
------- ------- ------- ------- -------
TOTAL 28,000 34,200 35,100 35,100 35,100
------- ------- ------- ------- -------
SUBJECT PENETRATION
Transient 88% 92% 92% 92% 92%
Group 95% 145% 175% 175% 175%
------- ------- ------- ------- -------
ROOM NIGHTS CAPTURED
Transient 22,300 28,500 29,200 29,200 29,200
Group 2,500 4,600 5,700 5,700 5,700
------- ------- ------- ------- -------
TOTAL CAPTURED DEMAND 24,800 33,100 34,900 34,900 34,900 ==== ==== ==== ==== ====
MARKET SHARE CAPTURED 6.0% 7.8% 8.0% 8.0% 8.0%
OVERALL MARKET PENETRATION 89% 97% 100% 100% 100%
------- ------- ------- ------- -------
SUBJECT OCCUPANCY 68% 76% 80% 80% 80%
------- ------- ------- ------- -------
MARKET MIX
Transient 90% 86% 84% 84% 84%
Group 10% 14% 16% 16% 16%
------- ------- ------- ------- -------
TOTAL 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
Source: CBRE Hotels Advisory
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AVERAGE DAILY RATE
Competitive Market
We have also estimated the average daily rate (ADR) of the competitive market based upon our analysis of the historical rates achieved, interviews with management of the competitive properties, the anticipated impact of the new supply, including the proposed Hotel, entering the market, and the changing economic conditions.
As a result of the COVID-19 Pandemic, ADR for upper-priced hotels located within the greater Los Angeles-Long Beach MSA is projected to decrease by 24.0 percent in 2020, with annual increases of between 4.4 percent and 18.9 percent projected between 2021 and 2023. For the competitive market, ADR is projected to decease by 19.3 percent through year-end 2020. In 2021, ADR is projected to increase by 9.9 percent, tapering to 5.0 percent in 2022. Thereafter, ADR is projected to increase by 3.0 percent per annum, in line with the assumed long-term rate of inflation.
Based on the foregoing analysis, the following table summarizes our estimates of future supply, accommodated demand, occupancy, average daily rate, and RevPAR for the competitive market from 2020 to 2029.
PROJECTED MARKET PERFORMANCE OF THE COMPETITIVE SUPPLY
Annual Percent Occupied Percent Market Average Percent Percent Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2020 440,190 -9.8% 193,200 -48.0% 44% $636.00 -19.3% $279.14 -53.5% 2021 502,605 14.2% 290,400 50.3% 58% 699.00 9.9% 403.88 44.7% 2022 502,605 0.0% 355,400 22.4% 71% 734.00 5.0% 519.02 28.5% 2023 502,605 0.0% 382,800 7.7% 76% 756.00 3.0% 575.79 10.9% 2024 502,605 0.0% 394,300 3.0% 78% 779.00 3.0% 611.14 6.1% 2025 539,105 7.3% 413,600 4.9% 77% 807.00 3.6% 619.13 1.3% 2026 546,405 1.4% 426,000 3.0% 78% 833.00 3.2% 649.44 4.9% 2027 546,405 0.0% 437,200 2.6% 80% 858.00 3.0% 686.52 5.7% 2028 546,405 0.0% 437,200 0.0% 80% 883.00 2.9% 706.52 2.9% 2029 546,405 0.0% 437,200 0.0% 80% 910.00 3.1% 728.13 3.1% CAAG 0.3% 1.4% 3.0% 4.1%
Source: CBRE Hotels Advisory
Average Daily Rate and Yield for the Subject
Our derivation of the average daily rate for the proposed Hotel in a stabilized year of operation is based on the historical average daily rates achieved by the market and information concerning the other hotel properties in the competitive supply. Considerations were also given to the comparison Harding Larmore Kutcher & Kozal, LLP
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of the other competitive properties with the proposed Hotel in terms of quality of facility, location, and mix of demand.
As discussed herein, the Subject Hotel is anticipated to be a high-quality, luxury hotel with an attractive design. Further, the Subject Hotel is planned to offer attractive and desirable facilities and amenities in an increasingly sophisticated market, including a museum and observation deck.
Therefore, we have estimated that the Subject Hotel will achieve an opening average daily rate of $772 stated in 2021 value dollars. In consideration of the proposed amenities and facilities of the proposed Hotel, as well as its expected positioning in the market, we find this rate reasonable, placing the Subject Hotel below the competitive market average but within the range of the properties in the competitive set. ADR for the proposed Subject Hotel is projected to increase in line with our market projections, resulting in an ADR of $870 in its first calendar year of operation (2025).
The following table outlines our estimates of average daily rate and the resulting revenue yield for the Subject Hotel. It should be noted that figures are rounded to the nearest dollar amounts.
PROJECTED MARKET PERFORMANCE OF THE SUBJECT HOTEL
Annual Percent Occupied Percent Occupancy Average Percent Percent Market Revenue Year Supply Change Rooms Change Percentage Daily Rate Change REVPAR Change Penetration Yield 2025 36,500 N/A 24,800 N/A 68% $870.00 3.0% $591.12 N/A 89% 96% 2026 43,800 20.0% 33,100 33.5% 76% 896.00 3.0% 677.11 14.5% 97% 105% 2027 43,800 0.0% 34,900 5.4% 80% 923.00 3.0% 735.45 8.6% 100% 107% 2028 43,800 0.0% 34,900 0.0% 80% 950.00 3.0% 756.96 2.9% 100% 107% 2029 43,800 0.0% 34,900 0.0% 80% 979.00 3.0% 780.07 3.1% 100% 107% 2030 43,800 0.0% 34,900 0.0% 80% 1,008.00 3.0% 803.18 3.0% 100% 107% CAAG 4.7% 8.9% 3.0% 7.2%
Source: CBRE Hotels Advisory
The analysis below is based on a fiscal year beginning on March 1, 2025. Accordingly, we must convert the calendar year forecast into fiscal year periods. To accomplish this for the first fiscal year 2025/26, we have taken a weighted average of ten months for calendar year 2025 and two months for calendar year 2026 to derive the fiscal year projection. We have then performed this analysis for each subsequent fiscal year. In doing so, it is our calculation that, for the first fiscal year, the proposed Hotel will achieve an occupancy of 69 percent with a corresponding ADR of $875. We have presented our projections of the occupancy and ADR for the Subject Hotel for the fiscal year period 2025/26 to 2035/36 in the following table.
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CONVERSION TO FISCAL YEAR OCCUPANCY AND ADR INPUT
Annual Rooms Inflated
Year Available Occupied Occupancy ADR
2025/26 43,800 30,222 69.0% $875.00
2026/27 43,800 33,726 77.0% 901.00
2027/28 43,800 35,040 80.0% 928.00
2028/29 43,800 35,040 80.0% 955.00
2029/30 43,800 35,040 80.0% 983.00
2030/31 43,800 35,040 80.0% 1,013.00
2031/32 43,800 35,040 80.0% 1,043.00
2032/33 43,800 35,040 80.0% 1,075.00
2033/34 43,800 35,040 80.0% 1,107.00
2034/35 43,800 35,040 80.0% 1,140.00
2035/36 43,800 35,040 80.0% 1,174.00
Although it is possible that the proposed Hotel will experience growth in occupancy and ADR above those estimated in the report, it is also possible that sudden economic downturns, unexpected additions to supply, or other external factors will force the property below the selected point of stability. Consequently, the estimated occupancy and ADR levels are representative of the most likely potential operations of the Subject Hotel over the projected holding period based on our analysis of the market as of the date of this report.
PROJECTIONS OF THE PROPOSED PROJECT PERFORMANCE
To prepare estimates of future operating results for the proposed Hotel and other components of the Project, a basis is to best estimate the results that could be achieved with competent management in a representative year or stabilized year of operation, calculated in 2021 dollars.
We estimate that during a representative year, the Hotel could achieve a stabilized occupancy of 80 percent at an average daily room rate of $772, stated in 2021 dollars. From this base, we considered the effects of inflation, and occupancy levels for the projection period for a 25-year operating period beginning March 1, 2025.
The estimates of revenues, costs and expenses are based on the proposed facilities and services and the operational characteristics thereof. Our projections are based on the operating results of comparable high-end boutique styled and branded hotels located throughout the U.S. with a particular focus of those properties located within the greater Los Angeles MSA. These hotels are believed to operate with efficient management and proper control over costs and expenses. The projections and comparable property financials are presented in the addenda.
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The following presents summary tables of estimated rooms revenue and total revenues, followed by our commentary on the revenue and expense line items that are integral to the fiscal and economic impact of the Hotel and Project.
