Feasibility Study

FEASIBILITY STUDY
Proposed Hotel Condominiums

and Cottages
7376 MAIN STREET
PORT SANILAC, MICHIGAN
SUBMITTED TO: PR OPOSED PREPARED BY:

Mr. Tim Cheek HVS Consulting and Valuation Services
Port Sanilac Downtown Development Authority Division of CCG Holdings, LLC
56 North Ridge Street, Post Office Box 628 111 North Wabash Avenue, Suite 1717
Port Sanilac, Michigan, 48469 Chicago, Illinois, 60602
+1 (586) 531-2304 +1 (312) 526-3885
August-2014
September 2, 2014
Mr. Tim Cheek

Port Sanilac Downtown Development Authority
56 North Ridge Street, Post Office Box 628
Port Sanilac, Michigan, 48469
HVS CHICAGO
Re: Proposed Hotel Condominiums and Cottages
111 North Wabash Avenue, Suite 1717
Chicago, Illinois, 60602
Port Sanilac, Michigan
+1 (312) 526-3885 HVS Reference: 2014410051
+1 (213) 285-4958 FAX
www.hvs.com
Dear Mr. Cheek:

Atlanta
Boston
At your request, we are pleased to submit our feasibility study pertaining to the
Boulder
above-captioned property. We have inspected the real estate and analyzed the
Chicago
Dallas
lodging market conditions in the Port Sanilac, Michigan area. We have studied the
Denver proposed project, and the results of our fieldwork and analysis are presented in
Houston this report. We have also reviewed the proposed improvements for this site. Our
Las Vegas report was prepared in accordance with the Uniform Standards of Professional
Los Angeles Appraisal Practice (USPAP), as provided by the Appraisal Foundation.
Mexico City
Miami We certify that we have no undisclosed interest in the property, and our
Minneapolis
employment and compensation are not contingent upon our findings. This study is
Nassau
subject to the comments made throughout this report and to all assumptions and
New York
Newport
limiting conditions set forth herein.
Philadelphia
San Francisco Sincerely,
St. Louis CCG Holdings, LLC
Toronto
Vancouver
Washington
Athens
Beijing
Buenos Aires Hans Detlefsen, MPP, MAI, Managing Director
Dubai hdetlefsen@hvs.com, +1 (312) 526-3885
Hong Kong State Appraiser License (MI) 1201074194
Lima
London
Milan
Appraisers are required to be licensed and are regulated by the
Moscow
Mumbai
Michigan Department of Labor and Economic Growth, P.O. Box
New Delhi 30018, Lansing, MI 48909.
Sao Paulo
Shanghai
Singapore
Superior results through unrivaled

hospitality intelligence. Everywhere.
Table of Contents
SECTION TITLE PAGE

1. Executive Summary 4
2. Description of the Site and Neighborhood 21
3. Market Area Analysis 30
4. Supply and Demand Analysis 43
5. Description of the Proposed Project 54
6. Projection of Occupancy and Average Rate 60
7. Projection of Income and Expense 63
8. Feasibility Analysis 83
9. Statement of Assumptions and Limiting Conditions i
10. Certification iv
1. Executive Summary
Subject of the Port Sanilac is located on the Lake Huron and is known for its scenic waterfront.
Feasibility Study The village features two deep-water marinas, which offer seasonal and long-term
dockage spaces. Various water activities such as kayaking, scuba diving, and
finishing are available in the area.
Based on our interviews with the area’s rental home owners and research on the
area, the Port Sanilac market experiences strong lodging demand during summer
seasons when people seek for a getaway from nearby cities. Most of local rental
home owners explained that their units achieved 95% to 100% occupancy during
high seasons while they experienced a huge decline in demand during winter.
The proposed hotel condominiums and cottages are envisioned to be the first full-
service lodging facility in Port Sanilac. As proposed by the current land owners and
the Village, the project would include the following major elements:
 24 condominium-hotel units
 16 cottage units
 4,000 square feet of meeting and banquet space
 1 full-service restaurant and bar
 1 fitness center
 1 outdoor swimming pool
 40 surface-lot parking space
HVS developed cash flow projections from this planned development scenario and
evaluated the project’s financial feasibility. Our finding from this study indicated
the project would likely require some form of public subsidies to become feasible.
This is common for projects of this nature. For this reason, public-private
partnerships are a common method of achieving development objectives related
to projects of this scale and scope, shifting some of the project’s risk or financial
burden to a public-sector sponsor while utilizing the development expertise of
private-sector partners.
August-2014 Executive Summary

Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan 4
To reduce or eliminate the project’s feasibility gap, a range of potential solutions
could be considered. For example, the client could consider one or more of the
following options:
 Reduce the project size and scope to focus more on the revenue-generating
spaces and reduce the amount of amenities and common areas currently
envisioned.
 Refine the project budget and obtain competitive bids to see if

development costs can be reduced below current estimates.
 Finance the entire project through tax-exempt bond financing, which

reduces the overall cost of capital for the project, thereby adding to the
project’s feasibility or reducing its feasibility gap.
 Require private-sector partner to obtain land and contribute the value of

the land as equity to the project, thereby subordinating the developer’s
investment to the bond investors’ repayments.
Based on the preliminary development cost provided by Shoreline Architecture

Design, Inc., the cost to develop the condominium-hotel tower is $10,700,000, or
$445,833 per unit, which is resulting in a feasibility gap for the project based on its
expected cash flow as shown later in this report. Revising the proposed concept
could substantially narrow the feasibility gap. This strategy would aim to reduce
project costs by a greater amount than the reduction in project value resulting
from such changes. Such a reduction of costs may be attainable through reducing
or eliminating some envisioned amenities such as the spa, salon, banquet facilities,
and retail areas, as well as potentially scaling back some of the features and
amenities of the restaurant/bar and the condominium and wharf cottage units.
Creating a “63-20” non-profit corporation, sponsored by the City, to issue bonds to

fund the project’s construction costs could also significantly close or eliminate a
feasibility gap, if one remains. Bond financing shifts investment risk away from the
private-sector developer and onto the public-sector sponsor, thereby taking
advantage of the better credit rating available to municipal governments. While
this strategy can substantially augment the feasibility of the project, we
recommend that the public-sector sponsor also consider implementing various
risk-mitigation strategies, such as requiring a project reserve and subordinating
some component of investment derived from the private-sector partner.
For example, the municipal sponsor may require the private-sector partner to
contribute project equity in the form of cash or land or both, which would be
subordinated to the bond investments. The developer’s fee could potentially be

subordinated as well and structured to pay out only if the project’s financial
performance reaches a certain threshold.
A combination of these options, or others like them, could substantially reduce or

eliminate the feasibility gap of the project and potentially make the project
feasible. We recommend evaluating which forms of public-sector participation
would be most politically feasible. By measuring the market value of any potential
incentives that could be available for the project, one can estimate the degree to
which these factors contribute to the project’s market feasibility.
RENDERING OF PROJECT – SOUTH ELEVATION
Regardless of the selected development scenario, we assume the property will

open on July 1, 2016 and will feature 40 units. The subject site’s general location is
7376 Main Street, Port Sanilac, Michigan, 48469.
Pertinent Dates The effective date of the report is September 2, 2014. The subject site was
inspected by Anjali Peterson on May 24, 2014. Hans Detlefsen, MPP, MAI
participated in the analysis and developed the conclusions, but did not personally
inspect the property. Yoshihiro Kanno also participated in the analysis and
provided assistance with the financial analysis.
Ownership, Franchise, The subject property consists of 11 parcels which are owned by several parties,
and Management including the State of Michigan, the Village of Port Sanilac, as well as several
Assumptions private parties. The subject sites are not listed for sale. The developer of the
subject has not yet been determined.
Details pertaining to management terms were not yet determined at the time of
this report; therefore, our forecast fees represent a blended average of what would

be expected on a base-fee and incentive-fee basis. We have assumed a market-
appropriate total management fee of 3.0% of total revenues in our study.
The proposed condominium hotel and neighboring cottages are not expected to be
franchised with a national brand and are planned to remain independently
operated throughout the forecast period; therefore, the hotel and cottages will not
be subject to franchise fees.
Summary of Lodging Lake Huron, the primary boat docking facilities in Port Sanilac, and the
Market Trends recreational events in Port Sanilac offer the primary sources of demand. Our
research and interviews of owners with rental properties indicated strong
occupancy trends through the summer months, and that occupancy during the
winter months was primarily during the weekends. These market participants
indicated that the renters were primarily from the Detroit metropolitan area and
surrounding smaller markets throughout Michigan.
The following figure illustrates the average daily rate (ADR) of rental properties in
the market. During low season, ADR in the market is typically 20% lower than
during the high season due to this market’s seasonality.

FIGURE 1-1 AVERAGE DAILY RATE OF RENTAL PROPERTIES IN THE MARKET
0 100 200 300 400 500
Lake Huron Beachfront, Lexington
Cottage, Lexington
Lake Huron Beachfront
Lake Huron Cottage, Port Sanilac 1

High Season Rate
Cottage on Beach, Lexington Low Season Rate
Beachfront Home, Lexington
Cottage, Lexington
Hoff Cottage, Port Sanilac
Cottage on Lake Huron, Lexington
Bungalow, Lexington
In addition to the local lodging trend, we have analyzed the national occupancy
and ADR trends of the resort segment. The following table provides a historical
perspective on the demand and rate trends for resort hotels in the United States,
as provided by Smith Travel Research.

FIGURE 1-2 HISTORICAL RESORT OCCUPANCY AND ADR
Occ % Change ADR ($) Change

2004 65.9 120.01
2005 66.7 1.2 % 126.72 5.6 %
2006 66.4 -0.4 136.73 7.9
2007 66.1 -0.5 143.19 4.7
2008 62.1 -6.1 146.59 2.4
2009 57.5 -7.4 129.30 -11.8
2010 53.5 -7.0 128.70 -0.5
2011 62.2 16.3 135.08 5.0
2012 63.2 1.6 142.28 5.3
2013 64.1 1.4 150.22 5.6
Forecast 2014 65.1 1.5 158.48 5.5
Forecast 2015 65.7 1.0 166.41 5.0
Forecast 2016 66.0 0.5 173.89 4.5
Forecast 2017 66.0 0.0 180.85 4.0
Forecast 2018 66.0 0.0 186.28 3.0
Average Annual Compounded

Change: 2004 - 2013 -0.3 % 2.5 %
YTD thru May

2013 64.2 156.33
2014 66.3 3.3 % 164.49 5.2 %
Source: STR, HVS
The demand for the resort lodging facilities have fluctuated over the historical
period exhibited in the above figure. The demand had been declining since 2006
and significantly dropped during the recent recession as discretionary income
levels declined. Combined with a huge decline in ADR, many resort hotels went out
of business or became unprofitable during that period. However, the resort
segment has been rebounding at a rapid pace in recent years. The ADR exceeded
the pre-recessional peak in 2013, and the latest year-to-date estimates indicate
continued growth. The latest year-to-date occupancy indicates that the demand is
also on track for a full recovery. Therefore, the outlook for the national resort
segment is generally positive.
The following tables reflect our estimates of operating data for resort hotels. These
trends are presented in detail in the Supply and Demand Analysis chapter of this
report.

FIGURE 1-3 HISTORICAL RESORT OCCUPANCY CHART
Resort Occupancy
68
66
64
62
60
58
56
54
52
50

FIGURE 1-4 HISTORICAL RESORT ADR CHART
Resort ADR
$200.00
$190.00
$180.00
$170.00
$160.00
$150.00
$140.00
$130.00
$120.00
$110.00
$100.00

Summary of Forecast Based on our analysis presented in the Projection of Occupancy and Average Rate
Occupancy and chapter, we have concluded to a stabilized occupancy level of 54% and a base-year
Average Rate rate position of $318 for the proposed subject hotel condominium and cottages.
The following table reflects a summary of the subject property’s average daily
rates during the high season and low season.
FIGURE 1-5 SUBJECT PROPERTY RATE POSITIONING
Unit Type # of Units Weight High Season Rate Low Season Rate
Hotel Two-Bedrooms 20 50% $360 $288
Hotel Three-Bedrooms 4 10% $410 $328
Cottage Two-Bedrooms 6 15% $375 $300
Cottage Three-Bedrooms 4 10% $425 $340
Studio Units 6 15% $150 $120
40 100% $342 $274
The lodging demand for the market is highly seasonal. Based on HVS interviews
with the owners and managers of local rental units, and given the characteristics of
the proposed facilities, we conclude that the subject property could achieve 95%
occupancy during the peak Summer months and 30% occupancy during the slower
months throughout the year. The following table exhibits the summary of our
demand projection for the subject property.
FIGURE 1-6 SUBJECT PROPERTY OCCUPANCY POSITIONING
Days Occupancy Occupied Days Occupied Room Nights

High Season 122 95% 116 4,636
Low Season 213 30% 64 2,556
Total 335 54% 180 7,192
The following table exhibits the subject property’s rooms revenue in a base-year.
The base-year ADR is calculated by dividing the total revenue by the total occupied
room nights.

FIGURE 1-7 SUBJECT PROPERTY REVENUE PROJECTION
Revenue
High Season $1,586,671
Low Season $699,833
Annual Total $2,286,504
ADR $318
The following table summarizes the proposed subject property’s occupancy and
average rate forecast, reflecting fiscal years and opening-year rate as applicable.
The projected ADR is higher than the base-year rate due to the assumed inflation
and rate growth resulting from the improvement of the market conditions.
FIGURE 1-8 FORECAST OF AVERAGE RATE
Year Occupancy Average Rate
2016/17 50 % $368.23
2017/18 52 382.96
2018/19 54 396.34
Income and Expense Our positioning of each revenue and expense level is supported by comparable
Projections operations or trends specific to this market. Our forecast of income and expense is
presented in the following table.

FIGURE 1-9 DETAILED FORECAST OF INCOME AND EXPENSE
2016/17 Begins July 2017/18 Stabilized 2019/20 2020/21

Number of Rooms: 40 40 40 40 40
Occupancy: 50% 52% 54% 54% 54%
Average Rate: $368.23 $382.96 $396.34 $408.23 $420.48
RevPAR: $184.11 $199.14 $212.72 $219.10 $225.68
Days Open: 335 335 335 335 335
Occupied Rooms: 6,700 %Gross PAR POR 6,968 %Gross PAR POR 7,192 %Gross PAR POR 7,192 %Gross PAR POR 7,192 %Gross PAR POR
REVENUE
Rooms $2,467 55.7 % $61,675 $368.21 $2,668 56.4 % $66,700 $382.89 $2,850 56.8 % $71,250 $396.27 $2,936 56.8 % $73,400 $408.23 $3,024 56.8 % $75,600 $420.47
Food & Beverage 1,305 29.5 32,624 194.77 1,384 29.2 34,592 198.58 1,459 29.1 36,482 202.90 1,503 29.1 37,577 208.99 1,548 29.1 38,704 215.26
Other Operated Departments**** 539 12.2 13,473 80.44 561 11.9 14,035 80.57 584 11.6 14,593 81.16 601 11.6 15,031 83.60 619 11.6 15,482 86.10
Rentals & Other Income 115 2.6 2,887 17.24 120 2.5 3,008 17.27 125 2.5 3,127 17.39 129 2.5 3,221 17.91 133 2.5 3,317 18.45
Total Revenues 4,426 100.0 110,659 660.65 4,733 100.0 118,335 679.31 5,018 100.0 125,452 697.73 5,169 100.0 129,228 718.73 5,324 100.0 133,103 740.28
DEPARTMENTAL EXPENSES *
Rooms 784 31.8 19,600 117.01 820 30.7 20,497 117.67 855 30.0 21,379 118.90 881 30.0 22,020 122.47 907 30.0 22,681 126.14
Food & Beverage 1,008 77.2 25,196 150.42 1,051 76.0 26,286 150.89 1,094 75.0 27,362 152.18 1,127 75.0 28,183 156.74 1,161 75.0 29,028 161.45
Other Operated Departments 492 91.3 12,303 73.45 509 90.6 12,715 72.99 525 90.0 13,134 73.05 541 90.0 13,528 75.24 557 90.0 13,933 77.49
Total 2,284 51.6 57,099 340.89 2,380 50.3 59,498 341.55 2,475 49.3 61,874 344.13 2,549 49.3 63,730 354.45 2,626 49.3 65,642 365.08
DEPARTMENTAL INCOME 2,142 48.4 53,560 319.76 2,353 49.7 58,837 337.76 2,543 50.7 63,578 353.61 2,620 50.7 65,498 364.28 2,698 50.7 67,461 375.20
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 375 8.5 9,376 55.98 390 8.2 9,745 55.94 404 8.1 10,109 56.23 417 8.1 10,413 57.91 429 8.1 10,725 59.65
Marketing 178 4.0 4,441 26.52 185 3.9 4,616 26.50 192 3.8 4,789 26.63 197 3.8 4,932 27.43 203 3.8 5,080 28.26
Prop. Operations & Maint. 138 3.1 3,454 20.62 144 3.0 3,590 20.61 149 3.0 3,724 20.71 153 3.0 3,836 21.34 158 3.0 3,951 21.98
Utilities 118 2.7 2,961 17.68 123 2.6 3,077 17.67 128 2.5 3,192 17.76 132 2.5 3,288 18.29 135 2.5 3,387 18.84
Total 809 18.3 20,232 120.79 841 17.7 21,029 120.72 873 17.4 21,815 121.33 899 17.4 22,470 124.97 926 17.4 23,144 128.72
HOUSE PROFIT 1,333 30.1 33,327 198.97 1,512 32.0 37,808 217.04 1,671 33.3 41,764 232.28 1,721 33.3 43,028 239.31 1,773 33.3 44,317 246.48
Management Fee 133 3.0 3,320 19.82 142 3.0 3,550 20.38 151 3.0 3,764 20.93 155 3.0 3,877 21.56 160 3.0 3,993 22.21
INCOME BEFORE FIXED CHARGES 1,200 27.1 30,007 179.15 1,370 29.0 34,258 196.66 1,520 30.3 38,000 211.35 1,566 30.3 39,152 217.75 1,613 30.3 40,324 224.27
FIXED EXPENSES
Property Taxes 341 7.7 8,514 50.83 349 7.4 8,727 50.09 360 7.2 8,988 49.99 370 7.2 9,258 51.49 381 7.2 9,536 53.04
Insurance 48 1.1 1,204 7.19 50 1.0 1,240 7.12 51 1.0 1,277 7.10 53 1.0 1,315 7.32 54 1.0 1,355 7.53
Payment to Unit Owners 547 12.4 13,682 81.68 1,013 21.4 25,313 145.31 1,254 25.0 31,350 174.36 1,292 25.0 32,296 179.62 1,331 25.0 33,264 185.01
Condo Association Fee****** (244) (5.5) (6,105) (36.45) (460) (9.7) (11,490) (65.96) (586) (11.7) (14,652) (81.49) (604) (11.7) (15,092) (83.94) (622) (11.7) (15,545) (86.46)
Reserve for Replacement 89 2.0 2,213 13.21 142 3.0 3,550 20.38 201 4.0 5,018 27.91 207 4.0 5,169 28.75 213 4.0 5,324 29.61
Total 780 17.7 19,508 116.46 1,094 23.1 27,339 156.94 1,279 25.5 31,981 177.87 1,318 25.5 32,946 183.24 1,357 25.5 33,934 188.73
NET INCOME $420 9.4 % $10,500 $62.69 $277 5.9 % $6,919 $39.72 $241 4.8 % $6,019 $33.47 $248 4.8 % $6,205 $34.51 $256 4.8 % $6,391 $35.54
*Departmental expenses are expressed as a percentage of departmental revenues.

