HomeMy WebLinkAbout04-24-18 Correspondence - Economic Development to City Commission - Proposed Hotel and Convention Center Market Study
Memorandum REPORT TO: Honorable Mayor and City Commission FROM: David Fine, Economic Development Specialist Brit Fontenot, Economic Development Director
SUBJECT: HVS Market Study: Proposed Hotel and Convention Center
DATE: April 26, 2018
RECOMMENDATION: Staff recommends providing the hospitality community time to review the conclusions of the study by making the it available on the City website and distributing it to properties in the Tourism Business Improvement District (TBID). Pending future conversations with hotel developers, staff may recommend releasing an RFP for a conference center public-private partnership, but given the profitability of the proposed center, staff recommends waiting for review of this document by the private sector.
OVERVIEW:
City and Bozeman Area Chamber of Commerce staff engaged consultants from HVS to review the market for conference facilities in Bozeman in the context of its natural competitors. Based on that review, we asked HVS to recommend a size and configuration for a conference facility that would be competitive in the Bozeman market and requiring minimal public support. HVS recommends the construction of approximately 16,000 of function space in a specific configuration (p.40-44). HVS created a proforma based on assumptions about the operations of their proposed Bozeman conference facility. They projected that a privately funded facility, as proposed, would be profitable upon stabilization. A significant unanswered question is whether development partners would find the proposed facility more or less profitable than smaller facilities they might choose to construct. If smaller facilities were more profitable, the private sector might choose not to construct a larger facility with a greater community benefit without the provision of some public incentive. Nevertheless, given the profitability of the recommended facility, City Staff will try to persuade the private sector to develop the proposed conference center on its own.
We plan to release this report publically and share it specifically with hoteliers already operating in the Bozeman market. Based on that feedback, we may recommend that the City issue a request for proposals (RFP) to give the private sector an equal opportunity to suggest how they might complete the recommend project while minimizing the required public incentive. In this scenario, City staff would negotiate a development agreement in response to an advantageous proposal. The City Commission would consider the proposed development agreement.
ATTACHMENT: HVS Market Study: Proposed Hotel and Convention Center, Bozeman, Montana
MARKET STUDY
Proposed Hotel and Convention
Center
BOZEMAN, MONTANA
SUBMITTED TO:EXISTING
Mr. Brit Fontenot
City of Bozeman
121 North Rouse Avenue
Bozeman, Montana, 59715
+1 (406) 582-2258
PREPARED BY:
HVS Convention, Sports & Entertainment
Facilities Consulting
205 West Randolph, Suite 1650
Chicago, Illinois 60606
+1 (312) 587-9900
October 1, 2014
April 13, 2018
Mr. Brit Fontenot
City of Bozeman
121 North Rouse Avenue
Bozeman, Montana, 59715
+1 (406) 582-2258
bfontenot@BOZEMAN.NET
Re: Proposed Hotel and Convention Center
Bozeman, Montana
Dear Mr. Fontenot:
Attached you will find our Market Study of the Proposed Hotel and Convention
Center in Bozeman, Montana.
We 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.
It has been a pleasure working with you. Please let us if you have any questions.
Sincerely,
HVS Convention, Sports & Entertainment
Facilities Consulting
Tom Hazinski
Managing Director
Brian Harris
Director
205 West Randolph
Suite 1650
Chicago, Illinois 60606
+1 312-587-9900
+1 312-488-3631 FAX
www.hvs.com
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Table of Contents
SECTION TITLE PAGE
1. Summary of Salient Data and Conclusions 4
2. Nature of the Assignment 12
3. Bozeman Market Overview 17
4. Convention Center Development Recommendations 26
5. Supply and Demand Analysis 45
6. Average Rate Analysis 66
7. Projection of Income and Expense 69
8. Statement of Assumptions and Limiting Conditions 86
9. Certification 89
i. Penetration Explanation 90
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 4
1. Summary of Salient Data and Conclusions
The City of Bozeman, Montana engaged HVS Convention, Sports, and
Entertainment Facilities Consulting (“HVS”) to conduct a Market Study of a
proposed hotel and convention center (“Proposed Hotel and Convention Center”).
The study will allow the City to strategically plan the growth of the convention and
hospitality markets in Bozeman. For the purpose of this study, HVS assumes a
focus service/extended stay hotel with an attached convention center will open on
January 1, 2020. The 120-room focus-service hotel features a restaurant, a lounge,
16,000 square feet of meeting space, a business center, an exercise room, and
market pantry. The 80-room extended-stay hotel features a breakfast area, a
business center, an exercise room, a market pantry, and a guest laundry room.
Shared facilities include an indoor pool and whirlpool. The convention center
would include 16,000 square feet of rentable function space.
This study employs the methodology illustrated in the figure below.
FIGURE 1-1
MARKET STUDY METHODOLOGY
Research Potential
Competitive Hotels
Comparable Hotel
Operating Data
Proposed Hotel Market
Penetration
Occupancy and ADR
Forecasts by Market
Segment
Estimate of Proposed
Hotel Financial
Operations
Market ADR and
Occupancy Estimates
Inflation and Market
Growth Assumptions
Economic Indicators
Competitive Set Analysis
Induced Demand
Unaccommodated
Demand
Room Supply Changes
Subject of the
Study
Methodology
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 5
HVS 1) analyzed the historical performance of a competitive set of hotels,
2) estimated the amounts of induced and unaccommodated demand in the market,
and 3) researched potential changes in room supply. Based on these hotel market
trends and economic and demographic indicators of future changes in hotel
demand, HVS projected the future performance of a competitive set of hotel
properties. Through a market penetration analysis, we estimated the average daily
room rate and occupancy of the Proposed Hotel and Convention Center in each of
three market segments—commercial, meeting & group, and leisure. An estimate of
average daily room rates and occupancies generates a projection of room
revenues, which, when combined with the operating data on comparable hotels,
yields a ten-year estimate of financial operations.
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
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 All information was collected and analyzed by the
staff of HVS Convention, Sports & Entertainment Facilities Consulting.
The effective date of the report is April 13, 2018. Tom Hazinski inspected the
possible sites for the Proposed Hotel and Convention Center on February 7th and
8th, 2018.
The ownership of the Proposed Hotel and Convention Center was not determined
as of the date of this study. The property would be subject to franchise and
marketing fees estimated at 7.6% of gross revenues. Details pertaining to
management terms were not yet determined at the time of this report; however,
we assume that the Proposed Hotel and Convention Center will be managed by a
professional hotel-operating company, with fees deducted at rates consistent with
1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of
Real Estate Appraisers, 1978).
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).
Pertinent Dates
Ownership, Franchise,
and Management
Assumptions
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 6
current market standards. We have assumed a market-appropriate total
management fee of 3.0% of total revenues in our study.
The following figure provides a long-term perspective on the supply and demand
trends for a set of competitive hotels selected by HVS, with data provided by STR.
HVS selected these hotels based on their potential to compete with the Proposed
Hotel and Convention Center.
FIGURE 1-2
HISTORICAL COMPETITIVE HOTELS TRENDS
0%
20%
40%
60%
80%
$0
$20
$40
$60
$80
$100
$120
$140
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ADR RevPAR Occupancy
Source: STR
The following figure reflects our estimates of operating data for hotels in the
primary and weighted secondary competitors for the years 2015 through 2017.
Revenue per available room, (“RevPAR”) is a common hotel industry performance
metric, calculated by multiplying the occupancy rate by ADR and provides a
combined measure of rate and occupancy.
FIGURE 1-3
WEIGHTED HISTORICAL SUPPLY, DEMAND, AND PRICE TRENDS
Year Accommodated
Room Nights
Room Nights
Available
Competitive
Hotels
Occupancy
Competitive
Hotels ADR
Competitive
Hotels
RevPAR
Amount
2015 256,000 364,000 70.3%$113.51 $79.83
2016 281,000 379,000 74.1%$115.35 $85.52
2017 318,000 426,000 74.6%$122.13 $91.17
Percent Change
2016 9.8%4.1%5.4%1.6%7.1%
2017 13.2%12.4%0.7%5.9%6.6%
Summary of Hotel
Market Trends
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 7
Since 2015, accommodated room nights increased by 24.2%, while the number of
available room nights increased with a 17% change. As a result, market occupancy
increased (6.1%) during the same period. Average daily room rate grew (7.6%)
since 2014. The combined effect of changes in occupancy and ADR caused RevPAR
to grow (14.2%) over the three-year period analyzed here.
HVS also examined the recent changes in the competitive hotels over the last 12
months as reported to STR, shown in the following figure.
FIGURE 1-4
UNWEIGHTED HISTORICAL 12 MONTH DEMAND TRENDS
Month Room
Sales
Prior Year
Room Sales Change
Feb-17 25,024 23,706 1,318 5.6%
Mar-17 28,599 27,935 664 2.4%
Apr-17 25,348 25,555 -207 -0.8%
May-17 29,965 29,638 327 1.1%
Jun-17 36,127 32,572 3,555 10.9%
Jul-17 38,167 36,327 1,840 5.1%
Aug-17 38,050 35,881 2,169 6.0%
Sep-17 35,138 33,885 1,253 3.7%
Oct-17 30,055 29,366 689 2.3%
Nov-17 23,316 21,068 2,248 10.7%
Dec-17 25,251 23,468 1,783 7.6%
Jan-18 25,911 24,168 1,743 7.2%
12 Month Total 360,951 343,569 17,382 5.1%
Percentage
Source: STR
Demand data from STR showed very strong growth over the last 12 months for
demand within the competitive set. A major factor in the increase in demand is the
introduction of new hotels within the competitive set.
To forecast the occupancy of the Proposed Hotel and Convention Center, HVS
performed a market penetration analysis of three market segments. The following
figure summarizes estimates of accommodated room night demand by market
segment, assuming the Proposed Hotel and Convention Center begins operation in
2020.
Most Recent Twelve
Months Demand
Summary of Forecast
Occupancy and
Average Rate
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 8
FIGURE 1-5
PROPOSED HOTEL AND CONVENTION CENTER
ESTIMATED ROOM NIGHT ABSORPTION BY MARKET SEGMENT
2020 2021 2022 2023
Available Room Nights 73,000 73,000 73,000 73,000
Absorption by Segment
Commercial 22,200 23,000 23,400 23,600
Meeting and Group 11,100 11,900 12,100 12,300
Leisure 19,200 19,700 20,100 20,200
Total Absorption 52,500 54,600 55,600 56,100
Projected Occupancy 72%75%76%76%
Percent Segmentation
Commercial 42%42%42%42%
Meeting and Group 21%22%22%22%
Leisure 37%36%36%36%
In a stabilized year of demand (2022), the property could absorb room nights and
achieve a stabilized occupancy level of 76%.
We positioned the average daily room rate in the base year 2017 at $170.00 for the
focus-service hotel and $145.00 for the extended-stay hotel. This rate would grow
with inflation and in proportion to the rate growth in the competitive set. The
positioned average daily rate is prior to the discount of 3% in 2020 and 1% in
2021 as the hotel is stabilizing in the market. The figure below compares the
estimated average daily rate of the Proposed Hotel and Convention Center with
that of the competitive hotels.
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 9
FIGURE 1-6
COMPETITIVE HOTELS & PROPOSED HOTEL AND CONVENTION CENTER
AVERAGE RATE FORECAST
Base
Year 2018 2019 2020 2021 2022 2023 2024 2025
Competitive Hotels $122 $126 $129 $132 $135 $139 $142 $146 $150
Proposed Hotel $0 $0 $0 $152 $159 $165 $169 $173 $178
Competitive Hotels Proposed Hotel
HVS supports its estimates of revenue and expense levels using comparable
operations or trends specific to this market. The following figure presents the HVS
forecast of income and expense for the Proposed Hotel and Convention Center in
the first stabilized year of operation.
Summary of Forecast
Income and Expense
Statement
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 10
FIGURE 1-7
FINANCIAL OPERATIONS IN THE STABILIZED YEAR (2022)
STATISTICS
Number of Rooms 200
Occupied Room Nights 55,480
Occupancy 76%
Average Rate $181.90
RevPAR $138.25
$000 % of
Gross
Operating Revenue
Rooms $10,092 81.8%
Food 1,695 13.7%
Beverage 377 3.1%
Other Operated Departments 122 1.0%
Miscellaneous Income 50 0.4%
Total Operating Revenues $12,336 100%
Departmental Expense*
Rooms $2,321 23.0%
Food & Beverage 1,450 70.0%
Other Operated Departments 84 68.5%
Total Expenses $3,855 31.3%
Departmental Income $8,481 68.7%
Undistributed Operating Expense
Administrative & General $973 7.9%
Marketing 670 5.4%
Franchise Fee 940 7.6%
Prop. Operations & Maint.389 3.2%
Utilities 353 2.9%
Info & Telecom Systems 57 0.5%
Total Expense $3,382 27.4%
Gross House Profit $5,099 41.3%
Management Fee 370 3.0%
Income Before Non-Opr. Inc. & Exp.$4,729 38.3%
Non-Operating Income & Expense
Property Taxes $308 2.5%
Insurance 81 0.7%
Reserve for Replacement 493 4.0%
Total Expense 883 7.2%
EBITDA Less Reserve $3,846 31.2%0.0%
*Departmental expense ratios are calculated as a percentage of
departmental revenue.
April 13, 2018 Summary of Salient Data and Conclusions
Proposed Hotel and Convention Center – Bozeman, Montana 11
The Proposed Hotel and Convention Center is expected to stabilize at a profitable
level. Please refer to the Projection of Income and Expense chapter of our report
for a detailed explanation of the methodology used in deriving this forecast.
An extraordinary assumption is one which relates directly to the subject hotel
development and which, if found to be false, could alter our opinions or
conclusions. Extraordinary assumptions presume as fact otherwise uncertain
information about physical, legal, or economic characteristics of the subject
property, or about conditions external to the property such as market conditions
or trends, or about the integrity of data used in an analysis. An extraordinary
assumption may be used in an analysis only if it is required to develop credible
options and conclusions; a reasonable basis exists for the assumption, use of the
extraordinary assumption results in a credible analysis. HVS discloses the use of
any extraordinary assumption.
In addition to the normal hotel development assumptions that would apply to any
hotel, the projections of the subject hotel’s occupancy and rates are dependent on
a number of extraordinary assumptions.
• The Proposed Hotel and Convention Center would be located at a site in/near
downtown Bozeman.
• The Proposed Hotel and Convention Center would be developed with the
amount of meeting space shown in this study.
• The Proposed Hotel and Convention Center would be developed as a dual-
branded property.
• The Convention Center would be developed and operated as a single entity
with the hotel.
Our analysis does not address unforeseeable events that could alter the proposed
project and the market conditions reflected in the analyses; we assume that no
significant changes, other than those anticipated and explained in this report,
would take place from the date of inspection to the date of this report. Our findings
are subject to all the assumptions and limiting conditions described herein. The
reader should contact the authors with any questions after reading the report.
Extraordinary
Assumptions
April 13, 2018 Nature of the Assignment
Proposed Hotel and Convention Center – Bozeman, Montana 12
2. Nature of the Assignment
The suitability of the land for the operation of a lodging facility is an important
consideration affecting the economic viability of a property and its ultimate
marketability. The site for the Proposed Hotel and Convention Center will be
proximate to downtown Bozeman. The specific site was not selected as of the date
of this study. The key site characteristics that affect the viability of a hotel property
include its capacity to accommodate the project, accessibility, visibility, and
supporting road and utility infrastructure.
The ownership of the Proposed Hotel and Convention Center was not determined
as of the date of this study. For purposes of this study, we have assumed the
property would enter into a franchise agreement with a national brand and utilize
a professional third-party manager.
Destination appeal is a critical factor in choosing a site. Facilities alone do not
create a competitive advantage. The vitality of the neighborhood surrounding a
hotel create destination appeal.