ESTIMATED OPERATIONAL REVENUES
Average Annual Rooms Total
Year Daily Rate Occupancy Revenue Revenue
2025/26 $875.00 69.0% $26,444,000 $41,063,000
2026/27 901.00 77.0% 30,387,000 47,162,000
2027/28 928.00 80.0% 32,517,000 50,306,000
2028/29 955.00 80.0% 33,463,000 51,786,000
2029/30 983.00 80.0% 34,444,000 53,317,000
2030/31 1,013.00 80.0% 35,496,000 54,935,000
2031/32 1,043.00 80.0% 36,547,000 56,568,000
2032/33 1,075.00 80.0% 37,668,000 58,290,000
2033/34 1,107.00 80.0% 38,789,000 60,030,000
2034/35 1,140.00 80.0% 39,946,000 61,824,000
Revenues: The revenue projections include rooms, food and beverage, other operated departments, and rentals and other miscellaneous income. Rooms revenue is based on the conclusions of market positioning and stabilized rate and occupancy projections. Food and beverage revenue has been estimated at $257 per occupied room (POR) or approximately $9.0 million annually. This incorporates the 8,700 square feet of meeting space, the pool bar, room service, and lounge. We note that we have included revenue projections for the leased retail and restaurant space elsewhere in the report in order to factor these facilities into the fiscal impact portion of this analysis. Other operated departments is assumed to include spa, parking, and minor operating departments. We estimate revenue in this department in a stabilized year of operation to be $62 POR or a total of approximately $2.2 million, which is deemed to be reasonable based on the proposed facilities of the Hotel. Lastly, rentals and other income is estimated at approximately $5 POR plus a monthly rent of $8 per square foot for the 36,110 square feet of retail space (19,130 square feet of indoor dining, 4,940 square feet of outdoor dining, and 12,040 square feet of retail). This equates to approximately $3.6 million in rentals and other income in a representative year. It should be noted that in year one of our projections for the proposed Hotel (2025/2026), we have assumed a 5.0 percent vacancy rate for the leased retail and restaurant space.
Expenses: Expenses have been projected based on the specific positioning of the Subject Hotel and our evaluation of the financial comparables. We estimate expenses of $200 per occupied room for rooms expense, or a ratio of 25.9 percent to departmental revenue. Our food and beverage expense estimate in a stabilized year of operation is projected to be 90 percent of departmental Harding Larmore Kutcher & Kozal, LLP
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revenue. Our analysis assumes that the only food and beverage operations managed by the Hotel would be the 8,700 square feet of banquet space, the pool bar, and the lobby lounge. All other food and beverage facilities are assumed to be operated by third party operators. Lastly, we estimate other operating departmental expense to be 78 percent of departmental revenue.
Undistributed Expenses: Undistributed Operating Expenses are operating expenses that are not chargeable to a particular operating department and are presented as undistributed operating expenses, in accordance with the Uniform System of Accounts for the Lodging Industry. These expenses include administrative and general, marketing, property operations and maintenance, and energy and utilities. These expenses are relatively unaffected by fluctuations in occupancies and ADR. Excluding management fees, which are a fixed percentage based on a contract agreement and market parameters, these expenses are analyzed primarily on a dollar amount per available room (PAR) basis.
We estimate administrative and general expense to be approximately $26,725 PAR, inclusive of credit card commissions; information and telecommunication systems is estimated to be $4,100 PAR; sales and marketing expense is estimated to be approximately $17,500 PAR, which includes any marketing assessments; property operations and maintenance expense is estimated to be approximately $12,000 PAR; and utilities expense is estimated to be approximately $5,900 PAR. It is anticipated that there will be some efficiencies for property operations as a result of the residential components of the Ocean Avenue Project.
Other Expenses: The remaining expenses comprise a management fee, which we estimate at 3.0 percent of total hotel revenues; property tax; and a reserve for furniture, fixtures, and equipment.
The reserve has been ramped up as a percentage of total revenue from two percent in year one to four percent by year three. It should be noted that our estimate of property taxes for the Hotel (and Project) are presented in the fiscal impact portion of this report and are calculated on estimated development costs, rather than estimated value upon completion, which is consistent with the Los Angeles County Assessor’s most probable methodology in evaluating new construction.
We have presented the financial comparables and our 10-year projection of the Subject’s estimated annual operating results in the Addenda of this report.
Economic Impact Calculation
Total annual economic impact attributed to the proposed Subject assuming stabilized operations is approximately $134,414,200. The total number of new local jobs created is estimated at 999 jobs annually, based on projected direct and indirect spending. All monetary figures are stated in 2021 value dollars.
The following table summarizes our findings.
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TOTAL ANNUL ECONOMIC IMPACT
(BASED UPON A STABILIZED YEAR OF OPERATION, 2021 DOLLARS) Proposed Ocean Avenue Project Hotel
Hotel Guests
Occupied Hotel Rooms 35,040
Double Occupancy Factor 1.4
Total Hotel Visitor Days 49,056
Total Visitor Spending $103,395,511
Multiplier 1.3
TOTAL ECONOMIC IMPACT Direct and Indirect $134,414,164
NUMBER OF JOBS SUPPORTED by Direct Spending 999
Note: Numbers have been rounded.
The following text provides summary tables and the assumptions used to reach the aforementioned conclusions.
Total Hotel Visitors
In order to calculate the visitor impact of the hotel operations, it is first necessary to estimate total daily hotel visitors and lodging expenditures. Total daily hotel visitors have been derived by taking the projected occupancy of the proposed facilities and multiplying them by the double occupancy factor. Based on our knowledge of the proposed Hotel and the local lodging market, we estimate that a multiple occupancy factor of 1.4 people per room is reasonable.
Furthermore, to determine the daily hotel spending per visitor, we divided the average daily rate by the occupancy factor. For the Ocean Avenue Project, this yields a daily hotel spending per visitor of $551.43 ($772 ADR / 1.4 occupancy factor). The following table summarizes these calculations.
TOTAL HOTEL VISITORS AND DAILY LODGING EXPENDITURES
Ocean Avenue Project
Total Occupied Rooms 35,040
Occupancy Factor 1.4
Total Hotel Visitors 49,056
Average Daily Rate $772.00
Daily Hotel Spending per Visitor $551.43
Source: CBRE Hotels Advisory
Direct Visitor Spending
Based on the daily lodging expenditure per visitor, it is now possible to project spending in other categories. Our estimates of projected spending on other categories are based upon the 2018 Santa Monica Visitor Spending Report from Lauren Schlau Consulting and CIC Research, Inc. (the most recent report available), which summarizes expenditures by segment. For these segments, our analysis of daily expenditures for overnight stays included the following categories:
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• Lodging & Accommodations;
• Meals & Beverages;
• Shopping;
• Amusement & Attractions;
• Transportation; and,
• Miscellaneous Spending.
The following table presents the average spending ratios for hotel visitors for the overall City of Santa Monica area.
TOTAL ANNUAL VISITOR SPENDING IN SANTA MONICA BY CATEGORY (2018) Total Annual Percent of
Category Expenditures Total Spending
Lodging $506,223,688 26.2%
Meals 325,638,180 16.8%
Beverages 151,010,681 7.8%
Shopping/gifts 790,231,531 40.8%
Admission fees 29,580,355 1.5%
Activities 19,661,285 1.0%
Local Transportation/parking 41,985,673 2.2%
Spa/beauty/health club 22,945,460 1.2%
Groceries/other items 47,641,968 2.5%
Total $1,934,918,821 100.0%
Source: Lauren Schlau Consulting and CIC Research, Inc. for Santa Monica Travel & Tourism As we have determined the average hotel visitor direct spending per day for all of the City of Santa Monica, we can then apply the corresponding ratios per category to the proposed Ocean Avenue Project hotel visitors. These spend amounts per category for the Subject are presented in the following table.
HOTEL VISITOR DIRECT SPENDING PER DAY
Spending Category Basis Ocean Avenue Project
Lodging 26.2% $551.43
Meals 16.8% $354.72
Beverages 7.8% $164.50
Shopping/Gifts 40.8% $860.80
Attractions 1.5% $32.22
Daily Transport 1.0% $21.42
Health Spa 2.2% $45.73
Activities 1.2% $24.99
Groceries/Other Items 2.5% $51.90
Total 100.0% $2,107.70
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Next, we will apply this daily expenditure to the number of annual hotel visitors (49,056) to calculate total direct visitor spending for each category. The following table presents our conclusions of total direct visitor spending in a representative year.
HOTEL VISITOR DIRECT SPENDING
Spending Category Basis Ocean Avenue Project
Lodging 26.2% $27,050,880
Meals 16.8% $17,401,002
Beverages 7.8% $8,069,500
Shopping/Gifts 40.8% $42,227,298
Attractions 1.5% $1,580,674
Daily Transport 1.0% $1,050,633
Health Spa 2.2% $2,243,572
Activities 1.2% $1,226,128
Groceries/Other Items 2.5% $2,545,825
Total 100.0% $103,395,511
The Multiplier Effect
The total impact of direct spending related to the introduction of the proposed subject property is amplified by means of an economic multiplier. A multiplier is used to estimate the impact that the visitor dollar makes beyond the initial goods/services purchased. The infusion of new dollars into the local economy also produces additional goods and services. In short, “direct” visitor spending creates indirect and induced economic benefits for the City. For example, visitor spending collected “directly” within a hotel restaurant also “indirectly” supports food and beverage suppliers and delivery services. Moreover, the direct and indirect spending induces further spending in the community by employees of the benefiting businesses.
Based upon the RIMS II economic modeling system and discussions with representatives from the Los Angeles Economic Development Council (LAEDC), we have used an overall economic multiplier of 1.3 for the City of Santa Monica. We applied this multiplier to the expenditures related to the visitors to the Subject, to determine the overall economic impact of the Project.