** Other Operated Departments include spa/salon charges, gift shop revenue, telephone charges, and other minor departmental revenues
*** 66% of Prop. Operations&Maint, Utilities, Property Taxes, Insurance, and Reserve for Replacement is passed on to individual unit owners

FIGURE 1-10 TEN-YEAR FORECAST OF INCOME AND EXPENSE
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26
Number of Rooms: 40 40 40 40 40 40 40 40 40 40
Occupied Rooms: 6,700 6,968 7,192 7,192 7,192 7,192 7,192 7,192 7,192 7,192
Occupancy: 50% 52% 54% 54% 54% 54% 54% 54% 54% 54%
Average Rate: $368.23 % of $382.96 % of $396.34 % of $408.23 % of $420.48 % of $433.09 % of $446.08 % of $459.47 % of $473.25 % of $487.45 % of
RevPAR: $184.11 Gross $199.14 Gross $212.72 Gross $219.10 Gross $225.68 Gross $232.45 Gross $239.42 Gross $246.60 Gross $254.00 Gross $261.62 Gross
REVENUE
Rooms $2,467 55.7 % $2,668 56.4 % $2,850 56.8 % $2,936 56.8 % $3,024 56.8 % $3,115 56.8 % $3,208 56.8 % $3,304 56.8 % $3,404 56.8 % $3,506 56.8 %
Food & Beverage 1,305 29.5 1,384 29.2 1,459 29.1 1,503 29.1 1,548 29.1 1,595 29.1 1,642 29.1 1,692 29.1 1,742 29.1 1,795 29.1
Other Operated Departments** 539 12.2 561 11.9 584 11.6 601 11.6 619 11.6 638 11.6 657 11.6 677 11.6 697 11.6 718 11.6
Rentals & Other Income 115 2.6 120 2.5 125 2.5 129 2.5 133 2.5 137 2.5 141 2.5 145 2.5 149 2.5 154 2.5
Total 4,426 100.0 4,733 100.0 5,018 100.0 5,169 100.0 5,324 100.0 5,484 100.0 5,648 100.0 5,817 100.0 5,993 100.0 6,172 100.0
DEPARTMENTAL EXPENSES*
Rooms 784 31.8 820 30.7 855 30.0 881 30.0 907 30.0 934 30.0 962 30.0 991 30.0 1,021 30.0 1,052 30.0
Food & Beverage 1,008 77.2 1,051 76.0 1,094 75.0 1,127 75.0 1,161 75.0 1,196 75.0 1,232 75.0 1,269 75.0 1,307 75.0 1,346 75.0
Other Operated Departments 492 91.3 509 90.6 525 90.0 541 90.0 557 90.0 574 90.0 591 90.0 609 90.0 627 90.0 646 90.0
Total 2,284 51.6 2,380 50.3 2,475 49.3 2,549 49.3 2,626 49.3 2,704 49.3 2,786 49.3 2,869 49.3 2,955 49.3 3,044 49.3
Administrative & General 375 8.5 390 8.2 404 8.1 417 8.1 429 8.1 442 8.1 455 8.1 469 8.1 483 8.1 497 8.1
Marketing 178 4.0 185 3.9 192 3.8 197 3.8 203 3.8 209 3.8 216 3.8 222 3.8 229 3.8 236 3.8
Prop. Operations & Maint. 138 3.1 144 3.0 149 3.0 153 3.0 158 3.0 163 3.0 168 3.0 173 3.0 178 3.0 183 3.0
Utilities 118 2.7 123 2.6 128 2.5 132 2.5 135 2.5 140 2.5 144 2.5 148 2.5 152 2.5 157 2.5
Total 809 18.3 841 17.7 873 17.4 899 17.4 926 17.4 954 17.4 982 17.4 1,012 17.4 1,042 17.4 1,073 17.4
HOUSE PROFIT 1,333 30.1 1,512 32.0 1,671 33.3 1,721 33.3 1,773 33.3 1,826 33.3 1,880 33.3 1,937 33.3 1,996 33.3 2,055 33.3
Management Fee 133 3.0 142 3.0 151 3.0 155 3.0 160 3.0 165 3.0 169 3.0 175 3.0 180 3.0 185 3.0
FIXED EXPENSES
Property Taxes 341 7.7 349 7.4 360 7.2 370 7.2 381 7.2 393 7.2 405 7.2 417 7.2 429 7.2 442 7.2
Insurance 48 1.1 50 1.0 51 1.0 53 1.0 54 1.0 56 1.0 57 1.0 59 1.0 61 1.0 63 1.0
Condo Association Fee*** (244) (5.5) (460) (9.7) (586) (11.7) (604) (11.7) (622) (11.7) (640) (11.7) (660) (11.7) (679) (11.7) (700) (11.7) (721) (11.7)
Reserve for Replacement 89 2.0 142 3.0 201 4.0 207 4.0 213 4.0 219 4.0 226 4.0 233 4.0 240 4.0 247 4.0
Total 780 17.7 1,094 23.1 1,279 25.5 1,318 25.5 1,357 25.5 1,398 25.5 1,440 25.5 1,483 25.5 1,528 25.5 1,574 25.5
NET INCOME $420 9.4 % $277 5.9 % $241 4.8 % $248 4.8 % $256 4.8 % $263 4.8 % $271 4.8 % $279 4.8 % $288 4.8 % $297 4.8 %
1 1 1 1 1 1 1 1 1 1

As illustrated, the subject property is expected to stabilize at a moderately
profitable level. Please refer to the Forecast of Income and Expense chapter of our
report for a detailed explanation of the methodology used in deriving this forecast.
Condominium Hotel In determining the potential feasibility of the Proposed Hotel Condominiums and
Scenario Conclusion Cottages, we analyzed the lodging market, researched the area’s economic
conditions, reviewed the estimated development cost, and prepared a ten-year
forecast of income and expense, which was based on our review of the current and
historical market conditions, as well as comparable income and expense
statements. We then converted this projected operating income into an opinion of
present value. In addition, we analyzed the comparable condominium and home
sales in the local market to determine the value of the sales proceedings from
individual unit sales. Finally, we compared the sum of the present value of the
sales proceeds and the operating income versus the total development cost of the
project to determine feasibility.
FIGURE 1-1 FEASIBILITY CONCLUSION
"When Complete" Value of Sales Proceeds $10,700,000

"When Complete" Value of Rental Operations $2,800,000
"When Complete" Market Value $13,500,000
Preliminary Development Cost $17,500,000
Feasibility Gap ($4,000,000)
As is illustrated in the table above, HVS estimates the prospective “when complete”
market value of total sales proceeds equates to $10,700,000 or $268,000 per
condominium unit. This is based on an assumption that all the 40 condominium
and cottage units will be sold in 24 months from July 2016 through June 2018, at
an average unit price of $279,000 or $209 per square foot. In addition, HVS
estimates the prospective “when complete” market value of rental operations from
all 40 rentable units is equal to $2,800,000 or $70,000 per unit. Therefore, the
prospective “when complete” market value of the combined “fee simple” and
“condominium management” property rights in the property equates to
$13,500,000, which is smaller than the estimated project cost of $17,500,000.
Thus, we conclude the project will not be feasible without some form of financial
incentives or modifications to the development program. We estimate the project’s
feasibility gap, as currently envisioned, is approximately $4 million.
Residential Only One of the challenges the proposed project must face is the fact that the proposed
Scenario Conclusion subject property will only have 40 units in the lodging rental pool. Since the
lodging facility needs to maintain a certain staffing level, even during low seasons,

it is very difficult for the property to operate efficiently with such a small room
count.
In addition, the rooms revenue split to individual owners, which is inherent to the
condominium-hotel model, is another factor that further reduces the profitability
of the rental pool operation.
Hence, the alternative scenario that we considered is to build condominium and

cottage units without the planned hotel amenities. By removing the restaurant,
bar, meeting space, and spa, the project’s development cost could be significantly
reduced. However, since this scenario assumes the units will be sold solely for
residential use, there will not be any operating profits generated from a lodging
operation and there will be no rental pool for owners to participate in when they
are not occupying their units.
Based on the project cost estimate prepared by Shoreline Architecture Design, Inc.,
the cost of the condominium tower will be $10,700,000, or $445,833 per
condominium unit. The cost of the cottages will be an estimated $2,500,000, or
$250,000 per unit. HVS estimates that removing the above-mentioned amenities
from the condominium tower, the cost per condominium unit will be reduced to
less than the cost of a cottage unit, mainly due to the efficiency of building a tower.
For the purpose of this analysis, we assume the cost to build the condominium
tower can be reduced to $220,000 per unit. However, HVS analysts are not
professional cost estimators and we recommend seeking a professional cost
estimate if the Village wishes to pursue this development scenario. This new cost
estimate is presented in the following table.
FIGURE 1-2 RESIDENTIAL ONLY SCENARIO DEVELOPMENT COST
Component Cost Cost per Unit
Condominium Tower (24 units) $5,280,000 $220,000

Cottages (10 units) 2,500,000 250,000
Carriage Houses (6units) 500,000 83,333
Site Improvement 250,000 6,250
Engineering & Fees 1,000,000 25,000
Interest, Taxes, Insurance 1,000,000 25,000
Total, Without Land $10,530,000 $263,250
Site Cost $1,550,000 $38,750
Total, With Land $12,100,000 $303,000
Source: Shoreline Architecture Design, Inc., HVS

Using the prospective “when complete” value of the sales proceedings we
concluded earlier, the feasibility gap would decrease to $1,400,000 compared to
$4,000,000 .
FIGURE 1-3 RESIDENTIAL FEASIBILITY CONCLUSION

Although this scenario is likely to reduce the project’s feasibility gap, HVS also
concludes that this alternative scenario will likely have a significantly reduced
economic impact on the area economy compared to the original scenario. By not
operating the proposed subject property as a lodging facility, the number of jobs
created and the amount of visitor spending generated would be significantly
reduced.
Assignment Conditions “Extraordinary Assumption” is defined in USPAP as follows:
An assumption, directly related to a specific assignment, which, if found to

be false, could alter the appraiser’s opinions or conclusions. Comment:
Extraordinary assumptions presume as fact otherwise uncertain
information about physical, legal, or economic characteristics of the subject
property; or about conclusions external to the property, such as market
conditions or trends; or about the integrity of the data used in an analysis.1
The analysis is based on the extraordinary assumption that the described

improvements have been completed as of the prospective "when complete" date of
value. The reader should understand that the completed subject property does not
yet, in fact, exist as of the date of appraisal. Our appraisal does not address
unforeseeable events that could alter the proposed project and/or the market
conditions reflected in the analyses; we assume that no significant changes, other
than those anticipated and explained in this report, will take place between the
date of inspection and date of prospective value. The use of this extraordinary
assumption may have affected the assignment results. We have made no other
extraordinary assumptions specific to this appraisal. However, several important
general assumptions have been made that apply to this appraisal and our
1Appraisal Institute, Uniform Standards of Professional Appraisal Practice, 2012 – 2013

ed.

valuations of proposed hotels in general. These aspects are set forth in the
Assumptions and Limiting Conditions chapter of this report.
“Hypothetical Condition” is defined in USPAP as follows:
That which is contrary to what exists but is supposed for the purpose of
analysis. Comment: Hypothetical conditions assume conditions contrary to
known facts about physical, legal, or economic characteristics of the
subject property; or about conditions external to the property, such as
market conditions or trends; or about the integrity of data used in an
analysis. 2
We have made no assumptions of hypothetical conditions in our report.
We have not made any jurisdictional exceptions to the Uniform Standards of

Professional Appraisal Practice in our analysis or report.
Intended Use of the This feasibility report is being prepared for use in the development of the
Feasibility Study proposed subject hotel condominiums and cottages.
Identification of the The client for this engagement is Port Sanilac Downtown Development Authority.
Client and Intended The client is also this report's intended user and the report should not be
User distributed to or relied upon by other persons or entities.
Scope of Work The methodology used to develop this study is based on the market research and
valuation techniques set forth in the textbooks authored by Hospitality Valuation
Services for the American Institute of Real Estate Appraisers and the Appraisal
Institute, entitled The Valuation of Hotels and Motels,3 Hotels, Motels and
Restaurants: Valuations and Market Studies,4 The Computerized Income Approach
to Hotel/Motel Market Studies and Valuations,5 Hotels and Motels: A Guide to
2 Appraisal Institute, Uniform Standards of Professional Appraisal Practice, 2012 – 2013

ed.
3 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of
Real Estate Appraisers, 1978).

4 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies.
(Chicago: American Institute of Real Estate Appraisers, 1983).

5 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and
Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990).

Market Analysis, Investment Analysis, and Valuations,6 and Hotels and Motels –
Valuations and Market Studies.7
1. All information was collected and analyzed by the staff of CCG Holdings,
LLC. Information was supplied by the client and/or the property’s
development team.
2. The subject site has been evaluated from the viewpoint of its physical
utility for the future operation of a hotel, as well as access, visibility, and
other relevant factors.
3. The subject property's proposed improvements have been reviewed for
their expected quality of construction, design, and layout efficiency.
4. The surrounding economic environment, on both an area and
neighborhood level, has been reviewed to identify specific hostelry-related
economic and demographic trends that may have an impact on future
demand for hotels.
5. Dividing the market for hotel accommodations into individual segments
defines specific market characteristics for the types of travelers expected
to utilize the area's hotels. The factors investigated include purpose of visit,
average length of stay, facilities and amenities required, seasonality, daily
demand fluctuations, and price sensitivity.
6. An analysis of existing and proposed competition provides an indication of
the current accommodated demand, along with market penetration and
the degree of competitiveness. Unless noted otherwise, we have inspected
the competitive lodging facilities summarized in this report.
7. Documentation for an occupancy and average rate projection is derived
utilizing the build-up approach based on an analysis of lodging activity.
8. A detailed projection of income and expense made in accordance with the
Uniform System of Accounts for the Lodging Industry sets forth the
anticipated economic benefits of the subject property.
9. A feasibility analysis is performed that compares the net present value of
the forecast cash flows to the development cost of the hotel.
6 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment

Analysis, and Valuations (Chicago: Appraisal Institute, 1992).
7 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies.
(Chicago: Appraisal Institute, 2001).

2. Description of the Site and Neighborhood
The suitability of the land for the operation of a lodging facility is an important
consideration affecting the economic viability of a property and its ultimate
marketability. Factors such as size, topography, access, visibility, and the
availability of utilities have a direct impact on the desirability of a particular site.
The subject site is located on the north side of Main Street, in the northeastern
quadrant of the intersection formed by Main Street and Oldfield Avenue. This site
is in the village of Port Sanilac, Michigan.
Physical Characteristics 2.28 approximately 2.28 acres, or 99,317 square feet. The parcel's adjacent uses
are set forth in the following table.
FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES
Direction Adjacent Use
North Sanilac Marine preserve

South Port Sanilac Marina
East Lake Huron
West Oldfield Avenue
August-2014 Description of the Site and Neighborhood

VIEW OF SUBJECT SITE (SOUTH 3 CONTIGUOUS PARCELS)
VIEW OF SUBJECT SITE (NORTH PARCEL)

VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH
VIEW FROM SITE TO THE EAST VIEW FROM SITE TO THE WEST

AERIAL PHOTOGRAPH OF PROPOSED SITES (APPROXIMATE DIMENSIONS)
Primary vehicular access to the proposed subject hotel will be provided by Main
Street and Oldfield Avenue. Primary access to the wharf cottages will be provided
by Oldfield Avenue. The topography of the parcel is gently sloping to the east, and
the sites are generally rectangular shaped.
Site Utility Upon completion of construction, the subject site will not contain any significant
portion of undeveloped land that could be sold, entitled, and developed for
alternate use. The site is expected to be fully developed with site or building
improvements, which will contribute to the overall profitability of the hotel.
Access and Visibility It is important to analyze the site in regard to ease of access with respect to
regional and local transportation routes and demand generators. The subject site
is readily accessible to a variety of local and county roads, as well as state and
interstate highways.

MAP OF REGIONAL ACCESS ROUTES
Primary regional access through the area is provided by east/west Interstate 94,
which extends to such cities as Port Huron to the east and Chicago, Illinois to the
west. North/south Interstate 75 is another major highway, providing access to
such cities as Flint to the north and Toledo, Ohio to the south. Several other
highways also provide accessibility to the area, with Interstate 275 serving as an
alternate north/south route, and east/west Interstate 96 providing access
between Detroit and Grand Rapids. The subject market is served by a variety of
additional local highways, which are illustrated on the map.
From Interstate 94, motorists take MI Route 25 and proceed north on this
thoroughfare for approximately 33 miles in to Port Sanilac. Motorists then execute
a right hand turn onto Main Street, and travel about two blocks ease to the subject
site, which is located on the motorist's left hand side. The subject site is located at
the end of Main Street, and the Port Sanilac harbor. The proposed subject hotel and
wharf cottage condominiums are expected to have adequate signage at the street;
thus, they should benefit from very good visibility from within its local

neighborhood. Overall, the subject site benefits from excellent accessibility, and
the proposed development is expected to enjoy very good visibility attributes.
Airport Access The proposed subject hotel will be served by the Detroit Metropolitan Wayne
County Airport, which is located approximately 110 miles to the south-west of the
subject site. From the airport, motorists will follow signs to Interstate 94 and
travel east on this thoroughfare towards the City of Detroit and then northeast to
Port Huron. Motorists will then proceed north on MI Route 25 for approximately
25 miles until its intersection with MI 46 (aka Main Street) in Port Sanilac.
Motorists will then execute a right hand turn on Main Street, and travel two blocks
to the subject site, which will be on motorists' left-hand side.
Neighborhood The neighborhood surrounding a lodging facility often has an impact on a hotel's
status, image, class, style of operation, and sometimes its ability to attract and
properly serve a particular market segment. This section of the report investigates
the subject neighborhood and evaluates any pertinent location factors that could
affect its future occupancy, average rate, and overall profitability.
The neighborhood surrounding the subject site is generally defined by Park Lane
to the north, Lake Huron to the east, Sanilac County historic village to the south,
and Whitney Drive/Greening Road to the west. This neighborhood is in the stable
stage of its life cycle, with pockets of moderate growth occurring in the commercial
sector. Within the immediate proximity of the site, land use is primarily
commercial and residential in nature. The neighborhood is characterized by
smaller/older single family homes, two marinas, and retail stores along the
primary, main thoroughfares, with additional residential areas located along the
secondary roadways.
Some specific businesses and entities in the area include the Port Sanilac and Bark
Shanty Marina's, Uri waterfront restaurant, Blue Water Sports Bar and the Stone
Lodge restaurant. Other entities in the area include the Port Sanilac historic
museum and the Barn Theatre. In general, we would characterize the
neighborhood as 30% residential use, 30% retail/restaurant use, 10% vacant, and
30% other. The proposed subject hotel's opening should be a positive influence on
the area.

MAP OF NEIGHBORHOOD
Overall, the location of the site within the neighborhood is considered appropriate
for the operation of a hotel and wharf cottages. The mixed-used community is
expected to feature the necessary infrastructure and ancillary facilities to allow for
the efficient operation of a hotel within this region.
Utilities The subject site will reportedly be served by all necessary utilities.
Soil and Geological and soil reports were not provided to us or made available for our
Subsoil Conditions review during the preparation of this report. We are not qualified to evaluate soil
conditions other than by a visual inspection of the surface; no extraordinary
conditions were apparent.
Nuisances We were not informed of any site-specific nuisances or hazards, and there were no
and Hazards visible signs of toxic ground contaminants at the time of our inspection. Because
we are not experts in this field, we do not warrant the absence of hazardous waste
and urge the reader to obtain an independent analysis of these factors.

Flood Zone According to the Federal Emergency Management Agency map illustrated below,
the subject site is located in flood zone SFHAs.
COPY OF FLOOD MAP AND COVER
The flood zone definition for the subject sites is SFHAs (Special Flood Hazard
Areas subject to inundation by the 1% annual chance flood, and is shown below.
The 1% annual chance flood (100-year flood), also known as the base floor, is the
flood that has a 1% chance of being equaled or exceeded in any given year. The
Special Flood Hazard Area is the area subject to flooding by the 1% annual chance
flood. Areas of Special Flood Hazard include Zones A, AE, AH, AO, AR, A99, V and
VE. The Base Flood Elevation is the water-surface elevation of the 1% annual
chance flood.
Zoning According to the local planning office, the subject property is zoned as follows:
Commercial. According to the representatives from the village, the area
surrounding the subject properties is under consideration to be re-zoned into a
central business district zoning designation. Upon completion of this re-zoning, it
will This zoning designation allows for most commercial uses, including hotels and
motels, retail and single family residential. We assume that all necessary permits
and approvals will be secured (including the appropriate liquor license if

applicable) and that the subject property will be constructed in accordance with
local zoning ordinances, building codes, and all other applicable regulations. Our
zoning analysis should be verified before any physical changes are made to the
site.
Easements and We are not aware of any easements attached to the property that would
Encroachments significantly affect the utility of the site or marketability of this project.
Conclusion We have analyzed the issues of size, topography, access, visibility, and the
availability of utilities. The subject site is ideally located about two blocks east of
the main downtown area of the Village of Port Sanilac, in a mixed-use
commercial/residential area. It is adjacent to the Port Sanilac harbor and docks, as
well as existing general retail/commercial buildings and restaurants. In general,
the site should be well suited for future hotel/condominium, wharf cottage use,
with acceptable access, visibility, and topography for an effective operation.

3. Market Area Analysis
The economic vitality of the market area and neighborhood surrounding the
subject site is an important consideration in forecasting lodging demand and
future income potential. Economic and demographic trends that reflect the
amount of visitation provide a basis from which to project lodging demand. The
purpose of the market area analysis is to review available economic and
demographic data to determine whether the local market will undergo economic
growth, stabilize, or decline. In addition to predicting the direction of the economy,
the rate of change must be quantified. These trends are then correlated based on
their propensity to reflect variations in lodging demand, with the objective of
forecasting the amount of growth or decline in visitation by individual market
segment (e.g., commercial, meeting and group, and leisure).
Market Area Definition The market area for a lodging facility is the geographical region where the sources
of demand and the competitive supply are located. The subject site is located in the
city of Port Sanilac, the county of Sanilac, and the state of Michigan. The Village of
Port Sanilac is located approximately 90 miles northeast of the City of Detroit,
Michigan, on the shores of Lake Huron, which is one of the Great Lakes. The
primary economic drivers and engine for the village is generated by the three
harbors and restaurants, as well as tourist attractions which include the Port
Sanilac Lighthouse built in 1886; the Port Sanilac historic museum, which consists
of Victorian and Edwardian buildings and exhibits where events are held to
provide visitors with a look back at the way life used to be at the turn of the
century as well as arts and crafts and fairs; and the Barn Theatre, which is a non-
profit summer theatre providing plays and local musical entertainment venues.
The three harbors are reported to have a total of 201 slips.
August-2014 Market Area Analysis

PORT SANILAC HARBOR
The following exhibit illustrates the market area.

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

FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY
Average Annual
Compounded Change
2000 2010 2014 2020 2000-10 2010-14 2014-20
Resident Population (Thousands)

Sanilac County 44.5 43.0 43.0 43.9 (0.3) % (0.0) % 0.3 %
Saginaw-Saginaw Township North, MI MSA 209.9 200.0 198.6 198.0 (0.5) (0.2) (0.0)
State of Michigan 9,952.5 9,877.1 9,948.8 10,120.4 (0.1) 0.2 0.3
United States 282,162.4 309,330.2 320,976.9 340,554.3 0.9 0.9 1.0
Per-Capita Personal Income*
Sanilac County $25,830 $26,643 $28,262 $30,433 0.3 1.5 1.2
Saginaw-Saginaw Township North, MI MSA 28,037 27,619 29,275 31,550 (0.2) 1.5 1.3
State of Michigan 32,733 31,249 33,185 36,061 (0.5) 1.5 1.4
United States 33,756 35,951 37,209 40,245 0.6 0.9 1.3
W&P Wealth Index
Sanilac County 78.4 74.3 75.9 75.5 (0.5) 0.5 (0.1)
Saginaw-Saginaw Township North, MI MSA 82.5 75.9 77.2 76.9 (0.8) 0.4 (0.1)
State of Michigan 96.6 86.1 87.9 88.2 (1.1) 0.5 0.1
United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0
Food and Beverage Sales (Millions)*
Sanilac County $24 $23 $25 $27 (0.3) 2.1 1.3
Saginaw-Saginaw Township North, MI MSA 304 256 280 294 (1.7) 2.3 0.8
United States 341,369 408,974 461,843 512,773 1.8 3.1 1.8
Total Retail Sales (Millions)*
Sanilac County $383 $268 $292 $313 (3.5) 2.1 1.2
Saginaw-Saginaw Township North, MI MSA 3,343 2,350 2,541 2,665 (3.5) 2.0 0.8
United States 3,612,260 3,796,423 4,298,146 4,803,190 0.5 3.2 1.9
* Inflation Adjusted
Source: Woods & Poole Economics, Inc.

