National Insights | 2nd Quarter 2017

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COLLIERS INTERNATIONAL VALUATION & ADVISORY SERVICES

Hospitality and Leisure Group Newsletter

HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

For many hotels, revenues from conferences and events make up a meaningful component of overall financial success. But many hotels also struggle to optimize meeting space and make strategic decisions around the types of groups and events to target. For hotel investors and appraisers, one way to ensure a property’s event facilities are functioning optimally is by analyzing the “space utility index.”

The space utility index (SUI) is a metric that represents a property’s employment of its meeting space. It measures the number of group-oriented patrons that visit the property on an annual basis against the total square footage of meeting space offered at the property (per 1,000 square feet). The higher the index, the higher the concentration of group patronage relative to the amount of meeting space offered by the property.

Typically, the more meeting space a property has, the lower the SUI might be. As group events become larger, meeting planners will typically command more space per attendee. This often includes the meeting and function space itself in addition to pre-function and programming areas.

This metric is useful in determining the level of concentration a property has in the group demand segment, as well as in identifying opportunities to generate more group demand or pursue other revenue-generating activities.

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Bryan Younge MAI, ASA, MRICSChicago, IL

HOW TO KNOW IF A HOTEL IS MAKING THE MOST OF ITS MEETING SPACE

HOSPITALITY AND LEISURE GROUPThe Hospitality and Leisure specialty practice at Colliers International offers a full range of valuation and advisory services pertaining to a wide variety of property types within this sector, with particular focus on hotel assets and sports and entertainment operations. The discipline combines acute industry expertise with global resources to provide valuation opinions and intuitive solutions for our clients. Our team is comprised of industry-leading professionals, each with constant and extensive exposure to investors, property owners, financial institutions, developers and public entities throughout the world.

APPRAISER SPOTLIGHTOriginally from Chicago, Matthew relocated to Portland to attend Lewis & Clark College in the 1980s. After graduation, he spent time in Eastern Europe where he was an adjunct professor of literature for four years. Prior to joining Colliers, he held supervisory positions in the social services and semiconductor industries, and was an adjunct professor teaching business classes at George Fox University where he earned his MBA. Matthew joined Colliers

International Valuation & Advisory Services (CIVAS) in 2006 and is a charter member of the CIVAS Hospitality and Leisure Group. Matthew has significant hotel valuation experience ranging from small “mom & pop” properties to Hiltons. While primarily responsible with the Pacific Northwest, Matthew has appraised numerous hotels in Alaska, Northern California, Idaho, Montana, Oregon, Washington, and Wyoming.Although Matthew appraises all types of Hospitality and Leisure properties, in recent years he has gained considerable experience in appraising two sub-specialties within the hotel industry. The first is resorts, having appraised a number of them in the forests of Oregon and Washington, Islands in Alaska, and around Lake Tahoe. The other subcategory is turn-of-the-century hotels, having appraised close to a dozen hotels recently that were constructed at least 80 years ago. These properties have included beautiful old hotels that have been in continuous operation, as well as several that are currently in “shell” condition with ambitious plans by developers to return them to their former glory. Both of these sub-specialties have unique characteristics such as Forest Service ground leases, tax abatements, or dated systems that can impact the bottom line. Matthew has the required experience to successfully handle these unusual attributes at every stage of the appraisal process.

Matthew Mintier MAIPortland, OR

CALCULATING THE SUI

The SUI is expressed as the total number of square feet of meeting space available to each group-oriented guest on a daily basis. For example, if 10,000 guests visited a property during the year to attend events and the property features 20,000 square feet of meeting space, then the SUI would be 1.4—meaning 1.4 guests per 1,000 square feet of meeting space per day.

Let’s take a look at an example:

Hotel C, which features 6,500 square feet of meeting space, operated at the highest SUI (12.0) relative to its competitors. This property features the highest concentration of group-oriented guests in relationship to the amount of meeting space it offers. The SUI reveals that Hotel C is generally effective in utilizing its meeting space and may have an opportunity to displace some of its group demand with commercial demand.