HOTEL DIRECT AND VISITOR SPENDING
Ocean Avenue Project
Direct Spending $103,395,511
Multiplier 1.3
Direct and Indirect Spending $134,414,164
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Other Benefits
As stated above, the economic impact presented does not include economic benefit of the construction of the proposed facilities. It is projected that with the development of the subject property, there will be additional economic benefits such as increased real estate values in the immediate neighborhood of the Project. Furthermore, the rental apartment units will drive some level of economic impact and spending.
In addition to the above it is important to note that the proposed Ocean Avenue Project development is anticipated to have a positive effect on the overall rate positioning of the overall hotel supply. While difficult to measure, the proposed Hotel and mixed-use Project will improve the quality of the overall supply in the marketplace and, thus, allow the existing hotels as a whole to potentially increase their average rates. It should also improve the pedestrian flow on Ocean Avenue, Santa Monica Boulevard, and Second Street as ground level retail and restaurants are added. Lastly, the proposed museum should also bring significant awareness to the Project and enhance Santa Monica, as well as drive additional economic and fiscal impact through the inducement of additional visitation to Santa Monica.
It should also be noted that additional monetary and other community benefits will be provided by developer but are not included in this analysis because Development Agreement negotiations are not yet completed. However, these additional benefits are anticipated to be substantial and should be taken into consideration once known.
Lastly, while our fiscal impact analysis was generally limited to revenue sources that flow directly to Santa Monica’s General Fund, it is worth noting that the project as proposed, is estimated to generate approximately $29.5 million to the SMMUSD during the 30-year operational period.
Operational Phase Employment
Our employment and salary estimates for a stabilized year of operation of the proposed Hotel are based upon industry standards, benchmarks provided by CBRE Hotels’ in-house data, related analyses, and our understanding of the Project. It should be noted that certain categories have been combined in accordance with the most recent categorization of industry employment generated by travel spending as detailed in California Travel Impacts by County report prepared by Dean Runyan Associates, Inc. for the Visit California Commission.
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SUMMARY OF ESTIMATED DIRECT EMPLOYMENT
Visitor Spending Direct Indirect Total
Lodging1 $27,050,880 $8,115,264 $35,166,144
Meals $25,470,501 $7,641,150 $33,111,652
Transportation $1,050,633 $315,190 $1,365,822
Retail Trade $44,773,123 $13,431,937 $58,205,060
Entertainment $5,050,374 $1,515,112 $6,565,486
Total $103,395,511 $31,018,653 $134,414,164
Related Jobs2
10.2 jobs/$1 million in demand for Hotels/Eating and Drinking 536 161 696
8.3 jobs/$1 million in demand for Transportation 9 3 11
4.0 jobs/$1 million in demand for Retail Trade 179 54 233
8.9 jobs/$1 million in demand for Entertainment 45 13 58 TOTAL JOBS 768 231 999
1 Rooms Revenue only.
2Each multiplier measures the total change in the number of jobs that results from the corresponding change in output delivered to final demand by the industry.
Source: Dean Runyan Associates, Inc., Visit California 2019 Harding Larmore Kutcher & Kozal, LLP
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FISCAL IMPACT ANALYSIS
Taxes and Other City Revenues
Revenue generated by lodging and residential facilities represents a relatively large source of tax collections for the City of Santa Monica. Potential government revenues drawn from tourism-related projects generally include:
• Sales and use tax;
• Transient Occupancy Tax (TOT);
• Property Tax – hotel and residential;
• Business Tax;
• Utility Tax; and,
• Parking Tax.
Our analysis of the total tax revenues for the City of Santa Monica is limited to measurable tax revenues which include transient occupancy tax (TOT), sales and use tax, utility tax, business tax, parking tax, and property tax revenues. We have incorporated the projected property tax associated with the residential component, as well.
Transient Occupancy Tax
The current transient occupancy tax rate in the City of Santa Monica is calculated at a rate of 14.0 percent of the daily rent. In a stabilized year of operation, the TOT is based upon the average daily rate of $772 and an occupancy rate of 80 percent, which equates to approximately $3,787,000.
Property Taxes
As mentioned previously in the hotel operations portion of this report, our analysis will estimate the property taxes generated by the Project, and the potion allocated to the City of Santa Monica based on the construction costs of the Project. It is important to note that the assessor may utilize at least three methodologies to estimate a developer’s tax burden, though the most common for new construction is the Cost Approach. As such we have relied upon this methodology in the following.
To recap, a breakdown of the property tax rate area (TRA) for the Project site is summarized in the following table.
2019/20 TAX RATE FOR TRA #8004
Taxing Agencies Tax Year Rate
General 1.000000%
City of Santa Monica 0.002743%
Community College 0.078829%
Metro Water District 0.003500%
Unified Schools 0.093440%
Total Year Tax Rate 1.178512%
Source: City of Santa Monica
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Further, the following table presents a summary of the developer’s anticipated costs to construct the project.
Ocean Avenue, Santa Monica, CA
Development Budget Estimate - Estimated Current Costs
Land Costs $25,628,912
Hard Costs $233,659,563
Soft Costs $79,280,288
Financing Costs $32,932,198
Total Development Budget $371,500,960
Source: Worthe Real Estate Group
As appropriate and applicable, we have segmented the costs specifically between the hotel portion and then residential (including all other components of the luxury mixed-use project) to arrive at a supportable property tax estimate for the various components of the Project. According to information provided by the developer, the hotel portion of the project will comprise 122,400 square feet of the larger mixed-use development or approximately 39 percent of the total floor area of the Project, inclusive of all above- and below-grade areas but not including approximately 4,800 square feet of mechanical and shared services (i.e., trash, storage, utilities).
Hotel
Property Taxes for the proposed Hotel are estimated to be approximately $1,597,000 in stabilized year of operation and based on the allocation of approximately $159,745,000 to construct the hotel portion of the Project. Based on our research of the tax structure in the county, and information provided by the Office of the Auditor-Controller, approximately 14.0 percent of the real estate taxes directly go to the City. However, this 14.0 percent tax rate is only calculated based on the 1.0 percent General Levy that directly goes to the City’s General Fund. We have applied these ratios accordingly. In a representative year of operation, this equates to a contribution of $224,000 (rounded) to the City’s General Fund based on the hotel’s estimated property tax burden and an allocation of the City’s anticipated share.
Property Tax – Residential & All Other Components
In addition to the hotel component, we have estimated the property tax for the residential component. As we understand it, the proposed Project will feature 100 residential units comprised of 12 studio units, 55 one-bedroom units, 23 two-bedroom units, and 10 three-bedroom units.
Based on discussions with the Project’s developer, we have assumed that 80 units would represent market-rate units and 20 units would represent affordable housing units. We understand that 16 of the market-rate units will be priced-controlled similar to the City’s existing rent control. However, it should be noted that no property tax adjustment was made for the 16 price-controlled units, which were evaluated under the same assumptions as the market rate units. Based on the current Harding Larmore Kutcher & Kozal, LLP
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programming for the proposed Hotel, we understand that the residential component of the Project would represent a gross building area of 117,700 square feet. As mentioned throughout this report, the Project will also include 36,110 square feet of leased retail and restaurant space and the 35,500 square foot Cultural Use Campus (e.g., museum, gallery, event space). The cost to construct all components other than the previously calculated hotel portion is approximately $211,756,000. In a representative year of operation, this equates to a contribution of $297,000 (rounded) to the City’s General Fund based on the estimated property tax burden of all other nonhotel components and an allocation of the City’s anticipated share.
Sales and use tax
The current retail sales and use tax in the City of Santa Monica is 10.25 percent. Based on recent prior reports and analysis, the current retail sales and use tax that is contributed directly to the City of Santa Monica is 1.75 percent of the total 10.25 percent collected. For the purpose of our analysis, we have only included tax revenues that directly flow to the City’s General Fund.
The sales and use and property tax revenues generated from the development and operation of the Ocean Avenue Project is based on the non-room projected revenues as presented in the financial projections. Sales and use tax revenue was based on the projected income at the Ocean Avenue Project for food and beverage, and spa. We have also factored in approximately $1,400 per square foot in restaurant sales for the leased restaurant space and $1,200 per square foot for the leased retail space. We believe these estimates to be reasonable based on the performance of comparable restaurant and retail sales in the local market. For the purpose of our analysis, these figures are estimated to increase by 3.0 percent per year during the projection period. In a representative year, the direct sales and use tax equates to approximately $1.1 million (rounded).
Business License Tax
We have calculated the business license tax, which is a function of gross revenue. The tax is $75 for the first $60,000 plus $1.25 for each additional $1,000 in revenues. The business tax is estimated to be approximately $52,000 in a representative year of operation.
Utility and Parking Tax
Utility and Parking tax are both at 10.0 percent. In a representative year, they equate to approximately $71,000 and $109,000 respectively.
Over a 25-year projection period (fiscal year 2025/26 through 2049/50), the total direct fiscal impact on the City from the operations of the Ocean Avenue Project is approximately $212,243,000 and is based on the calculations presented in the following tables, beginning first with the measurable tax revenues of the Project to the City in a representative year of operation.
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The following tables summarize our projections for potential revenue to the City of Santa Monica based on the operations of the Ocean Avenue Project, for a 25-year period beginning March 1, 2025.