The U.S. population has grown at an average annual compounded rate of 0.9%
from 2010 through 2014. The county’s population has declined slightly when
compared to the nation’s population; the average annual growth rate of 0.0%
between 2010 and 2014 reflects a relatively stable area. Following this population
trend, per-capita personal income increased slowly, at 1.5% on average annually
for the county between 2010 and 2014. Local wealth indexes have remained stable
in recent years, registering a relatively low 75.9 level for the county in 2014.
Food and beverage sales totaled $25 million in the county in 2014, versus $23
million in 2010. This reflects a 2.1% average annual change, which is stronger than
the -0.3% pace recorded in the prior decade, the latter years of which were
adversely affected by the recession. Over the long term, the pace of growth is
forecast to moderate to a more sustainable level of 1.3%, which is forecast through
2020. The retail sales sector demonstrated an annual decline of -3.5% registered
in the decade 2000 to 2010, followed by an increase of 2.1% in the period 2010 to
2014. An increase of 1.2% average annual change is expected in county retail sales
through 2020.
Workforce The characteristics of an area's workforce provide an indication of the type and
Characteristics amount of transient visitation likely to be generated by local businesses. Sectors
such as finance, insurance, and real estate (FIRE); wholesale trade; and services
produce a considerable number of visitors who are not particularly rate-sensitive.
The government sector often generates transient room nights, but per-diem
reimbursement allowances often limit the accommodations selection to budget
and mid-priced lodging facilities. Contributions from manufacturing, construction,
transportation, communications, and public utilities (TCPU) employers can also be
important, depending on the company type.
The following table sets forth the county workforce distribution by business sector
in 2000, 2010, and 2014, as well as a forecast for 2020.

FIGURE 3-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S)
Average Annual
Compounded Change
Percent Percent Percent Percent
Industry 2000 of Total 2010 of Total 2014 of Total 2020 of Total 2000-2010 2010-2014 2014-2020
Farm 2.1 11.2 % 1.8 10.7 % 1.7 10.1 % 1.6 9.5 % (1.7) % (1.4) % (0.6) %
Forestry, Fishing, Related Activities And Other 0.2 0.9 0.2 1.3 0.2 1.4 0.2 1.5 2.7 2.7 0.9
Mining 0.1 0.6 0.1 0.6 0.1 0.6 0.1 0.5 (0.8) (0.5) (0.4)
Utilities 0.0 0.1 0.0 0.1 0.0 0.1 0.0 0.1 6.1 1.4 0.0
Construction 1.2 6.3 1.0 5.8 0.9 5.3 0.9 5.3 (2.0) (2.1) 0.2
Manufacturing 3.5 18.8 2.0 12.2 2.4 14.4 2.3 13.5 (5.4) 4.3 (0.8)
Total Trade 2.5 13.6 2.6 16.0 2.6 15.5 2.6 15.7 0.4 (0.8) 0.6
Wholesale Trade 0.4 1.9 0.6 3.6 0.7 4.1 0.8 4.5 5.4 3.0 1.9
Retail Trade 2.2 11.7 2.0 12.4 1.9 11.4 1.9 11.2 (0.7) (2.0) 0.1
Transportation And Warehousing 0.3 1.7 0.4 2.1 0.3 1.8 0.3 1.8 1.1 (4.1) 0.1
Information 0.2 0.9 0.1 0.7 0.1 0.5 0.1 0.5 (4.4) (4.9) 0.4
Finance And Insurance 0.6 3.1 0.7 4.4 0.8 4.6 0.8 4.6 2.2 0.9 0.3
Real Estate And Rental And Lease 0.6 3.0 0.6 3.9 0.6 3.8 0.7 3.9 1.2 (0.1) 0.6
Total Services 5.1 27.3 4.9 30.0 5.1 30.7 5.4 32.1 (0.3) 0.6 1.1
Professional And Technical Services 0.4 2.0 0.4 2.6 0.4 2.7 0.5 2.7 1.3 0.6 0.7
Management Of Companies And Enterprises 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NA NA NA
Administrative And Waste Services 0.6 3.2 0.9 5.4 1.1 6.8 1.3 7.9 4.0 5.9 2.9
Educational Services 0.1 0.3 0.1 0.5 0.1 0.5 0.1 0.5 1.6 0.3 1.1
Health Care And Social Assistance 1.9 10.0 1.7 10.1 1.7 10.0 1.7 10.1 (1.2) (0.2) 0.4
Arts, Entertainment, And Recreation 0.2 1.2 0.2 1.1 0.2 1.0 0.2 1.0 (2.6) (1.0) 0.2
Accommodation And Food Services 0.9 4.8 0.8 4.9 0.8 4.8 0.8 4.9 (1.2) (0.5) 0.9
Other Services, Except Public Administration 1.1 5.7 0.9 5.5 0.8 5.0 0.8 5.0 (1.6) (2.1) 0.3
Total Government 2.4 12.7 2.0 12.2 1.8 11.1 1.9 11.1 (1.7) (2.3) 0.4
Federal Civilian Government 0.1 0.8 0.1 0.8 0.1 0.8 0.1 0.8 (0.9) (0.2) 0.2
Federal Military 0.1 0.5 0.1 0.5 0.1 0.5 0.1 0.5 (0.8) (1.6) 0.2
State And Local Government 2.1 11.4 1.8 10.9 1.6 9.9 1.7 9.9 (1.8) (2.4) 0.4
TOTAL 18.7 100.0 % 16.5 100.0 % 16.5 100.0 % 16.9 100.0 % (1.3) % 0.1 % 0.4 %
MSA 117.8 — 101.6 — 105.4 — 110.0 — (1.5) % 0.9 % 0.7 %

U.S. 165,370.9 — 173,767.3 — 181,869.5 — 197,077.4 — 0.7 1.1 1.3
Source: Woods & Poole Economics, Inc.

Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010,
total employment in the county contracted at an average annual rate of -1.3%. This
trend was above the growth rate recorded by the MSA and also lagged the national
average. More recently, the pace of total employment growth in the county
accelerated to 0.1% on an annual average from 2010 to 2014, reflecting the initial
years of the recovery.
Of the primary employment sectors, Manufacturing recorded the highest increase

in number of employees during the period from 2010 to 2014, increasing by 372
people, or 18.5%, and rising from 12.2% to 14.4% of total employment. Of the
various service sub-sectors, Health Care And Social Assistance and Administrative
And Waste Services were the largest employers. Strong growth was also recorded
in the Total Services sector, as well as the Finance And Insurance sector, which
expanded by -8.2% and -8.2%, respectively, in the period 2010 to 2014. Forecasts
developed by Woods & Poole Economics, Inc. anticipate that total employment in
the county will change by 0.4% on average annually through 2020. The trend is
below the forecast rate of change for the U.S. as a whole during the same period.
FIGURE 3-3 UNEMPLOYMENT STATISTICS
Year County State Country

2004 9.2 % 7.1 % 5.5 %
2005 8.0 6.8 5.1
2006 8.4 6.9 4.6
2007 8.9 7.1 4.6
2008 11.0 8.3 5.8
2009 17.1(S) 13.5(G) 9.3
2010 15.2(E) 12.7(D) 9.6
2011 11.8(E) 10.4(D) 8.9
2012 10.2(E) 9.1(D) 8.1
2013 10.6(E) 8.8(D) 7.4
Recent Month - May
2013 10.4 % 8.6 % 7.6 %
2014 8.6 7.3 6.3
* Letters shown next to data points (if any) reflect revised population
controls and/or model re-estimation implemented by the BLS.
Source: U.S. Bureau of Labor Statistics
The unemployment rate for the U.S. fluctuated within the narrow range of 4.6% to
6.0% in the period spanning from 2003 to 2007. The recession and financial crisis

in 2007 and 2008 resulted in heightened unemployment rates, which peaked at
10.0% in October of 2009. Job growth resumed in late 2009; the national
unemployment rate has steadily declined since 2010. Total nonfarm payroll
employment increased by 75,000, 113,000, and 175,000 jobs in December of 2013
and January and February of 2014, respectively, which brought the unemployment
rate to 6.7%, remaining near the lowest level in over four years. Job growth has
averaged 189,000 per month over the last twelve months. In February of 2014, job
growth was strongest in professional and business services, as well as wholesale
trade. This positive trend reflects steady progress by the U.S. economy.
Locally, the unemployment rate for the county was 10.6(E)% in 2013; for this
same area in 2014, the most recent month’s unemployment rate was registered at
8.6%, versus 10.4% for the same month in 2013. Local employment is highly
dependent on the automobile and manufacturing sectors, with over 4,000
manufacturing plants in the Metro Detroit area. Unemployment rates in the area
remained relatively stable from 2003 through 2007. However, unemployment
notably increased in 2008 as the nation entered an economic slowdown; this
negative trend continued into 2009, illustrated by the extraordinarily high
unemployment figures that year. In 2009, General Motors and Chrysler emerged
from bankruptcy restructurings with funding provided in part by the U.S. and
Canadian governments. The general strengthening of the world's traditional
automotive center led the local economy with significant decreases in
unemployment rates from 2010 through 2012. The most recent comparative
period illustrates further improvement, as indicated by the latest available data for
2014, primarily due to growing employment in the manufacturing, professional
services, and trade and transportation sectors.
Major Business and Providing additional context for understanding the nature of the regional
Industry economy, the following table presents a list of the major employers in the subject
property’s market.

FIGURE 3-4 MAJOR EMPLOYERS IN SANILAC COUNTY
Number of
Rank Firm Employees
1 Grupo Antolin 356

2 Huron, Inc 321
3 Trelleborg 274
4 Gielow Pickles 200
5 Marlette Hospital 439
6 McKenzie Hospital 439
7 Sanilac Medical Care 165
8 East MI Bank 92
Source: Sanilac County, 2014
Airport Traffic Airport passenger counts are important indicators of lodging demand. Depending
on the type of service provided by a particular airfield, a sizable percentage of
arriving passengers may require hotel accommodations. Trends showing changes
in passenger counts also reflect local business activity and the overall economic
health of the area.
Detroit Metro Airport (DTW) is served by a variety of domestic and international

airlines. In 2008, a new, $418-million, 27-gate terminal opened and now
accommodates all domestic and international carriers that previously operated
out of the Smith and Berry Terminals. In 2012, the airport opened its $11-million
Ground Run-Up Enclosure (GRE), which is designed to minimize noise pollution to
the surrounding area when plane engines are tested after undergoing
maintenance. The Airport Authority's long-term plans include an airport rail
system, a new runway, and terminal expansions; a number of proposed future
developments are under consideration.
The following table illustrates recent operating statistics for the Detroit Metro
Airport, which is the primary airport facility serving the proposed subject hotel’s
submarket.

FIGURE 3-5 AIRPORT STATISTICS - DETROIT METRO AIRPORT
Passenger Percent Percent

Year Traffic Change* Change**
2004 35,187,517 — —
2005 36,389,294 3.4 % 3.4 %
2006 35,091,309 (3.6) (0.1)
2007 36,013,478 2.6 0.8
2008 35,135,828 (2.4) (0.0)
2009 31,357,388 (10.8) (2.3)
2010 32,377,064 3.3 (1.4)
2011 32,406,159 0.1 (1.2)
2012 32,242,473 (0.5) (1.1)
2013 32,389,544 0.5 (0.9)
Year-to-date, Apr
2013 10,012,319 — —
2014 10,138,459 1.3 % —
*Annual average compounded percentage change from the previous year

**Annual average compounded percentage change from first year of data
Source: Detroit Metro Airport
This facility recorded 32,389,544 passengers in 2013. The change in passenger

traffic between 2012 and 2013 was 0.5%. The average annual change during the
period shown was -0.9%.
Tourist Attractions Port Sanilac is home to two marinas and public dockage for boaters on Lake
Huron. Port Sanilac Harbor of Refuge is a full service public dockage facility
offering 32 seasonal slips and 35 transient slips. It is open April 1 to October 31.
Offering amenities include water, electricity, restrooms, showers, gasoline, diesel,
pump out, ice, fish cleaning station, boat launch, hoist, long-term parking, public
phone, courtesy vehicle, dog run, day-use dockage, playground/park, grills/picnic
tables, laundry, car rental, marine repairs, marine supplies and weekend security.
The Bark Shanty Marina offers long-term dockage along with boat storage
capabilities. On the shores of Lake Huron, Bark Shanty Marina is nestled inside the
Port Sanilac breakwall, just north of the historic Port Sanilac Lighthouse. The
private Marina hosts 30 wells on floating docks, abutting the south side of the
breakwall that protects nature and wildlife. Bark Shanty Marina offers dockage,
moorage, storage, launch and haul-out, and a clubhouse with full amenities.

Port Sanilac is home to the Sanilac Shores Underwater Preserve. This marine
museum is home to a number of historical shipwrecks, including the Regina, a 250-
foot steel package freighter that sank in a fierce gale in 1913. The Regina, which
was discovered in 1986, and some of its cargo rests in 80 feet of water, with the
ship rising 25 feet from the bottom. Other shipwrecks include Mary Alice B, North
Star, F.B. Gardner, Charles Street, F.B. Gardner, Col A.B. Williams, Checotah and
New York. Diving charters are available from Port Sanilac Harbor. Sanilac Shores
Underwater Preserve offers some shipwreck diving in Michigan within a 163
square mile area in Lake Huron.
Port Sanilac is fast becoming a desired fishing destination for perch in Michigan.
From late June through mid-August the perch abound. The rest of the year the area
has everything from perch off the break wall for the most novice of fishers to
salmon and walleye for the big game fishermen with large boats.
The Huron Shores Golf Club & Restaurants’ golf course is located just three miles
north of the main downtown area of the Village of Port Sanilac. The 18-hole
regulation course offers challenging golf with its rolling hills, water hazards, and
tight fairways to the experienced golfer, yet and also be played by the beginner just
learning the game.
The Sanilac County Historic Village and Museum is home to more than a dozen
historic buildings. The ten-acre site is part of the estate of Dr. Joseph Loop and
boasts gardens and Victorian, Edwardian vintage buildings and exhibits. The
museum society also hosts a number of events throughout the year. A visit to the
museum gives you a look back in time to the way life used to be in this lumbering,
farming, and seafaring community. Highlights include seeing how children learned
their ABCs in the one-room 19th century schoolhouse, the General Store, period-
furnished mansion, marine shipwreck items, military memorabilia, and Native
American artifacts.
The Barn Theatre is a non-profit summer stock theatre that prides itself on
providing entertainment to local residents as well as visitors, and doing it all on a
shoestring budget. The Theatre pulls in talented volunteers from all over eastern
Michigan.

PORT SANILAC LIGHTHOUSE
Conclusion This section discussed a wide variety of economic indicators for the pertinent
market area. Port Sanilac is experiencing a period of economic recovery and
strength, buoyed by tourism related attractions being developing in the village.
The village is planning large development projects to implement at the Port
Sanilac Harbor and the surrounding infrastructure. Once completed, the area is
expected to transform to a beautiful leisure destination with a quaint atmosphere.
The outlook for the market area is generally positive.
National GDP Our analysis of the outlook for this specific market also considers the broader
context of the national economy. The U.S. economy entered a recession in
December of 2007, which worsened in the fall of 2008 when the financial crisis
shocked the world economy. The U.S. fell into economic decline for most of 2009,
but the nation’s gross domestic product (GDP) and corporate profits began to
grow again in the third quarter of 2009. In 2010, the economy experienced four
consecutive quarters of economic growth, reflecting a rebound from the recession.
Following a slight contraction in the first quarter of 2011, the economy has grown
at positive, albeit fluctuating rates, as evidenced in the following table.

FIGURE 3-6 UNITED STATES GDP GROWTH RATE
6.0 4.9
3.9 3.9 3.7 4.1
4.0 2.8 2.8 3.2 2.8
2.0 2.5 2.4
1.5 1.3 1.6 1.4 1.2 1.1
2.0
0.1
0.0
-2.0 -0.4
-1.3
-2.0
-4.0 -2.7
-6.0
-5.4
-8.0
-10.0 -8.3
2008 2009 2010 2011 2012 2013
Source: tradingeconomics.com, Bureau of Economic Analysis
Gross domestic product (GDP) increased at an annual rate of 2.4% in the fourth
quarter of 2013, reflecting a deceleration from the strong growth achieved during
the third quarter of the year. The U.S. GDP, which has averaged 3.2% since it was
first recorded in 1947, increased 1.9% in 2013 compared with an increase of 2.8%
in 2012 (year over year). The growth in the fourth quarter was driven by
contributions from nonresidential fixed investment, exports, and private inventory
investment, despite a negative contribution from federal and local government
spending, residential fixed investment, and imports. The economic outlook
continues to be positive; GDP is projected to grow at an annual rate of 2.7% in
2014, according to Kiplinger’s Economic Outlook, despite a weather related
slowdown in January and February.

4. Supply and Demand Analysis
In the lodging industry, price varies directly, but not proportionately, with demand
and inversely, but not proportionately, with supply. Supply is measured by the
number of guestrooms available, and demand is measured by the number of
rooms occupied; the net effect of supply and demand toward equilibrium results in
a prevailing price, or average rate. The purpose of this section is to investigate
current supply and demand trends, as indicated by the current competitive
market, and to set forth a basis for the projection of future supply and demand
growth.
Definition of Subject The 40-room Proposed Hotel Condominiums and Cottages will be located in Port
Hotel Market Sanilac, Michigan. The greater market surrounding the subject site offers no hotel
condos; however, there are numerous rental cottages in the immediate Port
Sanilac and nearby Lexington areas, which are located to the south of Port Sanilac.
The proposed subject hotel condominium and wharf cottages are expected to
compete with a smaller set of lodging facilities based on various factors. These
factors may include location, price point, product quality, length of stay (such as an
extended-stay focus vs. non-extended-stay focus), room type, or age of the units,
among other factors. We have reviewed these pertinent attributes and established
an expected competitive set based upon this review. Our review of the proposed
subject hotel’s specific competitive set within the Port Sanilac area begins after our
review of national occupancy, average rate, and RevPAR trends.
National Trends The proposed subject hotel condominium and wharf cottage rental market is most
Overview directly affected by the supply and demand trends within the immediate area.
However, individual markets are also influenced by conditions in the national
lodging market. We have reviewed national lodging trends to provide a context for
the forecast of the supply and demand for the proposed subject hotel’s competitive
set.
Smith Travel Research (STR) is an independent research firm that compiles data
on the lodging industry, and this information is routinely used by typical hotel
buyers. Figure 4-1 presents annual hotel occupancy and average rate data since
1987. Figures 4-2 and 4-3 illustrate the more recent trends, categorized by
geography, price point, type of location, and chain scale. The statistics include
occupancy, average rate, and rooms revenue per available room (RevPAR).
RevPAR is calculated by multiplying occupancy by average rate and provides an
indication of how well rooms revenue is being maximized.
August-2014 Supply and Demand Analysis

FIGURE 4-1 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS
70.0%
$120
$100 65.0%
$80
60.0%
$60
55.0%
$40
50.0%
$20
$0 45.0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1987
1988
1989
1990
1991
1992
1993
1994
2010
2011
2012
2013
RevPAR Average Rate Occupancy
Source: STR

FIGURE 4-2 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – YEAR-TO-DATE DATA
Occupancy - Thru February Average Rate - Thru February RevPAR - Thru February
2013 2014 % Change 2013 2014 % Change 2013 2014 % Change

United States 54.4 % 56.0 % 3.0 % $106.90 $110.67 3.5 % $58.16 $61.99 6.6 %
Region
New England 48.6 % 49.1 % 1.1 % $112.19 $115.89 3.3 % $54.50 $56.94 4.5 %
Middle Atlantic 55.5 53.9 (2.9) 133.01 139.28 4.7 73.79 75.07 1.7
South Atlantic 57.0 59.0 3.6 109.35 112.65 3.0 62.31 66.48 6.7
East North Central 47.1 48.1 2.2 85.45 87.75 2.7 40.22 42.21 4.9
East South Central 48.1 49.3 2.4 77.91 80.58 3.4 37.49 39.71 5.9
West North Central 45.3 46.9 3.7 81.94 84.10 2.6 37.09 39.48 6.5
West South Central 57.1 58.7 2.8 93.48 94.62 1.2 53.40 55.59 4.1
Mountain 53.9 57.2 6.1 108.36 111.80 3.2 58.44 63.98 9.5
Pacific 61.8 64.2 3.9 128.42 136.13 6.0 79.30 87.35 10.1
Class
Luxury 63.3 % 64.1 % 1.3 % $253.06 $265.76 5.0 % $160.06 $170.28 6.4 %
Upper Upscale 63.5 65.1 2.5 154.78 160.51 3.7 98.34 104.50 6.3
Upscale 63.4 64.7 2.1 118.64 122.88 3.6 75.16 79.47 5.7
Upper Midscale 54.2 55.8 3.0 96.08 98.68 2.7 52.04 55.07 5.8
Midscale 47.7 49.2 3.1 78.29 80.25 2.5 37.35 39.48 5.7
Economy 47.1 48.9 3.7 55.86 58.03 3.9 26.34 28.37 7.7
Location
Urban 61.9 % 62.8 % 1.5 % $142.31 $146.87 3.2 % $88.08 $92.25 4.7 %
Suburban 55.2 57.2 3.7 90.23 93.33 3.4 49.80 53.40 7.2
Airport 64.4 67.8 5.2 97.53 100.47 3.0 62.81 68.07 8.4
Interstate 44.8 46.3 3.3 71.92 73.76 2.5 32.20 34.12 6.0
Resort 60.6 62.2 2.6 160.34 169.45 5.7 97.20 105.39 8.4
Small Metro/Town 44.5 45.4 2.0 82.22 84.31 2.5 36.59 38.26 4.6
Chain Scale
Luxury 70.5 % 71.0 % 0.8 % $283.88 $299.45 5.5 % $200.03 $212.74 6.4 %
Upper Upscale 65.7 67.2 2.3 155.94 161.91 3.8 102.42 108.80 6.2
Upscale 65.6 67.0 2.1 117.88 121.87 3.4 77.31 81.61 5.6
Upper Midscale 54.7 56.3 2.9 94.87 97.41 2.7 51.86 54.81 5.7
Midscale 46.9 48.7 3.8 72.25 74.17 2.7 33.89 36.09 6.5
Economy 46.9 48.7 3.9 49.92 51.80 3.8 23.40 25.22 7.8
Independents 50.8 52.2 2.8 105.03 108.83 3.6 53.33 56.79 6.5
Source: STR - February 2014 Lodging Review

FIGURE 4-3 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – CALENDAR YEAR DATA
Occupancy Average Rate RevPAR
2012 2013 % Change 2012 2013 % Change 2012 2013 % Change