Commercial patrons are generally less price sensitive than group guests. By engaging more commercial patrons, Hotel C has an opportunity to grow its room rates. While this might come at the expense of occupancy, room revenue could still be positive and variable operating expenses could also be reduced.

The property with the lowest SUI is Hotel A, which features 49,929 square feet of meeting space and a SUI of 6.0. This property has the greatest upside with respect to group-related demand, suggesting that occupancy levels could be enhanced with more focused marketing to this segment. However, management would need to assess the number of highly-rated guests already patronizing the property and make sure that these guests are not displaced by these marketing efforts. This displacement could have a negative impact on rate potential and the additional variable operating expenses associated with higher occupancy levels could outweigh any revenue benefit.

PUTTING THE SUI TO WORK FOR YOUR BUSINESS

Meeting space utilization can hold important implications for a hotel’s bottom line. When you think of the tools you use every day to forecast revenues and make decisions in other areas of your business, it makes the need for a metric like the space utility index clear. Once you calculate your SUI and compare it with those of your competitors, you might be surprised by the opportunities that analysis reveals.

continued from page 1, How to Know if a Hotel is Making the Most of its Meeting Space

Valuing Hotels: The Competitive Quotient And The Art Component

Hotels are Getting Creative with Meeting Space to Stay CompetitiveHoteliers To Raise Tech, Service Offerings To Remain Competitive This YearAirbnb Collected $175M In Taxes From Hosts Last Year, Four Times What It Collected In 2015Here Are Four Challenges Facing The Hotel Industry This YearWill Airbnb’s $30B Valuation Hold If Profits Are Lost Pending Regulatory Hurdles?

How to Know if a Hotel is Making the Most of its Meeting SpaceCreate More Accurate Hotel Valuations with the Competitive Quotient

How Much of a Threat Does Airbnb Pose to Traditional Ski Market Hotels?Smaller Rooms for the Younger GuestDual-Branding Hotel Trends

Sharing economy contributes to REITs’ lackluster results

Sportsplexes, Hospitality and Critical Mass

Valuing Land In Dispute Resolution

MEDIA CORNER

HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

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HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

One of the lessons the most recent economic crisis taught hotel owners and managers is the value of cutting costs while maintaining excellent customer service and property conditions. Savvy owners and managers continue this practice today, but many overlook a meaningful opportunity for cost reduction that has no impact on guest experience: filing a property tax appeal.

Based on the concept that the tax burden should be distributed in proportion to the value of all the properties within a taxing jurisdiction, a system of assessments is established by the local tax assessor. However, this system can be — and often is — inaccurate. Most systems for assessing property values are also slow to react to market realities.

Oftentimes, there is also a disconnect between a municipality’s assessment of a lodging property and the owner’s assessment due to the complex nature of hotels and a certain portion of the asset that is considered non-realty.

If you can identify such a disconnect, filing a property tax appeal seeking to better align your tax burden with property value can have meaningful results. As an example, a $100,000 drop in property tax burden would result in an increase to net operating income, which in turn would add about $1 million to property value (assuming a 10% capitalization rate and all other variables are held equal).

UNDERSTANDING THE DRIVERS OF PROPERTY TAX VALUATIONColliers’ approach to property tax valuation involves a comprehensive analysis of a hotel’s position within the marketplace, paying close attention to the drivers of valuation for property tax purposes. These include a realistic position on stabilized operations, brand, asset quality and the overall market cycle.

In our property tax valuation work, we offer several vitally important reminders for clients reviewing their property assessments:

• The real property assessment should reflect the real estate (land and building) only, exclusive of any intangible assets at the property.

• The assessment will often represent a percentage (often less than 100%) of market value, after an equalization ratio is applied. In the simplest sense, an equalization ratio (or equalization rate) is a municipality’s level of assessment. Equalization ratios are often used for taxing jurisdictions, such as school districts, that do not share the same taxing boundaries as the cities and towns responsible for assessing properties.