It is important to analyze the site with respect to regional and local transportation
routes and demand generators, including ease of access. The City of Bozeman is
readily accessible to a variety of local and county roads, as well as state and
interstate, which are illustrated on the following map.
Site
Ownership, Franchise,
and Management
Assumptions
Access and Visibility
April 13, 2018 Nature of the Assignment
Proposed Hotel and Convention Center – Bozeman, Montana 13
REGIONAL ACCESS
LOCAL ACCESS
Once a site is selected, it will need to be examined for any nuisance or hazards.
Nuisances
and Hazards
April 13, 2018 Nature of the Assignment
Proposed Hotel and Convention Center – Bozeman, Montana 14
Once a site is selected, the flood zone will need to be examined for suitability of a
hotel.
Once a site is selected, the zoning will need to be examined for suitability of a
hotel.
Once a site is selected, the easements and encroachments will need to be examined
for suitability of a hotel.
The quality of a lodging facility's physical improvements has a direct influence on
marketability, occupancy, and average room rate. The design and functionality of
the structure can also affect operating efficiency and overall profitability.
HVS assumes that the Proposed Hotel and Convention Center will be a focus-
service/extended stay dual-branded property and with the finish typical of a first-
class hotel. The hotel’s facility is expected to be of high quality, conforming at a
minimum to the brand specific guidelines set forth by the operator that is chosen
for the hotel. Our forecast assumes that the property will be maintained in a
competitive condition, undergoing regular renovations of soft goods and case
goods funded primarily by a reserve for replacement.
For this analysis, we assume that the Proposed Hotel and Convention Center
would be financed sometime in 2018 and after a one year design and construction
period, the hotel would open on January 1, 2020.
The following figure summarizes the facilities that will be available at the
Proposed Hotel and Convention Center.
Flood Zone
Zoning
Easements and
Encroachments
Description of the
Proposed Hotel and
Convention Center
April 13, 2018 Nature of the Assignment
Proposed Hotel and Convention Center – Bozeman, Montana 15
FIGURE 2-1
PROPOSED HOTEL AND CONVENTION CENTER FACILITIES
Guestroom Configuration
Rooms
Focus-Service
Hotel
Rooms
Extended-Stay
Hotel
Total Rooms
Proposed Hotel
Kings 60 0 60
Queen/Queen 54 0 54
Suites 6 0 6
Studio Suites 0 70 70
One Bedroom Suites 0 10 10
Total (ADA-Compliant per Local code)120 80 200
Food & Beverage Facilities Seating
Capacity
Seating
Capacity
Seating
Capacity
Dining 60 0 60
Lounge 36 0 36
Complimentary Service Area 0 48 48
Convention Center Square Feet Square Feet Square Feet
Ballroom 10,000 0 10,000
Meeting Space 5,000 0 5,000
Boardrooms 1,000 0 1,000
Total 16,000 0 16,000
Amenities & Services
Indoor Pool Indoor Whirlpool Fitness Center
Business Center Market Pantry Guest Laundry Room
Infrastructure
Parking Spaces 300
Elevators 3 Guest
Life Safety Systems Sprinklers, Smoke Detectors
For this study, we assume the following:
• The Proposed Hotel and Convention Center would offer a well-designed,
functional layout of support areas and guestrooms.
• The hotel staff would be adequately trained to allow for a successful opening.
• Pre-marketing efforts would have introduced the product to major local
accounts at least six months in advance of the opening date.
• The Proposed Hotel and Convention Center would meet all pertinent codes
and brand standards.
April 13, 2018 Nature of the Assignment
Proposed Hotel and Convention Center – Bozeman, Montana 16
• The Proposed Hotel and Convention Center would be fully open and
operational on the assumed opening date and would meet all local building
codes and brand standards.
• Construction would not create any environmental hazards.
• The Proposed Hotel and Convention Center would fully comply with the
Americans with Disabilities Act. Construction Cost
The project is in the preliminary stages of development.
After its opening, the Proposed Hotel and Convention Center would require
ongoing upgrades and periodic renovations to maintain its competitive level in
this market. These costs should be adequately funded by the forecasted reserve for
replacement, as long as the hotel’s staff employs a successful, ongoing
maintenance program.
Capital Expenditures
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 17
3. Bozeman Market Overview
HVS explored economic and demographic factors that affect the level of lodging
demand in the market including population, income, employment, retail sales,
business presence, major tourism attractions, and transportation access. We relied
on third party data sources to review historical trends and provide forecasts of the
rate of growth or decline of the local economy. We also assessed whether the
neighborhood surrounding the subject site would support the development of the
Proposed Hotel and Convention Center. This market overview provides a
framework for projections of lodging demand and revenue growth in the local
market.
Our analysis of the outlook for this specific market also considers the broader
context of the national economy. The U.S. economy expanded during the last three
years, with a relatively low point in growth occurring during the fourth quarter of
2015 and the first quarter of 2016, as well as the first quarter of 2017. Most
recently, the U.S. economy expanded by 3.1% and 3.0% in the second and third
quarters of 2017, respectively. The recent acceleration reflected strong personal
consumption expenditures (PCE), private inventory investment, nonresidential
fixed investment, exports, and federal government spending.
National Economic
Trends
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 18
FIGURE 3-1
UNITED STATES GDP GROWTH RATES
US GDP Change
2010 Q1 1.6
Q2 3.9
Q3 2.8
Q4 2.8
2011 Q1 -1.3
Q2 3.2
Q3 0.8
Q4 4.6
2012 Q1 2.3
Q2 1.6
Q3 2.5
Q4 0.1
2013 Q1 1.9
Q2 1.1
Q3 3.1
Q4 4.0
2014 Q1 -1.2
Q2 4.0
Q3 5.0
Q4 2.0
2015 Q1 3.2
Q2 2.7
Q3 1.6
Q4 0.5
2016 Q1 0.6
Q2 2.2
Q3 2.8
Q4 1.8
2017 Q1 1.2
Q2 3.1
Q3 3.0
Source: Bureau of Economic Analysis
U.S. economic growth continues to support expansion of lodging demand. In 2017,
demand growth through November registered 2.7%, stronger than the 1.6% level
recorded in 2016. The economic growth, low unemployment, higher levels of
personal income, and stability in the U.S. economy as of early 2018 is helping to
maintain strong interest in hotel investments by a diverse array of market
participants.
The market area is the City of Bozeman and the surrounding area as shown on the
map below.
Market Area Definition
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 19
MAP OF MARKET AREA
HVS used the Complete Economic and Demographic Data Source published by
Woods & Poole Economics, Inc., a well-regarded forecasting service based in
Washington, D.C. as a source of economic and demographic data. Using a database
containing more than 900 variables for each county in the nation, Woods & Poole
employs a sophisticated regional model to forecast economic and demographic
trends. Census data and information published by the Bureau of Economic
Analysis provide the basis for historical statistics. Woods & Poole formulates the
projections, and all dollar amounts have been adjusted for inflation, thus reflecting
real change. The following figure summarizes these data.
Economic and
Demographic Review
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 20
FIGURE 3-2
ECONOMIC AND DEMOGRAPHIC DATA SUMMARY
Economic Indicator/Area Beginning
Amount 2000 2010 2018 2025 Ending
Amount
Resident Population (millions)
Gallatin County 0.07 0.12 2.3%
State of Montana 0.90 1.13 0.9%
United States 282.16 352.57 0.9%
Per-Capita Personal Income* (thousands)
Gallatin County $31.30 $44.8 1.2%
State of Montana $28.38 $43.1 1.5%
United States $36.81 $49.9 1.5%
W&P Wealth Index
Gallatin County $95.86 $100.77 -0.3%
State of Montana $82.07 $90.56 0.0%
United States $100.00 $100.00 0.0%
Food and Beverage Sales* (billions)
Gallatin County $0.13 $0.30 3.3%
State of Montana $1.27 $2.30 2.0%
United States $368.83 $664.41 1.9%
Total Retail Sales* (billions)
Gallatin County $1.31 $2.67 2.8%
State of Montana $12.76 $20.50 1.5%
United States $3,902.83 $5,578.47 1.5%
* Inflation Adjusted
Estimated Annual
Compound Change
2018 to 2025
Source: Woods & Poole Economics, Inc.
Note that Headwaters Economics, an independent, nonprofit research group
located in Bozeman, projects stronger residential population growth.
The characteristics of an area's workforce indicate the type and amount of
transient visitation likely to be generated by local businesses. Sectors such as
finance, insurance, and real estate (“FIRE”); wholesale trade; and services produce
a considerable number of visitors who are not particularly rate-sensitive. The
government sector often generates transient room nights, but per-diem
reimbursement allowances often limit the accommodations selection to budget
and mid-priced lodging facilities. Contributions from manufacturing, construction,
transportation, communications and public utilities (“TCPU”) employers can also
be important, depending on the company type.
Workforce
Characteristics
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 21
The following figure shows the estimated change in employment in the top ten
sectors in the county workforce distribution by the various business sectors in
2000, 2010, and 2018, and a forecast for 2025.
FIGURE 3-3
TOP TEN EMPLOYMENT SECTORS IN GALLATIN COUNTY
Sector/Geographic Area Employment
Beginning
Amount
(thousands)
2000 2010 2018 2025
Ending
Amount
(thousands)
Gallatin County
Retail Trade 7.1 11.7
State And Local Government 7.6 11.2
Accommodation And Food Services 5.1 9.5
Construction 4.8 9.3
Professional And Technical Services 3.6 8.7
Health Care And Social Assistance 3.5 8.3
Real Estate And Rental And Lease 2.4 5.2
Other Services, Except Public Administration 2.6 4.7
Manufacturing 3.0 4.2
Administrative And Waste Services 1.6 3.6
Other 9.9 18.7
Total Gallatin County 51.1 95.2
U.S.165,371 217,671 Source: Woods & Poole Economics, Inc.
Gallatin County is currently in a growth phase, with all ten top employment sectors
expected to continue to grow. Growth in tourism visitation should drive more
accommodation, food service, and retail sales.
The following figure presents historical unemployment rates for the Proposed
Hotel and Convention Center’s market area.
Unemployment
Statistics
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 22
FIGURE 3-4
UNEMPLOYMENT STATISTICS
Year City State Country
2007 2.4 %3.6 %4.6 %
2008 3.9 5.1 5.8
2009 6.1 6.8 9.3
2010 6.0 7.3 9.6
2011 5.4 6.9 8.9
2012 4.6 6.0 8.1
2013 3.8 5.4(d)7.4
2014 3.0 4.7(d)6.2
2015 2.7 4.2(d)5.3
2016 2.5 4.1(d)4.9
Recent Month - Dec
2016 2.4 %4.3 %4.7 %
2017 2.7 4.2 4.1
Source: U.S. Bureau of Labor Statistics
The figure below shows the larger employers in the region.
FIGURE 3-5
MAJOR AREA EMPLOYERS
Rank Firm Number of
Employees
1 Montana State University 1,000 +
2 School District #7 1,000 +
3 Bozeman Deaconess Hospital 1,000 +
4 Belgrade School District 500 - 999
5 City of Bozeman 250 - 499
6 Department of Agriculture 250 - 499
7 Gallatin County 250 - 499
8 Oracle America 250 - 499
9 Town Pump Convenience Services 250 - 499
10 Wal-Mart Stores, Inc.250 - 499
Source: City of Bozeman
The following bullet points highlight major demand generators for this market:
• With over 16,000 students, Montana State University (MSU) is an
important anchor within the local economy and serves as the region's
largest employer. MSU also features an Innovation Campus that is highly
recognized. Top research departments include immunology, chemistry
and biochemistry, transportation, physics, and land resources and
Major Business and
Industry
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 23
environmental sciences. A majority of the funding for these departments
comes from the National Institutes of Health; Departments of Energy,
Defense, and Agriculture; and private sources. In January 2017, a proposal
was submitted for a 40-acre research park at MSU, which would include
multiple buildings, specialized labs, and research offices. The project is
still in the very early stages of planning. Recently completed projects at
MSU include a new parking structure and residence hall, while current
construction projects include a new dining hall and College of Engineering
Building. Enrollment at MSU has increased year-over-year since 2007.
• Oracle is a major employer in the Bozeman market and is the area's largest
employer within the high technology industry. In 2011, Oracle acquired
Rightnow Technologies, one of Bozeman's largest employers. In addition,
Bozeman has reportedly experienced a surge in technology start-ups, as
former Oracle employees reach the end of their non-compete agreements.
• The healthcare sector also plays an important role in the local economy.
Bozeman Health is the city's largest private employer with over 1,800
employees; the system encompasses two hospitals, several specialty
treatment centers, and a network of physicians, urgent-care clinics, and
outpatient and assisted living facilities. The new Belgrade Medical Center,
which is part of Bozeman Health, opened in October 2016 and features 20
medical providers, physical therapy, urgent care services, and laboratory
services. The 37,000-square-foot facility cost approximately $10 million to
build. In 2016, Bozeman Health Deaconess Hospital earned a three-year
accreditation from DNV GL-Healthcare, which indicates that the facilities
and staff meet patient-safety standards set forth by the U.S. Centers for
Medicare and Medicaid Services.
The economic base is diverse in this market, with strong employers in the
technology, healthcare, and education sectors. The City of Bozeman is also
anchored by the tourism industry due to its proximity to two national parks,
several ski resorts, and renowned trout fishing. As a result, agencies within the U.S.
Department of Agriculture, particularly the Forest Service, also have a presence in
Bozeman. Increased tourism levels, expansions at MSU, and continued growth
within the high technology industry should support the local economy going
forward.
Bozeman Yellowstone International Airport at Gallatin Field is a public-use airport
located eight miles northwest of Downtown Bozeman in Belgrade, Montana. In
2011, the airport completed an expansion project that increased the size of the
facility by 130,000 square feet. Three new gates, a third baggage carousel, and
additional retail outlets were added as part of the $16-million expansion. In 2012,
Airport Traffic
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 24
international flights were allowed after a U.S. Customs and Border Patrol facility
opened.
FIGURE 3-6
AIRPORT PASSENGERS
BOZEMAN YELLOWSTONE INTERNATIONAL AIRPORT
Year Passenger
Traffic Annual Percentage Change
2008 702,000
2009 683,000 -2.7%
2010 728,000 6.6%
2011 796,000 9.3%
2012 867,000 8.9%
2013 885,000 2.1%
2014 967,000 9.3%
2015 1,021,000 5.6%
2016 1,107,000 8.4%
2017 1,200,000 8.4%
Source: Bozeman Yellowstone International Airport
Bozeman Yellowstone International Airport continues to experience strong
growth in passenger counts, with 314,205 passengers through March of 2018, a
14.4% increase from the same period in 2017.
The market benefits from a variety of tourist and leisure attractions in the area.
The peak season for tourism in this area is from May to September. During other
times of the year, weekend demand comprises travelers passing through en route
to other destinations, people visiting friends or relatives, and other similar
weekend demand generators. Primary attractions in the area include the
following:
• Yellowstone National Park is a 3,500-square-mile wilderness recreation
area that spreads across Wyoming, Montana, and Idaho, and the park is
located less than 100 miles to the south of Bozeman. The park features
dramatic canyons, alpine rivers, lush forests, hot springs, and gushing
geysers, as well as hundreds of animal species. One of the most famous
attractions in the park is Old Faithful, which was the first geyser in the
park to receive a name in 1870. The park has seen significant increases in
visitation over the last several years, particularly due to improving
economic conditions and the National Park Service Centennial, which was
in 2016.
Tourist Attractions
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 25
• In addition to Yellowstone, the greater region offers an abundance of
outdoor activities. Additionally, the City of Bozeman is proximate to
several national forests. Among the most popular activities are rafting,
hiking, world-renowned trout-fishing, and skiing. Major ski resorts in the
area include Big Ski Resort, Bridger Bowl Ski Area, and the Yellowstone
Club, which is a private club.
