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Attachment 13 - North 40 Hotel Site AssessmentHTL Hospitality Advisors Brokerage Finance Consulting November 7 , 2017 Mr. Arn Andrews Assistant Town Manager 110 East Main Street Los Gatos, CA 95030 Re: Effective Use Proposal -"North 40" Project Dear Mr. Andrews: HTL Hospitality Advisors 1050 Northgate Drive . Suit e 440 San Rafael , CA 94903 USA 415.925.8800 415.925 .8804 Fax www H TLHA.com HTL Hospitality Advisors (HTL ) is pleased to present our report on the review of the overall Los Gatos hotel market and the potential for a hotel on the North 40 site . Our findings are based on our research as of November 3, 2017 and are su bject to change, based on events that may occur after this date. Our research included obtaining a report on hotel performan ce from STR , interviews with owners and managers of existing hotels in Los Gatos and the surrounding area , meetings with local Town officials , and discussions with potential developers and other interested partie s. HTL is a full service real estate company focused exclusively on the hospitality industry. Our founding Principals established HTL Hospita lity Advi so rs over 10-years ago to provide clients with unparalleled hospitality indu stry servi ces. All of our profession als are well-known hotel industry experts and leaders who have served as senior executives in the international hospitality market. Our report is intended for your use in planning ahead for potentia l new hotel development in L os Gatos and making recommendations to the Los Gatos Town Coun cil. The report is subject to the attached Statement of General Assumptions and Standard Limiting Conditions. It has been a pleasure working with you and your staff during th is engagement, and we look forward to being of further assistance to you in the future. Sincerely, ~o~nd Principal ATTACHMENT 1 S HTL Hospitality Advisors Brokerage; Consu lting, Management Town of Los Gatos North 40 Hotel Site Assessment November, 2017 HTL Hospitality Advisors 1050 Northgate Drive, Suite 440 San Rafael, CA 94903 Web : www.HTLHospita lityAdvisors.com Atlanta ·La s Vegas· Los Angele s ~rlando ~P~oeni x ~ ~n Francisco _ J H" Hospitality Advisors Brokerage, Consulting, Management AREA OVERVIEW A region 's lodging market is driven by the forces that shape the overall regional economy. As such, the Los Gatos hotel market and projections of future market performance depend la rgely on the econom ic conditions in Silicon Valley and , to a broader extent, the entire Bay Area. According to the Center for Continuing Study of t he California Economy: • The Bay Area led California and t he nation with a real (inflation adjusted) GDP gain of 5.2% in 2016, more than 3 times faster than the national growth rate • San Jose led all metro areas in California with a real GDP increase of 5.9% in 2016 led by gains in tech related sectors. The San Francisco- Oakland metro area was 2nd at 5.4% with gai ns in tech and finance • Job growth in the area has led to low unemployment rates of 3 .3% for both the San Jose metro area and the overall Bay Area Bay Area Unemployment Rates Metro A rea Sep '16 Sep'17 Oakland 4.3% 3.8% San Francisco 3.1% 2.9% San Jose 3.8 % 3 .3% Santa Rosa 3.7% 3.2% Napa 3.8% 3.2% Vallejo 5.2% 4.6% San Rafael 3.2% 2.9% Bay Area 3.7 % 3.3% Source: State of California Employment Development Department; Center for Continuing Study of the California Economy 1 HTL Hosp itality Advi sors Bro kerage, Consulting, Management Site Evaluation The potential hotel development site is an as-yet determ ined site within the northern 20 acres of the North 40 Pa rcel. The North 40 parcel is at the inte r section of two of the region's major highways, Highway 17 which leads from Santa Cruz north to San Jose and co ntinues as 1-880 to Oak land, and Highway 85, which i s a major con nector from Highway 101 a nd 1-280. La rk Avenue, the southern border of the North 40 parcel, provi des the acc ess off of 17 while Los Gatos Blvd., the eastern border of the North 40 parce l, provides access from Hwy. 85. The site is thus w ell-situated in terms of access, visibility. The hote l site is close t o some of the major demand generators i n Los Gatos, name ly Netflix and Roku, as we ll as Good Samaritan Hos pital (re prese nted by H). Site And Nearby Major Employers 1 . Site m .: 2. Netflix ' 3. Netflix I . . 