United States 61.3 % 62.3 % 1.5 % $106.25 $110.35 3.9 % $65.15 $68.69 5.4 %
Region
New England 61.4 % 62.5 % 1.8 % $127.18 $131.46 3.4 % $78.11 $82.19 5.2 %
Middle Atlantic 66.5 66.0 (0.7) 150.64 155.74 3.4 100.12 102.83 2.7
South Atlantic 60.8 62.0 1.9 103.49 106.64 3.0 62.89 66.06 5.0
East North Central 58.4 59.1 1.2 92.47 95.70 3.5 53.97 56.53 4.7
East South Central 56.2 56.9 1.2 79.48 82.24 3.5 44.69 46.78 4.7
West North Central 57.3 57.9 1.0 84.20 86.54 2.8 48.23 50.07 3.8
West South Central 60.5 61.4 1.5 88.87 93.19 4.9 53.75 57.20 6.4
Mountain 59.1 60.3 1.9 96.20 99.02 2.9 56.86 59.67 4.9
Pacific 67.8 69.5 2.5 126.30 133.73 5.9 85.65 92.94 8.5
Price
Luxury 69.5 % 70.6 % 1.6 % $175.21 $181.98 3.9 % $121.73 $128.52 5.6 %
Upscale 65.5 66.1 0.9 129.00 133.43 3.4 84.48 88.16 4.4
Midprice 62.3 63.1 1.4 101.65 104.91 3.2 63.29 66.24 4.7
Economy 56.2 57.3 2.1 75.40 78.44 4.0 42.36 44.99 6.2
Budget 55.5 56.3 1.5 59.24 61.68 4.1 32.86 34.73 5.7
Location
Urban 69.4 % 70.5 % 1.6 % $154.02 $160.80 4.4 % $106.85 $113.31 6.0 %
Suburban 61.6 62.8 1.9 89.74 92.80 3.4 55.30 58.26 5.3
Airport 68.0 69.8 2.6 94.75 97.53 2.9 64.46 68.08 5.6
Interstate 54.5 54.8 0.6 74.29 76.18 2.5 40.49 41.77 3.1
Resort 63.2 64.1 1.4 142.28 150.22 5.6 89.99 96.36 7.1
Small Metro/Town 54.3 54.9 1.0 86.79 89.14 2.7 47.16 48.91 3.7
Chain Scale
Luxury 73.3 % 74.6 % 1.8 % $274.81 $290.31 5.6 % $201.36 $216.47 7.5 %
Upper Upscale 70.9 71.9 1.5 154.36 161.04 4.3 109.40 115.84 5.9
Upscale 70.9 71.7 1.2 116.89 121.72 4.1 82.85 87.28 5.3
Mid-scale w/ F&B 63.0 63.8 1.2 97.42 100.29 2.9 61.42 63.99 4.2
Mid-scale w/o F&B 54.8 55.8 1.8 74.62 76.33 2.3 40.89 42.57 4.1
Economy 54.2 55.0 1.5 52.54 54.27 3.3 28.46 29.85 4.9
Independents 58.0 58.9 1.6 105.15 108.90 3.6 60.94 64.11 5.2
Source: STR - December 2013 Lodging Review

Following the significant occupancy and RevPAR decline experienced during the
last recession, demand growth resumed in 2010, led by select markets that had
recorded growth trends in the fourth quarter of 2009. The pace of demand growth
accelerated through the year; in 2010, lodging demand in the U.S. increased by
7.7% over that registered in 2009. A return of business travel and some group
activity contributed to these positive trends. The resurgence in demand was partly
fueled by the significant price discounts that were widely available in the first half
of 2010. These discounting policies were largely phased out in the latter half of the
year, balancing much of the early rate loss. Average rate decreased by only 0.1% in
2010 when compared to 2009.
Strong demand growth continued in 2011 and 2012, at 5.0% and 3.0%,
respectively. Demand increased 2.1% in the year-to-date through November 2013
period. Average rate rebounded by respective rates of 3.7% and 4.2%, in 2011 and
2012, followed by a 3.9% increase in 2013. In 2012, occupancy reached 61.3%
(exceeding the ten-year average); moreover, occupancy gained another point in
2013, ending the year at 62.3%. Average rate finished the year just over $106 in
2012, with just over a $4 gain in rate registered in 2013. Demand and average
rates should continue to strengthen in the near term. These trends, combined with
the low levels of supply growth anticipated through 2014, should boost occupancy
to just over 63% by year-end 2014. On a national average, strengthening
occupancy levels should also permit hotels to increase room rates beyond the
3.9% achieved in 2013. HVS forecasts U.S. average rate growth of 5.0% for 2014.
National Resort Market The proposed subject property is a resort facility that primarily targets leisure
Overview transient and corporate retreat guests. Therefore, it is important to analyze how
the historical demand and rate of this segment trended.

FIGURE 4-4 RESORTS HISTORICAL DEMAND AND ADR TRENDS
Resort
Occ % Change ADR ($) Change
2004 65.9 120.01
2005 66.7 1.2 % 126.72 5.6 %
2006 66.4 -0.4 136.73 7.9
2007 66.1 -0.5 143.19 4.7
2008 62.1 -6.1 146.59 2.4
2009 57.5 -7.4 129.30 -11.8
2010 53.5 -7.0 128.70 -0.5
2011 62.2 16.3 135.08 5.0
2012 63.2 1.6 142.28 5.3
2013 64.1 1.4 150.22 5.6
Forecast 2014 65.1 1.5 158.48 5.5
Forecast 2015 65.7 1.0 166.41 5.0
Forecast 2016 66.0 0.5 173.89 4.5
Forecast 2017 66.0 0.0 180.85 4.0
Forecast 2018 66.0 0.0 186.28 3.0
Average Annual Compounded

Change: 2004 - 2013 -0.3 % 2.5 %
YTD thru May

2013 64.2 156.33
2014 66.3 3.3 % 164.49 5.2 %
Source: STR, HVS
The demand for the resort lodging facilities have fluctuated over the historical
period exhibited in the above figure. The demand had been declining since 2006 and
significantly dropped during the recent recession as the discretional income levels
declined. Combined with a huge decline in ADR, many resort hotels went under
water during the period. However, it is important to note the segment has been
rebounding at a rapid pace in the recent years. The ADR exceeded the pre-
recessional peak in 2013, and the latest year-to-date number indicates the
continuing growth. The latest year-to-date occupancy indicates that the demand is
also on track for a full recovery. Therefore, the outlook for the national resort
segment is generally positive.

FIGURE 4-5 RESORT OCCUPANCY TREND
Resort Occupancy
68
66
64
62
60
58
56
54
52
50

FIGURE 4-6 AVERAGE RATE TREND
Resort ADR
$200.00
$190.00
$180.00
$170.00
$160.00
$150.00
$140.00
$130.00
$120.00
$110.00
$100.00

Port Sanilac Area Port Sanilac and the nearby areas contain numerous vacation rental homes and
Rental Market cottages. We have conducted extensive interviews with a sample of
owners/managers of these facilities. The following map illustrates the location of
each sample.
MAP OF COMPARABLE RENTAL PROPERTIES
Based on our interviews, we have estimated ADR for the high and low seasons for
each facility. The following table summarizes our findings.
FIGURE 4-7 ADR RESEARCH – COMPETITIVE AND COMPARABLE PROPERTIES

Rental Home, Location # of Bedrooms # of Bathrooms ADR (High Season) ADR (Low Season)
A Lake Huron Beachfront, Lexington 3 2 425 340
B Cottage, Lexington 3 1.5 400 320
C Lake Huron Beachfront 3 2 400 320
D Lake Huron Cottage, Port Sanilac 1 3 2 325 260
E Lake Huron Cottage, Port Sanilac 2 2 2 325 260
F Cottage on Beach, Lexington 3 1 265 212
G Beachfront Home, Lexington 3 2 250 200
H Cottage, Lexington 2 1 210 168
I Hoff Cottage, Port Sanilac 3 2 200 150
J Cottage on Lake Huron, Lexington 2 1 200 160
K Bungalow, Lexington 2 1 150 120

FIGURE 4-8 ADR ESTIMATES – COMPARABLE PROPERTIES
0 100 200 300 400 500
Lake Huron Beachfront, Lexington
Cottage, Lexington
Lake Huron Beachfront

High Season Rate
Cottage on Beach, Lexington Low Season Rate
Beachfront Home, Lexington
Cottage, Lexington
Hoff Cottage, Port Sanilac
Cottage on Lake Huron, Lexington
Bungalow, Lexington
The Port Sanilac market area is a highly seasonal market. Between June and
August, the market attracts substantial leisure demand from the nearby areas.
During these months, rental units are sold out both on weekdays and weekends.
During the low seasons, however, stays are limited to weekends and holidays.
Based on our interviews, we have estimated the following occupancy for the high
and low seasons.
FIGURE 4-9 SAMPLE UNIT SEASONAL OCCUPANCY
Days Occupancy
High 122 95%
Low 213 30%
Total 335 54%
Conclusion Our interviews with owners/managers of local rental units and research on the
market revealed that there is a strong lodging demand base in the area. Although
the lodging market around Port Sanilac is highly seasonal, rates and occupancy of

sample units are healthy for this type of lodging facilities and indicate the potential
pent-up demand that the proposed subject property can accommodate.

5. Description of the Proposed Improvements
The quality of a lodging facility's physical improvements has a direct influence on

marketability, attainable occupancy, and average room rate. The design and
functionality of the structure can also affect operating efficiency and overall
profitability. This section investigates the subject property's proposed physical
improvements and personal property in an effort to determine how they are
expected to contribute to attainable cash flows.
Project Overview The Proposed Hotel Condominiums and Cottages will be a lodging facility
containing 40 rentable units. The two-story property will open on July 1, 2016.
The subject property is not affiliated with any recognized brand name.
ARCHITECTURAL RENDERING OF HOTEL CONDOS AND COTTAGES
August-2014 Description of the Proposed Improvements

Summary of the Based on information provided by the proposed subject hotel’s development
Facilities representatives, the following table summarizes the facilities that are expected to
be available at the proposed subject hotel.
FIGURE 5-1 PROPOSED FACILITIES SUMMARY
Guestroom Configuration Number of Units

Hotel Two Bedroom Units (approximately 1,400 sf) 20
Hotel Three Bedroom Units (approximately 1,700 - 3,000 sf) 4
Wharf Cottage (approximately 1,400 to 1,800 sf) 10
Carriage House Garage Studio Units (approximately 400 to 500 sf) 6
Total 40
Food & Beverage/Banquet Facilities Seating Capacity

Breakfast/Bar Dining Area 150
Banquet Room Area 250
Amenities & Services

Outdoor Swimming Pool Fitness Center
Vending Areas Lobby Workstation
Guest Laundry Facility Gift Shop
Infrastructure
Parking Spaces 45
Life-Safety Systems Sprinklers, Smoke Detectors
Construction Details Wood Framing, Poured Concrete
Site Improvements and Once guests enter the site, ample parking will be available on the surface lot on the
Hotel Structure west side of the hotel. Site improvements will include freestanding signage. We
assume that all signage will adequately identify the property. Planned landscaping
should allow for a positive guest impression and competitive exterior appearance.
Sidewalks will be present along the front entrance and around the perimeter of the
hotel. Other site improvements will include a pool. Overall, the planned site
improvements for the property appear adequate.
The proposed subject property's structure will comprise one single 3.5 story, L-
shaped building, which will be constructed of wood and reinforced concrete. The
wharf cottages will comprise of 1.5 to 2 story free-standing houses as well as 12
garages with 400 square foot studio suites above the garage. The exteriors will be
finished with cement board siding, polymer trim, aluminum clad wood
windows/patio doors. Stairways and elevators will provide internal vertical

transportation within the main structure. The roof will be covered with asphalt
shingles. Double-paned, aluminum clad windows and doors will reduce noise
transmission into the rooms. Heating and cooling will be provided by through-the-
wall units and several large units for the public areas. Overall, the planned building
components appear normal for a hotel of this type and should meet the standards
for this market. We assume that all structural components will meet local building
codes and that no significant defaults will occur during construction that would
affect the future operating potential of the hotel or delay its assumed opening date.
Lobby The hotel lobby will consist of a registration desk area for guest check-in. The
interior finishes will comprise of a combination of wood/carpet floors, drywall
walls and ceilings and painted poplar trim.
Food and Beverage The proposed subject property will offer food and beverage operations. A
Facilities restaurant and a bar will serve three meals a day and offer room service for guests
of the hotel and wharf cottages. Additionally, there will be seasonal outdoor
seating available to allow guests to enjoy the view of the harbor.
TYPICAL COTTAGE

TYPICAL COTTAGE
TYPICAL COTTAGE

Meeting and Banquet The proposed subject property is planned to offer a 4,000-square-foot meeting
Space room. The space will be utilized for various social events such as weddings and
family reunions. The meeting space should be divisible into multiple rooms to
accommodate small groups.
Recreational Amenities The proposed subject property is expected to offer a swimming pool and
salon/spa. It is our assumption that the salon/spa facility will feature unique
treatments that attract clients from the surrounding cities.
Additional Amenities The wharf cottages will offer a den/family room and will vary by unit. Additionally,
each cottage will offer a gas fireplace and covered porches.
Guestrooms The proposed subject property is expected to feature two and three bedroom suite
style rooms, and guestrooms will be present on the second and third levels of the
property. The guestroom suites will feature balconies with lake views. The hotel
guestroom suites are expected to range in size from 1,366 to 1,400 square feet for
the two bedroom suites, approximately 1,700 to 3,000 square feet for the three
bedroom units. Overall, the guestrooms should offer a competitive upscale
product for this part of the east coast of Michigan area.
Guestroom bathrooms are expected to be of a standard size, with a shower-in-tub,

commode, and single sink with vanity area, featuring a granite countertop. The
floors will be finished with tile, and the walls will be painted drywall.
The interior guestroom corridors will be wide and functional, permitting the easy
passage of housekeeping carts. Corridor carpet, wall covering, signage, and lighting
will be in keeping with the overall look and design of the rest of the property.
Back-of-the-House The proposed subject property is expected to be served by the necessary back-of-
the-house space, including an in-house laundry facility, administrative offices, and
a prep kitchen to service the needs of the breakfast dining area. These spaces
should be adequate for a hotel of this type and should allow for the efficient
operation of the property under competent management.
ADA and We assume that the property will be built according to all pertinent codes.
Environmental Moreover, we assume its construction will not create any environmental hazards
(such as mold) and that the property will fully comply with the Americans with
Disabilities Act.
Construction Budget The construction budget for the 40-room subject hotel, as provided by the project
developer, is illustrated in the following table.

FIGURE 5-2 CONDOMINIUM HOTEL DEVELOPMENT COST

Cottages (10 units) 2,500,000 250,000
Carriage Houses (6 units) 500,000 83,333
Site Cost $1,550,000 $38,750
Total, With Land $17,500,000 $437,500
Conclusion Overall, the proposed subject property should offer a well-designed, functional
layout of support areas and guestrooms. All typical and market-appropriate
features and amenities appear to be included in the hotel's and wharf cottage
design. We assume that the building will be fully open and operational on the
stipulated opening date and will meet all local building codes. Furthermore, we
assume that the hotel staff will be adequately trained to allow for a successful
opening and that pre-marketing efforts will have introduced the product at least
six months in advance of the opening date.

6. Projection of Occupancy and Average Rate
Along with average rate results, the occupancy levels achieved by rental properties
are the foundation of the property's financial performance and market value. Most
of a lodging facility's other revenue sources (such as food, beverages, other
operated departments, and rentals and other income) are driven by the number of
guests, and many expense levels vary with occupancy. To a certain degree,
occupancy attainment can be manipulated by management. For example,
operators may choose to lower rates in an effort to maximize occupancy. Our
forecasts reflect an operating strategy that we believe would be implemented by a
typical, professional management team to achieve an optimal mix of occupancy
and average rate.
Forecast of Subject Based on the interviews with owners/managers of the local rental units, we have
Property’s Occupancy concluded that a typical lodging unit achieves 54% in occupancy. Given the
proposed subject property’s characteristics such as the facilities, amenities,
location, and estimated rates, we have selected the property’s projected stabilized
occupancy of 54%.
FIGURE 6-1 SUBJECT PROPERTY’S OCCUPIED ROOM NIGHTS
Days Occupancy Occupied Days Occupied Room Nights

High 122 95% 116 4,636
Low 213 30% 64 2,556
Total 335 54% 180 7,192
The preceding table summarizes the number of occupied room nights that the
proposed subject property is estimated to generate during high and low seasons in
the stabilized year. We have made an extraordinary assumption that condominium
units will be placed in a rentable pool for 335 days each year, leaving 30 days for
personal use by individual unit owners. Based on this assumption, the proposed
subject property is anticipated to generate 7,192 room nights annually.
Average Rate Analysis One of the most important considerations in estimating the value of a lodging
facility is a supportable forecast of its attainable average rate, which is more
formally defined as the average rate per occupied room. Average rate can be
calculated by dividing the total rooms revenue achieved during a specified period
by the number of rooms sold during the same period. The projected average rate
and the anticipated occupancy percentage are used to forecast rooms revenue,
August-2014 Projection of Occupancy and Average Rate

which in turn provides the basis for estimating most other income and expense
categories.
The following table summarizes the selected high- and low-season rates for each
unit type of the proposed subject property. The rate selection is based on the data
we obtained from the interviews with the owners/managers of local lodging
facilities.
FIGURE 6-2 RATE POSITIONING OF THE SUBJECT PROPERTY
Unit Type # of Units Weight High Season Rate Low Season Rate
Hotel Two-Bedrooms 20 50% $360 $288
Hotel Three-Bedrooms 4 10% $410 $328
Cottage Two-Bedrooms 6 15% $375 $300
Cottage Three-Bedrooms 4 10% $425 $340
Studio Units 6 15% $150 $120
40 100% $342 $274
The following table illustrates the positioning of the proposed subject property
among the samples.
FIGURE 6-3 RATE RANKING
Rental Home, Location ADR (High Season) ADR (Low Season)

Lake Huron Beachfront, Lexington 425 340
Cottage, Lexington 400 320
Lake Huron Beachfront 400 320
Proposed Subject Property 342 274
Lake Huron Cottage, Port Sanilac 1 325 260
Lake Huron Cottage, Port Sanilac 2 325 260
Cottage on Beach, Lexington 265 212
Beachfront Home, Lexington 250 200
Cottage, Lexington 210 168
Hoff Cottage, Port Sanilac 200 150
Cottage on Lake Huron, Lexington 200 160
Bungalow, Lexington 150 120
The newly built facilities and superior amenities of the proposed subject property
will position its rate above the average of the market. However, to achieve the
market-wide occupancy with the proposed number of inventory, it is essential to
retain competitive rates. We have positioned the proposed subject property’s ADR
four out of twelve.

Multiplying the rates by projected occupied room nights will produce total rooms
revenue. By dividing the result with the total occupied room nights, ADR for the
proposed subject property is estimated at $318 .
FIGURE 6-4 ROOMS REVENUE AND ADR
Revenue
High $1,586,671
Low $699,833
Total $2,286,504
ADR $318
The proposed subject hotel's occupancy forecast is set forth as follows, with the
adjusted projected penetration rates used as a basis for calculating the amount of
captured market demand.
The following table summarizes the proposed subject property’s occupancy and
average rate forecast, reflecting fiscal years and opening-year rate as applicable.
The projected ADR is higher than the base-year rate due to the assumed inflation
and rate growth resulting from the improvement of the market conditions.
FIGURE 6-5 FORECAST OF OCCUPANCY, AVERAGE RATE, AND REVPAR
Average Rate After

Year Occupancy Average Rate RevPAR Discount in 2013 Value
2016/17 50 % $368.23 184.12 341.95

2017/18 52 382.96 199.14 345.27
2018/19 54 396.34 214.02 346.92

7. Projection of Income and Expense
In this chapter of our report, we have compiled a forecast of income and expense
for the proposed subject hotel condos and cottage rentals. This forecast is based on
the facilities program set forth previously, as well as the occupancy and average
rate forecast discussed previously.
The forecast of income and expense is expressed in current dollars for each year.
The stabilized year is intended to reflect the anticipated operating results of the
property over its remaining economic life, given any or all applicable stages of
build-up, plateau, and decline in the life cycle of the hotel. Thus, income and
expense estimates from the stabilized year forward exclude from consideration
any abnormal relationship between supply and demand, as well as any
nonrecurring conditions that may result in unusual revenues or expenses. The ten-
year period reflects the typical holding period of large real estate assets such as
hotels. In addition, the ten-year period provides for the stabilization of income
streams and comparison of yields with alternate types of real estate. The
forecasted income streams reflect the future benefits of owning specific rights in
income-producing real estate.
Comparable Operating In order to project future income and expense for the proposed subject hotel
Statements condos and cottages, we have included a sample of individual comparable
operating statements from our database of similar property statistics. All financial
data are presented according to the three most common measures of industry
performance: ratio to sales (RTS), amounts per available room (PAR), and amounts
per occupied room night (POR). These historical income and expense statements
will be used as benchmarks in our forthcoming forecast of income and expense.
August-2014 Projection of Income and Expense

FIGURE 7-1 COMPARABLE OPERATING STATEMENTS: RATIO TO SALES
Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject

Stabilized $
Year: 2012/13 2013 2012 2011/12 2011 2013
Number of Rooms: 60 to 80 60 to 90 30 to 50 120 to 160 70 to 90 40
Occupied Rooms: 13,376 20,796 8,555 32,761 16,485 7,192
Days Open: 365 365 365 366 365 365
Occupancy: 55% 75% 53% 62% 56% 54%
Average Rate: $403 $185 $169 $306 $369 $368
RevPAR: $220 $139 $90 $190 $208 $198
REVENUE
Rooms 51.0 % 49.6 % 40.0 % 50.3 % 58.3 % 56.8 %
Food & Beverage 29.0 18.0 53.9 39.0 30.7 29.1
Other Operated Departments 13.9 32.4 6.0 6.0 10.6 11.6
Rentals & Other Income 6.1 0.0 0.0 4.7 0.5 2.5
Total 100.0 100.0 100.0 100.0 100.0 100.0
Rooms 36.9 30.2 20.9 30.1 30.1 30.0
Food & Beverage 81.2 86.1 78.4 68.8 76.4 75.0
Total 48.8 46.9 54.1 47.6 50.6 49.3
DEPARTMENTAL INCOME 51.2 53.1 45.9 52.4 49.4 50.7
OPERATING EXPENSES
Administrative & General 9.5 10.9 10.7 6.1 12.0 8.1
Marketing 3.6 3.8 4.9 4.0 6.8 3.8
Property Operations & Maintenance 2.6 8.7 3.9 6.0 6.9 3.0
Utilities 1.8 8.1 7.4 2.3 4.4 2.5
Total 17.5 31.5 26.9 18.8 30.2 17.4
HOUSE PROFIT 33.7 21.6 19.0 33.6 19.2 33.3
* Departmental expense ratios are expressed as a percentage of departmental revenues

FIGURE 7-2 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER AVAILABLE ROOM

