Caffrey le feasibility 11 23-2010

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  • 1. LAKE EVE RESORT FEASIBILITY STUDY M att Caffrey REAL 576 – Real Estate Valuation &Analysis Prof. Nate Gundrum Drexel University November 23, 2010
  • 2. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYI. Market AnalysisArea OverviewLake Eve Resort is located within Orange County, FL just minutes from downtown Orlando, an area that isworld renowned as a destination location for tourists. Orlando is arguably best known for its most popularattraction and largest employer, Walt Disney World Resort, however the central Florida location, tropicalclimate, and affordable cost of living [Table 1] has lead to significant increases in population and majorinvestments by employers. From 1990 to 2009, population in the region increased by over 42%, and increase ofalmost 900,000 people. Within the next five years, the population in the Orlando region is expected to increasean additional 10.8% [Table 2].Lake Eve Resort is located on International Drive with convenient access to Interstate 4, the Florida Turnpike(I-417), and is within 10 minutes to many of the areas most popular attractions including Walt Disney WorldResort, SeaWorld Orlando, Universal Orlando Resort. Additionally, Lake Eve Resort is less than 15 miles fromthe Orlando International Airport (the 11 th busiest airport in the nation), and less than 20 minutes fromDowntown Orlando. Additional airports in the region include the Orlando Sanford International Airport (3rdmost active international airport in Florida), Kissimmee M unicipal Airport, Leesburg International Airport, andM id-Florida Airport. Lake Eve Resort is less than 1 hour from Port Canaveral, FL – a popular port forlaunching cruise ships.Orlando will soon be home to a new commuter rail system, SunRail, and the nations first high speed rail systemlinking Tampa and Orlando.Regional EconomyThe tourism and hospitality industry is without question the most prominent component of the economic enginein the Orlando market, employing over 110,000 employees in the region as well as providing a major influx ofconsumers and income from outside of the area [Table 3]. Fortunately, the tourism industry’s resilience hasbeen better than most nationwide. According to the Cushman and Wakefield 2Q10 Office Report, the largestemployment gains from January through M ay 2010 occurred in the lifestyle and hospitality industry, whichgained 16,800 new jobs during that time frame.However, the regional economy is comprised of much more than M ickey M ouse, as more than 150 internationalcompanies, representing approximately 20 countries, have facilities in M etro Orlando. In actuality, the regionboasts significant growth in several industries, with special attention to technological research and development,and a booming health care industry [Table 4].According to the Orlando Economic Development Commission, M etro Orlando has a rapidly growing $13.4billion technology industry employing 53,000 people, and has nationally recognized clusters of innovation indigital media, agritechnology, aviation and aerospace, and software. Industry giant Electronic Arts - the worldsleading independent developer and publisher of interactive entertainment software - creates some of the worldstop-selling games in M etro Orlando, including the popular M adden NFL Football, NCAA Football, TigerWoods PGA Tour and several other game series.M etro Orlando has the 7th largest research park in the country (Central Florida Research Park) with over 1,025acres. It is home to over 120 companies, employs more than 8,500 people, and is the hub of the nation’s military 2
  • 3. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYsimulation and training programs. The University of Central Florida’s Institute for Simulation & Trainingdeveloped the nation’s first masters and PhD programs in simulation and human performance enhancement.The University of Central Florida, now the 2nd largest university in the country with over $122 million inresearch, is located in Orlando and is gaining international reputations in innovations in lasers/optics andhospitality; and a newly opened medical school.Additionally, with respect to the Health Care Industry, Orlando is home to an emerging medical city at LakeNona with a new University of Central Florida College of M edicine, Sanford-Burnham M edical ResearchInstitute and M . D. Anderson – Orlando Cancer Research Institute. Coming by 2012 is the Nemours ChildrensHospital, Orlando VA M edical Center, and a University of Florida research center. By year 10, the life sciencecluster could create 30,000 jobs with $7.6 billion in economic impact.Per the Cushman Wakefield Year-End 2009 Orlando M ultifamily Report, despite the national economicslowdown, the Orlando M SA began to show indications of economic stabilization in the last quarter of 2009, asemployment increased 9,500 from September to December 2009. Further growth is anticipated, particularly inthe sectors of trade, transportation & utilities, leisure and hospitality services, professional and b usinessservices, education, and health services are forecasted to grow by more than 2.4% annually through 2014.Income and EmploymentOrange County is the 12th wealthiest county in Florida, with a median household income of $52,133 [Table 6],although the area has been hit by the same economic downturn that has affected the majority of the country. Thelabor force in the region is strong, and can offer in excess of 1.1M workers. Although the latest unemploymentrate (11.7%) is above that of the national average, it is still slightly better than that Florida average (12.0%).Market S ectorsThe Orlando markets are subdivided into many smaller submarkets. Lake Eve Resort is located within theTourist Corridor submarket, a suburban market outside of downtown Orlando [Table X].OfficeLike most markets nationwide, the office market in Orlando continues to struggle with today’s economy.However, there are several indicators that point to the market bottoming-out, particularly in the Orlando CentralBusiness District (CBD) where absorption is trending upward, with 59,061 square feet absorbed in the secondquarter 2010. Additionally, the vacancy rate dropped 80 basis points to end the second quarter at 17.9%.According to the Orlando Economic Development Commission, Class A office space within the CBD is leasingat $21.60/sq.ft. Given the high vacancy and low absorption, it is no surprise that tenants continue to be in thedriver’s seat as leases and renewals are being signed at shorter terms, with reduced rent rates, and additionalconcessions offered by landlords.The CBD submarket is still starkly better than submarkets in the surrounding suburban areas, including theTourist Corridor, which are experiencing increased office vacancy and a decrease in absorp tion. Per the Grubband Ellis’ Office Trends Report for the 2nd Quarter 2010, vacancy in the suburban markets are up to 20.3% andabsorption is a negative 2,280 square feet. In particular, the Tourist Corridor has one of the highest vacancyrates at 26.7%. This Tourist submarket and Southwest submarket combine for a total of 9,085,761 square feet ofoffice space, with an additional 48,500 currently under construction. By comparison, the Downtown/CBD 3