The equalization ratio compares assessed value to the municipality’s total market value and must be considered when developing a supportable “loaded cap rate” for valuation purposes. Equalization rates are calculated as such:

KEY AREAS TO WATCH

To ensure your property assessment reflects only the land and building, it’s important to consider the impact that property improvement plans (PIPs) might have. As the pace of the transactions market has heated up, many hotel brand parents have implemented change-of-ownership PIPs to maintain brand standards. One of the downsides is that PIPs can be laden with FF&E requirements.

For example, a PIP on the recent sale of a hotel in Cleveland, OH included an FF&E budget representing 20.4% of the PIP. This loads a lot of value into the personal property component. To avoid overpaying taxes, it’s important to strip out this value along with associated intangible components to get to the taxable real property.

Another potential stumbling block is presented by states that place a heavy reliance on sales transactions. Oftentimes, an allocated price and a market value assessment will not be equal. A failure to properly assess this impact can lead to drastic and unsubstantiated increases in tax burden.

For example, in the state of Kentucky, the Property Valuation Administrator (PVA) is likely to place a heavy reliance on the sale price recorded on the deed. For example, on the sale of a hotel in downtown Louisville that was part of a two-hotel portfolio, the buyers allocated $59.5 million for the Louisville asset. The PVA immediately utilized this number without regard to any non-realty components.

An appeal process ensued for three years with the buyers estimating value for assessment purposes at $41.8 million. An agreement was recently reached that placed an assessment on the property of $53.3 million. This approximately $6.2 million variance from the original allocation allowed nearly $87,000 to drop to the net operating income line. This serves as a good reminder that a proper evaluation during due diligence can validate or invalidate any increases.

It’s always beneficial to ensure that your tax burden accurately reflects the value of your property. This becomes particularly important if you are considering selling your property, when any reduction in taxes reflects directly on overall value.

If you think there might be an opportunity for adjustment, find a trusted partner to help with the analysis and due diligence required to prepare a property tax appeal. Doing so might make quite a difference!

ARE YOU MISSING A CHANCE TO REDUCE YOUR HOTEL’S TAX BURDEN?

Tim Simpson Orlando, FL

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HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

HOW MUCH OF A THREAT DOES AIRBNB POSE TO TRADITIONAL HOTELS?

Valuation professionals specializing in hotels commonly receive questions about the impact of Airbnb’s growing popularity on the established hotel industry. For years, many within the profession shrugged off Airbnb as an outlier or a fad that would come and go like so many companies that are no longer

with us. But Airbnb has demonstrated its staying power so far and recent reports are hailing the company as a “disruptor” and one of the most valuable startups in the world.

As Airbnb looks at the possibility of a blockbuster IPO in 2017, the time to look into the impact of this company has arrived. Its currently ski season and to narrow the focus a bit for more meaningful results, this analysis seeks to understand the effect of Airbnb on the ski resort market in Colorado.

HOW AIRBNB STACKS UP AGAINST HOTELS

Before examining the impact on Colorado ski resorts, some overall perspective on Airbnb vs. the hotel industry will be useful. As of July 2016, Equidate reported an estimated market value of $29.6 billion for Airbnb, up from $13 billion in October 2014 with more than $2 billion in capital raised during that timeframe. Recently, the Wall Street Journal reported a market valuation of $31.0 Billion due to an additional $150 million in raised capital. Their report suggests the new funding may allow Airbnb to remain private, rather than going public. Regardless, Airbnb’s value is now higher than the market capitalization of any other major hotel chain.

The data above is both startling and compelling — but to what extent will the impact of Airbnb’s growth be felt? To answer this question, Smith Travel Research (STR) performed a study on the Airbnb phenomenon in 13 global markets. They summarize several key points from their research illuminating:

• Airbnb occupancy was the highest in markets where hotels had high occupancy.

• Hotel occupancy was significantly higher than Airbnb occupancy.

• While Airbnb’s share of total accommodation supply (i.e., Airbnb units and hotel rooms) was growing, its share of market demand and revenues was generally below 4% and 3%, respectively.