Rooms Revenue $27,051,000
TOT Rate 14.00%
TOT Generated, Rounded $3,787,000
Direct Sales Revenue (Meals & Beverages, NonFood Retail, Entertainment, Transportation, Other) $61,884,000 Tax Rate 1.75%
Sales Tax Generated, Rounded $1,082,970
Real Estate Tax $3,715,000
(All components of the mixed-use Project) 14.00%
Property Taxes Generated to the City $520,100
Hotel Gross Revenue $41,875,000
Business Tax Rate1 $1.25
Business Tax Generated to the City, Rounded $52,000
Stabilized Utility Expense $708,000
Utility Tax (10%), Rounded $70,800
Stabilized Parking Revenue $1,086,000
Parking Tax (10%) $108,600
Total Measurable Tax Revenues to City of Santa
Monica Local Agencies, Rounded $5,621,000 1
Tax equates to $75 for the first $60,000 in Gross Revenues plus $1.25 per additional $1,000 of Gross Revenues over $60,000.
(STABILIZED YEAR OF OPERATION, 2021 DOLLARS)
PROPOSED OCEAN AVENUE PROJECT
OPERATIONAL PHASE MEASURABLE TAX REVENUES
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Total Revenue Rooms Expenditure
Other
Expenditure* Utilities Parking*
Hotel Real Estate
Tax
Non-Hotel Real
Estate Tax TOT
Sales and Use
Tax Utilities Business Parking Hotel @ 14%
Non-Hotel @
14% Total
2021 Rep Yr. $41,875,000 $27,051,000 $61,884,000 $708,000 $1,086,000 $1,597,000 $2,118,000 $3,787,140 $1,082,970 $70,800 $52,344 $108,600 $223,580 $296,520 $5,621,954 2025/26 41,063,000 26,444,000 68,016,000 801,000 1,060,000 $1,763,000 2,338,000 3,702,160 1,190,280 80,100 51,329 106,000 246,820 327,320 5,704,009 2026/27 47,162,000 30,387,000 71,647,260 825,000 1,218,000 $1,798,000 2,385,000 4,254,180 1,253,827 82,500 58,953 121,800 251,720 333,900 6,356,880 2027/28 50,306,000 32,517,000 74,258,228 850,000 1,304,000 $1,834,000 2,433,000 4,552,380 1,299,519 85,000 62,883 130,400 256,760 340,620 6,727,561 2028/29 51,786,000 33,463,000 76,486,345 875,000 1,343,000 $1,871,000 2,482,000 4,684,820 1,338,511 87,500 64,733 134,300 261,940 347,480 6,919,284 2029/30 53,317,000 34,444,000 78,781,065 901,000 1,383,000 $1,908,000 2,532,000 4,822,160 1,378,669 90,100 66,646 138,300 267,120 354,480 7,117,475 2030/31 54,935,000 35,496,000 81,143,857 928,000 1,425,000 $1,946,000 2,583,000 4,969,440 1,420,017 92,800 68,669 142,500 272,440 361,620 7,327,486 2031/32 56,568,000 36,547,000 83,578,203 956,000 1,467,000 $1,985,000 2,635,000 5,116,580 1,462,619 95,600 70,710 146,700 277,900 368,900 7,539,009 2032/33 58,290,000 37,668,000 86,085,599 985,000 1,511,000 $2,025,000 2,688,000 5,273,520 1,506,498 98,500 72,863 151,100 283,500 376,320 7,762,300 2033/34 60,030,000 38,789,000 88,667,557 1,014,000 1,557,000 $2,066,000 2,742,000 5,430,460 1,551,682 101,400 75,038 155,700 289,240 383,880 7,987,400 2034/35 61,824,000 39,946,000 91,327,603 1,045,000 1,603,000 $2,107,000 2,797,000 5,592,440 1,598,233 104,500 77,280 160,300 294,980 391,580 8,219,313 2035/36 63,679,000 41,144,000 94,068,281 1,076,000 1,651,000 $2,149,000 2,853,000 5,760,160 1,646,195 107,600 79,599 165,100 300,860 399,420 8,458,934 2036/37 65,589,000 42,378,000 102,067,150 1,108,000 1,701,000 $2,192,000 2,910,000 5,932,920 1,786,175 110,800 81,986 170,100 306,880 407,400 8,796,261 2037/38 67,557,000 43,649,000 105,129,784 1,141,000 1,752,000 $2,236,000 2,968,000 6,110,860 1,839,771 114,100 84,446 175,200 313,040 415,520 9,052,937 2038/39 69,584,000 44,958,000 108,283,778 1,175,000 1,805,000 $2,281,000 3,027,000 6,294,120 1,894,966 117,500 86,980 180,500 319,340 423,780 9,317,186 2039/40 71,672,000 46,307,000 111,532,741 1,210,000 1,859,000 $2,327,000 3,088,000 6,482,980 1,951,823 121,000 89,590 185,900 325,780 432,320 9,589,393 2040/41 73,822,000 47,696,000 114,878,304 1,246,000 1,915,000 $2,374,000 3,150,000 6,677,440 2,010,370 124,600 92,278 191,500 332,360 441,000 9,869,548 2041/42 76,037,000 49,127,000 118,325,113 1,283,000 1,972,000 $2,421,000 3,213,000 6,877,780 2,070,689 128,300 95,046 197,200 338,940 449,820 10,157,776 2042/43 78,318,000 50,601,000 121,874,836 1,321,000 2,031,000 $2,469,000 3,277,000 7,084,140 2,132,810 132,100 97,898 203,100 345,660 458,780 10,454,487 2043/44 80,668,000 52,119,000 125,531,161 1,361,000 2,092,000 $2,518,000 3,343,000 7,296,660 2,196,795 136,100 100,835 209,200 352,520 468,020 10,760,130 2044/45 83,088,000 53,683,000 129,296,796 1,402,000 2,155,000 $2,568,000 3,410,000 7,515,620 2,262,694 140,200 103,860 215,500 359,520 477,400 11,074,794 2045/46 85,581,000 55,293,000 133,176,470 1,444,000 2,220,000 $2,619,000 3,478,000 7,741,020 2,330,588 144,400 106,976 222,000 366,660 486,920 11,398,564 2046/47 88,148,000 56,952,000 137,170,934 1,487,000 2,287,000 $2,671,000 3,548,000 7,973,280 2,400,491 148,700 110,185 228,700 373,940 496,720 11,732,016 2047/48 90,792,000 58,661,000 141,284,962 1,532,000 2,356,000 $2,724,000 3,619,000 8,212,540 2,472,487 153,200 113,490 235,600 381,360 506,660 12,075,337 2048/49 93,516,000 60,421,000 145,523,351 1,578,000 2,427,000 $2,778,000 3,691,000 8,458,940 2,546,659 157,800 116,895 242,700 388,920 516,740 12,428,654 2049/50 96,321,000 62,234,000 149,887,921 1,625,000 2,500,000 $2,834,000 3,765,000 8,712,760 2,623,039 162,500 120,401 250,000 396,760 527,100 12,792,560 Total 25 Years $1,719,653,000 $1,110,924,000 $2,638,023,298 $29,169,000 $44,594,000 $56,464,000 $74,955,000 $155,529,360 $46,165,408 $2,916,900 $2,149,566 $4,459,400 $7,904,960 $10,493,700 $229,619,294 *Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue
PROPOSED OCEAN AVENUE PROJECT
REPRESENTATIVE YEAR AND 25-YEAR PROJECTION OF REVENUES AND FISCAL IMPACT Harding Larmore Kutcher & Kozal, LLP
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CONCLUSIONS
The estimated gross economic and fiscal impact of the proposed Project to the City of Santa Monica is expected to be material. We have estimated a total economic impact of approximately $134,414,200 in a representative year, stated in 2021 dollars, for the hotel development and a fiscal impact of approximately $5,621,000. During a 25-year period of operation beginning in fiscal year 2025/2026, the estimated economic impact is estimated at approximately $3.94 billion, and the fiscal impact is approximately $229,619,000.