Stabilized $
Year: 2012/13 2013 2012 2011/12 2011 2013
Occupied Rooms: 13,376 20,796 8,555 32,761 16,485 7,192
Days Open: 365 365 365 366 365 365
Occupancy: 55% 75% 53% 62% 56% 54%
Average Rate: $403 $185 $169 $306 $369 $368
RevPAR: $220 $139 $90 $190 $208 $198
REVENUE
Rooms $80,464 $50,579 $32,915 $69,654 $76,018 $66,175
Food & Beverage 45,728 18,324 44,304 53,909 40,034 33,878
Other Operated Departments 21,896 33,041 4,968 8,243 13,762 13,551
Rentals & Other Income 9,612 0 0 6,545 588 2,904
Total 157,700 101,943 82,187 138,351 130,401 116,509
DEPARTMENTAL EXPENSES
Rooms 29,731 15,297 6,869 20,956 22,885 19,853
Food & Beverage 37,109 15,770 34,721 37,087 30,604 25,409
Other Operated Departments 10,102 16,710 2,905 7,818 12,508 12,196
Total 76,943 47,777 44,496 65,860 65,997 57,457
DEPARTMENTAL INCOME 80,757 54,167 37,691 72,490 64,404 59,051
OPERATING EXPENSES
Administrative & General 14,972 11,106 8,816 8,506 15,696 9,388
Marketing 5,673 3,862 3,998 5,535 8,804 4,447
Property Operations & Maintenance 4,105 8,919 3,206 8,257 9,026 3,459
Utilities 2,846 8,243 6,081 3,163 5,798 2,965
Total 27,596 32,129 22,100 26,012 39,325 20,258
HOUSE PROFIT 53,161 22,038 15,591 46,478 25,079 38,794

FIGURE 7-3 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER OCCUPIED ROOM

Stabilized $
Year: 2012/13 2013 2012 2011/12 2011 2013
Occupied Rooms: 13,376 20,796 8,555 32,761 16,485 7,192
Days Open: 365 365 365 366 365 365
Occupancy: 55% 75% 53% 62% 56% 54%
Average Rate: $403 $185 $169 $306 $369 $368
RevPAR: $220 $139 $90 $190 $208 $198
REVENUE
Rooms $403.04 $184.84 $169.29 $306.16 $368.91 $368.05
Food & Beverage 229.05 66.96 227.86 236.96 194.28 188.42
Rentals & Other Income 48.15 0.00 0.00 28.77 2.85 16.15
Total 789.91 372.56 422.71 608.12 632.82 647.99
DEPARTMENTAL EXPENSES
Rooms 148.92 55.90 35.33 92.11 111.06 110.42
Food & Beverage 185.88 57.63 178.58 163.01 148.52 141.32
Total 385.40 174.60 228.85 289.49 320.28 319.56
DEPARTMENTAL INCOME 404.51 197.96 193.85 318.63 312.54 328.43
OPERATING EXPENSES
Administrative & General 74.99 40.59 45.34 37.39 76.17 52.21
Marketing 28.41 14.11 20.56 24.33 42.73 24.73
Property Operations & Maintenance 20.56 32.59 16.49 36.29 43.80 19.24
Utilities 14.26 30.12 31.28 13.90 28.14 16.49
Total 138.23 117.42 113.67 114.33 190.84 112.67
HOUSE PROFIT 266.28 80.54 80.19 204.30 121.71 215.76

The comparables’ departmental income ranged from 38.3% to 61.9% of total
revenue. The comparable properties achieved a house profit ranging from 8.1% to
42.9% of total revenue. We will refer to the comparable operating data in our
discussion of each line item, which follows later in this section of the report.
Fixed and Variable HVS uses a fixed and variable component model to project a lodging facility's
Component Analysis revenue and expense levels. This model is based on the premise that hotel
revenues and expenses have one component that is fixed and another that varies
directly with occupancy and facility usage. A projection can be made by taking a
known level of revenue or expense and calculating its fixed and variable
components. The fixed component is then increased in tandem with the underlying
rate of inflation, while the variable component is adjusted for a specific measure of
volume such as total revenue.
The actual forecast is derived by adjusting each year’s revenue and expense by the
amount fixed (the fixed expense multiplied by the inflated base-year amount) plus
the variable amount (the variable expense multiplied by the inflated base-year
amount) multiplied by the ratio of the projection year’s occupancy to the base-year
occupancy (in the case of departmental revenue and expense) or the ratio of the
projection year’s revenue to the base year’s revenue (in the case of undistributed
operating expenses). Fixed expenses remain fixed, increasing only with inflation.
Our discussion of the revenue and expense forecast in this report is based upon
the output derived from the fixed and variable model. This forecast of revenue and
expense is accomplished through a systematic approach, following the format of
the Uniform System of Accounts for the Lodging Industry. Each category of revenue
and expense is estimated separately and combined at the end in the final
statement of income and expense.
Inflation Assumption A general rate of inflation must be established that will be applied to most revenue
and expense categories. The following table shows inflation estimates made by
economists at some noted institutions and corporations.

FIGURE 7-4 INFLATION ESTIMATES
Projected Increase in Consumer Price Index
(Annualized Rate Versus 12 Months Earlier)
Dec. June Dec. June Dec.
Name Firm 2013 2014 2014 2015 2015
Lewis Alexander Nomura Securities International 1.3 % 1.9 % 1.9 % 1.9 % 2.0 %
Paul Ashworth Capital Economics 1.4 1.8 1.9 2.0 2.0
Beth Ann Bovino Standard and Poor's 1.1 1.5 1.7 1.7 1.9
Jay Brinkmann Mortgage Bankers Association 1.5 2.1 2.0 2.1 2.3
Michael Carey Credit Agricole CIB 1.5 1.4 1.8 1.9 2.0
Joseph Carson AllianceBernstein 1.8 2.0 2.0 2.2 2.4
Julia Coronado BNP Paribas 1.5 1.3 1.7 1.8 1.8
Mike Cosgrove Econoclast 1.8 2.0 2.0 2.3 2.4
Lou Crandall Wrightson ICAP 1.4 1.5 2.2 2.4 2.5
J. Dewey Daane Vanderbilt University 1.0 2.0 2.0 2.0 2.0
Douglas Duncan Fannie Mae 1.1 1.5 1.6 1.7 1.8
Robert Dye Comerica Bank 1.2 1.7 1.8 1.8 1.9
Maria Fiorini Ramirez/Joshua Shapiro MFR, Inc. 1.3 1.8 1.8 — —
Doug Handler IHS Global Insight 1.5 1.5 1.5 1.6 1.7
Ethan Harris Bank of America Securities- Merrill Lynch 1.5 1.4 1.4 — —
Maury Harris UBS 1.2 1.8 2.4 2.5 2.5
Jan Hatzius Goldman, Sachs & Co. 1.2 1.7 1.7 1.8 2.0
Tracy Herrick Avidbank 2.6 2.7 2.9 3.4 3.9
Stuart Hoffman PNC Financial Services Group 1.2 1.8 2.0 2.2 2.2
Joseph LaVorgna Deutsche Bank Securities, Inc. 1.8 2.7 2.6 2.4 2.2
Edward Leamer/David Shulman UCLA Anderson Forecast 1.4 1.6 2.0 2.4 2.3
Don Leavens/Tim Gill NEMA Business Information Services 1.6 1.9 2.0 2.1 2.2
John Lonski Moody's Investors Service 1.3 1.6 1.8 1.8 1.6
Dean Maki Barclays Capital 1.7 1.7 2.2 — —
Aneta Markowska Societe Generale 1.3 1.4 2.0 2.0 2.4
Jim Meil/Arun Raha Eaton Corp. 1.0 1.4 1.8 2.0 2.1
Robert Mellman JP Morgan Chase & Co. 1.2 1.6 1.6 1.8 1.9
Michael P. Niemira International Council of Shopping Centers 1.5 2.2 2.3 2.5 2.5
Jim O'Sullivan High Frequency Economics 1.2 1.7 2.3 2.4 2.5
Dr. Joel Prakken/ Chris Varvares Macroeconomic Advisers 1.1 1.7 1.7 1.7 1.8
Vincent Reinhart Morgan Stanley 1.7 1.9 2.0 2.0 2.1
John Ryding/Conrad DeQuadros RDQ Economics 1.3 1.8 2.3 — —
Ian Shepherdson Pantheon Macroeconomics 1.7 1.9 1.9 2.0 2.0
Allen Sinai Decision Economics, Inc. 1.4 1.6 2.8 2.2 2.3
James F. Smith Parsec Financial Management 1.0 1.0 1.1 1.2 1.3
Sean M. Snaith University of Central Florida 1.0 1.9 1.6 1.6 1.7
Sung Won Sohn California State University 1.8 1.9 1.7 1.6 1.9
Neal Soss CSFB 1.5 1.4 1.7 — —
Stephen Stanley Pierpont Securities 1.6 2.0 2.4 2.6 2.9
Susan M. Sterne Economic Analysis Associates Inc. 1.6 1.9 2.6 2.1 2.0
Diane Swonk Mesirow Financial 1.2 1.3 1.4 1.5 1.6
Carl Tannenbaum The Northern Trust 1.5 1.6 2.0 2.1 2.2
Bart van Ark The Conference Board 1.2 1.8 2.0 2.1 2.2
Brian S. Wesbury/ Robert Stein First Trust Advisors, L.P. 1.3 1.9 2.0 2.3 2.5
William T. Wilson Skolkovo Institute for Emerging Market Studies 0.9 1.1 1.2 1.6 1.8
Lawrence Yun National Association of Realtors 1.2 2.3 2.8 3.3 3.4
Averages: 1.4 % 1.7 % 2.0 % 2.1 % 2.2 %

Source: wsj.com, January 15, 2014

As the preceding table indicates, the financial analysts who were surveyed in
December of 2013 anticipated inflation rates ranging from 0.9% to 2.6% (on an
annualized basis) for December 2013; the average of these data points was 1.4%.
The same group expects a slightly higher annualized 1.7% inflation rate for June
2014. These rates are lower than the inflation rate averages for December 2014
and June 2015, shown at 2.0% and 2.1%, respectively.
As a further check on these inflation projections, we have reviewed historical

increases in the Consumer Price Index (CPI-U). Because the value of real estate is
predicated on cash flows over a relatively long period, inflation should be
considered from a long-term perspective.
FIGURE 7-5 NATIONAL CONSUMER PRICE INDEX (ALL URBAN CONSUMERS)
National Consumer Percent Change

Year Price Index from Previous Year
2003 184.0 —
2004 188.9 2.7 %
2005 195.3 3.4
2006 201.6 3.2
2007 207.3 2.8
2008 215.3 3.8
2009 214.5 -0.4
2010 218.1 1.6
2011 224.9 3.1
2012 229.6 2.1
2013 233.0 1.5
Average Annual Compounded Change

2003 - 2013: 2.4 %
2008 - 2013: 1.6
Source: Bureau of Labor Statistics
Between 2003 and 2013, the national CPI increased at an average annual
compounded rate of 2.4%; from 2008 to 2013, the CPI rose by a slightly lower
average annual compounded rate of 1.6%. In 2013, the CPI rose by 1.5%, a
decrease from the level of 2.1% recorded in 2012.
In consideration of the most recent trends, the projections set forth previously,
and our assessment of probable property appreciation levels, we have applied
underlying inflation rates of 2.0%, 2.5%, and 3.0% thereafter for each respective
year following the base year of 2013. This stabilized inflation rate takes into
account normal, recurring inflation cycles. Inflation is likely to fluctuate above and

below this level during the projection period. Any exceptions to the application of
the assumed underlying inflation rate are discussed in our write-up of individual
income and expense items.
Summary of Based on an analysis that will be detailed throughout this section, we have
Projections formulated a forecast of income and expense. The following table presents a
detailed forecast through the fifth projection year, including amounts per available
room and per occupied room. The second table illustrates our ten-year forecast of
income and expense, presented with a lesser degree of detail. The forecasts pertain
to years that begin on July 1, 2016, expressed in inflated dollars for each year.

FIGURE 7-6 DETAILED FORECAST OF INCOME AND EXPENSE
2016/17 Begins July 2017/18 Stabilized 2019/20 2020/21

Number of Rooms: 40 40 40 40 40
Occupancy: 50% 52% 54% 54% 54%
Average Rate: $368.23 $382.96 $396.34 $408.23 $420.48
RevPAR: $184.11 $199.14 $212.72 $219.10 $225.68
Days Open: 335 335 335 335 335
Occupied Rooms: 6,700 %Gross PAR POR 6,968 %Gross PAR POR 7,192 %Gross PAR POR 7,192 %Gross PAR POR 7,192 %Gross PAR POR
REVENUE
Rooms $2,467 55.7 % $61,675 $368.21 $2,668 56.4 % $66,700 $382.89 $2,850 56.8 % $71,250 $396.27 $2,936 56.8 % $73,400 $408.23 $3,024 56.8 % $75,600 $420.47
Food & Beverage 1,305 29.5 32,624 194.77 1,384 29.2 34,592 198.58 1,459 29.1 36,482 202.90 1,503 29.1 37,577 208.99 1,548 29.1 38,704 215.26
Other Operated Departments**** 539 12.2 13,473 80.44 561 11.9 14,035 80.57 584 11.6 14,593 81.16 601 11.6 15,031 83.60 619 11.6 15,482 86.10
Rentals & Other Income 115 2.6 2,887 17.24 120 2.5 3,008 17.27 125 2.5 3,127 17.39 129 2.5 3,221 17.91 133 2.5 3,317 18.45
Total Revenues 4,426 100.0 110,659 660.65 4,733 100.0 118,335 679.31 5,018 100.0 125,452 697.73 5,169 100.0 129,228 718.73 5,324 100.0 133,103 740.28
DEPARTMENTAL EXPENSES *
Rooms 784 31.8 19,600 117.01 820 30.7 20,497 117.67 855 30.0 21,379 118.90 881 30.0 22,020 122.47 907 30.0 22,681 126.14
Food & Beverage 1,008 77.2 25,196 150.42 1,051 76.0 26,286 150.89 1,094 75.0 27,362 152.18 1,127 75.0 28,183 156.74 1,161 75.0 29,028 161.45
Other Operated Departments 492 91.3 12,303 73.45 509 90.6 12,715 72.99 525 90.0 13,134 73.05 541 90.0 13,528 75.24 557 90.0 13,933 77.49
Total 2,284 51.6 57,099 340.89 2,380 50.3 59,498 341.55 2,475 49.3 61,874 344.13 2,549 49.3 63,730 354.45 2,626 49.3 65,642 365.08
Administrative & General 375 8.5 9,376 55.98 390 8.2 9,745 55.94 404 8.1 10,109 56.23 417 8.1 10,413 57.91 429 8.1 10,725 59.65
Marketing 178 4.0 4,441 26.52 185 3.9 4,616 26.50 192 3.8 4,789 26.63 197 3.8 4,932 27.43 203 3.8 5,080 28.26
Prop. Operations & Maint. 138 3.1 3,454 20.62 144 3.0 3,590 20.61 149 3.0 3,724 20.71 153 3.0 3,836 21.34 158 3.0 3,951 21.98
Utilities 118 2.7 2,961 17.68 123 2.6 3,077 17.67 128 2.5 3,192 17.76 132 2.5 3,288 18.29 135 2.5 3,387 18.84
Total 809 18.3 20,232 120.79 841 17.7 21,029 120.72 873 17.4 21,815 121.33 899 17.4 22,470 124.97 926 17.4 23,144 128.72
HOUSE PROFIT 1,333 30.1 33,327 198.97 1,512 32.0 37,808 217.04 1,671 33.3 41,764 232.28 1,721 33.3 43,028 239.31 1,773 33.3 44,317 246.48
Management Fee 133 3.0 3,320 19.82 142 3.0 3,550 20.38 151 3.0 3,764 20.93 155 3.0 3,877 21.56 160 3.0 3,993 22.21
FIXED EXPENSES
Property Taxes 341 7.7 8,514 50.83 349 7.4 8,727 50.09 360 7.2 8,988 49.99 370 7.2 9,258 51.49 381 7.2 9,536 53.04
Insurance 48 1.1 1,204 7.19 50 1.0 1,240 7.12 51 1.0 1,277 7.10 53 1.0 1,315 7.32 54 1.0 1,355 7.53
Condo Association Fee****** (244) (5.5) (6,105) (36.45) (460) (9.7) (11,490) (65.96) (586) (11.7) (14,652) (81.49) (604) (11.7) (15,092) (83.94) (622) (11.7) (15,545) (86.46)
Reserve for Replacement 89 2.0 2,213 13.21 142 3.0 3,550 20.38 201 4.0 5,018 27.91 207 4.0 5,169 28.75 213 4.0 5,324 29.61
Total 780 17.7 19,508 116.46 1,094 23.1 27,339 156.94 1,279 25.5 31,981 177.87 1,318 25.5 32,946 183.24 1,357 25.5 33,934 188.73
NET INCOME $420 9.4 % $10,500 $62.69 $277 5.9 % $6,919 $39.72 $241 4.8 % $6,019 $33.47 $248 4.8 % $6,205 $34.51 $256 4.8 % $6,391 $35.54


FIGURE 7-7 TEN-YEAR FORECAST OF INCOME AND EXPENSE
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26
Number of Rooms: 40 40 40 40 40 40 40 40 40 40
Occupied Rooms: 6,700 6,968 7,192 7,192 7,192 7,192 7,192 7,192 7,192 7,192
Occupancy: 50% 52% 54% 54% 54% 54% 54% 54% 54% 54%
Average Rate: $368.23 % of $382.96 % of $396.34 % of $408.23 % of $420.48 % of $433.09 % of $446.08 % of $459.47 % of $473.25 % of $487.45 % of
RevPAR: $184.11 Gross $199.14 Gross $212.72 Gross $219.10 Gross $225.68 Gross $232.45 Gross $239.42 Gross $246.60 Gross $254.00 Gross $261.62 Gross
REVENUE
Rooms $2,467 55.7 % $2,668 56.4 % $2,850 56.8 % $2,936 56.8 % $3,024 56.8 % $3,115 56.8 % $3,208 56.8 % $3,304 56.8 % $3,404 56.8 % $3,506 56.8 %
Food & Beverage 1,305 29.5 1,384 29.2 1,459 29.1 1,503 29.1 1,548 29.1 1,595 29.1 1,642 29.1 1,692 29.1 1,742 29.1 1,795 29.1
Other Operated Departments** 539 12.2 561 11.9 584 11.6 601 11.6 619 11.6 638 11.6 657 11.6 677 11.6 697 11.6 718 11.6
Rentals & Other Income 115 2.6 120 2.5 125 2.5 129 2.5 133 2.5 137 2.5 141 2.5 145 2.5 149 2.5 154 2.5
Total 4,426 100.0 4,733 100.0 5,018 100.0 5,169 100.0 5,324 100.0 5,484 100.0 5,648 100.0 5,817 100.0 5,993 100.0 6,172 100.0
Rooms 784 31.8 820 30.7 855 30.0 881 30.0 907 30.0 934 30.0 962 30.0 991 30.0 1,021 30.0 1,052 30.0
Food & Beverage 1,008 77.2 1,051 76.0 1,094 75.0 1,127 75.0 1,161 75.0 1,196 75.0 1,232 75.0 1,269 75.0 1,307 75.0 1,346 75.0
Other Operated Departments 492 91.3 509 90.6 525 90.0 541 90.0 557 90.0 574 90.0 591 90.0 609 90.0 627 90.0 646 90.0
Total 2,284 51.6 2,380 50.3 2,475 49.3 2,549 49.3 2,626 49.3 2,704 49.3 2,786 49.3 2,869 49.3 2,955 49.3 3,044 49.3
Administrative & General 375 8.5 390 8.2 404 8.1 417 8.1 429 8.1 442 8.1 455 8.1 469 8.1 483 8.1 497 8.1
Marketing 178 4.0 185 3.9 192 3.8 197 3.8 203 3.8 209 3.8 216 3.8 222 3.8 229 3.8 236 3.8
Prop. Operations & Maint. 138 3.1 144 3.0 149 3.0 153 3.0 158 3.0 163 3.0 168 3.0 173 3.0 178 3.0 183 3.0
Utilities 118 2.7 123 2.6 128 2.5 132 2.5 135 2.5 140 2.5 144 2.5 148 2.5 152 2.5 157 2.5
Total 809 18.3 841 17.7 873 17.4 899 17.4 926 17.4 954 17.4 982 17.4 1,012 17.4 1,042 17.4 1,073 17.4
HOUSE PROFIT 1,333 30.1 1,512 32.0 1,671 33.3 1,721 33.3 1,773 33.3 1,826 33.3 1,880 33.3 1,937 33.3 1,996 33.3 2,055 33.3
Management Fee 133 3.0 142 3.0 151 3.0 155 3.0 160 3.0 165 3.0 169 3.0 175 3.0 180 3.0 185 3.0
FIXED EXPENSES
Property Taxes 341 7.7 349 7.4 360 7.2 370 7.2 381 7.2 393 7.2 405 7.2 417 7.2 429 7.2 442 7.2
Insurance 48 1.1 50 1.0 51 1.0 53 1.0 54 1.0 56 1.0 57 1.0 59 1.0 61 1.0 63 1.0
Condo Association Fee*** (244) (5.5) (460) (9.7) (586) (11.7) (604) (11.7) (622) (11.7) (640) (11.7) (660) (11.7) (679) (11.7) (700) (11.7) (721) (11.7)
Reserve for Replacement 89 2.0 142 3.0 201 4.0 207 4.0 213 4.0 219 4.0 226 4.0 233 4.0 240 4.0 247 4.0
Total 780 17.7 1,094 23.1 1,279 25.5 1,318 25.5 1,357 25.5 1,398 25.5 1,440 25.5 1,483 25.5 1,528 25.5 1,574 25.5
NET INCOME $420 9.4 % $277 5.9 % $241 4.8 % $248 4.8 % $256 4.8 % $263 4.8 % $271 4.8 % $279 4.8 % $288 4.8 % $297 4.8 %
1 1 1 1 1 1 1 1 1 1