• Airbnb guests typically stayed longer than the average hotel guest, with roughly half of Airbnb room nights coming from trips of seven days or longer.

• Airbnb’s share of business travel was substantially smaller than its share of leisure travel.

• Hotel average daily rates (ADR) were generally higher than Airbnb rates. For example, the average hotel rate was $16 higher than Airbnb rates in the seven U.S. markets included in the study.

• Hotel ADR increased in all but one market (Paris) in the year ending July 2016. Airbnb rates decreased in eight markets and increased in five over that time period.

In general, the key findings of this report show that comparing traditional hotels with Airbnb is a bit of an apples-and-oranges comparison, particularly since Airbnb availabilities are often larger accommodations with longer stays than the typical hotel supply.

But do these same trends apply to ski resorts where visitors often travel in large groups over extended periods of time?

EXAMINING THE AIRBNB EFFECT

The State of Colorado offers endless outdoor recreation options for weekend warriors — from camping to rafting to biking to mountaineering. But skiing surpasses them all in terms of economic impact on the Centennial State.

However, ask anyone from the Denver Metro area about going skiing and they will likely groan about the traffic on Interstate 70 on the way to the resorts. To avoid this mess, many Coloradans and skiers from all over the world have invested in condos, time-shares and homes near their favorite ski resorts. Others seek out hotels or other rental accommodations, which has led to notable growth in demand for lodging near ski resorts.

This demand is demonstrated by the January 2017 STR Trends report on the Colorado ski area:

This data shows that the supply of surveyed rooms has remained relatively unchanged since 2011, but demand has seen a compound annual growth rate (CAGR) of 4% and revenue per available room (RevPAR) has grown at a CAGR of 8.6%. This could be due in part to a lack of incoming supply, as investors have been cautious about development in resort areas after the losses incurred in 2008–2010.

HOW MUCH OF A THREAT DOES AIRBNB POSE TO TRADITIONAL SKI MARKET HOTELS?

Jon Fletcher, MAI Denver, CO

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HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

Next, are the AirDNA for statistics on Airbnb markets in Aspen, Breckenridge and Vail. One weakness of this data is that it is reflective of peak market conditions in January 2017 and does not represent a full year of reporting like the STR data above.

While these three areas do not cover all the ski resorts examined in the STR Trend report, they do encompass the largest resorts and make up 26% of the potential hotel rooms in the market as reported by STR. Further, listings on Airbnb for shared rooms or 3 Rooms + (including entire homes) make up less than 60% of the total room supply reported in these markets that would realistically compete with hotel rooms in the STR report.

None of the markets highlighted by the AirDNA data show Airbnb occupancy above 40%, compared to the 59.5% average for hotel rooms reported by STR. In contrast to the global STR study, the Airbnb ADRs are considerably higher than hotels’ in the Colorado ski resort markets — however this data does include off-season rates. Regardless, the data shows that in the Colorado ski resort markets, Airbnb rates are generally higher than hotels’ and Airbnb units also experiences lower occupancy.

DISRUPTION LIKELY TO REMAIN MINOR IN COLORADO SKI RESORT MARKETS

Overall, the data from STR and AirDNA show little support for the claim that Airbnb is a disruptive force in the Colorado ski resort hotel industry. Despite the large supply available on Airbnb, this likely represents a consolidation of rental homes and condos that have historically competed with the hotel industry.

In the past, these daily, weekly or monthly rentals would have been handled by traditional services such as brokers and property management companies. However, Airbnb is now becoming the preferred method for homeowners to market their properties. Nearly 40% of these offerings would not be competitive with the hotel market as they are for entire homes rather than hotel rooms and suites. The smaller Airbnb offerings that do compete with hotels feature pricing that exceeds traditional hotel rates.

