HomeMy WebLinkAbout03-05-07 Special Called Joint Meeting of the La Porte Development Corporation Board of Directors and the La Porte City Council Minutes
MINUTES OF THE SPECIAL CALLED JOINT MEETING OF THE LA PORTE
DEVELOPMENT CORPORATION BOARD OF DIRECTORS AND THE LA PORTE CITY
COUNCIL
March 05, 2007
1. Call to Order
President Pat Muston and Mayor Alton E. Porter called the meeting to order at 5: 05 p. m.
Members Present: 4B Development Board - Bill Love, Chuck Engelken, Trent Wise,
Tommy Moser, Mike Clausen, Ed Matuszak, Pat Muston
City Council- Howard Ebow, Chuck Engelken, Tommy Moser, Mike Clausen, Barry
Beasley, Mayor Porter, Mike Mosteit, Louis Rigby.
Members Absent: None
Staff Present: Interim City Manager John Joerns, City Secretary Martha Gillett, Assistant
City Attorney Clark Askins, Interim Finance Director Michael Dolby, Human Resources
Manager Robert Swanagan, EMS Chief Ray Nolen, Parks & Recreation Director Stephen
Barr, Assistant to the City Manager Crystal Scott, Chief Police Richard Reff, and Intern
Mike Stokes.
Others Present: Marcy Barr, Lauren Barr, Kay Scott, Dottie Kaminski and John Handy of the
Houston Chronicle.
2. Motion was made bv Board Member Ed Matuszak to approve the Minutes of January 22,
2007 Special Called Regular Meeting of La Porte Development Corporation Board. Second
by Board Member Chuck Engelken. Motion carried unanimously.
Ayes: Bill Love, Ed Matuszak, Trent Wise, Pat Muston, Mike Clausen, Chuck Engelken and
Tommy Moser.
Nays: None
Abstain: None
Executive Item was taken out of order.
6. EXECUTIVE SESSION - PURSUANT TO PROVISION OF THE OPEN MEETINGS
LAW, CHAPTER 551.071 THROUGH 551.076, 551-087, TEXAS GOVERNMENT CODE
(CONSULTATION WITH ATTORNEY, DELIBERATION REGARDING REAL
PROPERTY, DELIBERATION REGARDING PROSPECTIVE GIFT OR DONATION,
PERSONNEL MATTERS, DELIBERATION REGARDING SECURITY DEVICES, OR
EXCLUDING A WITNESS DURING EXAMINATION OF ANOTHER
WITNESS IN AN INVESTIGATION, DELIBERATION REGARDING ECONOMIC
DEVELOPMENT NEGOTIATIONS)
Special Called Joint Meeting of the La Porte Development Corporation and the La Porte City
Council - 3/05/2007
SECTION - 551-072 - (PROPERTY SALE OR EXCHANGE)
MEET WITH INTERIM CITY MANAGER
AND CITY ATTORNEY REGARDING
CITY/COUNTY HOTEL PROJECT FOR
THE PURPOSE OF DELIBERATING THE
PURCHASE, EXCHANGE, LEASE OR
VALUE OF REAL PROPERTY
The La Porte Development Corporation and La Porte City Council retired to Executive
Session at 5:07 p.m. and returned to the Regular Meeting and reconvened at 5:44 p.m.
7. Considerations and possible action on items considered in Executive Session.
There was no action taken during Executive Session.
3. La Porte Development Corporation to consider approval or other action regarding funding
website for the La Porte Development Corporation.
Motion was made by Board Member Ed Matuszak to approve funding for the website and
linking it to the City of La Porte website as recommended. Second by Board Member Bill
Love. Motion carried unanimously.
Ayes: Bill Love, Pat Muston, Ed Matuszak, Mike Clausen, Trent Wise, Chuck Engelken and
Tommy Moser.
Nays: None
Abstain: None
Motion '.vas made by Councilman to approve funding f-or the v/ebsite as recommended.
Second by Cmmeilman. Motion carried 1:lnanimol:lsly.
Ayes: Mike Clausen, Barry Beasley, Chuck Engelken, HO'Nard Ebo':/, Mike Mosteit, Louis
Rigby, Tommy Moser and Mayor Porter.
Nays: None
Abstain: None
4. Parks & Recreation Director Stephen Barr provided a presentation on Sylvan Beach
Shoreline Stabilization and Beach Restoration Project. There was no direction provided.
5 Interim City Manager John Joerns and Parks & Recreation Director Stephen Barr provided a
presentation and discussed funding of Pasadena - La Porte Joint Venture Sports Complex.
Motion was made bv Board Member Bill Love to finance Debt Service for the La Porte
Venture Sports Complex as recommended. Second by Board Member Chuck Engelken.
Motion carried unanimously.
Ayes: Bill Love, Pat Muston, Trent Wise, Ed Matuszak, Mike Clausen, Chuck Engelken and
Tommy Moser.
Nays: None
Abstain: None
8. Administrative Reports.
2
Special Called Joint Meeting of the La Porte Development Corporation and the La Porte City
Council - 3/05/2007
Interim City Manager John Joerns & Interim Finance Director Michael Dolby provided
Administrative reports on the following:
Update on economic development position
Hotel consulting services & market analysis: schedule
Project Austin Powers
Revenues/expenditures Bay Area Blvd. Project
Future Topics/Meetings
9. Board Comments
10. Adjournment
The meeting was duly adjourned at 6:38 p.m.
_~~~~~lY ~~~tIJ)i/~e~,
7 (,j- .G\.., L-' "/ / ,
. ~-';., ..../\........
Martha A. Gillett .
City Secretary TRMC, CMC
La Porte Development Corporation Secretary
Q~~ y~(~
Aiton E. Pont~, Mayo~
3
26
CITY OF LA PORTE, TEXAS
Balance Sheet
Governmental Funds
September 30, 2006
2005 General
Section 4B Obligation
General Sales Tax Bonds
ASSETS
Cash and cash equivalents $ 7,536,003 $ 1,830,686 $ 97,152
Investments 5,287,784 1,772,321 7,598,390
Receivables, net of allowance for
uncollectibles:
Accounts receivable 4,126,733
Taxes receivable 647,980
Due from other governments
Grant receivable
Other accounts receivables 229,385 918
Accrued interest receivable 74,781 21,224 573
Materials and supplies inventories, at cost 70,126
Total assets 17,743,407 3,853,616 7,697,033
LIABILITIES AND FUND BALANCES
Liabilities:
Accounts payable 2,679,812 651,832
Accrued salaries payable 280,331
Due to other funds
Retainage payable
Unearned revenue 3,538,917
Accrued employee separation pay 100,000
Total liabilities 6,599,060 651,832
Fund balances:
Reserved for:
Inventories 71,118
Encumbrances 140,055
Municipal Court Building Security
Municipal Court Technology Fee
Park Zone
Confiscated funds
Debt service
Unreserved, Designated for capital projects 51,084
Unreserved/Undesignated 10,882,101 3,853,615 7,045,200
Unreserved, reported in nonmajor:
Special revenue funds
Capital projects funds
Total fund balances 11,144,358 3,853,615 7,045,200
Total liabilities and fund balances $ 17,743,418 $ 3,853,615 $ 7,697,032
See accompanying notes to basic financial statements.
30
Other Total
Governmental Governmental
Funds Funds
$ 5,765,883 $ 15,229,724
10,319,398 24,977,893
4,126,733
108,386 756,366
4,716 4,716
46,290 276,593
56,059 152,637
70,126
16,300,732 45,594,788
881,195 4,212,839
2,319 282,650
168 168
163,282 3,702,199
100,000
1,046,964 8,297,856
71,118
140,055
106,652 106,652
73,724 73,724
180,902 180,902
116,391 116,391
1,813,887 1,813,887
51,084
21,780,916
1,193,533 1,193,533
11,768,673 11,768,673
15,253,762 37,296,935
$ 16,300,726 45,594,791
31
CITY OF lA PORTE, TEXAS
Statement of Revenues, Expenditures and Changes in Fund Balances
Governmental Funds
For The Year Ended September 30, 2006
2005 General
Section 4B Obligation
General Sales Tax Bonds
REVENUES
Property taxes $ 10,454,157 $ $
Franchise taxes 1,986,698
Sales taxes 2,495,547 1,245,774
Donations
Industrial payments 7,470,700
Harris County Joint Venture
Other taxes 69,310
Licenses and permits 683,284
Fines and forfeits 876,930
Charges for services 3,852,570
Intergovernmental 8,489
Interest 652,700 121,396 303,628
Miscellaneous 24,778
Total revenues 28,575,163 1,367,170 303,628
EXPEN DITU RES
Current:
General Government 6,047,422
Public Safety 11,071,829
Public Works 2,360,073
Health and Sanitation 1,813,812
Culture and Recreation 3,010,725
Debt service:
Principal retirements
Interest and fiscal charges
Capital outlay 3,707,975
Total expenditures 24,303,861 3,707,975
Excess (deficiency) of revenues over
expenditures 4,271,302 1 ,367,170 (3,404,347)
OTHER FINANCING SOURCES (USES)
Proceeds from sale of long term debt
Transfers in 647,449 2,800,000
Transfers out (3,045,803) (740,060)
Proceeds from sale of Assets 90,083
Total other financing sources (uses) (2,308,271 ) (740,060) 2,800,000
Net change in fund balances 1,963,031 627,110 (604,347)
Fund balances-beginning 9,181,327 3,226,505 7.649,547
Fund balances-ending $ 11,144,358 $ 3,853,615 $ 7,045,200
See accompanying notes to basic financial statements.
34
Other Total
Governmental Governmental
Funds Funds
$ 1,708,484 $ 12,162,641
1,986,698
3,741,321
7,470,700
257,194 326,504
683,284
876,930
35,000 3,887,570
1,165,892 1,174,381
631,439 1,709,163
109,905 134,683
3,907,914 34,153,875
1,189,343 7,236,765
11,071,829
2,360,073
1,813,812
3,010,725
1,195,000 1,195,000
1,374,314 1,374,314
2,842,334 6,550,309
6,600,991 34,612,827
(2,693,077) (458,952)
7,156,055.00 7,156,055.00
2,608,425 6,055,874
(3,746,739) (7,532,602)
90,083
6,017,741 5,769,410
3,324,664 5,310,458
11,929,098 31,986,477
$ 15,253,762 $ 37,296,935
35
f?NIJ I
MARKET STUDY WITH
PROSPECTIVE FINANCIAL
ANAL YSIS
PROPOSED 250-ROOM
SYLVAN BEACH HOTEL
LA PORTE, TEXAS
March 2007
PKF
CONSUL TING
PKF
Consulting
1:010 Linlldl Sh~et
SUite 400
Houston T X
March 12,2007
Tf:iepi;Ofle I! ~ 1} 62' -S:lS2
Tcicfi:1X r 71 :)} 621 -91.9':
Mr. John Joerns
City of La Porte
604 West Fairmont Parkway
La Porte, Texas 77571
Dear Mr. Joerns:
In accordance with our engagement letter dated October 18, 2006 with Consultivo LLP,
we have completed a market study and estimates of prospective financial performance
for the proposed 250-room Sylvan Beach Hotel, located on Galveston Bay in La Porte,
Texas. The conclusions reached are based upon our present knowledge of the
competitive market resulting from our fieldwork completed February 14, 2007.
As in all studies of this type, the estimated results are based upon competent and
efficient management and presume no significant change in the competitive position of
the project from that as set forth in this report. The terms of our engagement are such
that we have no obligation to revise this report to reflect events or conditions that occur
subsequent to the date of the completion of our fieldwork. However, we are available to
discuss the necessity for revision in view of changes in the economic or market factors
affecting the proposed project.
Although they have been conscientiously prepared using information obtained during
the course of this study and our experience in the industry, the proposed property's
future performance is based on estimates and assumptions, which are subject to
uncertainty and variation, and we do not represent them as results that will actually be
achieved.
We would be pleased to hear from you if we may be of further assistance in the
interpretation and application of our findings and conclusions. We express our
appreciation to you and your associates for the cooperation extended to us during the
course of this assignment.
Respectfully submitted,
PKF Consulting
~R~ m<-~
G. Randle McCaslin
Vice President
MARKET STUDY WITH
PROSPECTIVE FINANCIAL ANALYSIS
PROPOSED 250-ROOM
SYLVAN BEACH HOTEL
lA PORTE, TEXAS
TABLE OF CONTENTS
I - EXECUTIVE SUMMARY Page
Scope and Methodology....................................................................................,........... 1-1
Conclusions......................................................................................,............................ 1-2
II - AREA OVERVIEW
Introduction........................................................................................,......................... 11-1
Demographic and Economic Trends......... ,.................................................................. 11-1
Transportation .............,......... ....,. .......... ...... ............ ................ ... ... ... .......... ... ... ............11-7
Office Market..............................,...............................................,................................. 11-9
Convention Center...................................................................................................., 11-10
Tourism........................,.......................................................................,..,.................. 11-11
Texas Medical Center........................... ,.................................................,..,..........,.... 11-12
Museum District ....................,........... ...... ...... ...... .... ...... ....... ... .......,......... ... ......,........11-12
La Porte Area Overview.......................................................................................,...., 11-14
Conclusion ,.................................,.....................................................................,........ 11-21
III - PROPERTY DESCRIPTION
Location........................,....,..............................................................................,.......... 111-1
Site Description........................................................................................................... 111-1
Recommended Facilities...................................................................,......................... 111-2
Conclusion.....................................................................................................,...... ,..... 111-4
IV - HOTEL MARKET ANALYSIS
Hotel Market Overview............................................................................................... .IV-1
Historic Performance.................................................................................................. .IV-3
Market Demand Segmentation ...,.......... ...... ........ .... ........ ........ ... .............,..... ...,.... .... ..IV-5
Additions to Supply...................................,...............................................,................. .IV-5
Hotel Demand Overview.. ,...........................................................................,......,...... .IV-6
Subject Hotel Performance ..,........... ...... ...... ........... ...... .......... .......,..,... ... ... ........ .......,IV-9
VI - PROSPECTIVE FINANCIAL ANALYSIS
Bases of Estimations...............................,.................................................,................. VI-1
Departmental Revenues........,.........................................................................,........... VI-1
Departmental Expenses.............................................................................................. VI-2
Undistributed Operating Expenses. ...... ..... ...................... ............. ....... ...... .......... ..... ... VI-3
Fixed Expenses.. ..................,...... ..... ..... ...... ........ ... ....,............ ... ... ... ... .......... ........ ...... VI-3
Reserve for Replacement..,..........................................................................,..........,... VI-3
Schedule of Prospective Cash Flow before Debt Service........................................... VI-3
MARKET STUDY WITH
PROSPECTIVE FINANCIAL ANALYSIS
PROPOSED 250-ROOM
SYLVAN BEACH HOTEL
LA PORTE, TEXAS
ADDENDA
A. Photographs of Sylvan Beach Park & Proposed Hotel Site
B. Statement of Assumptions and Limiting Conditions
C. Certification
SECTION I
EXECUTIVE SUMMARY
PKF
Consulting
EXECUTIVE SUMMARY
I - 1
SCOPE AND METHODOLOGY
In preparing this study, we completed the research and analysis listed below:
. Conducted an inspection of the subject site and the surrounding area in order to
determine their impact on the proposed hotel.
. Assembled, reviewed and analyzed economic, demographic and real estate
market data pertaining to the Houston market area in general and the La Porte
area in particular to evaluate the present economic climate and to estimate future
growth potential, particularly as it relates to lodging demand.
. Interviewed representatives of area government, businesses and the community
to gather data on current and future area growth and the demand for lodging and
meeting facilities.
. Conducted a survey of area businesses and community organizations to
determine the need for an upscale, full-service hotel with meeting space.
. Interviewed representatives of existing meeting facilities to assess the quality and
quantity of available meeting space in the La Porte area, types of events
captured, types of events turned away, and rental rates.
. Evaluated the existing area hotels, comparable hotels and competitive hotels
located outside the market area to determine the degree of competition that they
are likely to offer the proposed hotel, size and type of facilities available, and rate
structure for the proposed hotel.