Forecast of Income and The following description sets forth the basis for the forecast of income and
Expense expense. We anticipate that it will take three years for the subject property to
reach a stabilized level of operation. Each revenue and expense item has been
forecast based upon our review of the proposed subject hotel's operating budget
and comparable income and expense statements. The forecast is based upon fiscal
years beginning July 1, 2016, expressed in inflated dollars for each year.
Rooms Revenue Rooms revenue is determined by two variables: occupancy and average rate. We
projected occupancy and average rate in a previous section of this report. The
proposed subject hotel is expected to stabilize at an occupancy level of 54% with
an average rate of $396.34 in 2018/19. Following the stabilized year, the subject
property’s average rate is projected to increase along with the underlying rate of
inflation.
Food and Beverage Food and beverage revenue is generated by the hotel condominium’s restaurants,
Revenue lounges, coffee shops, snack bars, and banquet/meeting room. In addition to
providing a source of revenue, these outlets serve as an amenity that assists in the
sale of the hotel condo units and the cottages. With the exception of properties
with active lounges or banquet facilities that draw local residents, in-house guests
generally represent a substantial percentage of a hotel's food and beverage
patrons. In the case of the Proposed Hotel Condominiums and Cottages, the food
and beverage department will include a restaurant, banquet/meeting facilities;
moreover, banquet/meeting space is expected to span 4,000 square feet.
Although food and beverage revenue varies directly with changes in occupancy,
the small portion generated by banquet sales and outside capture is relatively
fixed. The comparable statements illustrated food and beverage revenue between
52.7% and 90.6% of rooms revenue, or $170.70 and $300.95 per occupied room.
The proposed subject hotel's food and beverage operation is expected to be an

important component of the hotel. Therefore, based upon our review of
comparable operating statements, we have positioned an appropriate revenue
level given the hotel's planned facility and price point. We would expect future
moderate growth to occur within this category after the hotel's opening. We
project food and beverage revenue to be $194.77 per occupied room in the first
projection year, or 52.9% of rooms revenue. These per-occupied-room amounts
increase to $202.90 for food and beverage revenue categories by the stabilized
year, or 51.2% of rooms revenue.
Other Operated According to the Uniform System of Accounts, other operated departments include
Departments Revenue any major or minor operated department other than rooms and food and
beverage. The proposed subject hotel's other operated departments revenue
sources are expected to include the hotel's telephone charges, spa/salon revenue,

and other minor departments. Based on our review of operations with a similar
extent of offerings, we have positioned an appropriate revenue level for the
proposed subject hotel.
The comparable operating statements illustrate other operated departments

revenue ranging from 6.0% to 32.4% of rooms revenue and $25.55 to $120.75
per occupied room. We forecast the proposed subject’s other operated
departments revenue to stabilize at 20.5% of rooms revenue or $81.16 per
occupied room by the stabilized year, 2018/19.
Rentals & Other The rentals and other income sources comprise those other than guestrooms, food
Income and beverage, and the other operated departments. The proposed subject rentals
and other income revenues are expected to be generated primarily by the hotel
condominium lobby convenience store, sundries counter, meeting space rentals,
guest laundry fees, business center services, in-room movie and game charges, and
vending areas. In addition, rentals and other income revenues are also expected to
be generated from rentals of water equipment, such as inner tubes and water.
Based on our review of operations with a similar extent of offerings, we have
positioned an appropriate revenue level for the proposed subject property.
Rentals and other income revenue for the comparables ranged 0.0 % to 6.1 % of
rooms revenue or $2.85 to $48.15 on a per-occupied-room basis. Changes in this
revenue item through the projection period result from the application of the
underlying inflation rate and projected changes in occupancy. We forecast the
proposed subject hotel’s rentals and other income to stabilize at $17.39 per
occupied room by the stabilized year, 2018/19.
Rooms Expense Rooms expense consists of items related to the sale and upkeep of the condos,
cottages and public space. Salaries, wages, and employee benefits account for a
substantial portion of this category. Although payroll varies somewhat with
occupancy and managers can generally scale the level of service staff on hand to
meet an expected occupancy level, much of a rental property’s payroll is fixed. A
base level of front desk personnel, housekeepers, and supervisors must be
maintained at all times, especially during the peak months. As a result, salaries,
wages, and employee benefits are only moderately sensitive to changes in seasonal
occupancy.
Commissions and reservations are usually based on room sales, and thus are
highly sensitive to changes in occupancy and average rate. While guest supplies
vary 100% with occupancy, linens and other operating expenses are only slightly
affected by volume.
The comparables illustrated rooms expense ranging between 20.9% and 36.9% of
rooms revenue; on a per-occupied-room basis, the range was between $39.83 and

$138.24. We have projected rooms expense for the proposed subject property at
31.8% in the first year (or $93.65 per occupied room), stabilizing at 30.0% in
2018/19 (or $93.73 per occupied room). The proposed subject hotel's rooms
department expense has been positioned based upon our review of the
comparable operating data and our understanding of the hotel's future service
level and price point.
Food and Beverage Food expenses consist of items necessary for the primary operation of the subject
Expense property’s food and banquet facilities. The costs associated with food sales and
payroll are moderately to highly correlated to food revenues. Items such as china,
linen and uniforms are less dependent on volume. Although the other expense
items are basically fixed, they represent a relatively insignificant factor. Beverage
expenses consist of items necessary for the operation of a hotel’s lounge and bar
areas. The costs associated with beverage sales and payroll are moderately to
highly correlated to beverage revenues.
The comparables illustrate food and beverage expense ranging between 68.8%
and 87.9% of food and beverage revenue. We have projected a stabilized expense
ratio of 75.0% in 2018/19. The proposed subject hotel's food and beverage
operation is expected to be efficiently managed and operate at an expense level
that is in line with other comparable operations.
Other Operated Other operated departments expense includes all expenses reflected in the
Departments Expense summary statements for the divisions associated in these categories. This was
previously discussed in this chapter. The comparables illustrated other operated
departments expense ranging between $14.94 and $61.07 per occupied room. We
have projected a stabilized expense ratio of 90.0% in 2018/19. The proposed
subject hotel's other operated departments revenue sources are expected to
include the hotel's telephone charges, spa/salon revenue, and other minor
departments. Based on our review of operations with a similar extent of offerings,
we have positioned an appropriate revenue level for the proposed subject hotel.
Administrative and Administrative and general expense includes the salaries and wages of all
General Expense administrative personnel who are not directly associated with a particular
department. Expense items related to the management and operation of the
property are also allocated to this category.
Most administrative and general expenses are relatively fixed. The exceptions are
cash overages and shortages; commissions on credit card charges; provision for
doubtful accounts, which are moderately affected by the number of transactions or
total revenue; and salaries, wages, and benefits, which are very slightly influenced
by volume.

As a percentage of total revenue, the comparable operations indicate an
administrative and general expense range from 6.1% to 12.0%, or $8,506 to
$25,791 per available room. Based upon our review of the comparable operating
data and the expected scope of facility for the proposed subject hotel, we have
positioned the administrative and general expense level at a market- and
property-supported level. In the first projection year, we have projected
administrative and general expense for the proposed subject hotel to be $9,376
per available room, or 8.5% of total revenue. By the 2018/19 stabilized year, these
amounts change to $10,109 per available room and 8.1% of total revenue.
Marketing Expense Marketing expense consists of all costs associated with advertising, sales, and
promotion; these activities are intended to attract and retain customers. Marketing
can be used to create an image, develop customer awareness, and stimulate
patronage of a property's various facilities.
The marketing category is unique in that all expense items, with the exception of
fees and commissions, are totally controlled by management. Most hotel operators
establish an annual marketing budget that sets forth all planned expenditures. If
the budget is followed, total marketing expenses can be projected accurately.
Marketing expenditures are unusual because although there is a lag period before
results are realized, the benefits are often extended over a long period. Depending
on the type and scope of the advertising and promotion program implemented, the
lag time can be as short as a few weeks or as long as several years. However, the
favorable results of an effective marketing campaign tend to linger, and a property
often enjoys the benefits of concentrated sales efforts for many months.
As a percentage of total revenue, the comparable operations indicate a marketing

expense range from 3.6% to 6.8%, or $1,321 to $14,742 per available room. Based
upon our review of the comparable operating data and the expected scope of
facility for the proposed subject hotel, we have positioned the marketing expense
level at a market- and property-supported level. In the first projection year, we
have projected marketing expense for the proposed subject property to be $4,441
Franchise Fee As previously discussed, the subject is expected to be operated independent of a

franchise affiliation upon its opening. Therefore, we have not included franchise
fees in our forecast.
Property Operations Property operations and maintenance expense is another expense category that is
and Maintenance largely controlled by management. Except for repairs that are necessary to keep

the facility open and prevent damage (e.g., plumbing, heating, and electrical items),
most maintenance can be deferred for varying lengths of time.
Maintenance is an accumulating expense. If management elects to postpone

performing a required repair, they have not eliminated or saved the expenditure;
they have only deferred payment until a later date. A lodging facility that operates
with a lower-than-normal maintenance budget is likely to accumulate a
considerable amount of deferred maintenance.
The age of a lodging facility has a strong influence on the required level of
maintenance. A new or thoroughly renovated property is protected for several
years by modern equipment and manufacturers' warranties. However, as a
hostelry grows older, maintenance expenses escalate. A well-organized preventive
maintenance system often helps delay deterioration, but most facilities face higher
property operations and maintenance costs each year, regardless of the occupancy
trend. The quality of initial construction can also have a direct impact on future
maintenance requirements. The use of high-quality building materials and
construction methods generally reduces the need for maintenance expenditures
over the long term.
As a percentage of total revenue, the comparable operations indicate a property

operations and maintenance expense range from 2.8% to 6.3%, or $4,105 to
$10,368 per available room. We expect the proposed subject hotel's maintenance
operation to be well managed, and expense levels should stabilize at a typical level
for a property of this type. Changes in this expense item through the projection
period result from the application of the underlying inflation rate and projected
changes in occupancy. In the first projection year, we have projected property
operations and maintenance expense for the proposed subject hotel to be $3,454
Utilities Expense The utilities consumption of a lodging facility takes several forms, including water
and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous
power requirements. The most common sources of hotel utilities are electricity,
natural gas, fuel oil, and steam. This category also includes the cost of water
service.
Total energy cost depends on the source and quantity of fuel used. Electricity tends
to be the most expensive source, followed by oil and gas. Although all hotels
consume a sizable amount of electricity, many properties supplement their utility
requirements with less expensive sources, such as gas and oil, for heating and
cooking.

As a percentage of total revenue, the comparable operations indicate a utilities
expense range from 2.0% to 4.9%, or $2,846 to $10,041 per available room. The
changes in this utilities line item through the projection period are a result of the
application of the underlying inflation rate and projected changes in occupancy. In
the first projection year, we have projected utilities expense for the proposed
subject hotel to be $2,961 per available room, or 2.7% of total revenue. By the
2018/19 stabilized year, these amounts change to $3,192 per available room and
2.5% of total revenue.
Management Fee Management expense consists of the fees paid to the managing agent contracted to
operate the property. Some companies provide management services and a brand-
name affiliation (first-tier management company), while others provide
management services alone (second-tier management company). Some
management contracts specify only a base fee (usually a percentage of total
revenue), while others call for both a base fee and an incentive fee (usually a
percentage of defined profit). Basic hotel management fees are often based on a
percentage of total revenue, which means they have no fixed component. While
base fees typically range from 2% to 4% of total revenue, incentive fees are deal-
specific and often are calculated as a percentage of income available after debt
service and, in some cases, after a preferred return on equity. Total management
fees for the subject property have been forecast at 3.0% of total revenue.
Property Taxes Property (or ad valorem) tax is one of the primary revenue sources of
municipalities. Based on the concept that the tax burden should be distributed in
proportion to the value of all properties within a taxing jurisdiction, a system of
assessments is established. Theoretically, the assessed value placed on each parcel
bears a definite relationship to market value, so properties with equal market
values will have similar assessments and properties with higher and lower values
will have proportionately larger and smaller assessments.
The following table summarizes the historical assessed value for the parcels that
will be developed for the proposed subject property.

FIGURE 7-8 COUNTY-ASSESSED VALUE OF COMPARABLE HOTELS
Lot Size 2012 2013 2014

Land 0.28 86,800 86,800 86,800
212-240-000-126-00 (Exempt)
Improvement NA NA NA
Land 0.27 85,800 85,800 85,800
212-240-000-126-05 (Exempt)
Land 0.14 50,700 50,700 50,700
212-240-000-126-10 (Exempt)
Land 0.27 51,500 51,500 51,500
212-240-000-126-15 (Patttullo)
Improvement 4,700 4,600 4,200
Land 0.35 79,400 79,400 79,400
212-035-400-170-00 (Pattullo)
Improvement 14,300 14,000 13,000
Land 0.48 86,500 86,500 86,500
212-035-400-150-00 (Pattullo)
Improvement 9,900 9,200 8,900
Land 0.21 26,700 26,700 26,700
212-035-400-180-00 (Pattullo)
Improvement 6,900 6,800 6,200
212-035-000-126-45 (Kozak) - Vacant Land Land 0.04 4,100 4,100 4,100
Land 0.08 7,400 7,400 7,400
212-240-000-126-50 (Exempt - V. of Port Sanilac)
Land 0.08 7,400 7,400 7,400
212-240-000-126-25 (Douros) - Vacant Land
Land 0.08 8,700 8,700 8,700
212-240-000-126-20 (Douros) - Vacant Land
Total Land 2.28 $495,000 $495,000 $495,000
Total Improvement $35,800 $34,600 $32,300
Tax Rate is 49.8314 Mills for Summer, Winter & Vintage Tax Collections 2012, 2013, 2014 Tax Rates
The most recent tax rate in this jurisdiction was reported at 49.83140 millage rate.
The following table shows changes in the tax rate during the last several years.
FIGURE 7-9 TAX RATES
Real Property
Year Tax Rate
2012 49.83140
2013 49.83140
2014 49.83140
Source: Port Sanilac Assessor's Office

According to the local assessor, the assessed value will be reset to 50% of market
value once the development of the proposed subject property completes.
Consequently, we have estimated the “when complete” assessed value by taking
50% of our value conclusion before property taxes. The following table illustrates
our projection of tax burden.
FIGURE 7-10 PROJECTED PROPERTY TAX EXPENSE
Assessed Value Property Tax

Year Land Improvements Total Tax Rate Forecast
Positioned $495,000 $32,300 $527,300 49.83 $333,870

2016/17 $495,000 $6,205,000 $6,700,000 50.83 $340,548
2017/18 495,000 6,205,000 6,700,000 52.10 349,061
2018/19 495,000 6,205,000 6,700,000 53.66 359,533
Insurance Expense The insurance expense category consists of the cost of insuring the subject
property and its contents against damage or destruction by fire, weather, sprinkler
leakage, boiler explosion, plate glass breakage, and so forth. General insurance
costs also include premiums relating to liability, fidelity, and theft coverage.
Insurance rates are based on many factors, including building design and
construction, fire detection and extinguishing equipment, fire district, distance
from the firehouse, and the area's fire experience. Insurance expenses do not vary
with occupancy.
Based on comparable data and the structural attributes of the proposed project,
we have forecast the proposed subject’s insurance expense at $1,277 per available
room by the stabilized year (positioned at $1,200 on a per-available-room basis in
base-year dollars). This forecast equates to 1.0% of total revenue on a stabilized
basis. In subsequent years, this amount is assumed to increase in tandem with
inflation.
Payment to Unit With the assumed condominium structure, individual unit owners are entitled to
Owners 50% of total rooms revenue after appropriate expense amount is taken out for
resort operation. The following table shows our projection of aggregated rental
revenues that would be paid to individual unit owners.

FIGURE 11 PAYMENT TO UNIT OWNERS
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Total Rms Rev ($000) $2,467 $2,668 $2,850 $2,936 $3,024 $3,115 $3,208 $3,304 $3,404 $3,506
% of Sold Units 50% 86% 100% 100% 100% 100% 100% 100% 100% 100%
Rms Rev from Sold Units ($000) $1,244 $2,301 $2,850 $2,936 $3,024 $3,115 $3,208 $3,304 $3,404 $3,506
Less:
Rental Management Fee@12% $149 $276 $342 $352 $363 $374 $385 $396 $408 $421
Net Rooms Revenue for Owners' Split $1,095 $2,025 $2,508 $2,584 $2,661 $2,741 $2,823 $2,908 $2,996 $3,085
Owners' Rental Share@50% $547 $1,013 $1,254 $1,292 $1,331 $1,371 $1,412 $1,454 $1,498 $1,543
We have assumed that the management will collect 12% of total rooms revenue as
a resort management fee, which is considered typical for this type of arrangement.
Individual unit owners are entitled to the remaining net room revenue from units
placed in the rental pool.
Reserve for Furniture, fixtures, and equipment are essential to the operation of a lodging
Replacement facility, and their quality often influences a property's class. This category includes
all non-real estate items that are capitalized, rather than expensed. The furniture,
fixtures, and equipment of a hotel are exposed to heavy use and must be replaced
at regular intervals. The useful life of these items is determined by their quality,
durability, and the amount of guest traffic and use.
Periodic replacement of furniture, fixtures, and equipment is essential to maintain

the quality, image, and income-producing potential of a lodging facility. Because
capitalized expenditures are not included in the operating statement but affect an
owner's cash flow, a forecast of income and expense should reflect these expenses
in the form of an appropriate reserve for replacement.
The International Society of Hospitality Consultants (ISHC) undertook a major

industry-sponsored study of the capital expenditure requirements for full-
service/luxury, select-service, and extended-stay hotels. The most recent findings
of the study were published in a report in 2007.8 Historical capital expenditures of
well-maintained hotels were investigated through the compilation of data
provided by most of the major hotel companies in the United States. A prospective
analysis of future capital expenditure requirements was also performed based
upon the cost to replace short- and long-lived building components over a hotel's
economic life. The study showed that the capital expenditure requirements for
hotels vary significantly from year to year and depend upon both the actual and
effective ages of a property. The results of this study showed that hotel lenders and
8 The International Society of Hotel Consultants, CapEx 2007, A Study of Capital

Expenditure in the U.S. Hotel Industry.

investors are requiring reserves for replacement ranging from 4% to 5% of total
revenue.
Based on the results of this study, our review of the subject asset and comparable
lodging facilities, and our industry expertise, we estimate that a reserve for
replacement of 4% of total revenues is sufficient to provide for the timely and
periodic replacement of the subject property's furniture, fixtures, and equipment.
This amount is ramped up during the initial projection period.
Condominium For this type of operation, it is common to pass on certain expenses to individual
Association Fee unit owners. Such expenses include property operations and maintenance,
utilities, insurance, property taxes, and reserve for replacement.
The amount that should be allocated to the individual unit owner is determined by
taking the ratio of total building square footage of condominium and cottage units
( 53,800 square feet) against total building square footage of the whole property
81,700 square feet). The square footage is based on the information provided by
the Shoreline Architecture Design, Inc., and that indicates that roughly 66% of the
above-mentioned expenses amount should be allocated to individual unit owner as
condominium association fee.
Conclusion In conclusion, our analysis reflects a profitable operation, with net income
expected to total 2.1% of total revenue by the stabilized year. The stabilized total
revenue comprises primarily rooms and food and beverage revenue, with a
secondary portion derived from other income sources. On the cost side,
departmental expenses total 52.4% of revenue by the stabilized year, while
undistributed operating expenses total 21.0% of total revenues; this assumes that
the property will be operated competently by a well-known hotel operator. After a
3.0% of total revenues management fee, and 21.5% of total revenues in fixed
expenses, a net income ratio of 2.1% is forecast by the stabilized year.

8. Feasibility Analysis
Return on investment can be defined as the future benefits of an income-

producing property relative to its acquisition or construction cost. The first step in
performing a return on investment analysis is to determine the amount to be
initially invested. For a proposed property, this amount is most likely to be the
development cost of the hotel. Based on the total development cost, the individual
investor will utilize a return on investment analysis to determine if the future cash
flow from a current cash outlay meets his or her own investment criteria and at
what level above or below this amount such an outlay exceeds or fails to meet
these criteria.
As an individual or company considering investment in hotel real estate, the

decision to use one’s own cash, an equity partner's capital, or lender financing will
be an internal one. Because hotels typically require a substantial investment, only
the largest investors and hotel companies generally have the means to purchase
properties with all cash. We would anticipate the involvement of some financing
by a third party for the typical investor or for those who may be entering the
market for hotel acquisitions at this time. In leveraged acquisitions and
developments where investors typically purchase or build upon real estate with a
small amount of equity cash (20% to 50%) and a large amount of mortgage
financing (50% to 80%), it is important for the equity investor to acknowledge the
return requirements of the debt participant (mortgagee), as well as his or her own
return requirements. Therefore, we will begin our rate of return analysis by
reviewing the debt requirements of typical hotel mortgagees.
Construction Cost Because the subject property is a proposed hotel, we have relied upon the actual
Estimate development budget for the proposed subject hotel in performing a cost analysis.
As this budget takes into consideration all of the physical, structural, and design
elements specific to the property, it is believed to be the most accurate assessment
of the actual cost of developing a hotel facility of this type. The details of this
budget, prepared by the developers of the Proposed Hotel Condominiums and
Cottages, are presented in the following table.
August-2014 Feasibility Analysis

FIGURE 8-4 CONDOMINIUM HOTEL DEVELOPMENT COST

Cottages (10 units) 2,500,000 250,000
Carriage Houses (6 units) 500,000 83,333
Site Cost $1,550,000 $38,750
Total, With Land $17,500,000 $437,500
Mortgage Component Hotel financing is currently very active at all tiers of the lodging industry. Lenders
are attracted to the lodging industry because of the higher yields generated by
hotel financing relative to other commercial real estate, and the industry is
performing strongly, with supply growth constrained. Commercial banks,
mortgage REITs, insurance companies, and CMBS and mezzanine lenders are
aggressively pursuing deals. Financing is also increasingly available for hotels that
require a turnaround.
Data for the mortgage component may be developed from statistics of actual hotel
mortgages made by long-term lenders. The American Council of Life Insurance,
which represents 20 large life insurance companies, publishes quarterly
information pertaining to the hotel mortgages issued by its member companies.
Because of the six- to nine-month lag time in reporting and publishing hotel
mortgage statistics, it was necessary to update this information to reflect current
lending practices. Our research indicates that the greatest degree of correlation
exists between the average interest rate of a hotel mortgage and the concurrent
yield on an average-A corporate bond.
The following chart summarizes the average mortgage interest rates of the hotel
loans made by these lenders. For the purpose of comparison, the average-A
corporate bond yield (as reported by Moody's Bond Record) is also shown.

