Sun Prairie

Hotel Feasibility Study – Final Draft

Submitted to:

Neil Stechschulte
Director of Economic Development
City of Sun Prairie
300 E. Main Street
Sun Prairie, Wisconsin 53590

September 24, 2013

September 24, 2013

Neil Stechschulte
Director of Economic Development
City of Sun Prairie
300 E. Main Street
Sun Prairie, Wisconsin 53590

Dear Mr. Stechschulte,

The City of Sun Prairie engaged Hunden Strategic Partners (HSP) to conduct a market validation
study and an analysis to determine the financial feasibility of a hotel, potentially with meeting
space, within the City (referred to hereafter as the “Project”). The attached is our final draft
report.

This deliverable has been prepared under the following general assumptions and limiting
conditions:
! The findings presented herein reflect analysis of primary and secondary sources of
information that are assumed to be correct. HSP utilized sources deemed to be
reliable, but cannot guarantee their accuracy.
! No responsibility is taken for changes in market conditions after the date of this
report and no obligation is assumed to revise this report to reflect events or
conditions occurring after the date of this report.
! HSP has no control over construction costs or timing of construction and opening.
! Macroeconomic events affecting travel and the economy cannot be predicted and
may impact the development and performance of the project.

We have enjoyed serving you on this engagement and look forward to providing you with
continuing service.

Sincerely yours,

Hunden Strategic Partners

T ABLE OF C ONTENTS
---------- Executive Summary

Chapter 1 Economic and Demographic Analysis of Sun Prairie

Chapter 2 Meetings Industry Analysis and Trends

Chapter 3 Meetings Market Analysis

Chapter 4 Hotel Market Analysis

Chapter 5 Site Analysis

Chapter 6 Recommendations

Chapter 7 Demand and Financial Projections

I NTRODUCTION
Hunden Strategic Partners was retained by the City of Sun Prairie, Wisconsin to study the hotel
and conference meeting space markets in the Sun Prairie area, and the feasibility of responding
with either a decision to not construct, or proceeding with constructing and operating a hotel
with connected meeting space at potential locations in the Sun Prairie area.

Sun Prairie is at a crossroads both figuratively, with the rapid transformation from an
independent, suburban city to an integral extension of the Madison regional residential and
business community, and literally, as U.S. 151 intersects expanded former country roads at
important focal points in the newly emerging suburban landscape.

Hunden Strategic Partners conducted a series of studies by interviewing, in both east Madison
and Sun Prairie, local employers, hoteliers, restaurants, golf clubs, community centers, business
owners, and a midget auto racing speedway. The findings are that there are many local
businesses and small community groups that regularly use meeting rooms, and others that offer
individual party rooms or small meeting space. Occasionally, but rarely, there is a need for large
spaces to accommodate as many as 150 to 200 people, either for social, particularly banquets
and weddings, or business reasons such as the Chamber of Commerce meetings or other City-
sponsored events. Larger meeting spaces, however, are not available in the immediate local
market. For a healthy, but growth-stabilized community, the balance works for the local
population.

However, for a community that is prospecting and preparing for steep growth in business, jobs,
events, and eventually tourism, the supply of both hotel and meeting facilities is nearly
nonexistent. There are four local hotels within the corporate limits of Sun Prairie and they are
severely lacking in providing a range of quality of rooms, total number of rooms, convenience,
and growth probabilities. The hotels within Sun Prairie only account for eight percent of the total
hotel rooms in the market. Each hotel has fewer than 70 rooms, limiting their ability to host
groups of any decent size. Only one hotel (The Quality Inn Sun Prairie) features a breakfast and
completely renovated rooms. The other hotels are independent and/or economy class, while the
area market ranges in chain scale and quality from upper upscale to economy, suggesting that
Sun Prairie’s hotels are within the lower portion of the quality supply available. It is a virtual
vacuum of name brand chain hotel nameplates, accommodations with restaurants, or any
meeting facilities of any size.

With regard to meeting space, the current collection of meeting spaces range from small party
rooms in restaurants and a bowling center to community rooms in city-owned community
centers and a senior center. Madison, being the seat of state government, is the center of activity
for a growing number of state associations, unions, and interest groups. Youth sports leagues
and sports tournaments are a strong and growing segment of the hotel market during weekends,
while corporations and business travelers fill rooms during the weekdays. The means to track the
impact of youth sports on overnight stays, however, is still being developed. One concept that
benefits both hotels and tournaments and allows for easier traceable data associated with sports

Sun Prairie Hotel Feasibility Study Executive Summary - Page 2

is ‘stay-and-play.’ Within this concept, particular hotels are designated as the required hotels for
any participants desiring to compete. The hotels must offer reduced rates but in turn receive
guaranteed occupancy and business.

The need for meeting space being used by employers for the purposes of training is also
increasing. Therefore as corporations and suburban youth sports grow their presence in Sun
Prairie and the east side of greater Madison, larger meeting space capacities and a greater
quantity of hotel accommodations with well-known brand names will be an opportunity missed if
the City foregoes the chance to meet this demand. Currently the City-generated demand for a
large meeting space has not reached the point of self-sustainability. However, any new meeting
space will tap into the significantly large and varied meeting market of the Madison area.

Sun Prairie realizes it at a juncture in which planning for keeping a future tax base within the City
limits is necessary, and has wisely chosen to study the possibilities of how to help secure that
future tax base, and to nurture and accommodate future growth.

The City looks to recapture the lost hotel stays and guest spending that takes place in east
Madison and stays there, only two to three miles southwest on the same busy highway from Sun
Prairie, rather than directing spending and tourism in the City of Sun Prairie and its new retail
and entertainment districts at Prairie Lakes and transformed historic downtown Sun Prairie.

As a result of the analysis and research, Hunden Strategic Partners is recommending Sun Prairie
build a 120-room limited or select-service hotel with a 4,000 square foot ballroom that will be
large enough to seat 300 guests, plus 2,400 square feet dedicated to three meeting rooms with
movable walls, and an executive board room. Not included in that total is an entry space that can
act as a pre-function reception area. It is also advised that a kitchen space be constructed for use
by a caterer plus a basic breakfast and dinner restaurant to accommodate the needs of guests
and groups. In the mean time, there are several well-established and qualified restaurants in Sun
Prairie that already offer catering services and a variety of menus and cuisines, if the costs of an
in-house kitchen are too great. Finally, the City should reserve ample space for expansion,
particularly for the possibility of future ballrooms and other spaces.

Consideration was given to four sites, three of which are at the interchange at expressway U.S.
151 and Grand Avenue. The fourth site is north of Windsor Road (Wisconsin Highway 19) in
outlots of the QBE office complex. The best location for this facility is at the Prairie Lakes
development, due to the visibility from the heavily travelled U.S. 151 (52,000 vehicles per day),
at the arterial Grand Avenue, the growing number of complimentary dining, cinema and retail
options for guests, and the possible space for future growth. However, in order to achieve public
participation, a hotel with meeting space at this site or any site is likely to require some form of
public assistance (e.g. TIF). The Prairie Lakes site was recently approved for a TIF district, which
provides the City with options for inducing such development. Two other sites at this interchange
are also very viable and one, the St. Mary’s site, is already owned by the City and in a TIF
district.

Sun Prairie leaders realize that a subsidy (upfront or over time) may be required help the hotel
and conference center project, as the scope of the complex may initially be too large for the

Sun Prairie Hotel Feasibility Study Executive Summary - Page 3

current market. However it will almost certainly see a growing business as the City melds with
east Madison's suburban expansion.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 4

Recommended Facility

Recommended Facility. No hotels with full service amenities are feasible financially. However,
the City is not interested in a rooms-only economy hotel. As a result, HSP ran multiple scenarios
and, based on market opportunities and indications of the public sector’s needs for function
space, a 120-room select-service hotel is recommended, including approximately 6,900 square
feet of function space. HSP considered locations near demand generators along U.S. 151 and the
business park and found that sites closer to the highway and in close proximity to dining and
entertainment will likely be more feasible. In addition, the potential incentives and land availability
offer opportunities that are more likely to transpire sooner than later.

The City requested that larger facilities be studied. Two larger scenarios were completed and
their results suggest that the larger the hotel and function space, the less feasible the project.