. Prepared a summary of historic market performance, including available rooms,
occupied rooms, market occupancy, market segmentation, and average daily
room rate for the period 2002 to 2006.
· Identified other proposed hotels to assess their probability of completion and the
degree to which they will compete with your project.
· Recommended the concept, size and type of facilities, and amenities appropriate
for the market for the proposed hotel.
· Estimated future competitive position and rnarket performance of the subject
proposed hotel for the period 2010 to 2014.
· Based on the estimated future competitive position of the subject proposed hotel,
prepared a schedule of prospective cash flow before debt service and income
taxes for the subject hotel for the period 2010 to 2019.
EXECUTIVE SUMMARY
CONCLUSIONS
1.2
A concise summary of the conclusions of this report follows:
· Houston is posting healthy growth, driven by the strong energy sector. The
continued diversification of the metro area's industrial structure and the above
average population growth will ensure healthy overall growth over the forecast
horizon. Based on economic growth rates in Houston, a positive economic
environment for the hospitality industry is estimated over the foreseeable future.
· The magnitude of the Port of Houston and petrochemical industry coupled with
the recent increase in business and leisure activity in the La Porte market area
appears to support the need for an upscale, full-service hotel.
· The proposed Sylvan Beach Hotel will be well-located on scenic Galveston Bay
proximate to both business and leisure demand generators. We consider the
subject site to be well-suited for hotel development.
· The recommended facilities program for the proposed Sylvan Beach Hotel is
appropriate for the market in type, size and quality. The amount of meeting space
will provide a competitive advantage for the subject property in attracting group
meetings demand.
· There are currently no full-service hotels located in the primary market area.
Therefore, there is no directly competitive hotel market that can be used as a
competitive set for the proposed Sylvan Beach Hotel. In order to determine the
recommended facilities and to estimate the performance of the subject hotel, we
have evaluated three different sets of hotels: existing area hotels, comparable
hotels and competitive hotels located outside the market area,
· The primary hotel market area is comprised of limited-service, select-service and
extended-stay hotels located in La Porte, Pasadena and Deer Park. The existing
hotels have experienced occupancies in the upper 60's and low 70's, except for
2003 and 2004 during the national recession. This reflects the strong corporate
demand in the primary market area. The large increase in occupied rooms in
2005 shows the resurgence of the petrochemical industry in response to the
strong Texas economy.
· Comparable hotels are defined as hotels that are located in similar markets. For
the proposed hotel, a comparable hotel would be a full-service hotel located on
or near a bay, lake or beach but also proximate to corporate demand.
Occupancies have remained around 60% at the corn parable properties, which is
indicative of the seasonality of demand in a strongly leisure oriented market. In
2006, rates ranged from $110 to $160 at the comparable properties with an
average of $129. This is a good indication of the potential rates that would be
obtainable at the subject property.
EXECUTIVE SUMMARY
I- 3
. As part of our market analysis, a survey was conducted of the major corporations
located in the two major business parks within the primary market area for the
proposed hotel. The respondents were asked to identify the hotels that they
currently use for their hotel and meeting needs. The hotels which were identified
are considered to be the competitive hotels located outside the market area.
Occupancies at the competitive hotels reached the upper 60's in 2006. Since
these properties are located outside the market area, they do not reflect the
strength of the primary market area.
· The market demand segmentation for the existing area hotels, comparable hotels
and competitive hotels located outside the market are illustrated in the following
table.
Market Demand Segmentation
Exist~' I"I'~
Area coale Competitive
Market Segment Hot'll. .;.. ~ ~C~ Hotels
Corporate 70% 28% 56%
Group Meeting 20% 42% 29%
Leisure 10% 30% 15%
Total 100% 100% 100%
Source: PKF Consulting
The mix of demand for the existing area hotels is a good indication of the mix of
demand located in the primary market area. Discussions with the local hotel
representatives indicated that the higher rated properties are able to attract the
less price sensitive engineers that are not leaving the market and international
visitors to the Port and petrochemical industry, whereas the lower rated
properties cater to the construction workers and trucking industry.
The mix of the comparable properties shows their orientation toward the group
and leisure markets. Corporate demand in these markets is not as strong as in
the primary market area. Competitive hotels located outside the market area
have stronger corporate and group markets, somewhat similar to the primary
market area.
· There are no other full-service hotels being developed in the La Porte market
area, except for the proposed Sylvan Beach Hotel, which is scheduled to open in
January 2010.
· In order to evaluate the demand for an upscale, full-service hotel in the primary
market area, we conducted a mail survey of corporations located in the
Battleground Industrial District and Bayport Industrial District and La Porte
community organizations. Of those that responded, 58% of the corporations and
50% of the community organizations indicated that they had a need for an
upscale, full-service hotel for overnight accommodations.
EXECUTIVE SUMMARY
I- 4
· The respondents indicated that 70% of the corporations and 100% of the
community organizations had a need for meeting space at an upscale, full-
service hotel.
· The surveys returned by the corporations indicated that 78% were leaving the
market area for hotel accommodations and 82% were leaving the market area for
meeting space needs.
· When asked if they would use an upscale, full-service hotel located on Sylvan
Beach or the La Porte Bayfront for hotel accommodations and/or meeting space
needs, 79% of the corporations and 100% of the community organizations
indicated that they definitely would. The results of this survey are a strong
indicator that there is a need for an upscale, full-service hotel at the proposed
site.
· The subject hotel is expected to capture the following mix of demand.
Corporate
Group
Leisure
Total
60%
25%
15%
100%
Source: PKF Consulting
The majority of the demand for the proposed Sylvan Beach hotel will be
corporate demand from the Port of Houston and the petrochemical industry.
Group demand will be generated by corporate, association and community
events. Leisure demand will be generated by Project Stars, Bayport Cruise
Terminal and Sylvan Beach.
· The estimated operating performance of the proposed Sylvan Beach Hotel in La
Porte, Texas is, as follows:
Estimated Operating Performance
Proposed Sylvan Beach Hotel
la Porte, Texas
Annual Tr~ve.l~lf Net Operating
Year Occupancy "~ jly ":l: Income
2010 64% $158 $3,176,000
2011 68% $162 $3,559,000
2012 72% $167 $3,953,000
2013 74% $172 $4,176,000
2014 74% $177 $4,295,000
. Stated Year Dollars, rounded to the nearest dollar.
Based on an ADR of $140 in 2006 dollars.
Source: PKF Consulting
SECTION II
AREA OVERVIEW
PKF
Consulting
AREA OVERVIEW
11-1
INTRODUCTION
The Houston Primary Metropolitan Statistical Area (PMSA) includes six counties:
Chambers, Fort Bend, Harris, Liberty, Montgomery, and Waller. Houston is the largest
city in Texas and the fourth largest city in the U.S. Houston has a broad business base,
NASA and the aerospace industry, an internationally recognized medical center, the
international oil and gas industry and a varied base of local businesses and nationally
recognized service firms.
The subject property is located in La Porte, Texas, which is in Harris County. As a
Houston bedroom community, La Porte is primarily influenced by the Houston PMSA.
DEMOGRAPHIC AND ECONOMIC TRENDS
Note: Economy,com provided the following demographic and economic data.
Information relating to other topics has been obtained through a variety of media,
including web sites, publications, interviews or other sources considered reliable. PKF
Consulting has reviewed and analyzed the Economy.com data,
The following pages present an economic snapshot of the United States, the South, and
Houston, respectively.
AREA OVERVIEW
11-2
Relative Employment Performance (1991=100)
135
130
125
120
115
110
105
100
95
91 92 93 94 95 9Ci 97 98 99
Forecast
01 02 03 04 05 06 07 08 09 10
-us
II' .1 't. I' II; II' I I
9.4 70 9.817 9.891 10.049 10.301 10.704 11.049 Gross Domestic Product. CSB 11.409 11.709 12.070 12.443 12.823
45 3.7 0.8 1.6 2.5 39 3.2 C/Janyc 33 26 3.1 31 3.1
129.0 131.8 1318 130.3 130.0 131.4 133.5 Total Employment (Mil) 135.3 136.7 1381 139.9 141.8
24 22 00 .U -0,3 1.1 1.5 14 10 1.0 1.3 1.4
42 4.0 47 5.8 6.0 5.5 5.1 Unemployment Rate 4.7 4.9 4.9 4.7 4.6
51 80 35 1.8 32 6.2 5.2 Personal Income Growth 71 5.4 52 5.1 5.0
279.0 2822 285.1 288.0 290.9 293.7 296.4 Population (Mil) 299.1 3018 3045 307.2 309.8
13 12 13 1.4 15 16 1.7 Single-Family Starts (Mil) 1.5 1.3 13 1.3 13
03 0.3 0.3 0.3 0.3 0.3 0.4 Multitamily Starts (Mil) 0.3 03 03 0.4 0.4
1.279 1062 2.121 2.818 4.067 2.761 3.105 Mortgage Originations (BiIS) 2.804 2.287 2,003 2.041 2,137
1.282 1,218 1.452 1.539 1.625 1563 2,039 Personal Bankruptcies (000) 971 1.279 1,335 1360 1.445
4.6 58 3.4 1.6 1.0 1.4 3.1 91.Day Treasury Bill ('/,) 4.7 47 4.6 4,6 44
5.6 60 5.0 4.6 4.0 4.3 43 10.Year Treasury Bond C%) 4.8 5.0 5.3 5.6 5.6
ANALYSIS
STRENGTHS
. Continued higl, rate of technological change
. Broad-based global growth.
. Record corporate profits and pnsline corporate
balance sheets
WEAKNESSES
. High debt service burdens and negative
personal savmg rales
. Skewecllncome and wealth dlstnbutlon
. Large current account deficit
. large rederal govemmenl deficits
CURRENT EMPLOYMENT TRENDS
October 2006 Employment Growth
% change year ago. 3 mo. MA
FORECAST RISKS
-
UPSIDE
. Labor productiVity growth remams strong,
supportIng strong growth and low mOatlol1.
DOWNSIDE
. Another terronst attack
. Consumers pull back under the weight of high
debt loads
. Global investors pamc due to wtdenlng current
account deficit and sell U.S, assets,
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dictlte fhdtlH~ Imsscd :"'(Jt',tllJtll)~I,,]'t)I'
joh... <I'" of \larlh ~OOil ,md 1,\ hI' llkOJp 'I',t!
cd Illto thl' data ill ,11I!:11;11' '<lIi;. lid) I\dli
\\'11-'; dost'r to -,"IIO.fJ()() ))1" III ,,1111 !,I'..f \1',11
lIousing ('Orrel'lion. !;\]!olil !;-n1l\ Illt I;'I:,~/I
II1g hOll'..,ill~~ 10lTt'dlllrr b "11.",\111,'; Uji i:1\1["('
cll.tlrl~ Johs trl IIClu"'IIJ,c',il' ,-It'll :Ildll...IIl'.'....
hro;Hlh dl'liJ1l,tI 10 1Il11Ullc lrl,m
cOllslr\!( lion 10 lllorl).',d~:t" 11l;,Ij;(I', .Hl' IVll !)\.
OIlmo"'l lou,noo sltK(' 1f1'" pl'dr_,'d ,';n'h J: rill
\l';U', lht: pi.lU.' lit r!tc!UI',' [... .'ll'_'Ihihlll':, \\ltl1
il\ITaW' lllllnlhh hOW.,II1:,~ :1':.'11'11 ioh 111""''0''' ii'
u:tHh dost'rto...'O.OU{J \'Iil" oll!i('j iJ\l;-,
lllg boom J;i1~'la:-.:t \('~lr, ii' \\.1", dtkIJl,:": .I'"
Ill,HIY a.... ')1),OOIlIIl Pd\ j"( .]1.... 1'\ 1'1'\ !1101l1!t.
\Iortgagc lTl'rllt ;', LI",l \'l'i"i,II~:
\(cording 10 clitld l\l"tl l!llHl (n.d:l 11:('''
('olkdt'd In 111<' (f('thl !l\ll' ,Ill I qllJ1ii'\. 1111'
dfllldr ckltl1(l\It.wy LIlt- III! 'tr...1 illld...\ ')'1d
mongOlgt'S has lI1tT(,~bn! 1)\ h.ish 11' ;]:1...
SIfH{' hllllfl~~ hollom '11 H'), lourlh ql'. 111:1
of ':00-1. \\lllk ,\~rt'ilh' j 11'11:1 llJ'oiJ;I'III, .;n'
\\l(lI'sprt'"d d(Tns.... 1111' I 11:llln 1);.'\
!1loq St'\ {'n' III drt'~l'" "\ Ill'l' ....uhpr:lllt ['Ill!
IIlg ha~ b('{'n 1110...t "'1I11...l.lJ1I:,li. lll{lrI.~:,<';:' "q
Ull\ \\ltIHlr'iI\\dlmo....1 "'1~'1111 i ,In!, .lJH! L'Il:"'1
pnn'... <It'l' 110\\ \\(.tlkl'lill:' 1"1](11'1'''', ;11 lill'
slrOll1-: hclw...l ot l't'glll;tllll'" . tI:-'1 1 Ilil.1I1\ (ip
pear to be lI,i~hh'llini-~ !no:t.~~,j.Y IllU II'!"..'. ! r~Jl,!'.
sland;lrd.... \\l1l1t. ulrlllldl,'1\ I!H'J".1!Wlllli 111('
11;;11<11 illljJml \\ III tw 10 funht'r crimp how;,.
11l;-'. dl'IH.:IIHI and IIHTt'aSI' cn'dH probll'm""
110lenltd gro\\1b,\1 tht' ....;mH' Irmt! tlw t'tOIlO
:m I'S ~lnlggltllg 10 11l,UllI<l1Il gnmlh l1t'i1r II.... po
1l'~llldl. Ih;.1I potl'llll;d appear... to 1)(' ....lippin'~. ,\n
1'1 (j!lomy.... pot('llll;ll i.... ttw ral(' of gro\\th IOf)
...1StI'lIt \\ ilh st;tblc lllH'l11plo~ Itwnt ilud lat Ion
ill ni/.llttJll ral('.... Ill'; ('qual to Ill(' ....urn of under
II :ng pl'Odlldl\ II) ;llld J;111Or t'on..t' growlh,
lilt' t't{)n()III~.... polt.'nluti Itip.. ...imH'd "IIKi'
rl,(, lWgUHllllg 01 lIlt' di'{;I(II'. due to ....IllIll..
',,, !lat slmH'f ~~nJ\\ th in hOlh pnlductl\'i'~ ,nul
11 II' labor font'. \londr..... hO!l(Jm~ ,t Olll 1.....1 i
lIid!'.... tiw I .s. l'lllrHHll~'''' pnlt'nll~11 .t-'.rtJ\\lh
r ,!ft' iil j"". ('qual to ...'''" underlying prndtH'rt\
11\ ).;1'0\\ t II <Inti I Idhor force gnJ\\ t h. rhis \....
dlJ\\n JrwIlL~l"" (ltlrlll~~ tht, IiI'" hdll flllhi"i
dl'l.lde. POlt'lllhd 1'" ("lH'l lnllo toll I lurlhl'l',
II) !H'al' .!.-l','" 0\('[" Iht' next (h'Cl\(h'.
11.......1!1\ ('stnli'1l111l tJw \\;11..:,. ollllC' liTI1 1,11...1, ,I
"I'\'llllfl).~h ...10\\1'( p.llt' of h't'JlJwlogit.,tl (!ldll~~I'
d!id thl' PI'OdU(11\ II~ ,:-.:.lPping di\j'p..imh IT(';II
t'\! h) the ht'I~~hl(,lll'(llWI'd 10 1II\!"st III i'IH'll~~
Ilig l.'qlllpllH'1l1 .:Iml St'fUI'JI~ ,In' \\t'J1<111l1g on
!If'f)duclhH\ g.lin:-. ,\ ,10\\1:1' ratl.' 01 tnrd(;n iln'
dlh' to tIlt' str()n~~j'r gloh.1i t'((jTlom~
tighh:r I .S, "t'~'lIrity 1JIt'<l'ures. fUll! 0.1 J1at
IditOl' tOl\e parrinpal1un r"lt' ;Irt' \\('lgfung on
i,dlor lorn' grO\\lh, Tlw h~llI;'lh' p;\r1lcip,ltIClll
1;11\' IS no Illn,:I'l' n....lng;md ltw hTlhlgi' pdr11U
pdtlllll nile U)lJlHlllt''\ 10 d('dl1H',
Mondy's EUHlOllll'.{'(JIll expens growth
to J"('ludin below lhe ('uJIlomy's :{'.\~ re.;,lI
(;DP growth potentialthruug:h next spring:.