• Museum of the Rockies is recognized as one of the world's finest research
and history museums; it is known for its extensive display of dinosaur
fossils, including a full-scale T-Rex skeleton. The museum is accredited by
the American Alliance of Museums and is a member of the Association of
Science-Technology Centers Travel Passport.
• Montana State University is located in Bozeman and is host to many
athletic and special events throughout the year. Move-in week, Parents'
Weekend, and graduation events also draw thousands of visitors to the city
annually. Additionally, Downtown Bozeman is a primary shopping and
entertainment destination, also offering numerous restaurants and bars.
April 13, 2018 Bozeman Market Overivew
Proposed Hotel and Convention Center – Bozeman, Montana 26
YELLOWSTONE NATIONAL PARK
This section discussed a wide variety of economic indicators for Bozeman. The city
is experiencing a period of economic strength and expansion, led by the education,
technology, and tourism sectors. The outlook for the market area is positive.
Conclusion
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 27
4. Convention Center Development Recommendations
This analysis of comparable venues provides a basis for developing program
recommendations and forecasts of event demand. HVS compared the function
spaces, adjacent hotel capacities, and characteristics of the markets relevant to the
success of a convention center.
Event planners select host cities for their events based on the overall package that
a city may offer. Bozeman competes with other cities in the State of Montana and
throughout the western U.S. for a share of association, corporate, and other group
meeting business. Several factors determine a city’s overall strength and potential
in the meetings market. These factors include the attributes of the convention
facilities, lodging supply, the economic and demographic profile of the community,
transportation access, tourism amenities, and overall destination appeal.
HVS analyzed two sets of venues:
• convention and conference centers in the state of Montana which may
compete with the proposed venue in Bozeman, and
• convention and conference centers in the northwest U.S. metropolitan
markets with small- to medium-sized population bases which may compete
with the proposed venue in Bozeman.
The venues are listed in the figure below along with their location and the total
amount of rentable function space.
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 28
FIGURE 4-1
COMPARABLE VENUES
Name of Venue Location
Montana Convention Centers
Proposed Billings Conference Center Billings, MT 66,000
Proposed Missoula Conference Center Missoula, MT 25,500
Proposed Bozeman Conference Center Bozeman, MT 20,000
Montana State Strand Union Building Bozeman, MT 17,858
Hilton Garden Inn Missoula Missoula, MT 15,581
Helena Civic Center Helena, MT 10,730
Regional Convention Centers
Bismarck Event Center Bismarck, ND 115,911
Rushmore Plaza Civic Center Rapid City, SD 89,755
Boise Centre Boise, ID 63,773
Casper Events Center Casper, WY 30,896
Yakima Convention Center Yakima, WA 30,367
Wenatchee Convention Center Wenatchee, WA 24,852
Great Falls Civic Center Great Falls, MT 23,938
Red Lion Hotel and Convention Center Billings, MT 21,898
Radisson Hotel Cheyenne Cheyenne, WY 19,116
Montana State Strand Union Building Bozeman, MT 17,858
Fairmont Hot Springs Resort Butte, MT 14,310
Lander Community & Convention Center Lander, WY 10,887
Hilton Garden Inn Kalispell Kalispell, MT 10,250
Marian H. Rochelle Gateway Center Laramie, WY 10,000
Sources: Respective Venues
Total Function
Space
Critical for several types of events such as conventions, tradeshows, and consumer
shows, the amount and quality of exhibition space determines the size and type of
events that a venue can accommodate. A comparison of the exhibition space
available at each of the selected comparable facilities provides an indication of the
appropriate amount of space for Bozeman. Several fairgrounds and sports venues
throughout the state of Montana and the region offer exhibition space. HVS excludes
these venues from this analysis, because they would not compete for conventions
which, typically require exhibit, ballroom, and meeting space under one roof.
Exhibition Space
Assessment
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 29
FIGURE 4-2
TOTAL EXHIBITION SPACE IN COMPARABLE VENUES
Regional Convention Centers sf
Bismarck Event Center Bismarck 100,000
Rushmore Plaza Civic Center Rapid City 64,449
Casper Events Center Casper 24,064
Wenatchee Convention Center Wenatchee 7,506
Boise Centre Boise 0
Red Lion Hotel and Convention Center Billings 0
Radisson Hotel Cheyenne Cheyenne 0
Montana State Strand Union Building Bozeman 0
Yakima Convention Center Yakima 0
Great Falls Civic Center Great Falls 0
Hilton Garden Inn Kalispell Kalispell 0
Fairmont Hot Springs Resort Butte 0
Marian H. Rochelle Gateway Center Laramie 0
Lander Community & Convention Center Lander 0
Average 49,005 .
None of the comparable venues in Montana offer dedicated exhibition space. Where
exhibit space is required, these venues use multi-purpose space, a ballroom, or pre-
function areas. As noted above, fairgrounds and sports arenas are the only venues
in Montana that offer exhibit space.
Of the regional competitors, only a small number offer a large exhibit hall for events.
A convention center in Bozeman would compete for conventions with venues of
various sizes throughout the northwestern U.S. and those with exhibit halls offer
relatively modest amounts of exhibition space. The comparable facilities
demonstrate that a dedicated exhibit hall as part of the proposed convention center
is not necessary in Bozeman.
In addition to social events (such as weddings and fundraisers) that host banquets,
several other types of events, such as conventions and tradeshows, typically require
food services in a ballroom setting. General assemblies at conventions and
tradeshows use a ballroom with a theater or banquet set-up. As facility operators
attempt to grow food service revenues at their facilities and event planners seek a
higher level of service for their attendees, the size of the ballroom often determines
a venue’s event size capacity. The figure below compares the amounts of available
banquet space in the competitive venues.
Ballroom Space
Assessment
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 30
FIGURE 4-3
BALLROOM SPACE IN COMPETITIVE VENUES
Montana Convention Centers sf # divisions
Proposed Billings Conference Center Billings 40,000 3
Proposed Missoula Conference Center Missoula 17,500 na
Proposed Bozeman Conference Center Bozeman 15,000 5
Hilton Garden Inn Missoula Missoula 13,195 7
Montana State Strand Union Building Bozeman 13,010 4
Helena Civic Center Helena 10,730 1
Average 18,239 4
Regional Convention Centers sf # divisions
Boise Centre Boise 38,101 9
Yakima Convention Center Yakima 23,568 8
Great Falls Civic Center Great Falls 15,300 1
Rushmore Plaza Civic Center Rapid City 15,264 4
Montana State Strand Union Building Bozeman 13,010 4
Red Lion Hotel and Convention Center Billings 11,484 7
Wenatchee Convention Center Wenatchee 10,080 2
Lander Community & Convention Center Lander 9,387 1
Hilton Garden Inn Kalispell Kalispell 8,550 4
Radisson Hotel Cheyenne Cheyenne 8,100 3
Marian H. Rochelle Gateway Center Laramie 8,000 5
Fairmont Hot Springs Resort Butte 5,696 3
Casper Events Center Casper 3,820 1
Bismarck Event Center Bismarck 0 0
Average 13,105 4
Sources: Respective Venues
Ballrooms in competitive convention centers range from approximately 4,000 to
40,000 square feet. Many competitive convention centers recognize the importance
of a large, flexible ballroom and use movable walls to create multiple potential room
configurations.
Meeting rooms can accommodate sub-groups as they break out of larger general
sessions at conventions and tradeshows. Additionally, these smaller rooms can
support self-contained meetings, training sessions, seminars, classes, and a variety
of small meeting functions. A facility’s meeting rooms are often its most frequently
used function spaces. Generally, convention centers should offer meeting space
proportionate to the amount of exhibition and ballroom space available at the
facility. However, the optimum amount of meeting space can vary depending on a
facility’s target market.
The following figure presents a comparison of available meeting space in the
competitive venues.
Meeting/Break-out
Room Assessment
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 31
FIGURE 4-4
MEETING SPACE IN COMPARABLE VENUES
Montana Convention Centers sf # rooms
Proposed Billings Conference Center Billings 26,000 14
Proposed Missoula Conference Center Missoula 8,000 0
Proposed Bozeman Conference Center Bozeman 5,000 5
Montana State Strand Union Building Bozeman 4,848 7
Hilton Garden Inn Missoula Missoula 2,386 6
Helena Civic Center Helena 0 0
Average 9,247 8
Regional Convention Centers sf # rooms
Boise Centre Boise 25,672 17
Bismarck Event Center Bismarck 15,911 0
Radisson Hotel Cheyenne Cheyenne 11,016 8
Red Lion Hotel and Convention Center Billings 10,414 11
Rushmore Plaza Civic Center Rapid City 10,042 10
Great Falls Civic Center Great Falls 8,638 5
Fairmont Hot Springs Resort Butte 8,614 5
Wenatchee Convention Center Wenatchee 7,212 14
Yakima Convention Center Yakima 6,799 8
Montana State Strand Union Building Bozeman 4,848 7
Casper Events Center Casper 3,012 4
Marian H. Rochelle Gateway Center Laramie 2,000 5
Hilton Garden Inn Kalispell Kalispell 1,700 5
Lander Community & Convention Center Lander 1,500 3
Average 8,384 8
Sources: Respective Venues
Meeting space in competitive venues ranges from approximately 1,500 to 26,000
square feet. Several venues house large amounts of meeting space and a greater
number of meeting rooms, increasing their ability to host larger events and
simultaneous smaller functions.
As the competitive landscape is constantly shifting, many cities have considered
new or expanded convention center developments. The following list of
developments shows that only some attempts to develop new venues or expand
existing venues have been successful. Some projects remain in an early planning
stage.
• After voters rejected a $90 million expansion in 2012, the Bismarck Event
Center completed a scaled-down expansion in 2015 which doubled the size
of its exhibit hall to 100,000 square feet.
Changes in Competitive
Venue Supply
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 32
• In 2015, voters rejected a $180 million expansion of the Rushmore Plaza
Civic Center. There are no immediate plans to upgrade their convention
center spaces.
• Completed in 2017, an expansion to the Boise Centre nearly doubled its
function space, adding a new facility, Boise Centre East, housing a 36,000
square-foot ballroom and 8 new meeting rooms.
• Fargo is currently evaluating several options to develop a new Fargo
Convention Center.
• Yakima, Washington is currently evaluating an expansion of the Yakima
Convention Center that would approximately double its size, including a
new 51,000 square foot exhibit hall. A construction cost of $50 million came
in $20 million higher than initial estimates.
• Kennewick, Washington is hoping to add 50,000 square feet to the Three
Rivers Convention Center along with other improvements to its public
facilities. A proposal to add 0.2% sales tax to fund improvements will be on
an August 2018 ballot. A similar effort failed to win a majority in 2016.
• Missoula has recently announced plans for a mixed-use development,
including a 10-story hotel building and 60,000 gross square foot conference
center. Developers hope to break ground by late 2019.
• Casper, Wyoming is evaluating the development of a new hotel conference
center with up to 20,000 square feet of function space.
The quality and proximity of hotel supply represents one of the most important
selection factors for facility users. To attract out-of-town groups, an adequate
supply of nearby hotel rooms should support the lodging needs of delegates,
exhibitors, and other attendees. Event planners consider proximity and connectivity
as critical factors when evaluating the overall hotel package. The number of rooms
offered at adjacent or connected hotels is a key point of comparison. Other
important factors include hotel brands, service levels, building conditions,
management, ease of access, and available meeting and banquet spaces in these
hotels.
The figure below compares the number adjacent hotel rooms in the comparable
venues.
Adjacent Hotel
Capacity
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 33
FIGURE 4-5
ADJACENT HOTEL ROOMS IN COMPARABLE VENUES
Montana Convention Centers
Proposed Bozeman Conference Center Bozeman 200
Hilton Garden Inn Missoula Missoula 146
Montana State Strand Union Building Bozeman 0
Helena Civic Center Helena 0
Proposed Missoula Conference Center Missoula 0
Proposed Billings Conference Center Billings 0
Average 173
Regional Convention Centers
Boise Centre Boise 254
Radisson Hotel Cheyenne Cheyenne 245
Red Lion Hotel and Convention Center Billings 236
Fairmont Hot Springs Resort Butte 153
Wenatchee Convention Center Wenatchee 147
Hilton Garden Inn Kalispell Kalispell 144
Rushmore Plaza Civic Center Rapid City 0
Montana State Strand Union Building Bozeman 0
Casper Events Center Casper 0
Yakima Convention Center Yakima 0
Great Falls Civic Center Great Falls 0
Marian H. Rochelle Gateway Center Laramie 0
Lander Community & Convention Center Lander 0
Bismarck Event Center Bismarck 0
Average 197
Sources: Respective Venues
The Hilton Garden Inn in Missoula is the only existing state competitor with an
adjacent hotel property. Regionally, adjacent hotel room capacity ranges from 144
to 254 rooms. Bozeman would have a competitive advantage with 200 rooms
adjacent to the convention center.
City-wide convention events require the use of multiple hotels to accommodate
convention attendees. The overall number of hotel rooms in the market provides
and indicator of capacity to provide adequate room blocks for large events.
The figure below shows the city-wide number of hotel rooms in comparable
markets.
City-Wide Hotel Supply
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 34
FIGURE 4-6
CITY-WIDE HOTEL ROOMS IN COMPARABLE MARKETS
Destination Name City-wide Hotel Rooms
Boise City, ID 5,510
Billings City, MT 4,840
Rapid City, SD 4,758
Fargo City, ND 4,631
Missoula City, MT 3,158
Bismarck City, ND 3,119
Cheyenne City, WY 2,797
Bozeman City, MT 2,396
Casper City, WY 2,344
Great Falls City, MT 2,283
Yakima City, WA 2,115
Kalispell City, MT 1,885
Helena City, MT 1,647
Laramie City, WY 1,402
Butte-Silver Bow (balance), MT 1,313
Wenatchee City, WA 1,187
With approximately 2,400 hotel rooms, Bozeman has a median capacity for city-
wide events.
Transportation links, including airports, play a critical role in the success of
convention centers that target regional and national user groups. As one of the best
indicators of an airport’s ability to enhance a convention center’s draw, air service
capacity, generally measured as total annual passenger volume, indicates the
relative convenience of a destination.
The following figure presents 2017 passenger traffic data as measured by
enplanements, for the primary airports serving the competitive markets.
Air Service Capacity
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 35
FIGURE 4-7
ANNUAL AIRPORT ENPLANEMENTS
City Airport Name Enplanements
Boise Boise Airport 3,231,000
Bozeman Bozeman Yellowstone International Airport 1,200,000
Billings Billings Logan International Airport 833,000
Fargo Hector International Airport 788,000
Missoula Missoula International Airport 773,000
Rapid City Rapid City Regional Airport 596,000
Bismarck Bismarck Municipal Airport 544,000
Kalispell Glacier Park International Airport 539,000
Great Falls Great Falls International Airport 346,000
Helena Helena Regional Airport 210,000
Casper Natrona County International Airport 187,000
Laramie Natrona County International Airport 187,000
Lander Natrona County International Airport 187,000
Yakima Yakima Air Terminal-McAllister Field 144,000
Wenatchee Pangborn Memorial Airport 119,000
Butte Gunnison-Crested Butte Regional Airport 66,000
Cheyenne Cheyenne Regional Airport 4,000
Bozeman’s air access has surpassed all instate competitors and is second to Boise
among regional destinations.
Event planners primarily choose to place their events in a destination and
secondarily in a venue. The availability of amenities that support tourist visitation
and overall attractiveness of a destination play important roles event planner
decisions. HVS used Esri Business Analyst Online (“Esri”) to compare the suitability
of Bozeman as an event destination to competitive cities. Esri is a well-regarded
forecasting service that applies geographic information system technology (“GIS”)
to produce extensive demographic, consumer spending, and business data analyses.
Esri employs a sophisticated location-based model to forecast economic and
demographic trends. Esri models rely on U.S. census data, the American Community
Survey, and other primary research.