Sun Prairie’s population has grown over 30 percent over the past decade and the growth is
going to continue as more housing, retail and business developments continue. Additionally the
impact from growing companies such as EPIC must be taken into consideration, along with large
regional events such as the World Dairy Expo, which is hosted in Madison. Events such as the
World Dairy Expo fill not only Madison hotels, but those throughout the region. Taking this into
consideration, the recommended hotel should be located on a site that will allow for expansion.
As the community’s needs change, the facility should be planned to accommodate the greater
needs by having space to increase hotel rooms, expand function space or both. Space should be
large enough to ad additional ballroom space and enough meeting rooms to compliment the
ballroom expansion. This element of the Project is critical to ensure the conference hotel does
not become obsolete.

The scenarios are shown below, with the recommended hotel being the smaller 120-room hotel
with select-service amenities and strong brand.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 5

 Table 1
Estimated Hotel Cost (excluding land)

Recommended Select Service Select Service Plus Conference

Scenario Plus Function Space Space* Full-Service Conference Hotel
Rooms 120 150 200
Net Meeting Space 6,900 10,000 20,000
Total Square Footage 79,200 100,000 154,000
Floors 5 6 9
Months of Construction 12 13.5 16
SF/Room 660 667 770
Est. Hard Costs $11,088,000 $14,850,000 $26,180,000
Est. Soft/Other Costs $5,100,480 $6,972,000 $10,995,600
Est. Development Cost $16,188,480 $21,822,000 $37,175,600

Cost per Square Foot $204.40 $218.22 $241.40

Cost per Room $134,904 $145,480 $185,878
Structure Type Metal Stud Metal Stud Concrete

* intended expansion target for any hotel project

Source: Pepper Construction, Hunden Strategic Partners

The recommended scenario is still very expensive, but not as much as the larger scenarios. The
cost per room increases with the increase in the amount of function space. Profitability declines
as more amenities are offered, as well.

S UMMARY OF C ONCLUSIONS FROM C HAPTERS

Local Demographics and Economy

The Sun Prairie area continues to grow and is helped by excellent access via US-151, large
employers in the area, such as QBE Insurance Group, Wisconsin Distributors and American
Family Insurance, located just outside of the City. The City itself and the downtown area have
expanded and shown strong population and business growth over the past decade. There have
been a number of public-private efforts, many successful, to reinvigorate parts of downtown, and
the Prairie Lakes development along 151. These efforts have led to more optimism and drive to
create more growth based on new developments, like a new hotel, conference center and
potentially a youth sports facility.

Many of the users of a hotel would ostensibly be generated by businesses and activities in and
around the large employers in the area, the Sun Prairie business park on the north side of the
City. Hotel demand generators include major employers, hospitals, universities and tourism
areas. While there are no major demand generators in Sun Prairie, there are a number of smaller
demand generators for hotel rooms and meeting facilities that will be discussed in this report.
The existing companies in the area create demand for hotel and restaurant businesses, by

Sun Prairie Hotel Feasibility Study Executive Summary - Page 6

hosting company employees, trainees and individuals for meetings that reside outside of Sun
Prairie, and their existence in the area helps build a base of need.

Meeting Industry Trends

The convention and conference event industry is diverse and responds well to facilities that can
accommodate their needs, such as assembly space for general sessions and displays, ballroom
facilities and numerous breakout-meeting rooms. Supply has been outpacing demand in the
convention and meetings industry, even before the economic downturn in 2008. This is
demonstrated within the exhibit space supply, which grew from an approximate index of 160 to
over 210 between 2002 and 2012. The demand of paid exhibit space, while increasing, grew at a
slower rate between 2002 and 2007, only to be followed with an overall decrease until 2012
when demand picked up again. This contrast of exhibit space supply and demand can better be
viewed in upcoming Figure 2-1 of chapter two.

Important factors in the decision-making process of choosing a convention, conference or

meeting site include the availability of nearby hotel rooms, cost of travel, and meeting space in
the facility and hotels. The most important types of meeting space now are the number of
breakout meeting rooms and ballrooms. Expo and exhibition space are still important, but less so
now than in the past. Higher rated business (e.g. corporate, medical, associations that are willing
to pay more for better facilities and experiences) needs many breakout rooms and high quality
ballrooms to conduct their trainings and other meetings. This shift in demand for the types of
meeting space has opened up the opportunity for smaller, newer spaces in the market.

Is investment in this industry worth it? For those that construct and manage the right set of
facilities within an attractive market, yes. Those that put the right package together: hotels and
the right kinds of function space in a walkable environment, allowing for quick and easy travel
between not only the lodging and function space but also food and entertainment options, will
generate new meetings and event business. Enhancing the ‘fun’ side of the community, such as
a nearby downtown or entertainment/restaurant district, will provide the community more to sell
against its competitors. However, these are all expensive investments for a community and the
business is very competitive. There are no magic bullets, even with amenities or services
provided that differ or are unique from the surrounding meeting space market and able to
generate a portion of the necessary demand. Sun Prairie should temper its expectations of
economic impacts from such a facility. Instead, it should plan for the market as it is and the
market is expects to attract with growth over time.

Existing hotels and meetings spaces can recognize the opportunity for enhanced business as Sun
Prairie and the nearby area continues to grow. By improving their existing product, up-branding
to a more valued chain and modernizing, the existing Sun Prairie hotels and meeting facilities
can capture more business, recapture business that was leaving and increase their price point to
be more similar to rates closer to Madison.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 7

Local Meeting Supply and Demand

Based on analysis conducted, there are multiple meeting and event facility options within and
surrounding Madison. The meeting and event facilities of particular interest are near Sun Prairie,
at the intersection of U.S. Route 151 and Interstate 39/90/94. The Sun Prairie development plan,
of building the City into a seamless extension of the eastern Madison business sector, has led to
the consideration of a meeting facility intended to capture a portion of the market. A new hotel
and conference facility in Sun Prairie could assist the expansion of the marketplace in a
northeastern direction, and initiate meeting planners to consider Sun Prairie as an alternative to
the I-39/90/94 and U.S. 12/18 Madison Beltline.

To understand and evaluate the possible local demand for a hotel and event center in Sun
Prairie, there first must be an understanding of the current facilities utilized for meetings and
events in the surrounding area. The establishments with function space in the Madison area are
located in four clusters, the largest being downtown Madison. Two are located in western
Madison at Greenway Blvd, south of downtown on John Nolen Drive, and two in east Madison
nearest to Sun Prairie. Such establishments include hotels, restaurants and educational
campuses.

For any hotel with function space, a key and user and local demand generator will be the area
businesses, groups and residents. HSP contacted various companies that operate within Sun
Prairie. This section summarizes HSP’s findings and suggestions based on interviews and other
primary and secondary research about the current function spaces that are used. HSP also
opened the discussions for suggestions for how a potential new meeting facility may be
envisioned and utilized. The findings drive the implications and the recommendations for a
potential hotel with function space in Sun Prairie and provide an understanding of the local
demand. The comments and their suggestions are as follows:

Sun Prairie’s recent history as a bedroom community that expanded from a small suburban town
has presented the City with many challenges, which includes the lack of meeting space options in
the immediate area. Historically, there was little need for large venues for meetings or banquets.
Weddings and holiday banquets are typically the largest users of function space facilities. The
supply of Sun Prairie’s meeting space facilities reflect the small town character, rather than an
extension of metropolitan Madison.

A new conference center and hotel in Sun Prairie is projected to break even in the early years,
and have increased opportunity to generate more revenue if meeting space rates are competitive,
and special room rates are provided to various agencies to induce more stays. However, there is
concern amongst some business owners that a new conference center would not help current
hotels such as the Quality Inn, and could take some business away from current Sun Prairie
reception halls. In addition, although the City took the initiative to provide downtown with some
needed attention with a bright and handsome Main Street beautification and Cannery District
development, some in the community fear that placing the hotel, conference center and big-box
stores three miles east of downtown will only hurt, not help, the downtown district businesses.
However, in HSP’s experience, by adding a new level of high quality accommodation to a market,
the new product does not split the existing pie, but enlarges it (and enhances pricing power).