I hc llllcmploymcnt ratc will edl(c highl,r
Ihmugh Ihc middle of ncxt ycar. risinl( 10
near :l%. This- higlu:r lU1CJllploymcnl r~Uc.
.dong with continued low el1('r~)-' prin~s
dnd lethered inllalion expc('latiol1s, will be
...uftkiel1t to ensure that und('rlring infla.
lion peaks in early 2007. Core ('PI intliuiol1
j,,,, expected to top out at :~,\;,
\Jl/d,: M. Idl1dl
\(n '1.'I1l!ll'r _'J JOtl
Moody's Economy.com. lnc, . www.ecooomy.com.halpqteconomy.com.Pr.Qcis METRO
AREA OVERVIEW
11-3
Relative Employment Performance (1991=100)
150
140
130
120
110
100
90
91 92 93 94 95 96 97 98 'Yl
II- II
Gross Regioni11 Product csa
Total Employment (000)
2.8631 2.9315 2.9829 3.0367 3.115.3 3.264 () 3.403.9
41.727 42706 42.710 42.323 42.244 42.980 43,,28
2J -09 1,7
.1 1 ~~ 9 .1 l S 7 58 5.3 50
53 19 ~ b 2.2 3_5 6.9 61
(i:t~bO ':J3.BYI 9S.~~:! U6,3B~' ~ll.b6S 990.19 100,;)11
816,05577056098676.217 7 728;588.) 748,9686903,610,3407.458))
521()64 500.461 528603 576016 639.833 726.828 797.044
H:2 165.622 ;t5o.8-H4 177,479 170,:W~} 196,775 200.165
190,* ,,)9_B 21:19 225.2 2374 25(i5 288.8
328433 290.139 503.095 617.361 923,397 655,722 786,079
5.5858 5.8838 5.8939 5.6405 5.6125 5.751.4 5.8426
459.503 445.527 508.352 557.607 599.339 594.253 627.229
STRENGTHS
. Balanced housing markets in most of tile region,
. Strong polll,cal base "' U.S Congress
. Low business costs relative to U_S
. Strong population growth
WEAKNESSES
. Globalization IS redUCing the Soulhs
competitive advantage
. Workforce quality still lags in many pi:1r!s of the
regIon
. Low per capIta Income and rising debt-service
burdens
CURRENT EMPLOYMENT TRENDS
October 2006 Employment Growth
% change year ago, 3 mo, MA
Tnl..'1
-2 -,
FORECAST RISKS
-
UPSIDE
. Baby boom generatton rel1res ear1ier Ulan
expected, SI.JpPOr1lOg housing and services
. New Iflvestment 111 tech and aulo plants
revitalize melro areas
. Defense spending stays high In light of global
conflicts
DOWNSIDE
. Loss of manufactunng industries accelerates
. Intra-regionrll migration dmlns nJral counties,
stresses urban areas
Unemployment Ratti
Personallllcomc Growt!l
POplll.ltlon (OOO)
Net Migration (OOO)
Single.F;unily Permits
Multifamily Pcmlits
House Price Index (1980Q1 ::: 100)
Mortgage Oriyinations ISM)
New Vehicle Registrations (000)
Personal Biln~ruptcies
',(\
Recenl Pl'rlonnancL', 1:]. ('111l10Ll\ oj
Ihf SOUlh 1:--; 1'\Jldndl11:', ,!l ,1 ,,11)\\111,:. l',
\IHlOUgh <I malOnl) Ii! .out II ,,1.11_". .11'1'
J.~n)\\illg <It a piKe lo1'-.k: 1:1.;1 Ill\' 1"i[ILlI,
gro\\ll1 h,b ,lo\\t'd in Ii]; iLI'"-1 11'\\' qll,I["I'r....
(,1'0\\1111' ...lllI...tunl) III I ,\tldl,\:... Jl
has ...l(]\\t'd llw Il1n...1 III .llJd I'll
IW......I.\.. \\'Ili'r~' gro\\'lh I.!li" \\",11 h.lu\\
I Ill' 11,ltIOll.li and n'.!-:lon.d .I\''''+,'~''''. Ill. ilH.d
l'I',1110n 111 ioh grO\\11t ill Ill" \fltllll II-'lh L11
Ihl... ~t'''r call lw Ir.1Ct'd t'l l\"1I hrtl,ld l1:du...
tn.....: llliIllUf;.H lUring ,lIld .)\1' i]l'''-'''- "en HI S
II1\' plC!tIn' ~~I'lS 1l1l1l'h,,'r .I; 11li' nwt:u
It'H']. l'I\II.\.,(' Illl' ...t<t"'.., ',\])il 1 sljm\ ,I ;('11
l'ral ...!Cl\\lllg .!tT(h'> 111,' l!rll,ld. 111l'H' I" 1lI\',
lI1<Tl'a"'l'd dl"'p('r'IOIl 111 :111'1;11 <llI'.! IW lor
111,1IKt' <tllllmg "'Ollllll'lll :'11\'1::1 ;tlt'.1'" \\, Ilik
1110...1 d!'t' 1]0\\ 'l'I'lI1g ...J(l',\\': Ii'!) :_~rll\\l;j :l,tJ)
l'arllt.1' tllh ~(,ill'. SOJlH' \,1'\ 1:1'\1"1' .ltl',I'"-, :]1
dudll1il, tho...t' III ""(Jut)l i i.lll:: ,1111\1...1<::11 -"",lJJ
\l1toIllO. .\11<1 1{,l1i'lgh, il,ll. 10 lllli'J 1:\ .'d
pt'rfnnll,-lllu' o\er the lJ,!'-f 1111)11111-,
Manufacluring. I\i'll ,j', !li"ln,li P,I\ 10]1...
h.l\t' ...t"bill/I'd IllllimLd:'" Jllil111~LI PI["
lIlg llHl11...ln mllli' ~illlll1 01;' ::II"" III il:\.....
dlil' In ltlt' l'fJl1lll11h'tI 1~1:1I_.>',\ 01
1ll.1I1l1Iat'lllrin,\~ frllm IIII' ~ 11,1.., f-.i'::n: t.\.
li'llfH's:">I'c' and \rt.:tlll",j'> ':\1..1 rl.ll p-II.lut
lion IsgrO\dnJ~, hUI.II,J Pdll' (~I Iiii'
natHifla! ,l\t'ri1g1'_ Thl' ;1\1 :-,1"1 111(111\11;\. II: "li~
\\nrk\\t.'tk 11".... also :>.1.1;11'11 '... "ll 01... II i 0 fill
ll\'S 10 rlsl' ntl' lotl,llh,
Business scrvkes, \]1:1(>11 :11 ..Ill! Ifl,',
Illl' nation, lilt' 1l10d"LIIll;!1 101.1 .\~n '.\1 III
Ini'lIll'S:>' "'1'l'\Hc' lIldl!..t!'II'>'; ~:,I" 111'1'0,1
I~Kl()r \\('I~;hll1g on ll\ ,:;ro\~ 1;1
d ft'\\ notahle t'\(l'ptl0f)~. I ),rll,l~ ,I !\a
kigh. IW;lr!y ill! majol' ...r)\:III, : Illlll...lllt'...... I'll
IeI'''' h.l\!' ",~'i'n..1 ...harp 1111Idl'I,1l1Ilii
Illnng ...11Ot11d,,-f;lhlll/" 111t' ill'ill ~; 1 :11,
hm\t'\!'!'. IIH'lkl~t' H(){.k h Illr\t-I-' ,'tll
lwr dllll ()(.lllht,! hlll11 JIll 'I! 1,1111\
allwil s]()\\lllg, IJlf"lJl~~ III ill., "\T\j('(', II...,
-u.S
Forecast
01 02 03 04 05 06 07 08 09 10
Sou1h
II . II I.: II' I I
3.5200 3.646 7 3,764 t 3.8861 40097
44 749 454~)5 46, i 34 46,893 47,7J7
1.9 1,6 16 ,
45 ,17 ,: 6 ,~ :; .l4
R_O 6,3 5.7 56 56
101199 10T 1.:;: 1 04,Jn3 1O~,blt> 1:J!, 101
1 '09.950.0649.120.368737847547850850.7828
710032 619413 571.983 561,975 553A49
198,9I8 15G.1..H) 156.792 1~)4,731 t62,D94
3180 3267 332.0 J41_3 3528
686313 590A.12 539,658 5..:2;~76 560,723
6,105_9 6,Oi52 5,966.9 5,9521 5984,6
434.545 401071 441,849 4":7,:12? 474.550
ANALYSIS
Inl'.... 1.~pl'naJh III h.'11lpOrar~ hl'lp_ Strong
,-,jrpnr<ilt. prolll ~,:n)\\lh dnd d drop III t~rh"l'};~
"li'l( t'''' Illd\ help pnl\HhO ....(llllt. 11II11' III hW'd
;]1':-." hiring 111 thl' llt'dl' knll.
(>fcelil ('oltditi(}n~. The ')oulll l~ !t-,,:-, t.\.
:HI....l'd 10 " 1iqulllll) crullch Oll IIii' p<lrt oj
.t'l1(kr,,_ \lUdl ul ttlt' SOlllh t'll,lors 10\\('1"
IId)l St'I'\ICl' burdt'Il<';, \\hleh ll1.'lk('s 111(' n',
~:j)n J't'I<llJ\'t'l\ k...s 1'1...1-\\' for It.ll(k1'..... I H1'111l'r,
[lW,,1 ,",o\ltl)(,fn rl'....ah'nl:-; ill!>.o enjoy <l ]0\\('1"
!(j;mIO\ilhw r;lllo, \\hidl sugges,ls lllat l!W~
dn' more' \'(,'Slt'd in Iht'ir hOIlIt.S, and htl\l' a
:I!t Inor... to lose lrom \\',llknl~~ i1\,.I) from t"
':-.IJ!lg llI()rlga~~("... B\ t'Olllrdsl. 11OIIll'0\\l1tTS
11 11H' hollt'r \orttlt'.l...t ;111<1 \\t....t COdst mar
.dl.... 11.1\(' lwndill't! Irolll I:'\otlt.' !IlOrl,~ag('~
: ];.rl hd\l' ..Ilo\\t'd thelll 10 purdlihc homes
-"Hll \I'r~ IJllk t'qully qake, C.lU:-.ll1g. luglll'r
,lldn.to'\i1IUt, ralHl.... in llll'si' miilk('h,
1 () "iun', tllo:>.l "'ollllH'rll ..1;1I1's do ...nllt,!
',\"dk.1.'l' (l'l'dil qll.dl1\ 111.111llw n....1 01 1111' 11,1
\1011.1 hh I:>. t'\H.II'II11'd b~ hiJ~IH'r ;l11<1 rhilW
,1.'lll1qUl'IH~ I,llt.,,, lUJ;twr Iwr tdPlt.l h.mh.
li[ilt'\ 11Inlg..., dud hli!,lwr I.holll hunkll...., 110\\
,'\ fT. Iht,St, art' ,-,I!'lletllrill 1;ldor:>., Ilwnk.., 10
1'1'1,111\ l'l~ mild hOIJSt'IHICl' ilppn;IJilllol1
fhl' n'II'!)! hoom I HlW"" mort,\;dg(' t'qllll~
-,\Hhdra\\aJ hit.... pJil).('d a rdall\t'l~ mil101
t~k illl)O!sll.'nl1~~ II!Conll.' ,\~ro\.\lh ll\ Illo"" 01
11;(' SOlllh.
I hl' IICi\I'.tcnn ollllook is swill<- lur thl'
South re,Aion, whkh rac~~ Ic~s risk fro III
higher huerest I'~ttes and uu'rC'eling hous-
ing I1tarkcts than does the rcst of Ihe coun-
tn. Onll Florid.! .!nd nnrlhcl'll Virgini.. ..rl'
,II risk of ~, ('nrJ'~'ction of t1H~ir housing
!1hlrkcl. dnd homcbuilding could cven ((('-
cell'rate on the Atlantic coasl given lhe
.t(Teleraljng enHtomy there. Energy expl()-
ration ~tll(1 development favor T(:x..ls ~tnd
I he Soullnvest.
Hdf..l'.\1l ,\Jwllf..tlt
\~I\'('mher .!OUt.
Mo,x1'{ '" Econollly,i:(II: I, Itlc . '.'....'I'N.e<:onollly.com. holpi4'ccOflOfIl)',com. Procis METRO
11-4
AREA OVERVIEW
Relative Employment Performance (1991=100)
150
140
130
120
110
100
Forecast
90
91 92 93 94 95 9" 97 98 ,,')9 ()iJ 01 02 03 04 05 06 07 08 09 10
MHOU -U.S. "-HOU
II' " " , " "; I" , I
1876 1925 197,0 2028 2053 2144 222,8 Gross Metro Product. CSB 2332 241,8 250,1 2578 266,5
42 26 23 2,9 1.2 4,5 3,9 ii,]fi9C 46 3.7 3.4 31 3,4
2,2022 2254.7 22938 2.288.7 2,274,3 2.289,9 2,350,' Total Employment (000) 2.417,5 2.4 75,2 2,5211 2.568,1 2.628,1
16 24 1 7 -02 .0,6 OJ 2,6 (..-'1,;lnge 29 2.4 1.9 19 2,3
48 4,3 4.7 60 67 63 56 Unemployment Rate 52 5.3 5.1 4,9 4,7
62 11.5 6.5 -0,0 41 72 8 1 Personal Income Growth 9,6 7,3 6,6 6.7 6,9
4.644,5 4.7414 4.8451 4.9681 5.0742 5.176.7 5.2801 Population (0001 5.405 7 5.517.1 5.620,0 5.729.8 5,848 4
25.618 28.180 30.496 34.685 42,053 45.103 51.205 Single-Family Permits 56.077 51.745 48.072 47.735 48,896
11.088 7,845 7.117 12.407 16.761 10.933 10.920 Multifamily Permits 14,224 5,771 6.559 6.669 7.743
104,8 1149 1227 1316 1345 135.7 143.0 Existing Home Price (SThs) 149,6 154,8 158,1 162.0 1667
14.646 14.424 21.408 28.158 41.118 28.508 28,292 Mortgage Onginations (SMil) 27.702 25.776 24.766 25.267 26.359
58.2 446 51.3 70,2 49.7 45.4 43,6 Net Migration (000) 624 50.4 55.6 61.6 622
11.651 11.394 13.661 15,055 18.844 20.087 27485 Personal Bankruptcies 1 3.408 16.040 16.607 16.810 17,890
ANALYSIS
STRENGTHS
_Significant trade and export links
_Global leader in oil and gas lechnology
_Affordable housing and low buSiness costs.
.Favorable migration trends
judt' l1early .!.l lllO 11('\\ PO\JllOI1" o\l'r lJll' Ill'"
(1\\' \i'ilr". and "'1~~lllfHllnl (ol1....lrwtlllll jobs In
11:1' th'ar !"rIlL-\llhollgh !lw ..,.calc of HP's \'IH.'rg~
. '\)ldllSIOlll'\ the hlg~:t.st. ('Ilt'n;Y (Oll1jliilW'S h.l\ I'
ll'l,'ll stt'lIdlh plO\\llIg IKKk flll'lr n'n'lll \\mdldll
illid Iun:. fe('dllll: Us t'\IMHSjnn. (Hher n'u'lll
,1)"1'1('(1-. indud(' 111t'''''J Llllhun (,olden Pass I.r\<;
II'nllinal,lllld (on"olidatillll of Clh.'lllll.iJh Illanu-
I;I! lllrer I\LOS' 1 ....,. op('r,IIHllb mllOI ,dtlding
d\I'[" I ~Olflh".