Similar trends have been noted in markets where Airbnb rates are higher than traditional hotels. This leads us to believe that in some markets, the desire of Airbnb hosts to achieve maximum rates may prevent any significant negative impact on the traditional hotel industry. This is demonstrated by lower occupancy levels at large homes that do not rent on a regular basis vs. hotel rooms. All of these factors point to a limited negative impact on the hotel industry from Airbnb unless hosts lower prices and increase the supply of smaller, directly competitive accommodations.

“We successfully closed our loan with...last week and we are grateful for your contributions to our closing with a very nicely done appraisal that you completed last month. Thank you for working with our team and for all your hard work on this assignment. I hope we can do more work together soon. All the best.” Jeff Chang - MCR | Director, Acquisitions & Development

“The appraisal was deemed to be in the top 25% of the appraisal work we see requiring little, if any, revisions. On behalf of our client we’d like to sincerely thank you for this professional appraisal work. Please note that this is all the more meaningful since we only use the services of what we view as the best appraisers in the market you serve.

Just as a note, we maintain a record of this accomplishment which we will present to the client in our annual analysis of all work done by each approved appraiser on our list. This detailed analysis measures every aspect of each assignment completed and provides compelling evidence to the client as to which appraisers they should be primarily using and why, as well as, which appraisers should be moved down the list for secondary consideration only.”Wayne Froboese - Froboese Realty Advisors

“I am was very impressed with your new hotel template. I learned a lot about the hotel industry and, more importantly, why the buyers want to purchase the property. I will consider CIVAS for all hotels going forward.”Norm Strickland - US Bank

“It has been a pleasure to work with you. Your work is professional, thorough and timely. As to the latter, I am particularly thankful for you stepping up to assist at the last minute, over the Thanksgiving holiday, with only 10 days lead time, and preparing the lost customer analysis. It was quite impressive, and, again, professionally done.”Darrell M. Daley, Williams & Daley LLC

“I thought the report was very well written, analyzed and supported.”Bob Decker, MAI, Decker Associates Inc.

“I am the reviewer for this report and it looks great! Very well written.”Joy Lipsmeyer - Bentonville

“Thanks for the awesome service and quality!!”Mark A. Athanas, Western Alliance Bank

SERVICE EXCELLENCE

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OVERVIEW

The Hospitality and Leisure Group of Colliers International is a highly-seasoned group of professionals with several decades of experience analyzing hotel, sports and entertainment assets globally. The vast majority of the asset classes that fall under the spectrum of this discipline are significant contributors to markets everywhere, and serve as critical anchors to the underlying economies. Cities throughout the world are perpetually crafting all sorts of incentives in an effort to attract top-tier developers to the area. Much like the way banks and other lending institutions have appraisal reports prepared as part of loan underwriting, the governing bodies and developers often set the stage in the sizing of incentives by commissioning an economic impact analysis from a credible third-party service provider.

Specifically, an economic impact analysis is a study that examines the effect of an event on the economy in a specified area. Colliers’ approach to EIAs involves a comprehensive coordination of several inputs, so that the examination of the potential effect of a particular event on the economy yields results that are as accurate and logical as possible. The study can be limited to an area as small as a neighborhood to the entire globe. The study typically measures changes in business revenue, business profits, personal wages, and/or jobs; it can include the implementation of a new complex policy or project, or simply the presence of a new business or organization. It is commonly conducted when there is public concern or interest about the potential impacts of a specified event.

Impact studies often examine the consequences of economic development endeavors, such as transportation projects, real estate developments, business openings and closures, and site selection assignments. The analyses can also help increase community support for these projects, as well as help obtain grants and tax incentives. They are also commonly developed in conjunction with proposed legislation or regulatory changes in order to fully understand the impact of government action on the economy. Many times the economic impact analysis is developed by the party advocating for the legislative or regulatory change, to communicate the merits of the proposed action. It can be useful with lobbying, media relations, and

community outreach efforts; equally important, it is a useful mechanism on which to rely when making major and complex investment decisions, whether public or private.