Sun Prairie Hotel Feasibility Study Executive Summary - Page 8

This larger demand base that is induced by the new, high quality accommodations and event
space, provide new energy and overflow business opportunities to others. Initially, in the first 18
months, there may be some shifting of demand. However, most of that will come from non-Sun
Prairie properties. The market growth itself will absorb the new hotel in a matter of one to two
years in any event, which broadens the base and provides new jobs and spending in Sun Prairie,
instead of outside the City’s borders.

Madison has several conference spaces spread throughout the city, particularly as the new
Edgewater hotel opens another 5,720 square foot ballroom near Monona Terrace. However if the
bigger picture of community leaders includes luring people and business off I-90/94 and
northeastward towards Sun Prairie, then a large ballroom and conference center, plus a
combination of rooms, restaurants and easy highway access near Madison can equip a sales
force with enough ammunition to draw large business events, galas, and conferences to Sun
Prairie, even if it takes a few years to become entrenched in the minds of meeting planners
across the region. A well run, well located facility will ultimately not hurt the local market, and
the market will respond positively to a new center for meetings and banquets.

Those community members that are concerned with a loss of business downtown have reason to
be concerned with the ever-changing landscape, however, not with this particular concept.
Growth is coming to Sun Prairie, so it is usually best to plan for the City’s expansion so that the
entire community can benefit. Instead of allowing the lowest quality hotels to crop up as the
market ADR (average daily rate) suggests currently (and as demonstrated by a recent proposal
for just such a project), the City can clearly see that growth and quality expectations will
continue. By fostering a hotel development that is a step above what the market would generate
on its own now, it advances the City’s economic development by several years and sets in
motion a hotel that will not only be ready for market growth, but will push economic expansion.
While any new hotel project will compete and challenge the existing hotels in Sun Prairie, the
positive impact on the local restaurants and retailers will not only benefit the individual
establishments but the City as a whole. Any guest staying within Sun Prairie as a result of a new
hotel and associated meeting space will generate new business and revenue that previously
would not have existed. The outcome and validation of that plan will always be open for debate,
so it is advised to involve a variety of opinions in the planning process.

In the best scenario, the City can use a new conference center and hotel to help escalate Sun
Prairie’s reputation as a specially branded extension of Madison’s unique and positive national
reputation. The City is already tethered physically by nearly unbroken development along U.S.
151 to Madison. A Sun Prairie conference center and hotel will connect its growing city
reputation to a positively reinforced reputation of Madison already in place. Even during periods
of low conference activity, the quality of a project like the proposed hotel and conference center
will tint positively the impression of Sun Prairie to many visitors from across the Midwest and
the nation. The result of that kind of impression can bring measured growth and is ultimately is
good for the entire City’s growing fortunes.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 9

 Hotel Market Analysis

HSP used Smith Travel Research data to analyze the chosen competitive set of hotels around
Sun Prairie. The primary factors considered were location, function space, quality, amenities,
size, brand and market demand mix. If a new hotel is developed in Sun Prairie, it will compete
against the newest and highest quality hotels in the area and if a full-service hotel or superior
select service hotel with function space is developed, it will compete with those same hotels plus
the larger meetings hotels in the market.

The following table shows the performance data for the competitive set of hotels from 2007
through April of 2013.

Table 2
Historical Supply, Demand, Occupancy, ADR, and RevPar for Competitive Hotels
Annual
Available
Avg. % Room
Year Room % Change % Occ. % Change ADR % Change RevPar % Change
Available Change Nights Sold
Nights
Rooms

2007 1,059 386,435 -- 248,986 -- 64.4 -- $93.15 -- $60.01 --

2008 1,093 398,945 3.2% 262,877 5.6% 65.9 2.3% $95.07 2.1% $62.64 4.4%
2009 1,208 441,099 10.6% 231,011 -12.1% 52.4 -20.5% $90.91 -4.4% $47.61 -24.0%
2010 1,344 490,468 11.2% 272,623 18.0% 55.6 6.1% $87.82 -3.4% $48.81 2.5%
2011 1,343 490,195 -0.1% 295,876 8.5% 60.4 8.6% $91.32 4.0% $55.12 12.9%
2012 1,343 490,195 0.0% 311,318 5.2% 63.5 5.2% $92.96 1.8% $59.04 7.1%
2013 YTD (April) 1,343 161,160 0.0% 100,771 10.8% 62.5% 10.8% $88.42 -0.7% $55.29 10.0%
CAGR* (2007 -2012) 5.4% 5.4% -- 5.0% -- -0.3% -- 0.0% -- -0.3% --
*Compound Annual Growth Rate
Sources: Smith Travel Research, Hunden Strategic Partners

Demand for room nights in the competitive set has increased over the previous six years by 25
percent, from approximately 250,000 to 311,000 room nights sold. The overall trend has been
positive, with the exception of a 12 percent decrease between 2008 and 2009. Supply increased
between 2007 and 2010 by 27 percent. This increase is due to the opening of the Holiday Inn
Madison at The American Center in April 2007, Fairfield Inn & Suites Madison East in August
2009 and Cambria Suites Madison in July 2009. These three hotels introduced approximately
390 new hotel rooms to the competitive set. The new hotels were introduced during the
recession, which exacerbated the occupancy decline. Since then, occupancy has nearly recovered
to 2008 levels. However, occupancy is still below healthy levels required to financially sustain the
development of new upscale hotels, although it is increasing quickly in 2013. Occupancy levels
typically would need to hit 66 to 67 percent on an annualized basis to support additional hotel
development beyond “economy” products. With double-digit growth expected in 2013, Sun
Prairie should be at that point within a year. However, those performance rates will still not
support a full-service meetings hotel without assistance, but it will support a select service
product in a well-located site.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 10

The average daily rate peaked at $95 in 2008 and is expected to reach that peak again in 2013.
RevPAR, revenue per available room, is the product of occupancy and rate. It peaked in 2008 at
$62.64 but has yet to increase back to this rate. As of 2012, it was at $59.04. Increases in
RevPAR however have been recorded since 2010. Occupancy peaked at nearly 66 percent in
2008, which is still relatively low for a peak period.

The following table shows the occupancy by day of week per month for the past twelve months
as of April 2013. Days of week between 75 and 80 percent occupancy are shown in yellow,
suggesting mild displacement, when sellouts occur, and unaccommodated demand, while orange
shows days in months with 80 to 90 percent occupancy, suggesting very likely displacement.
Days in red are for times when occupancy was beyond 90 percent for the set, suggesting near
certain displacement.

Table 3
Occupancy Percent by Day of Week by Month - May 2012 - April 2013

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Avg

May - 12 38.3% 58.0% 72.5% 73.1% 58.7% 57.2% 69.1% 61.0%
Jun - 12 44.5% 80.6% 90.3% 88.6% 70.9% 68.1% 74.3% 73.9%
Jul - 12 45.6% 71.9% 79.5% 74.0% 66.8% 77.7% 90.8% 72.3%
Aug - 12 43.4% 78.4% 87.2% 85.8% 71.4% 75.0% 83.7% 75.0%
Sep - 12 54.8% 68.8% 83.0% 84.3% 67.4% 66.9% 86.8% 73.2%
Oct - 12 39.7% 76.2% 85.8% 85.0% 80.2% 87.2% 91.4% 77.9%
Nov - 12 31.8% 58.7% 72.1% 74.4% 54.7% 50.6% 54.6% 56.7%
Dec - 12 27.1% 49.8% 60.7% 55.9% 49.1% 38.5% 43.4% 46.3%
Jan - 13 28.6% 62.5% 64.6% 68.6% 49.6% 35.9% 42.4% 50.3%
Feb - 13 32.6% 68.7% 83.7% 78.1% 65.5% 59.4% 63.6% 64.5%
Mar - 13 33.4% 68.7% 80.6% 76.6% 60.1% 66.4% 66.5% 64.6%
Apr - 13 38.6% 70.9% 86.0% 85.7% 66.0% 71.3% 74.8% 70.5%
Average 38.2% 67.8% 78.8% 77.5% 63.4% 62.9% 70.1%

Sources: Smith Travel Research

As shown, occupancy during October of 2012 was consistently high six days of the week, with
five of those days over 80 percent. This is in part due to the five-day World Dairy Expo held in
Madison. (This demonstrates that the existing local hotels in Sun Prairie, and a proposed hotel
project, can attract business and increase occupancy during larger regional events held in
Madison. Coordinating with the Madison CVB to meet the lodging needs of guests attending
these larger regional events would benefit both Madison and Sun Prairie, accommodating the
temporary hotel demand surplus within Madison that is a result of these larger events.) August
was not as consistent, but showed high occupancy with Tuesday, Wednesday and Saturday over
80 percent. Tuesdays and Wednesdays from March through October showed high rates of
occupancy and unaccommodated demand, which is when rooms are likely not available in
preferred hotels and guests have to settle for their second or third choice of hotels.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 11

The following figure shows the estimate of unaccommodated room nights over the past several
years.

