1. ISHC Mid-Year Symposium Feasibility Study Tutorial for Condo- Hotel Ownership Greg Bohan & Scott Steilen April 27, 2006

2. 2 Overarching Issues to Consider When Performing Analysis Variations of condo lodging/mixed-use product Variations of condo lodging/mixed-use product No real history of performance No real history of performance Real estate premium of brand Real estate premium of brand Availability of operators Availability of operators It still must pencil as a hotel It still must pencil as a hotel Overwhelming majority of projects done at upscale to luxury level – middle to lower market remains relatively untested Overwhelming majority of projects done at upscale to luxury level – middle to lower market remains relatively untested

3. 3 Key Differences: Condo Hotel v. Traditional Hotel Analysis Residential component and analysis required to evaluate pricing, absorption, brand premium, etc. Residential component and analysis required to evaluate pricing, absorption, brand premium, etc. Impact of the business structure of the project on the lodging performance Impact of the business structure of the project on the lodging performance Allocation of revenues and expenses among the various stakeholders Allocation of revenues and expenses among the various stakeholders Development program Development program Other design considerations and their impact on performance Other design considerations and their impact on performance

4. 4 Key Differences: Condo Hotel v. Traditional Hotel Analysis Rental program participation by unit owners Rental program participation by unit owners Length of rental agreements Length of rental agreements Owner usage – allowable nights and rate Owner usage – allowable nights and rate Access to and utilization of amenities by stakeholders Access to and utilization of amenities by stakeholders Market positioning Market positioning Development Cost Development Cost Return Analysis Return Analysis

5. 5 Four Differences to Discuss in Greater Detail Residential Analysis Residential Analysis Business Structure Impact Business Structure Impact Allocations Allocations Cost & Return Analysis Cost & Return Analysis

6. 6 Residential Analysis Survey the competitive condo landscape Survey the competitive condo landscape Identify most comparable projects Identify most comparable projects Analyze unit mix, unit size, pricing and absorption trends Analyze unit mix, unit size, pricing and absorption trends Analyze lodging brand “premium” in comparable projects Analyze lodging brand “premium” in comparable projects Recommend appropriate unit mix, sizes, pricing and absorption Recommend appropriate unit mix, sizes, pricing and absorption

7. 7 Residential Factors to Consider We all know that buyers are looking for income to cover expenses; however, in the jargon of the industry, it is a LIFESTYLE purchase We all know that buyers are looking for income to cover expenses; however, in the jargon of the industry, it is a LIFESTYLE purchase Potential for appreciation – with current real estate market cannot be a repeat of what happened with timeshare in the 80’s Potential for appreciation – with current real estate market cannot be a repeat of what happened with timeshare in the 80’s No matter what people say, buyers want it to be a good investment No matter what people say, buyers want it to be a good investment

8. 8 Residential Factors to Consider Location - Must be in a location where a second or third home is desirable, typically: Location - Must be in a location where a second or third home is desirable, typically: – Beachfront resort location – Mountain ski location – Other resort location (e.g., Orlando or Las Vegas) – International gateway cities where it can be a “pied a terre” – Other vibrant urban locations with a host of attractions Location - Areas where it may not make sense: Location - Areas where it may not make sense: – Secondary cities with minimal overriding appeal – Suburban locations – Areas where high-quality product cannot be supported

9. 9 Residential Factors to Consider Facilities and Amenities – balance between an attractive residence AND a functional hotel unit: Facilities and Amenities – balance between an attractive residence AND a functional hotel unit: – Quality and durable finishes – very discerning buyers at this price point; must stand up to “hotel” use – Package – must have brand standard FF&E – 5 fixture baths, where possible – Fully amenitized kitchens (room for latitude here) – Flexible living and sleeping areas – Latest in technology – Availability of full hotel and concierge services – spa, recreational, dining, shopping & errands, etc.

10. 10 Business Structure Impact Rental program participation by unit owners Rental program participation by unit owners – Not all of the available rooms may be salable by the manager Length of rental agreements Length of rental agreements – Are the rental agreements long enough to enable management to solicit group business? – What assumptions are used for agreement turnover? Owner usage Owner usage – How many nights does an owner get to use their unit and when? – What rate does an owner pay for usage?

11. 11 Business Structure Impact Access to and Utilization of Amenities Access to and Utilization of Amenities – Project’s amenities (e.g. spa, restaurant, etc.) will also be used by residents or other stakeholders – Analysis must consider usage from both a programming and operations perspective

12. 12 Allocations Commentary about NYC cooperative hotels in the 1960’s and 1970’s: Commentary about NYC cooperative hotels in the 1960’s and 1970’s: – Sherry Netherland, Stanhope and Carlisle – structure – Trouble on the ever-so-fashionable upper east side more than 30 years ago Revenue and expense sharing parameters are all over the place – no 2 deals seem to be alike Revenue and expense sharing parameters are all over the place – no 2 deals seem to be alike Some standardization by the major brands that are doing condo-hotels Some standardization by the major brands that are doing condo-hotels

13. 13 Allocations Examples of major allocation methods Examples of major allocation methods – Room revenues – Food, Beverage and Other Revenues – Rooms departmental expenses – Food, Beverage and Other expenses – Administrative and General – Marketing – Property Operations and Maintenance – Real Estate Taxes and Fees – Reserves (critical)

14. 14 Cost and Return Analysis Development cost driven higher by necessity of larger units and residential/lodging duality of purpose Development cost driven higher by necessity of larger units and residential/lodging duality of purpose Allocation of cost may be an issue in a mixed- use project Allocation of cost may be an issue in a mixed- use project Differences between equity and debt requirements Differences between equity and debt requirements Cash up front from buyers of units – so equity requirements are met using buyer’s cash, not developer’s cash Cash up front from buyers of units – so equity requirements are met using buyer’s cash, not developer’s cash

15. 15 Cost and Return Analysis Operating returns to developer with common areas is minimal or negative Operating returns to developer with common areas is minimal or negative – Owners getting 50% or more of the biggest profit engine – Room Revenues – Food and beverage profits are small at best and not existent often – Meeting space generates no significant profit – If developer doesn’t make the desired return on the sale of the units, there may be no return

16. ISHC Mid-Year Symposium Feasibility Study Tutorial for Condo- Hotel Ownership Greg Bohan & Scott Steilen April 27, 2006