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HVS Combined Report - Hotel and Convention Center Studies - Cedar Rapids IA 01 27 2011

HVS Combined Report - Hotel and Convention Center Studies - Cedar Rapids IA 01 27 2011

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Published by: GazetteOnline on Sep 21, 2011
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09/21/2011

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MEMORANDUM
To:
John Frew
From:
Hans DetlefsenHVS Global Hospitality Services
Re:
Summary of Hotel and Convention Center Studies
Date:
January 27
th
, 2011 _____________________________________________________Dear Mr. Frew,At your request, we are pleased to summarize the findings of twoHVS studies: (1) the Hotel Study and (2) the Convention CenterStudy, both pertaining to developments in downtown Cedar Rapids,Iowa. As we discussed, we assume the Crowne Plaza Five Seasonshotel will undergo a ±$21 million renovation to become an upper-upscale, full-service convention hotel with branding as a Sheraton ora brand of similar quality. We also assume the development of a±$67 million convention center attached to the hotel. We assume asingle operator will manage both the hotel and convention centercomplex, which includes dedicated banquet and exhibition spaces.For planning purposes, we also show assumed operating revenuesand expenses associated with the U.S. Cellular Center, which is thestand-alone arena and its associated auxiliary meeting space.The following table shows our original forecast of combined financialoperations for the renovated hotel and convention center, discussedin greater detail in the attached Hotel Study.
111 N. Wabash, Suite 1717Chicago, Illinois 60602Phone (312) 526-3885Fax (213) 285-4958Email: hdetlefsen@hvs.comwww.hvs.comNew YorkSan FranciscoBoulderDenverBostonMiamiDallas
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Due to constraints of time and budget, we developed a preliminaryopinion in our Hotel Study about the convention center’s revenue andexpense potential based on a summary review of financial operatingstatistics from comparable properties. This opinion represented an “extraordinary assumption” as defined by the Appraisal Institute;therefore, we recommended conducting a detailed market analysisfor the convention center.Subsequently, our detailed Convention Center Study concludedseveral significant findings that differed from our extraordinaryassumption presented in the preceding financial projections. Thesedifferences can be summarized in the following manner:1.
 
The convention center is likely to experience significantlylower revenue than previously assumed due, in part, to lowerdemand projections and to less food and beverage revenueforecasted for the convention center. (In our combined finalsummary, we include all food and beverage revenue into thefood and beverage department line item. But the net increasein this department is less than our initial Hotel Studyassumption would have indicated if we had allocated part of the convention center department’s revenue to the food andbeverage line item.)2.
 
The convention center will have a significantly more profitableoperating margin than previously assumed due, in part, to thefact that food and beverage is no longer blended into thisdepartmental line item. This conclusion is also the result of amore detailed understanding of demand potential.3.
 
Incremental food and beverage revenue to the combined hoteland convention center operation will be roundly $400,000 in astable operating year, as a result of events taking place in theconvention center.Instead of generating revenue of ±$4 million, as reflected in ouroriginal assumption, the detailed convention center market analysisled us to revise these revenue estimates to ±$2 million in a stableoperating year. Instead of the assumed operating expenses of ±$3,the convention center market analysis resulted in a forecast of ±$1million in operating expenses.These new findings, concluded in our Convention Center Study, aresummarized in the following table. At your request, we also include

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