  • 4. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYmarket totals only 7,373,901 sq.ft., with an additional 105,000 sq.ft. under construction. Despite the surplusof office space in the Tourist Corridor submarket, landlords are asking for higher-than-average rent rat es forClass A space at $23.33/sq.ft.One of the bright spots for the office market has been sales activity, which nearly doubled from 231,395 sq.ft.during the first half of 2009, to 427,703 sq.ft. during the same time period in 2010. There were two office salesof significant size in the Orlando market: the sale of the Southpoint Executive Center in the M aitland submarketand the University Corporate Center III purchase by TA Associates Realty in the University/Research Parksubmarkets. These transactions were $7,400,000.00 ($54.01/sq.ft.) and $16,500,000.00 ($158.66/sq.ft.)respectively.Looking to the future, according to Cushman & Wakefield, the growth in professional and business servicesshould improve but will otherwise still be negative, resulting in high vacancy through 2010 and into 2011.Vacancy rates are expected to ease gradually through 2011, although rental rates will remain flat.RetailThe Orland M SA retail market continues to look bleak; although the worst may be over, with record highnational unemployment and economic malaise, recovery is still a long ways off. Although the worst of the retailstore closing may be over, overall retail vacancy rate is expect to slowly tick further upward – ultimatelyleveling off by the end of 2010. This is particularly disturbing as retail trade comprises 10% of the employmentin the Orlando market, with an additional 5% based on warehousing and transportation.Vacancy rates have continued to rise for the past three years, while rental rates continue to decline. In 2010,vacancies were around 23%, with an average rental rate around $15.00/sq.ft . M ore desirable centers andlocations, such as the Sandlake Road area, have commanded rents at $30.00/sq.ft. (down from rent highs in2008 of $52.00/sq.ft.). Less desirable locations or centers without an anchor tenant are seeing rents as low as$4.00/sq.ft. for large boxes and as low as $8.00/sq.ft. for smaller users.The few bright spots in the retail market are the addition of several new restaurant chains into the market, andthe expansion of several existing franchises. Additionally, affordable shop ping stores such as Dollar G eneral,Dollar Store, and Dollar Tree continue to thrive with plans to expand or open new stores throughout Florida andnationwide.However according to Cushman & Wakefield, a more clear evidence of recovery will be present in 2012. Retaildevelopment construction levels are expected to continue to drop, however an increase in building activitycould begin as early as 2012. The return of credit and capital, along with an uptick in marketing and advertisingactivity, could be a much-welcomed shot in the arm for local retail real estate.Multi-Family ResidentialOne sector that has fared better than most has been the multi-family residential market which by year end of2009 had shown signs of improvement in both absorption and occupancy levels, resulting in increased rentalrates throughout the region. By the end of 2009, vacancy was down to 6.0% on average, with rents fastapproaching $1.00 per sq. ft.While the collapse of the housing market can attribute for some of the influ x of renters to the market, populationincreases are the main driver behind the multi-family market. The Orlando M SA has consistently added 60,000 4
  • 5. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYnew residents annually for the past 10-years, and is expected to increase an additional 10% in the next fiveyears. According to the US Census Bureau, almost 60% of the total housing units in Orange County, FL wererental units, totaling 53,053 units [Table 7]. Of those rented units, the median rent was $977/unit [Table 8]. Thenumber of units is projected to increase by approximately 12,000 units (approx. 23%) by the end of 2010 asoutlined below.Increased population and employment in the region points to further growth within the multi-family market, andstability after the housing market recovers, however much of that will depend on the inventory of new andproposed projects. Seven projects, totaling 2,176 units were added to the Orlando inventory in 2009, and anadditional 9.700 total units slated for delivery in the greater metro area in 2010. M ost of the units are proposedin the M aitland/Winter Park submarket (3,400 units) and the Southeast/Airport submarket (1,400 units). Thepipeline beyond those projects appears to be drying up.In 2009, there were a total of 16 transactions of multi-family residential assets totaling $222 million [Table 9].Although this was a decline from the sales volume of 2008, the dramatic decreases are partially attributable tothe distressed nature of the overall market, as well as the fact that many of the sales are fractured or partial salesof larger projects. On average, the transaction price ranged between $28,873 to $97,995 per unit, with a medianprice of $54,213 per unit.Cushman & Wakefield project markets to show slight signs of stabilization to Net Operating Incomes ( NOI),which would bode well for future transactions of properties. More dour forecasts, such as the regional outlookfor M ultifamily Executive, point to soft fundamentals in the market that will continue to weigh on NOI, pushingdown values and creating distress. Cap rates for stabilized assets may start at 8.5% or more, but sales ofunderperforming or distressed properties tend to distort pricing trends.HotelAs previously mentioned the leisure and hospitality markets comprise a significant portion of the overalleconomic activity in the Orlando market. Despite the downturn in the economy, the tourism market still resultedin $13.6 Billion in annual wages for the region in 2009. Although these figures are a decrease from years past, itis a testament to the popularity of the area and a strong indicator for future growth as visitor volume is project toincrease to over 47 M illion in 2010.Of the 46.6M illion visitors to the Orlando area in 2009, approximately 60% (27 M illion) required overnightlodging. Demand for 2010 appears to be surpassing 2009. In Orange County, there is a 9.5% increase indemand, which translates to a 70.0% occupancy rate (a 4.6% increase from the previous year). However there isstill a stark difference between supply and demand (f avoring demand), which results in both decreased A verageDaily Rate and Revenue Per Available Room (RevPAR) caused by increased competition among the existinghotel providers. Average Daily Rate and RevPAR are down 5.3% and 0.9% respectively to $100.42/room and$70.29/room. While these figures exclude Disney -owned hotels, they far surpass both the National and Floridaaverages during the same time period. According to the Hospitality Real Estate Counselors, Inc., the RevPARin Florida has significantly increased during the first quarter of 2010.Recent sales of existing hotel properties have largely comprised been limited service properties, although therehave been some larger sales of older, full-service properties. In the Orlando market recent sales include theAltamonte Springs, a 210-room Hampton Inn that was acquired by 3H Group Hotels for $10.0MM($47,619/key) and the Sheraton Downtown Orlando, which was foreclosed upon and subsequently acquired byGlenmont Capital M anagement for $8.0MM ($23,500/key ). 5
  • 6. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYTable 1 COST OF LIVING INDEXCITY COMPOSITE INDEX GROCERY HOUSINGAtlanta, GA 96.0 96.3 89.9Austin, TX 95.0 90.6 84.4Denver, CO 103.4 99.5 108.8Miami, FL 105.2 109.8 107.5New York, NY 209.7 153.0 365.2ORLANDO, FL 97.1 97.1 85.3Raleigh, NC 98.5 104.4 88.3Richmond, VA 104.4 102.4 105.3Seattle, WA 120.2 115.7 137.3Source: C2ER The Council For Community of Economic Research(formerly ACCRA) - 2nd Quarter 2010Table 2 Demographic Detail Summary Report Metro OrlandoPopulation Demographics Percent Change 1990 Census 2000 Census 2009 Estimate 2014 Projection 1990 to 2000 2000 to 2009 2009 to 2014Total Population 1,224,851 1,644,561 2,124,270 2,354,381 34.3% 22.6% 10.8%Population Density (Pop/Sq 305.4 410.1 529.7 587.0 34.3% 22.6% 10.8%Mi)Total Households 465,277 625,248 774,210 816,857 34.4% 19.2% 5.5%Source: Metro Orlando Economic Development CommissionTable 3 Corrections Accommodations Education Administrative 1% & Food Service, Finance & 9% Support Management of Insurance Government 1% Companies 3% Utilities 4% 2% 0% Health Care & Social Transportation & Assistance Warehousing 13% 5% Information 5% Retail Trade 10% Real Estate & Leasing Leisure & 2% Hospitality Professional, Scientific 40% & Technical Services Manufacturing 4% 1% ORLANDO AREA EMPLOYMENT BY INDUSTRY 6