The estimates of economic impact generated by the proposed Hotel are not inclusive of all potential economic benefits. Excluded from our analysis are:
• The fiscal impact of the residential units over and above the property tax presented herein;
• The fiscal and economic impact directly associated with the Cultural Use Campus; • The economic impact upon the City of Santa Monica during the construction of the proposed project. This impact includes applicable salary taxes, spending by the workers with the county, and property taxes during the construction period; • The spending induced by day visitors;
• The property and transfer taxes generated by a projected increase in surrounding property values due to the enhancement of the subject facilities and overall neighborhood;
Overnight Visitor Direct +
Indirect Economic Impact TOT
Sales and Use
Tax Utilities Business Parking Hotel @ 14%
Non-Hotel @
14% Total
2021 Rep Yr. $134,414,164 $3,787,140 $1,082,970 $70,800 $52,344 $108,600 $223,580 $296,520 $5,621,954 2025/26 $93,857,041 3,702,160 1,190,280 80,100 51,329 106,000 246,820 327,320 5,704,009 2026/27 $107,851,261 4,254,180 1,253,827 82,500 58,953 121,800 251,720 333,900 6,356,880 2027/28 $115,411,125 4,552,380 1,299,519 85,000 62,883 130,400 256,760 340,620 6,727,561 2028/29 $118,768,992 4,684,820 1,338,511 87,500 64,733 134,300 261,940 347,480 6,919,284 2029/30 $122,251,224 4,822,160 1,378,669 90,100 66,646 138,300 267,120 354,480 7,117,475 2030/31 $125,982,188 4,969,440 1,420,017 92,800 68,669 142,500 272,440 361,620 7,327,486 2031/32 $129,713,151 5,116,580 1,462,619 95,600 70,710 146,700 277,900 368,900 7,539,009 2032/33 $133,692,845 5,273,520 1,506,498 98,500 72,863 151,100 283,500 376,320 7,762,300 2033/34 $137,672,539 5,430,460 1,551,682 101,400 75,038 155,700 289,240 383,880 7,987,400 2034/35 $141,776,598 5,592,440 1,598,233 104,500 77,280 160,300 294,980 391,580 8,219,313 2035/36 $146,029,896 5,760,160 1,646,195 107,600 79,599 165,100 300,860 399,420 8,458,934 2036/37 $150,410,793 5,932,920 1,786,175 110,800 81,986 170,100 306,880 407,400 8,796,261 2037/38 $154,923,117 6,110,860 1,839,771 114,100 84,446 175,200 313,040 415,520 9,052,937 2038/39 $159,570,810 6,294,120 1,894,966 117,500 86,980 180,500 319,340 423,780 9,317,186 2039/40 $164,357,934 6,482,980 1,951,823 121,000 89,590 185,900 325,780 432,320 9,589,393 2040/41 $169,288,672 6,677,440 2,010,370 124,600 92,278 191,500 332,360 441,000 9,869,548 2041/42 $174,367,333 6,877,780 2,070,689 128,300 95,046 197,200 338,940 449,820 10,157,776 2042/43 $179,598,353 7,084,140 2,132,810 132,100 97,898 203,100 345,660 458,780 10,454,487 2043/44 $184,986,303 7,296,660 2,196,795 136,100 100,835 209,200 352,520 468,020 10,760,130 2044/45 $190,535,892 7,515,620 2,262,694 140,200 103,860 215,500 359,520 477,400 11,074,794 2045/46 $196,251,969 7,741,020 2,330,588 144,400 106,976 222,000 366,660 486,920 11,398,564 2046/47 $202,139,528 7,973,280 2,400,491 148,700 110,185 228,700 373,940 496,720 11,732,016 2047/48 $208,203,714 8,212,540 2,472,487 153,200 113,490 235,600 381,360 506,660 12,075,337 2048/49 $214,449,825 8,458,940 2,546,659 157,800 116,895 242,700 388,920 516,740 12,428,654 2049/50 $220,883,320 8,712,760 2,623,039 162,500 120,401 250,000 396,760 527,100 12,792,560 Total 25 Years $3,942,974,423 $155,529,360 $46,165,408 $2,916,900 $2,149,566 $4,459,400 $7,904,960 $10,493,700 $229,619,294 *Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue
PROPOSED OCEAN AVENUE PROJECT
REPRESENTATIVE YEAR AND 25-YEAR PROJECTION OF REVENUES AND FISCAL IMPACT Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
• The anticipated increase in the overall average daily rate and competitive positioning of the Santa Monica hotel market directly attributable to the opening of the Ocean Avenue Project; and,
• The development costs include construction costs for the historic preservation elements (including the rehabilitation and adaptive reuse of the City-designated landmarks), museum, publicly-accessible open space (including observation desk), and physical sustainability elements (i.e. elements required to achieve LEED Platinum certification) community benefits as well as relocation costs for the existing residential tenants.
Additional monetary and other community benefits will be provided by developer but are not included in this analysis because Development Agreement negotiations are not yet completed. However, these additional benefits are anticipated to be substantial and should be taken into consideration once known.
Our analysis of the total tax revenues for the City of Santa Monica is limited to measurable tax revenues which include transient occupancy tax, sales and use tax, business tax, utility and parking tax, and property tax revenues. It is our opinion that the proposed development would bring significant fiscal impact to the City of Santa Monica through additional visitor spending, tax revenue, and jobs.
INCREMENTAL (NET) FISCAL AND ECONOMIC IMPACT
At your request, we have calculated the incremental economic and fiscal impact (i.e. net of the site’s existing economic and fiscal impacts). The first step is to develop a base case for the existing facilities.
Base Case – Existing Operations
We reviewed the existing improvements and developed a base case of fiscal and overnight visitor economic impact. There are currently seven leased operations totaling 12,271 square feet. It should be noted that we have not been provided with the recent total revenue achieved by these seven leases. However, based on the historic revenues achieved by this space and on our knowledge of revenue generated by comparable leased properties within the local market, we have estimated that these seven outlets would have achieved total revenue in the amount of approximately $18.5 million. We have used this estimate as the basis for sales and use tax. Furthermore, while no revenue or expense detail for these leases in place has been provided, we have assumed that a reasonable estimate for utilities would be approximately $50,000, and parking revenue would amount to approximately $500,000 for the purpose of this analysis. Lastly, we have utilized the 2020 roll preparation as the basis for the real estate tax baseline. This incorporates the existing structures, including retail operations and existing residential.
Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
As no hotel facilities currently exist, we have applied a zero baseline to overnight direct and indirect visitor spending. We note that the existing restaurant operations drive some level of economic impact and find it reasonable to state that the leased retail in the redevelopment will replace this economic impact. As it is difficult to allocate visitation to a specific day activity or restaurant, we are relying on the overnight visitation, which identifies the unique new overnight guests to Santa Monica, as the methodology for concluding to economic impact. The following presents the economic impact and revenue basis for the existing operations, followed by the fiscal impact for existing operations.
Overnight Visitor Direct +
Indirect Economic Impact Total Revenue
Rooms
Expenditure
Other
Expenditure* Utilities Parking
Existing Real
Estate Tax @
14% of
General Fund
2021 Rep Yr $0 $18,448,000 $0 $17,948,000 $50,000 $500,000 $283,683 2025/26 0 20,866,000 0 $20,300,000 57,000 566,000 308,000 2026/27 0 21,492,000 0 $20,909,000 59,000 583,000 314,000 2027/28 0 22,137,000 0 $21,537,000 61,000 600,000 320,000 2028/29 0 22,801,000 0 $22,183,000 63,000 618,000 326,000 2029/30 0 23,485,000 0 $22,848,000 65,000 637,000 333,000 2030/31 0 24,190,000 0 $23,534,000 67,000 656,000 340,000 2031/32 0 24,916,000 0 $24,240,000 69,000 676,000 347,000 2032/33 0 25,663,000 0 $24,967,000 71,000 696,000 354,000 2033/34 0 26,433,000 0 $25,716,000 73,000 717,000 361,000 2034/35 0 27,226,000 0 $26,487,000 75,000 739,000 368,000 2035/36 0 28,043,000 0 $27,282,000 77,000 761,000 375,000 2036/37 0 28,884,000 0 $28,100,000 79,000 784,000 383,000 2037/38 0 29,751,000 0 $28,943,000 81,000 808,000 391,000 2038/39 0 30,644,000 0 $29,812,000 83,000 832,000 399,000 2039/40 0 31,563,000 0 $30,706,000 85,000 857,000 407,000 2040/41 0 32,510,000 0 $31,627,000 88,000 883,000 415,000 2041/42 0 33,485,000 0 $32,576,000 91,000 909,000 423,000 2042/43 0 34,490,000 0 $33,554,000 94,000 936,000 431,000 2043/44 0 35,525,000 0 $34,561,000 97,000 964,000 440,000 2044/45 0 36,591,000 0 $35,598,000 100,000 993,000 449,000 2045/46 0 37,689,000 0 $36,666,000 103,000 1,023,000 458,000 2046/47 0 38,820,000 0 $37,766,000 106,000 1,054,000 467,000 2047/48 0 39,985,000 0 $38,899,000 109,000 1,086,000 476,000 2048/49 0 41,185,000 0 $40,066,000 112,000 1,119,000 486,000 2049/50 0 42,421,000 0 $41,268,000 115,000 1,153,000 496,000 Total 25 Years $0 $760,795,000 $0 $740,145,000 $2,080,000 $20,650,000 $9,867,000 *Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue
BASE CASE - FISCAL IMPACT
Existing Operations
Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
Incremental (Net) Impact Conclusion
This results in the following incremental economic and fiscal impact (i.e. net of the site’s existing economic and fiscal impacts). Please note, the economic impact presents the spending associated with overnight visitors. In addition to this, there is day visitor economic impact, which is captured by the existing restaurant facilities and should also be captured by the proposed leased retail and restaurant space. Furthermore, additional impact will be driven by museum attendees.
The fiscal impact of the existing operations is factored into the incremental (net) fiscal projections below.