Industt)', ~I.mul;\( llIf1ng ;wri\ll\ I.... ,,1111 l'\.
ld:1II lllg. aHhuugh gn~\\th hlt... sIO\\l"d IlH'(1stlr-
Irom lht' rapid P;li. t' ,'>('('11 (";trlkr tillS ~('ar.
I( \'urdin~: tn 11)(' IH H P\II. f !iring growth in
:1I,(!lufa(furin,~ ha~ ,tl<";f) ..;lo\\cd ('olltUrn'IHl\ ill
i H I! , \"ilh payroll..; lan~dy flal ill tl1\' indllstr~
,)\ 1'1' the P,lsf st\. Illonth<..;.1 iwre has hn'll a shill
:11 II If'tunes \\jlhill llldlluf,K(Uring,Llllplo) l1Ienl
III iiii' rt'ftmng and cht'IllIt"i1b induslri('s, \\hu.'h
ildd Ill'l'n dO\\11 Ihrnugll tlH~ ('i.lrly lMrI oj thl>;'
"l',if", 11.1;0.., :-.wgl'd d strong rOlllt'hl( l.. lJ1 !lu' past
!\'\\ IHontl1s.'\l ,hI' ..;.d.IlW IIlHl', p.l~r()IJ.... in llhlll
1;1.1\ tnring mduslril':-', \\ IUt Ii dro\l'lnlJ glUH 111
IWI' rllit-. \1',lf, "'Udl il"; 1ll.ldllrwry m.ulIlLu
IWillg, Ilil\(' '>Idllnl !ll lhe pa...! ft,,, months.
1111. l111pl'o\elllcnt 1I1 HH' rdining <lml c11t'lH1CdJo..
IHlu'tru's dho (':\pl.lIl1:>. lht' n'ccllt "'UI")..~I' 1Il <1\
'T,I:~i' houri) ('drHIIl);S III Ilhllllll'atturillg, c\ 1,'11
tll\Jugh hour... \\orkt'd l"t'll1am 10\\.
!lIC II0uslon cnmom)' "ill nmtinuc to bcn-
dil in the ne~lr term from slrong: energy in~
{lll~try c.Kti\;ty ttlld ri.!)in~ lTitd(', Stead}' P()Pu~
l.lrion gl'oWlh\vill also help SUPPOl1 growlh
in consunter services and ill th(' construl'lioll
induslry, Pori and t.:onvcnlion tratTle in 1I0U
\\ ill i1lso Iikcly pick up.lungcr tCrln. cominucd
diversification of the Jnctro drC~\'s illdusnial
srnlCturc (me! slill ill)()\"~ il\"~rage population
;..:.rowlh will ensun.' hcahhy L,<-~ononlk growlh,
I It ll"s I'Cl'fOrlll'"Kc is cxpectcd 10 rank inlhc
top quinlih.~ over Ihe forenlst horizon.
Hdh.{'\/1 \'Iumk,u
\11\'.'1111\.,. _.om)
Rec.:enl Ilcrf{)rl11ann.~. '-..11"(1.1': .~:n'\\lh :1 I!H'
1I11Il....IlIlIl.t 111J(l11l~ IS Illl' ;lI"llt:.'i\ IL'I\i'l liH'
stall'. (,ril\\ll1 lJl tlw IIll.It.() "",1 1:.1.... ;h 1 :,1;h
lKu'lerati.'d III Ilw lhml {]lid;"1 ,Ii II':'
thrnUl4Itlhi'lirsthaUotrlll'u',': IlwlIH'll' ,1["'(1
IS dt'itrly stili lH'rll'lltlfl~: II" HI: I !lll J; I t1n,~~ ,'j , 1 ':~
1'.\.pluf.1I101l. pnx:.llId]i~ll ,ll:d 1'''.Jl\
~linlllg t'l1Iplo\ IIII'll I , \\hl\ 11 :ll,I\! Ij,Hklwd 0:;1 in
I hi.' fIr<..;! halt of Iltt' ~t''-lr. li;''-: ,',1'11 ....il.trpl-. ~i'~;iln
1I1 Ih(' pasl ft'\\ month....,! tlll,l! ,\ :iil'nl :.',t"Ci\', ,: 11),1...
als.o ,IlTt'h'ri:lh'd m Ill!' Irdlj<"IH:'f;lliOllll1dl:',ln
\\I1.lt ISmon', job W.O\\1 11 1111, 10000Iil-.l';\ 1('
n.\l....cd up further.
Trade. TIll' I'orl 01 flnH'.I\~~1 ;-;'(I'[llh <In.
IHHHlH'd Ihal lfadt' \(Jhllll,''- litillU;,:li 11,1' jll:!'1
Ihl\t' Ix.t..'!l rolJu....l !lIh \ I 'ill'. ,11:11,11"1' on Ll).' 1/1'1
oreak lhroll.v,h t<l~t Yt';,lt"" "Cl ~ I:,l. I fW op.,'ljJl1g
of tht' hr....' ph.l...t, of lilt. Ilt",\ f:,;\ ("(JI:l.' ;11'1
l('nllll1allak tillS \ ('dl". ,111d li,t' port ( 111";('
lennlll,11 t..u'l~ 111':\1 ...umllll'! hd;, ;'I'I'P
lriJdcal..q gnl\\ttJdrl\l'r ifl)1 1!lllllj''';Ji(>'11
in\\hok~.ll\'ll'ilth-and !J';1I1'-fll"',!1Jl)ll 1.....,lt ,HI:I\
gnJ\\mg. Totill tr;!ch' Illl\\o... Ii!:, 01 :,~jj ltll.' fit JI, ,,11.n
nt,>ltHlIS <lislric! an' tll....IJ 11;) _" 0\\ ,,".i!
!\to"t of tIllS tr,\{lt' i... ({jlI11!1>~ l'nlll '.....1.11 ill;,r
"t'ls due III 1<ln~t' IIW<lSUn - It: \\,;' \1.1: I....
10 IllOH' Il...l111porll1l1h ].1...1 \\ 1 11'11111 Ill" I'sl
Cll",IIll 1101 .
Investment. 'I ht'n:' lld\" 1\\(, n'( 1'11: .1:1
nOllJKt'nwnts tl1.1I \\lll 11,1\" ,"tll\\I' n1' t!:i:111
tl'rllldkrtsOl1llw!Hll l'I'JJl~,,;1\. IJH'l::...I\\,I~
lhe <lSslgnlllt'1l1 '1ll.Olkl1( '( 'II I It ,I :W\\ " \\ \ en
tr<lrl to huild lln' 11t':\t ,;;~'llt'I,;II'111 "'P,lll !,I\d
\dudt.,lht');>\ billion projl'(1 \\II! 1)\' lOllU:,'II'(]
iIlIlOt:. and \\111 ,Hid 0\1') II ~1l.~~111\ ill
reet job.. 10 tlH' !lIplnl ,II'I';j 11\'" 1!1l' l!\-'.l Ii\('
\ ('<If"'. !\lon' 11l1pOrr.IIHh.llll.... il::i!n I 1'1111'1
lhe ;{(TO"'p.H(' 1l\{IUsln III Ill' '1It'IIIIdro',1 ;lIld
hrlngs 111111011" oj ,l{ldl1l()JI.il l,dn,tJ plll'lm'
m.'nl dollars lu f If II .
I'ht' st'{ond .UllllJll!l( l'!ll"! I ',"lllnh-!lLiL ,)J
tllt'ft..(t'IlI('lwrg\ hooll\. f;l' Itllltllll1i"d
hilllon t':\.p.m";'l(llllo II'> 11l1! (,' liPll'-., \\ Ii:. I '>'. iJ]
WEAKNESSES
8 Competes with other important regional
cenlers like Dallas and Atlanta
8 Still dependent on vofatife energy industry.
CURRENT EMPLOYMENT TRENDS
October 2006 Employment Growth
(;.-~ change year ago. 3 roo MA
. :~
FORECAST RISKS
~",~ f:~ ~~rr~~;:r1~rii~,", I rO:r, ~ g'"
>><~ "~,, )~" ~"lF: &'K^"6:W W ~ '\ "I"P' Ie-
UPSIDE
. 011 companIes plow profits back Into new
Investment. hinng.
. Trade and distriblllion aCtlvIly throu~Jh the pOr1
garners new Investment
DOWNSIDE
. Potential terrorist allack on Houslon's energy
facilities
. High prices and tight supplies limit expi1nsion
H1 energy acllvlty
Moody's Ecor1Ofll)'.com. Inc. . www.oco(10Ilry,COf1l . hel~oconomy.com . Precis METRO
AREA OVERVIEW
11-5
. .
INDUSTRIAL DIVERSITY Into Houston. TX Number Median
of Migrants Income
Most or~'el::.Q fU -:,
tOO
"'"
000 0.56
0.40
0.'"
EMPLOYMENT VOLATILITY
DUE TO U.S. RELATIVE TO
FLUCTUATIONS U.S.
100'1<.
eo'l<.
60"
4~
20%
INet Migration 9,748 .5541
0%
...........,US .lhl.,US VA HOU . U S
.
TOP EMPLOYERS
Shell Or! Company
ExxonMobfl Corporallon
Admrnlstaff
Continental Airlines. Inc
Hal1lt)Ufton Company
McDonald's Corpora bon
Un!'.' of iex,1s M 0 Anderson Cancer etf
\'Val-Mart Stores. lne
Dow Chemical Company
Memorial Hermann Healthcare Sy$lem
Tho Unlver~;jty of Texas Medical Branch
HewleI1PaG".ar(~ Company
Baylor CoUc.--ge of MedKlflc
The Kroger Company
The Melhodl5! HOSpital SystPril
ATT
Center P(:IIr11 Energy
Baker Hughes
SchILifl100fqHr (,Id
The Home Depot lnc
M(trr~11
Public
Federal
State
Locat
27 .965
68,049
244,145
2005
18tXlO
16761
16.615
14.579
13.650
12.638
12,221
11.627
11.602
11013
9.000
8.000
7692
7675
7.362
6.962
6.300
6.000
5,900
5.900
Sector
COMPARATIVE EMPLOYMENT AND INCOME
% of Total Employment Average Annual Earnin9'
HOU TX US HOU TX US
Construction 7.2'X, 5.8% 5.5% S53,158
Manufacturing 9.0o,.~ 9.2% 10.7~!o S97,323
Durable 60.3% 63.6% 629% nd
Nondurable 39JS-{! 36.4!Yo 37.1%) ruj
T ransporlalion! Utilities 4.9% 4,21% 3,7% $117,736 57? .7} S5.L.~2i
Wholesale Trade 52~in 4.90/1) 4_3~';) S74.465 ~J 1 Sfj2,4
Retail Trade 10,40/(> 11.4~'o 11 AOlo S28.098 ',is 526.I<i.:
Information 1.5iJ/r, 2_3~"o 2.3% $66,351 ,'11 S7~.l1:7;
FinancIal AcltvltJes 5.goifi 6.3~h 6.1\'/0 S53,322 ,.47 16 S51 'or)
Prof and Bus Services 14,Z% 119f% 12.6{~i(l S56,516 54'. S4S.1 ,~ 1t
Edue and Heallh Services 11.1%) 12.2% 13.0% $42,99:, "'1 539 i ':"
Leisure and Hosp Services 8,80/0 9.3% 9.60,'0 S18,951 $1/ 519 ',1'1
Other Services 4,0""0 3.6% 4.0'}" $23,261 S~! 1 $'n '14',
Government 14.5~"Q 17.3% 16.3'}o $49,565 ~,-l / S53 I' ,
SoureDS Porcont of 101a} employment . MCl(.xJ,,'s Econornycom & BLS AV(:{.1gt~ f)[;'\
HOUSE PRICES
300
250
200
150
,-..-----
100
50
87
90 93
96
00
03
-HQU - U.S
$O(lfC(! OFHEO, 198/Q1=1oo. NS/l
to
MOODY'S
RATING
COUNTY Aa 1
LEADING INDUSTRIES
NAles Industry
Employee'iOOO)
06
GVSL
7221
7222
5613
6221
5413
2360
4451
5617
2111
2382
2370
6211
4529
2131
GUYI:r'
Arr.hlleclur,-'l!
Con"'llJ<:tlLJrl (A
Gm;:.:'.!!" StUll':;
Ser.'IU~" to BL,iCII1Q<'
0,1 G;bb:II';I(.II'.J
Buildlnq
H<1,'J'/~' ,-,fI" lr'g"
Off~cc,;; Pr)~,:,'Ci<1wl
Olh{>r Ge()..~r,li f\l,erch.','
Support AdNlla:'s lor
Hlgh-lccn
As '" a'tot,1
Sources' BLS Mco(xr,':S
Net Migration. HOU
/5.000
30,000
0
2002 2003 2004 2005
2002 2003 2004 2005
Domestic 26,920 8.496 7,767 9.457
Foreign 43,304 41.244 37,625 34.187
Total 70~224 49.740 45,392 43,644
,,,rCt::-~ !RS ~[Op!
Bureau 20()!)
)122
l5.2
1':'92
G24
56.7
537
.\6.5
.a7
39.6
39.0
36.1
J4.9
]3,4
32.9
303
PER CAPITA INCOME
86.4
36
. HOU Iiil TX . US
Bureau of EconomIc AnalYSIS 2004
Moody',-. [conomy.,olll. inc. . ,','ww.e<:onomy.corll . helpt!\ocooomy.com. Precis METRO
AREA OVERVIEW
11-6
Moderating Gas Prices Will Support Consumer Spending
3.5
3.0
Retail gasohne pnce
"''''' (rJ1
2.5
2.0
1.5
1.0
0.5
0.0 ,
.0.5
Retail employment
% change year ago IL)
.1.0
04
05
06
Global Impetus Drives Chemicals' Resurgence in Houston
40
30
20
10
o
.10
.20
03
04
05
06
Energy Exploration Surges Aller Early Year Pause
80 800
78 Texas ng counl (R) 750
76 700
74 650
72 - 600
70 550
68 500
66 450
04 05 06
Houston
Houston Housing Is Still Very Strong
300
16(:1
7.0
Soorce: T ex8S Real Estate Cenler
280
5.0
260
Month" (:XC(~~:;S Ilwcntory (R}
/~"'- \
6.0
15("
6.5
240
220
14','
200
180
n.