  • 7. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYTable 4 ORLANDO AREA MAJOR EMPLOYMENT INDUSTRIES Education Government Health Care & Social Assistance Information Employees Leisure & Hospitality Professional, Scientific & Technical Services Retail Trade Transportation & Warehousing 0 20,000 40,000 60, 000 80, 000 100,000 120,000Table 5 INCOME AND BENEFITSTotal Households 91,679.00 (X)Less Than $10,000 7,030.00 7.7%$10,000 to $14,999 5,187.00 5.7%$15,000 to $24,999 10,915.00 11.9%$25,000 to $34,999 11,602.00 12.7%$35,000 to $49,999 16,604.00 18.1%$50,000 to $74,999 17,168.00 18.7%$75,000 to $99,999 9,394.00 10.2%$100,000 to $149,999 8,003.00 8.7%$150,000 to $199,999 2,484.00 2.7%$200,000 or more 3,292.00 3.6%Median Household Income (dollars) $ 52,133.00 (X)Mean Household income (dollars) $ 62,842.00 (X)Source: US Census Bureau, 2006-2008 American CommunitySurvey 7
  • 8. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYTable 6 MEDIAN HOUSEHOLD INCOME BY COUNTYRank County Income 1 St. Johns County, Florida $ 63,927 2 Clay County, Florida $ 61,909 3 Collier County, Florida $ 60,133 4 Seminole County, Florida $ 59,317 5 Nassau County, Florida $ 59,072 6 Okaloosa County, Florida $ 57,111 7 Monroe County, Florida $ 56,984 8 Santa Rosa County, Florida $ 54,718 9 Palm Beach County, Florida $ 54,301 10 Martin County, Florida $ 54,182 11 Broward County, Florida $ 53,236 12 Orange County, Florida $ 52,133 13 Lee County, Florida $ 51,599 14 Hillsborough County, Florida $ 50,384 15 Duval County, Florida $ 50,301Source: U.S. Census Bureau, 2006-2008 AmericanCommunity SurveyTable 7 Housing Charateristics - 2008 US Census Estim ates Estimate PercentTotal Housing Units 108,901 Occupied Housing Units 91,679 84.2% Owner-Occupied Housing Units 38,626 42.1% Renter-Occupied Housing Units 53,053 57.9% Vacant Housing Units 17,222 15.8% Owner-Occupied Homes 38,626 Median Value (dollars) $ 241,600Source: U.S. Census Bureau, 2006-2008 American CommunitySurveyTable 8 Gross Rent Estimate PercentOccupied Units Paying Rent 52,102 (X)Less than $200 525 1.0%$200 to $299 721 1.4%$300 to $499 2,032 3.8%$500 to $749 7,540 14.2%$750 to $999 16,833 31.7%$1,000 to $1,499 20,276 38.2%$1,500 or more 4,175 7.9%Median (dollars) $ 977 (X)No rent paid 951 1.8%Source: U.S. Census Bureau, 2006-2008 AmericanCommunity Survey 8
  • 9. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYTable 9 SIGNIFICANT 2009 APARTMENT SALES TRANSACTIONSPROPERTY NAME CITY/SUBMARKET UNITS TOTAL PURCHASE PRICE PRICE PER UNITPromenade Crossing North Orlando/Winter Park/Mailand 212 $ 20,775,000.00 $ 97,995.28Stonebrook Sanford/Lake Mary 356 $ 18,019,100.00 $ 50,615.45Golf Brook Longwood/Altamonte Springs 195 $ 17,752,020.00 $ 91,036.00Chatham Harbor Longwood/Altamonte Springs 324 $ 15,900,000.00 $ 49,074.07Mosaic at Millenia South Orlando 256 $ 14,800,000.00 $ 57,812.50Sabal Park Longwood/Altamonte Springs 162 $ 14,747,832.00 $ 91,036.00Riverfront East Orlando/UCF 356 $ 10,279,000.00 $ 28,873.60Legacy Parc Kissimmee/St. Cloud 185 $ 5,800,000.00 $ 31,351.35Source: Cushman & Wakefield Orlando Multifamily Reprot Year-End 2009Orlando S ubmarket Map 9
  • 10. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY Metro Orlando Major Employers (By Employment) Rank Company City Employment Industry 1 Walt Disney Co. (Walt Disney World) Lake Buena Vista 62,000 Leisure & Hospitality 2 Orange County Public Schools MSA 24,063 Education 3 Florida Hospital (Adventist Health System) Orlando 16,000 Health Care & Social Assistance 4 Publix Super Markets Inc. MSA 15,606 Retail Trade 5 Universal Orlando Orlando 13,000 Leisure & Hospitality 6 Orlando Health Orlando 13,000 Health Care & Social Assistance 7 Orange County Government MSA 7,426 Government 8 SeaWorld Orlando Orlando 7,290 Leisure & Hospitality 9 Lockheed Martin Corporation Orlando 7,200 Professional, Scientific & Technical Services 10 Seminole County Public Schools MSA 7,000 Education 11 Darden Restaurants Inc. Orlando 6,500 Accommodation & Food Service, Management of Companies 12 Osceola County Public Schools MSA 6,465 Education 13 Marriott International Inc. Orlando 6,312 Leisure & Hospitality 14 Starwood Hotels & Resorts Worldwide Inc. Orlando 5,369 Leisure & Hospitality 15 Central Florida Investments Orlando 5,000 Real Estate & Leasing 16 Walgreen Co. MSA 4,990 Retail Trade, Transportation & Warehousing 17 Lake County Public Schools MSA 4,353 Education 18 United Parcel Service Inc. Orlando 4,000 Transportation & Warehousing 19 CenturyLink Apopka 3,900 Information 20 City of Orlando Orlando 3,272 Government 21 Siemens Orlando 3,249 Manufacturing, Professional, Scientific, & Technical Services 22 Cendant Corp. Windermere 3,201 Leisure & Hospitality 23 SunTrust Banks Inc. Orlando 3,165 Finance & Insurance 24 Rosen Hotels And Resorts Orlando 3,000 Leisure & Hospitality 25 CVS Corp. Orlando 2,900 Retail Trade 26 Space Gateway Support Orlando 2,886 Transportation & Warehousing 27 Loews Hotels Corp. Orlando 2,800 Leisure & Hospitality 28 Northrop Grumman Corp. Orlando 2,659 Professional, Scientific & Technical Services 29 FedEx Corp. Orlando 2,600 Transportation & Warehousing 30 Lowes Cos. Inc. MSA 2,546 Retail Trade, Transportation & Warehousing 31 Cingular Wireless LLC Lake Mary 2,500 Information 32 Orange Lake Resort & Country Club Kissimmee 2,500 Leisure & Hospitality 33 Southwest Airlines Co. Orlando 2,332 Transportation & Warehousing 34 Hilton Hotels Corp. Altamonte Springs 2,100 Leisure & Hospitality 35 Leesburg Regional Medical Center Leesburg 2,093 Health Care & Social Assistance 36 The Villages The Villages 2,022 Real Estate & Leasing 37 Mears Transportation Group Orlando 2,000 Transportation & Warehousing 38 AirTran Airways Orlando 2,000 Transportation & Warehousing, Management of Companies 39 HCA Inc. Orlando 1,962 Health Care & Social Assistance 40 YMCA of Central Florida MSA 1,900 Health Care & Social Assistance 41 Bank of America Corp. Orlando 1,775 Finance & Insurance 42 Bright House Networks Orlando 1,724 Information 43 Osceola County Government MSA 1,715 Government 44 Orange County Corrections Department MSA 1,673 Corrections 45 Subway Restaurants MSA 1,600 Retail Trade 46 Gaylord Palms Resort & Convention Center Kissimmee 1,500 Leisure & Hospitality 47 Health Central Ocoee 1,500 Health Care & Social Assistance 48 Wachovia Corp. Orlando 1,422 Finance & Insurance 49 Tempus Resorts International Orlando 1,400 Leisure & Hospitality 50 Convergys Corp. Lake Mary 1,355 Professional, Scientific & Technical Services 10 Source: Nexis.com and Harris Info Source, Direct Company Contact, & OBJ Book of Lists
  • 11. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYII. Property ValuationIncluded herein is a property valuation that was used to determine the value of the Lake Eve Resort property inits current use as a upscale hotel. The property valuation consists of t hree different approaches that wereemployed: the Sales Comparison approach which uses data from recent transactions of comparable properties todetermine value, the Cost approach which uses construction cost data to determine the replacement cost ofreconstructing the property, and lastly the Income Approach which analyzes the income and expenditures of theproperty operations to ultimate calculate a present value.Based on the Sales Comparison Approach, the estimated value of the Lake Eve Resort is $12,054,226.Using the Cost Approach, the value of the Lake Eve Resort was determined to be: $19,873,240.Lastly, the Income Approach derived a value of $19,763,339.Detailed worksheets and further explanation are as follows.S ales Comparison ApproachM any publications and reports have pointed to the softening of markets throughout the country, and the Orlandohospitality market, while resilient, is also susceptible to the deterioration of the market. The implications ofthese economic changes were discussed in the M arket Analysis portion herein. The quantity and quality oftransactions in the region has declined from the peaks observed in 2007, however there are still a few examplesof hotel properties