FIGURE 8-5 AVERAGE MORTGAGE INTEREST RATES AND AVERAGE-A
CORPORATE BOND YIELDS
9.0
8.0
7.0
Rate (%)
6.0
5.0
4.0
3.0
2004 - 3rd
2005 - 3rd
2006 - 3rd
2008 - 3rd
2009 - 3rd
2010 - 3rd
2011 - 3rd
2013 - 3rd
2007 - 3rd
2012 - 3rd
2010 - 1st
2011 - 1st
2012 - 1st
2013 - 1st
2004 - 1st
2005 - 1st
2006 - 1st
2009 - 1st
2007 - 1st
2008 - 1st
Avg. Interest Rate (%) Avg. A Corp. Bond Yield (%)
Sources: American Council of Life Insurance, Moody's Bond Record, HVS
The relationship between hotel interest rates and the yields from the average-A
corporate bond can be detailed through a regression analysis, which is expressed
as follows.
Y = 0.93110700 X + 1.02995700
Where: Y = Estimated Hotel Mortgage Interest Rate

X = Current Average-A Corporate Bond Yield
(Coefficient of correlation is 93%)
The April 2, 2014, average yield on average-A corporate bonds, as reported by

Moody’s Investors Service, was 4.64%. When used in the previously presented
equation, a factor of 4.64 produces an estimated hotel/motel interest rate of
5.35% (rounded).
Yields on U.S. treasuries and average-A corporate bonds remain at low levels
despite their recent uptick, providing a very favorable financing environment.
Interest rates for single hotel assets are currently ranging from 5.0% to 7.0%,
depending on the type of debt, loan-to-value ratio, and the quality of the asset and
its market.

In addition to the mortgage interest rate estimate derived from this regression
analysis, HVS constantly monitors the terms of hotel mortgage loans made by our
institutional lending clients. Fixed-rate debt is being priced at roughly 200 to 400
basis points over the corresponding yield on treasury notes. As of April 2, 2014,
the yield on the ten-year T-bill was 2.7%, indicating an interest rate range from
4.7% to 6.7%. While hotel mortgage interest rates have risen from their recent
historic low, they are still at very favorable levels due to the low interest rate
environment being maintained by the Federal Reserve. At present, we find that
lenders who are active in the market are using loan-to-value ratios of 50% to 75%
and amortization periods of 20 to 30 years.
Based on our analysis of the current lodging industry mortgage market and
adjustments for specific factors, such as the proposed property’s location and
conditions in the Port Sanilac market, it is our opinion that a 5.50% interest, 25-
year amortization mortgage with a 0.073690 constant is appropriate for the
proposed subject hotel. In the mortgage-equity analysis, we have applied a loan-to-
value ratio of 70%, which is reasonable to expect based on this interest rate and
current parameters.
Equity Component The remaining capital required for a hotel investment generally comes from the
equity investor. The rate of return that an equity investor expects over a ten-year
holding period is known as the equity yield. Unlike the equity dividend, which is a
short-term rate of return, the equity yield specifically considers a long-term
holding period (generally ten years), annual inflation- adjusted cash flows,
property appreciation, mortgage amortization, and proceeds from a sale at the end
of the holding period. To establish an appropriate equity yield rate, we have used
two sources of data: past appraisals and investor interviews.
Hotel Sales – Each appraisal performed by HVS uses a mortgage-equity approach

in which income is projected and then discounted to a current value at rates
reflecting the cost of debt and equity capital. In the case of hotels that were sold
near the date of our valuation, we were able to derive the equity yield rate and
unlevered discount rate by inserting the ten-year projection, total investment
(purchase price and estimated capital expenditure and/or PIP) and debt
assumptions into a valuation model and solving for the equity yield. The overall
capitalization rates for the historical income and projected first-year income are
based on the sales price “as is.” The following table shows a representative sample
of hotels that were sold on or about the time that we appraised them, along with
the derived equity return and discount rates based on the purchase price and our
forecast.

FIGURE 8-6 SAMPLE OF HOTELS SOLD – FULL-SERVICE & LUXURY
Overall Rate
Based on Sales Price
Total
Number Date Property Equity Historical Projected
Hotel Location of Rooms of Sale Yield Yield Year Year One
Claremont Hotel Berkeley, CA 279 Mar-14 9.8 % 15.9 % 6.3 % 8.9 %

Four Seasons Las Colinas Irving, TX 431 Feb-14 10.7 17.7 5.5 6.9
Hotel Eva Miami Beach, FL 30 Feb-14 11.7 18.4 — 5.9
Doubletree Berkeley Berkeley, CA 378 Feb-14 11.9 20.1 8.1 10.6
Hyatt Regency Jacksonville Jacksonville, FL 963 Feb-14 12.0 19.3 6.3 9.6
St. Regis Bal Harbour Miami Beach, FL 228 Jan-14 8.7 12.0 3.7 6.2
Omni Montelucia Resort & Spa Paradise Valley, AZ 293 Jan-14 9.5 15.6 6.0 6.9
Embassy Suites Lake Buena Vista Orlando, FL 334 Dec-13 11.9 18..8 8.7 4.0
Latham Hotel Georgetown Washington, DC 128 Nov-13 9.8 16.5 2.6 5.6
Hotel Oceana Santa Barbara, CA 122 Nov-13 10.6 17.2 5.5 6.6
La Posada de Santa Fe Santa Fe, NM 158 Nov-13 10.9 17.2 2.6 6.8
Calistoga Ranch Calistoga, CA 50 Nov-13 9.0 14.0 2.9 5.2
Crowne Plaza Astor New Orleans, LA 693 Oct-13 8.9 13.6 7.7 7.4
Hawks Cay Resort Duck Key, FL 177 Oct-13 8.8 14.9 5.1 6.3
Hyatt Regency Santa Clara Santa Clara, CA 501 Sep-13 10.5 17.5 6.7 8.6
Crown Reef Resort Myrtle Beach, SC 514 Aug-13 12.4 20.3 7.6 7.7
Westin Galleria and Oaks Hotels Houston, TX 893 Aug-13 10.2 18.1 7.9 8.4
Marriott Raleigh Raleigh, NC 400 Aug-13 10.5 17.9 7.3 7.7
Hotel Fifty Portland, OR 140 Jul-13 10.0 16.0 6.0 7.8
Sheraton Suites Atlanta Galleria Atlanta, GA 278 Jul-13 10.7 18.0 6.3 8.2
Boston Park Plaza and Towers Boston, MA 1,053 Jul-13 11.2 18.5 6.4 7.1
Doubletree Plymouth Meeting Plymouth Meeting, PA 253 Jul-13 10.6 17.8 7.6 8.2
Hilton Tampa Downtown Tampa, FL 520 Jun-13 13.3 19.3 5.7 6.7
James Hotel New York, NY 114 Jun-13 11.0 18.1 5.0 7.2
Hutton Hotel Nashville, TN 247 May-13 9.7 18.1 7.7 8.1
Marriott San Jose San Jose, CA 506 May-13 11.4 19.1 6.8 7.0
Savoy Suites Washington, DC 154 Mar-13 11.0 17.5 5.6 6.6
Miami Beach Resort Miami Beach, FL 424 Mar-13 9.4 15.0 — —
Sheraton North Houston Houston, TX 420 Mar-13 10.7 17.1 6.6 7.2
Intercontinental New Orleans New Orleans, LA 479 Jan-13 10.4 16.6 5.3 6.8
Carlyle Suites Washington, DC 173 Dec-12 11.9 19.2 6.8 7.5
Eastgate Tower New York, NY 187 Nov-12 10.4 15.2 5.0 6.3
Westin Atlanta Perimeter Atlanta, GA 372 Oct-12 11.0 17.3 6.1 8.2
Doubletree Cocoa Beach Cocoa Beach, FL 148 Oct-12 11.4 19.0 7.6 8.1
Hyatt Regency Mission Bay San Diego, CA 429 Sep-12 11.1 17.8 5.7 7.4
Anaheim Hilton Anaheim, CA 1572 Aug-12 11.7 19.7 6.9 8.9
Marriott St. Louis Airport St. Louis, MO 601 Jul-12 11.1 17.4 3.7 6.9
Source: HVS

FIGURE 8-7 SAMPLE OF HOTELS SOLD – SELECT-SERVICE/EXTENDED-STAY
Overall Rate
Based on Sales Price
Total
Number Date Property Equity Historical Projected
Hotel Location of Rooms of Sale Yield Yield Year Year One
Courtyard by Marriott Columbia, SC 189 Mar-14 10.6 % 18.3 % 5.5 % 9.4 %

Hyatt Place Minneapolis Minneapolis, MN 213 Dec-13 10.0 17.0 — 6.5
Holiday Inn Express Brooklyn, NY 104 Dec-13 9.8 16.7 9.1 8.4
Hilton Garden Inn Sarasota, FL 115 Dec-13 11.9 20.3 10.4 10.6
Homewood Suites Gaitherburg, MD 203 Nov-13 11.5 18.0 — 2.5
Hampton Inn Beeville Beeville, TX 70 Nov-13 11.9 19.4 10.6 8.5
Hampton Inn & Suites Austin, TX 102 Nov-13 11.1 18.5 7.8 8.8
Springhill Suites Little Rock, AK 78 Oct-13 12.2 19.9 7.8 10.3
Staybridge Suites Mount Laurel, NJ 99 Oct-13 12.0 19.8 10.6 9.5
Holiday Inn Express & Suites Westampton, NJ 76 Oct-13 12.3 20.0 8.1 8.5
Springhill Suites Oklahoma City, OK 128 Oct-13 11.9 19.4 8.8 9.8
Holiday Inn Willowbrook, IL 220 Oct-13 13.7 20.8 4.3 6.9
Residence Inn Bellevue, WA 231 Oct-13 9.5 15.9 8.2 7.8
Courtyard Raleigh Raleigh, NC 109 Sep-13 11.2 18.6 7.8 7.8
Holiday Inn Express & Suites Wauseon, OH 64 Aug-13 13.0 21.7 8.7 10.4
Holiday Inn New York, NY 226 Jun-13 10.0 16.6 7.8 7.8
Residence Inn Coconut Grove Miami, FL 140 Jun-13 10.0 16.1 7.2 6.7
Holiday Inn Express & Suites Elk Grove, CA 116 Jun-13 10.8 17.4 7.6 8.2
Hyatt Place North Shore Pittsburgh, PA 178 Jun-13 10.6 18.8 7.1 7.5
Courtyard by Marriott San Diego, CA 245 May-13 9.8 16.1 4.7 6.2
Hilton Garden Inn Dublin, OH 100 Apr-13 12.5 20.5 9.2 10.5
Hyatt Place Germantown, TN 127 Apr-13 11.9 20.8 7.5 9.1
Courtyard Shadyside Pittsburgh, PA 132 Mar-13 10.5 16.5 8.3 8.7
Courtyard Medical Center Houston, TX 197 Feb-13 10.2 16.0 5.7 7.1
Courtyard Santa Rosa, CA 138 Feb-13 12.9 22.5 10.2 9.5
Holiday Inn Express & Suites San Francisco, CA 252 Feb-13 11.5 16.6 5.6 6.7
Holiday Inn Express South Minot, SD 66 Feb-13 12.2 19.9 14.2 14.8
Hampton Inn & Suites Ontario, CA 91 Feb-13 11.7 17.1 2.5 9.4
Candlewood Suites Victoria, TX 82 Feb-13 13.9 27.9 25.2 18.1
Holiday Inn Express Tucson, AZ 98 Jan-13 11.5 18.7 4.4 8.5
Hampton Inn Portland, OR 122 Dec-12 10.0 17.1 9.6 10.1
Holiday Inn Southaven Memphis, TN 121 Dec-12 13.0 20.6 11.7 12.6
Homewood Suites Conversion New York, NY 241 Nov-12 9.5 13.8 — 11.9
Hilton Garden Inn Fort Worth, TX 96 Oct-12 10.7 17.1 6.9 9.3
Hilton Garden Inn Clarksville, TN 111 Sep-12 11.1 18.4 9.5 10.0
Courtyard Ventura Oxnard, CA 166 Aug-12 12.1 19.1 5.6 8.2
Hilton Garden Inn Odessa, TX 100 Aug-12 14.1 24.1 9.6 10.9
Source: HVS
Investor Interviews - During the course of our work, we continuously monitor

investor equity-yield requirements through discussions with hotel investors and
brokers. While equity still looks to yield high returns for the risk of hotel
investment, the low yield environment, coupled with increased competition for

quality assets, has placed downward pressure on equity yield returns. We find that
equity yield rates currently range from a low in the low to mid-teens for high-
quality, institutional-grade assets in markets with high barriers to entry to the
upper teens for quality assets in more typical markets; equity yield rates tend to
near or exceed 20% for aging assets with functional obsolescence and/or other
challenging property- or market-related issues. Equity return requirements also
vary with an investment’s level of leverage. Higher loan-to-value ratios are
becoming more prevalent, allowing for increased equity returns.
The following table summarizes the range of equity yields indicated by hotel sales
and investor interviews. We note that there tends to be a lag between the sales
data and current market conditions, and thus, the full effect of the change in the
economy and capital markets may not yet be reflected.
FIGURE 8-8 SUMMARY OF EQUITY YIELD OR INTERNAL RATE OF RETURN

REQUIREMENTS
Source Data Point Range Average
HVS Hotel Sales - Full-Service & Luxury 12% - 20.3% 17.3%

HVS Hotel Sales - Select-Service & Extended-Stay 13.8% - 27.9% 18.8%
HVS Hotel Sales - Budget/Economy 16.7% - 26% 20.3%
HVS Investor Interviews 12% - 22%
Based on the assumed 70% loan-to-value ratio, the risk inherent in achieving the
projected income stream, and the age, condition, and anticipated market position
of the subject property, it is our opinion that an equity investor is likely to require
an equity yield rate of 19.0%. The lack of attainable yields on alternate
investments has continued to put downward pressure on equity yield rates,
despite the desire of investors to yield higher returns. Competition for quality
assets is increasing amongst all hotel asset types. These influences are keeping
equity yields from increasing significantly. Equity return requirements remain
elevated for the more challenged hotel assets.
Terminal Capitalization Inherent in this valuation process is the assumption of a sale at the end of the ten-
Rate year holding period. The estimated reversionary sale price as of that date is
calculated by capitalizing the projected eleventh-year net income by an overall
terminal capitalization rate. An allocation for the selling expenses is deducted from
this sale price, and the net proceeds to the equity interest (also known as the
equity residual) are calculated by deducting the outstanding mortgage balance
from the reversion.

We have reviewed several recent investor surveys. The following chart
summarizes the averages presented for terminal capitalization rates in various
investor surveys during the past decade. Note that survey data lag the market and
do not necessarily reflect the most current market conditions.
FIGURE 8-9 HISTORICAL TRENDS OF TERMINAL CAPITALIZATION RATES
12.0
11.5
11.0
Terminal Cap Rate (%)
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
2002
2005
2007
2008
2010
2011
2013
2014
2003
2004
2006
2009
2012
PWC - Full-Service PWC - Luxury
CRE/RERC - First Tier PWC - Select-Service
FIGURE 8-10 TERMINAL CAPITALIZATION RATES DERIVED FROM INVESTOR

SURVEYS
Source Data Point Range
PWC Real Estate Investor Survey - 1st Quarter 2014

Select-Service Hotels 5.0% - 10.0%
Full-Service Hotels 6.5% - 11.0%
Luxury Hotels 6.0% - 10.0%
USRC Hotel Investment Survey - Winter 2014

Full-Service Hotels 6.25% - 9.5%
CRE/RERC Real Estate Report - Winter 2014

First Tier Hotels 6.0% - 13.0%
For purposes of this analysis, we have applied a terminal capitalization rate of

10.5%. Our final position for the terminal capitalization rate reflects the current

market for hotel investments. In tandem with overall lower return expectations,
terminal capitalization rates for quality hotel assets in markets with high barriers
to entry have returned to their 2005 to 2007 lows, while terminal capitalization
rates for older assets or for those suffering from functional obsolescence and/or
weak market conditions remain elevated, reflecting the market's recognition that
certain assets have less opportunity for significant appreciation.
Mortgage-Equity As the two participants in a real estate investment, investors and lenders must
Method – evaluate their equity and debt contributions based on their particular return
Opinion of Net Present requirements. After carefully weighing the risk associated with the projected
Value economic benefits of a lodging investment, the participants will typically make
their decision whether or not to invest in a hotel or resort by determining if their
investment will provide an adequate yield over an established period. For the
lender, this yield will typically reflect the interest rate required for a hotel
mortgage over a period of what can range from seven to ten years. The yield to the
equity participant may consider not only the requirements of a particular investor,
but also the potential payments to cooperative or ancillary entities such as limited
partner payouts, stockholder dividends, and management company incentive fees.
The return on investment analysis in a hotel acquisition would not be complete

without recognizing and reflecting the yield requirements of both the equity and
debt participants. The analysis will now calculate the yields to the mortgage and
equity participants during a ten-year projection period.
The annual debt service is calculated by multiplying the mortgage component by

the mortgage constant.
Mortgage Component $1,819,000

Mortgage Constant 0.068135
Annual Debt Service $123,937
The yield to the lender based on a 70% debt contribution equates to an interest
rate of 5.50%, which is calculated as follows.

FIGURE 8-11 RETURN TO THE LENDER
Total Annual Present Worth of $1 Discounted

Year Debt Service Factor at 5.5% Cash Flow
2016/17 $124,000 x 0.948241 = $118,000

2017/18 124,000 x 0.899161 = 111,000
2018/19 124,000 x 0.852622 = 106,000
2019/20 124,000 x 0.808491 = 100,000
2020/21 124,000 x 0.766644 = 95,000
2021/22 124,000 x 0.726964 = 90,000
2022/23 124,000 x 0.689337 = 85,000
2023/24 124,000 x 0.653657 = 81,000
2024/25 124,000 x 0.619825 = 77,000
2025/26 1,625,000 * x 0.587743 = 955,000
Value of Mortgage Component $1,818,000

*10th year debt service of $124,000 plus outstanding mortgage balance of $1,501,000
The following table illustrates the cash flow available to the equity position, after
deducting the debt service from the projected net income.
FIGURE 8-12 NET INCOME TO EQUITY
Net Income
Available for Total Annual Net Income
Year Debt Service Debt Service to Equity
2016/17 $420,000 - $124,000 = $296,000

2017/18 277,000 - 124,000 = 153,000
2018/19 241,000 - 124,000 = 117,000
2019/20 248,000 - 124,000 = 124,000
2020/21 256,000 - 124,000 = 132,000
2021/22 263,000 - 124,000 = 139,000
2022/23 271,000 - 124,000 = 147,000
2023/24 279,000 - 124,000 = 155,000
2024/25 288,000 - 124,000 = 164,000
2025/26 297,000 - 124,000 = 173,000
In order for the present value of the equity investment to equate to the $980,000
capital outlay, the investor must accept a 20.0% return, as shown in the following
table.

FIGURE 8-13 EQUITY COMPONENT YIELD
Net Income Present Worth of $1 Discounted

Year to Equity Factor at 20.0% Cash Flow
2016/17 $296,000 x 0.833382 = $247,000

2017/18 153,000 x 0.694526 = 106,000
2018/19 117,000 x 0.578806 = 68,000
2019/20 124,000 x 0.482367 = 60,000
2020/21 132,000 x 0.401996 = 53,000
2021/22 139,000 x 0.335016 = 47,000
2022/23 147,000 x 0.279197 = 41,000
2023/24 155,000 x 0.232678 = 36,000
2024/25 164,000 x 0.193909 = 32,000
2025/26 1,796,000 * x 0.161601 = 290,000
Value of Equity Component $980,000

*10th year net income to equity of $173,000 plus sales proceeds of $1,623,000
Individual Unit Sales In addition to the net income from the resort operation, the proposed subject
Proceeds property will have sales proceeds from unit sales to individual owners. This is
another source of cash flow, which should be taken into consideration in
determining the feasibility of the project.
Comparable We have conducted an analysis to estimate total proceeds from sales of 24

Condominium Sales condominium units.
We have examined the following four comparable condominium unit sales in order
to estimate a potential sales price for the subject property’s units.
FIGURE 12 CONDOMINIUM UNIT SALES COMPS

Name, Location Township Unit # / Address MLS # Year Built Total SF Beds Bath (F/H) Garage Listing Price Sales Price Price/SF Sale Date
Harbor Pointe Condominiums Lexington 5516 N/A 1986 700 2 1 No 114,900 106,000 151.43 May-14
Harbor Pointe Condominiums Lexington 7344-101 N/A 1987 1100 2 2 1 179,000 165,000 150.00 Sep-13
Bluffs on Lake Huron, Lexington Lexington 7 (one floor unit) 31071053 1991 1,300 2 2 1.5 (Det) 234,900 230,000 176.92 Sep-12
Bluffs on Lake Huron, Lexington Lexington 4 (one floor unit) 31099856 1991 1,273 2 2 1.0 (Det) 247,900 225,000 176.75 Jul-12

MAP OF SALES COMPS

FIGURE 13 CONDOMINIUM UNIT SALES COMPARISON
Elements of Comparison Sale #1 Sale #2 Sale #3 Sale #4
Sale Price $106,000 $165,000 $230,000 $225,000

Size (SF) 700 1,100 1,300 1,273
Price per SF $151.43 $150.00 $176.92 $176.75
Date of Sale May-14 Sep-13 Sep-12 Jul-12
Adjustments for Transaction Characteristics
Property Rights Conveyed Fee Simple Fee Simple Fee Simple Fee Simple
Adjustment 0.0% 0.0% 0.0% 0.0%
Adjusted Sales Price $151 $150 $177 $177
Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent Cash Equivalent
Adjustment 0.0% 0.0% 0.0% 0.0%
Conditions of Sale Normal Normal Normal Normal

Adjustment 0.0% 0.0% 0.0% 0.0%
Market Conditions Similar Similar Inferior Inferior

Adjustment 0% 0% 5% 5%
Adjusted Unit Price $151 $150 $186 $186
Adjustments for Site Characteristics
Location Similar Similar Similar Similar

Adjustment 0.0% 0.0% 0.0% 0.0%
Physical Condition Inferior Inferior Inferior Inferior
Adjustment 20.0% 20.0% 15.0% 15.0%
Functional Utility Similar Superior Superior Superior
Adjustment 0.0% -5.0% -5.0% -5.0%
Size Superior Similar Similar Similar

Adjustment -5.0% 0.0% 0.0% 0.0%
Final Adjusted Unit Price (rounded) $174 $173 $204 $204

Transaction All comparable sales represented the fee simple interest; thus, no adjustments for
Characteristics property rights conveyed were deemed necessary. The transaction listed as sale
Adjustments #3 and #4 were adjusted for inferior market conditions given their September and
July, 2012 date of sales. Otherwise the sales comparables were transacted in terms
that were similar to the subject property; thus, no other adjustments were made
for differences in transaction characteristics.
Location As all the condominium sale comparables were located in townships with similar
characteristics, no adjustments for location were deemed necessary.
Physical Condition Sales #1 through #4 were older properties with inferior physical conditions.
Therefore, upward adjustments were required.
Functional Utility Sales #2 through #4 feature a garage, which is considered superior functional
utility. Therefore, downward adjustments were required.
Size The size of a property inversely affects a price on a per-square-foot basis. This is
because additional value generated from an addition of another square foot will
gradually diminish as the size of a property increases. Sale #1 features a smaller
floor size; therefore, a downward adjustment was required.
Conclusion After a series of adjustments, the price per square foot for comparable
condominium sales ranges from $173 to $204. Given the characteristics of the
proposed subject property, we have concluded that $190 per square foot is
appropriate. Therefore, the sale price for the weighted average size of the
proposed condominium unit (1,467 square feet) is $ $279,000 .