5.5
160
140
12"
04
05
06
1.0
lilt' III Jl LrJUSIl:;< Jll<lr"el is in good shape. l1H'n' IlllS been
SOlin Illr~d('r;tl)(l]i III IhmH' sales :--.ioc(' 11ll' ~umn1Cr, \\hich h~ls k(1
111,111 IIPlld.. III 111\\.;:IIH.II..... of un..old hOlJ]es aIld illl1odcrdli()Jl in
IlO!!I'> pncc;.....\ild \\"1, pnces rernain high ,Iud ill\l'nlnncs 10\\, h~
1))',1':'11(,11 stdntl,lrd..., P~'rmH iSSWH1U' is also up strongly lor the
\ \',11 "'ll~~;;I,....t In", Ill',dlll\ dt'lnand dlld lHIJldll1~: dell\ It\ In 11)(' llH.'lnl
,In,',I, \\ 1111 111;> 101';.11 l',{jll()lll~ ('~pc(t('d 10 post slc4;td~ growth in
111(' u',lr IvnL, 11" ({.~riOt)~ 1'01' hOllsmg ilt'li\it~ n'm\lins solid, lilt'
,dHII....tdll\ \' 01 LilHI ,lli{ll'.lS(' of <1('\('101'111('111 wil!lll;lIntain II ("Piling
oil IpiLl"'''' pnl I'
0.5
0.0
.0.5
-1.0
.1.5 Uptick in Delinquency Rate Reflects Katrina's Effects
-2.0
4.5
-,
.2.5 4.<
.3.0
4'
6
-3.5
3.9
37
3.('
Pf,:r caplta income growth
d,;mge year ago (R)
Slillr;~8 Moody's Econotny.com
3,
L.SI
Delinquency rate, % S volume IL)
Source: CreditForocastcom
o
27
03
{).:
05
06
itt!...UlHel I ()lHl!lllllh tlfe broadly jloSltl\/' 1J) Hot, Lstllnatt'd
p\'I \ dlllla lJj{IJJll~' .r!!\\ 111 III the llIetro iHt';;! (ontmllt'd to gr()\\
,11 d"; ,ll n.kl':llll1g 11;1 IhrOll;,:h Ihe flrsl hiliI' of thIS )('dr. Ilw
(h'II!"'jllt'llt ~ 1".11\' 11,1' tl\1..('(1 up Itlls ~e;lJ'. hut lIti... IS .111 itrll1'icial
r('hlililld IrOl!1 Ilh' ',ii.l!P pust'''-itlrina tllp ill ddinqu('lH.ies III OW
Jill!: 111 qll,tl'tl'f ',I 1<1:--.1 \ \'dl', (.lIIlSUlllt'r spending IlHHI4'raled t hrou,!.dl
ll'lt ',I,lllltl'Wr ,I" lng!i ',.1:--. IJI'I('I':-' took. lheir loll. but "Jwnding has
,drl ,lih n:"'1)111),lnl f)(J'11I\cly In 10\\('1' ).~.:t<.; pnn's in lht' past I\\n
J:IiII)~l1" Icm ,,'liOt;:, i' 1)/1 honw ('qull~ \\llhdra\\i11 and ,,>{(',\(I\
l~tlL'.", prH c' :,.11:1" ]11,';111 lo(-al 40nStlllH'f'S lhl\{. 10\\ ('\:IW'iUH' to d
I1lHi -,In~;'rl'l~l!,,'d llqIJ!dH\ (rllllch.
Moody's Economy.com. Inc. . www.oconomy.com . hel~oconomy.cotn . Precis METRO
AREA OVERVIEW
11-7
TRANSPORTATION
Airports
The Houston Airport System (HAS) includes the Bush Intercontinental Airport (IAH), the
William P. Hobby Airport (Hobby) and Ellington Field, a civil/military airport. The HAS
recorded more than 51.1 million in total passenger activity during calendar year 2006
and is the sixth largest airport system in the world.
Bush Intercontinental Airport is located 23 miles north of Houston's CBD and is the
City's primary airport facility. Houston has become one of the major centers for
international air transportation in the southwest; the airport has five runways and five
passenger terminals and provides service to international, interstate and intrastate
markets. Bush Intercontinental Airport is the eighth busiest airport in the U.S. in terms
of passenger activity and as an international passenger gateway. Growth at Bush
Intercontinental was almost 9% during 2006 and is projected to more than double by
2017, an average annual increase of about 4%. Similar growth is expected for air cargo
activity.
The following table illustrates the historic airport passenger and cargo activity at Bush
Intercontinental Airport over the period 2000 through 2006.
Bush Intercontinental Airport Passenger and Cargo Activity 2000 to 2006
2000
2001
2002
2003
2004
2005
2006
CAC*
35,251,372
34,708,723
33,908,310
34,208,165
36,506,116
39,714,818
42,549,018
3.2%
1.6%
-1.5%
-2.3%
0.9%
6.7%
8.8%
604,375
571,939
604,393
728,020
768,508
753,257
791,592
4.6%
-5.4%
5.7%
20.5%
5.6%
-2.0%
5.1%
.CAC = Compound Annual Change
Source: Department of Aviation, Houston Airport System
Bush Intercontinental Airport recently completed a $400 million International Services
Expansion Program. These improvements include the construction of a new runway
and taxiways, the expansion of existing terminal facilities and terminal upgrades.
Terminal D is scheduled for a $2 million renovation in the near future.
William P. Hobby Airport (Hobby) is located approxirnately seven miles southeast of
downtown and 20 miles west of the subject hotel site. The terminal building has three
concourses with a total of 31 gates. Hobby has eight scheduled passenger airlines with
non-stop or direct service to over 65 cities throughout the U.S. Southwest Airlines is the
airport's main carrier and accounts for more than 80% of the total passengers.
AREA OVERVIEW
11-8
Hobby Airport also maintains a major general aviation operation including six fixed
based operators and several hundred corporate jets. Hobby Airport saw a decrease in
passenger traffic from 2001 to 2003 due to the national economic recession, the 9/11
terrorist attacks and the local economic downturn resulting from the demise of Enron.
However, strong passenger growth was recorded in 2004. Hobby Airport also
experienced 3.6% growth in passenger activity through October 2006.
Cargo activity declined due to the downturn in the high technology sector and energy
industries between 1999 and 2002. Since 2003, there has been significant growth in
the cargo sector due in part to oilfield and engineering cargo. This increase should
continue as the economy improves and the oil services sector increases.
Historic passenger and cargo volumes for Hobby are shown in the following table.
William P. Hobby Airport Passenger and Cargo Activity 2000 to 2006
2000
2001
2002
2003
2004
2005
2006
CAC*
9,105,514
8,637,150
8,035,727
7,803,330
8,290,559
8,257,159
8,549,289
-1.0%
-5.1%
-7.0%
-2.9%
6.2%
-0.4%
3.5%
13,963
11,884
11,768
12,625
14,178
15,304
18,625
4.9%
-14.9%
-1.0%
7.3%
12.3%
7.9%
21.7%
.CAC = Compound Annual Change
Source: Department of Aviation, Houston Airport System
Southwest Airlines plans to maintain Houston as one of its focus cities and is looking to
serve new markets from Hobby. To accomrnodate these expansion plans, Hobby has
begun a capital improvement program that includes the relocation and expansion of two
taxiways, phased reconstruction of the concourses and portions of the terminal, and
upgrade of one runway.
Port of Houston
The Port of Houston is one of the busiest ports in the U.S. in terms of total tonnage and
the busiest port in terms of foreign tonnage due to the high volumes of liquid bulk (oil)
that is shipped into Houston for processing. The Port of Houston is a man-made port
that has 25 miles of public and private port facilities. The Port provides more than
53,000 direct jobs in the Houston area. The City of La Porte is located adjacent to the
Port of Houston.
AREA OVERVIEW
11-9
Highways
Highway transportation systems and ease of access can significantly affect demand for
hotel accommodations. Houston and its surrounding areas are well served by major
highways that provide good regional access. 1-10 is the major easUwest highway
connecting Houston to Louisiana in the east and San Antonio and New Mexico to the
west. Interstate 45 (1-45) connects the city to Galveston in the south and Dallas to the
north. U.S. Highway 59 (US 59) runs from Brownsville in southwest Texas to
Texarkana in northwest Texas. Houston is encircled by two ring roads, the Interstate
610 (1-610) and Beltway 8 (Sam Houston Tollway); which connect the major interstates
and highways.
The largest roadway construction project in Texas is the expansion of 1-10 in West
Houston from 1-610 to Grand Parkway, proximate to the subject site. In total, there will
be 24 lanes including frontage roads and shoulder lanes along this 21 mile stretch of
freeway. Completion is scheduled for the end of 2008. The busiest section of Interstate
610 passes through the "Uptown Houston" commercial area located between 1-10 and
US 59, which is currently undergoing a major reconstruction project.
OFFICE MARKET
Following 9/11, the collapse of Enron, corporate layoffs and national and local economic
setbacks, the Houston office market suffered an increase in vacancy rates. However,
vacancy rates began declining in 2005 and are below 2001 levels as of the end of 2006.
For the first time since 2001, rental rates are starting to increase again with Class A
rates exceeding 2001 levels.
Houston office market data is presented in the following table.
Houston Office Market
142,741,647
143,957,209
176,020,342
178,982,587
177,882,370
179,245,857
66,414,950
66,847,989
86,353,361
86,471,939
86,980,155
87,540,457
9.66%
12.67%
13.11 %
14.59%
12.46%
8.40%
$23.86
$22.01
$21.47
$20.93
$20.60
$24.02
Source: CB Richard Ellis
In downtown, the amount of sublease space available is falling as companies become
more confident and expand or reclaim space that had previously been on the market. In
the suburban areas, the excess of sublease space will continue to fall and occupancy
will increase as the market strengthens based on steady economic growth and job
creation. The largest concentration of office space is located in downtown Houston
followed by the West Loop/Galleria, Westchase and the Energy Corridor market areas.
Downtown revitalization continues and the area is expanding its appeal as a business
location.
AREA OVERVIEW
II -10
CONVENTION CENTER
The City of Houston operates the George R. Brown Convention Center, which
completed a major expansion in January 2004. The expanded center now offers seven
exhibit halls with a total of 871,520 square feet. At the same time, the 1,203-room
Hilton Americas Hotel opened, adjacent to and connected by crosswalks to the
Convention Center. The hotel serves primarily as a headquarters hotel to the
Convention Center and this has enabled the Houston Convention & Visitors Bureau
(CVB) to aggressively market Houston as a major convention destination. These
expanded facilities will continue to allow the Houston CVB to attract more conventions
and also some larger conventions that would not have considered Houston in the past.
The following table shows the historic growth in convention bookings. Room nights
booked decreased in 2002 and 2003 due to the effects of 9/11 on travel and convention
activity.
Historical George R. Brown Convention Center Bookings
166,466
188,425
134,730
121,777
229,854
221,421
224,019
13.2%
-28.5%
-15.3%
88.7%
-3.7%
1.2%
3,871
4,596
4,2tO
4,199
4,597
3,630
3,500
18.7%
-8.4%
-0.3%
9.5%
-21.0%
-3.6%
Source: George R. Brown Convention Center
During the 2004 fiscal year, there was an 88.7% increase in room nights booked. This is
primarily attributed to two major factors, The increased capacity afforded by the
completion of the headquarters hotel and expanded convention center allowed for more
and larger groups. Also, two events in particular drew significant room nights and
national attention that year.
Houston hosted the Super Bowl in 2004 and the George R. Brown Convention Center
hosted a related event called the NFL Experience. This was a consumer trade show
open to the public and it generated attendance of 118,203 and 75,000 room nights. The
Major League Baseball All-Star event was also held at the George R. Brown in 2004. It
generated 80,000 in attendance and 10,717 related room nights.
AREA OVERVIEW
11-11
It should also be noted that convention activity previously booked for fiscal year
2005/2006 was canceled due to emergency use of the George R. Brown Convention
Center for one month by evacuees displaced by Hurricane Katrina. During the month of
September, 23 events were cancelled. Of those, four were rebooked and 19 events did
not rebook. In all, the convention center's business lost due to Katrina equates to
78,711 in attendance and 21,915 room nights.
Without the Super Bowl and All-Star Baseball room nights (85,717), 2004 room nights
would be 144,137 which would have represented an 18.3% increase for the year. These
two events also brought significant positive national attention to Houston from the media
and fueled convention bookings for that year and for future years.
In 2005, room nights would have increased 53.6%, if compared to 2004 numbers net of
the Super Bowl and All-Star Baseball effect. Furthermore, if business hadn't been lost
due to Katrina (21,915), then 2006 room nights would have been 245,934 and that
would have been an 11.1 % increase over the prior year. The numbers net of the Super
Bowl, All Star Baseball event and Katrina, suggest continuing growth in room nights
booked since the expansion of the convention center.
Bookings for 2007 and beyond illustrate Houston's increased capacity for more groups
and for larger groups. The numbers also reflect that the largest events typically book
farther in advance.
Definite Bookings cullliilYt lIHIln.:!2::', Current Potential Bookings
Number Room Number :ji r_ I; I:; Room Number Room
of Room Nights of , Roo it Nights of Room Nights
Year Events Nights per Event EV~~~,!I!ia!Jil '-" Event Events Nights per Event
2007 68 266,126 3,914 19 34,971 1,841 87 301,097 3,461
2008 36 204,002 5,667 48 178,673 3,722 84 382,675 4,556
2009 17 117,905 6,936 53 364,203 6,872 70 482,108 6,887
2010 10 123,619 12,362 58 356,086 6,139 68 479,705 7,054
2011 9 110,295 12,255 44 281,137 6,389 53 391,432 7,386
2012 8 80,463 10,058 27 188,140 6,968 35 268,603 7,674
Total 148 902,410 6,097 249 1,403,210 5,635 397 2,305,620 5,808
Source: George R. Brown Convention Center
FtC
f B k'
f5
b 2006
The Houston CVB predicts that it will increase the number of city-wide conventions by
two per year and could accommodate as many as 20 city-wide conventions per year.
With the current maximum room block of 3,500 rooms in the downtown area,
conventions will begin to overflow to other areas of Houston in 2007.
TOURISM
The area's leisure and tourism base is vast and very diverse. Houston has been
undergoing a revitalization that began in the late 1990s. Several projects that have
been completed include Minute Maid Park (Houston Astros), Reliant Stadium (Houston
Texans), Toyota Center (Houston Rockets) and the Hobby Center for the Performing
Arts.
AREA OVERVIEW
II -12
The light rail system, which was completed in early 2004, connects Reliant Stadium, the
Texas Medical Center, the Museum District and the downtown area. The Museum
District offers 16 museums and art galleries and one outdoor theater. Other attractions
in the greater Houston area include the Lyndon B. Johnson Space Center, Battleship
Texas, San Jacinto Monument, and Galveston Bay, all located proximate to the subject
site.
TEXAS MEDICAL CENTER
The Texas Medical Center (TMC) Campus, which covers over 740 acres and
encompasses more than 100 permanent buildings, is located about five miles south of
downtown Houston to which it connects via the new light rail system. The TMC is the
world's largest medical complex and the medical, academic and research institutions of
the TMC are Houston's largest employers. Overall there are over 60,000 employees in
14 hospitals which accommodate more than 5.1 million patient visits to the complex
each year. More than 90,000 people attend classes at the various institutions in the
TMC, which include the Baylor College of Medicine, the University of Texas System
Cancer Center and the Texas Heart Institute. There are currently more than $714
million in medical research activities at the TMC.
MUSEUM DISTRICT
The Houston Museum District is located one mile north of the TMC on the light rail line,
which also connects it to downtown. Thanks to the Museum District, Houston has
become an internationally recognized arts center. The district is home to 16 museums.
According to the Houston Museum District Association and individual member
institutions, the Museum District is in the midst of a massive expansion, worth more
than $100 million in cultural development. Over 5 million people visit the top five
museums alone and some museums have experienced an almost tenfold increase in
visitor numbers over the past two decades.
A Houston area map illustrating the location of the subject property is provided on the
following page.
AREA OVERVIEW
II -13
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AREA OVERVIEW
II - 14
LA PORTE AREA OVERVIEW
The primary market area for the proposed Sylvan Beach hotel is defined as the area
bounded by the Port of Houston on the north, Port Road and Bay Area Boulevard on the
south, Interstate Highway 45 (1-45) on the west and Galveston Bay on the east. The
three cities that have the greatest influence on the development of the area are La
Porte, Pasadena and Deer Park.
This area is economically driven by the Port of Houston, which is home to the $15 billion
petrochemical complex - the largest in the nation and the second largest in the world,
The Houston Ship Channel houses 40% of the nation's petrochemical manufacturing
plants with the capacity to produce 3,853 million barrels of refined petroleum products
per day. Literally hundreds of companies that produce and support the production of
these produCts and the activities of the port are located in the Battleground Industrial
District north of State Highway 225 (SH 225) along the port and in the Bayport Industrial
District south of Fairmont Parkway adjacent to the La Porte city limits.
The market area is also a destination for important Texas historical sites, including the
San Jacinto Monument and the Battleship Texas. Other leisure attractions include the
Norwegian cruise line, which sails out of the Barbours Cut in La Porte; Galveston Bay;
and Sylvan Beach, the preferred site for the proposed hotel.