CATEGORIES OF ECONOMIC IMPACTSDepending on the nature of the development project, there can be a variety of fiscal consequences. These can be either positive or negative impacts, or a blend of the two. The studies often estimate multiple types of impacts. An example is output impact, which is the total increase in business sales revenue. In turn, local businesses use some of this new revenue to pay for goods and services outside of the study region; as such, the output impact is not necessarily synonymous with local business profits, although they are typically correlated. A more conservative measure of economic activity is the value added impact, which estimates the increase in the study region’s gross regional product. The gross regional product (GRP) is very similar to the nation’s gross domestic product (GDP), and represents the total size of the local economy. This impact estimates the increase in local employee wages plus local business profits (not total revenue, like the output impact). However, the value added impact must consider the placement of investment so to avoid overstating the local profits when they are transferred, say, overseas.

Labor income impact, which is a considered to be a conservative result of an event, represents the increase in total money paid to local employees in the form of salaries and wages. The increases in income may come in the form of raises and/or increased hours for existing employees, or new jobs for the unemployed. This is a measure of the economic impact on personal incomes alone, and not business revenues or profits. A similar measure is the employment impact, which measures the increase in the number of total employees in the local region. Instead of measuring the economic impact in terms of money, this measure presents the impact on the number of jobs in the region. This metric can also be expressed in terms of job years if the impact event is temporary (construction of a facility).

There are a variety of intuitive studies that determine property value impact, which involves measuring the increase in total property values, and is a reflection of generated income and wealth, both personal and business. This analysis is particularly important when performing a fiscal impact study (which measures gross tax revenue to the various jurisdictions within the study area) because increases in property value would be commensurate with increases in property tax revenue.

ECONOMIC IMPACT ANALYSIS

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ORIGINS OF ECONOMIC IMPACTSRegardless of the types of impacts and potential consequences an event might bring, it is the origin of each that must be analyzed and measured in order to gauge the feasibility—as well as the practicality—of the proposed development project. Each impact can be decomposed into different components, depending on the effect that caused the impact. Generally, the impact components include, but are not limited to, the following:

• Direct Effect• Indirect Effect• Induced Effect• Dynamic Effect

Direct effects are the results of the money initially spent in the study region by the business or organization being studied. This includes money spent to pay for salaries, supplies, raw materials, and operating expenses. The direct effects from the initial spending create additional activity in the local economy.

Indirect effects are the results of business-to-business transactions indirectly caused by the direct effects. Businesses initially benefiting from the direct effects will subsequently increase spending at other local businesses. The indirect effect is a measure of this increase in business-to-business activity (not including the initial round of spending, which is included in the direct effects).

Induced effects are the results of increased personal income caused by the direct and indirect effects. Businesses experiencing increased revenue and contributing to net new spending from the direct and indirect effects will subsequently increase payroll expenditures (by hiring more employees, increasing payroll hours, raising salaries, etc.). Households will, in turn, increase spending at local businesses. The induced effect is a measure of this increase in household-to-business activity.

Impact Cycle

Finally, dynamic effects are caused by geographic shifts over time in populations and businesses. This analysis is typically most difficult to quantify, and as such, experts typically focus on the qualitative aspects of dynamic effects for a particular project and account for this value in the multipliers or growth rates employed in the analysis. This effect generally cannot be estimated by the use of input-output software alone.

LAYERED APPROACH AND METHODOLOGYLayer 1: Input/Output In order to determine event impacts, an analysis will employ one, or both, of two methods for determining impacts. The first is an input-output model (I/O model) for analyzing the study region’s economy. These models rely on inter-industry data to determine how effects in one industry will impact other sectors in a one-time event, such as a development project or a single year’s worth of operations. In addition, I/O models also estimate the share of each industry’s purchases that are supplied by local firms, versus those outside the study area. Based on this data, multipliers are calculated and used to estimate economic impacts. Colliers typically relies on IMPLAN modeling software as part of its development of impact estimates (to be discussed).