that can serve as a basis for the analysis.Lake Eve Resort is an upscale, full service hotel resort located in the highly desirable Tourist Corridor in theOrlando market. The high rise building is ideally situated near many of the main theme parks and attractions,and offers a variety of amenities including: swimming pool, fitness center, business center, spa, and dining areaand boasts luxury suites with 1, 2, and 3 bedroom layouts. Although the comparable properties do not advertisesuites, they rooms were treated as equals between the subject property and comparison properties.Three transactions of properties within the Orlando market with characteristics and attributes comparable to theLake Eve Resort were identified and included in the sales comparison. The closest comparable property appearsto be the Sheraton Downtown Orlando property, which was recently acquired through foreclosure. The propertyis similar in size and structure to the Lake Eve Resort, and is relatively close in proximity at 8.1 miles from thesubject property. M uch like the Lake Eve Resort, the Sheraton is a high-rise hotel property that offers a highlydesirable location; whereas the former resides in the highly traffic Tourist Corridor, the latter offers visitors theability to stay right in Downtown Orlando.Because the Sheraton Downtown Orlando was acquired in an unconventional manner (via foreclosure), it can berationalized that the property has a significantly higher value than the $8MM purchase price. Realistically, intoday’s market this project is likely worth between 25% and 30% more than the acquisition price. Thisadjustment, along with a major adjustment to compensate for the Sheraton parking garage, is reflected in theSales Comparison Report. From there, it was determined that the Total Adjusted Value for the SheratonProperty was $10,093,500, or $34,805 per key.The next closest comparable used in the analysis was the Renaissance Orlando Airport Hotel, in which 60% ofthe shares were sold between the Joint Venture partners in January 2010. Although this was not a conventionaltransaction, the estimated value of the property was $35MM. The Renaissance is located approximately 15 11
  • 12. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYmiles from the subject property, but still offers a desirable location near the Orlando International airport;although it was determined that that Tourist Corridor is still much more desirable than the Airport sub-market,which was adjusted for, in addition to adjusting for some of the amenities that the Lake Eve Resort offers thatare not present at the Renaissance property. Because this transaction was not a typical arm’s length deal, thesale price may not reflect fair market value. In fact, for the purpose of this analysis, it was assumed that theproperty was overvalued by $1.2M which was adjusted accordingly. In total, the adjusted value for theRenaissance was $34,613,500, or $116,153 per unit.Lastly, this property valuation also include the Hampton Inn property in Altamonte Springs, FL which w as soldin a conventional, arm’s-length transaction in September 2009. The comparable property serves as a great basisbecause of the typical nature of the transaction, however the location (24.6 miles from the subject property), theless desirable sub-market, the timing of the transaction, and the many differences between the propertiesrequired significant adjustment to be comparable to the Lake Eve Resort. M ost notably, the property’s suburbanlocation and building style (Garden style) needed to be accounted for, in addition to the many lacking amenitiesfeatured at the Lake Eve Resort that are absent at the comparable property. The total adjusted value for theHampton Inn was $11,947,500 or $56,893 per key.The adjusted per unit values of the comparable properties were averaged together, equating to $69,284/unit.Based on the 176 units at the Lake Eve Resort, the result of the Sales Comparison analysis is a value of$12,054,226.02.Cost ApproachThe second analysis conducted to determine the current value of the Lake Eve Resort utilized the CostApproach. Using the RS M eans Building Construction Cost Data, 68th Edition, the subject property can bevalued based on the cost of reproducing or replacing the existing property with an identical, new construction.The RS M eans Building Construction Data provided did not have construction costs for a hotel, howeverbecause the Lake Eve Resort consists of 1, 2, and 3 bedroom suites, the High-Rise data was used.Furthermore, two sets of data were considered: the first being the square feet cost to reconstruct the gross livingarea ($115 per sq. ft.) and the second was to consider a per unit construction cost provided ($114,000/unit). Itwas calculated that the Living Area of the hotel (comprised exclusively of the units) was 196,016 sq. ft., whichequates to $22,541,840 if reconstructed using the data provided. This does not account for the 153,984sq. ft. ofnon-living areas, so it can be deduced that based on an itemized construction basis the value would besignificantly greater.Alternatively using the per unit assessment, the 176 units tot als $20,064,000. Because the per unit cost alsoincludes the mechanical, electrical, and plumbing, the latter option was employ ed as it was more encompassing.Similarly, the per unit cost does not take into consideration the net area that is uninhabitable or is service-based,so the value could be even greater. However, given the general state of the economy, the cost of constructionmay be inflated, especially as many contractors are doing work at minimal margins slightly above cost.After accommodating for physical depreciation (calculated at 6.5%) and adding a value for the site and siteimprovements, the estimated value of the Lake Eve Resort was determined to be $19,873,240. 12
  • 13. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYIncome ApproachLastly, the third analysis conducted to determine property value was the Income Approach. This methodologyanalyzed the potential revenue and operating expenses of the income producing property, and used a terminalcapitalization rate to estimate value.The formula to determine the terminal value used is:Terminal Value (TV) = Net Operating Expenses / Terminal Capitalization RateTo determine the terminal value required to first calculate the Net Operating Expenses (NOI). The formula forcalculating NOI is as follows:Potential Gross Income (PGI)- Vacancy & Collection Loss (VC)= Effective Gross Income (EGI)- Operating Expenses (OE)- Capital Expenditures (CAPX)=Net Operating IncomePotential Gross Income for the property was derived by determining the Average Daily Rate (ADR) per Room,and then multiplying the ADR for each room (174 units) for 365 days to get the Potential Income fromRevenue. Profit and Loss (P&L) statements for M arch, April, M ay, and June which were provided, andincluded additional sources of income such as: food & banquet, beverage, telephone, and other miscellaneousincome. The data for the months was averaged, and the revenue of the four month set was annualized to getestimated yearly totals that were added to the Potential Gross Income.M onthly occupancy rates were also provided for the aforementioned range of months, from which the monthlyvacancy and collection loss could be determined. Similarly, the average of the months were annualized and thepercentage of vacancy and loss was identified and applied to the Potential Gross Income to determine theEffective Gross Income.The P&L statements also included the operating costs for a variety of expenditures, as were Capital Expenditurereserves, which were also annualized to identify Operating Expenses and CAPX. By subtracting the O E andCAPX from the EGI, the resulting Net Operating Income could be established.In reviewing the P&L statements for the Lake Eve Resort, the year-to-year occupancy rates were dras ticallyincreased from 2008 to 2009. This could be the result of being a new property that was recently opened, or thefruits of better management for the property. As a result, it was difficult to extrapolate these same increases forthe following years. According to the Hotel Valuation Index (HVI), the Orlando M arket was identified ashaving extremely low volatility in the market and project substantial increases in per-room value over the next 3years, before tapering off to minimal increases. These values were then applied to the future net operatingincome for the next five years to determine the Net Operating Expenses throughout the holding period, whichwould ultimately result in a highly profitable hotel operation.Additionally, the Hotel Valuation Index estimated that a property comparable to the Lake Eve Resort cou ld seea capitalization rate of between 8 and 9%. Furthermore, the HVI estimated Discount Rate between 11% and12.5% for this type of property. 13