4. Netflix tr ~·\) tJRnCC'l;Jt: HJ:.-;-:P..i•lc 5 . Roku -.'1t.1Cltry '.1.tb -, ... ?A i<£R 6. Roku @9 , 0 0 7. Cryptic Studios 0 ··~ , ... 8. Xilinx H . Good Samaritan Hosp. .. 7 H Hospitality Advisors Brokerage, C.onsultina. Manaaement Site Evaluation (cont.) We have evaluated the potential hotel site relative to those of the hotels we have considered to be the most competitive. These properties include two hotels within the Town of Los Gatos , both of which are situated in the appealing downtown area ; three hotels in nearby Campbell ; and th e Hotel Valencia in San Jose. The table below presents our assessment of each hotel's site relativ e to the subject site for a number of key fa ctors. The subject site within the North 40 parcel enjoys several advantages versus the sites of the competitive properties in the market area , due largely to the excellent access and v isibility from the two adjacent Highways While the subject site is not surrounded by the amount of commercial development and major companies such as in Sunnyvale, Santa Clara , and Cupertino , the properties in the local submarket are generally similar or inferior in terms of th e amount of nearby commercial space The two Los Gatos hotels are considered to have stronger nearby amenities due to the easy walking distance of the numerous restaurants and retail shops in the downtown area , but inferior access , visibility, and nearby demand The Hotel Valencia , the largest luxury property in the competitive set, benefits greatly from its position within Santana Row, the dominant upscale retail center in the area , but is inferior in other areas North 40 Site Courtyard San Jose Campbell DoubleTree Campbell Pruneyard Plaza Hotel Hotel Los Gatos Larkspur Landing Campbell Toll House Hotel Valen cia Group Hotel Valencia Santana Row Access Comparison to Subject Site Nearby Demand Visibility Amenities Generators = = = + = + + + ] HTL Hosp itality Adv isors Brokerage, Consulting, Management Hotel Market Data We have reviewed the lodging market in the greater Silicon Valley area as well as the competitive hotels in the more local Los Gatos/Campbell market The Silicon Valley market has a history of being very volati le over the years , with cycles often showing swings of double- digit downturns , and growth, in RevPAR (revenue per available room) In the 2008-09 recession and subsequent recovery, the market displayed these characteristics with a large drop followed by several years of s ignificant growth By 2016, with market occupancies essentially at capacity due to seasonality and weekend/weekday constraints , the market growth slowed as hotels have been unable to susta in large rate increases San Jose· Peninsula Market Performance 2007. 2016 Occ ADR Re vPA R 2007 71.7% $ 127.98 $ 91.76 2008 67.9% $ 136.20 $ 92.48 2009 58.6% $ 115.93 $ 67 .9 3 2010 63 .7% $ 115.85 $ 73.80 2011 72.1% $ 127.82 $ 92 .16 2012 75 .4% $ 140.39 $ 105.85 2013 77.6% $ 1 53.86 $ 119.40 2014 80.7% $ 177 .10 $ 142.92 2015 81.0% $ 195.18 $ 158.10 2016 79.8% $ 207 .04 $ 165.22 Source: PKF Hospitali ty Research %Chg . 