Comparable Vacation In addition, we have conducted an analysis to estimate total proceeds from sales of
Home Sales 16 vacation home units.
We have examined the following four comparable condominium unit sales in order
to estimate a potential sales price for the subject property’s units.
FIGURE 14 VACATION HOME SALES COMPS

Name, Location Township Unit # / Address MLS # Year Built Total SF Beds Bath (F/H) Garage Basement Listing Price Price/SF Sale Date
Port Sanilac Sanilac Township 180 Ridge 31109027 2009 1,700 3 3 2 Y - Walkout 489,000 256.47 Jun-14
Lexington Lexington 6121 Lakeshore 31159409 1952 1534 2 2 1 Crawl 289,000 188.40 Sep-13
Port Sanilac Sanilac Township 671 Lakeshore 31144881 1950 1,450 3 2 NA Y - Walkout 289,500 186.21 May-13
Lexington Lexington 7749 Lakeview 31125277 1939 1440 3 2 1 Crawl 259,900 163.19 Apr-13
MAP OF SALES COMPS

FIGURE 15 VACATION HOME SALES COMPARISON
Elements of Comparison Sale #1 Sale #2 Sale #3 Sale #4
Sale Price $436,000 $289,000 $270,000 $235,000

Size (SF) 1,700 1,534 1,450 1,440
Price per SF $256.47 $188.40 $186.21 $163.19
Date of Sale Jun-14 Sep-13 May-13 Apr-13
Adjustments for Transaction Characteristics
Property Rights Conveyed Fee Simple Fee Simple Fee Simple Fee Simple
Adjustment 0.0% 0.0% 0.0% 0.0%
Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent Cash Equivalent
Adjustment 0.0% 0.0% 0.0% 0.0%
Conditions of Sale Normal Normal Normal Normal

Adjustment 0.0% 0.0% 0.0% 0.0%
Market Conditions Similar Similar Inferior Inferior

Adjustment 0% 0% 5% 5%
Adjusted Unit Price $256 $188 $196 $171
Adjustments for Site Characteristics
Location Similar Similar Similar Similar

Adjustment 0.0% 0.0% 0.0% 0.0%
Physical Condition Inferior Inferior Inferior Inferior
Adjustment 2.0% 25.0% 25.0% 35.0%
Functional Utility Superior Superior Similar Superior
Adjustment -5.0% -5.0% 0.0% -5.0%
Size Inferior Inferior Inferior Inferior

Adjustment 5.0% 5.0% 5.0% 5.0%
Final Adjusted Unit Price (rounded) $262 $235 $254 $231

Transaction The transactions listed as Sales #3 and #4 were adjusted for inferior market
Characteristics conditions given their early 2013 dates of sale.
Adjustments
Location Due to the similar location characteristics of comparable sales, no adjustments

were deemed necessary.
Physical Condition Due to the age of the Sale#1 though #4, their physical condition is considered
inferior to the newly built subject property. We have applied upward adjustments
for this characteristic.
Functional Utility Sales #1, #2 and #4 feature a garage, which is considered superior functional
utility. Therefore, downward adjustments were required.
Size The size of a property inversely affects a price on a per-square-foot basis. This is
because additional value generated from an addition of another square foot will
gradually diminish as the size of a property increases. Sales #1 through #4 feature
a larger floor size; therefore, upward adjustments were required.
Conclusion After a series of adjustments, the price per square foot for comparable
condominium sales ranges from $231 to $262. Given the characteristics of the
proposed subject property, we have concluded that $245 per square foot is
appropriate. Therefore, the sale price for the weighted average size of the
proposed condominium unit (1,144 square feet) is $280,219.
Sales Proceed The following table summarizes our sales price conclusions for each unit type.
Projection

FIGURE 8-14 SALES PRICE SUMMARY
Condo unit size # of units price per unit

2 Bed Suites 1,400 20 $ 266,000
3 Bed Suites 1,800 4 $ 342,000
1,467 24 $ 279,000
Homes
Cattage House 2 Bedroom 1,400 6 $ 343,000
Cottage House 3 Bedroom 1,800 4 $ 441,000
Carriage Houses 450 6 $ 110,250
1,144 16 $ 280,219
Weighted per sq.ft. price $ 209

Weighted per unit price $ 279,000
As shown in the preceding table, the unit price weighted based on the number of
units is $279,000
Based on the current condition of the market and the types of the proposed units,
we have assumed an absorption period of 24 months. The following tables
illustrate our projected month-by-month sales proceedings.

FIGURE 16 SALES PROCEEDS PROJECTION AND WHEN COMPLETE VALUE OF TOTAL UNIT SALES
General Assumptions
# of Units Remaining 40 Annual Discount Rate 9.00%
Annual Home Price
Appreciation Rate 3.0% Periods Monthly
Absorption/Period 24.00
Unit Price $279,000
Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17
Period 1 2 3 4 5 6 7 8 9 10 11 12
Development Forecast
Total Units Sold 5.0 10.0 14.0 18.0 20.0 22.0 23.0 24.0 25.0 26.0 27.0 28.0
Number of Unsold Units 35.0 30.0 26.0 22.0 20.0 18.0 17.0 16.0 15.0 14.0 13.0 12.0
Sales Revenue
Unit Sales 5.0 5.0 4.0 4.0 2.0 2.0 1.0 1.0 1.0 1.0 1.0 1.0
Unit Price $296,721 $297,453 $298,186 $298,922 $299,659 $300,398 $301,139 $301,882 $302,626 $303,373 $304,121 $304,871
Total Sales Revenue Per Period $1,483,605 $1,487,264 $1,192,746 $1,195,688 $599,318 $600,796 $301,139 $301,882 $302,626 $303,373 $304,121 $304,871
Sales Expense
Marketing & Sales 4.00% $59,344 $59,491 $47,710 $47,828 $23,973 $24,032 $12,046 $12,075 $12,105 $12,135 $12,165 $12,195
General Admin. Expense 2.00% $29,672 $29,745 $23,855 $23,914 $11,986 $12,016 $6,023 $6,038 $6,053 $6,067 $6,082 $6,097
Sales Expense Per Period ($89,016) ($89,236) ($71,565) ($71,741) ($35,959) ($36,048) ($18,068) ($18,113) ($18,158) ($18,202) ($18,247) ($18,292)
Net Sales Proceeds $1,394,589 $1,398,029 $1,121,181 $1,123,946 $563,359 $564,749 $283,071 $283,769 $284,469 $285,170 $285,874 $286,579
Discount Factor 0.992844 0.985740 0.978686 0.971683 0.964730 0.957826 0.950972 0.944167 0.937411 0.930703 0.924043 0.917431
Present Value 1,384,610 1,378,092 1,097,284 1,092,119 543,489 540,931 269,192 267,925 266,664 265,409 264,160 262,916

FIGURE 17 SALES PROCEEDS PROJECTION AND WHEN COMPLETE OF TOTAL UNIT SALES (CONT.)
General Assumptions
# of Units Remaining 40 Annual Discount Rate 9.00%
Annual Home Price
Appreciation Rate 3.0% Periods Monthly
Absorption/Period 24.00
Unit Price $279,000
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18
Period 13 14 15 16 17 18 19 20 21 22 23 24
Development Forecast
Total Units Sold 29.0 30.0 31.0 32.0 33.0 34.0 35.0 36.0 37.0 38.0 39.0 40.0
Number of Unsold Units 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0
Sales Revenue
Unit Sales 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Unit Price $305,623 $306,376 $307,132 $307,890 $308,649 $309,410 $310,173 $310,938 $311,705 $312,474 $313,244 $314,017
Total Sales Revenue Per Period $305,623 $306,376 $307,132 $307,890 $308,649 $309,410 $310,173 $310,938 $311,705 $312,474 $313,244 $314,017
Sales Expense
Marketing & Sales 4.00% $12,225 $12,255 $12,285 $12,316 $12,346 $12,376 $12,407 $12,438 $12,468 $12,499 $12,530 $12,561
General Admin. Expense 2.00% $6,112 $6,128 $6,143 $6,158 $6,173 $6,188 $6,203 $6,219 $6,234 $6,249 $6,265 $6,280
Sales Expense Per Period ($18,337) ($18,383) ($18,428) ($18,473) ($18,519) ($18,565) ($18,610) ($18,656) ($18,702) ($18,748) ($18,795) ($18,841)
Net Sales Proceeds $287,285 $287,994 $288,704 $289,416 $290,130 $290,845 $291,563 $292,282 $293,003 $293,725 $294,450 $295,176
Discount Factor 0.910866 0.904348 0.897877 0.891452 0.885073 0.878740 0.872452 0.866209 0.860010 0.853856 0.847746 0.841680
Present Value 261,679 260,447 259,221 258,001 256,786 255,577 254,374 253,177 251,985 250,799 249,619 248,444

Using 9.00% discount rate, the prospective “when complete” value of the projected
sales proceeds equates to $10,700,000 or $268,000 per unit.
Condominium Hotel In determining the potential feasibility of the Proposed Hotel Condominiums and
Scenario Cottages, we analyzed the lodging market, researched the area’s economics,
reviewed the estimated development cost, and prepared a ten-year forecast of
income and expense, which was based on our review of the current and historical
market conditions, as well as comparable income and expense statements. In
addition, we analyzed the comparable condominium and home sales in the local
market to determine the value of the sales proceedings from individual unit sales.
FIGURE 8-15 FEASIBILITY CONCLUSION

"When Complete" Value of Rental Operations $2,800,000
As is illustrated in the table above, HVS estimates the prospective “when complete”
market value of total sales proceeds equals to $10,700,000 or $268,000 per
condominium unit. This is based on an assumption that all the 40 condominium
and cottage units will be sold in 24 months from July 2016 through June 2018, at
an average unit price of $279,000 or $209 per square foot. In addition, HVS
estimates the prospective “when complete” market value of operational cash flows
from all 40 rentable units is equal to $2,800,000 or $70,000 per unit. Therefore,
the prospective “when complete” market value of combined “fee simple” and
“condominium management” property rights in the project equates to
$13,500,000, which is smaller than the preliminary project cost of $17,500,000 .
Thus, we conclude the project will not be feasible without some forms of
incentives from the public sector.
Residential Only One of the challenges the proposed project must face is the fact that the proposed
Scenario subject property will only have 40 units in the lodging rental pool. Since the
lodging facility needs to maintain a certain staffing level, even during low seasons,
it is very difficult for the property to operate efficiently with such a small room
count.
August-2014
In addition, the rooms revenue split to individual owners, which is inherent to the
condominium-hotel model, is another factor that further reduces the profitability
of the rental pool operation.
Hence, the alternative scenario that we considered is to build condominium and

cottage units without the planned hotel amenities. By removing the restaurant,
bar, meeting space, and spa, the project’s development cost could be significantly
reduced. However, since this scenario assumes the units will be sold solely for
residential use, there will not be any operating profits generated from a lodging
operation and there will be no rental pool for owners to participate in when they
are not occupying their units.
Based on the project cost estimate prepared by Shoreline Architecture Design, Inc.,
the cost of the condominium tower will be $10,700,000, or $445,833 per
condominium unit. The cost of the cottages will be an estimated $2,500,000, or
$250,000 per unit. HVS estimates that removing the above-mentioned amenities
from the condominium tower, the cost per condominium unit will be reduced to
less than the cost of a cottage unit, mainly due to the efficiency of building a tower.
For the purpose of this analysis, we assume the cost to build the condominium
tower can be reduced to $220,000 per unit. However, HVS analysts are not
professional cost estimators and we recommend seeking a professional cost
estimate if the Village wishes to pursue this development scenario. This new cost
estimate is presented in the following table.
FIGURE 8-16 RESIDENTIAL SCENARIO DEVELOPMENT COST

Cottages (10 units) 2,500,000 250,000
Carriage Houses (6units) 500,000 83,333
Site Cost $1,550,000 $38,750
Total, With Land $12,100,000 $303,000
Source: Shoreline Architecture Design, Inc., HVS
Using the prospective “when complete” value of the sales proceedings we

concluded earlier, the feasibility gap would decrease to $1,400,000 compared to
$4,100,000 .
August-2014
FIGURE 8-17 ALTERNATIVE FEASIBILITY CONCLUSION

Although this scenario is likely to reduce the project’s feasibility gap, HVS also
concludes that this alternative scenario will likely have a significantly reduced
economic impact on the area economy compared to the original scenario. By not
operating the proposed subject property as a lodging facility, the number of jobs
created and the amount of visitor spending generated would be significantly
reduced.
Ultimately, the decision should be made based on an understanding of the risks

that each scenario involves, as well as long-term goals of the public sector.
The analysis is based on the extraordinary assumption that the described

improvements have been completed as of the prospective "when complete" date of
value. The reader should understand that the completed subject property does not
yet, in fact, exist as of the date of appraisal. Our appraisal does not address
unforeseeable events that could alter the proposed project and/or the market
conditions reflected in the analyses; we assume that no significant changes, other
than those anticipated and explained in this report, will take place between the
date of inspection and date of prospective value. The use of this extraordinary
assumption may have affected the assignment results. We have made no other
extraordinary assumptions specific to this appraisal. However, several important
general assumptions have been made that apply to this appraisal and our
valuations of proposed hotels in general. These aspects are set forth in the
Assumptions and Limiting Conditions chapter of this report. We have not made
any jurisdictional exceptions to the Uniform Standards of Professional Appraisal
Practice in our analysis or report.
August-2014
9. Statement of Assumptions and Limiting Conditions
1. This report is set forth as a feasibility study of the proposed subject hotel;
this is not an appraisal report.
2. This report is to be used in whole and not in part.
3. No responsibility is assumed for matters of a legal nature, nor do we
render any opinion as to title, which is assumed to be marketable and free
of any deed restrictions and easements. The property is evaluated as
though free and clear unless otherwise stated.
4. We assume that there are no hidden or unapparent conditions of the sub-
soil or structures, such as underground storage tanks, that would impact
the property’s development potential. No responsibility is assumed for
these conditions or for any engineering that may be required to discover
them.
5. We have not considered the presence of potentially hazardous materials or
any form of toxic waste on the project site. The consultants are not
qualified to detect hazardous substances, and we urge the client to retain
an expert in this field if desired.
6. The Americans with Disabilities Act (ADA) became effective on January 26,
1992. We have assumed the proposed hotel would be designed and
constructed to be in full compliance with the ADA.
7. We have made no survey of the site, and we assume no responsibility in
connection with such matters. Sketches, photographs, maps, and other
exhibits are included to assist the reader in visualizing the property. It is
assumed that the use of the described real estate will be within the
boundaries of the property described, and that no encroachment will exist.
8. All information, financial operating statements, estimates, and opinions
obtained from parties not employed by CCG Holdings, LLC are assumed to
be true and correct. We can assume no liability resulting from
misinformation.
9. Unless noted, we assume that there are no encroachments, zoning
violations, or building violations encumbering the subject property.
10. The property is assumed to be in full compliance with all applicable
federal, state, local, and private codes, laws, consents, licenses, and
regulations (including a liquor license where appropriate), and that all
August-2014
Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan i
licenses, permits, certificates, franchises, and so forth can be freely
renewed or transferred to a purchaser.
11. All mortgages, liens, encumbrances, leases, and servitudes have been
disregarded unless specified otherwise.
12. None of this material may be reproduced in any form without our written
permission, and the report cannot be disseminated to the public through
advertising, public relations, news, sales, or other media.
13. We are not required to give testimony or attendance in court by reason of
this analysis without previous arrangements, and only when our standard
per-diem fees and travel costs are paid prior to the appearance.
14. If the reader is making a fiduciary or individual investment decision and
has any questions concerning the material presented in this report, it is
recommended that the reader contact us.
15. We take no responsibility for any events or circumstances that take place
subsequent to the date of our field inspection.
16. The quality of a lodging facility's on-site management has a direct effect on
a property's economic viability. The financial forecasts presented in this
analysis assume responsible ownership and competent management. Any
departure from this assumption may have a significant impact on the
projected operating results.
17. The financial analysis presented in this report is based upon assumptions,
estimates, and evaluations of the market conditions in the local and
national economy, which may be subject to sharp rises and declines. Over
the projection period considered in our analysis, wages and other
operating expenses may increase or decrease because of market volatility
and economic forces outside the control of the hotel’s management. We
assume that the price of hotel rooms, food, beverages, and other sources of
revenue to the hotel will be adjusted to offset any increases or decreases in
related costs. We do not warrant that our estimates will be attained, but
they have been developed based upon information obtained during the
course of our market research and are intended to reflect the expectations
of a typical hotel investor as of the stated date of the report.
18. This analysis assumes continuation of all Internal Revenue Service tax code
provisions as stated or interpreted on either the date of value or the date of
our field inspection, whichever occurs first.
19. Many of the figures presented in this report were generated using
sophisticated computer models that make calculations based on numbers
carried out to three or more decimal places. In the interest of simplicity,
August-2014
Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan ii
most numbers have been rounded to the nearest tenth of a percent. Thus,
these figures may be subject to small rounding errors.
20. It is agreed that our liability to the client is limited to the amount of the fee
paid as liquidated damages. Our responsibility is limited to the client, and
use of this report by third parties shall be solely at the risk of the client
and/or third parties. The use of this report is also subject to the terms and
conditions set forth in our engagement letter with the client.
21. Evaluating and comprising financial forecasts for hotels is both a science
and an art. Although this analysis employs various mathematical
calculations to provide value indications, the final forecasts are subjective
and may be influenced by our experience and other factors not specifically
set forth in this report.
22. This study was prepared by CCG Holdings, LLC. All opinions,
recommendations, and conclusions expressed during the course of this
assignment are rendered by the staff of CCG Holdings, LLC as employees,
rather than as individuals.
August-2014
Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan iii
10. Certification
The undersigned hereby certify that, to the best of our knowledge and belief:
1. the statements of fact presented in this report are true and correct;
2. the reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
impartial, and unbiased professional analyses, opinions, and conclusions;
3. we have no (or the specified) present or prospective interest in the
property that is the subject of this report and no (or the specified) personal
interest with respect to the parties involved;
4. we have no bias with respect to the property that is the subject of this
report or to the parties involved with this assignment;
5. our engagement in this assignment was not contingent upon developing or
reporting predetermined results;
6. our compensation for completing this assignment is not contingent upon
the development or reporting of a predetermined result or direction in
performance that favors the cause of the client, the attainment of a
stipulated result, or the occurrence of a subsequent event directly related
to the intended use of this study;
7. our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice;
8. Anjali Peterson personally inspected the property described in this report;
Hans Detlefsen, MPP, MAI participated in the analysis and reviewed the
findings, but did not personally inspect the property;
9. Anjali Peterson and Yoshi Kanno provided significant assistance to Hans
Detlefsen, MPP, MAI, and that no one other than those listed above and the
undersigned prepared the analyses, conclusions, and opinions concerning
the real estate that are set forth in this report; Hans Detlefsen has not
performed appraisal or consulting work on this property within the past
three years.
10. the reported analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the requirements of the Code
of Professional Ethics and the Standards of Professional Appraisal Practice
of the Appraisal Institute;
August-2014
Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan iv
11. the use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives; and
12. as of the date of this report, Hans Detlefsen, MPP, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
Hans Detlefsen, MPP, MAI

Managing Director
CCG Holdings, LLC
State Appraiser License (MI) 1201074194
August-2014
Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan v
August-2014
Proposed Hotel Condominiums and Cottages – Port Sanilac, Michigan vi

Feasibility Study

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FEASIBILITY STUDY

Proposed Hotel Condominiums

SUBMITTED TO: PR OPOSED PREPARED BY:

+1 (586) 531-2304 +1 (312) 526-3885

Mr. Tim Cheek

Dear Mr. Cheek:

Superior results through unrivaled

SECTION TITLE PAGE

 4,000 square feet of meeting and banquet space

 1 full-service restaurant and bar

 1 outdoor swimming pool

 40 surface-lot parking space

August-2014 Executive Summary

 Refine the project budget and obtain competitive bids to see if

 Finance the entire project through tax-exempt bond financing, which

 Require private-sector partner to obtain land and contribute the value of

Based on the preliminary development cost provided by Shoreline Architecture

Creating a “63-20” non-profit corporation, sponsored by the City, to issue bonds to

August-2014 Executive Summary

A combination of these options, or others like them, could substantially reduce or

RENDERING OF PROJECT – SOUTH ELEVATION

Regardless of the selected development scenario, we assume the property will

August-2014 Executive Summary

August-2014 Executive Summary

0 100 200 300 400 500

Lake Huron Beachfront, Lexington

Lake Huron Beachfront

Lake Huron Cottage, Port Sanilac 1

Lake Huron Cottage, Port Sanilac 2

Beachfront Home, Lexington

Hoff Cottage, Port Sanilac

Cottage on Lake Huron, Lexington

August-2014 Executive Summary

Occ % Change ADR ($) Change

Average Annual Compounded

YTD thru May

August-2014 Executive Summary

August-2014 Executive Summary

August-2014 Executive Summary

FIGURE 1-5 SUBJECT PROPERTY RATE POSITIONING

FIGURE 1-6 SUBJECT PROPERTY OCCUPANCY POSITIONING

Days Occupancy Occupied Days Occupied Room Nights

August-2014 Executive Summary

FIGURE 1-8 FORECAST OF AVERAGE RATE

Year Occupancy Average Rate

August-2014 Executive Summary

2016/17 Begins July 2017/18 Stabilized 2019/20 2020/21

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

August-2014 Executive Summary

August-2014 Executive Summary

FIGURE 1-1 FEASIBILITY CONCLUSION

"When Complete" Value of Sales Proceeds $10,700,000

August-2014 Executive Summary

Hence, the alternative scenario that we considered is to build condominium and

FIGURE 1-2 RESIDENTIAL ONLY SCENARIO DEVELOPMENT COST

Component Cost Cost per Unit

Condominium Tower (24 units) $5,280,000 $220,000

August-2014 Executive Summary

FIGURE 1-3 RESIDENTIAL FEASIBILITY CONCLUSION

"When Complete" Value of Sales Proceeds $10,700,000

Assignment Conditions “Extraordinary Assumption” is defined in USPAP as follows:

An assumption, directly related to a specific assignment, which, if found to

The analysis is based on the extraordinary assumption that the described