  • 14. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYFinally, after taking into consideration selling expenses and accounting for a Discount Rate, the Net PresentValue of the property was calculated to be: $19,763,339.Final Reconciliation:Each approach identified and applied herein relied heavily on the information and data that was either providedor collected, however each also required considerable assumptions to be made by the evaluator. The CostApproach and the Income Approach resulted in values that were almost identical (less than 1% difference),which is positive reassurance that the assumptions made were at least consistent. However, the results of theSales Approach would indicate that either the comparables were too grim, reflections of the tight credit marketand better positioning for qualified buyers, or the adjusted values were too conservative. As a result, there is noclear and present methodology that is vastly superior than the other two, and the disparity between the Cost andIncome Approach with the Sales Approach indicates that an across-the-board averaging of the values would notbe prudent.Instead, the property valuation was determined by weighing the three values in such a manner so that no onemethod has a majority weight. Overall, the value from the Sales Approach was deeply discounted, while theheaviest emphasis was placed on the Income Approach. The final, reconciled value for the Lake Eve Resort hasbeen estimated at an even $18,700,000.00. Approach Indicated Value Weight (%) Weighted Value Sales Comparison Approach: $ 12,054,226 15% $ 1,808,134 Cost Approach: $ 19,873,240 45% $ 8,942,958 Income Approach: $ 19,763,339 40% $ 7,905,336 Total: 100% $ 18,656,428 Value Rounded: $ 18,700,000 14
  • 15. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY UNIFORM APPRAISAL REPORT FEATURE SUBJECT COMPARABLE SALE NO. 1 COMPARABLE SALE NO. 2 COMPARABLE SALE NO. 3 Lake Eve Resort - 123888 Hampton Inn - 151 N. Douglas Ave., Altamonte Sheraton Downtown Orlando - 5905 Rennaisance Orlando Airport Hotel - 5445 International Dr. South Orlando, FL Springs, FL International Drive, Orlando, FL Forbes Place, Orlando, FL Proximity to Subject: - 24.6 miles 8.1 miles 14.9 miles Sale Price: $ 12,054,226.02 $10,000,000.00 $8,000,000.00 $35,000,000.00 Sale Price/Room $ 68,490 $47,619 $23,500 $114,460 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION +/- ADJUSTMENTS DESCRIPTION +/- ADJUSTMENTS DESCRIPTION +/- ADJUSTMENTS Sale or Finance Concessions: Conventional Typical Foreclosure $3,000,000 Share sale to JV Ptnr ($1,250,000) Date of Sale: Sept. 2009 $150,000 Dec. 2009 $75,000 Jan. 2010 $60,000 SALES COMPARISON APPROACH Location/Submarket: Tourist Corridor Suburban $500,000 Downtown Airport $250,000 Design (Style): U-Shaped, High-Rise Mid-Rise $500,000 High Rise Mid-Rise $500,000 Laundry Equipment: Yes Yes Laundry/Valet Service $6,000 Valet Dry Cleaning $6,000 Available Room Count: 176 210 290 298 Dining Area: Yes Yes Yes Yes Bar Area: Yes No $250,000 Yes Yes Meeting & Banquet Facilities: Yes Yes Yes Yes Pool: Yes Yes Yes Yes Parking Lot/Garage: Yes Lot Garage ($1,000,000) Lot Spa: Yes No $20,000 Yes Yes Childrens Pool: Yes No $10,000 Yes No $25,000 Fitness Center: Yes Yes Yes Yes Video Game Room: Yes No $5,000 Yes No $10,000 Business Center: Yes Yes Yes Yes Pantry/Market Area: Yes No $2,500 No $2,500 No $2,500 Sun Deck: Yes No $10,000 No $10,000 No $10,000 Net Adjustment (Total): $ 1,447,500 $ 2,093,500.00 $ (386,500) Adjusted Sale Price of Total Adjusted Value: $ 11,447,500 Total Adjusted Value: $10,093,500.00 Total Adjusted Value: $ 34,613,500 Comparables: Adjusted Value Per Room: $ 54,512 Adjusted Value Per Room: $ 34,805 Adjusted Value Per Room: $ 116,153 Net Adjusted Value: 14% Net Adjusted Value: 26% Net Adjusted Value: -1.10% 15
  • 16. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY UNIFORM APPRAISAL REPORT Estimated REPRODUCTION OR X REPLACEMENT COST NEW Source of Cost Data: RS MEANS BUILDING CONSTRUCTION COST DATA, 68TH EDITION COST APPROACH (APARTMENTS -HIGH-RISE) UNITS PRICE TOTAL OPINION OF SITE VALUE $ 100,000 $ 440,000.00 Unit Cost per Guestroom 176 $ 114,000 $ 20,064,000.00 Total Estimate of Cost New: $ 20,504,000.00 Less Physical Functional External Depreciation (6.5%) $ 1,332,760 $ - $ - $ 1,332,760.00 Depreciated Cost of Improvements: $ 19,171,240.00 "As-is" Value of Site Improvements 120,000 $5.85 $ 702,000.00 INDICATED VALUE BY COST APPROACH: $ 19,873,240.00 Site Area 4.4 Acres Guestroom No. of Units Sq.Ft./Unit Subtotal Sq.Ft. 1-Bedroom 14 713 9,982 2-Bedroom 108 1,092 117,936 2-Bedroom Corner 28 1,172 32,816 3-Bedroom 26 1,357 35,282 176 Total Livable Area: 196,016 Option 1: Gross Living Area (Sq. Ft.) $115.00 $ 22,541,840 Option 2: Total Unit Cost per Guestroom $114,000 $20,064,000 16
  • 17. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY NET OPERATING INCOME YEAR 1 2 3 4 5 Potential Gross Income (PGI): $ 6,065,628 $ 7,545,641 $ 8,632,213 $ 8,640,845 $ 8,649,486 - Vacancy & Collection Loss (VC): $ 1,206,453 $ 1,266,776 $ 1,330,115 $ 1,396,621 $ 1,466,452 = Effective Gross Income: $ 4,859,174 $ 6,278,865 $ 7,302,098 $ 7,244,225 $ 7,183,034 - Operating Expenses (OE): $ 4,002,565 $ 4,202,693 $ 4,412,828 $ 4,633,469 $ 4,865,143 - Capital Expenditures (CAPX): $ 276,945 $ 290,792 $ 305,332 $ 320,598 $ 336,628 = Net Operating Income: $ 579,664 $ 1,785,379 $ 2,583,938 $ 2,290,157 $ 1,981,263 Rooms March April May June Average Annualized Room Revenue (ADR x 365) 176 $ 87.18 $ 5,600,283 Food & Banquet Revenue $ 18,079 $ 16,558 $ 15,522 $ 11,826 $ 15,496 $ 185,955 Beverage Revenue $ 1,841 $ 2,373 $ 2,031 $ 2,222 $ 2,117 $ 25,401 Telephone Revenue $ 50 $ 537 $ 327 $ 243 $ 289 $ 3,471 Other Income $ 27,953 $ 19,788 $ 12,798 $ 22,967 $ 20,877 $ 250,518 Potential Gross Income (PGI) $ 47,923 $ 39,256 $ 30,678 $ 37,258 $ 38,779 $ 6,065,628 Vacancy & Collection Loss (VC) (1 - Occ %) 13% 23% 28% 15% 20% Vacancy & Collection Loss (VC) $ 6,422 $ 8,856 $ 8,627 $ 5,768 $ 1,206,453 = Effective Gross Income (EGI) $ 41,501 $ 30,400 $ 22,051 $ 31,490 $ 4,859,174 Expenditures March April May June Average Annualized Rooms $ 101,601 $ 97,055 $ 80,417 $ 84,294 $ 90,842 $ 1,090,101 Food & Banquet $ 28,513 $ 24,929 $ 21,515 $ 21,576 $ 24,133 $ 289,599 Beverage $ 1,161 $ 2,582 $ (1,270) $ 1,651 $ 1,031 $ 12,372 Telephone $ 1,281 $ 2,197 $ 1,839 $ 1,893 $ 1,803 $ 21,630 Admin & General $ 45,739 $ 52,360 $ 46,083 $ 35,551 $ 44,933 $ 539,199 INCOME APPROACH Sales & Marketing $ 19,221 $ 14,338 $ 15,096 $ 21,240 $ 17,474 $ 209,685 Energy $ 35,216 $ 37,509 $ 13,398 $ 43,180 $ 32,326 $ 387,909 Management Fees $ 11,295 $ 11,295 $ 14,329 $ 30,558 $ 16,869 $ 202,431 Property Taxes $ 47,500 $ 47,500 $ 47,500 $ 47,500 $ 47,500 $ 570,000 Legal Fees $ - $ 159,409 $ - $ 53,136 $ 637,636 Corporate Office Overhead $ 3,092 $ 3,720 $ 2,617 $ 4,572 $ 3,500 $ 42,003 -Operating Expenses (OE) $ 294,619 $ 293,485 $ 400,933 $ 292,015 $ 333,547 $ 4,002,565 -Capital Expenditures (CAPX) $ 33,524 $ 12,633 $ 46,158 $ - $ 23,079 $ 276,945 =Net Operating Income (NOI) $ 261,095 $ 280,852 $ 354,775 $ 292,015 $ 297,184 $ 3,566,211 TERMINAL VALUE Terminal Cap Rate: 8.00% Net Operating Expenses: $ 1,981,263 End of Year 5 Terminal Value: $ 24,765,792 NET SALES PROCEEDS Sales Price (SP) $ 24,765,792 -Selling Expenses (SE) 6% $ 1,485,947.51 =Net Sales Proceeds (NSP) $ 23,279,844.29 PRESENT VALUE OF FUTURE CASH FLOWS Discount Rate: 11.75% NPV $19,763,339 Year 1 2 3 4 5 Annual Cash Flow $ 579,664 $ 1,785,379 $ 2,583,938 $ 2,290,157 $ 1,981,263 Reversion Value $ 23,279,844 $ 579,664 $ 1,785,379 $ 2,583,938 $ 2,290,157 $ 25,261,108 ANNUAL PERCENTAGE CHANGES IN PER-ROOM VALUE Hotel Valuation Index 2010 2011 2012 2013 2014 2015 Orlando 18.0% 24.4% 20.4% 14.4% 0.1% 0.1% 17