Figure 1

Estimated Unaccommodated Room Nights

10,000
8,000
6,000
4,000
2,000
-
2007 2008 2009 2010 2011 2012 2013

Source: Hunden Strategic Partners

An unaccommodated room night is when a traveler seeking accommodations within the market
must either cancel their stay or settle for accommodations of lesser quality because the desired
facilities have no vacancies. The number of estimated unaccommodated room nights is
determined in any month when occupancy is higher than 66 percent. Certainly based on the prior
table, there are sellouts at many hotels during the spring, summer and fall months, while winter
is only modestly occupied. However, when rooms sell out or nearly do so, rates can be increased
and the viability of new hotels is more likely.

Based on HSP estimates, unaccommodated room night demand for the competitive set has
increased from less than 100 room nights in 2009 to more than 8,600 in 2012, enough to
support an additional 35 to 45 quality rooms in the market without significant business impacts
to the existing hotels. However, with an overall occupancy of 62.5 percent and only a few dozen
rooms supported, any new hotel is not going to be feasible without some outside financial
support.

The Sun Prairie hotel market is heavily concentrated in the Madison East hotel cluster with only
four, small, limited quality and service hotels within City limits. The gradual increase in the
competitive set’s occupancy rate back to previous levels shows the market is slowly absorbing
the increase in room supply. The market is beginning to reach an occupancy level where
additional hotel rooms may be needed to fulfill unaccommodated demand. However, given the
low occupancy rate and the other data showing moderate market demand, rates are not likely to
be increased much. The estimated unaccommodated demand suggests the market is
approaching the demand for a new hotel, albeit a small one. New hotels will put pressure on
older, lesser quality products, as visitors have a tendency to flock to higher quality. Over time,
the quality and rate of the hotels in the area should continue to improve.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 12

There are no upper upscale or better hotels in the market and the newest properties have been
upper midscale and upscale. There is a large gap in hotel function space between the Crowne
Plaza’s 10,600 square feet and the rest of the hotels that offer 3,000 square feet or less. The
Crowne Plaza is the only hotel in the immediate Sun Prairie area that can host large events of
more than 200 people. The hotels within Sun Prairie city limits lack function space, have cycled
down significantly and cannot be a good representative for the community.

While Sun Prairie has no competitive hotels that can support large meetings and events, it
remains a pioneering area for development in general. There is substantial financial risk
associated with a new hotel in Sun Prairie, which may not be feasible without public assistance,
and more so if it includes significant function space. Also, if local companies, events and
organizations steered some of their business to this local hotel as a civic effort, it would enhance
the property’s success. Given that it would be the only hotel with function space in the City, this
local support is likely critical. Based on HSP’s analysis, the meeting space at the hotels in the
competitive set are underutilized in many cases, suggested tepid demand for function space.

The high number of businesses located downtown and to the east of Madison, near the I-
39/90/94 and U.S. 151 intersection and along Business Park Drive in Sun Prairie, suggest that
hotel demand should be solid for several years in the future. Additionally I-94, just south of Sun
Prairie, connects Madison and Milwaukee. While its impact on hotel demand for a new project in
Sun Prairie would be limited, it should not be overlooked. The promising additions of new and
expanded businesses should continue to add hotel demand over time, along with the recent and
ongoing Sun Prairie downtown revitalization project.

Site Analysis

The following figure illustrates the most viable hotel and conference center sites.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 13

 Figure 2

Sun Prairie Hotel Feasibility Study Executive Summary - Page 14

The next map shows the traffic counts on the roads going through Sun Prairie and near hotels in
the area.

Figure 3

Data for this map was gathered through Dane County 2009 traffic maps, the most recent data
available. U.S. Route 151, as previously shown, is the most frequently traveled stretch of

Sun Prairie Hotel Feasibility Study Executive Summary - Page 15

roadway within Sun Prairie. As a U.S. highway running through Iowa and Wisconsin, it contains
the highest volume of long-distance travelers through Sun Prairie, which is beneficial for any
potential hotel in the immediate vicinity. The I-90 arterial roadway that intersects with U.S. 151
handles travelers originating from larger urban hubs such as Chicago, Madison, and Milwaukee
and as far as Minneapolis. As a result of newer dining, entertainment and retail options such as
Costco, Target and Woodman’s, U.S. Route 151 is the primary means to access Sun Prairie’s
retail opportunities. The highway supports between 35,400 and 52,000 cars per day between
State Highway 19 and Nelson Road. A hotel within Sun Prairie visible from U.S. Route 151 at
one of the four main exits will increase the likelihood of the hotel’s success. In addition to U.S.
Route 151, State Highway 19 is the second most frequently traveled thoroughfare within Sun
Prairie. The daily traffic ranges from 13,300 to 19,500 cars per day between North Grand Avenue
and Bird Street, and 3,500 to 11,800 cars per day between West Main Street and Egre Road.

Analysis of each prospective site leads to the conclusion that a hotel would best be suited close
to the intersection of U.S. Route 151 and South Grand Avenue. Any hotel farther from this major
thoroughfare, such as at the QBE site, would not have the access or visibility needed to survive
in this competitive market without direct involvement from QBE. In addition, that site is not close
to the areas where demand is being generated. As discussed in Chapter 3, most of the area
businesses do not generate a significant amount of hotel room nights or have a need for function
space most of the year.

Interstate 90 and U.S. Route 151 are arterial thoroughfares for the region and southern
Wisconsin. A hotel along U.S. 151 will optimize the opportunities for the hotel to capture more
highway travelers. In addition, the proximity to dining, entertainment and retail options at the
U.S. Route 151 and Reiner Road site is a key factor when visitors are seeking nearby services
and amenities. Site A, and potentially D if provided some form of financial assistance, allow the
development to take advantage of additional funding mechanisms. The City also owns the
property for Site D, which enables greater control in the development process, as well as
eliminates the time required to purchase and amass the necessary land for the project.

The following table shows the site rankings based on the HSP’s analysis.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 16

 Table 4
Site Rankings

HSP
Rank Site Notes

Best access/visibility to most long-distance traffic, Local TIF incentives,

1 A: Prairie Lakes Close proximity to F&B, entertainment and retail options

Good access/visibility to long-distance traffic, Local TIF incentives, City

2 D: St. Mary's ownership, Close proximity to F&B, entertainment and retail options

Best visibility and good access to most long-distance traffic, Close

3 C: Smith's Crossing proximity to F&B, entertainment and retail options

4 B: QBE Best proximity to local businesses, Worst visibility, Challenging access

Source: Hunden Strategic Partners

Each of the four listed sites were evaluated and ranked based on their access, visibility and
proximity to demand generators (such as local businesses, entertainment, retail options and
F&B), ownership and any associated incentives or assistance. Based on the site analysis, Site A
is the optimal location based on its access, visibility, and proximity to demand generators. It also
was recently placed in a TIF district and is generally ready for development. Other important
factors include the owner’s desire to sell the land; it is zoned for planned development and has
city utilities servicing the site. The current development of retail and restaurant developments at
the Prairie Lakes Shopping Center can have a substantial impact on the early success of a hotel
development.

Site D offers a good option for a hotel development, since the City owns and controls the
property and the site is already part of an established TIF district. Although the site has relatively
easy accessibility and great visibility, the hotel will not have dining and entertainment
immediately adjacent to the hotel, unless recruited to the site, although it is just across the 151
interchange.

Site C, Smith’s Crossing, is a viable site in terms of access and visibility. In fact, it has some of
the best visibility of the sites. If it were located in a TIF district it would have a better opportunity
to financially induce a hotel development beyond a basic economy hotel. This was previously
proposed but not approved by the City for the site.

SWOT Analysis

A SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis was conducted. A SWOT
analysis identifies critical factors that will impact the Project’s overall performance. It also

Sun Prairie Hotel Feasibility Study Executive Summary - Page 17

suggests implications for the sizing and quality of the project given the current environment.
Strengths and weaknesses are currently factors impacting the potential project as well as items
inherent in the project or market, while opportunities and threats are potential and external
factors impacting the success of the Project.

SWOT Analysis

A SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis was conducted. A SWOT
analysis identifies critical factors that will impact the Project’s overall performance. It also
suggests implications for the sizing and quality of the project given the current environment.
Strengths and weaknesses are currently factors impacting the potential project as well as items
inherent in the project or market, while opportunities and threats are potential and external
factors impacting the success of the Project.

Strengths
! Visibility. Assuming the hotel is developed near the U.S. 151, the hotel could have
significant visibility to traffic traveling in and out of Sun Prairie, with approximately
47,300 to 52,000 vehicles passing by daily. This is vital to leisure travelers, who
aside from possible off-site advertising such as billboards, would be unaware of
hotel options within Sun Prairie. In addition, this visibility will let those who visit Sun
Prairie know there is a hotel option besides the Madison East hotel cluster at the I-
90 and U.S. 151 interchange.
! Access. The proposed hotel would be very accessible just off the highway and
would service area businesses and any overflow from the Madison area well. The
hotel would be located on or very near to U.S. 151 and Reiner Road that runs
directly by the Shoppes at Prairie Lakes, restaurants and is within four miles of
downtown. This site is approximately a one half-mile, one-minute drive from U.S.
151, requiring only two turns. Relative to hotels in Sun Prairie, it will be of
substantially higher quality and more conveniently located for visitors traveling to
and from businesses in Madison or the business park on the eastside of the City.
! Opportunity for Groups to “Own” the Community. Smaller markets can
attract groups that do not like being one of many events in the city. In a smaller
market a group is able to book an entire facility and not host simultaneous events
with other potential groups. This gives the sense of added importance and attention,
as well as eliminates competition for shared facility space and amenities. Additionally
those attending the hosted event would not be in competition for service at the local
establishments, such as restaurants. In Sun Prairie, a group will likely “own the
hotel” and establishments while in the City, providing a sense of attention and pride
to the group, compared with Monona Terrace, which is a much larger facility.
! Flight to Quality. As has been shown with the newer Courtyard, with weekday
rates as high as $159 and an estimated average rate of close to $120, there is a
flight to quality that occurs when new, well-located hotels open with the services and
amenities customers expect. This then draws business from the existing hotels, such

Sun Prairie Hotel Feasibility Study Executive Summary - Page 18

 as some of the properties in the East Towne Mall Area, that may be older or of
lesser quality than customers desire.

Weaknesses
! Small Market. The population of Sun Prairie and the business community is small
in comparison to larger cities and markets, such as Madison or Milwaukee. As a
result, there is not a critical mass of hotel demand from these traditional sources.
This is the largest hindrance to the development and viability of a hotel, especially
one with full-service amenities like catering and ballroom space.

Opportunities
! Lack of Existing High Quality Select or Full-Service Hotel. There is no
direct competitor for the Project in Sun Prairie, suggesting it would own the market.
Based on the cycling down and decline of the existing hotels, due to a lack of
reinvestment in and updates to the properties, which is necessary to compete with
the surrounding market’s level of quality, the hotel, in fact, will be the highest quality
hotel in Sun Prairie and the competitive set. This would set it apart from all
competitors, regardless of location. Depending upon the amenities and function
space offered, the hotel could fill a gap in the market for high quality, select or full-
service lodgings and larger meeting space. This would allow it to charge relatively
high rates if business started shifting to the property from those in Madison.
! Catalytic Development. The proposed hotel can serve as a catalytic development
to retain and attract businesses, groups and visitors to Sun Prairie. Development is
often a catch-22 situation, where an investment such as a hotel is not necessarily
feasible without other amenities and demand generators. Yet the other amenities and
demand generators may not occur as quickly without a hotel. To start the
development trend, public entities can spur development by investing in this area
now, helping to bridge the risk gap that has kept other developers at bay. The
mixed-use Prairie Lakes development and the indoor ice arena are encouraging
projects that will help spur additional restaurants, bars and retail shops, and other
types of businesses (either new or relocated). Businesses and entrepreneurs notice
when the city is aggressive and takes and active role in improving itself via public-
private partnerships, key public investments and other quality of life enhancements.
These create an environment where others are then more willing to invest time,
money, talent and effort into a new business in Sun Prairie, move there as residents
or visit with their group.
! Growing Population and Business Base. The population and business
community continue to grow, which will be accompanied by more hotel room and
meeting space demand. Between 2000 and 2010 Dane County has grown by 13
percent, to approximately 488,100, and the City of Sun Prairie has grown by 31
percent, to approximately 29,300. Additionally as the population continues to grow in

Sun Prairie Hotel Feasibility Study Executive Summary - Page 19

 Sun Prairie and the region, public and private transportation will need to mature at a
rate consistent to the demand.
! Market Timing and Public-Private Partnerships. With occupancy beginning
to reach a positive breakpoint (the occupancy level when new hotels become feasible
and rates can be increased), market rates for rooms should continue to increase,
which will support new hotel development. Since banks are still reticent to lend for
many hotel projects, the City can help induce development in a variety of ways,
getting a jump on traditionally-financed projects, which will allow it to develop the
quality and size of project needed most by the business community, not simply the
most basic project that will skim the cream off of the top of the market without
adding anything new or different.

Threats
! Competition. The Project may experience a decline in use should another hotel be
developed in Sun Prairie or the Madison East area before or immediately after the
proposed hotel is developed. While there currently are not plans to do so, the
development of this project in the market may drive other hotels to enhance their
own offerings. Advancing a project sooner rather than later will keep the market
relatively clear of immediate competition, as most recognize that only one new hotel
every few years can be absorbed by the market. With occupancy levels increasing,
by advancing this project first, the excess demand could shift to a new Sun Prairie
hotel instead of a potential new Madison East hotel.

Implications and Recommendations

Two opposing forces suggest implications for the project. The first is the private hotel
market. Based on its performance in terms of pent up demand and average daily rate, it
suggests that the only truly feasible hotel from a private market perspective, without public
assistance for operations, is a small limited-service hotel. This is not unusual for most small, but
growing suburban markets. Even in larger markets, few hotels larger and more luxurious than a
select service project can be financed without outside (public) financial participation. In addition,
even with upfront financial assistance, too large a hotel and function space in Sun Prairie will
eventually need reinvestment, that if not supported by the market, will be too expensive to justify.
This would lead to a downward cycle, the inability to update the facilities and compete with the
surrounding market’s level of quality. For example, the 200-room, 20,000-square foot function
space hotel scenario that HSP ran at the request of the City is far too large to support itself and
would in fact do damage to the current and future market for hotels.

The second force at play is the City of Sun Prairie and the opportunity for an economic
catalyst. All the business in Sun Prairie of any consequence is staying in Madison, which
means that the community is leaking dollars and employment outside its borders. By having its
own hotel, it can recapture these dollars and jobs.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 20

Recommended Facility. No hotels with full service amenities are feasible. However, the City
is not interested in a rooms-only economy hotel. As a result, HSP ran multiple scenarios and,
based on market opportunities and indications of the public sector’s needs for function space, a
120-room select-service hotel is recommended, including approximately 6,900 square feet of
function space. HSP considered locations near demand generators along U.S. 151 and the
business park and found that sites closer to the highway and in close proximity to dining and
entertainment will likely be more feasible. In addition, the potential incentives and land availability
offer opportunities that are more likely to transpire sooner than later.

If at a point in the future it is desired to expand the project beyond the scope of this first
scenario, the existing site requirements will also need to be taken into consideration and
adequately planned. Factors such as parking, height restrictions and the overall project footprint,
due to the possibility of additional rooms and function space, must be evaluated. Any expansion
has the potential to create new challenges with access, depending on the size and configuration
of the site chosen. Additionally, it must also be determined if the current utilities will be able to
support a larger development or must also be updated.