0.8% -26 .5 % 8.6% 24.9% 14.9% 12 .8 % 19 .7 % 10.6 % 4.5% , •. , HTI Hospitality Advisors Brokerage, Consultina .. Management Hotel Market Data (cont .) The hote ls selected as being most comparable or competitive to what would likely be developed on the subject si te consist of hotels that range from the Upscale to Luxury categories , as defined by STR 's Chain Scales (see attached Exhibit A to see US brands that fit in the Upscale to Luxury categories , which inclu des some extended stay and focused service properties) The other hotels in Los Gatos, including the Best Western and Los Gatos Lodge, are older exterior-corridor · properties and not considered directly competitive We have compared the performance of the competitive set with the overall market, as well as several other sub- ma rkets in t he region, including San Jose's major downt own convent io n hotels Given the upscale nature of the selected competit ive set, as well as the loca tion in the desirable market area of Los Gatos and Campbell, the set performs at a premium to all of the other identified groups evaluated Market Comparisons Source Market 2016 Occ% ADR Rev PAR PKF Trends San Jose/Peninsu la 79.8% $ 207.04 $ 165.22 STR San Jose/Santa Cruz 76.7% $ 181.12 $ 138.98 STR Upper Upsca le Hotels 78.3% $ 225 .39 $ 176.56 STR San Jose Convention Hotels 78 .0% $ 225 .3 1 $ 175.79 STR Competitive Set 82.3% $ 223.11 $ 183.52 Source: PKF Hospitality Research, STR ~ HTL Hospitality Advisors Brokerage, Consultiog, Management Competitive Market Performance Similar to the market overall , the competit ive set experienced double-digit growth in RevPAR for several years before growth slowed significantly in 2016, and a 10 .6% compounded annual growth rate (CAGR) overal l Due to patterns of demand with slower performance on weekends, as well as seasonality which limits demand at certa in times of the year, performance above 80% occupancy on an annual basis is considered to be at capacity Capacity constraints have lim ited demand growth in t he market, with rooms occupied remaining basically flat since 20 13 despite strong economic growth , indicating there is a substantial amount of unsatisfied demand in the market that a new hotel could capture Los Gatos/Campbell Competitive Market ROOMS ROOMS TOTAL MARKI AVAILABLE OCCUPIED OCCUPANCY ADR REVPAR % CHANGE 2012 309,520 239,694 77.4% $158.35 $122.63 2013 309,520 251,877 81.4% $168.87 $137.42 12 .1% 20 14 310, 162 253, 199 81.6% $192.3 1 $156.99 14 .2% 20 15 310,860 257,611 82.9% $21 4 .90 $178.09 13.4% 2016 310,250 254 ,693 82 .1% $223 .11 $183.52 3.1% CAGR 0 .1% 1.5% 8.9 % 10.6% YTD 20 16 232,596 191 ,719 82.4% $226 .52 $186.71 YTD 20 17 232,050 195,796 84.4% $227 .60 $192.04 2.9% Sou rce: STR 6 H .... Hospitality Advisors Brokerage, Consultine, Manaetment Los Gatos North 40 SWOT Analysis Strengths The site's location at the intersection of two highways, with good access from nearby on/ off ramps The site would be the closest in the market to Netflix and Roku, two of the largest demand generators in the market Los Gatos' reputation as an upscale community, and the amenities of the downtown area within easy driving distance Opportunities Ability to develop complementary commercial uses as part of the site plan would enhance the appeal of the site for hotel use There are a number of available brands that could fit an upscale hotel in the market Unsatisfied demand in the market as occupancy levels have reached peak levels while economic growth continues in the region Weaknesses • Limited amenities such as retail and entertainment in the immediate vicinity • Height limit of 45 ft. results in a max of four stories, less desirable for an upscale hotel • Land prices for hotel development lag behind pricing for alternate uses such as office and residential Threats • Cyclical market has seen a long expansion period , potential for downturn could exist • Potential development of two hotels at Cambrian Park retail site would be closest to the site, potentially directly competitive • Competition for labor and material for rebuilding from Northern California fires, earthquakes, could drive up construction costs 1 HTL Hospitality Advisors Brokeragt'!, Co nsu lting, Management Conclusions and Recommendations T he current st rength of the local and regional lodging market indicates that, in general, new hotel development can be accommoda t ed The site fo r a hotel with in the North 40 project area enjoys some advantages over the sites of competitive hotels in the market area The location within th e upscale community of Los Gatos, as well as the strong market performance, indicates that an Upscale or Upper Upscale hotel (as defined by the STR chain scales), most likely between approximately 150-200 rooms, would be best suited for development on the site With other faci lities and amenities resulting in a range of roughly 700-800 gross sq. ft. per room, t his would resu lt in a gross building area of approximately 100,000-160,000 Due to the lack of significant tourist demand i n the local market area, hotels re ly on group business to support weekend demand, and therefore the hotel should have enough meeting space to attract such group business, in the range of 3,500 to 7,000 square feet It appears that there are available brands i n the Upscale and Upper Upscale ranges that would be availab le for such a property, and while the independent hotels in Los Gatos perform well a new property at this site would benefit from the appeal of a brand, particularly for corporate travelers interested in receivi ng their frequent trave ler points from favored chains The ability to develop higher than 45 feet wou ld benefit the project by provid ing greater vis i bility from the nearby highways such as the Courtyard i n Campbell with 7-stories for 162 rooms, as we ll as being more efficient from a development cost perspective As there are limited amenities such as restaurants and entertainment in the immediate area of the site, includ ing such prod ucts in the overa ll site plan would benefit the hotel While the ma rket is strong, the high development costs of new hotels requires some projects to request some publ i c subsidies, which often comes in the form of contributing to the cost of parking or conference space, or a rebate of t he hotel's Transient Occupancy Tax for some period of time STR Chain Sca les -US Scale llChain Scale Affiliation Name 1 luxury Chains 21c Museum Hotel Luxury Chams AKA luxury Chains Andaz luxury Chains Belmond Hotels luxury Chains Conrad Luxury Chains Dorchester Collection Luxury Chains Doyle Collection Luxury Chains Edition Luxury Chafns Fairmont Luxury Chains Firmdale Luxury Chains Four Seasons Luxury Chains Grand Hyatt Luxury Chains lnterContinental Luxury Chains JW Marriott Luxury Chains Langham Luxury Chains Loews Luxury Chains Lotte Hote ls & Resorts Luxury Chains luxury Colection Luxury Chains Mandarin Onental Luxury Chains ME Luxury Chains Mokara Luxury Chatns Montage Luxury Chains Park Hyatt Luxury Chains Regen 1 Luxury Chains R 11z·Carfton Luxury Chains R ock.Resorts Luxury Chains R osewood luxury Chains S1x Senses luxury Chains Sixty Hotels Luxury Chains Sofitel luxury Chains St Regis luxury Chains Taj Luxury Chains The Peninsula luxury Chains T he U nbound Collectton Luxury Chains T hompson Holels luxury Chains Trump Hotel Correclion Luxury Chains Valencia Group Luxury Chains Viceroy Luxury Chains W Hotel Luxury Chains Waldorf Astoria Upper Upscale Chain Ace Hotel Upper Upscale Chain Affinia Hotel Upper Upscale Chain Autograph Colleelion Upper Upscale Chain Brtdgestreet Accommodations Upper Upscale Chain Camino Real Upper Upscale Cha in Canopy by Hilton Upper Upscale Chain Club Quarters Upper Upscale Chain Curt0 Collection Upper Upscale Chain Delta Hotel Upper Upscale Chain Dolce Hotels & Resorts Upper Upscale Chain Embassy Sunes Upper Upscale Chain Ftreside Inn & Suites Upper Upscale Cham Gaylord Upper Upscale Cham Hard Rock Upper Upscale Cham Hilton Upper Upscale Chain Hilton Grand VacaHons Upper Upscale Chain Hotel Indigo Upper Upscale Chain Hotel Nikko Upper Upscale Chain Hyan Upper Upscale Chain Hyatt Centric Upper Upscale Chain Hyatt Regency Upper Upscale Chain Instinct Hote ls Upper Upscale Chain Joie De Vivre Upper Upscale Chain Kimpton Upper Upscale Chain Le Meridien Upper Upscale Chain Magnolia Upper Upscale Chain Marriott