Layer 2: Economic SimulationOne of the greatest competitive advantages that Colliers International enjoys is its ever-growing database of proprietary information. We have virtually unlimited access to data pertaining to commercial real estate throughout the world. Such access enables us to successfully generate an additional layer of analysis in the form of economic simulation. This type of analysis involves the application of more complex modeling software and typically in conjunction with the I/O model. Either method by itself allows the expert to produce comprehensive and accurate econometric results, but the economic simulation layer allows the expert to forecast the impacts caused by future economic and demographic changes over a multi-year period. In order to properly perform this analysis, however, the expert must have not only the technical acumen but also access to a substantial amount of economic and real property data.

Proprietary Modeling SoftwareAs discussed, Colliers relies on IMPLAN modeling software to develop single-period impact results of an event as part of economic impact studies but it employs it own sophisticated, proprietary models to estimate supply, demand, revenues and expenses over multi-year periods, particularly with respect to new real estate development and the business that will likely operate out of these facilities. Colliers’ modeling software is intuitively maintained to reflect the intrinsic operating characteristics of various types of commercial property. The model is based upon the theory that revenues and expenses of asset-intensive businesses have independent fixed components and dependent components that vary

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HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

in proportion to occupancy and the overall use of the facilities being analyzed. So, the simulation model can estimate at a high level of credence the incremental revenue that will be generated at existing assets as a result of an event, as well as the induced revenue from new assets that are built (whether directly or indirectly related to the event). An estimate of each revenue and expense line item can be made by calculating the fixed and variable percentage components of an established level of revenue or expense. The fixed component is held constant, while the variable component is adjusted for the future incremental changes in occupancy or utilization levels.

One of the primary challenges that firms face when they are commissioned to prepare economic impact studies is that many of the inputs used are either estimated and based on limited data available to that firm, or based largely on projections that were prepared by a beneficiary of the project and are therefore non-objective. Colliers is one of the world’s largest real estate services firms with an expansive database of market information. These resources allow Colliers experts to more accurately predict an event’s prospective operating performance using, for example, income and expense statements of comparable assets or data from internally-generated industry averages to derive base levels of income and expense. The analysis can be done either on a property-by-property basis or, more commonly, on an aggregated basis. The units of comparison include percentage of total revenue, percentage of categorical revenue, amount per available unit, and/or amount per occupied unit. These units of comparison are established as the bases for calculating the fixed and variable component relationships for each line item and are selected based on the most common denominator. The process of selecting a unit of measure can be narrowed down either in a statistical fashion or by way of prudent, qualitative diligence drawn from extensive industry experience and, once again, from the wealth of in-house data.

Once the economic projections of the project or event are generated by the expert, they are used to calculate the various levels of taxes that are collected by the jurisdictions within the study area. The forecast is analyzed on any number of scenarios but most typically are modeled to include net economic benefits over five, ten, twenty and/or thirty-year projection periods. Certain operational line item forecast results can once again interpolated into the IMPLAN software so that the other impact components are identified and measured. Most notably, this layer of study will yield estimates on sustainable ful l-time employment figures along with the accompanying wages, spending and other investment patterns.

IMPLANOverviewThe input-output modeling system used in this study is IMPLAN (IMPact analysis for PLANning), originally developed by the USDA Forest Service. Using classic input-output analysis in combination with regional specific social accounting matrices and multiplier models, IMPLAN provides a highly accurate and adaptable model for its users. The IMPLAN database contains county, state, zip code, and federal economic statistics which are specialized by region, not estimated from national averages and can

be used to measure the effect on a regional or local economy of a given change or event in the economy’s activity.

How it WorksSocial Accounting Matrix - IMPLAN’s Social Accounting System describes transactions that occur between producers, and intermediate and final consumers using a Social Accounting Matrix. One of the important aspects of Social Accounts is that they also examine non-market transactions, such as transfer payments between institutions. Other examples of these types of transactions would include: government to household transfers in the form of unemployment benefits, or household to government transfers in the form of taxes. Because Social Accounting Systems examine all the aspects of a local economy, they provide a more complete and accurate “snapshot” of the economy and its spending patterns.