The City requested that larger facilities be studied. Two larger scenarios were completed and
their results suggest that the larger the hotel and function space, the less feasible the project.

Sun Prairie’s population has grown over 30 percent over the past decade and the growth is
going to continue as more housing, retail and business developments continue. Taking this into
consideration, the recommended hotel should be located on a site that will allow for expansion.
As the community’s needs change, the facility should be planned to accommodate the greater
needs by having space to increase hotel rooms, expand function space or both. Space should be
large enough to ad additional ballroom space and enough meeting rooms to compliment the
ballroom expansion. This element of the Project is critical to ensure the conference hotel does
not become obsolete.

The scenarios are shown below, with the recommended hotel being the smaller 120-room hotel
with select-service amenities and strong brand.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 21

 Table 5
Estimated Hotel Cost (excluding land)

Recommended Select Service Select Service Plus Conference

Scenario Plus Function Space Space* Full-Service Conference Hotel
Rooms 120 150 200
Net Meeting Space 6,900 10,000 20,000
Total Square Footage 79,200 100,000 154,000
Floors 5 6 9
Months of Construction 12 13.5 16
SF/Room 660 667 770
Est. Hard Costs $11,088,000 $14,850,000 $26,180,000
Est. Soft/Other Costs $5,100,480 $6,972,000 $10,995,600
Est. Development Cost $16,188,480 $21,822,000 $37,175,600

Cost per Square Foot $204.40 $218.22 $241.40

Cost per Room $134,904 $145,480 $185,878
Structure Type Metal Stud Metal Stud Concrete

* intended expansion target for any hotel project

Source: Pepper Construction, Hunden Strategic Partners

The cost per room increases with the increase in the amount of function space. Profitability
declines as more amenities are offered, as well. As shown, the recommended hotel is the
smallest, yet it still provides the amenities of a full-service hotel, including function space. A
limited service hotel without any function space or restaurant facilities would likely cost closing
to $85,000 per room, about a $55,000 per room savings. However, while this would be much
more feasible for the private market, it would not advance the goals of the community in terms
of recapturing and growing meeting, event and group business.

The next table shows more details related to the development cost estimates provided to HSP
with assistance from Pepper Construction, based on similar projects built in the past several
years. The economic value shown is based on the total private financing, including the
developer’s equity and private debt service.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 22

 Table 6

Hotel Development Scenarios

Recommended
Select Service Plus Select Service Plus Full-Service
Function Space Conference Space Conference Hotel
Select Service
Room Count 120 150 200
Restaurant In-house Not Full Service Yes Yes

Room Service Yes Yes Yes

Function Space 6,900 10,000 20,000
Ballroom 4,000 6,000 12000
Meeting Space 2,900 4,000 8,000
Meeting Room Divisions 4 5 10
Est. Development Cost* $16,188,480 $21,822,000 $37,175,600
Economic Value $7,800,000 $9,750,000 $12,250,000
Estimated Financing Gap to be Filled $8,388,480 $12,072,000 $24,925,600

* Not including land acquisition cost; assumes new construction

Source: Hunden Strategic Partners, Pepper Construction

! Room Count. A select service branded hotel with 120 rooms is the recommended
hotel.
! Room Mix. A balanced room mix is important in order to attract and accommodate
all visitor segments. The double-double room configuration is very important to the
large sports tourism demand, where teams or families put as many as four to five
per room. The ability to meet the room block needs of tournament organizers will
make the hotel a more appealing property in the market. On the other hand,
corporate transient guests typically require a king configuration, so the proper room
mix is important.
! Strong Brand. HSP recommends the hotel be associated with a strong select-
service brand from the following brand families: Marriott, Hilton, Starwood or Hyatt.
There are also other brands that may work, however the above have the best loyalty
programs and would capture at least their fair share of the market. HSP’s analysis
suggests that an extended stay hotel or all-suite hotel may be unnecessary and more
expensive than a select service branded property. Branding within the extended stay
or all-suite hotel market, however, suggests that a Candlewood Suites may be a
good option within this category. Based on the current flags or brands in the
surrounding market, a Hilton Garden Inn is one of the few remaining strong brand
options not already represented.
! Amenities. Services that cater to the business traveler like complimentary Wi-Fi,
business center, and shuttle service will help attract the business travelers that

Sun Prairie Hotel Feasibility Study Executive Summary - Page 23

 regularly visit the Sun Prairie area and require access to the airport. Since any hotel
development in Sun Prairie would be farther from the airport than its surrounding
market contenders, a means of transportation is important to remain competitive.
This need would best be met by a complementary shuttle service, but also could be
addressed if a financially reasonable taxi service operated within the Sun Prairie area.
In this scenario, a basic restaurant, coffee shop and bar are recommended, as well
as the meeting space discussed below.
! Function Space. Unlike most of the competitive set hotels, which typically have
just one or two small meeting rooms, the proposed hotel should include a 4,000-
square foot ballroom and three 800-square foot meeting rooms, plus a boardroom
for 20 – 24 people. This will allow for larger meetings onsite and should attract
more group business, including trainings, to the hotel. If the meeting and function
space were built adjacent to the proposed hotel, instead of connected directly to it,
additional challenges would arise. Due to the weather, which can range between
severe heat and cold, and the catering requirements for events, even if separated by
a short distance, walking between facilities would a hindrance in attracting guests
and in efficient operations. Guests with limited mobility or handicaps could see the
short distance between the facilities as a reason to book their events with another
hotel in the market.

By designing in these recommendations for the 120-room select-service conference hotel, HSP
believes the hotel project will provide the most feasible option while still generating significant
economic impact for Sun Prairie. A basic rooms only hotel, while a more financially feasible
option, is not recommended as it will not be of the quality Sun Prairie seeks, nor will it induce
business to the market. A larger conference-style hotel will have inducement capability to bring in
new group business to itself and the market. If the local companies are able to steer group and
contract business to the property, regardless of location, it will help the hotel, local
establishments and the community.

Site

Based on the analysis, which suggests that financial incentives will be necessary, the only viable
site(s) would be those in TIF district. This currently includes the Prairie Lakes and St. Mary’s
sites. Ultimately, the development deal will come down to just that, the deal. The least expensive
site and one most easily developed with incentives will be the one that makes the most sense.
Otherwise, only a limited service hotel without amenities is feasible.

Demand & Financial Projections

The following table shows the estimated growth of each market segment from 2013 through
2018 (the stabilized year) for the competitive set, assuming the proposed hotel opens January of
2015.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 24

 Table 7
Estimated Competitive Set Demand Growth by Segment - Recommended Hotel
Corporate % % % Total % Total % Total
Year Group Leisure Occupancy
Transient Change Change Change Demand Change Supply Change Rooms
2013 246,013 -- 42,607 -- 41,377 -- 329,997 6.0% 490,195 0.0% 1,343 67.3%
2014 253,394 3.0% 43,034 1.0% 41,997 1.5% 338,424 2.6% 490,195 0.0% 1,343 69.0%
2015 260,995 3.0% 43,679 1.5% 42,417 1.0% 347,091 2.6% 533,995 8.9% 1,463 65.0%
2016 266,215 2.0% 44,553 2.0% 42,841 1.0% 353,609 1.9% 533,995 0.0% 1,463 66.2%
2017 268,877 1.0% 44,998 1.0% 43,270 1.0% 357,145 1.0% 533,995 0.0% 1,463 66.9%
Source: Hunden Strategic Partners

The proposed Project will be the newest hotel development since the Cambria Suites opened in
2009.

Occupancy in 2013 is estimated to be 67 percent, a relatively healthy occupancy rate compared

to the last few years. With no additional hotel rooms imminent for the market, supply will slightly
increase in the competitive set with a new hotel, leading to a decrease in occupancy briefly.
Demand in all segments is expected to increase in the coming years.

The following table shows the estimated occupancy of the proposed hotel, based on how the
hotel will penetrate various market segments.