Upper Upscale Chain Marriott Confer ence Center Upper Upscale Chain MGalle ry by Sofite l Upper Upscale Chain Millennium Upper Upscale Chain New Otani Upper Upscale Chain Omni Upper Upscale Chain Outrigger Resorts Upper Upscale Chain Pan PacifK: Upper Upscale Cham Pestana Upper Upscale Chain Punman Upper Upscale Chain Radisson Blu Upper Upscale Chain R adisson RED Upper Upscale Chain R ed Carnation Upper Upscale Chain Renaissance Upper Upscale Cham Sheraton Hotel Upper Upscale Cham St. Giles Ho:el Upper Upscale Cham Starhotels Upper Upscale Chain Sw1ssotel Upper Upscale Chain Tribute Portfolio Upper Upscale Chain Wanda Vista Upper Upscale Chain Warwick Hotel Upper Upscale Chain Westin Upper Upscale Chain Wyndham Grand Hotels Upscale Chains AC Hotels by Marriott Atf Parent C o Name 2ic Museum Holels AKA Hyatt Belmond lu>eury Hotels Hilton Worldwide Dorchester Collection The Doyte Conection Marrtou ln1emational FRHI Ho1els & Resorts Firmdale Hotels Four Seasons Hotels & Resorts Hyatt Intercontinental Hotels Group Marrk>it lnterna11onal Langham Group Loews Hotels Company Lotte Hotels & Resorts Mamo1t lnterna1ional Mandann Onental Holel Group Grupo Sol Mella Orono Hotels & Resorts Montage Hotels Hy au FtH Regent Group Mamou lnternatt0nal RockResorts Rosewood Ho1els Group Six Senses Sixty Collective Acet:xCompany Marriott lnlernational T he Indian Holel Company The Peninsula Hotel Hyatt Two Roads Hospi1ality Trump Hotel Collection Valencia Group Viceroy Marriott International Hilton WOOdWlde Ace Hotel Group Affinia Marriott International Brtdges1reet Accommodauons Grupo Empresarial Angeles Hoton Worldwide Club0uart8fS Hoton WorldWlde Mamon lntemational Wyndham Wortdwode Hiton Worldwide Lafayene Hotels Marrion lntemational Hard Rock Hiton Worldwide HiUon Worldwide lntefconlinental Hotels Group JAL Hotels Company Hyatt Hyatt Hyatt Aqua Hospitality Two Roads Hospitality lntercontlnental Holels Group Marriott lntemalional Stout Street Hosphahty Marriott International Marriott International Accor Company Millennium & Copthorne Global New Otani Hotels Omni Hotels & Resorts OlJtngger Hotels Company Pan Pacific Hotel Group Pestana Ar.ax Company Cartson Hospitality Company Car1son Hospttahty Company Red Carn1uon Marriott lntemaoonal Marriott International St Giles Hotels Sta motels FRHI Hote ls & Resorts Mamou lntema!lonal Wanda Hotels & R esons Warwick Hotels Mamou International Wyndham Wor1dwide Marriott Internat ional Scale llChaln Scalo 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chain s 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chatns 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale C hains 3 Upscale C hains 3 Upscale Chains 3 Upscale Chams 3 Upscale Chains 3 Upscale Chain s 3 Upscale Chain s 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chaons 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chains 3 Upscale Chan s 3 Upscale Chains 3 Upscale Chains 3 Upscale Cha'1S 3 Upscale Cha ins U9~r Mllhe.t'-CN1M U9per Miehe.tie ChatM U91Mr Michule Chol!M Upper Mid•ule Ch•1m Upper Mtebul• Ch4i•M Uppe1 Mid\U1• CMtM UP~ M 1ch u le ,..,.._.,. 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Inn & Suites C•ntentone Hott-ls CtlauSuotH C11r1on Cobbtu1on• Comfort Inn ComlortSUites Country Inn & Suites Ooubl•Tree Oub Orurylnn&Sutln OrurvPln1 ~el OrvtYSultH r.11trl1eld lnn HilT'lpton Hol!Chylnn Hobd.1ylMh~S Holtd.tyLnn~Kt HotM2 SvitiK ltleofC1pn l•-..,nc1on M.tm.ts.twlttt MO"' MyPl•ce OHANA O.tordSuites PhoeN11 Inn Red l .on Hgt•I SMidm~n Shilo Inn Silv•rOO\id Sonnt1ESSU!te'I Aft Parent Co Name Marriott International Apa Hotel Choice Hotels International ResortQuest Hawaii Grp Atton Hotel• s A Besl Western Hotels & Resorts Besl Western Hote ls & Resorts Choice Hotels International Canad Inns citizenM Ho1els Club Med Coas1 Hotels & R esorts Marriott International lnteroonttnantat Hotels Group Fen Hoteles Disney Hotels Hilton Worldwide Dusi! 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