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HomeMy WebLinkAboutNB 1 HOTEL FEASIBILITY 01-20-86DATE: JANUARY ZO, 1986 NEW BUSINESS NO. 1 1-20-86 Inter- Corn TO: HONORABLE MAYOR AND CITY COUNCIL FROM: COIOIUNITY DEVELOPMENT DEPARTIqENT SUBJECT: HOTEL FI"~IBILITY MARKET STUDY RECOI~ENDED ACTION: That the City Council authorize the Mayor to appropriate $8,750.00 and execute a contract with the firm of Laventhol and Horwath, Certified Public Accountants, to conduct a hotel feasibility market study in the city of Tustin. DISCUSSION: For the past several years, potential sites both in redevelopment project areas and on Irvine ranch property have been suggested as locati6ns for development of major hotels. To determine the feasibility of encouraging a hotel to locate in Tustin a market study is necessary. Staff obtained proposals from notable consultants in the field of feasibility studies and recommends contracting with the accounting firm of Laventhol and Horwath to produce said study. Laventhol's proposal is attached hereto for Agency consideration. The total contract price is $26,250 and will require nine weeks for completion of the study. Funding for the study is proposed as a joint venture between the city and Redevelopment Agency as follows: General Fund Town Center Project Area South/Central Project Area $ 8,750.00 $ 8,750.00 $ 8,750.00 Director of Community Development DDL:do Laventhol &Horwath Suite 1100 611 Anton Boulevard Costa Mesa, CA 92626 (714) 556-4244 January 6, 1986 Mr. Edward M. Knight Senior Planner City of Tustin Community Development Department 300 Centennial'Way Tustin, California 92680 Dear Mr. Knight: We are pleased to present this proposal to provide consulting services related to the opportunity for' hotel development within the City of Tustin. We have divided this proposal into five sections: Our understanding of the background of the project, and objectives for the study. - Our recommended approach and scope of services. - Our qualifications to conduct this type of engagement. - The timing and fee required for the anticipated scope. - The terms and conditions of the engagement with you. I. BACKGROUND OF THE PROJECT The City of Tustin, as part of its planning process, is investigating the opportunity for hotel development within the City. The objective for the study is to provide answers to the following questions: Is there sufficient market demand to support a hotel within the city? Of several potential sites, which site should be developed first? What size of hotel and type of facilities should be developed? A member of Horwath & Horwath International with affiliated offices worldwide. City of Tustin Community Development Department January 6, 1986 Page 2 What is a potential timeframe for construction of the first hotel? What direct economic benefits from the first proposed hotel would accrue to the City of Tustin? II. APPROACH We will approach this project in three phases. be: Phase Description I Market Study II Financial Projections III Benefit Analysis Report Writing IV The phases would The following sections describe these phases. Phase I - Market Study During this phase we will accomplish the following objectives: Arrive at conclusions relating to overall demand for first-class lodging facilities in the Tustin market area. Examine a maximum of three sites for proposed hotels, and prioritize them in terms of accessibility, visibility, and proximity to demand generators. For each site, we will discuss, in general terms, the types of hotels that might be appropriate for each site. Recommend the facilities we believe would be market supportable on the first site. Our recommendations would include: o Number of rooms. o Size of rooms. o Type of rooms (i.e., kings and double-doubles). o Character of the food and beverage facilities. o Number of seats in the dining room(s) and lounge. City of Tustin Community Development Department January 6, 1986 Page 3 o Size of banquet and meeting rooms. o Supporting amenities recommended. Arrive at conclusions relating to the attainable average daily room rates for the first proposed hotel. Arrive at projections of attainable occupancy for the first proposed hotel for the first five operating years. In order to meet those objectives, we will accomplish the following tasks: Examine a maximum of three sites and their surrounding areas in order to determine their suitability for development of a first-class hotel. The inspections will include a study of the following: a. The proximity of each site to the major market generators. b. The physical characteristics of each site, such as accessibility and visibility. c. Developments and trends in the surrounding area that will enhance or detract from each site's desirability. Investigate the economic and demographic factors of the proposed hotel's market area to determine: a. The economic climate within which facilities will operate. the proposed b. The demographic profile of the market area. c. The existing and potential sources of business for the property. Prepare a supply and demand analysis of the market area's lodging industry as follows: a® Determine the existing demand segments, such as commercial, group, tourist, etc., which make up the market, and calculate an estimated growth rate for total rooms demand. Determine, through primary research, our census of competitive lodging facilities in the market area as well as those under current or rumored construction. City of Tustin Community Development Department January 6, 1986 Page 4 Prepare an estimate of occupancy percentage and average room rates for the first five years of operation of the first hotel. At the conclusion of our market analysis, we will meet with you, to discuss our findings and conclusions regarding Phase I. If we mutually determine that the market analysis results are favorable, we will be prepared to proceed with financial projections· Phase II - Financial Projections After completing Phase I and receiving your authorization to proceed, we will prepare projections of revenues and expenses for the first five years of operation of the first hotel. Our projections will arrive at projected cash flow from operations before debt service and income taxes expressed in both 1985 dollars and inflated dollars. These financial projections may be utilized to evaluate the economic viability of the proposed hotel and in discussions with potential operators or franchisors. The projections will also be utilized, in part, in developing the Phase III - Benefit Analysis. Phase III - Benefit Analysis At your request, after completing our financial projections, we will prepare projections of direct economic benefits that will accrue to the City of Tustin as a result of development of the first proposed hotel. In order to accomplish those objectives, the scope of our work will include the computation of: The estimated incremental increase in tax revenues for the City of Tustin. Specifically, these taxes include: o Transient occupancy tax. o Retail sales tax generated by the hotel's facilities. o Utility taxes. o Business license tax. o Property tax. The projected incremental increase in the number of jobs and the estimated average annual salary associated with this increase. City of Tustin Community Development Department January 6, 1986 Page 5 Phase IV - Report Preparation At your request, after completing our financial projections~and benefit analysis, we will prepare the written report detailing our findings'and conclusions. III. OUR QUALIFICATIONS TO CONDUCT THIS ENGAGEMENT Laventhol & Horwath is uniquely qualified to provide consulting services for this engagement as a result of our firm's knowledge and continuous experience in providing diversified real estate consulting services and our recent experience with similar projects throughout the country. The Costa Mesa and Los Angeles offices of the firm have provided real estate consulting services to Southern California's largest and most significant developers. As a result, we maintain extensive market data and current knowledge of conditions throughout the region. Current real estate consulting engagements are concerned with all types of projects, including hotels, retail facilities, office buildings, and mixed use projects. The consulting services are supported by active practices in appraisal, real estate tax planning and counseling, and real estate accounting and auditing services. The ability to provide responsive, accurate and pragmatic advice, guidance and assistance for an analysis of a major hotel and office development, with supporting development, project requires experienced professionals. The L&H professionals proposed for this engagement possess the required knowledge and expertise, and have current project experience in the Orange County and Los Angeles areas. The principal professionals involved in this assignment will be: Mr. Thomas Goff -- Mr. Goff will serve as the Partner- in-Charge of this assignment. In this capacity, he will ensure the timely delivery of each work product, monitor the technical requirements of the research, and assume all contractual responsibility for the firm. Mr. Goff serves as the Managing Director of the Management Advisory Services practice for L&H in the Southwestern United States. In this capacity, he has worked on numerous lodging and mixed-use assignments in Southern California. Mr. David Kinkade -- Mr. Kinkade has been actively involved with the financial planning and development of both hotel and restaurant projects, including a number of market studies for resorts and hotels in Southern California. His operations background includes management of multi-unit restaurants, as well as cafeteria and private membership clubs. City of Tustin Community Development Department January 6, 1986 Page 6 Mr. Kinkade will be assisted throughout this engagement, as required, by staff consultants specializing in the preparation of studies for hotel-related projects. Copies of their biographical sketches are attached. IV. TIMING AND FEES Our fees are based on the actual time required to complete the work at the standard hourly rates of the personnel assigned. Based on the scope of services outlined and our experience with similar projects, our fees will be as follows: Phase Fees Expenses Meetinqs Total Timinq I $8,000 $800 $2,4001 $11,200 3 weeks II 4,000 600 675 5,275 2 weeks · III 2,500 200 1,2002 3,900 1 week IV 4,500 700 675 5,875 --3 weeks $19,000 $2~300 $4~950 $26,250 --9 weeks Footnotes: lIncludes 2 meetings with staff and 1 meeting with Planning Commission and City Council. 2Includes 1 meeting with staff and 1 meeting with Planning Commission and City Council. Any additional services'beyond the scope of the scope of work described in his proposed will be billed to you, based upon our hourly rate schedules and the actual time spent. Examples of services beyond the scope of this engagement would include additional meetings with city representatives, public meetings, potential lenders, partners, or tenants, and expert testimony or related preparation. We will not undertake any additional services without your prior authorization. If at any point during the course of this engagement our findings lead us to a negative conclusion(s) concerning the project, we will meet with you or telephone to discuss our findings and alternative approaches, and reach an agreement on how we should proceed with the engagement. If the decision is made to discontinue our work, our feel will be based upon the time and out-of-pocket expenses incurred through that date. In that event, our invoices will be due and payable upon presentation. Our preliminary engagement plan includes allowance for the City of Tustin Community Development Department January 6, 1986 Page 7 elements and conditions which we expect to encounter in the course of the engagement. In the event that we encounter situations which include a need for revision or modification in the estimated fees, we will discuss with you the causes and likely effects of the required modification, both in terms of timing and fees. V. TERMS AND CONDITION Our reports submitted to you will be based on estimates, assumptions and other information developed from research of the market, our knowledge of the real estate industry and. meetings during which you will provide certain information. The sources' of information and basis of the estimates and assumptions will be stated in the appropriate sections of our reports. The terms of this engagement are such that we will have no obligation to revise this report or the projected financial results to reflect events or conditions which occur subsequent to the,last day of our field work. However, we will be available to discuss the necessity for revision in view of the changes in the economic or market factors affecting the proposed project. We will not ascertain the legal and regulatory requirements applicable to this project. Further, no effort will be made to determine the possible effect on this project of future federal, state or local legislation including any environmental or ecological matters or interpretations thereof. With respect to market demand analysis, our work will not include an analysis of the potential impact of possible energy shortages. Since the market and/or financial projections will be based on estimates and assumptions, which are inherently subject to variation depending upon evolving events, we will not represent them as results that will actually be achieved. This proposed Scope of Services and professional fees are valid for a period of sixty (60) days from the date of this engagement letter. Our reports and financial projections are intended for the information of the City of Tustin. They may also be submitted to a hotel franchisor or management firm in order to generate interest .in licensing or managing the property. Otherwise, neither the reports nor their contents may be referred to or quoted in any registration statement, prospectus, loan or other agreement or document without the written consent of Laventhol & Horwath. City of Tustin Community Development Department January 6, 1986 Page 8 VI. ACCEPTANCE OF PROPOSAL In order to initiate our services according to this proposal, · please sign the enclosed copy of this letter and return it to us. ~We will then contact you to coordinate our first meeting. We thank you for the opportunity to be engaged for this study and look forward to working with you on this project. Very truly yours, LAVENTHOL & HORWATH Richard H. Carpe Partner David R. Kinkade Manage r ARN:DRK/mdg Enclosure (00714) cc: Tom Goff APPROVED: City of Tustin By: Date: