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HomeMy WebLinkAbout4.3b HVS Hotel Market Study Proposal July 15, 2022 Ms. Gretchen Larson Economic Development Director City of Cottage Grove 12800 Ravine Parkway South Cottage Grove, Minnesota 55016 +1 (651) 458-2830 Re: Cottage Grove Hotel Market Study Dear Ms. Larson: Thank you for your recent call pertaining to your potential hotel project in Cottage Grove; we are pleased to submit this proposal for our services. We are certain that we will be able to provide you with the precise mix of experience and skills you will need for this engagement. HVS is internationally recognized as the leader in hospitality consulting, providing the highest quality experience in this arena. HVS is unique among hospitality consulting firms and offers our clients unparalleled credibility, specialized experience, and a track record of success. The attached proposal sets forth a description of the objectives and scope of the assignment, along with a detailed description of the methodology to be employed, an estimate of the time requirements, and a schedule of professional fees. The proposal also includes a list of requested information that we would require for completing the study. If the proposal meets your acceptance, please sign and return a copy together with your retainer payment. If you have any questions regarding the contents of the proposal, please do not hesitate to contact me. Thank you for the opportunity to submit this proposal for your project. Very truly yours, HVS division of TS Worldwide LLC Tanya J. Pierson Senior Managing Director TPierson@hvs.com +1 (303) 588-6558 HVS 33972 North Oak Drive Pequot Lakes, Minnesota, 56472 +1 (303) 588-6558 (Work) www.hvs.com PROPOSAL FOR A MARKET STUDY Hotel Market Study – Cottage Grove, M in n e s o ta SUBMITTED TO: Ms. Gretchen Larson Economic Development Director City of Cottage Grove 12800 Ravine Parkway South Cottage Grove, Minnesota 55016 +1 (651) 458-2830 glarson@cottagegrovemn.gov PREPARED BY: HVS HVS division of TS Worldwide LLC 33972 North Oak Drive Pequot Lakes, Minnesota, 56472 +1 (303) 588-6558 July 15, 2022 HVS Consulting and Valuation Services Proposal 2 Proposal for a Market Study Pursuant to our conversation, we are pleased to submit this proposal for services of HVS division of TS Worldwide LLC in connection with the proposed hotel project in Cottage Grove, Minnesota. This letter sets forth a description of the objectives and scope of the assignment, along with the methodology to be employed, an estimate of the time requirements, and a schedule of professional fees. The objective of this assignment is to perform a market study for the purpose of evaluating the market demand and analyzing the economics in the Cottage Grove area. Our study will also include a recommendation of the size, quality and type of lodging facility, and an optimal brand chain scale for the hotel. We will forecast occupancy and average rate (ADR) levels, and project income and expense for a proposed hotel in Cottage Grove, Minnesota. To accomplish the objective described above, our work will be conducted in phases, beginning with fieldwork, which typically includes the following steps: 1. An on-site inspection of the two specific sites will be made. In addition, per your request, we will also evaluate the greater Cottage Grove market for other areas of the city that might also be suitable/appropriate for hotel use and make such recommendations for possible hotel sites. These recommendations will be general areas and not a specific parcel (i.e., near intersection of 1st and Main). The accessibility and visibility of the areas to highways, other forms of transportation, and the local demand for accommodations will be analyzed. We will also review the supportive nature of surrounding land uses as they relate to the proposed and HVS- suggested sites. We will complete a SWAT analysis on each area identified as strong hotel site locations, and then conclude with a recommendation of which is best supportable for hotel development. We will review potential sites after phase II and III, making a recommendation of hotel facilities to ensure a site is supportable (size, visibility, access, etc) for the hotel program that is being recommended. Objective Phase One: Fieldwork HVS Consulting and Valuation Services Proposal 3 2. The demand for transient accommodations will be investigated to identify the various generators of visitation operating within the local market. The current and anticipated potential of each of these market segments will be evaluated to determine the extent of existing and future demand. Interviews with officials of business and government, as well as statistical data collected during the fieldwork, are useful in locating and quantifying transient demand. In conjunction with the identification of potential demand, an investigation will be made of the respective strengths of these markets in terms of seasonality, weekly demand fluctuations, vulnerability to economic trends and changes in travel patterns, and other related factors. Similar market-research procedures are utilized in estimating the demand for food and beverage (F&B), banquet, and other facilities, as applicable. 