The primary market area is currently undergoing unprecedented economic development
at the Port of Houston, which is stimulating both business and leisure activity, as
follows:
Business Activity
A series of events that occurred in the past few years have created an increase in
activity at the Port of Houston. The combination of labor problems and congestion at
West Coast ports caused shippers and distributors to seek alternative routes. Houston,
being located in the center of the US with the sixth largest port in the world, has become
a major beneficiary of this change in the shipping industry. Additionally, the aftermath of
Hurricanes Katrina and Rita has caused an impact on transportation routes throughout
the Gulf of Mexico and increased the amount of building materials needed for
reconstruction that is coming through the Port of Houston.
Both WalMart and Home Depot have chosen the Port of Houston as a major distribution
center for their products from all over the world, especially from Asia. WalMart recently
opened a two million-square foot distribution center in Bay town, approximately 10 miles
from the proposed hotel site, which will eventually expand to four million square feet.
AREA OVERVIEW
11-15
While the Port of Houston ranks first in US foreign tonnage and second in total tonnage
largely because of the huge volumes of oil and petrochemical products, it is not in the
top 50 ports in container traffic. With the existing Barbours Cut container terminal
operating at 150% of capacity, the Port of Houston recently opened Phase I of the
Bayport Container Terminal, which will enable the port to increase its share of the
growing container distribution world market. Bayport is located approximately four miles
south of the proposed hotel site.
The Port of Houston predicts that its container volume will increase 11 % per year for the
next five years. Phase I of the Bayport Container Terminal, which opened in February
2007, includes one container berth and 65-acres of container storage space. The $1.2
billion Bayport Container Terminal will be developed over a 15 to 20-year timeline, Upon
completion, it will have seven berths and a 378-acre container storage yard with a
maximum capacity of 2.3 million TEUs (twenty-foot equivalent units). Bayport is
expected to generate more than 2,000 jobs in its first year of operations and nearly
10,000 jobs within five years.
In order to support the enormous increase in container activity generated by the Bayport
Container Terminal, large warehouse distribution centers are being developed
throughout the market area, as indicated in the following table.
AREA OVERVIEW
II -16
Warehouse/Distribution Centers
Currently Under Development
1:- '~Und.~ ~~~~r Total
qonstrJClonl'! Development
Name of Project ,_~. ~{Sq.FJ~~.. (Sq.Ft.)
Port Crossing Commerce Center
600,000
4,000,000
Underwood Business Park
900,000
3,000,000
Republic Distribution Center
300,000
3,000,000
Bayport North Industrial Park I
565,000
565,000
Bayport North Industrial Park II
740,000
Interport Distribution Center
1,300,000
Park 225
690,000
1,200,000
Cedar Crossing Business Park
900,000
Highway 225 & Miller Cut Off
150,000
300,000
Williamsport Industrial Center
210,000
210,000
Vantage-Cedar Crossing
129.500
129,500
Total
3,544,500
15,344,500
Source: Stream Realty
There is currently 3.5 million square feet of warehouse/distribution space under
construction. As the Bayport Container Terminal is built out and the demand increases,
these projects can be expanded to include more than 15 million square feet of space.
The Port Crossing Commerce Center, Underwood Business Park and Bayport North
Industrial Park are located within the La Porte city limits. The Port Crossing Commerce
Center is a 300-acre development located within the City of La Porte's Tax Increment
Reinvestment Zone. This project is located on State Highway 146 (SH 146) just three
miles from the Bayport Container Terminal and two miles from the subject hotel site,
Leisure Activity
Three projects currently under development will transform the primary market area into
a leisure destination. These projects include Project Stars, the Bayport Cruise Terminal
and the redevelopment of Sylvan Beach.
AREA OVERVIEW
11.17
Project Stars is a collaborative effort of 15 cities located in east Harris County to
revitalize the aesthetic appeal of the area while creating a living museum of Texas
history. Conceived by the Economic Alliance Port Houston Region's Quality of Life Task
Force and endorsed by Harris County Precinct 2 Commissioner Sylvia Garcia, Project
Stars will include landscape beautification projects, historic murals and artwork on
buildings and petrochemical tanks, redevelopment of historic landmarks, "Star Icons"
along historic roadways, historic markers and historic tours of the area.
Project Stars was launched in March 2006 with the formation of the San Jacinto Texas
Historic District. To date, 26 historic locations have been identified as Stars with a
development plan for each location. Filming of the historic scenes and development of
the artwork will begin in February 2007 with the official announcement of the project
scheduled for San Jacinto Day, April 21, 2007. Tour packages will be developed with
the Bayport Cruise Terminal to offer historic tours of the area to cruise ship passengers.
Project Stars is expected to be completed over a five-year period.
The Economic Alliance Port Houston Region commissioned Avalanche Consulting to
perform an economic impact study regarding the impact of Project Stars on Harris
County Precinct 2. The results of the study were published in November 2006, as
follows:
Forecas",d Edih"l!i1c ''''11f
of Project ~rs
~,,~ 0'> ~""'" ~_
Direct Impact Indirect Impact Total Impact
Construction Phase Impact
Construction Expenditures $15,750,000 $20,868,750 $36,618,750
Jobs 158 208 366
Income $5,530,000 $7,327,250 $12,857,250
Project Stars Impact
Estimated Spending $24,871,550 $29,845,860 $54,717,410
Estimated Jobs Created 100 170 270
Estimated Income Impact $3,442,000 $2,805,000 $6,247,000
Source: Avalanche Consulting
Building the 26 Stars will generate several hundred construction jobs and nearly $40
million in spending. Project Stars is estimated to generate almost 300 permanent jobs
and $55 million in spending. As far as economic development, Project Stars is expected
to improve the region's physical image, generate a positive community spirit, place
Harris County in a national spotlight, and draw new people into the region.
Two major historic sites, which are important elements of Project Stars, are in the
process of redevelopment: the San Jacinto Monument and Battleground and the
Battleship Texas. The 570-foot San Jacinto Monument recently completed an $11
million exterior renovation and a $1.2 million upgrade of its elevator and fire sprinkler
system, The San Jacinto Monument houses the San Jacinto Museum of History, a
theater showing the history of the battle of San Jacinto, an observation deck at the top
of the monument and a gift shop.
AREA OVERVIEW
11.18
The Texas Parks and Wildlife Department has received $12.5 million in bonds to re-
landscape the San Jacinto Battlefield, where Texas won its independence from Mexico
in 1836, to its original topography based on historic records. This project will include
historic markers, historically accurate native plants and tours of the grounds. The marsh
lands around the battlefield were recently replanted and a three-mile trail with birding
stations is in the process of completion.
The Battleship Texas is the last existing battleship that participated in World War I and
II. In 1948, it was turned into a memorial museum and is anchored along the Houston
Ship Channel adjacent to the San Jacinto Monument and Battleground. The Battleship
Texas is in dire need of repair. Bonds totaling $12.5 million have been issued to apply
toward its redevelopment. Efforts are underway to raise additional funds and to remove
the battleship from the water to a dry berth. The redevelopment project is estimated to
be completed by 2010.
Bayport Cruise Terminal is a cruise ship terminal that is currently being developed by
the Port of Houston adjacent to the Bayport Container Terminal, approximately four
miles south of the proposed hotel site. This terminal would take the place of the existing
cruise ship terminal at Barbours Cut.
When the first terminal opens by the beginning of 2008, it will increase the number of
cruise lines from one to four on a weekly basis. There are two additional terminals that
are estimated to open in 2015 and 2021, respectively. Estimated passenger activity for
the Bayport Cruise Terminal is presented in the following table.
Bayport Cruise Ship Terminal
Estimated Passenger Activity
"'If ~11
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~ ': p ITS
Cevelopment TimellllLloJ,,"-_E
Terminal 1 - Completed 2008
2008
2009 - 2014
286,000
550,000
Terminal 2 - Completed 2015
2015
2016 - 2020
875,000
1,125,000
Terminal 3 - Completed 2021
2021
1,700,000
Source: Port of Houston
AREA OVERVIEW
11-19
The existing cruise ship terminal at Barbours Cut accommodated approximately 90,000
passengers in 2006. When the first Bayport Cruise Terminal opens in 2008, it is
estimated to generate 286,000 passengers, increasing to 550,000 in 2009. The second
terminal will increase the capacity to 1.125 million passengers and the third terminal will
enable the Bayport facilities to accommodate up to 1.7 million passengers. The Bayport
Cruise Terminal is also considering the development of an adjacent 40-acre tract into an
entertainment venue.
Sylvan Beach is a 22-acre Harris County park located on Galveston Bay in La Porte.
The history of Sylvan Beach dates back to 1892 when it was set aside as a city park.
Over the years, it has been a popular entertainment venue with big band entertainers,
dances and beauty contests. In 1956, the Pavilion was built next to the bay with a
9,800-square foot ballroom that includes a large dance floor and big band stage.
In recent years, it has become a popular local area park for community activities, family
entertainment and Pavilion events. Sylvan Beach is an important leisure destination in
east Harris County. However, the Pavilion is in need of repair, the beach has eroded
and the park needs to be redeveloped. Comrnissioner Sylvia Garcia is developing a
master plan for the County Park area which could include extensive landscaping,
seawall promenade, reestablished beach, playground and skate park. As one of the 26
Stars associated with Project Stars, Sylvan Beach is expected to bring economic
development to Harris County Precinct 2, as indicated by the Economic Impact Study
mentioned above.
The City of La Porte leases a five-acre tract within the Sylvan Beach Park, which
includes the Pavilion. The City currently rnanages the operation of the Pavilion.
Although other bayfront sites have been considered, this tract of land is the preferred
site for the proposed Sylvan Beach hotel due to its connection to Project Stars, the
redevelopment of Sylvan Beach and the La Porte Main Street projects.
A La Porte area neighborhood map showing the location of the subject property is
provided on the following page.
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AREA OVERVIEW
II . 21
CONCLUSION
Houston is posting healthy growth, driven by the strong energy sector. The engineering
and oil service companies will continue to benefit from reconstruction contracts in Iraq
and continued diversification of the metro area's industrial structure and the above
average population growth will ensure healthy overall growth over the forecast horizon.
Based on economic growth rates in Houston, a positive economic environment for the
hospitality industry is estimated over the foreseeable future.
The magnitude of the Port of Houston and petrochemical industry coupled with the
recent increase in business and leisure activity in the primary market area appears to
support the need for an upscale, full-service hotel.
SECTION III
PROPERTY DESCRIPTION
PKF
Consulting
PROPERTY DESCRIPTION
111-1
LOCATION
The preferred site for the proposed Sylvan Beach Hotel is located in the Sylvan Beach
Harris County Park on Galveston Bay in La Porte, Texas. The subject site is a five-acre
tract, which is leased by the City of La Porte, within the larger 22-acre park. Currently
located on the proposed hotel site is the Sylvan Beach Pavilion, which is a popular venue
for wedding receptions, quincenaros and local banquets. The Pavilion has been damaged
by storms, age and erosion and is in need of repair. (Photographs of Sylvan Beach Park
and the subject site are presented in Addendum A.)
Although there are other sites along the Galveston Bay that could be considered for the
proposed hotel, the Sylvan Beach site is preferred because it would enable the hotel to be
incorporated into the redevelopment of the Sylvan Beach Park. Plans for the park could
include extensive landscaping, a seawall promenade, reestablished beach, playground and
skate park. Since Sylvan Beach is one of the 26 Project Stars, a proposed hotel on Sylvan
Beach would contribute to the economic development of the entire Precinct 2.
Additionally, La Porte has been designated as a Main Street City. By locating the proposed
hotel on Sylvan Beach, it could stimulate the redevelopment of Main and San Jacinto
streets into a landscaped gateway into Sylvan Beach. No other site presents these
possibilities.
SITE DESCRIPTION
Visibility
The proposed hotel would be developed within Sylvan Beach on the shores of Galveston
Bay. Therefore, it would be a destination location which would benefit from historic signage
on SH 146, approximately two miles from the site. The proposed Sylvan Beach Hotel would
be very visible to boat traffic along Galveston Bay.
Signage
We recommend signage to be placed in appropriate locations on traffic corridors leading to
the property, including SH 146 and SH 225.
Access
Primary access to the subject site is by auto. The site is easily accessible traveling
north/south on SH 146, which connects the La Porte area to Houston to the north via SH
225 and to Clear Lake, Kemah and Galveston Island to the south.
North and south bound traffic on SH 146 would take the Fairmont Parkway exit and travel
eastbound approximately two miles to Sylvan Beach. The City of La Porte would like to
develop Main and San Jacinto streets into a landscaped gateway to Sylvan Beach in the
future. There is also potential to develop a Galveston Bay taxi boat that would connect
Sylvan Beach to various points along the bay down to Kemah in the south,
PROPERTY DESCRIPTION
111-2
Surrounding Area
The subject site is well-located in relation to both business and leisure demand. The new
Bayport Container Terminal and the Bayport Cruise Ship Terminal are located just four mile
south of the proposed hotel site. The Bayport Industrial District is located about three miles
west of the site along Fairmont Parkway, while the Battleground Industrial District along the
Port of Houston is located only five to 10 miles northwest of the site along SH 225.
To the north and south of Sylvan Beach along the Galveston Bay, there are several sites
that could be developed into future waterfront projects. The proposed hotel would be
located approximately two miles from the Bay Forest Golf Course, which ranks in the top 10
municipal courses in the Houston area, and four miles from the Houston Yacht Club. The
San Jacinto Monument and Battleship Texas and the majority of the 26 Project Star sites
are located within approximately 10 miles northwest of the subject property. The Johnson
Space Center, Clear Lake and the Kemah Boardwalk are located about 10 miles south of
the site along SH 146, while Galveston Island is approximately 40 miles to the south.
RECOMMENDED FACILITIES
The proposed Sylvan Beach hotel should be designed as a 250-room branded, upscale,
full-service hotel. There appears to be a large amount of hotel and meeting space demand
that is leaving the market area because of the lack of an upscale, full-service hotel. The
subject property will be affiliated with a nationally recognized franchise to take advantage of
its national marketing program, extensive reservation system and frequent traveler
program.
The hotel should be designed to complement the master plan for the redevelopment of
Sylvan Beach and to reflect its historical heritage. The hotel needs to be oriented toward
Galveston Bay with scenic views from the lobby, meeting rooms, food and beverage
facilities and guestrooms. Since the Sylvan Beach Pavilion has sentimental value to the
community, we recommend that the ballroom in the proposed hotel be called "The Pavilion"
and be designed with a similar shape and view of Galveston Bay to provide a link with the
local community.
We recommend that the site be highly landscaped to maximize green space. Parking
should be developed on the first two floors of the hotel to minimize surface parking and to
elevate the hotel for views of Galveston Bay.
We recommend 15,000 square feet of meeting space with a 7,500-square foot ballroom
(The Pavilion). Since the hotel will be a popular location for wedding receptions,
quincenaros and banquets, the ballroom will need to accommodate up to 500 attendees.
We also recommend a smaller junior ballroom and numerous breakout rooms to
accommodate corporate trade shows and meetings. An executive boardroom is included to
attract corporate executive meeting demand.
In addition to the hotel food and beverage facilities, we recommend that an area adjacent to
PROPERTY DESCRIPTION
111-3
the hotel be leased to a signature restaurant with an outside patio facing Galveston Bay.
The hotel should provide spa services and a fitness center, as well as concierge and valet
services to reflect the upscale nature of the hotel. It is important to provide shuttle service
to Hobby Airport and area attractions.
Based on our analysis of the market and the facilities at comparable hotels, the
recommended facilities are summarized in the following table.
