1

Maximizing return in a growing market

Hotel for Sale: TownePlace Suites by Marriott

Market: Lafayette, Indiana

Originally built as a Hawthorn Suites in 2000, this extended-stay hotel was converted to a

TownePlace Suites by Marriott in October 2002. At the time of exclusive listing, it was owned by

its original developer and operated by the owner's management company. The property was

located 125 miles from Chicago, 65 miles from Indianapolis, and had excellent interstate visibility.

The hotel also benefited from a location within close proximity to Purdue University, and a

growing local economy bolstered by numerous manufacturing facilities.

Year 1 Year 2 Year 3

A.D.R. $81.32 $73.15 $69.45

Occupancy 70.8% 73.6% 61.4%

RevPar $57.58 $53.85 $42.67

Room Revenue $1,555,274 $1,458,425 $1,152,394

Total Revenue $1,582,161 $1,485,312 $1,182,620

NOI $398,939 $381,931 $184,282

*NOI expressed after deductions for FF&E Reserve and Management Fees.

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Hotel Owner Objective

The hotel owner's desired outcome was to sell the hotel at a maximum price as part of a strategic

disposition of various hotel assets. After repositioning the hotel as a TownePlace Suites by Marriott,

ownership had realized a dramatic increase in performance and was under no pressure to sell at a

reduced value.

From a hotel buyer's perspective, the property was a desirable asset, but was not an acquisition without challenges. The hotel's performance had been impressive, but the market had only one other true extended-stay property, a Homewood Suites. As a result, many buyers were concerned about the possibility of new extended-stay hotel development, and thus, the ability to maintain the current level of performance. The second major challenge for many hotel buyers was receiving approval for a Marriott franchise. Should a buyer receive Marriott approval, another challenge was the uncertainty of the franchise-required Product Improvement Plan that had the potential to significantly increase a buyer's project budget. Hotel Sales/Marketing Process Using a targeted marketing approach focused on Midwestern owners of upper-scale, limited-service, and extended-stay hotels who had or were likely to obtain Marriott franchise approval, Hotel Source, Inc. was able to attract significant interest through initial marketing materials. As the initially interested parties analyzed more detailed marketing packages and scheduled property inspections, Hotel Source, Inc. implemented a hands-on search for hotel buyers in order to maintain marketing momentum. Through calls to owners of Marriott, Hilton, and InterContinental branded hotels throughout the Midwest and nationally, Hotel Source, Inc. was able to procure offers from several hotel buyer groups, two of whom already owned Marriott branded properties and were already Marriott approved. Hotel Negotiations

The subsequent simultaneous hotel negotiations with each of the buyer groups resulted in the hotel

being placed under a purchase & sale agreement with one of the Marriott-approved groups. During this

buyer's due diligence, it became apparent that the Product Improvement Plan (PIP) required by the

franchise was beyond this buyer's expectation, and the chances of a successful transaction being

completed with this buyer group at the agreed-upon price were greatly reduced.

Meanwhile, Hotel Source, Inc. continued to receive inquiries from and have discussions with numerous

alternate buyer groups who were responding to Hotel Source, Inc.'s initial marketing efforts. When the

initial buyer group ultimately cancelled its purchase & sale agreement at the expiration of the due

diligence period after being denied a price reduction, a higher offer was presented within 24 hours from

an alternate buyer group that Hotel Source, Inc. had been in contact with.

However, this alternate buyer group did not have any Marriott branded properties or Marriott franchise approval. In order to receive Marriott approval, the group was willing to keep the current management company in place pending a meeting with ownership. Hotel Source, Inc. convened a meeting after which the buyer and hotel owner were able to execute a purchase & sale agreement that enabled the owner's hotel management company to stay in place, while obtaining Marriott franchise approval for the buyer.

Conclusion The TownePlace Suites by Marriott sold at 94% of the list price, which represented a 7.8% capitalization rate, 3.3 room revenue multiplier, and $69,595 per room. Ownership received a price they were satisfied with while keeping the management contract on the property, and the buyer was able to acquire a well-maintained Marriott branded hotel in a growing market, and realize a return on investment immediately, with additional upside.