MARKET STUDY Proposed Waterfront Hotel

MARKET STUDY

Proposed Waterfront Hotel

BROADWAY STREET & THE EMBARCADERO SAN FRANCISCO, CALIFORNIA

SUBMITTED TO: PROPOSED

Mr. Ricky Tijani Port of San Francisco Pier 1, The Embarcadero San Francisco, California 94111 ricky.tijani@ +1 (415) 274-0680

PREPARED BY:

HVS Consulting and Valuation Services Division of M&R Valuation Services, Inc. 100 Bush Street, Suite 750 San Francisco, California, 94104 +1 (415) 896-0868

January-2016

HVS SAN FRANCISCO

100 Bush Street, Suite 750 San Francisco, California, 94104 +1 (415) 896-0868 +1 (415) 896-0516 FAX

January 15, 2016

Mr. Ricky Tijani Port of San Francisco Pier 1, The Embarcadero San Francisco, California 94111 ricky.tijani@ +1 (415) 274-0680

Re: Proposed Waterfront Hotel San Francisco, California HVS Reference: 2015040272, 2015250020

Dear Mr. Tijani:

Pursuant to your request, we herewith submit our market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the San Francisco, California area. The results of our fieldwork and analysis are presented in this report. Our report was prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), as provided by the Appraisal Foundation.

We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein.

Sincerely, M&R Valuation Services, Inc.

Aaron Solaimani Senior Associate asolaimani@, +1 (415) 268-0362

Superior results through unrivaled hospitality intelligence. Everywhere.

Suzanne R. Mellen, MAI, CRE, FRICS, ISHC Senior Managing Director smellen@, +1 (415) 268-0351

Table of Contents

SECTION

1. 2. 3. 4. 5. 6. 7.

TITLE

Nature of the Assignment Description of the Site and Neighborhood Market Area Analysis Supply and Demand Analysis Benchmarking Statement of Assumptions and Limiting Conditions Certification

Addenda

Qualifications

PAGE

4 7 14 37 62 66 68

1. Nature of the Assignment

Objective of the Market Study and Identification of the Client Subject of the Market Study

Scope of Work

HVS has been engaged by the Port of San Francisco to perform consulting services on a commercial site located in San Francisco, California. Phase Two of this six- phase engagement is to perform an abbreviated market study to provide a basis for evaluating the potential financial performance of a proposed boutique hotel on the subject site. The client for this assignment is the Port of San Francisco; this report is intended for the addressee firm and may not be distributed to or relied upon by other persons or entities.

The subject of this market study is the site located at the intersection of The Embarcadero and Broadway Street; the site comprises four separate parcels and totals approximately 1.31 acres, or 57,180 square feet. As of our date of inspection, the site was improved with a revenue-generating parking lot.

It is important to note that specific details regarding the subject property's proposed improvements have not yet been provided to us. We understand through conversations with the Port of San Francisco that the proposed project is likely to include the development of a boutique hotel containing 180 to 200 guestrooms, a dinner theater operated by Teatro ZinZanni, potentially 10 small live-in units for the artists performing at the theater, and a public park.

Throughout the course of this market study, our research and statistics were based on the development of a boutique hotel containing approximately 180 to 200 rooms. However, we were not provided with specifics of the development, including the potential brand of the property, its management, the size of the guestrooms, the amount of public and meeting space, the food and beverage offering, the quality of its construction, the parking situation, development costs, and other details that are vital in positioning the property within the existing hotel market and ultimately determining its feasibility.

The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,1 Hotels, Motels and

January-2016

1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978).

Nature of the Assignment Proposed Waterfront Hotel ? San Francisco, California

4

January-2016

Restaurants: Valuations and Market Studies,2 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,4 and Hotels and Motels ? Valuations and Market Studies.5

1. All information was collected and analyzed by the staff of M&R Valuation Services, Inc. Information was supplied by the client and/or the property's development team.

2. The subject site has been evaluated from the viewpoint of its physical utility for the future operation of a boutique hotel, as well as access, visibility, views, and other relevant factors.

3. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry-related economic and demographic trends that may have an impact on future demand for hotels.

4. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize the area's hotels. The factors investigated include purpose of visit, average length of stay, facilities and amenities required, seasonality, daily demand fluctuations, and price sensitivity.

5. Supply and demand trends in the market, with a particular focus on the boutique hotel segment, were assessed through our database of hotel operating statements and our ongoing experience in the San Francisco market.

6. Potentially competitive lodging facilities displaying market attributes similar to the proposed subject hotel were identified; research was conducted to assess facilities and services and understand the market profile and orientation of these properties. Occupancy, room rate, and market penetration levels were estimated.

7. Development and operating metrics were be compiled to provide a basis for benchmarking the projected performance of the proposed boutique

2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies.

(Chicago: American Institute of Real Estate Appraisers, 1983).

3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and

Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990).

4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment

Analysis, and Valuations (Chicago: Appraisal Institute, 1992).

5 Stephen Rushmore and Erich Baum, Hotels and Motels ? Valuations and Market Studies.

(Chicago: Appraisal Institute, 2001).

Nature of the Assignment Proposed Waterfront Hotel ? San Francisco, California

5

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