Using ESRI data, HVS ranked Bozeman on nine indicators of destination quality.
• 2017 Total Population - Local area population data can provide evidence of
a community’s overall size, ability to support public services and visitor
amenities, and potential demand for local events.
• 2017-2022 Annual Population Growth (%) – The projected annual percent
growth in population indicates whether and how much the destination’s
economy is likely to grow.
Destination Analysis
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 36
• 2017 Median Household Income - Median household income provides an
overall measure of community's well-being. It indicates a community’s
ability to support and sustain a venue and its surrounding neighborhood
and market.
• 2017-2022 Annual Median Household Income Growth – The growth in
median household income indicates the prospect for the future economic
health of the destination.
• Number of Businesses – The number of businesses indicates the level of
corporate and industry presence. The density and breadth of a city’s
corporate base indicates demand potential in the meetings industry.
Businesses generate demand for conventions, conferences, training, and
other industry-specific events.
• Number of Employees – Employment levels indicate the overall size of the
economy and its ability to support group meeting and tourist visitation.
• Hotel and Lodging Sales – The quality and proximity of hotel supply
represents one of the most important selection factors for facility users in
recent years. To attract out-of-town groups, an adequate supply of nearby
hotel rooms should support the lodging needs of delegates, exhibitors, and
other attendees. Hotel and lodging sales indicates the presence and quality
of lodging supply.
• Food Service and Drinking Establishment Businesses– Total sales of food
service and drinking establishments measures the presence of restaurants,
bars and other outlets that support local and tourism visitation.
• Arts, Entertainment, & Recreation Businesses – Arts, entertainment and
recreation business enhance the quality and attractiveness of a destination.
The figures below rank Bozeman among the competitive cities on each of the criteria
describe above.
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 37
FIGURE 4-8
COMPARABLE DESTINATION ANALYSIS
2017 Total Population 2017-2022 Annual Population Growth (%)
Boise City, ID 225,405
Fargo City, ND 125,362
Billings City, MT 115,030
Yakima City, WA 94,112
Rapid City, SD 74,789
Bismarck City, ND 72,334
Missoula City, MT 71,840
Cheyenne City, WY 64,676
Casper City, WY 61,295
Great Falls City, MT 59,030
Bozeman City, MT 45,356
Butte-Silver Bow (balance), MT 34,740
Wenatchee City, WA 33,687
Laramie City, WY 33,191
Helena City, MT 29,788
Kalispell City, MT 21,558
Lander City, WY 7,412
2017-2022 Annual Population Growth (%)2017 Median Household Income
Bozeman City, MT 2.42%
Fargo City, ND 2.32%
Bismarck City, ND 2.28%
Boise City, ID 1.41%
Rapid City, SD 1.34%
Casper City, WY 1.28%
Billings City, MT 1.18%
Kalispell City, MT 1.13%
Laramie City, WY 1.03%
Missoula City, MT 1.02%
Cheyenne City, WY 0.87%
Wenatchee City, WA 0.81%
Helena City, MT 0.71%
Butte-Silver Bow (balance), MT 0.36%
Yakima City, WA 0.35%
Great Falls City, MT 0.20%
Lander City, WY -0.54%
2017 Median Household Income
Casper City, WY 57,358
Bismarck City, ND 55,919
Cheyenne City, WY 54,177
Lander City, WY 53,343
Boise City, ID 52,179
Billings City, MT 52,033
Helena City, MT 50,843
Fargo City, ND 50,798
Wenatchee City, WA 48,844
Rapid City, SD 48,513
Bozeman City, MT 46,776
Great Falls City, MT 44,677
Yakima City, WA 44,153
Laramie City, WY 42,329
Kalispell City, MT 42,145
Butte-Silver Bow (balance), MT 41,679
Missoula City, MT 41,197
2017-2022 Annual Median Household Income
Growth Number of Businesses
Butte-Silver Bow (balance), MT 4.88%
Kalispell City, MT 4.75%
Bozeman City, MT 4.37%
Helena City, MT 3.49%
Rapid City, SD 3.26%
Bismarck City, ND 3.18%
Fargo City, ND 3.11%
Missoula City, MT 2.70%
Great Falls City, MT 2.19%
Casper City, WY 2.00%
Cheyenne City, WY 1.69%
Billings City, MT 1.54%
Wenatchee City, WA 1.47%
Yakima City, WA 1.42%
Boise City, ID 1.12%
Laramie City, WY 0.51%
Lander City, WY 0.12%
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 38
Number of Businesses Number of Employees
Boise City, ID 10,533
Billings City, MT 6,357
Fargo City, ND 6,003
Missoula City, MT 4,602
Bismarck City, ND 4,129
Rapid City, SD 4,092
Yakima City, WA 3,756
Cheyenne City, WY 3,246
Casper City, WY 3,011
Bozeman City, MT 2,981
Great Falls City, MT 2,878
Helena City, MT 2,569
Kalispell City, MT 1,817
Wenatchee City, WA 1,749
Butte-Silver Bow (balance), MT 1,722
Laramie City, WY 1,322
Lander City, WY 529
Number of Employees Hotel and Lodging Sales
Boise City, ID 167,479
Fargo City, ND 107,714
Billings City, MT 86,797
Bismarck City, ND 62,043
Rapid City, SD 58,024
Missoula City, MT 56,600
Yakima City, WA 49,632
Cheyenne City, WY 45,733
Helena City, MT 37,696
Great Falls City, MT 37,155
Bozeman City, MT 36,717
Casper City, WY 33,089
Kalispell City, MT 24,524
Wenatchee City, WA 22,855
Laramie City, WY 19,054
Butte-Silver Bow (balance), MT 18,771
Lander City, WY 5,670
Hotel and Lodging Sales Food Service and Drinking Establishment Sales
Rapid City, SD 138,844
Fargo City, ND 133,413
Cheyenne City, WY 131,937
Billings City, MT 123,820
Missoula City, MT 79,630
Boise City, ID 78,101
Bismarck City, ND 64,161
Casper City, WY 57,198
Bozeman City, MT 43,013
Kalispell City, MT 40,403
Yakima City, WA 39,507
Helena City, MT 37,715
Great Falls City, MT 35,087
Laramie City, WY 27,344
Wenatchee City, WA 26,419
Butte-Silver Bow (balance), MT 20,990
Lander City, WY 5,074
Food Service and Drinking Establishment Sales Arts, Entertainment, & Recreation Businesses
Boise City, ID 460,715
Fargo City, ND 386,268
Billings City, MT 290,494
Missoula City, MT 272,637
Rapid City, SD 217,281
Bismarck City, ND 191,227
Cheyenne City, WY 163,699
Bozeman City, MT 163,015
Yakima City, WA 145,136
Great Falls City, MT 139,432
Casper City, WY 130,034
Helena City, MT 95,911
Kalispell City, MT 78,572
Laramie City, WY 76,319
Butte-Silver Bow (balance), MT 66,292
Wenatchee City, WA 62,847
Lander City, WY 16,629
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 39
Arts, Entertainment, & Recreation Businesses
Boise City, ID 193
Billings City, MT 173
Fargo City, ND 138
Missoula City, MT 123
Rapid City, SD 103
Great Falls City, MT 76
Cheyenne City, WY 73
Bozeman City, MT 69
Bismarck City, ND 58
Yakima City, WA 58
Casper City, WY 57
Butte-Silver Bow (balance), MT 53
Helena City, MT 52
Kalispell City, MT 36
Wenatchee City, WA 22
Laramie City, WY 20
Lander City, WY 16
While the Bozeman population ranks in the bottom third of destination, it has the
highest projected population growth, which indicates long-term future growth as a
meetings destination. Similarly, median household income is below the median, but
promises to grow at 4.4% annually. Business presence, employment, and total sales
fall within the mid-range of competitive cities. Reflecting its status as a tourism
destination, Bozeman generates median hotel and lodging sales, which reflect
seasonal occupancy and lower average daily room rates than larger cities. Bozeman
offers a median level of good service and drinking establishments.
Aggregating the rank on each of the destination criteria, Esri calculates an overall
score for each destination. The figure below shows the overall rank of Bozeman
among the competitive cities.
Summary of
Destination Indicators
Destination Ranking
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 40
FIGURE 4-9
AGGREGATE RANK ON ALL DESTINATION CRITERIA
Rank City Name Total Score
1 Boise City, ID 0.79
2 Fargo City, ND 0.71
3 Billings City, MT 0.61
4 Rapid City, SD 0.52
5 Bismarck City, ND 0.51
6 Cheyenne City, WY 0.44
7 Missoula City, MT 0.42
8 Bozeman City, MT 0.42
9 Casper City, WY 0.39
10 Helena City, MT 0.32
11 Yakima City, WA 0.28
12 Kalispell City, MT 0.27
13 Great Falls City, MT 0.27
14 Butte-Silver Bow (balance), MT 0.23
15 Wenatchee City, WA 0.21
16 Laramie City, WY 0.14
17 Lander City, WY 0.08
Among Montana cities, Bozeman ranks below Billings, is comparable to Missoula,
and above Helena. It ranks in the median of all competitive cities.
This assessment of destination appeal is based on certain objective criteria, but it
does not assess the quality and attractiveness of the built environment. Compared
to many destinations of similar size, Bozeman offers a more vibrant urban
environment. The beauty of the surrounding natural environment and its proximity
to ski resorts and Yellowstone National Park also distinguishes Bozeman from its
competition.
When analyzed in the context of the overall market characteristics, a study of
comparable cities and venues indicates the appropriate building program for the
proposed convention center. HVS concludes that Bozeman’s growing economy and
tourism base warrants the development of new convention center space. When
compared to the Montana market, the function spaces should be average in size and
offer the maximum flexibility to event planners. But, the building program should
not include a large dedicated exhibition space. The proximity of the attached dual-
branded hotel will provide Bozeman with a competitive advantage over many of its
competitors.
Building Program
Recommendations
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 41
HVS recommends the new proposed convention facility include a total of
approximately 16,000 square feet of function space comprised of the following:
FIGURE 4-10
BUILDING PROGRAM RECOMMENDATIONS
Theatre Banquet Classroom
Ballroom 10,000 1,110 570 690
Sub-Divisions
Division 1 3,333 370 190 230
Division 2 3,333 370 190 230
Division 3 3,333 370 190 230
Meeting Rooms 5,000 560 290 340
Meeting Room Block 1 3,000 330 170 210
Divisions (3)1,000 110 60 70
Meeting Room Block 2 2,000 220 110 140
Divisions (3)667 70 40 50
Board Rooms (2)500 60 30 30
TOTAL FUNCTION SPACE 16,000
Capacities
Total Area
(SF)Event Space
While site constraints and other design issues will affect the final layout of the
ballroom space, HVS recommends that it be configured for maximum flexibility as
shown in the figure below.
Multi-Purpose/
Ballroom
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 42
RECOMMENDED MULTI-PURPOSE/BALLROOM CONFIGURATION
Wrapping pre-function space around three sides of the ballroom allows maximum
flexibility for events. Movable walls would allow for up to five divisions in the
ballroom. A service corridor would separate back of house operations from attendee
access. To allow for maximum flexibility as light exhibit, banquet, and meeting
space, the multi-purpose ballroom should be carpeted with durable wall finishes
and ceilings heights suitable for exhibit and banquet events. The ballroom should
have convenient access to a main lobby and other pre-function spaces which are
either stand-alone or shared with other function spaces. Service access should be
such that each division of the multi-purpose hall has independent access allowing
an event to take place in one division while another is being serviced for a separate
event.
Meeting space provides breakout space for larger conference and convention events
and supports stand-alone meetings, as well as food and beverage functions. Meeting
room blocks in areas should maintain a separation of attendee and service access.
Pre-Function Area
Service Corridor
Attendee Entrance
Service Entrance
Movable Wall
Meeting Spaces
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 43
We recommend 5,000 square feet of function space in two meeting room blocks of
3,000 and 2,000 square feet. Movable walls would allow each meeting room to
divide into three sections.
In addition to the function spaces provided above, the gross floor area included in
the proposed convention center would include the following elements:
• Lobby and Pre-function Areas – A well-appointed lobby and pre-
function areas should provide event planners areas for greeting and
registration, social gatherings, and well-defined public access to the
multipurpose ballroom and meeting rooms. This space is also
appropriate for stand-alone receptions, meals, and other community
events.
FIGURE 4-11
Event Space Frontage
(ft)
Depth
(ft)
Floor Area
(sf)
Ballroom 94 30 2,828
Meeting Rooms 67 20 1,333
Total Prefunction 4,162
• Circulation – Circulation space should provide for the movement of
attendees into and through the venue. These areas would include and
hallways, connecting walkways, and bridges as required. Depending on
the concept plan, these areas could also include vertical circulation
(stairwells, elevators, and escalators).
• Service access – Service corridors should provide non-public access to
the event hall and meeting rooms as well as connection to the facility’s
loading docks, mechanical rooms, and storage.
FIGURE 4-12
Event Space Back of
House (ft)
Depth
(ft)
Floor Area
(sf)
Ballroom 94 15 1,414
Meeting Rooms 67 15 1,000
Total 2,414
• Drop-off zone – The venue should have a well-defined vehicular drop-
off area and pedestrian access solely for the uses of event attendees.
Ancillary and Support
Spaces
April 13, 2018 Convention Center Development Recommendations
Proposed Hotel & Convention Center – Bozeman, Montana 44
• Loading areas – Service access separate from the drop-off zone, truck
docks, and waste disposal areas necessary to support the venue.
• Kitchen – Further investigation should determine the extent to which
the main production kitchens could also serve the needs of the venue. At
a minimum, the space should incorporate a pantry kitchen capable of
accommodating [a single meal of 1,200 guests].
• Storage – Adequate and convenient equipment storage is important to
the efficient operation of the facility.
• Facility Operations – Spaces needed to support the facility’s physical
plant, including HVAC, plumbing, electrical and fire protection systems.
• Parking – the on-site capacity for parking should be determined in view
of the amount of available off-site parking that could service the
Convention Center.
FIGURE 4-13
Support Space Total Area
(SF)Notes
FUNCTION SPACE 16,000
SUPPORT SPACE
Prefunction Areas 4,200 Lineal feet of frontage times depth of pre-function space
General Circulation 3,400 15%of total function space, pre function, and support spaces
Service Corridors 2,400 Lineal feet of back of house times depth of corridor
Kitchen/Commissary 2,600 16%of total Function space
Public Restrooms 1,600 10%of total function space
Administrative & Show Offices 1,500 One show office and administrative space
Storage 2,500 10%of total function space, pre function, and support spaces
Mechanical/Electrical Equipment 4,000 25%of total function space
SUB-TOTAL SUPPORT SPACE 22,200
GROSS BUILDING FLOOR AREA 38,200
A more precise determination of the floor areas would require a concept plan
created by a design firm that illustrates how the proposed venue alterations would
fit on the site. The process of concept planning would likely require adjustments to
the recommended floor areas.
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
45
5. Supply and Demand Analysis
The Proposed Hotel and Convention Center’s local lodging market is most directly
affected by the supply and demand trends within the immediate area. Other
factors affecting the local market include changes in population, income, corporate
offices, and communications technology.
Changes in the national lodging market indirectly affect the local markets. HVS
reviewed national lodging trends to provide a context for the forecast of the supply
and demand for the Proposed Hotel and Convention Center’s competitive set.
Smith Travel Research (“STR”) is an independent research firm that compiles data
on the lodging industry. Figure 5-1 presents annual U.S. hotel occupancy and
average rate data since 1987. Figure 5-2 illustrates hotel performance, categorized
by geography, price point, type of location, and chain scale. RevPAR, the product of
occupancy and average rate, provides a combined measure of rate and occupancy.
The figure below shows the hotel occupancy, average rate, and RevPAR trends for
the U.S.