  • 18. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYIII. Highest and Best Use AnalysisThe 4.4 acre Lake Eve Resort property is currently zoned to allow various uses, including: office, retail, multi-family, and hotel. As a raw, undeveloped property, the owner would have a fairly wide range of developmentoptions to determine the ultimate use of the site.The owner expects to get a 30 year mort gage at 6.0%, for 60% of the development costs (60% loan-to-valueratio), with 3.0% in total up-front financing costs and selling expenses of 3.0%.All evaluations used constants for the Orange County, FL Property Tax M illage Rate for 2010 (21.3255), aswell as the assessed value which was estimated at 90% of the sales price.Furthermore, all analyses included an ordinary income tax of 30%, a capital gains tax rate of 15%, and aDepreciation recapture tax rate of 25%.The highest and best use for the property would ultimately be determined based on the development that has thegreatest Internal Rate of Return (IRR), the highest Net Present Value (NPV), using the market rents, vacancies,and terminal capitalization rates identified in the M arket Analysis included herein. The Discount Rate us ed was11.75% per the Hotel Valuation Index report used for the property valuation included as section II of this report.Option 1: 4-S tory, 150-unit multi-family apartment complexThe first development option analyzed was a multi-family apartment complex, consisting of 50 studioapartment units (500 sq.ft.), 50 one-bedroom units (700 sq.ft.), and 50 two-bedroom units (1,000 sq.ft.). Themarket for apartment units in the Orlando region is relatively strong, and as inventory in the marketplacedwindles there is a strong potential for increased demand. Currently, apartment rents in the area range around$0.90/sq.ft. For this analysis a slight premium was placed on the one-bedroom apartments, with a slightdiscount on the studio apartments, therefore the resulting rental rates were: Studio: $425.00/mo; One-Bedroom:$665.00/mo; Two Bedroom: $900.00/mo. Assuming zero vacancies, the potential income from rents for theapartment complex would be $1,194,000.00/year. However in reality the current occupancy rate for apartmentsin the region is around 94%, and as demand in the area increases the vacancy will decline while rental ratesshould increase.According to the RS M eans Construction Cost data, the approximate cost to construct a low-rise apartmentbuilding is $94,000 per unit. For this development proposal, the total estimated cost of the building would be$14,100,000. The owner is expecting a loan-to-value of 60%, therefore the initial equity required would be$5,460,000.Operating expenses for the property were estimated to be around 20% per year, with an additional 5% reservedfor Capital Expenditures. Annual revenue growth was projected at 5%, reflecting slight increases in demand,while operational expenses were estimated to increase by 3% annually, consistent with inflation.Ultimately, this development option proposes the smallest IRR, at approximately 7%. The most likely reasonbehind the very low return is the fact that the development costs are quite high compared to the annual rentsreceived, and the holding period is quite short. As a long-term investment, this option would make sense as itgenerates a positive cash flow annually, but as a short-term investment the returns are simply not there. 18
  • 19. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYOption 2: Single-story, 50,000 sq. ft. retail shopping centerThe retail market in the Orlando region is quite bleak, particularly in submarkets that are less desirable or havecenters without an anchor tenant, which the Lake Eve property would likely be considered. These areas canexpect rent rates as low as $4.00/rsf for large boxes, and as low as $8.00/rsf for smaller users. Fortunately, overthe next few years the market is expected to recover.For the purposes of this analysis, and for simplicity, the revenue for the shopping center was based only on thebase rent per square foot that was used ($8.00/sf) for a Potential Gross Income of $400,000 per y ear, howeverthere would be potential for additional income revenue if there is a percentage share in the lease between theTenant and Landlord. As the economy improves, that would result in more sales for the tenants, and a percent ofthose overages would result in a greater Effective Gross Income.Vacancy in the region remains high, estimated at around 25%, with higher vacancy the landlord would beresponsible for a greater portion of the Operating Expenses, which were estimated at 20%, and CapitalExpenses estimated at 2%.The estimated development costs for a retail shopping center were estimated at $82.50 per square foot,according to RS M eans Building Construction Data, for a total development cost of $4,125,000. Despite loweroccupancy levels and higher Operating Costs, this development proposal could achieve a Net Operating Incomeof around $2.7M . Assuming that there will still be lower demand for partially -stabilized shopping centers in fiveyears, the terminal cap rate was set at 10%.Based on the NOI of approximately $105,000 and a capitalization rate of 10%, the sale of this property wouldbe around $1,107,500 which, after selling costs, would not be enough to cover the balance of the loan ultimatelyresulting in the owner having to bring a check to settlement in the amount of $588,417. While there is upsidethrough decreased vacancy and percentage share arrangements with the Tenants, the short-term sale of thisproperty does not seem to make any sense.Option 3: High-Rise 500,000 sq.ft. office building with two levels of underground parkingLike most markets throughout the country the Class A office market in Orlando has been impacted by thedeclining economy, resulting in high vacancy and low absorption rates, with little sign of improvement in thenear future. This is especially pronounced in many suburban submarkets, including the Tourist Corridorsubmarket that the Lake Eve Resort is located. In fact, the Tourist Corridor has even more office inventory thanthe CBD district for Orlando, and has even higher rent rates! The asking price for Class A office space in theTourist Corridor is $23.33/sq.ft.Evaluating this proposal option, the high supply of existing office space and absurdly high rent rates wouldresult in an even higher-than-normal vacancy rate which was estimated at 35%.Development costs for a high-rise office building are quite expensive, and are estimated at $150/sq.ft. for a totalof $75M in construction costs. Adding two levels of underground parking garage (approximately 84,000 sq.ft.Total) would increase the total construction cost to over $82M . The owner would be responsible for more than$33,000,000.00 in equity to cover the 60% LTV.Aside from high vacancy, the biggest detriment to this development option is the exorbitant debt service.Because of the high construction costs, the annual payment toward the mortgage is $3.6M , which means thatgreat than 50% of the revenue from the rents will go toward paying down debt on the property. 19