TOT
Sales and Use
Tax Utilities Business Parking
Existing Real
Estate @14%
New Residential
@ 14% Total
2021 Rep Yr $0 $314,090 $5,000 $23,060 $50,000 $33,700 $0 $425,850 2025/26 0 355,250 5,700 26,083 56,600 $36,000 0 479,633 2026/27 0 365,908 5,900 26,865 58,300 $37,000 0 493,973 2027/28 0 376,898 6,100 27,671 60,000 $38,000 0 508,669 2028/29 0 388,203 6,300 28,501 61,800 $39,000 0 523,804 2029/30 0 399,840 6,500 29,356 63,700 $40,000 0 539,396 2030/31 0 411,845 6,700 30,238 65,600 $41,000 0 555,383 2031/32 0 424,200 6,900 31,145 67,600 $42,000 0 571,845 2032/33 0 436,923 7,100 32,079 69,600 $43,000 0 588,701 2033/34 0 450,030 7,300 33,041 71,700 $44,000 0 606,071 2034/35 0 463,523 7,500 34,033 73,900 $45,000 0 623,955 2035/36 0 477,435 7,700 35,054 76,100 $46,000 0 642,289 2036/37 0 491,750 7,900 36,105 78,400 $47,000 0 661,155 2037/38 0 506,503 8,100 37,189 80,800 $48,000 0 680,591 2038/39 0 521,710 8,300 38,305 83,200 $49,000 0 700,515 2039/40 0 537,355 8,500 39,454 85,700 $50,000 0 721,009 2040/41 0 553,473 8,800 40,638 88,300 $51,000 0 742,210 2041/42 0 570,080 9,100 41,856 90,900 $52,000 0 763,936 2042/43 0 587,195 9,400 43,113 93,600 $53,000 0 786,308 2043/44 0 604,818 9,700 44,406 96,400 $54,000 0 809,324 2044/45 0 622,965 10,000 45,739 99,300 $55,000 0 833,004 2045/46 0 641,655 10,300 47,111 102,300 $56,000 0 857,366 2046/47 0 660,905 10,600 48,525 105,400 $57,000 0 882,430 2047/48 0 680,733 10,900 49,981 108,600 $58,000 0 908,214 2048/49 0 701,155 11,200 51,481 111,900 $59,000 0 934,736 2049/50 0 722,190 11,500 53,026 115,300 $60,000 0 962,016 Total 25 Years $0 $12,952,538 $208,000 $950,994 $2,065,000 $1,200,000 $0 $17,376,531 *Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue Taxes
BASE CASE - FISCAL IMPACT
Harding Larmore Kutcher & Kozal, LLP
Ocean Avenue Project
March 25, 2021
Overnight Visitor Direct +
Indirect Economic Impact TOT
Sales and Use
Tax Utilities Business Parking
Property Tax
(Hotel)
Property Tax
(Non-Hotel) Total
2021 Rep Yr $134,414,164 $3,787,140 $768,880 $65,800 $29,284 $58,600 $190,000 $296,520 $5,196,104 2025/26 $93,857,041 3,702,160 835,030 74,400 25,246 49,400 206,000 327,320 5,224,376 2026/27 $107,851,261 4,254,180 887,920 76,600 32,088 63,500 223,000 333,900 5,862,907 2027/28 $115,411,125 4,552,380 922,621 78,900 35,211 70,400 241,000 340,620 6,218,893 2028/29 $118,768,992 4,684,820 950,309 81,200 36,231 72,500 261,000 347,480 6,395,480 2029/30 $122,251,224 4,822,160 978,829 83,600 37,290 74,600 283,000 354,480 6,578,079 2030/31 $125,982,188 4,969,440 1,008,172 86,100 38,431 76,900 306,000 361,620 6,772,104 2031/32 $129,713,151 5,116,580 1,038,419 88,700 39,565 79,100 331,000 368,900 6,967,164 2032/33 $133,692,845 5,273,520 1,069,575 91,400 40,784 81,500 358,000 376,320 7,173,599 2033/34 $137,672,539 5,430,460 1,101,652 94,100 41,996 84,000 388,000 383,880 7,381,328 2034/35 $141,776,598 5,592,440 1,134,711 97,000 43,248 86,400 420,000 391,580 7,595,358 2035/36 $146,029,896 5,760,160 1,168,760 99,900 44,545 89,000 455,000 399,420 7,816,645 2036/37 $150,410,793 5,932,920 1,294,425 102,900 45,881 91,700 493,000 407,400 8,135,106 2037/38 $154,923,117 6,110,860 1,333,269 106,000 47,258 94,400 534,000 415,520 8,372,346 2038/39 $159,570,810 6,294,120 1,373,256 109,200 48,675 97,300 578,000 423,780 8,616,671 2039/40 $164,357,934 6,482,980 1,414,468 112,500 50,136 100,200 626,000 432,320 8,868,384 2040/41 $169,288,672 6,677,440 1,456,898 115,800 51,640 103,200 678,000 441,000 9,127,338 2041/42 $174,367,333 6,877,780 1,500,609 119,200 53,190 106,300 734,000 449,820 9,393,839 2042/43 $179,598,353 7,084,140 1,545,615 122,700 54,785 109,500 795,000 458,780 9,668,180 2043/44 $184,986,303 7,296,660 1,591,978 126,400 56,429 112,800 861,000 468,020 9,950,807 2044/45 $190,535,892 7,515,620 1,639,729 130,200 58,121 116,200 932,000 477,400 10,241,790 2045/46 $196,251,969 7,741,020 1,688,933 134,100 59,865 119,700 1,009,000 486,920 10,541,198 2046/47 $202,139,528 7,973,280 1,739,586 138,100 61,660 123,300 1,092,000 496,720 10,849,586 2047/48 $208,203,714 8,212,540 1,791,754 142,300 63,509 127,000 1,182,000 506,660 11,167,123 2048/49 $214,449,825 8,458,940 1,845,504 146,600 65,414 130,800 1,279,000 516,740 11,493,917 2049/50 $220,883,320 8,712,760 1,900,849 151,000 67,375 134,700 1,384,000 527,100 11,830,544 Total 25 Years $3,942,974,423 $155,529,360 $33,212,870 $2,708,900 $1,198,573 $2,394,400 $15,649,000 $10,493,700 $212,242,763 Fiscal Impact
*Parking assumed at 50% of other operated departments revenue *Other Expenditure = total revenue - rooms expenditure - parking + leased space retail and restaurant revenue
INCREMENTAL IMPACT
Addenda
ADDENDA
Addenda
ADDENDUM A
COMPARABLE FINANCIALS
Addenda
PROPOSED OCEAN AVENUE PROJECT
Operating Results of Comparable Hotels
Hotel A Hotel B Hotel C
Ratio Per Room P.O.R. Ratio Per Room P.O.R. Ratio Per Room P.O.R.
Revenues
Rooms 60.3% $277,620 $960.72 54.5% $156,656 $576.05 59.5% $164,713 $564.75 Food & Beverage 33.0% 151,747 525.13 36.7% 105,469 387.82 33.4% 92,374 316.72 Other Operated Departments 5.2% 24,104 83.41 4.9% 14,030 51.59 5.7% 15,861 54.38 Miscellaneous Income 1.5% 6,897 23.87 4.0% 11,533 42.41 1.4% 3,951 13.55 Total Revenues 100.0% 460,368 1,593.13 100.0% 287,687 1,057.87 100.0% 276,898 949.40 Departmental Expenses
Rooms 35.7% 99,078 342.86 35.3% 55,248 203.16 28.1% 46,212 158.45 Food & Beverage 96.6% 146,545 507.13 85.1% 89,806 330.23 78.4% 72,407 248.26 Other Operated Departments 74.4% 17,934 62.06 89.4% 12,542 46.12 79.2% 12,569 43.09 Total Departmental Expenses 57.2% 263,557 912.05 54.8% 157,595 579.50 47.4% 131,187 449.80 Departmental Profit 42.8% 196,811 681.08 45.2% 130,092 478.37 52.6% 145,711 499.60 Undistributed Expenses
Administrative & General 8.3% 38,183 132.13 8.2% 23,563 86.65 9.7% 26,949 92.40 Information and Telecommunication Systems 1.3% 6,011 20.80 1.6% 4,495 16.53 2.1% 5,699 19.54 Sales and Marketing 8.5% 39,031 135.07 4.6% 13,350 49.09 6.7% 18,678 64.04 Property Operations and Maintenance 4.8% 22,031 76.24 4.1% 11,767 43.27 3.7% 10,344 35.47 Utilities 1.5% 6,890 23.84 2.2% 6,311 23.21 2.1% 5,752 19.72 Total Undistributed Operating Expenses 24.4% 112,146 388.09 20.7% 59,486 218.74 24.3% 67,422 231.17 Gross Operating Profit 18.4% 84,665 292.99 24.5% 70,606 259.63 28.3% 78,289 268.43 Base Management Fee 1.9% 8,824 30.53 4.0% 11,523 42.37 3.0% 8,320 28.53 Fixed Expenses
Property Taxes 5.0% 22,984 79.54 2.4% 6,796 24.99 2.3% 6,497 22.28 Insurance 0.3% 1,376 4.76 1.0% 2,962 10.89 1.5% 4,174 14.31 Total Fixed Expenses 5.3% 24,359 84.30 3.4% 9,758 35.88 3.9% 10,671 36.59 Net Operating Income Before Reserve 11.2% 51,482 178.16 17.1% 49,325 181.37 21.4% 59,298 203.31 FF&E Reserve 4.0% 18,415 63.73 4.0% 11,507 42.31 4.0% 11,076 37.98 Net Operating Income After Reserve 7.2% $33,068 $114.43 13.1% $37,817 $139.06 17.4% $48,222 $165.34 Source: CBRE Hotels Advisory
Addenda
PROPOSED OCEAN AVENUE PROJECT
Operating Results of Comparable Hotels
Hotel D Hotel E Weighted Average 1
Ratio Per Room P.O.R. Ratio Per Room P.O.R. Ratio Per Room P.O.R.