FIGURE 5-1
U.S. OCCUPANCY, AVERAGE RATE, AND REVPAR TRENDS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$20
$40
$60
$80
$100
$120
$140
ADR RevPAR Occupancy
Source: STR
National Hotel Market
Trends
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
46
Following the significant RevPAR decline experienced during the last recession,
demand growth resumed in 2010, led by select markets that had recorded growth
trends in the fourth quarter of 2009. A return of business travel and some group
activity contributed to these positive trends. The resurgence in demand was partly
fueled by the significant price discounts that were widely available in the first half
of 2010. These discounting policies were largely phased out in the latter half of the
year, balancing much of the early rate loss. Demand growth remained strong, but
decelerated from 2011 through 2013, increasing at rates of 4.7%, 2.8%, and 2.0%,
respectively. Demand growth then surged to 4.0% in 2014, driven by a strong
economy, a robust oil and gas sector, and limited new supply, among other factors.
By 2014, occupancy had surpassed the 64% mark. Average rate rebounded
similarly during this time, bracketing 4.0% annual gains from 2011 through 2014.
In 2015, demand growth continued to outpace supply growth, a relationship that
has been in place since 2010. With a 2.9% increase in room nights, the nation's
occupancy level reached a record high of 65.4% in 2015. Supply growth intensified
modestly in 2015 (at 1.1%), following annual supply growth levels of 0.7% and
0.9% in 2013 and 2014, respectively. Average rate posted another strong year of
growth, at 4.7% in 2015, in pace with the annual growth of the last four years.
Robust job growth, heightened group and leisure travel, and waning price-
sensitivity all contributed to the gains. In 2016, occupancy showed virtually no
change, as demand growth kept pace with supply additions. Occupancy then
moved even higher in 2017, to a new peak of 65.9%. Average rate increased
roughly 3% and 2% in 2016 and 2017, respectively. By year-end 2017, the net
change in RevPAR was 3.0%, reflecting a healthy lodging market overall. Year-to-
date statistics through February 2018 show this trend continuing, with a 0.6-point
occupancy increase, while average rate increased by just over $2.00, resulting in a
3.2% upward change in RevPAR.
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
47
FIGURE 5-2
COMPARISON OF U.S. REVPAR
FEBRUARY 2018 VERSUS 2017
Hotel Type 2018
RevPAR Percent Change from 2017
United States $72.30 3.2%
Region
Pacific $109.48 3.4%
South Atlantic 80.65 3.0%
Mountain 76.41 1.2%
Middle Atlantic 76.39 5.4%
New England 64.23 3.6%
West South Central 60.43 3.0%
East North Central 47.75 3.5%
East South Central 46.41 1.3%
West North Central 44.41 6.0%
Class
Luxury $191.76 3.7%
Upper-Upscale 117.07 0.9%
Upscale 89.22 2.2%
Upper-Midscale 64.36 2.9%
Midscale 45.92 3.6%
Economy 34.57 5.0%
Location
Resort $127.54 3.7%
Urban 103.25 0.9%
Airport 80.39 2.2%
Suburban 63.35 2.9%
Small Metro/Town 44.08 3.6%
Interstate 37.98 5.0%
Chain Scale
Luxury $234.36 4.4%
Upper-Upscale 121.66 0.9%
Upscale 90.99 2.0%
Independents 67.54 3.8%
Upper-Midscale 62.88 2.9%
Midscale 41.70 3.4%
Economy 29.61 5.1%
Source: STR - February 2018 Lodging Review
The Proposed Hotel and Convention Center’s local lodging market is most directly
affected by the supply and demand trends within the immediate area.
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
48
HVS selected a list of local hotels that would compete on a primary or secondary
basis with the Proposed Hotel and Convention Center. Seven properties would
compete with the Proposed Hotel and Convention Center on a primary basis and
seven properties on a secondary basis, for a total of 14 competitors. We weighted
the room count of each secondary competitor based on its projected
competitiveness.
The following map illustrates the location of the Proposed Hotel and Convention
Center and its future primary and secondary competitors.
MAP OF COMPETITION BY HVS
Defining the
Competitive Set
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
49
HVS relied on STR data and market research to determine the room count of each
hotel. The weighted competitive set currently includes 801 rooms in primary
competitors and 530 rooms in the secondary competitors. We applied competitive
weights to the secondary competitors as shown in the figure below for a weighted
room count of 367.
FIGURE 5-3
THE WEIGHTED COMPETITIVE SET
Hotel Number
of Rooms
Competitive
Level
Weighted
Room
Count
Primary Competitors
Holiday Inn Bozeman 177 100%177
Hilton Garden Inn Bozeman 123 100%123
Best Western Plus GranTree Inn 120 100%120
Residence Inn by Marriott Bozeman 115 100%115
Element Bozeman 104 100%104
Homewood Suites by Hilton Bozeman 102 100%102
SpringHill Suites by Marriott Bozeman 60 100%60
Sub-total 801 801
Secondary Competitors
Comfort Inn 121 80%97
Comfort Suites 80 80%64
Holiday Inn Express Hotel & Suites West 86 70%60
Country Inn & Suites By Carlson 79 60%47
Hampton Inn 70 60%42
Fairfield Inn by Marriott 56 60%34
Lark Bozeman 38 60%23
Sub-total 530 367
Totals 1,331 1,168
Sources: STR and HVS
Our survey of the primarily competitive hotels in the local market shows a range of
lodging types and facilities. We inspected and evaluated each competitor.
The figure below presents a summary of operating performance for the primary
competitors for the past two years. Primary Competitors
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
50
FIGURE 5-4
PERFORMANCE OF THE PRIMARY COMPETITIVE SET
Property Rooms ADR RevPAR ADR RevPAR
Best Western Plus GranTree Inn 120 65 - 70 %$105 - $110 $70 - $75 55 - 60 %$100 - $105 $60 - $65
Element Bozeman 104 85 - 90 150 - 160 130 - 140 80 - 85 160 - 170 140 - 150
Hilton Garden Inn Bozeman 123 75 - 80 130 - 140 105 - 110 75 - 80 130 - 140 105 - 110
Holiday Inn Bozeman 177 80 - 85 85 - 90 65 - 70 80 - 85 85 - 90 70 - 75
Homewood Suites by Hilton Bozeman 102 75 - 80 140 - 150 105 - 110 75 - 80 140 - 150 110 - 115
Residence Inn by Marriott Bozeman 115 70 - 75 125 - 130 90 - 95 75 - 80 125 - 130 95 - 100
SpringHill Suites by Marriott Bozeman 60 — — — 75 - 80 150 - 160 115 - 120
Totals 801 77.2%$117 $90 77.1%$125 $97
Estimated 2016 Estimated 2017
Occ.Occ.
Sources: STR and HVS
HVS ranked the primary competitors on four criteria related to the attractiveness
of the property to potential customers.
1. Access – the ease with which customers can gain vehicular or pedestrian
access to the property. Simple and direct access routes are rated higher than
more complicated routes.
2. Visibility – is particularly important to hotels that attract walk-in customers
who do not have prior reservations. Signage and building facades typically
provide visibility.
3. Neighborhood – means the quality of the surrounding neighborhood, the
compatibility of adjacent land uses, and the perceived safety of the
neighborhood.
4. Physical condition – refers to the overall physical condition of the hotel. Based
on an inspection of each property, HVS rated the physical condition of each
hotel in comparison to other hotels of a similar scale or class.
Each criterion was rated from one to five, with one indicating very poor
compliance with the criteria and five meaning excellent compliance. The figure
below summarizes the results of the rankings for each criterion and shows an
aggregate rating that is the average of all criteria.
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
51
FIGURE 5-5
RANK OF PRIMARY COMPETITORS ON CUSTOMER SELECTION CRITERIA*
Access Access Visibility Neighbor-
hood
Physical
Condition
Aggregate
Rating
Hilton Garden Inn Bozeman 4 5 5 4 4.50
Element Bozeman 4 5 5 4 4.50
Proposed Headquarters Hotel 4 4 4 5 4.25
SpringHill Suites by Marriott Bozeman 4 4 4 4 4.00
Residence Inn by Marriott Bozeman 4 4 4 4 4.00
Holiday Inn Bozeman 4 4 4 4 4.00
Homewood Suites by Hilton Bozeman 4 4 4 3 3.75
Best Western Plus GranTree Inn 4 3 4 3 3.50
*Ranked on a Scale of 1 to 5 where: 1 = Very Poor, 2 = Poor, 3 = Average, 4 = Good, 5 = Excellent
The Proposed Hotel and Convention Center customer selection criteria rankings
are above average compared to the primary competitors. The Proposed Hotel and
Convention Center ranks well on physical condition due to new construction. The
visibility and neighborhood rank could change based on the site selected by the
developer.
We also reviewed other area lodging facilities to determine whether any may
compete with the Proposed Hotel and Convention Center on a secondary basis.
The room count of each secondary competitor has been weighted based on its
assumed degree of competitiveness with the Proposed Hotel and Convention
Center. By assigning degrees of competitiveness, we can assess how the Proposed
Hotel and Convention Center and its future competitors may react to various
changes in the market, including new supply, changes to demand generators, and
renovations or franchise changes of existing supply.
We identified seven hotels that would compete with the Proposed Hotel and
Convention Center on a secondary level. The Comfort Inn, the Comfort Suites,
Country Inn & Suites By Carlson, Fairfield Inn by Marriott, Hampton Inn, and
Holiday Inn Express Hotel & Suites West are anticipated to be competitive by
location and quality; however the lack of significant meeting space, dining
facilities, or type of hotel causes them to be secondary competitors. The Lark
Bozeman is the only luxury hotel in the market, which makes it a secondary
competitor due to superior quality.
The following figure sets forth the pertinent operating characteristics of the
combined secondary competitors.
Secondary
Competitors
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
52
FIGURE 5-6
RECENT PERFORMANCE OF THE SECONDARY COMPETITIVE SET
Property Number
of Rooms Weighting Weighted
Rooms ADR RevPAR ADR RevPAR
Comfort Inn 121 80%97 60 - 65 %$85 - $90 $50 - $55 60 - 65 %$85 - $90 $50 - $55
Comfort Suites 80 80%64 75 - 80 110 - 115 85 - 90 75 - 80 115 - 120 85 - 90
Country Inn & Suites By Carlson 79 60%47 65 - 70 110 - 115 75 - 80 65 - 70 110 - 115 75 - 80
Fairfield Inn by Marriott 56 60%34 55 - 60 115 - 120 65 - 70 55 - 60 120 - 125 70 - 75
Hampton Inn 70 60%42 75 - 80 115 - 120 85 - 90 70 - 75 120 - 125 90 - 95
Holiday Inn Express Hotel & Suites 86 70%60 65 - 70 110 - 115 75 - 80 65 - 70 115 - 120 80 - 85
Lark Bozeman 38 60%23 65 - 70 200 - 210 140 - 150 65 - 70 210 - 220 140 - 150
Totals 530 367 68.4%$112 $77 68.9%$114 $79
Estimated 2016
Occ.
Estimated 2017
Occ.
The figure below summarizes aggregate competitive set performance in the base
year. Performance analyses include guest room count, occupancy rate, average
daily room rate (“ADR”), and revenue per available room, (“RevPAR”). RevPAR, a
common hotel industry performance metric, is the product of occupancy rate and
ADR. Since 2017 was the most recent complete year of available data at the time of
this study, we used it as the base year of our analysis.
Historical Supply
and Demand Data
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
53
FIGURE 5-7
THE WEIGHTED COMPETITIVE SET HISTORICAL PERFORMANCE
Room Count
Secondary Competitors 367
Holiday Inn Bozeman 177
Hilton Garden Inn Bozeman 123
Best Western Plus GranTree Inn 120
Residence Inn by Marriott Bozeman 115
Element Bozeman 104
Homewood Suites by Hilton Bozeman 102
SpringHill Suites by Marriott Bozeman 90
Occupancy
Element Bozeman 80 - 85%
Holiday Inn Bozeman 80 - 85%
Residence Inn by Marriott Bozeman 75 - 80%
Homewood Suites by Hilton Bozeman 75 - 80%
Hilton Garden Inn Bozeman 75 - 80%
SpringHill Suites by Marriott Bozeman 75 - 80%
Secondary Competitors 69%
Best Western Plus GranTree Inn 55 - 60%
ADR
Element Bozeman $160 - $170
SpringHill Suites by Marriott Bozeman $150 - $160
Homewood Suites by Hilton Bozeman $140 - $150
Hilton Garden Inn Bozeman $130 - $140
Residence Inn by Marriott Bozeman $125 - $130
Secondary Competitors $114
Best Western Plus GranTree Inn $100 - $105
Holiday Inn Bozeman $85 - $90
RevPAR
Element Bozeman $140 - $150
SpringHill Suites by Marriott Bozeman $115 - $120
Homewood Suites by Hilton Bozeman $110 - $115
Hilton Garden Inn Bozeman $105 - $110
Residence Inn by Marriott Bozeman $95 - $100
Secondary Competitors $79
Holiday Inn Bozeman $70 - $75
Best Western Plus GranTree Inn $60 - $65
Sources: STR and HVS
The figure below shows year-to-date through January occupancy and average daily
room rates compared to the prior year for the competitive hotels.
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
54
FIGURE 5-8
YEAR-TO-DATE THROUGH JANUARY
2017 2018 Percent Change
Occupancy 61.3%61.4%0.1%
ADR $90.71 $90.55 -0.2%
Room Night Demand 24,168 25,911 7.2%
Source: STR
The competitive hotel’s occupancy did not materially change, and ADR did not
materially change over the 2017 levels. Room night demand grew as the additional
room night supply from the recently opened Springhill Suites was absorbed by the
market.
Market penetration measures how an individual hotel property performs in
comparison to the market as a whole. Occupancy penetration is the occupancy of
the hotel divided by the market occupancy. Yield penetration is the RevPAR of a
hotel divided by the RevPAR of the market. A penetration factor greater than one
indicates a property is performing better than the market. A penetration factor
less than one indicates that a property is underperforming in the market. The
following figure shows occupancy and yield penetrations of the hotels in the
competitive set.
Occupancy and Yield
Penetration
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
55
FIGURE 5-9
OCCUPANCY AND YIELD PENETRATION
Occupancy Penetration
Element Bozeman 110 - 120%
Holiday Inn Bozeman 110 - 120%
Residence Inn by Marriott Bozeman 100 - 110%
Homewood Suites by Hilton Bozeman 100 - 110%
Hilton Garden Inn Bozeman 100 - 110%
SpringHill Suites by Marriott Bozeman 100 - 110%
Secondary Competitors 92%
Best Western Plus GranTree Inn 75 - 80%
Yield Penetration
Element Bozeman 150 - 160%
SpringHill Suites by Marriott Bozeman 120 - 130%
Homewood Suites by Hilton Bozeman 120 - 130%
Hilton Garden Inn Bozeman 110 - 120%
Residence Inn by Marriott Bozeman 100 - 110%
Secondary Competitors 86%
Holiday Inn Bozeman 75 - 80%
Best Western Plus GranTree Inn 60 - 65%
Sources: STR and HVS
The hotel market shows significant seasonal variation, with summer displaying the
highest average daily rates and occupancy and winter with the lowest average
daily rates and occupancy, as shown in the following figure.
FIGURE 5-10
SEASONALITY GRAPH OF THE WEIGHTED COMPETITIVE SET
$0
$20
$40
$60
$80
$100
$120
$140
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Occupancy ADR
Source: STR
Seasonality
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
56
Group demand is strongest in the spring and fall months, and tourists drive
transient demand during its peak in the summer months.
STR data have certain limitations. Hotels are occasionally added to or removed
from the sample and not every property reports data in a consistent and timely
manner; these factors can influence the overall quality of the information by
skewing the results. These inconsistencies may also cause the STR data to differ
from the results of our competitive survey. Nonetheless, STR data provide the best
indication of aggregate growth or decline in existing supply and demand; thus,
these trends have been considered in our analysis.