Table 8
Estimated Market Penetration for Proposed 120-Room Hotel

Corporate Total Projected Set Subject

Year Transient Group Leisure Penetration Occupancy Occupancy
2015 85% 85% 75% 84% 65.0% 54.5%
2016 90% 95% 80% 89% 66.2% 59.2%
2017 95% 105% 85% 95% 66.9% 63.6%
2018 95% 105% 85% 95% 66.9% 63.6%
2019 95% 105% 85% 95% 66.9% 63.6%
2020 95% 105% 85% 95% 66.9% 63.6%
2021 95% 105% 85% 95% 66.9% 63.6%
2022 95% 105% 85% 95% 66.9% 63.6%
2023 95% 105% 85% 95% 66.9% 63.6%
2024 95% 105% 85% 95% 66.9% 63.6%
2025 95% 105% 85% 95% 66.9% 63.6%

Source: Hunden Strategic Partners

The market is broken into three segments: corporate transient, group and leisure travelers.
Corporate transient consists of individuals who travel to conduct business, groups are associated
with sports tournaments, conventions, seminars, trade shows, corporate groups and assemblies.
Leisure travelers generate demand surrounding the holidays and on weekends. The hotel is

Sun Prairie Hotel Feasibility Study Executive Summary - Page 25

 expected to primarily cater to the built in corporate market that is already in the Madison and
Sun Prairie areas for business. As the newest hotel with the highest quality and newest function
space, yet located farthest from most Madison demand generators, it is expected to penetrate the
corporate transient market at approximately 95 percent. It is also expected to do well with the
group market since it will have a decent amount of function space and much more than most
hotels in the area. However, the hotel will penetrate the leisure market at less than 100 percent
since it will likely be one of the highest-priced hotels in the set and may turn off price-sensitive
weekend travelers. It will also be the farthest from the major interchanges that generate leisure
traffic. Overall, the hotel should have a 95 percent penetration rate by stabilization, leading to a
stabilized occupancy of nearly 64 percent.

The following table shows the estimated demand, by segment, for the proposed hotel based on
the penetration rates established above.

Table 9
Projected Demand for Proposed 120-Room Hotel
Corporate % % % Total % Total % Total
Year Group Leisure Occupancy
Transient Change Change Change Demand Change Supply Change Rooms
2015 18,218 -- 3,049 -- 2,587 -- 23,854 -- 43,800 -- 120 54.5%
2016 19,652 7.9% 3,472 13.9% 2,811 8.7% 25,935 8.7% 43,800 0.0% 120 59.2%
2017 20,951 6.6% 3,875 11.6% 3,017 7.3% 27,844 7.4% 43,800 0.0% 120 63.6%
2018 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
2019 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
2020 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
2021 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
2022 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
2023 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
2024 20,951 0.0% 3,875 0.0% 3,017 0.0% 27,844 0.0% 43,800 0.0% 120 63.6%
Source: Hunden Strategic Partners

As shown, the majority of business is expected to come from corporate transient guests,
followed by the group segment.

The table below shows the estimated market segmentation for the proposed hotel versus the
competitive set.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 26

 Table 10
Projected 120-Room Hotel
Stabilized Demand Mix vs. Comp Set

Hotel at
Segment Comp Set
Stabilization

Corporate 75% 75%

Group 14% 13%
Leisure 11% 12%
Total 100% 100%

Source: Hunden Strategic Partners

The select-service hotel with many full-service amenities is expected to have a similar market mix
as the competitive set, yet with a higher corporate and slightly lower group and leisure
segments.

The next table shows the average daily room rate projections for the proposed hotel.

Table 11
Average Daily Room Rate Projections

Comp. Set Annual Hotel Rate Projected Hotel Annual

Year
ADR Increase Penetration Rate Increase
2007 $93 -- -- -- --
2008 $95 2.1% -- -- --
2009 $91 -4.4% -- -- --
2010 $88 -3.4% -- -- --
2011 $91 4.0% -- -- --
2012 $93 1.8% -- -- --
2013 $93 0.5% -- -- --
2014 $93 2.0% -- -- --
2015 $96 2.5% 111% $106 --
2016 $98 2.5% 111% $109 2.4%
2017 $101 2.5% 111% $111 2.4%
2018 $104 3.0% 111% $115 3.0%
2019 $107 3.0% 111% $118 3.0%
2020 $110 3.0% 111% $122 3.0%
2021 $113 3.0% 111% $125 3.0%
2022 $117 3.0% 111% $129 3.0%
2023 $120 3.0% 111% $133 3.0%
2024 $124 3.0% 111% $137 3.0%
2025 $127 3.0% 111% $141 3.0%
Source: Hunden Strategic Partners

Sun Prairie Hotel Feasibility Study Executive Summary - Page 27

As shown, rates in the competitive set have fluctuated between $88 and $94 since 2007. HSP
expects those rates to increase slowly over the coming years and reach $104 by 2018, with three
percent average growth thereafter. ADR growth nationally has generally averaged out to increase
at the same level as inflation, although with much variability as shown from the recent past. The
new hotel’s penetration rate is expected to be 106 percent, leading to an ADR beginning at $106.

Understanding how the hotel will perform internally is as important to the feasibility as the
external occupancy and rate projections. The next table shows the performance of the proposed
hotel based on a number of assumptions about the property.

The figures are shown as earned (cash basis) and in nominal amounts, not discounted. PAR
stands for “per available room” and are shown on an annual basis and POR stands for “per
occupied room” and are shown on a per night basis.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 28

 Table 12
Projection of Income & Expense: 120-Room Hotel - (in $000, inflated)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 10

Room Count 120 120 120 120 120 120
Available Room Nights 43,800 43,800 43,800 43,800 43,800 43,800
Occupancy Rates 54% 59% 64% 64% 64% 64%
Occupied Room Nights 23,854 25,935 27,844 27,844 27,844 27,844
Average Daily Rate $106 $109 $111 $115 $118 $137
RevPAR $58 $64 $71 $73 $75 $87
Percent of Change from Prior Year -- 11.3% 9.9% 3.0% 3.0% 3.0%

$ % PAR POR $ $ $ $ %
REVENUE
Rooms $2,533 80.1% $21,105 $106 $2,819 $3,099 $3,192 $3,287 80.0% $3,811
Hotel Food and Beverage 575 18.2% $4,792 $24 642 707 730 752 18.3% 872
Telephone 3 0.1% $26 $0 4 4 4 4 0.1% 5
Other Operated Departments 25 0.8% $209 $1 28 31 32 33 0.8% 38
Parking & Transportation 0 0.0% $0 $0 0 0 0 0 0.0% 0
Rentals and Other Income 25 0.8% $209 $1 28 31 32 33 0.8% 106
Total Revenue $3,161 100.0% $26,341 $133 $3,520 $3,871 $3,990 $4,109 100.0% $4,832

DEPARTMENTAL EXPENSES
Rooms $717 28.3% $5,973 $30 $741 $787 $811 $835 25.4% $968
Hotel Food and Beverage 426 74.0% $3,546 $18 468 516 526 541 72.0% 628
Telephone 27 850.9% $223 $1 30 33 34 35 850.9% 41
Other Operated Departments 1 2.0% $4 $0 0 0 0 0 1.0% 0
Parking & Transportation 0 2.0% $0 $0 0 0 0 0 0.0% 0
Rent and Other Income 1 2.0% $4 $0 0 0 0 2 5.0% 5
Total Departmental Expenses $1,170 37.0% $9,750 $49 $1,240 $1,337 $1,371 $1,413 34.4% $1,642

Gross Operating Income $1,991 63.6% $16,592 $83 $2,280 $2,535 $2,619 $2,696 65.6% $3,190

UNDISTRIBUTED OPERATING EXPENSES

Administrative and General $335 10.6% $2,792 $14 $356 $372 $379 $390 9.5% $459
Marketing $215 6.8% $1,791 $9 $222 $232 $235 $242 5.9% $285
Utility Costs $202 6.4% $1,686 $8 $208 $217 $223 $230 5.6% $271
Property Operations and Maintenance $202 6.4% $1,686 $8 $208 $217 $223 $230 5.6% $271
Total Undistributed Expenses $955 30.2% $7,955 $40 $993 $1,038 $1,061 $1,093 26.6% $1,285

Gross Operating Profit $1,036 32.8% $8,637 $43 $1,287 $1,497 $1,557 $1,603 39.0% $1,905