  • 20. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYOn the positive side, there has been an increase in sales activity of office buildings in the Orlando M arket,which would result in a better terminal capitalization rate for the sale of this property, estimated at 8%. It wasestimated that the proceeds from this sale of this property, if developed, would result in a profit. The estimatedIRR would be 12%, but the high amount of equity involved up front makes the project an unattractiveproposition. However, the influx of $82M in construction costs could help to create many jobs and stimulate thelocal economy.Option 4: 8 story, 180-unit Hampton InnThe fourth development option considered was to develop the property as a Hampton Inn hotel with 180 guestrooms. Considering the close proximity to major tourist attractions including the Walt Disney World Resort andSea World Orlando, it is no surprise that this development option had the greatest IRR and NPV.Hotel occupancy in Orange County increased in 2010 by 4.6% from the previous year, resulting in a vacancyrate of 30%, with an Average Daily Rate of $100.42. As the economy continues to improve, the volume oftourists to the area will inevitably recover, and vacancies should decline while providing for increased roomrates.According to the RS M eans Construction Data, the cost to construct a high rise apartment was used todetermine the development costs. At $115 per square foot, the 110,000 sq.ft. Hampton Inn would cost $12.65Mto build, of which the owner would only have to provide $5M .As tourism increases in the area, the demand for existing hotel properties will also increase, making theproposition of selling the development after five years an attractive option. Considering a Cap. Rate of 8%, themarket value of this project is estimated to be around $25M . The initial equity investment of $5M , would resultin an IRR of 89%, and a Net Present Value of almost $24,732,000.Option 5: Mixed-Use DevelopmentThe Hampton Inn proposal was hands-down the best option, although the other three proposals offered somevalue as development options, but were limited by the struggling economy and oversupply of their respectivemarkets. A fifth option considered was a mixed-use development consisting of first floor retail (50,000 sq.ft.),second floor Class B office (50,000sq.ft.), and multi-family apartments on the third and fourth floors (75 units).While the marketplace may not be able to sustain the volume of space proposed as separate uses, in smallersupply they may be absorbed faster into the market place. Plus, the lack of comp arable properties in the areacould result in a novelty that would be desirable to future tenants, and to potential buyers of mixed-useproperties.Lastly, by capitalizing on synergies that can be created among the different uses and users, resulting in lowervacancies and operating costs. Furthermore, by diversifying the mixture of tenants, the property as a whole maybe able to better sustain wholesale changes in the economic landscape. Because of these three factors, theterminal capitalization rate for this property was slightly better than the previous development options, with anestimated Cap Rate of 7%.The IRR for this option was calculated to be 16%, which is greater than constructing only office, multi-familyapartment, or office space, with an NPV of $1,065,440. 20
  • 21. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDYSummary:In conclusion, the best development proposal is unequivocally the 180-unit Hampton Inn, which offers thedeveloper a much better Internal Rate of Return, has a better Net Present Value, and requires the 3 lowestamount of equity.Second to the hotel option is the development of a mixed-use property that combines retail, office, andapartments. Although the return is not nearly as great, the novelty of the product types and the variety offeredprovides it with tremendous upside.Lastly, if the owner was not interested in selling the property within five years and instead was looking toprovide a legacy property for their heirs, than the multi-family apartment component could be an attractivedevelopment option that results in a reliable source of income.Use IRR NPV Proceeds from Sale EquityHotel: 89% $24,731,846.85 $ 18,694,062.80 $5,060,000Mixed-Use: 16% $1,065,440.63 $ 224,780.96 $7,470,000Office: 12% ($51,416.58) $ 16,361,675.72 $33,083,333Apartment: 7% ($423,000.00) ($4,038,269.82) $5,640,000Retail: 2% ($533,985.54) ($588,417.49) $1,650,000 21
  • 22. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY OPTION 1: MULTI-FAMILY APARTMENTS INT 11.75% NPV ($812,603.15) Year 0 1 2 3 4 5 Annual Cash Flow $ (5,640,000) $ 1,122,360 $ 1,178,478 $ 1,237,402 $ 1,299,272 $ 1,364,236 Financing Costs $ (423,000) Property Taxes $ (3,044) $ (3,044) $ (3,044) $ (3,044) $ (3,044) Operating Costs $ (15,761) $ (16,234) $ (16,721) $ (17,222) $ (17,739) Debt Service $ (614,610) $ (614,610) $ (614,610) $ (614,610) $ (614,610) Before-Tax Cash Flow $ 488,945 $ 544,591 $ 603,028 $ 664,396 $ 728,843 Tax Liability $ 146,684 $ 163,377 $ 180,908 $ 199,319 $ 218,653 Reversion Value $ 1,585,972 $ (6,063,000) $ 342,262 $ 1,252,558 $ 1,386,963 $ 1,528,111 $ 3,262,311 Unit Type Sq.Ft./Unit Rents/SF Rents QTY Total Potential Rents Studio Units: 500 $0.85 $425.00 50 $21,250.00 1-Bedroom Units: 700 $0.95 $665.00 50 $33,250.00 2-Bedroom Units: 1000 $0.90 $900.00 50 $45,000.00 Monthly PGI: $99,500.00 Low-Rise Apartment Annual: $1,194,000.00 RS Means Construction Data: Vacancy (6%) $71,640.00 Low-Rise Apartment $94,000.00 per unit Net Income: $1,122,360.00 Total Units: 150 units Operating Costs: 20% Total Construction Cost: $14,100,000 Capital Expenditures: 2% Total Development Costs $14,100,000 Equity $5,640,000 Terminal Cap Rate 8.0% Sales Price $1,585,972 Loan Terms: Financing Costs $423,000 LTV 60% INT 6.00% Terms 30 year, fixed Year: 1 2 3 4 5 Initial Balance: $ 8,460,000 $ 8,352,990 $ 8,239,560 $ 8,119,324 $ 7,991,873 Payment: $ (614,610) $ (614,610) $ (614,610) $ (614,610) $ (614,610) Interest Portion: $ 507,600 $ 501,179 $ 494,374 $ 487,159 $ 479,512 Principal Contribution: $ 107,010 $ 113,430 $ 120,236 $ 127,450 $ 135,097 Ending Balance: $ 8,352,990 $ 8,239,560 $ 8,119,324 $ 7,991,873 $ 7,856,776 Net Sale Proceeds: Property Taxes: Selling Price: $1,585,972.09 Orange County: 4.4347 Selling Costs: $47,579.16 Fire 2.2437 Net Sales: $1,538,393 Sheriff: 1.8043 Remaining Balance: $ 7,856,776 School State 5.396 Before-Tax Equity Reversion $ (6,318,382.94) School Local: 2.498 Capital Gains Tax: $ (1,895,514.88) Library: 0.3748 Depreciation Recapture (25%) $ 384,598.23 South Florida WMD: 0.624 Proceeds $ (4,038,269.82) Lake Buena Vista: 3.95 Total: 21.3255 NPV: ($423,000.00) IRR: 7% Assessed Value Rate: 90% Property Value: $1,585,972 Taxable Value: $1,427,374.88 Millage Rate: 0.00213255 Property Taxes: $3,043.95 22
  • 23. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY OPTION 2: RETAIL SHOPPING CENTER INT 11.75% NPV ($533,985.54) Year 0 1 2 3 4 5 Annual Cash Flow $ (1,650,000) $ 300,000 $ 315,000 $ 330,750 $ 347,288 $ 364,652 Financing Costs $ (123,750) Tenant Improvements $ (3,000) $ (3,150) $ (3,308) $ (3,473)$ (3,647) Property Taxes $ (1,889) $ (1,889) $ (1,889) $ (1,889)$ (1,889) Operating Costs $ (66,000) $ (67,980) $ (70,019) $ (72,120)$ (74,284) Debt Service $ (179,806) $ (179,806) $ (179,806) $ (179,806)$ (179,806) Before-Tax Cash Flow $ 49,305 $ 62,175 $ 75,728 $ 89,999 $ 105,026 Tax Liability $ 14,791 $ 18,652 $ 22,718 $ 27,000 $ 31,508 Reversion Value $ 1,107,488 $ (1,773,750) $ 34,513 $ 143,001 $ 174,174 $ 206,998 $ 1,349,048 Unit Type Sq.Ft. Rents/SF Total Potential Rents Retail Shopping Center 50,000 $8.00 $400,000.00 RS Means Construction Data: Vacancy 25% Retail $82.50 per sq.ft. Vacancy Losses: $100,000.00 Total Office Space: 50,000 sq. ft. Net Income: $300,000.00 Total Construction Cost: $4,125,000 Tenant Improvements 1% Operating Costs: 20% Capital Expenditures: 2% Total Development Costs $4,125,000 Equity $1,650,000 Loan Terms: Terminal Cap Rate 10% LTV 60% Sales Price $1,107,488 INT 6.00% Financing Costs $123,750 Terms 30 year, fixed Year: 1 2 3 4 5 Initial Balance: $ 2,475,000 $ 2,443,694 $ 2,410,510 $ 2,375,334 $ 2,338,048 Payment: $ (179,806) $ (179,806) $ (179,806) $ (179,806) $ (179,806) Interest Portion: $ 148,500 $ 146,622 $ 144,631 $ 142,520 $ 140,283 Principal Contribution: $ 31,306 $ 33,184 $ 35,175 $ 37,286 $ 39,523 Ending Balance: $ 2,443,694 $ 2,410,510 $ 2,375,334 $ 2,338,048 $ 2,298,525 Net Sale Proceeds: Property Taxes: Selling Price: $1,107,488 Orange County: 4.4347 Selling Costs: $ 33,224.63 Fire 2.2437 Net Sales: $ 1,074,263.06 Sheriff: 1.8043 Remaining Balance: $ 2,298,525 School State 5.396 Before-Tax Equity Reversion $ (1,224,261.79) School Local: 2.498 Capital Gains Tax: $ (367,278.54) Library: 0.3748 Depreciation Recapture (25%) $ 268,565.76 South Florida WMD: 0.624 Proceeds $ (588,417.49) Lake Buena Vista: 3.95 Total: 21.3255 NPV: ($533,985.54) IRR: 1.7% Assessed Value Rate: 80% Property Value: $1,107,488 Taxable Value: $885,990.15 Millage Rate: 0.00213255 Property Taxes: $1,889.42 23