The figure below shows the historical performance of the competitive set
including the occupancy rates, ADR, and RevPAR.
FIGURE 5-11
HISTORICAL ROOM NIGHT DEMAND, ADR, AND REVPAR
0%
20%
40%
60%
80%
$0
$20
$40
$60
$80
$100
$120
$140
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ADR RevPAR Occupancy
Source: STR
These data reflect an overall market occupancy level of 73.9% in 2017, an increase
from 73.7% for 2016. The overall average occupancy level for the period shown in
the above figure was 68%. The economic downturn of 2008 through 2010 resulted
in lower demand and occupancy rates in the market. Occupancy increased in 2011,
and 2012, but fell modestly in 2013. Growth returned in 2014 and continued
through 2017.
The overall market average rate increased to $123.99 in 2017 from $118.55 for
2016. The average rate across to the period was $103.21 but has fluctuated from a
low of $89.58 to a high of $123.99 from 2008 to 2017. Rates have been increasing
from 2010 levels including growth in 2017, which had the highest rate from 2008
to 2017. These occupancy and average rate trends resulted in a RevPAR level of
$91.65 in 2017.
Historical Market
Performance
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
57
A review of the trends in occupancy, average rate, and RevPAR by the night of the
week over the past three fiscal years provides some insight into the impact that
the current economic conditions have had on the competitive lodging market. The
figure below shows the data provided by Smith Travel Research.
FIGURE 5-12
OCCUPANCY AND AVERAGE RATE BY DAY OF WEEK
$0
$25
$50
$75
$100
$125
$150
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Sun Mon Tue Wed Thu Fri Sat
Occupancy ADR
Source: STR
Leisure travelers and non-business-related groups generate high occupancy on
Friday and Saturday nights. Commercial travel generates strong demand on
Tuesday, Wednesday, and Thursday nights. The peak rate is on Friday and
Saturday nights, which is not typical for most hotel markets, where peak rates
often correspond to high midweek demand.
New hotels may affect the Proposed Hotel and Convention Center’s operating
performance. The figures below summarize our assumptions regarding new
supply.
FIGURE 5-13
NEW SUPPLY
Year Proposed Property Competitive
Weight
Proposed
Rooms
Weighted
Room Count
Cumulative Weighted
Room Count
2019 Residence Inn 100%105 105 105
2020 Focus-Service Dual Branded Hotel 100%120 120 225
2020 Extended-Stay Dual Branded Hotel 100%80 80 305
2021 Home2Suites 100%105 105 410
2021 Soft Brand Hotel 40%75 30 440
Weekly Patterns of
Lodging Demand
Supply Changes
April 13, 2018 Supply and Demand Analysis
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FIGURE 5-14
EXPANDING HOTELS
Year Property Competitive
Weight
Proposed
Expansion
Weighted Room
Count
2019 Lark Bozeman 60%24 14
Other potential new hotels were not factored directly into our analysis due to their
location, market orientation, and size. Though not directly competitive, new hotel
supply could affect absorption of room night demand in the competitive set. The
Bozeman area will experience substantial growth in room supply.
While we have taken reasonable steps to investigate proposed hotel projects and
their status, due to the nature of real estate development, it is impossible to
determine with certainty every hotel that would open in the future. Future
improvement in market conditions would raise the risk of increased competition.
Our forecasts reflect this risk.
The following figure presents data on the performance of the weighted
competitive set. HVS estimated performance results and in some cases weighted
data on secondary competitors. In this respect, this information differs from the
previously presented STR data.
FIGURE 5-15
WEIGHTED COMPETITIVE SET RECENT MARKET PERFORMANCE
Year Accommodated
Room Nights
Room Nights
Available
Competitive
Hotels
Occupancy
Competitive
Hotels ADR
Competitive
Hotels
RevPAR
Amount
2015 256,000 364,000 70.3%$113.51 $79.83
2016 281,000 379,000 74.1%$115.35 $85.52
2017 318,000 426,000 74.6%$122.13 $91.17
Percent Change
2016 9.8%4.1%5.4%1.6%7.1%
2017 13.2%12.4%0.7%5.9%6.6%
For the purpose of the demand analysis, the overall market is divided into three
segments based on the nature of travel. Based on our fieldwork and knowledge of
the local lodging market, we estimate the 2017 distribution of accommodated
room night demand as shown in the figure below.
Demand
Demand Analysis
Using Market
Segmentation
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
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FIGURE 5-16
ACCOMMODATED ROOM NIGHT DEMAND
Market Segment Room Nights
Commercial 150,021 47%
Leisure 110,237 35%
Meeting and Group 57,349 18%
Total 317,607 100%
Percent of Total Demand
The commercial segment is the largest, generating 47% of total room night
demand. Next, we discuss the individual market segments.
Commercial demand (47% of total demand) is mainly individual business people
passing through the subject market or visiting area businesses, in addition to high-
volume corporate accounts generated by local firms. Brand loyalty (particularly
frequent-traveler programs), as well as location and convenience with respect to
businesses and amenities, influence lodging choices in this segment. Companies
typically designate hotels as “preferred” accommodations in return for more
favorable rates. Commercial demand is strongest Monday through Thursday
nights, declines significantly on Friday and Saturday, and increases somewhat on
Sunday night. In markets where the weekday occupancy often exceeds 90%, some
unaccommodated commercial demand is likely to be present. It is relatively
constant throughout the year, with marginal declines in late December and during
other holiday periods.
Primary commercial demand generators for this market include major corporate
offices in the area, as well as the government sector, including the U.S. Department
of Agriculture. Additionally, construction companies, Montana State University,
and healthcare practitioners visiting Bozeman Health Deaconess Hospital generate
high levels of demand within this market. Continued growth in the market from
high-tech companies, as well as the continued increase in enrollment at MSU,
should support growth within this segment in the near term.
Leisure demand (35% of total demand) is from individuals and families spending
time in an area or passing through en route to other destinations. Travel purposes
include sightseeing, recreation, or visiting friends and relatives. Leisure demand
also includes room nights booked through Internet sites such as Expedia,
hotels.com, and Priceline; however, leisure may not be the purpose of the stay.
This demand may also include business travelers and group and convention
attendees who use these channels to take advantage of any discounts that may be
available on these sites. Leisure demand is strongest Friday and Saturday nights
and all week during holiday periods and the summer months. These peak periods
Commercial Demand
Leisure Demand
April 13, 2018 Supply and Demand Analysis
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represent the inverse of commercial visitation trends, underscoring the stabilizing
effect of capturing weekend and summer tourist travel. Future leisure demand is
related to the overall economic health of the region and the nation. Trends
showing changes in state and regional unemployment and disposable personal
income correlate strongly with leisure travel levels.
The typical length of stay ranges from one to four days, depending on the
destination and travel purpose, and the rate of double occupancy typically ranges
from 1.8 to 2.5 people per room. Price sensitivity tends to vary with the product
type. All-suite properties with inclusive food and beverage would tend to drive
strong leisure room rates while highway properties with limited amenities
typically offer more discounted leisure room rates.
Leisure demand for this market is primarily generated by Yellowstone National
Park, as well as by those visiting friends and family in the area. Bozeman is
considered the closest major city to the park, which is located less than 100 miles
to the south. Leisure demand is also generated by the numerous outdoor activities
for tourists to take advantage of, such as rafting, hiking, fishing, and skiing. We
expect growth to occur within this segment in the near term, as nonstop flights to
the market allow for additional visitors over the shoulder periods and economic
conditions remain strong.
The meeting and group demand (18% of total demand) include meetings,
seminars, conventions, trade shows, and similar gatherings of ten or more people.
Peak convention demand typically occurs in the spring and fall. Although there are
numerous classifications within the meeting and group segment, the primary
categories considered in this analysis are corporate groups, associations, and
SMERFE (social, military, ethnic, religious, fraternal, and educational) groups.
Corporate groups typically meet during the business week most commonly in the
spring and fall months. These groups often are the most profitable for hotels, as
they typically pay higher rates and usually generate ancillary revenues including
food, beverage, and banquet revenue. SMERFE groups are typically price-sensitive
and tend to meet on weekends or during the summer months or holiday season
when greater discounts are usually available. They generate limited ancillary
revenues. The profile and revenue potential of associations varies depending on
the group and the purpose of their meeting or event.
Meeting and group demand in Bozeman is generated by many sources, with
corporate groups being the most prevalent. The same companies that create
commercial demand also generate group demand through training activities and
social corporate events. MSU generates large amounts of group demand twice a
year for graduation, as well as in the fall during football season for home games.
High school and collegiate sports tournaments, such as the All Class Volleyball
Meeting and Group
Demand
April 13, 2018 Supply and Demand Analysis
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Tournament and Class A Boys and Girls Basketball Tournament, annually sell out
the market. Additionally, SMERFE groups and social events, such as weddings and
family reunions, also contribute to this demand segment. We expect growth to
occur within this segment in the near term.
The purpose of segmenting the lodging market is to define each major type of
demand, identify customer characteristics, and estimate future growth trends. HVS
determines the size of the existing competitive set of hotels. Next, HVS allocates
room night demand into market segments. HVS applies growth rates to determine
the level of future demand. HVS based demand growth rate estimates on
interviews with hotel managers, assessment of data on occupancy trends,
economic and demographic data, and identification of demand generators.
The figure below shows estimated growth rates by market segment.
FIGURE 5-17
ESTIMATED ANNUAL GROWTH RATES BY MARKET SEGMENT
Segment 2018 2019 2020 2021 2022 2023 Average
Commercial 2.5%5.0%5.0%4.0%2.5%1.5%3.4%
Meeting and Group 2.0%3.0%10.0%5.0%2.5%1.5%4.0%
Leisure 2.5%5.0%5.0%4.0%2.5%1.5%3.4%
Weighted Overall Change 2.4%4.6%5.9%4.2%2.5%1.5%3.5%
Latent demand reflects potential room night demand that has not been realized by
the existing competitive supply. Unaccommodated demand and induced demand
make up latent demand.
Unaccommodated demand refers to individuals who are unable to secure
accommodations in the market because all the local hotels are filled. These
travelers must defer their trips, settle for less desirable accommodations, or stay
in properties located outside the market area. Because this demand did not yield
occupied room nights, it is not included in the estimate of historically
accommodated room night demand. If additional lodging facilities are expected to
enter the market, it is reasonable to assume that these guests would be able to
secure hotel rooms in the future, and it is, therefore, necessary to quantify this
demand.
The seasonality of the market indicates that although year-end occupancy may not
average more than 70%, the market sells out many nights during the year
indicating unaccommodated demand. The primary source of unaccommodated
demand is the popular summer season, which has historically had the highest
Estimated Demand
Growth by Market
Segment
Latent Demand
Unaccommodated
Demand
April 13, 2018 Supply and Demand Analysis
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occupancy rates. The following figure presents our estimate of unaccommodated
demand in the subject market.
FIGURE 5-18
UNACCOMMODATED DEMAND ESTIMATE
Market Segment Total Room
Nights
% of
Total
Leisure 110,237 15.1%16,649
Meeting and Group 57,349 7.3%4,162
Total 317,607 6.6%20,812
Room Nights
Utilizing monthly and weekly peak demand and sell-out trends, we estimate that
6.6% of the base-year demand is unaccommodated.
Induced demand represents the additional room nights that are expected to be
attracted to the market following the introduction of a new demand generator.
Situations that can result in induced demand include the opening of a new
manufacturing plant, the expansion of a convention center, or the addition of a
new hotel with a distinct chain affiliation or unique facilities. Induced demand has
been accounted for in general market growth rates.
Using historical room night demand as a starting point and applying the previously
discussed assumptions, HVS estimated room night demand in the competitive set
by market segment as shown in the figure below.
FIGURE 5-19
ROOM NIGHT DEMAND BY MARKET SEGMENT
Market Segment Room Nights
Commercial 150,021 47%
Leisure 110,237 35%
Meeting and Group 57,349 18%
Total 317,607 100%
Percent of Total Demand
Four variables make up accommodated demand: 1) base demand—sources
currently generating room nights, 2) previously unaccommodated demand
absorbed due to growth in room supply, and 3) induced demand that is new to the
market. These estimates are adjusted by 4) residual demand—the estimated
number of room nights not accommodated due to supply constraints. The figure
below breaks down room night demand by these sources.
Induced Demand
Accommodated
Demand and Market-
wide Occupancy
April 13, 2018 Supply and Demand Analysis
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63
FIGURE 5-20
ANNUAL ROOM NIGHT DEMAND BY SOURCE
Source 2017 2018 2019 2020 2021 2022 2023 2024
Base Accommodated 318,000 325,000 340,000 360,000 375,000 385,000 391,000 391,000
Previously Unaccommodated 21,000 21,000 21,000 21,000 21,000 21,000 26,000 26,000
Total Available Demand 339,000 346,000 361,000 381,000 396,000 406,000 417,000 417,000
(Less Residual Demand)(21,000)(20,000)(21,000)(8,000)(1,000)0 (2,000)(2,000)
Total Accommodated Demand 318,000 326,000 340,000 373,000 395,000 406,000 415,000 415,000
Accommodated Demand Change 13.1%2.7%4.9%9.9%6.2%2.7%1.2%0.0%
Available Room Night Change 12.5%2.5%6.3%19.1%8.9%0.0%0.0%0.0%
Marketwide Occupancy 74%75%74%68%66%68%69%69%
Over the projection period, room night demand is estimated to grow at a
compound average annual rate of 5.3%.
HVS used these demand projections to forecast the Proposed Hotel and
Convention Center's occupancy and average rate.
Along with average rate results, the occupancy levels achieved by the Proposed
Hotel and Convention Center would be the foundation of the property's financial
performance. To a certain degree, management can manipulate the level of
occupancy. For example, hotel operators may choose to lower rates in an effort to
maximize occupancy. Our forecasts reflect an operating strategy that we believe
would be implemented by a typical professional hotel management team to
achieve an optimal mix of occupancy and average rate.
The Proposed Hotel and Convention Center's forecasted market share and
occupancy levels are based upon its anticipated competitive position within the
market, as quantified by its penetration rate. The penetration rate is the ratio of a
property's market share to its fair share. A hotel achieves a fair share when its
share of occupied room nights equals its share of available room nights.
HVS analyzed the market penetration of each of the properties in the competitive
set. The following figure ranks the market penetration of each hotel by market
segment.
Projections of
Occupancy and
Average Rate
Penetration Rate
Analysis
Market Penetration
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
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FIGURE 5-21
HISTORICAL OCCUPANCY PENETRATION RATES
Commercial Penetration
Element Bozeman 143%
Residence Inn by Marriott Bozeman 112%
Homewood Suites by Hilton Bozeman 112%
Hilton Garden Inn Bozeman 109%
Secondary Competition 109%
Best Western Plus GranTree Inn 94%
SpringHill Suites by Marriott Bozeman 86%
Holiday Inn Bozeman 44%
Meeting and Group Penetration
Best Western Plus GranTree Inn 134%
Element Bozeman 126%
Hilton Garden Inn Bozeman 115%
Secondary Competition 106%
Holiday Inn Bozeman 104%
Homewood Suites by Hilton Bozeman 59%
Residence Inn by Marriott Bozeman 59%
SpringHill Suites by Marriott Bozeman 57%
Leisure Penetration
Holiday Inn Bozeman 203%
SpringHill Suites by Marriott Bozeman 147%
Residence Inn by Marriott Bozeman 122%
Homewood Suites by Hilton Bozeman 122%
Hilton Garden Inn Bozeman 89%
Element Bozeman 69%
Secondary Competition 63%
Best Western Plus GranTree Inn 35%
The Proposed Hotel and Convention Center would over penetrate the commercial
segment due to new build, high quality, and the extended-stay portion of the
Proposed Hotel and Convention Center. The Proposed Hotel and Convention
Center would over-penetrate the meeting and group segment due to the largest
amount of meeting space in the market. The Proposed Hotel and Convention
Center will over penetrate the leisure segment due to the quality of the hotel and
large room size in the extended-stay portion of the property. The figure below
shows our estimates of market penetration of the Proposed Hotel and Convention
Center.