Revenues
Rooms 55.0% $94,176 $350.14 59.6% $130,348 $543.54 57.4% $157,497 $573.05 Food & Beverage 38.5% 65,926 245.11 28.8% 63,071 263.00 34.7% 95,371 347.00 Other Operated Departments 6.5% 11,092 41.24 11.4% 24,850 103.62 5.9% 16,150 58.76 Miscellaneous Income 0.1% 99 0.37 0.2% 359 1.50 2.0% 5,454 19.85 Total Revenues 100.0% 171,293 636.85 100.0% 218,628 911.66 100.0% 274,472 998.66 Departmental Expenses
Rooms 33.0% 31,051 115.44 34.2% 44,534 185.70 33.3% 52,391 190.62 Food & Beverage 107.3% 70,729 262.96 105.9% 66,783 278.48 91.0% 86,805 315.84 Other Operated Departments 41.5% 4,604 17.12 78.6% 19,543 81.49 74.9% 12,091 43.99 Total Departmental Expenses 62.1% 106,385 395.53 59.9% 130,859 545.67 55.1% 151,287 550.45 Departmental Profit 37.9% 64,908 241.32 40.1% 87,768 365.99 44.9% 123,185 448.21 Undistributed Expenses
Administrative & General 10.2% 17,403 64.70 9.2% 20,011 83.44 8.9% 24,495 89.12 Information and Telecommunication Systems 1.4% 2,393 8.90 1.3% 2,820 11.76 1.6% 4,314 15.70 Sales and Marketing 8.1% 13,814 51.36 5.8% 12,775 53.27 6.6% 18,036 65.62 Property Operations and Maintenance 4.0% 6,819 25.35 1.5% 3,306 13.78 4.0% 10,845 39.46 Utilities 2.6% 4,470 16.62 1.9% 4,083 17.03 2.0% 5,617 20.44 Total Undistributed Operating Expenses 26.2% 44,899 166.93 19.7% 42,995 179.28 23.1% 63,308 230.34 Gross Operating Profit 11.7% 20,009 74.39 20.5% 44,774 186.70 21.8% 59,878 217.86 Base Management Fee 4.3% 7,412 27.56 3.0% 6,559 27.35 3.3% 9,001 32.75 Fixed Expenses
Property Taxes 0.0% (69) (0.26) 3.8% 8,228 34.31 2.7% 9,697 35.05 Insurance 1.2% 2,007 7.46 0.1% 208 0.87 0.9% 2,532 9.21 Total Fixed Expenses 1.1% 1,938 7.20 3.9% 8,436 35.18 3.6% 9,961 36.24 Net Operating Income Before Reserve 6.2% 10,659 39.63 13.6% 29,779 124.17 14.9% 40,916 148.87 FF&E Reserve 4.0% 6,852 25.47 4.0% 8,745 36.47 4.0% 10,979 39.95 Net Operating Income After Reserve 2.2% $3,807 $14.15 9.6% $21,033 $87.71 10.9% $29,937 $108.93 Source: CBRE Hotels Advisory
Addenda
Addendum B
ESTIMATED OPERATING RESULTS FOR THE
PROPOSED HOTEL
Addenda
PROPOSED OCEAN AVENUE PROJECT
Projected Operating Results
Fiscal Years Beginning March 1
2025/26 2026/27 2027/28 2028/29 2029/30
Number of Units: 120 120 120 120 120
Number of Annual Rooms Available: 43,800 43,800 43,800 43,800 43,800 Number of Rooms Occupied: 30,222 33,726 35,040 35,040 35,040 Annual Occupancy: 69.0% 77.0% 80.0% 80.0% 80.0%
Average Daily Rate: $875.00 $901.00 $928.00 $955.00 $983.00 Revenue Per Available Room: $603.75 $693.77 $742.40 $764.00 $786.40 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio Revenues
Rooms $26,444,000 64.4% $30,387,000 64.4% $32,517,000 64.6% $33,463,000 64.6% $34,444,000 64.6% Food & Beverage 8,785,000 21.4% 10,098,000 21.4% 10,806,000 21.5% 11,130,000 21.5% 11,464,000 21.5% Other Operated Departments 2,119,000 5.2% 2,436,000 5.2% 2,607,000 5.2% 2,685,000 5.2% 2,766,000 5.2% Miscellaneous Income 3,715,000 9.0% 4,241,000 9.0% 4,376,000 8.7% 4,508,000 8.7% 4,643,000 8.7% Total Revenues 41,063,000 100.0% 47,162,000 100.0% 50,306,000 100.0% 51,786,000 100.0% 53,317,000 100.0% Departmental Expenses
Rooms 7,382,000 27.9% 8,011,000 26.4% 8,409,000 25.9% 8,662,000 25.9% 8,921,000 25.9% Food & Beverage 8,411,000 95.7% 9,230,000 91.4% 9,725,000 90.0% 10,017,000 90.0% 10,318,000 90.0% Other Operated Departments 1,653,000 78.0% 1,900,000 78.0% 2,033,000 78.0% 2,094,000 78.0% 2,157,000 78.0% Total Departmental Expenses 17,446,000 42.5% 19,141,000 40.6% 20,167,000 40.1% 20,773,000 40.1% 21,396,000 40.1% Departmental Profit 23,617,000 57.5% 28,021,000 59.4% 30,139,000 59.9% 31,013,000 59.9% 31,921,000 59.9% Undistributed Expenses
Administrative & General 3,470,000 8.5% 3,695,000 7.8% 3,850,000 7.7% 3,964,000 7.7% 4,083,000 7.7% Information and Telecommunication Systems 556,000 1.4% 573,000 1.2% 590,000 1.2% 608,000 1.2% 626,000 1.2% Sales and Marketing 2,375,000 5.8% 2,446,000 5.2% 2,520,000 5.0% 2,595,000 5.0% 2,673,000 5.0% Property Operations and Maintenance 1,629,000 4.0% 1,678,000 3.6% 1,728,000 3.4% 1,780,000 3.4% 1,833,000 3.4% Utilities 801,000 2.0% 825,000 1.7% 850,000 1.7% 875,000 1.7% 901,000 1.7% Total Undistributed Operating Expenses 8,831,000 21.5% 9,217,000 19.5% 9,538,000 19.0% 9,822,000 19.0% 10,116,000 19.0% Gross Operating Profit 14,786,000 36.0% 18,804,000 39.9% 20,601,000 41.0% 21,191,000 40.9% 21,805,000 40.9% Source: CBRE Hotels Advisory Fiscal Years Beginning March 1 Addenda
PROPOSED OCEAN AVENUE PROJECT
Projected Operating Results
Fiscal Years Beginning March 1
2030/31 2031/32 2032/33 2033/34 2034/35
Number of Units: 120 120 120 120 120
Number of Annual Rooms Available: 43,800 43,800 43,800 43,800 43,800 Number of Rooms Occupied: 35,040 35,040 35,040 35,040 35,040 Annual Occupancy: 80.0% 80.0% 80.0% 80.0% 80.0%
Average Daily Rate: $1,013.00 $1,043.00 $1,075.00 $1,107.00 $1,140.00 Revenue Per Available Room: $810.40 $834.40 $860.00 $885.60 $912.00 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio Revenues
Rooms $35,496,000 64.6% $36,547,000 64.6% $37,668,000 64.6% $38,789,000 64.6% $39,946,000 64.6% Food & Beverage 11,808,000 21.5% 12,162,000 21.5% 12,527,000 21.5% 12,903,000 21.5% 13,290,000 21.5% Other Operated Departments 2,849,000 5.2% 2,934,000 5.2% 3,022,000 5.2% 3,113,000 5.2% 3,206,000 5.2% Miscellaneous Income 4,782,000 8.7% 4,925,000 8.7% 5,073,000 8.7% 5,225,000 8.7% 5,382,000 8.7% Total Revenues 54,935,000 100.0% 56,568,000 100.0% 58,290,000 100.0% 60,030,000 100.0% 61,824,000 100.0% Departmental Expenses
Rooms 9,189,000 25.9% 9,465,000 25.9% 9,749,000 25.9% 10,041,000 25.9% 10,342,000 25.9% Food & Beverage 10,627,000 90.0% 10,946,000 90.0% 11,274,000 90.0% 11,613,000 90.0% 11,961,000 90.0% Other Operated Departments 2,222,000 78.0% 2,289,000 78.0% 2,357,000 78.0% 2,428,000 78.0% 2,501,000 78.0% Total Departmental Expenses 22,038,000 40.1% 22,700,000 40.1% 23,380,000 40.1% 24,082,000 40.1% 24,804,000 40.1% Departmental Profit 32,897,000 59.9% 33,868,000 59.9% 34,910,000 59.9% 35,948,000 59.9% 37,020,000 59.9% Undistributed Expenses
Administrative & General 4,206,000 7.7% 4,331,000 7.7% 4,462,000 7.7% 4,596,000 7.7% 4,733,000 7.7% Information and Telecommunication Systems 645,000 1.2% 664,000 1.2% 684,000 1.2% 705,000 1.2% 726,000 1.2% Sales and Marketing 2,754,000 5.0% 2,836,000 5.0% 2,921,000 5.0% 3,009,000 5.0% 3,099,000 5.0% Property Operations and Maintenance 1,888,000 3.4% 1,945,000 3.4% 2,003,000 3.4% 2,063,000 3.4% 2,125,000 3.4% Utilities 928,000 1.7% 956,000 1.7% 985,000 1.7% 1,014,000 1.7% 1,045,000 1.7% Total Undistributed Operating Expenses 10,421,000 19.0% 10,732,000 19.0% 11,055,000 19.0% 11,387,000 19.0% 11,728,000 19.0% Gross Operating Profit 22,476,000 40.9% 23,136,000 40.9% 23,855,000 40.9% 24,561,000 40.9% 25,292,000 40.9% Source: CBRE Hotels Advisory
Addenda
Addendum C
ASSUMPTIONS AND LIMITING CONDITIONS
Addenda
Assumptions and Limiting Conditions
1. CBRE, Inc. through its consultant (collectively, “CBRE”) has inspected through reasonable observation the subject property. However, it is not possible or reasonably practicable to personally inspect conditions beneath the soil and the entire interior and exterior of the improvements on the subject property. Therefore, no representation is made as to such matters.