Multipliers - Multipliers are a numeric way of describing the secondary impacts stemming from a change. For example, an employment multiplier of 1.8 would suggest that for every 10 employees hired in the given industry, 8 additional jobs would be created in other industries, such that 18 total jobs would be added to the given economic region.

The Multiplier Model is derived mathematically using the input-output model and Social Accounting formats. The Social Accounting System provides the framework for the predictive Multiplier Model used in economic impact studies. Purchases for final use drive the model. Industries that produce goods and services for consumer consumption must purchase products, raw materials, and services from other companies to create their product. These vendors must also procure goods and services. This cycle continues until all the money is leaked from the region’s economy. There are three types of effects measured with a multiplier: the direct, the indirect, and the induced effects. The direct effect is the known or predicted change in the local economy that is to be studied. The indirect effect is the business to business transactions required to satisfy the direct effect. Finally, the induced effect is derived from local spending on goods and services by people working to satisfy the direct and indirect effects.

Once there is a clear picture of the economy through the Social Accounting Matrix (SAM) and Multipliers, its behavior can be predicted for a defined event.

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RECENTLY APPRAISED PROPERTIES

Westin Grand CaymanCayman Islands

JW Marriott ChicagoChicago, Illinois

Palmer House A Hilton HotelChicago, Illinois

Proposed Wanda Vista Tower Chicago, Illinois

Melia’s Costa Hollywood Beach ResortHollywood, Florida

Trump International Hotel & TowerChicago, Illinois

Waldorf Boca ResortBoca Raton, Florida

The Ritz-CarltonKapalua, Hawaii

Château on the LakeBranson, Missouri

Camden on the LakeLake Ozark, Missouri

Marriott Kauai Lagoons - Kalanipu’uLihue - Kauai, Hawaii

Proposed Marriott Marquis ChicagoChicago, Illinois

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Updated February 2017

Hospitality and Leisure Group Regional ContactsNATIONAL LEADERSHIP

Bryan Younge MAI, ASA, MRICSNational Practice LeaderHospitality & Leisure+1 312 602 6155Bryan.Younge@colliers.com

Carolinas RegionCurtis McCall, Jr. CRE, MAI Managing Director | Charleston+1 843 654 7816 Curt.McCall@colliers.com

Florida & Caribbean RegionLucas Heater Valuation Specialist+1 813 871 8537 Lucas.Heater@colliers.com

Mid-Atlantic RegionGreggie Pascual MAI Valuation Services Director+1 202 534 3617 Greggie.Pascual@colliers.com

Mountain RegionJon Fletcher MAI Managing Director | Denver+1 303 779 5503 Jon.Fletcher@colliers.com

North Midwest RegionRyan Sikorski MAI, CFAValuation Services Director+1 414 727 9800Ryan.Sikorski@colliers.com

Pacific Northwest RegionMatthew Mintier MAIValuation Services Director+1 503 542 5472Matthew.Mintier@colliers.com

Southeast RegionTimothy Simpson Valuation Services Director+1 845 825 1025 Tim.Simpson@colliers.com

Southwest Region & HawaiiChad EschmeyerSenior Valuation Specialist+1 602 222 5168Chad.Eschmeyer@colliers.com

Texas RegionDaniel Maher MAI Valuation Services Director+1 214 217 9335 Daniel.Maher@colliers.com

Valuation TechnicianDonna Stritch +1 312 602 6185 Donna.Stritch@colliers.com

National Client ServicesJerry Gisclair MAI, MRICS EMD | National Client Services+1 813 871 8531 Jerry.Gisclair@colliers.com

COLLIERS INTERNATIONAL | P. 10

HOSPITALITY & LEISURE NEWSLETTER | 2ND QUARTER 2017

Colliers International Valuation & Advisory Serviceshttp://www.colliers.com/en-us/us/services/valuationservices/hospitality-leisure

ContactBryan Younge MAI, ASA

National Practice Leader | Hospitality & Leisure+1 312 602 6155 | Bryan.Younge@colliers.com