April 13, 2018 Supply and Demand Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
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FIGURE 5-22
OCCUPANCY PENETRATION OF THE PROPOSED HOTEL AND CONVENTION CENTER
Meeting and Group 131%
Leisure 108%
Commercial 107%
We estimate that the Proposed Hotel and Convention Center would achieve
111.9% overall occupancy penetration in a stabilized year of operation (2022). As
is typical of new hotels, it may take several years to ramp-up to its stabilized
occupancy level. HVS assumes a three-year ramp up, after the opening of the
Proposed Hotel and Convention Center. At stabilization in 2022, the Proposed
Hotel and Convention Center could achieve an occupancy rate as shown in the
figure below.
FIGURE 5-23
PROPOSED HOTEL AND CONVENTION CENTER
ROOM NIGHT ABSORPTION AND OCCUPANCY ESTIMATES
2020 2021 2022 2023
Available Room Nights 73,000 73,000 73,000 73,000
Absorption by Segment
Commercial 22,200 23,000 23,400 23,600
Meeting and Group 11,100 11,900 12,100 12,300
Leisure 19,200 19,700 20,100 20,200
Total Absorption 52,500 54,600 55,600 56,100
Projected Occupancy 72%75%76%76%
Percent Segmentation
Commercial 42%42%42%42%
Meeting and Group 21%22%22%22%
Leisure 37%36%36%36%
The stabilized occupancy reflects the anticipated results of the property over its
remaining economic life, given all changes in the life cycle of the hotel. Thus, the
stabilized occupancy excludes from consideration any abnormal relationship
between supply and demand, as well as any nonrecurring conditions that may
result in unusually high or low occupancies. Although the Proposed Hotel and
Convention Center may operate at occupancies above this stabilized level, new
competition, and temporary economic downturns could force the occupancy
below our stabilized projection.
April 13, 2018 Average Rate Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
66
6. Average Rate Analysis
The average rate is calculated by dividing the total rooms revenue achieved during
a specified period by the number of rooms sold during the same period. The
projected average rate and the anticipated occupancy percentage are used to
forecast rooms revenue, which in turn provides the basis for estimating most other
income and expense categories.
Although average rate and occupancy are highly correlated, one cannot project
occupancy without making specific assumptions regarding average rate. Revenue
per available room (“RevPAR”) reflects a property's ability to maximize rooms
revenue. The following figure summarizes the historical average rate and the
RevPAR of the subject property’s future primary competitors.
FIGURE 6-1
BASE-YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS
Property 2017 Average
Room Rate
ADR
Penetration RevPAR RevPAR
Penetration
Best Western Plus GranTree Inn $100 - $105 82%$60.00 66%
Element Bozeman 160 - 170 138%142.80 157%
Hilton Garden Inn Bozeman 130 - 140 113%106.26 117%
Holiday Inn Bozeman 85 - 90 70%70.13 77%
Homewood Suites by Hilton Bozeman 140 - 150 116%112.18 123%
Residence Inn by Marriott Bozeman 125 - 130 103%99.54 109%
SpringHill Suites by Marriott Bozeman 150 - 160 125%116.28 128%
Average - Primary Competitors $125.40 103%$96.64 106%
Average - Secondary Competitors 114.13 93%78.58 86%
Overall Average $122.13 $90.97
The defined primary competitive market realized an overall average rate of
$125.40 in the 2017 base year, improving from the 2016 level of $117.06.
The following figure illustrates the assumed projected average rate and the growth
rates for the proposed focus-service hotel. As a context for the average rate growth
factors, note that we have applied a base underlying inflation rate of 2.5% annually
throughout our projection period. The projected ADR for the focus-service hotel is
prior to the discount of 3% in 2021 and 1% in 2022 during the stabilization
period.
Average Rate Analysis
Competitive Position
April 13, 2018 Average Rate Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
67
FIGURE 6-2
COMPETITIVE HOTELS AND PROPOSED HOTEL AND CONVENTION CENTER AVERAGE RATE FORECAST FOCUS-
SERVICE HOTEL
Year Focus-
Service
Extended-
Stay
Average
Rate
Base Year 74.5 %— $122.13 — — $170.00 $145.00 $160.00 1.310 %
2018 74.6 3.0 %125.79 — 3.0 %175.10 149.35 164.80 1.310
2019 73.6 2.5 128.94 — 2.5 179.48 153.08 168.92 1.310
2020 67.9 2.5 132.16 72.0 %2.5 183.96 156.91 173.14 1.310
2021 66.2 2.5 135.47 75.0 2.5 188.56 160.83 177.47 1.310
2022 67.9 2.5 138.85 76.0 2.5 193.28 164.85 181.91 1.310
2023 68.7 2.5 142.32 76.0 2.5 198.11 168.98 186.46 1.310
2024 68.7 2.5 145.88 76.0 2.5 203.06 173.20 191.12 1.310
Occupancy
Competitive Hotels (Calendar Year)Proposed Focus-Service Hotel Rates (Calendar Year)
Average
Rate
Growth
Average
Rate
Penetration
Average
Rate
Growth
Average
Rate Occupancy
A 3.0% rate of change is expected for the subject property's 2017 base year room
rate in 2018 supported by the 4.6% increase in ADR in 2017, and 4.9% average
annual increase over the last five years. HVS projects growth rates of 2.5% and
2.5% in 2019 and 2020, respectively as the market absorbs recent increases
supply and projected increases in supply. The proposed focus-service hotel would
achieve a stabilized penetration rate of 131.0% by the stabilized period.
The following figure illustrates the assumed projected average rate and the growth
rates for the proposed extended-stay hotel. As a context for the average rate
growth factors, note that we have applied a base underlying inflation rate of 2.5%
annually throughout our projection period. The projected ADR for the extended-
stay hotel is prior to the discount of 3% in 2021 and 1% in 2022 during the
stabilization period.
April 13, 2018 Average Rate Analysis
Proposed Hotel and Convention Center – Bozeman, Montana
68
FIGURE 6-3
COMPETITIVE HOTELS AND PROPOSED HOTEL AND CONVENTION CENTER AVERAGE RATE FORECAST EXTENDED-
STAY SERVICE
Year Focus-
Service
Extended-
Stay
Average
Rate
Base Year 74.5 %— $122.13 — — $170.00 $145.00 $160.00 1.310 %
2018 74.6 3.0 %125.79 — 3.0 %175.10 149.35 164.80 1.310
2019 73.6 2.5 128.94 — 2.5 179.48 153.08 168.92 1.310
2020 67.9 2.5 132.16 72.0 %2.5 183.96 156.91 173.14 1.310
2021 66.2 2.5 135.47 75.0 2.5 188.56 160.83 177.47 1.310
2022 67.9 2.5 138.85 76.0 2.5 193.28 164.85 181.91 1.310
2023 68.7 2.5 142.32 76.0 2.5 198.11 168.98 186.46 1.310
2024 68.7 2.5 145.88 76.0 2.5 203.06 173.20 191.12 1.310
Occupancy
Competitive Hotels (Calendar Year)Proposed Focus-Service Hotel Rates (Calendar Year)
Average
Rate
Growth
Average
Rate
Penetration
Average
Rate
Growth
Average
Rate Occupancy
A 3.0% rate of change is expected for the subject property's 2017 base year room
rate in 2018 supported by the 4.6% increase in ADR in 2017, and 4.9% average
annual increase over the last five years. HVS projects growth rates of 2.5% and
2.5% in 2019 and 2020, respectively as the market absorbs recent increases
supply and projected increases in supply. The proposed extended-stay hotel would
achieve a stabilized penetration rate of 1.187% by the stabilized period.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
69
7. Projection of Income and Expense
HVS used its forecast of room night demand and average rates to calculate the
Proposed Hotel and Convention Center’s room revenue. HVS forecast the income
and expenses for the Proposed Hotel and Convention Center. The number of guests
drives other revenue sources of the Proposed Hotel and Convention Center such as
food, beverages, and telephone income. Many expense levels also vary with
occupancy. We assume operation would begin on January 1, 2020.
The forecast of income and expense is first estimated in the base year then
expressed in current dollars for each operating year. The stabilized year reflects
the anticipated operating results of the property over its remaining economic life.
Thus, income and expense estimates from the stabilized year forward exclude
from consideration any abnormal relationship between supply and demand, as
well as any nonrecurring conditions that may result in unusual revenues or
expenses.
The projections of income and expense for the Proposed Hotel and Convention
Center rely on comparable operating statements from the HVS database. We
carefully selected comparable operating statements based on similarities with the
Proposed Hotel and Convention Center including room count, property type,
location in urban markets, amounts of function space, occupancy rates, and
average daily room rates. A full year’s data on each property is available within the
last three years.
The following figure shows the room count, occupancy, average rate, and RevPAR
of the comparable hotel properties and compares them with the focus-service
hotel side of the Proposed Hotel and Convention Center.
Methodology
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
70
FIGURE 7-1
OVERVIEW OF COMPARABLE OPERATING STATEMENTS FOCUS-SERVICE HOTEL
Comp A Comp B Comp C Comp D Comp E Subject
Hotel
Year 2016/17 2016/17 2016 2015/16 2015/16 *
Number of Rooms: 80 to 110 110 to 140 130 to 160 210 to 270 220 to 280 120
Meeting Space 3,333 0 4,200 0 20,000 17,500
Occupied Rooms: 30,532 35,748 35,335 53,742 63,720 33,288
Occupancy: 85%80%67%61%69%76%
Average Rate: $147 $135 $126 $110 $145 $171
RevPAR:$126 $107 $84 $67 $100 $130
*A stabilized year of operation. Dollar amounts shown in 2017 dollars. Sources: Respective Venues and HVS
Further analysis of the comparable hotels provides benchmarks used in our
forecast of income and expense. The three most common measures of industry
performance: ratio to sales (“RTS”), amounts per available room (“PAR”), and
amounts per occupied room night (“POR”) are used to present the financial data.
The following figures compares our forecasts for the Proposed Hotel and
Convention Center to the comparable properties on each of these metrics.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
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FIGURE 7-2
COMPARABLE OPERATING STATEMENTS--RATIO TO SALES FOCUS-SERVICE HOTEL
RANK - PERCENTAGES 1 2 3 4 5 6
REVENUE
Rooms 91.4 83.7 82.8 78.0 74.6 67.5
Food & Beverage 29.3 24.0 20.9 16.0 15.7 7.3
Other Operated Departments 3.2 1.2 1.1 1.0 0.6 0.0
Miscellaneous Income 1.3 0.4 0.1 0.0 0.0 0.0
DEPARTMENTAL EXPENSES
Rooms 24.0 23.6 23.0 21.3 20.8 19.7
Food & Beverage 86.2 82.4 70.5 70.0 61.1 45.2
Other Operated Departments 87.1 76.9 76.1 70.0 36.8 0.0
OPERATING EXPENSES
Administrative & General 11.1 9.3 7.1 6.9 6.8 6.3
Info. and Telecom. Systems 0.8 0.6 0.5 0.5 0.4 0.3
Marketing 11.9 11.8 9.2 6.7 6.5 6.0
Franchise Fee 7.8 7.1 6.3 4.7 4.6 2.7
Property Operations & Maintenance 6.0 4.1 4.1 3.1 3.0 2.8
Utilities 5.1 3.7 2.8 2.6 2.5 2.4
Total Operating Expenses 39.3 31.1 30.0 26.0 25.9 25.8
HOUSE PROFIT 45.8 43.7 41.7 39.5 38.1 30.4
indicates position of Proposed Hotel
indicates position of comparable hotels
Information and telecom systems have only recently been separated from general
and administrative expenses. Comparable properties not showing an information
and telecom system expense included those costs in general and administrative
expenses.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
72
FIGURE 7-3
AMOUNTS PER AVAILABLE ROOM FOCUS-SERVICE HOTEL
RANK - INCOME PER ROOM 1 2 3 4 5 6
REVENUE
Rooms 47,388 45,832 39,099 36,552 30,782 24,394
Food & Beverage 15,874 15,257 7,324 6,524 5,939 3,659
Other Operated Departments 1,746 624 408 367 272 0
Miscellaneous Income 642 277 25 1 0 0
DEPARTMENTAL EXPENSES
Rooms 11,023 10,899 8,623 8,141 6,071 5,190
Food & Beverage 10,680 7,175 6,038 4,186 3,984 3,154
Other Operated Departments 642 437 320 311 209 0
OPERATING EXPENSES
Administrative & General 4,500 4,332 3,718 3,476 3,177 2,519
Info. and Telecom. Systems 376 278 250 241 165 158
Marketing 5,920 4,999 3,800 3,727 3,148 2,423
Franchise Fee 4,502 3,657 2,330 2,286 1,465 1,463
Property Operations & Maintenance 2,044 1,925 1,869 1,800 1,637 1,134
Utilities 2,012 1,600 1,588 1,295 1,227 957
Total Operating Expenses 16,452 15,031 14,516 14,106 12,289 9,603
HOUSE PROFIT 25,078 23,625 20,926 17,793 16,983 9,502
indicates position of Proposed Hotel
FIGURE 7-4
AMOUNTS PER OCCUPIED ROOM NIGHT FOCUS-SERVICE HOTEL
RANK - PER OCCUPIED ROOM 1 2 3 4 5 6
REVENUE
Rooms 171 147 145 135 126 110
Food & Beverage 63 55 29 25 24 12
Other Operated Departments 7 2 2 2 1 0
Miscellaneous Income 2 1 0 0 0 0
DEPARTMENTAL EXPENSES
Rooms 39 35 34 28 25 23
Food & Beverage 39 28 21 18 17 10
Other Operated Departments 3 2 1 1 1 0
OPERATING EXPENSES
Administrative & General 16 16 15 15 10 10
Info. and Telecom. Systems 1 1 1 1 1 1
Marketing 20 19 17 14 11 10
Franchise Fee 16 13 10 7 7 6
Property Operations & Maintenance 8 7 7 6 6 5
Utilities 8 7 6 4 4 4
Total Operating Expenses 59 56 56 50 48 39
HOUSE PROFIT 93 90 70 67 61 43
indicates position of Proposed Hotel
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
73
The following figure shows the room count, occupancy, average rate, and RevPAR
of the comparable hotel properties and compares them with the extended-stay
hotel side of the Proposed Hotel and Convention Center.
FIGURE 7-5
OVERVIEW OF COMPARABLE OPERATING STATEMENTS EXTENDED-STAY HOTEL
Comp A Comp B Comp C Comp D Comp E Subject
Hotel
Year 2016 2016/17 2016 2015/16 2015/16 *
Number of Rooms: 60 to 80 80 to 110 80 to 100 70 to 100 80 to 110 80
Meeting Space 350 518 675 0 900 0
Occupied Rooms: 19,604 28,852 25,720 21,678 28,128 22,192
Occupancy: 75%86%79%72%79%76%
Average Rate: $146 $120 $135 $138 $114 $146
RevPAR:$109 $103 $106 $99 $90 $111
*A stabilized year of operation. Dollar amounts shown in 2017 dollars.
Sources: Respective Venues and HVS
Further analysis of the comparable hotels provides benchmarks used in our
forecast of income and expense. The three most common measures of industry
performance: ratio to sales (“RTS”), amounts per available room (“PAR”), and
amounts per occupied room night (“POR”) are used to present the financial data.