Property [j~ptionC'1 ""r~' ~
Proposed Sylvan laCh ~., I
~. .1I!lli
Type of Hotel
Number of Guestrooms
Meeting Space
Total
"Pavilion" Ballroom
Junior Ballroom
Meeting Rooms
Board Room
Food & Beverage
Amenities
Potential Brands
CONCLUSION
Branded, Upscale, Full-Service Hotel
250
15,000
7,500
3,000
4,000
500
s q .ft.
sq .ft.
sq .ft.
sq .ft.
sq.ft.
divisible by 4 or 5
divisible by 2 or 3
various sizes
Full-Service Restaurant
Lobby Bar/Lounge
Coffee Bar
Room Service
Signature Restaurant with Outdoor Seating - Leased
Spa Services
Fitness Center
Swimming Pool
Concierge and Valet Services
Business Center
Shuttle Service
Hilton
Westin
Sheraton
Marriott
Crowne Plaza
Source: PKF Consulting .
PROPERTY DESCRIPTION
111-4
The proposed Sylvan Beach Hotel will be well-located on scenic Galveston Bay proximate
to both business and leisure demand generators. We consider the subject site to be well-
suited for hotel development.
The recommended facilities program for the proposed Sylvan Beach Hotel is appropriate
for the market in type, size and quality. The amount of meeting space will provide a
competitive advantage for the subject property in attracting group meetings demand.
SECTION IV
HOTEL MARKET ANALYSIS
PKF
Consulting
HOTEL MARKET ANALYSIS
IV-1
HOTEL MARKET OVERVIEW
There are currently no full-service hotels located in the primary market area. Therefore,
there is no directly competitive hotel market that can be used as a competitive set for
the proposed Sylvan Beach Hotel. In order to determine the recommended facilities and
to estimate the performance of the subject hotel, we have evaluated three different sets
of hotels: existing area hotels, comparable hotels and competitive hotels located outside
the market area.
Existing Area Hotels
The primary hotel market area is comprised of limited-service, select-service and
extended-stay hotels located in La Porte, Pasadena and Deer Park. These properties
tend to have a limited number of rooms, meeting space, services and amenities. The
following table presents a list of the branded hotels located in these markets.
Existing Area Hotels *
La Porte
La Quinta Inn
Best Western
Comfort Suites
Holiday Inn Express
Total
Pasadena
Quality Inn
Super 8
Intown Suites
La Quinta
Total
Deer Park
Best Western
Comfort Suites
Hampton Inn
Super 8
Total
112
49
67
55
283
108
49
121
63
341
54
56
63
30
203
Total Existing Hotels
827
. Includes only hotels with national brand affiliations.
Source: PKF Consulting
1985
1996
1999
Oct 2006
1993
2000
2001
Dee 2006
1998
2003
2003
Nov 2006
In addition to these branded hotels, there are also numerous independent Iimited-
service hotels and motels located throughout the market. Some of the independent
properties located in the La Porte market include Fairway Inn, Garden Suites, Bayshore
Motel, Plaza Hotel, Bayport Motel, Kings Bay and Port Inn.
HOTEL MARKET ANALYSIS
IV-2
Comparable Hotels
Comparable hotels are defined as hotels that are located in similar markets. For the
proposed hotel, a comparable hotel would be a full-service hotel located on or near a
bay, lake or beach but also proximate to corporate demand. The following table shows
the properties that we have identified as comparable to the subject property.
Comparable Hotels
Hotel Galvez Galveston 226 1911 14,025 4,550 62
Hilton NASA/Clear Lake 243 1983 13,894 5,000 57
Omni Corpus Christi (2 hotels) 821 1985 36,000 10,050 44
San Luis Resort Galveston 246 1985 40,000 6,000 163
Tremont House Galveston 119 1985 13;473 7,946 113
Hilton Resort Galveston 239 1986 6,284 3,500 26
Moody Gardens Galveston 428 1998 40,000 14,560 93
Total 2,322
* Meeting space does not include prefunction space.
Source: PKF Consulting
Five of these properties are located in Galveston, one on Clear Lake and two in Corpus
Christi. Although comparable in facilities and rate, the Galveston and Corpus Christi
properties have a much larger leisure and group component and a much smaller
corporate market than the primary market area for the proposed Sylvan Beach hotel.
The most comparable property is the Hilton NASA/Clear Lake, which is located
approximately 10 miles south of the proposed site in a market that overlaps with the
primary market for the subject property.
Competitive Hotels Outside the Market Area
As part of our market analysis, a survey was conducted of the major corporations
located in the two major business parks within the primary market area for the proposed
hotel. The respondents were asked to identify the hotels that they use for their hotel and
meeting needs. The hotels which were identified are considered to be the competitive
hotels located outside the market area, as follows:
HOTEL MARKET ANALYSIS
IV-3
Competitive Hotels Outside the Market Area
South Shore Harbour Clear Lake 242 1980 25,000 8,800 103
Hilton Hobby Airport 303 1982 15,626 8,147 52
Hilton NASA/Clear Lake 243 1983 13,894 5,000 57
Marriott Hobby Airport 287 1986 21,500 11 ,400 75
Homewood Suites Clear Lake 92 1995 306 306 3
Candlewood Suites Clear Lake 121 1997
Boardwalk Inn Kemah 52 1998 12,226 4,150 235
Hampton Inn Webster 108 2000 1,810 946 17
Hampton Inn Seabrook 70 2003 1,000 1,000 14
Total 1,518
. Meeting space does not include prefunction space.
Source: PKF Consulting
All of these properties are either located in the Clear Lake area, approximately 10 miles
south of the primary market, or at Hobby Airport, located approximately 20 miles west of
the subject property. These properties are not considered directly competitive to the
subject hotel because only a small part of their demand is generated by the primary
market area. These properties range in type from full-service to select-service and
extended-stay.
HISTORICAL PERFORMANCE
The operating performance of the existing area hotels, comparable hotels and
competitive hotels located outside the market are presented below.
.
Percent Market Occupi. ' ~IHlf!:!I!!
Year Available Pe t'l' Market Percent RevPAR4
Rooms Change OCC,%1 R09~~ ChilBIiliI, ADR3 Change
, --- 0 --- ---
2003 182,865 9.6% 61% 111 ,900 -09% $47 4.4% $29
2004 210,240 15.0% 54% 114,000 1.9% $52 10.6% $28
2005 210,240 0.0% 72% 150,600 32.1% $52 0.0% $37
2006 210,240 0.0% 71% 149,000 -1.1% $56 7.7% $40
CACs 6.0% 7.2% 5.6% 7.5%
1 Rounded to the nearest whole percent 4 RevPAR = Gee. x ADR using rounded numbers
2 Rounded to the nearest hundred 5 Compound Annual Change
3 Rounded to the nearest whole dollar
Source: Smith Travel Research & PKF Consulting
Estimated Historic Market Performance
Proposed Sylvan Beach Hotel
E'r A Htl
2002
166 805
68*
112 900
$45
$30
HOTEL MARKET ANALYSIS
IV-4
The existing hotels have experienced occupancies in the upper 60's and low 70's,
except for 2003 and 2004 during the national recession. This reflects the strong
corporate demand in the primary market area. The large increase in occupied rooms in
2005 shows the resurgence of the petrochemical industry in response to the strong
Texas economy. Although rates have increased throughout the period, rates in the
$50's indicate the type of properties available and the price sensitivity of the demand
that is not leaving the market. However, average rates were as high as $90 at the more
upscale properties.
.
Year Available Percent Market Occt.ipi811 pe:t:l"! ' Market Percent RevPAR4
Rooms Change OCC.%1 Rogm~ "" Ch "Il ADR3 Change
2002 762,120 --- 61% 462,600 --- $106 --- $64
2003 762,120 0.0% 60% 455,700 -1.5% $109 2.8% $65
2004 835,485 9.6% 56% 467,900 2.7% $114 4.6% $64
2005 847,530 1.4% 61% 520,400 11.2% $120 5.3% $74
2006 847,530 0.0% 64% 540,700 3.9% $129 7.5% $82
CACs 2.7% 4.0% 5.0% 6.4%
1 Rounded to the nearest whole percent 4 RevPAR = Occ. x ADR using rounded numbers
2 Rounded to the nearest hundred 5 Compound Annual Change
3 Rounded to the nearest whole dollar
Source: Smith Travel Research & PKF Consulting
Estimated Historic Market Performance
Proposed Sylvan Beach Hotel
C bl H t I
Occupancies have remained around 60% at the comparable properties, which is
indicative of the seasonality of demand in a strongly leisure oriented market. In 2006,
rates ranged from $110 to $160 at the comparable properties with an average of $129.
This is a good indication of the potential rates that would be obtainable at the subject
property.
Estimated Historic Market Performance
Proposed Sylvan Beach Hotel
Com etitive Hotels Outside the Market Area
2.4%
2.4%
0.0%
0.0%
$86
-3.1% $92
2.0% $95
13.8% $100
2.9% $104
3.7% 4.9%
4 RevPAR - Occ. x ADR using rounded numbers
5 Compound Annual Change
7.0%
3.3%
5.3%
4.0%
1 Rounded to the nearest whole percent
2 Rounded to the nearest hundred
3 Rounded to the nearest whole dollar
Source: Smith Travel Research & PKF Consulting
Occupancies at the competitive hotels reached the upper 60's in 2006. Since these
properties are located outside the market area, they do not reflect the strength of the
primary market area. Rates are less than the comparable properties because of the
range in the type of hotels in this sample.
HOTEL MARKET ANALYSIS
IV-5
MARKET DEMAND SEGMENTATION
The market demand segmentation for the existing area hotels, comparable hotels and
competitive hotels located outside the market are illustrated in the following table.
Market Demand Segmentation
Existing1lll1' If ; "
Area '~~;i Co ...e Competitive
Market Segment HoteJ!;, .""M" ~ ~;~it._ Hotels
Corporate 70% 28% 56%
Group Meeting 20% 42% 29%
Leisure 10% 30% 15%
Total 100% 100% 100%
Source: PKF Consulting
The mix of demand for the existing area hotels is a good indication of the mix of
demand located in the primary market area. Discussions with the local hotel
representatives indicated that the higher rated properties are able to attract the less
price sensitive engineers that are not leaving the market and international visitors to the
Port and petrochemical industry, whereas the lower rated properties cater to the
construction workers and trucking industry. The existing hotels have a limited amount of
meeting space which restricts the ability to capture corporate meeting demand. The
properties that had meeting space indicated that they receive many requests for
meeting space that they are unable to accommodate.
The mix of the comparable properties shows their orientation toward the group and
leisure markets. Corporate demand in these markets is not as strong as in the primary
market area. Competitive hotels located outside the market area have stronger
corporate and group markets, somewhat similar to the primary market area.
ADDITIONS TO SUPPLY
The proposed Sylvan Beach hotel is estimated to open in January 2010. We were
unable to identify any definite plans to develop another upscale, full-service hotel in the
primary market area. A local developer is considering the development of a hotel on the
La Porte Bayfront near the municipal golf course but plans are preliminary at this time.
There are several select-service and extended-stay hotels in different stages of
development in the market area. There are two Value Place extended-stay hotels
currently under construction, one in La Porte and one in Pasadena. A Quality Inn is
being developed on Fairmont Parkway in Pasadena. A Hampton Inn is in the
preliminary planning stages in La Porte south of the La Quinta on SH 146.
HOTEL MARKET ANALYSIS
IV-6
HOTEL DEMAND OVERVIEW
In order to evaluate the demand for an upscale, full-service hotel in the primary market
area, we conducted a mail survey of corporations located in the Battleground Industrial
District and Bayport Industrial District and La Porte community organizations. We also
evaluated existing meeting facilities and the potential for leisure demand in the primary
market area.
Survey Results
Surveys were mailed to 105 corporations and 13 community organization, of which 33
corporations responded (31%) and four community organizations responded (31%). The
results of the survey are presented in the following table.
Survey Results
Proposed Sylvan Beach Hotel
Number of Surveys
Mailed Out 105 13
Returned 33 31% 4 31%
Need for an Upscale, Full-Service Hotel
Yes 19 58% 2 50%
No 14 42% 2 50%
Number of People Needing Hotel Rooms
Annual Range Per Respondent 6 to 240 N/A
Respondents With Need for an Upscale, Full-Service
Hotel That Are Leaving the Local Market Area
Number Reporting Current Hotel Used 18 1
Number Leaving the Local Market Area 14 78% 0 0%
Need for Meeting Space
Yes 23 70% 4 100%
No 10 30% 0 0%
Size of Meetings (Number of Attendees)
Training Meetings 5 to 50
Banquets/Awards 100 to 650 200 to 450
Holiday Parties 80 to 150
Other Meetings 10 to 400 10 to 75
Respondents With Meeting Space Need That Are
Leaving the Local Market Area
Number Reporting Current Hotel Used 22 4
Number Leaving the Local Market Area 18 82% 0 0%
Respondents That Would Use the Proposed Hotel
on Sylvan Beach or La Porte Bayfront
Yes 26 79% 4 100%
No 7 21% 0 0%
Source: PKF Consulting
HOTEL MARKET ANALYSIS
IV-?
Of those that responded, 58% of the corporations and 50% of the community
organizations indicated that they had a need for an upscale, full-service hotel for
overnight accommodations. The respondents indicated that 70% of the corporations
and 100% of the community organizations had a need for meeting space at an upscale,
full-service hotel. The surveys returned by the corporations indicated that 78% were
leaving the market area for hotel accommodations and 82% were leaving the market
area for meeting space needs.
When asked if they would use an upscale, full-service hotel located on Sylvan Beach or
the La Porte Bayfront for hotel accommodations and/or meeting space needs, 79% of
the corporations and 100% of the community organizations indicated that they definitely
would. The results of this survey are a strong indicator that there is a need for an
upscale, full-service hotel at the proposed site.
Group Demand
Based on the results of the survey, there appears to be a strong corporate demand for
group meeting space that is currently leaving the market. To assess the need for quality
meeting space in the primary market, we also evaluated existing meeting facilities.
While there are meeting rooms of various sizes available at local restaurants and clubs,
the only designated meeting facilities in the market area are the Pasadena Convention
Center and the Sylvan Beach Pavilion.
The Pasadena Convention Center and Municipal Fairgrounds facilities are
described in the following table.
Pasadena Convention Center & Municipal Fairgrounds
Description of Facilities
'~1lF0JI!I!I!I!!; ~"l ~._"'"
h' ;;'1c,:wqua ';~l"'l;F
Type of Facility ;~., J:ei ": LIiP Capacity
Ballroom/Exhibit Hall 21 ,156 960 to 2,850
Divisible: 4 - 3,321 & 1 - 8,710
Meeting Rooms (2) 783 & 1,616 60 & 164
Rodeo Arena 28,270 4,000
Rodeo Hall with Cement Floor 14,518 800
Livestock Pavilion 30,000
Source: Pasadena Convention Center & Municipal Fairgrounds
The Pasadena Convention Center is located on Fairmont Parkway approximately five
miles west of the proposed hotel site. The Center has a large ballroom/exhibit hall that
can be divided into five sections and two small meeting rooms. The property is also the
home of the Pasadena Rodeo and Strawberry Festival. The rodeo arena is an open-air
arena with a dirt floor and the rodeo hall is a metal building with a cement floor.
HOTEL MARKET ANALYSIS
IV-8
The types of events that are currently being held at the Pasadena Convention Center
and Municipal Fairgrounds are 50% comrnunity events, 25% Rodeo and Strawberry
Festival and 25% for-profit events. During 2006, there were 54 events with an average
attendance of 1,760.
Facility representatives indicated that they are unable to attract corporate and
association demand because of their lack of adequate breakout rooms and the need for
a quality full-service hotel. The Pasadena Convention Center indicated that they would
be interested in working with the proposed Sylvan Beach Hotel to attract more corporate
and association business to the area. By using the Center's large ballroom for exhibits
and the hotel for breakout rooms and quality accommodations, some of the groups that
are currently leaving the market could be captured.
The Sylvan Beach Pavilion is a popular venue for local events. The following table
presents a description of its facilities.
Sylvan Beach Pavilion
Description of Facilities
'r';,:nlr:Squa"~ 1'"111'11
Type of Facility 1~~~FeeW L~L Capacity
Ballroom with Large Permanent
Dance Floor and Stage
9,833
320 to 510
Foyer & Concession Area
2,800
150
Outdoor Deck
4,978
Source: City of La Porte, Parks & Recreation Department
The Pavilion is a two-story round building with the meeting facilities located on the
second floor with a panoramic view of Galveston Bay. The first floor is not enclosed and
is currently used for parking and storage. The ballroom is a large round-shaped room
with a large permanent dance floor in the middle and a 51-foot stage. For events,
tables are arranged around the perimeter of the room.