Franchise Fees $136 4.3% $1,133 $6 $151 $166 $172 $177 4.3% $208

FIXED EXPENSES
Property Taxes $273 7.8% $2,271 $11 154 233 261 267 6.5% 318
Insurance 47 1.5% $395 $2 49 50 52 53 1.3% 63
Management Fee 101 3.2% $843 $4 113 124 128 131 3.2% 155
Reserve for Replacement $32 1.0% $263 $1 $53 $77 $120 $123 3.0% $145
Total Fixed Expenses $453 13.5% $3,773 $19 $369 $485 $560 $576 14.0% $680

Cash Flow from Operations $448 14.2% $3,731 $19 $767 $846 $826 $851 20.7% $1,016

Source: Hunden Strategic Partners

The property is projected to generate a total of nearly $3.2 million in gross revenue in the first
year, increasing to nearly $5 million in the tenth year. Approximately $450,000 is estimated be
available to satisfy debt and equity requirements in the first year (14.2 percent of gross revenue),
increasing to $1.0 million in the tenth year.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 29

Supportable Equity and Debt

The cash flows of a hotel are used to repay bank loans and investor equity. Banks have a variety
of rules or guidelines for providing loans for hotels and these vary from year to year, from cycle
to cycle. Currently, these guidelines are slowly becoming less stringent than they were over the
past few years. Many banks had bad hotel loans on their books and so were not anxious to
repeat history with new, risky loans. As such, the loan-to-value amounts were reduced, coverage
ratios increased and required equity increased. The hotels must be branded in order to receive a
loan.

The model used by HSP assumes the following, based on what banks and other lending
institutions, as well as equity investors require:
! 1.4x minimum debt service coverage in every year beginning in Year 2.
! No more than 70 percent loan to cost.
! Loans are full recourse.
! Refinance after stabilization.
! Construction mini-perm upfront, which funds construction for up to two years and
the first three years of operations (construction should take no more than 12 months
for either hotel).
! Equity required return of 18 percent averaged over ten years.

The supportable equity and debt is shown for the proposed hotel below.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 30

 Table 13
Financing Assumptions - 120-Room Hotel
Constr. Yr1 Constr. Yr2 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total

Net Operating Income $0 $0 $448 $767 $846 $826 $851 $915 $931 $960 $988 $1,016 $8,547
Interest and Debt Reserve W/D $98 $293 $100 $0 $0 $0 $0 $0 $0 $0 $0 $0
$98 $293 $548 $767 $846 $826 $851 $915 $931 $960 $988 $1,016
Debt Service Payment ($98) ($293) ($545) ($545) ($545) ($480) ($480) ($480) ($480) ($480) ($480) ($480)
Net Income to Repay Equity $0 $0 $3 $223 $302 $345 $370 $434 $451 $480 $507 $536 $3,651

Princ. Amount*** $1,500 $4,500 $6,000 $5,845 $5,681 $5,510 $5,360 $5,201 $5,033 $4,855 $4,666 $4,465
Interest $98 $293 $390 $380 $369 $331 $322 $312 $302 $291 $280 $268
Less Payment ($98) ($293) ($545) ($545) ($545) ($480) ($480) ($480) ($480) ($480) ($480) ($480)
Loan Balance $1,500 $4,500 $5,845 $5,681 $5,506 $5,360 $5,201 $5,033 $4,855 $4,666 $4,465 $4,253

Assumptions Refi
Loan Amount ($000's) $6,000 $5,510
Amortization Period (Years) 20 20
Loan Interest Rate 6.5% 6.0%
Annual Debt Service Payment ($000's) ($545) ($480)
Equity:
Developer's Equity ($000's) $1,800 11%
Private Debt 6,000 37%
Total Private Financing $7,800 48% $65,000 per room
Gap/Subsidy $8,388 52%
Project Amount ($000's) $16,188 100% $134,904 per room

Debt (Private) Coverage Ratio 1.01 1.41 1.55 1.72 1.77 1.90 1.94 2.00 2.06 2.12
Return on Private Equity* 0.2% 12.4% 16.8% 19.2% 20.6% 24.1% 25.0% 26.7% 28.2% 29.8%
Return on Assets** 2.8% 4.7% 5.2% 5.1% 5.3% 5.6% 5.8% 5.9% 6.1% 6.3%
*On developer's equity only.
**On project cost.
***Assumes 50% draw in Construction Year 1; 75% average during Construction Year 2

Source: Hunden Strategic Partners

In this model, the total project cost is nearly $135,000 per room or approximately $16.2 million.
Supportable debt is $6 million, or 37 percent. Supportable equity is $1.8 million, unless the
developer is willing to take less than a 20 percent return. The resulting gap is $8.4 million,
suggesting that even this hotel is not currently feasible without help or a lower cost. This cost
does not include land costs, which would increase the financial gap. As the smallest of the
scenarios, it implies that the only feasible hotel would be an inexpensive limited service project
with a small room count.

The next table shows the development cost and financial feasibility gaps for each of the three
scenarios completed.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 31

 Table 14

Hotel Development Scenarios

Recommended
Select Service Plus Select Service Plus Full-Service
Function Space Conference Space Conference Hotel
Select Service
Room Count 120 150 200
Restaurant In-house Not Full Service Yes Yes

Room Service Yes Yes Yes

Function Space 6,900 10,000 20,000
Ballroom 4,000 6,000 12000
Meeting Space 2,900 4,000 8,000
Meeting Room Divisions 4 5 10
Est. Development Cost* $16,188,480 $21,822,000 $37,175,600
Economic Value $7,800,000 $9,750,000 $12,250,000
Estimated Financing Gap to be Filled $8,388,480 $12,072,000 $24,925,600

* Not including land acquisition cost; assumes new construction

Source: Hunden Strategic Partners, Pepper Construction

As shown, the smallest hotel with the least amount of function space has the smallest financial
gap, however, it is still substantial. In order to develop a truly feasible hotel, the costs must be
lower than the economic value. Given Sun Prairie’s location and somewhat limited demand, there
is not enough intensity of demand to support the financials of a full-service style hotel. Instead,
the market can support a project of approximately $65,000 per room. Unfortunately, the cost of
the style of hotel desired is approximately double that.

Ways to reduce the cost would be to minimize function space and limit the quality of finishes.
Also, by limiting the size and height of the hotel, the cost per room and per square foot will be
reduced.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 32

Report Layout
! Executive Summary
! Chapter 1 Economic and Demographic Analysis of Sun Prairie
! Chapter 2 Meetings Industry Analysis and Trends
! Chapter 3 Meetings Market Analysis
! Chapter 4 Hotel Market Analysis
! Chapter 5 Site Analysis
! Chapter 6 Recommendations
! Chapter 7 Demand and Financial Projections

About Hunden Strategic Partners

Hunden Strategic Partners is a full service real estate development advisory practice specializing
in destination assets. With professionals in Chicago and Indiana, Hunden Strategic Partners
provides a variety of services for all stages of destination development in the following primary
areas:
! Real estate market and financial feasibility and financial consulting
! Owner’s representation and operating consulting
! Strategy and master planning
! Public incentive analysis
! Economic, fiscal, and employment impact analysis (cost/benefit)
! Economic and tourism policy/legislation consulting
! Organizational development
! Research and statistical analysis
! Developer solicitation and selection; Private management company solicitation and
selection

Hunden Strategic Partners professionals have provided all of the above services for hundreds of
client projects worldwide for the public, non-profit and private sectors. In addition, our
professionals have prior professional career experience in municipal and state government,
economic and real estate development, real estate law, hotel operations and non-profit
management. Over 70 percent of our clients are public entities, such as municipalities, counties,
states, convention bureaus, authorities and other quasi-government entities empowered to
conduct real estate, economic development and tourism activities.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 33

Limiting Conditions

HSP relied on primary and secondary sources of information for the assumptions made in this
report and assumes these sources to be accurate. Assumptions created for the analysis were
based on the data available to HSP during the study period as well as professional judgment.

The Project is assumed to be owned and operated in a first-class manner by the parties who
have operated similar facilities.

No responsibility is taken for unforeseen events occurring after the date of the analysis, including
war and terror attacks, natural disasters and major economic recessions.

This report is intended to be used as a tool for decision-making by the contracting parties related
to this Project and for no other purpose.

Sun Prairie Hotel Feasibility Study Executive Summary - Page 34