3. The market orientation of nearby lodging facilities will be evaluated to determine their competitive position with respect to the subject site. Those properties displaying similar market attributes will receive a physical inspection, along with selective management interviews, to estimate levels of occupancy, room rates, market segmentation, and other pertinent operational characteristics. Some of the competitive factors that will be specifically reviewed include location, type and quality of facilities, physical condition, management expertise, and chain affiliation. 4. Statistical data relating to general economic and demographic trends often foreshadow future potential for market areas and neighborhoods. Interviews with local Chambers of Commerce, economic development agencies, and other related organizations, along with an investigation of the proposed subject property's primary market area, will reveal patterns reflecting growth, stability, or decline. Through interviews with hotel operators, developers, governmental officials, and others, we will ascertain the status of projects under construction, proposed, or rumored that might be competitive with the proposed subject property. Surveys of potential users provide vital information regarding the market potential of proposed facilities. We will have to disclose the nature of our work to area businesses/generators of hotel demand. HVS will identify an appropriate sample of corporate demand generators (major employers and area businesses), Phase Two: Demand Interviews HVS Consulting and Valuation Services Proposal 4 and area event centers, if applicable, that reflect primary segments of potential demand: 1. HVS will select various corporate and group demand generators to contact directly to attain detail on their views of the market. These interviews engage corporate travel departments in conversation regarding their lodging needs, meeting facility needs, impressions of the market, proposed site, and desired accommodations. In addition, we will try to ascertain the number of annual room nights required, average length of stay, and average rate (when this information can be disclosed/quantified). For this phase we will need to disclose that we are working on a hotel market study for a project in Cottage Grove. The following analysis phase will utilize data and information gathered during the fieldwork phase, along with our extensive library of actual hotel operating statements, financial statistics, area hotel trends, and investor requirements. We will first compose recommendations for the proposed hotel’s facilities and brand chain scale. The recommendations will be based on the demands of the local and pertinent regional market and will address the following points: • Room count and room type mix (suites vs. standard rooms) • F&B facilities • Meeting and function space • Recreational amenities • Brand chain scale Based on the above-noted recommendations, we will then perform a supply-and- demand analysis for the competitive market, which typically includes the following steps: 1. Using the occupancy levels and market segmentations of the competitive properties, the number of room nights accommodated in each segment is calculated by multiplying each property's room count by its occupancy, market segmentation, and 365 days, which yields the accommodated- room-night demand. The annual number of room nights occupied per room in each segment is also calculated (room nights occupied per year divided by the room count), and the resulting figure serves as a competitive index. Phase Three: Market Analysis HVS Consulting and Valuation Services Proposal 5 2. Latent demand (unaccommodated and induced demand) is estimated for each market segment. 3. Growth rates are projected for each of the market segments. 4. The total usable room-night demand, which consists of usable latent demand and accommodated demand, is projected. 5. The area's guestroom supply and total room nights available are quantified for each projection year. 6. The overall competitive occupancy is calculated for each projection year. Using competitive indexes, the relative competitiveness of each of the area hotels will be evaluated. The proposed subject property will be positioned accordingly by demand segment, reflecting the hotel’s expected competitiveness across all relevant user groups. This will result in a market- and property-appropriate forecast of segmentation, penetration, and occupancy levels. We will also perform a similar competitive positioning analysis for the proposed hotel’s forecasted room rate, which will result in a quantification and documentation of probable future trends in the proposed subject property's overall rooms revenues. A similar procedure will be utilized in projecting food, beverage, and other revenues. Using actual income and expense statements of comparable lodging facilities, we will develop income and expense estimates corresponding to the level of activity and quality of operations indicated by the projected occupancy and average rate. A projection of income and expenses representing future expectations of income potential will be made for a ten-year period. This analysis will utilize HVS Software—a sophisticated, computerized financial-analysis package that was developed by Steve Rushmore and Suzanne Mellen. The logic behind the projection of income and expense is based on the premise that hotel revenue and expenses have one component that is fixed and another that varies directly with occupancy and facility usage. The software takes a known level of revenue or expense and calculates the fixed and variable components. The fixed component is then held constant, while the variable component is adjusted for the percent change between the projected occupancy and facility usage that produced the known level of revenue or expense. Our projected income statements conform Phase Four: Analysis for Proposed Subject Property HVS Consulting and Valuation Services Proposal 6 with the Uniform System of Accounts for the Lodging Industry and include a detailed line-by-line account of all revenue sources and expenses. Complete documentation of our fieldwork and analyses will be set forth in a written report and will contain the following sections: • Purpose of the market study • Site evaluation • Review of the market area • Analysis of the market for hotel accommodations • Examination of existing and proposed competition • Facilities and brand chain-scale recommendation • Projection of occupancy and average rate • Income and expense projections As an alternative, our fieldwork and analyses could be set forth in a summary letter of findings report (15-20 page document) which would contain the following sections: 1. Overview of the local economy 2. Lodging market trends and facility review 3. Projection of occupancy and average rate 4. Income and expense projections When appropriate, we will include graphics such as photographs, maps, surveys, plans, and charts to assist in visualizing our findings. Following the completion of this engagement, HVS can be engaged for additional development consulting services at the client’s discretion, including: • Design and Architecture • Development Project Management • Construction Management • Financing Phase Five: Written Report Additional Services HVS Consulting and Valuation Services Proposal 7 • Franchise/Brand Search and Contract Negotiations • Management/Operator Search and Contract Negotiations • Hotel Management • Asset Management • Spa & Wellness Consulting To aid us in performing this assignment, we request that you provide us with the following information (where applicable): 1. Name of contact person for site tour 2. Terms of purchase or sale of the site, including options and listings, as well as the price, date, and financing information; please include a copy of the contract and closing statement 3. The most recent real property tax bill for the land 4. Name of legal owner and detailed ownership history for the subject site for the last five years 5. If available: operating budgets, projections, marketing plans, etc. 6. If available: any preliminary management contracts and franchise agreements that may be in place 7. If available: past appraisals, market and feasibility studies, impact studies, prospectuses, STAR reports, and any Phase I or Phase II environmental audit reports We anticipate that Phases I, II, III, and IV of the market study will be completed within approximately 45 days from the date we receive the signed proposal, all requested information, and the retainer payment. At that time, we will provide you with a verbal summary of findings; for this conference, we will provide you with various charts and data tables that support our findings. After your review of our findings, upon your authorization and payment of our invoice, we will then prepare the market study report or summary of findings, which will take an additional 15 days. Requested Information Timing HVS Consulting and Valuation Services Proposal 8 Our fee for Phases I, II, III, and IV will be $10,500, payable upon execution of this agreement. Our fee for Phase V (as a narrative market study) will be an additional $3,500, payable upon your request for this phase. As an alternative, should you choose to have us prepare a summary of findings report instead of a narrative study, our fee for Phase V would be reduced to $2,000 and the balance payable upon request for the report (Phase V). The fee also includes one meeting to present findings, either virtually or in person. It is our normal policy to provide an electronic draft copy of our final report for your review. After confirmation that our invoice for services has been paid in full, this draft will be provided in PDF and will include a watermark “DRAFT.” Upon your approval of this draft, we will commence preparation of the final report. This fee includes one electronic copy of the final report, which will be delivered to you via email in PDF. Reports are not transmitted in Microsoft Word format. In addition to our professional fees, you agree to reimburse us for reasonable out- of-pocket travel and related expenses (including a $700 charge for an STR Trend Report), up to a maximum of $900, incurred while traveling on your behalf. You Signed Proposal & Retainer Received by HVS Requested Information Received by HVS Fieldwork & Analysis Timing Commences Study Findings (Tables) Provided to You Invoice Provided for Narrative Report Payment for Remaining Assignment Fee Received by HVS Writing Phase Commences (after full payment) Narrative Report Provided to You Professional Fees HVS Consulting and Valuation Services Proposal 9 will be billed periodically for these expenses, which will be due and payable upon presentation of our bills. After completing the fieldwork phase of this assignment, should it become necessary to alter the parameters of the study, such as the property description, opening date, location, or any other factor that could change the final conclusions, the TS Worldwide LLC will be entitled to charge an additional fee based on our current per-diem rates and the time required to incorporate the necessary changes into our analysis and report. In addition, the estimate of timing will be extended by an amount equal to the added work. If payment for professional fees and out-of-pocket travel and related expenses is not received within thirty (30) days of the billing date, HVS reserves the right to suspend all work until payment is made and apply a service charge of 1.5 percent per month, or fraction thereof, to the total unpaid sum. Should any type of action become necessary to enforce collection of bills rendered, it is further agreed that you (the client) or the prevailing party will be responsible for all collection costs, including but not limited to court costs and reasonable legal fees. It is understood that HVS may extend the time for payment on any part of billings rendered without affecting the understanding outlined above. The parties to this contract agree that any disputes regarding professional fees and/or other charges owed to HVS will be resolved in accordance with Texas law (TS Worldwide is a Texas-based LLC with a home office location of 2601 Sagebrush Drive, Suite 101, Flower Mound, Texas, 75028). The parties to this contract further agree that (a) any legal action regarding money owed to HVS will take place in Texas; (b) Texas courts have exclusive jurisdiction for resolution of disputes; and (c) the plaintiff will have the choice of venue in any county in the State of Texas. It is agreed that our company’s liability, our employees, and anyone else associated with this assignment is limited to the amount of the fee paid as liquidated damages. You acknowledge that any opinions, recommendations, and conclusions expressed during this assignment will be rendered by the staff acting solely as employees and not as individuals. Our responsibility is limited to the client; use of our product by third parties shall be solely at the risk of the client and/or third parties. The study described in this proposal will be made subject to Payment Due Dates Collection of Outstanding Professional Fees Limitations of Liability HVS Consulting and Valuation Services Proposal 10 certain assumptions and limiting conditions. A copy of our normal assumptions and limiting conditions will be provided upon request. If the foregoing proposal meets with your acceptance, please sign and return together with your retainer payment in the amount of $10,500. Your signature beneath the words "Agreed to and Accepted" signifies your agreement to employ the HVS division of TS Worldwide LLC for these services. To schedule our assignments and perform your study in accordance with the timing set forth above, we ask that you return an executed copy of this agreement by August 31, 2022. We appreciate the opportunity of submitting this proposal and look forward to working with you on this assignment. Very truly yours, HVS division of TS Worldwide LLC Tanya J. Pierson TPierson@hvs.com +1 (303) 588-6558 AGREED TO AND ACCEPTED Gretchan Larson City of Cottage Grove Signature: ___________________________ Date: ________________________________ Conclusion HVS Accounting Office 1615 Foxtrail Drive Suite 230 Loveland, CO80538 (970) 666-1377 www.hvs.com Date: July 15, 2022 Terms: Due Prior to Start of Assignment Gretchen Larson City of Cottage Grove 12800 Ravine Parkway South Cottage Grove, Minnesota 55016 Hotel Market Study – Cottage Grove (HVS staff member: Tanya J. Pierson) Project Amount Due . Market Study Report $10,500 Please make all checks payable to TS Worldwide, LLC (dba HVS) Tax ID #20-2762887 Please remit to: HVS 1615 Foxtrail Drive Suite 230 Loveland, CO 80538 *PLEASE INCLUDE A COPY OF THIS INVOICE WITH YOUR CHECK PAYMENT* Wire Instructions: Please notify mculbertson@hvs.com of all wire transmissions. JPMorgan Chase Bank 267 Old Country Road Carle Place, NY 11514 (516) 333-4691 Account Name: TS Worldwide, LLC Transit ABA #: 021000021 Swift Code: CHASUS33 Account Number: 682090837 INVOICE FOR RETAINER