The foyer can be used as a meeting room or as a concession area. It is equipped with a
large concession stand. The outdoor deck, which faces Galveston Bay, is popular for
receptions. The following table presents the event activity at the Sylvan Beach Pavilion
for the past two years and the future bookings for the current year.
HOTEL MARKET ANALYSIS
IV-9
Sylvan Beach Pavilion
Event Activity
Historical
2004/2005 37 26 22 2 19 106 332
2005/2006 50 25 20 2 21 118 282
Future Bookings
2006/2007 37 41 13 2 10 103
Source: City of La Porte, Parks & Recreation Department
More than 100 events are currently being held at the Pavilion each year. The scenic
location on Galveston Bay is a popular location for wedding receptions, quincenaros
and local banquets. However, the Pavilion has been damaged over the years by storms,
age and erosion and is currently in need of major repairs. Therefore, we recommend
that the Pavilion be replaced by and incorporated into the proposed hotel. A lot of
sentimental value is attached to the Pavilion because of the large number of community
events that have taken place there over the past 60 years. We recommend that the
ballroom in the proposed hotel be called liThe Pavilion" and be designed with a similar
shape and view of Galveston Bay to provide a link with the local community.
Leisure Demand
Leisure demand in the primary market is currently limited to passengers on the existing
Norwegian cruise line, participants at weekend sports events, visitors of local residents
and visitors to the San Jacinto Monument, Battleship Texas and Galveston Bay.
However, the addition of Project Stars, the new Bayport Cruise Terminal and the
redevelopment of Sylvan Beach should increase tourist activity in the market
significantly. This should provide a strong weekend occupancy for the proposed hotel.
SUBJECT HOTEL PERFORMANCE
Based on the historical performance of the existing area hotels, comparable hotels and
competitive hotels located outside the market area and our analysis of the existing and
future market demand, we have estimated the operating performance of the proposed
Sylvan Beach Hotel.
Market Demand Segmentation
The subject hotel is expected to capture the following mix of demand.
HOTEL MARKET ANALYSIS
IV-10
Corporate
Group
Leisure
Total
Source: PKF Consulting
The majority of the demand for the proposed Sylvan Beach hotel will be corporate
demand from the Port of Houston and the petrochemical industry. Group demand will be
generated by corporate, association and community events. Leisure demand will be
generated by Project Stars, Bayport Cruise Terminal and Sylvan Beach.
Occupancy and Average Daily Rate
The following table shows the estimated occupancy and ADR for the proposed Sylvan
Beach hotel, assuming a 3% inflation rate.
Estimated Occupancy and ADR
Proposed Sylvan Beach Hotel
Anllt '..ge
Year OCC~ " ate*
2010 64% $158
2011 68% $162
2012 72% $167
2013 74% $172
2014 74% $177
* Stated Year Dollars, rounded to the nearest dollar.
Based on an ADR of $140 in 2006 dollars.
Source: PKF Consulting
As the only upscale, full-service hotel in the market, occupancies are expected to
increase from 64% in 2010 to 74% in 2013, the stabilized year. The subject property
should be able to reach this level of occupancy because of the strong corporate and
group weekday demand and the anticipated weekend leisure demand. ADR is expected
to be $140 in 2006 dollars, which is similar to rates being achieved by both comparable
hotels and competitive hotels located outside the market.
SECTION V
PROSPECTIVE FINANCIAL ANALYSIS
PKF
Consulting
PROSPECTIVE FINANCIAL ANALYSIS
V -1
BASES OF ESTIMATIONS
On the basis of our evaluation of market findings relative to the proposed 250-room
Sylvan Beach Hotel in La Porte, Texas, we have prepared schedules of estimated
operating results, which we believe could be generated by the operation of a facility of
the type, size and caliber as described in the preceding sections of the report.
In estimating the future operating results, we analyzed historical 2005 operating
statements of five comparable full-service hotels. We have not identified them by
location, in order to protect the confidentiality of our sample. These properties ranged in
size from 237 to 293 rooms with an average of 258. Occupancy rates ranges from 69%
to 75% with an average of 72%. ADR ranged from $121 to $164 with an average of
$136. The amount of meeting space at the comparables ranged from 9,000 to 22,000
square feet with an average of 16,200.
We estimated revenues and expenses based on the market analysis described herein,
the performance of comparable properties, typical industry parameters, premiums and
efficiencies for a branded, full-service hotel. In evaluating comparables, we considered
expenses as a percent of revenue, as well as per occupied room (POR) and per
available room (PAR). We then incorporated such estimates into the assumptions that
we have made, regarding inflation (3% per year), start-up period and market penetration
rates, in order to generate the estimated annual operating results, presented at the end
of this section. Our estimates are for the years 2010 through 2019. All dollar financial
POR and PAR are expressed in 2006 dollars.
The classification of income and expenses in the statements presented in this report
generally follows the Uniform System of Accounts for Hotels, recommended by the
American Hotel & Lodging Association.
DEPARTMENTAL REVENUES
Revenue from guestroom rentals is a result of two factors: occupancy level, or occupied
room nights, and average daily room rate (ADR). Based on data presented in the Market
Analysis section of this report, estimated occupancy levels, average daily room rates, and
resulting room revenue for the subject hotel over the projection period are summarized in
the following table.
PROSPECTIVE FINANCIAL ANALYSIS
V.2
Annual "ll' .ve~.~ ;:: Rooms
Year Occupancy _ b ~iillily ~ ,i~~, Revenue
Estimated Rooms Revenue
Proposed Sylvan Beach Hotel
la Porte, Texas
2010 64% $158 $9,227,000
2011 68% $162 $10,052,000
2012 72% $167 $10,972,000
2013 74% $172 $11,615,000
2014 74% $177 $11,953,000
Source: PKF Consulting
Additional sources of revenue include food and beverage, telephone, other operated
departments, and rentals and other income. Our stabilized year projections (in 2006
dollars) for additional revenue items are summarized below.
Departmental lEi.null" ': ~;'
'!;'t{ :<<"jii ~,
Dollars Per ()~j1_!;,t Rggm,,a,,L
Items Comparable Hotels Subject Hotel
Projections
Range Average Stabilized Year
Food $39.64 - $71.15 $55.32 $55.00
Beverage $6.01 - $11.99 $9.12 $9.00
Telecommunication $1.17-$4.38 $2.58 $2.50
Other Operated Departments $1.85 - $8.68 $5.28 $5.00
Rentals and Other Income $1.70 - $3.17 $2.31 $2.00
Source: PKF Consulting
DEPARTMENTAL EXPENSES
Departmental expenses are chargeable to a specific revenue-producing department, in
this case Rooms, Food and Beverage, Telecommunications and Other Operated
Departments.
Departmenli'.sE1f1J j!
Percent of DepaJ'lm R fl~,
Items Comparable Hotels Subject Hotel
Projections
Range Average Stabilized Year
Rooms ($ paR) $23.89 - $38.48 $32.28 $32.00
Food and Beverage 66.8% - 81.1% 73.4% 70.0%
Telecommunications 49.3% -177.1% 80.3% 95.0%
Other Operated Departments 38.2% - 81.0% 49.3% 50.0%
Source: PKF Consulting
PROSPECTIVE FINANCIAL ANALYSIS
V-3
UNDISTRIBUTED OPERATING EXPENSES
Undistributed operating expenses are necessary to the operation of the property though
not directly chargeable to a revenue-producing department and include Administrative
and General, Marketing, Franchise Fees, Property Operations and Maintenance (PaM)
and Utilities.
Undistributed 0.9 Elltff'
Dollars Per A It R "=
Items Comparable Hotels Subject Hotel
Projections
Range Average Stabilized Year
Adminstrative and General $3,861 - $6,655 $4,942 $4,600
Marketing $1,729 - $3,697 $2,609 $2,500
Franchise Fee (% of Rooms Rev) (1) 5.6% - 10.5% 8.1% 8.0%
POM $2,137 - $3,387 $2,907 $2,900
Utilities $2,258 - $2,742 $2,552 $2,600
(1) All fees related to franchise expense are included in franchise fee, including marketing & reservation fees.
Source: PKF Consulting
FIXED EXPENSES
Fixed expenses are necessary to maintain the property's availability to guests and, except
for management fees, do not necessarily vary with performance.
Fixed. ~~l':
Dollars Per R~ J .~:~
Items Comparable Hotels Subject Hotel
Projections
Range Average Stabilized Year
Management Fee (% of Total Rev) 2.2% - 4.2% 2.3% 3.0%
Property Taxes (1) $144 - $1,845 $973 $1,000
Insurance $367 - $1393 $752 $750
(1) Property taxes are based on local taxes at competitive hotels.
Source: PKF Consulting
RESERVE FOR REPLACEMENT
The reserve for replacement provides for the replacement of furniture, fixtures and
equipment, as well as certain building finishes and systems. This reserve has been
tiered at typical industry levels of 2% of total revenues in the first year, 3% in the second
year, 4% in the third year and 5% thereafter.
SCHEDULE OF PROSPECTIVE CASH FLOW BEFORE DEBT SERVICE
The following schedules reflect the estimate of future operating performance of the
subject hotel. The schedules are presented in stated year (inflated) dollars.
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ADDENDUM A
PHOTOGRAPHS OF SYLVAN BEACH PARK
AND PROPOSED HOTEL SITE
PKf'
Consulting
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-1
Sylvan Beach Picnic Area
Sylvan Beach Playground & Gazebo
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-2
......
J.
,.
.---'
,..(
At(
V'"
-
'/
~
..--
Beachfront Parking Area
Old Sylvan Beach Depot Museum
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-3
Sylvan Beach Wedding Gazebo
Sylvan Beach Boat Dock
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-4
Sylvan Beach Pavilion on Proposed Hotel Site
Back of Subject Site
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-5
Beachfront Adjacent to Pavilion
(Beach to be Re-established Along Bayfront)
View of Pavilion Ballroom from Bayfront
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-6
Entrance Corridor to Pavilion
Pavilion Ballroom with Dance Floor & Stage
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-7
Another View of Large Ballroom
View of Galveston Bay from Pavilion
PHOTOGRAPHS OF SYLVAN BEACH PARK & PROPOSED HOTEL SITE A-a
Pavilion Foyer & Concession Area
Pavilion Outdoor Deck
ADDENDUM B
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
PKF
Consulting
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
The following Standard Conditions apply to real estate consulting assignments by PKF Consulting:
Achievability of Projections - Some assumptions inevitably will not materialize, and unanticipated events
and circumstances may occur; therefore actual results achieved during the period under study will vary from
our estimates and the variations may be material.
Archaeological Significance - No investigation has been made by the consultant and no information has
been provided to the consultant regarding potential archaeological significance of the subject property or any
portion thereof. This report assumes no portion of the subject property has archaeological significance.
Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and
conclusions are based are set forth in appropriate sections of this report and are to be part of these general
assumptions as if included here in their entirety.
Dissemination of Material- Neither all nor any part of the contents of this report (including the identity of the
consultant or PKF Consulting) shall be disseminated to the general public through advertising or sales media,
public relations media, news media or other public means of communication without the prior written consent
and approval of PKF Consulting.
Distribution and Liability to Third Parties - The party for whom this report was prepared may distribute
copies of this report only in its entirety to such third parties as may be selected by the party for whom this
report was prepared; however, portions of this report shall not be given to third parties without the written
consent of PKF Consulting. Liability to third parties will not be accepted.
Economic and Social Trends - The consultant assumes no responsibility for economic, physical or
demographic factors which may affect or alter the opinions in this report if said economic, physical, or
demographic factors were not present as of the date of the letter of transmittal accompanying this report. The
consultant is not obligated to predict future political, economic or social trends.
Engineering Survey - No engineering survey has been made by the consultant. Except as specifically stated,
data relative to size and area of the subject property was taken from sources considered reliable and no
encroachment of the subject property is considered to exist.
Hazardous Materials - The consultant has not been provided any information regarding the presence of any
material or substance on or in any portion of the subject property or improvements thereon, which material or
substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics.
Unless otherwise stated in the report, the consultant did not become aware of the presence of any such
material or substance during the consultant's inspection of the subject property. However, the consultant is
not qualified to investigate or test for the presence of such materials or substances. Unless otherwise stated,
this report assumes the subject property is in compliance with all federal, state and local environmental laws,
regulations and rules.
Hidden Conditions - The consultant assumes no responsibility for hidden or unapparent conditions of the
property, subsoil, ground water or structures that render the subject more or less valuable. No responsibility is
assumed for arranging for engineering, geologic or environmental studies that may be required to discover
such hidden or unapparent conditions.
Income Data Provided by Third Party - Income and expense data related to the property being appraised
was provided by the client and is assumed, but not warranted, to be accurate.
Information Furnished by Others -In preparing the report, the consultant was required to rely on information
furnished by other individuals or found in previously existing records and/or documents. Unless otherwise
indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is
given by the consultant for the accuracy of such information and the consultant assumes no responsibility for
STA TEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
(Continued)
information relied upon later found to have been inaccurate. The consultant reserves the right to make such
adjustments to the analyses, opinions and conclusions set forth in this report as may be required by
consideration of additional data or more reliable data that may become available.
Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this
assignment will be the responsibility of the client.
Legal Matters - No opinion is intended to be expressed for matters that require legal expertise or specialized
investigation or knowledge beyond that customarily employed by real estate consultants.
Licenses and Permits - Unless otherwise stated, the property is evaluated assuming that all required
licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state
or national government or private entity or organization have been or can be obtained or renewed for any use
on which the analysis contained in this report is based.
Limits of Liability - PKF Consulting cannot be held liable in any cause of action resulting in litigation for any
dollar amount which exceeds the total fees collected from this individual engagement.
Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as
an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied
upon for any other purpose, nor should they be removed from, reproduced or used apart from the report.
Obligation to Update Report - The report will be dated to coincide with our last day of fieldwork. The terms of
this engagement are such that we have no obligation to update our estimates to reflect events or conditions
which occur subsequent to the last day of our fieldwork. However, we will be available to discuss the
necessity for revision in view of changes in the economic or market factors affecting the project.
Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication.
Without the written consent of PKF Consulting, this report may not be used for any purpose by any person
other than the party to whom it is addressed. In any event, this report may be used only with properly written
qualification and only in its entirety for its stated purpose.
Testimony in Court - Testimony or attendance in court or at any other hearing is not required by reason of
rendering this report, unless such arrangements are made a reasonable time in advance of said hearing.
Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the
consultant's time to prepare for and attend any such hearing.
Use in Offering Materials - This report, including all cash flow forecasts, market surveys and related data,
conclusions, exhibits and supporting documentation may not be reproduced or references made to the report
or to PKF Consulting in any sales offering, prospectus, public or private placement memorandum, proxy
statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate
transaction unless PKF Consulting has approved in writing the text of any such reference or reproduction prior
to the distribution and filing thereof.
Zoning and Land Use - Unless otherwise stated, the subject property is evaluated assuming it to be in full
compliance with all applicable zoning and land use regulations and restrictions.
ADDENDUM C
CERTIFICATION
PKF
Consulting
CERTIFICATION
We certify that, to the best of our knowledge and belief:
· The statements of fact contained in this report are true and correct.
· The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
· We have no present or prospective interest in the project that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
· We have no bias with respect to the property that is the subject of this
report or to the parties involved with this assignment.
· Our engagement in this assignment was not contingent upon the
developing or reporting of predetermined results.
· Our compensation is not contingent upon the development or reporting
of predetermined results 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 report.
· We have made a personal inspection of the proposed site that is the
subject of this report.
· No one provided significant professional assistance to the persons
signing below except as sourced within the body of this report.
~R~ mc-~
G. Randle McCaslin
Vice President