2. The report, including its conclusions and any portion of such report (the “Report”), is as of the date set forth in the letter of transmittal and based upon the information, market, economic, and property conditions and projected levels of operation existing as of such date. The dollar amount of any conclusion as to value in the Report is based upon the purchasing power of the U.S. Dollar on such date. The Report is subject to change as a result of fluctuations in any of the foregoing. CBRE has no obligation to revise the Report to reflect any such fluctuations or other events or conditions which occur subsequent to such date.
3. Unless otherwise expressly noted in the Report, CBRE has assumed that:
(i) Title to the subject property is clear and marketable and that there are no recorded or unrecorded matters or exceptions to title that would adversely affect marketability or value. CBRE has not examined title records (including without limitation liens, encumbrances, easements, deed restrictions, and other conditions that may affect the title or use of the subject property) and makes no representations regarding title or its limitations on the use of the subject property. Insurance against financial loss that may arise out of defects in title should be sought from a qualified title insurance company.
(ii) Existing improvements on the subject property conform to applicable local, state, and federal building codes and ordinances, are structurally sound and seismically safe, and have been built and repaired in a workmanlike manner according to standard practices; all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; and the roof and exterior are in good condition and free from intrusion by the elements. CBRE has not retained independent structural, mechanical, electrical, or civil engineers in connection with this consulting report and, therefore, makes no representations relative to the condition of improvements. CBRE consultants are not engineers and are not qualified to judge matters of an engineering nature, and furthermore structural problems or building system problems may not be visible. It is expressly assumed that any purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems.
(iii) Any proposed improvements, on or off-site, as well as any alterations or repairs considered will be completed in a workmanlike manner according to standard practices.
(iv) Hazardous materials are not present on the subject property. CBRE is not qualified to detect such substances.
The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater, mold, or other potentially hazardous materials may affect the value of the property. (v) No mineral deposit or subsurface rights of value exist with respect to the subject property, whether gas, liquid, or solid, and no air or development rights of value may be transferred. CBRE has not considered any rights associated with extraction or exploration of any resources, unless otherwise expressly noted in the Report. (vi) There are no contemplated public initiatives, governmental development controls, rent controls, or changes in the present zoning ordinances or regulations governing use, density, or shape that would significantly affect the value of the subject property.
(vii) All required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be readily obtained or renewed for any use on which the Report is based.
(viii) The subject property is managed and operated in a prudent and competent manner, neither inefficiently or superefficiently. (ix) The subject property and its use, management, and operation are in full compliance with all applicable federal, state, and local regulations, laws, and restrictions, including without limitation environmental laws, seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, and licenses.
(x) The subject property is in full compliance with the Americans with Disabilities Act (ADA). CBRE is not qualified to assess the subject property’s compliance with the ADA, notwithstanding any discussion of possible readily achievable barrier removal construction items in the Report.
Addenda
(xi) All information regarding the areas and dimensions of the subject property furnished to CBRE are correct, and no encroachments exist. CBRE has neither undertaken any survey of the boundaries of the subject property nor reviewed or confirmed the accuracy of any legal description of the subject property.
Unless otherwise expressly noted in the Report, no issues regarding the foregoing were brought to CBRE’s attention, and CBRE has no knowledge of any such facts affecting the subject property. If any information inconsistent with any of the foregoing assumptions is discovered, such information could have a substantial negative impact on the Report. Accordingly, if any such information is subsequently made known to CBRE, CBRE reserves the right to amend the Report, which may include the conclusions of the Report. CBRE assumes no responsibility for any conditions regarding the foregoing, or for any expertise or knowledge required to discover them. Any user of the Report is urged to retain an expert in the applicable field(s) for information regarding such conditions.
4. CBRE has assumed that all documents, data and information furnished by or behalf of the client, property owner, or owner’s representative are accurate and correct, unless otherwise expressly noted in the Report. Such data and information include, without limitation, numerical street addresses, lot and block numbers, Assessor’s Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets, and related data. Any error in any of the above could have a substantial impact on the Report. Accordingly, if any such errors are subsequently made known to CBRE, CBRE reserves the right to amend the Report, which may include the conclusions of the Report. The client and intended user should carefully review all assumptions, data, relevant calculations, and conclusions of the Report and should immediately notify CBRE of any questions or errors within 30 days after the date of delivery of the Report.
5. CBRE assumes no responsibility (including any obligation to procure the same) for any documents, data or information not provided to CBRE, including without limitation any termite inspection, survey or occupancy permit.
6. All furnishings, equipment and business operations have been disregarded with only real property being considered in the Report, except as otherwise expressly stated and typically considered part of real property.
7. Any cash flows included in the analysis are forecasts of estimated future operating characteristics based upon the information and assumptions contained within the Report. Any projections of income, expenses and economic conditions utilized in the Report, including such cash flows, should be considered as only estimates of the expectations of future income and expenses as of the date of the Report and not predictions of the future. Actual results are affected by a number of factors outside the control of CBRE, including without limitation fluctuating economic, market, and property conditions. Actual results may ultimately differ from these projections, and CBRE does not warrant any such projections.
8. The Report contains professional opinions and is expressly not intended to serve as any warranty, assurance or guarantee of any particular value of the subject property. Other consultants may reach different conclusions as to the value of the subject property. Furthermore, market value is highly related to exposure time, promotion effort, terms, motivation, and conclusions surrounding the offering of the subject property. The Report is for the sole purpose of providing the intended user with CBRE’s independent professional opinion of the value of the subject property as of the date of the Report. Accordingly, CBRE shall not be liable for any losses that arise from any investment or lending decisions based upon the Report that the client, intended user, or any buyer, seller, investor, or lending institution may undertake related to the subject property, and CBRE has not been compensated to assume any of these risks. Nothing contained in the Report shall be construed as any direct or indirect recommendation of CBRE to buy, sell, hold, or finance the subject property.
9. No opinion is expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate consultants. Any user of the Report is advised to retain experts in areas that fall outside the scope of the real estate consulting report profession for such matters.
10. CBRE assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance.
11. Acceptance or use of the Report constitutes full acceptance of these Assumptions and Limiting Conditions and any special assumptions set forth in the Report. It is the responsibility of the user of the Report to read in full, comprehend and thus become aware of all such assumptions and limiting conditions. CBRE assumes no responsibility for any situation arising out of the user’s failure to become familiar with and understand the same.
12. The Report applies to the property as a whole only, and any pro ration or division of the title into fractional interests will invalidate such conclusions, unless the Report expressly assumes such pro ration or division of interests.
13. The allocations of the total value estimate in the Report between land and improvements apply only to the existing use of the subject property. The allocations of values for each of the land and improvements are not intended to be used with any other property or consulting report and are not valid for any such use.
Addenda
14. The maps, plats, sketches, graphs, photographs, and exhibits included in this Report are for illustration purposes only and shall be utilized only to assist in visualizing matters discussed in the Report. No such items shall be removed, reproduced, or used apart from the Report.
15. The Report shall not be duplicated or provided to any unintended users in whole or in part without the written consent of CBRE, which consent CBRE may withhold in its sole discretion. Exempt from this restriction is duplication for the internal use of the intended user and its attorneys, accountants, or advisors for the sole benefit of the intended user.
Also exempt from this restriction is transmission of the Report pursuant to any requirement of any court, governmental authority, or regulatory agency having jurisdiction over the intended user, provided that the Report and its contents shall not be published, in whole or in part, in any public document without the written consent of CBRE, which consent CBRE may withhold in its sole discretion. Finally, the Report shall not be made available to the public or otherwise used in any offering of the property or any security, as defined by applicable law. Any unintended user who may possess the Report is advised that it shall not rely upon the Report or its conclusions and that it should rely on its own consultants, advisors and other consultants for any decision in connection with the subject property. CBRE shall have no liability or responsibility to any such unintended user.