  • 24. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY OPTION 3: HIGH-RISE OFFICE INT 11.75% NPV ($51,416.58)Year 0 1 2 3 4 5Annual Cash Flow $ (33,083,333) $ 7,582,250 $ 7,961,363 $ 7,961,363 $ 7,961,363 $ 7,961,363Financing Costs $ (2,481,250)Tenant Improvements $ (75,823) $ (79,614) $ (79,614) $ (79,614) $ (79,614)Property Taxes $ (90,018) $ (90,018) $ (90,018) $ (90,018) $ (90,018)Operating Costs $ (3,184,545) $ (3,280,081) $ (3,378,484) $ (3,479,838) $ (3,584,233)Debt Service $ (3,605,202) $ (3,605,202) $ (3,605,202) $ (3,605,202) $ (3,605,202)Before-Tax Cash Flow $ 626,662 $ 906,447 $ 808,045 $ 706,690$ 602,295Tax Liability $ 187,999 $ 271,934 $ 242,413 $ 212,007$ 180,689Reversion Value $ 52,764,281 $ (35,564,583) $ 438,664 $ 2,084,829 $ 1,858,503 $ 1,625,388 $ 54,149,560Unit Type Sq.Ft. Rents/SF Total Potential RentsOffice Building W/Underground Garage 500,000 $23.33 $11,665,000.00RS Means Construction Data: Vacancy 35%Office $150 per sq.ft. Vacancy Losses: $4,082,750.00Total Office Space: 500,000 Net Income: $7,582,250.00Office Construction Cost: $75,000,000 Tenant Improvements 1%Garage: $92.50 per sq.ft. Operating Costs: 40%Space per floor: 41,666.67 Capital Expenditures: 2%Garage Total: 83,333.33Garage Cost: $ 7,708,333.33Total Construction Costs: $82,708,333.33 Total Development Costs $82,708,333 Equity $33,083,333Loan Terms: Terminal Cap Rate 8%LTV 60% Sales Price $52,764,281INT 6.00% Financing Costs $2,481,250Terms 30 year, fixedYear: 1 2 3 4 5Initial Balance: $ 49,625,000 $ 48,997,298 $ 48,331,933 $ 47,626,647 $ 46,879,044Payment: $ (3,605,202) $ (3,605,202) $ (3,605,202) $ (3,605,202) $ (3,605,202)Interest Portion: $ 2,977,500 $ 2,939,838 $ 2,899,916 $ 2,857,599 $ 2,812,743Principal Contribution: $ 627,702 $ 665,364 $ 705,286 $ 747,603 $ 792,460Ending Balance: $ 48,997,298 $ 48,331,933 $ 47,626,647 $ 46,879,044 $ 46,086,584 Net Sale Proceeds: Property Taxes:Selling Price: $52,764,281 Orange County: 4.4347Selling Costs: $ 1,582,928.42 Fire 2.2437Net Sales: $ 51,181,352.25 Sheriff: 1.8043Remaining Balance: $ 46,086,584 School State 5.396Before-Tax Equity Reversion$ 5,094,768.08 School Local: 2.498Capital Gains Tax: $ 1,528,430.43 Library: 0.3748Depreciation Recapture (25%) 12,795,338.06 $ South Florida WMD: 0.624Proceeds $ 16,361,675.72 Lake Buena Vista: 3.95 Total: 21.3255NPV: ($51,416.58)IRR: 12% Assessed Value Rate: 80% Property Value: $52,764,281 Taxable Value: $42,211,425 Property Taxes: $90,017.97 24
  • 25. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY OPTION 4: HAMPTON INN INT 11.75% NPV $24,731,846.85 Year 0 1 2 3 4 5 Annual Cash Flow $ (5,060,000) $ 4,618,316 $ 4,849,232 $ 4,849,232 $ 4,849,232 $ 4,849,232 Financing Costs $ (379,500) Property Taxes $ (43,745) $ (43,745) $ (43,745) $ (43,745) $ (43,745) Operating Costs $ (1,477,861) $ (1,522,197) $ (1,567,863) $ (1,614,899) $ (1,663,346) Debt Service $ (551,405) $ (551,405) $ (551,405) $ (551,405) $ (551,405) Before-Tax Cash Flow $ 2,545,305 $ 2,731,885 $ 2,686,219 $ 2,639,183$ 2,590,736 Tax Liability $ 763,591 $ 819,565 $ 805,866 $ 791,755$ 777,221 Reversion Value $ 25,641,052 $ (5,439,500) $ 1,781,713 $ 6,283,335 $ 6,178,303 $ 6,070,121 $ 31,599,745 OPTION 4: HAMPTON INN HOTEL Unit Type No. of Units ADR Total Potential Rents 8-Story, 180 unit Hampton Inn 180 $100.42 $18,075.60 Annual: $6,597,594.00 RS Means Construction Data: High Rise Apartment Vacancy 30% Hotel $115.00 per sq.ft. Vacancy Losses: $1,979,278.20 Total Hotel Space: 110,000 sq. ft. Net Income: $4,618,315.80 Total Construction Cost: $12,650,000 Operating Costs: 30% Capital Expenditures: 2.0% Total Development Costs $12,650,000 Equity $5,060,000 Terminal Cap Rate 8% Sales Price $25,641,052 Loan Terms: Financing Costs $379,500 LTV 60% INT 6.00% Terms 30 year, fixed Year: 1 2 3 4 5 Initial Balance: $ 7,590,000 $ 7,493,995 $ 7,392,229 $ 7,284,358 $ 7,170,014 Payment: $ (551,405) $ (551,405) $ (551,405) $ (551,405) $ (551,405) Interest Portion: $ 455,400 $ 449,640 $ 443,534 $ 437,061 $ 430,201 Principal Contribution: $ 96,005 $ 101,766 $ 107,871 $ 114,344 $ 121,204 Ending Balance: $ 7,493,995 $ 7,392,229 $ 7,284,358 $ 7,170,014 $ 7,048,810 Net Sale Proceeds: Property Taxes: Selling Price: $25,641,052 Orange County: 4.4347 Selling Costs: $ 769,231.56 Fire 2.2437 Net Sales: $ 24,871,820.51 Sheriff: 1.8043 Remaining Balance: $ 7,048,810 School State 5.396 Before-Tax Equity Reversion $ 17,823,010.96 School Local: 2.498 Capital Gains Tax: $ 5,346,903.29 Library: 0.3748 Depreciation Recapture (25%) $ 6,217,955.13 South Florida WMD: 0.624 Proceeds $ 18,694,062.80 Lake Buena Vista: 3.95 Total: 21.3255 NPV: $24,731,846.85 IRR: 89% Assessed Value Rate: 80% Property Value: $25,641,052 Taxable Value: $20,512,841.66 Millage Rate: 0.00213255 Property Taxes: $43,744.66 25
  • 26. LAKE EVE RESORT, ORLANDO, FL FEAS IBILITY S TUDY OPTION 5: MIXED-USE DEVELOPMENT INT 11.75% NPV $1,065,440.63 Year 0 1 2 3 4 5 Annual Cash Flow $ (7,470,000) $ 1,757,200 $ 1,932,920 $ 1,932,920 $ 1,932,920 $ 1,932,920 Financing Costs $ (560,250) Tenant Improvements $ (17,572) $ (19,329) $ (19,329) $ (19,329)$ (19,329) Property Taxes $ (13,902) $ (13,902) $ (13,902) $ (13,902)$ (13,902) Operating Costs $ (386,584) $ (398,182) $ (410,127) $ (422,431)$ (435,104) Debt Service $ (814,031) $ (814,031) $ (814,031) $ (814,031)$ (814,031) Before-Tax Cash Flow $ 525,111 $ 687,476 $ 675,531 $ 663,227 $ 650,554 Tax Liability $ 157,533 $ 206,243 $ 202,659 $ 198,968 $ 195,166 Reversion Value $ 8,148,687 $ (8,030,250) $ 367,578 $ 1,581,195 $ 1,553,721 $ 1,525,422 $ 9,644,961 Mixed-Use Commercial Development Sq.Ft./Unit Rents/SF Total Potential Rents First Floor Retail 50,000 $8.00 $400,000.00 Second Floor Office 50,000 $23.33 $1,166,500.00 Third & Fourth Floor Apartments 75 $700.00 $630,000.00 12.00 months Annual: $2,196,500.00 RS Means Construction Data: Vacancy 20% Office $150 per sq.ft. Vacancy Losses: $439,300.00 Total Office Space: 50,000 Net Income: $1,757,200.00 Office Construction Cost: $7,500,000 Tenant Improvements 1% Retail Construction Cost: $82.50 per sq.ft. Operating Costs: 20% Retail Space 50,000 Capital Expenditures: 2% Retail Construciton Cost: $ 4,125,000 Apartments Const. Cost: 94,000 per unit Total Development Costs $ 18,675,000 Total No. of Apartments: 75 Total Apartment Const. $ 7,050,000 Equity $7,470,000 Total Construction Costs: $ 18,675,000 Terminal Cap Rate 7% Loan Terms: Sales Price $8,148,687 LTV 60% Financing Costs $560,250 INT 6.00% Terms 30 year, fixed Year: 1 2 3 4 5 Initial Balance: $ 11,205,000 $ 11,063,269 $ 10,913,034 $ 10,753,785 $ 10,584,981 Payment: $ (814,031) $ (814,031) $ (814,031) $ (814,031) $ (814,031) Interest Portion: $ 672,300 $ 663,796 $ 654,782 $ 645,227 $ 635,099 Principal Contribution: $ 141,731 $ 150,235 $ 159,249 $ 168,804 $ 178,932 Ending Balance: $ 11,063,269 $ 10,913,034 $ 10,753,785 $ 10,584,981 $ 10,406,049 Net Sale Proceeds: Property Taxes: Selling Price: $8,148,687 Orange County: 4.4347 Selling Costs: $ 244,460.61 Fire 2.2437 Net Sales: $ 7,904,226.50 Sheriff: 1.8043 Remaining Balance: $ 10,406,049 School State 5.396 Before-Tax Equity Reversion$ (2,501,822.38) School Local: 2.498 Capital Gains Tax: $ (750,546.71) Library: 0.3748 Depreciation Recapture (25%) 1,976,056.62 $ South Florida WMD: 0.624 Proceeds $ 224,780.96 Lake Buena Vista: 3.95 Total: 21.3255 NPV: $1,065,440.63 IRR: 16% Assessed Value Rate: 80% Property Value: $8,148,687 Taxable Value: $6,518,950 Property Taxes: $13,901.99 26