The following figures compares our forecasts for the extended-stay hotel to the
comparable properties on each of these metrics.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
74
FIGURE 7-6
COMPARABLE OPERATING STATEMENTS--RATIO TO SALES EXTENDED-STAY HOTEL
RANK - PERCENTAGES 1 2 3 4 5 6
REVENUE
Rooms 99.0 98.8 98.6 98.6 98.6 97.8
Other Operated Departments 2.2 1.4 1.0 1.0 0.9 0.8
Miscellaneous Income 0.5 0.4 0.3 0.0 0.0 0.0
DEPARTMENTAL EXPENSES
Rooms 24.8 23.0 22.9 21.8 21.0 18.9
Other Operated Departments 96.2 65.6 65.0 38.1 37.6 0.0
OPERATING EXPENSES
Administrative & General 13.7 10.3 9.8 7.9 7.8 6.7
Info. and Telecom. Systems 3.8 1.6 1.4 1.4 0.6 0.6
Marketing 5.8 5.3 4.9 4.2 4.1 2.8
Franchise Fee 8.9 8.9 8.3 8.0 7.9 7.9
Property Operations & Maintenance 7.8 6.3 4.6 3.9 3.8 3.7
Utilities 4.7 3.7 3.7 3.6 3.4 3.0
Total Operating Expenses 42.7 36.5 31.0 30.1 27.4 26.9
HOUSE PROFIT 53.3 51.1 47.2 45.7 37.6 36.3
indicates position of Proposed Hotel
indicates position of comparable hotels
Information and telecom systems have only recently been separated from general
and administrative expenses. Comparable properties not showing an information
and telecom system expense included those costs in general and administrative
expenses.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
75
FIGURE 7-7
AMOUNTS PER AVAILABLE ROOM EXTENDED-STAY HOTEL
RANK - INCOME PER ROOM 1 2 3 4 5 6
REVENUE
Rooms 40,419 39,800 38,912 37,533 36,163 32,831
Other Operated Departments 842 568 416 402 323 263
Miscellaneous Income 174 139 138 0 0 0
DEPARTMENTAL EXPENSES
Rooms 9,889 9,296 8,910 7,587 7,143 7,107
Other Operated Departments 547 317 270 172 123 0
OPERATING EXPENSES
Administrative & General 5,011 4,158 4,000 3,090 2,991 2,236
Info. and Telecom. Systems 1,402 656 553 535 250 190
Marketing 2,336 2,078 1,789 1,700 1,399 1,068
Franchise Fee 3,637 3,584 3,201 3,113 2,893 2,648
Property Operations & Maintenance 2,844 2,529 1,801 1,600 1,414 1,262
Utilities 1,721 1,500 1,478 1,322 1,199 1,179
Total Operating Expenses 15,659 14,741 12,687 11,814 10,531 8,935
HOUSE PROFIT 20,420 18,720 18,590 16,981 15,191 13,290
indicates position of Proposed Hotel
indicates position of comparable hotels
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
76
FIGURE 7-8
AMOUNTS PER OCCUPIED ROOM NIGHT EXTENDED-STAY HOTEL
RANK - PER OCCUPIED ROOM 1 2 3 4 5 6
REVENUE
Rooms 146 146 138 135 120 114
Other Operated Departments 3 2 2 1 1 1
Miscellaneous Income 1 1 0 0 0 0
DEPARTMENTAL EXPENSES
Rooms 36 34 31 29 25 23
Other Operated Departments 2 1 1 1 0 0
OPERATING EXPENSES
Administrative & General 19 15 14 11 10 8
Info. and Telecom. Systems 5 2 2 2 1 1
Marketing 9 7 7 6 5 3
Franchise Fee 13 13 11 11 10 9
Property Operations & Maintenance 11 9 6 6 5 4
Utilities 7 5 5 4 4 4
Total Operating Expenses 60 54 46 41 34 31
HOUSE PROFIT 67 65 64 59 56 51
indicates position of Proposed Hotel
indicates position of comparable hotels
HVS uses a fixed and variable component model to project a lodging facility's
revenue and expense levels. The following figure illustrates the revenue and
expense categories that can be projected using this fixed and variable component
model.
Fixed and Variable
Component Analysis
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
77
FIGURE 7-9
RANGE OF FIXED AND VARIABLE RATIOS
Category Index of Variability
Revenues
Food 25 - 50 %50 - 75 %Occupancy 25 %
Beverage 0 - 30 70 - 100 Occupancy 25
Other 30 - 70 30 - 70 Occupancy 70
Rentals & Other Income 30 - 70 30 - 70 Occupancy 70
Departmental Expenses
Rooms 50 - 70 30 - 50 Revenue 60
Food & Beverage 35 - 60 40 - 65 Revenue 60
Other 30 - 70 30 - 70 Beverage Revenue 70
Undistributed Operating Expenses
Administrative & General 65 - 85 15 - 35 Other 75
Marketing 65 - 85 15 - 35 Other 75
Prop. Operations & Maint.55 - 75 25 - 45 Occupancy 75
Utilities 75 - 95 5 - 25 Occupancy 75
Percent
Fixed
Percent
Variable
Fixed
Ratio
The Proposed Hotel and Convention Center would reach a stabilized level of
operation in 2022. The forecast is based on calendar years beginning 2020,
expressed in inflated dollars for each year. The individual performance of the
focus-service hotel and the extended-stay hotel have been combined in the
forecast of income and expenses presented next.
The estimated number of occupied room nights and the average daily room rate
determine room revenue in any given year. The Proposed Hotel and Convention
Center would stabilize at an occupancy level of 76%, with an average daily rate of
$181.90 in 2022. Following the stabilized year, the subject property’s average rate
would increase with the rate of inflation.
Food and beverage revenue is generated by a hotel's restaurants, lounges, coffee
shops, snack bars, banquet rooms, and room service. In addition to providing a
source of revenue, these outlets serve as an amenity that assists in the sale of
guestrooms. In the case of the Proposed Hotel and Convention Center, the food and
beverage department will include restaurant and lounge; moreover, meeting space
is expected to span 16,000 square feet. Although food and beverage revenue vary
directly with changes in occupancy, the portion generated by banquet sales and
outside capture is relatively fixed. We project food and beverage revenue to be
$37.34 per occupied room for hotel food service by the stabilized year.
Forecast of Income and
Expense
Rooms
Food and Beverage
Revenue
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
78
Other operated departments include any major or minor operated department
other than rooms and food and beverage. Telephone revenue and expense is now
considered a component of other operated departments. Based on our review of
operations with a similar other department operations, we have determined an
appropriate revenue level for the Proposed Hotel and Convention Center at 1.0%
of gross revenues.
The in-room movie, and game charges will generate the Proposed Hotel and
Convention Center’s rentals and other income revenue. Based on our review of
operations with a similar extent of offerings, we determined an appropriate
revenue level for the Proposed Hotel and Convention Center at 0.4% of gross
revenues.
Rooms expense consists of items related to the sale and upkeep of guestrooms and
public space. Salaries, wages, and employee benefits account for a substantial
portion of this category. Although payroll varies somewhat with occupancy and
managers can scale the level of service staff on hand to meet an expected
occupancy level, much of a hotel's payroll is fixed. Hotel operations require a base
level of front desk personnel, housekeepers, and supervisors at all times. As a
result, salaries, wages, and employee benefits are only moderately sensitive to
changes in occupancy. The rooms department is projected to average 23.0% of
department revenues by the first stabilized year.
Food and beverage departmental expenses consist of items necessary for the
primary operation of a hotel's food and banquet facilities. Most of the cost of food
and beverage sales and related payroll vary with the level of food revenues;
however, this departmental operation has a fixed component. We have projected a
stabilized expense ratio of 70.0% in the Proposed Hotel and Convention Center for
hotel food & beverage.
Other operated departments expense includes all expenses for the divisions
associated in these categories. The other operated departments expense would
average 68.5% of department revenues in the first stabilized year of 2022.
In 2022, department level expenses average 31.3% of gross revenues, which
would generate a department income of $8.48 million.
Administrative and general expense includes the salaries and wages of all
administrative personnel not directly associated with a particular department.
Other costs include management and operation of the property. These expenses
would average 7.9% of gross revenues in the first stabilized year of 2022.
Other Operated
Departments Revenue
Rentals & Other
Income
Department Expenses
Undistributed
Operating Expenses
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
79
Information and telecommunications systems expense consists of all costs
associated with a hotel’s technology infrastructure. This includes the costs of cell
phones, administrative call and Internet services, and complimentary call and
Internet services. Expenses in this category are typically organized by type of
technology, or the area benefitting from the technology solution. These expenses
would average 0.5% of gross revenues in the first stabilized year of 2022.
Marketing expense consists of costs associated with advertising, sales, and
promotion; these activities focus on attracting and retaining customers. Marketing
creates an image, develops customer awareness, and stimulate patronage of a
property's various facilities. Management controls the level of marketing
expenditures. These expenses would average 5.4% of gross revenues by the first
stabilized year of 2022.
Property operations and maintenance expenditures maintain the functionality and
appearance of the property. Management has certain discretion over this expense
category due to the ability to delay certain maintenance. These expenses would
average 3.2% of gross revenues in the first stabilized year of 2022
The consumption of various utilities by a lodging facility takes several forms,
including water and space heating, air conditioning, lighting, cooking fuel, and
other miscellaneous power requirements. The most common sources of hotel
utilities are electricity, natural gas, fuel oil, and steam. This category also includes
the cost of water service. These expenses would average 2.9% of gross revenues in
the first stabilized year of 2022.
Undistributed operating expenses are expected to average 27.4% of gross
revenues by the stabilized year of 2022, which generates a house profit of $5.10
million or 41.3% of gross revenues.
Franchise and brand marketing fees for the focus-service hotel are 5.50% for the
franchise fee and 4.00% for the marketing fee of gross room revenues. Franchise
and brand marketing fees for the extended-stay hotel are 5.50% for the franchise
fee and 3.50% for the marketing fee of gross room revenues. Franchise and brand
marketing fees will depend on the selected brand and may vary from the
previously discussed fees. The management fee is expected to average 3.0% of
gross revenues.
Property taxes are estimated at 2.5% of gross revenues. This estimate will need to
be confirmed once a site is selected, a brand determined, and a construction
budget has been established.
Franchise and
Management Fees
Property Taxes
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
80
The insurance expense covers the hotel and its contents against damage or
destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass
breakage, and so forth. General insurance costs also include premiums relating to
liability, fidelity, and theft coverage. Insurance rates consider many factors,
including building design and construction, fire detection and extinguishing
equipment, fire district, distance from the firehouse, and the area's fire experience.
Insurance and related expenses projected at 0.7% of gross revenues.
The reserve for replacement for furniture, fixtures, and equipment are essential to
the operation of a lodging facility, and their quality often influences a property's
class. The furniture, fixtures, and equipment of a hotel experience heavy use and
must be replaced at regular intervals. The reserve for replacement expenses
projected at of gross revenues. The reserve for replacement expenses is ramped up
due to new construction, with 2% of gross revenues in year one of operations, 3%
in year two, and 4.0% thereafter
The following figure presents a detailed forecast for the first five years of
operation, including amounts per available room and per occupied room. The
forecasts pertain to years beginning January 1, 2020, in inflated dollars for each
year.
Insurance
Reserve for
Replacement
Summary of
Projections
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
81
FIGURE 7-10
Focus-Service Hotel 5 Year Pro Forma (000’s)
2020 (Calendar Year)2021 Stabilized 2023 2024
Number of Rooms:120 120 120 120 120
Occupancy:72%75%76%76%76%
Average Rate:$178.45 $186.68 $193.28 $198.11 $203.06
RevPAR:$128.48 $140.01 $146.89 $150.56 $154.33
Days Open:365 365 365 365 365
Occupied Rooms:31,536 %Gross PAR POR 32,850 %Gross PAR POR 33,288 %Gross PAR POR 33,288 %Gross PAR POR 33,288 %Gross PAR POR
OPERATING REVENUE
Rooms $5,627 73.7 %$46,892 $178.43 $6,132 74.3 %$51,100 $186.67 $6,434 74.6 %$53,617 $193.28 $6,595 74.6 %$54,958 $198.12 $6,760 74.6 %$56,333 $203.08
Food 1,549 20.3 12,912 49.13 1,637 19.8 13,643 49.84 1,695 19.6 14,123 50.91 1,737 19.6 14,476 52.19 1,781 19.6 14,838 53.49
Beverage 348 4.6 2,899 11.03 365 4.4 3,039 11.10 377 4.4 3,139 11.31 386 4.4 3,217 11.60 396 4.4 3,297 11.89
Other Operated Departments 79 1.0 662 2.52 82 1.0 686 2.51 85 1.0 706 2.55 87 1.0 724 2.61 89 1.0 742 2.67
Miscellaneous Income 35 0.5 294 1.12 37 0.4 305 1.11 38 0.4 314 1.13 39 0.4 322 1.16 40 0.4 330 1.19
Total Operating Revenues 7,639 100.0 63,658 242.23 8,253 100.0 68,773 251.23 8,628 100.0 71,899 259.19 8,844 100.0 73,697 265.67 9,065 100.0 75,541 272.32
DEPARTMENTAL EXPENSES *
Rooms 1,379 24.5 11,490 43.72 1,436 23.4 11,967 43.72 1,480 23.0 12,331 44.45 1,517 23.0 12,640 45.57 1,555 23.0 12,956 46.70
Food & Beverage 1,357 71.5 11,306 43.02 1,409 70.4 11,739 42.88 1,450 70.0 12,083 43.56 1,486 70.0 12,385 44.65 1,523 70.0 12,695 45.76
Other Operated Departments 56 70.8 468 1.78 58 70.2 482 1.76 59 70.0 494 1.78 61 70.0 507 1.83 62 70.0 519 1.87
Total Expenses 2,792 36.5 23,265 88.53 2,903 35.2 24,188 88.36 2,989 34.6 24,909 89.80 3,064 34.6 25,532 92.04 3,140 34.6 26,170 94.34
DEPARTMENTAL INCOME 4,847 63.5 40,394 153.71 5,350 64.8 44,586 162.87 5,639 65.4 46,989 169.39 5,780 65.4 48,165 173.63 5,924 65.4 49,371 177.98
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 571 7.5 4,761 18.12 593 7.2 4,943 18.06 611 7.1 5,091 18.35 626 7.1 5,219 18.81 642 7.1 5,349 19.28
Info & Telecom Systems 32 0.4 265 1.01 33 0.4 275 1.00 34 0.4 283 1.02 35 0.4 290 1.05 36 0.4 297 1.07
Marketing 482 6.3 4,021 15.30 501 6.1 4,174 15.25 516 6.0 4,299 15.50 529 6.0 4,407 15.89 542 6.0 4,517 16.28
Franchise Fee 535 7.0 4,455 16.95 583 7.1 4,855 17.73 611 7.1 5,094 18.36 627 7.1 5,221 18.82 642 7.1 5,352 19.29
Prop. Operations & Maint.229 3.0 1,905 7.25 237 2.9 1,977 7.22 244 2.8 2,037 7.34 250 2.8 2,087 7.53 257 2.8 2,140 7.71
Utilities 203 2.7 1,693 6.44 211 2.6 1,757 6.42 217 2.5 1,810 6.53 223 2.5 1,856 6.69 228 2.5 1,902 6.86
Total Expenses 2,052 26.9 17,099 65.07 2,158 26.3 17,981 65.68 2,234 25.9 18,614 67.10 2,290 25.9 19,080 68.78 2,347 25.9 19,557 70.50
GROSS HOUSE PROFIT 2,795 36.6 23,295 88.64 3,193 38.5 26,605 97.19 3,405 39.5 28,375 102.29 3,490 39.5 29,086 104.85 3,578 39.5 29,814 107.48
Management Fee 229 3.0 1,910 7.27 248 3.0 2,063 7.54 259 3.0 2,157 7.78 265 3.0 2,211 7.97 272 3.0 2,266 8.17
INCOME BEFORE NON-OPR. INC. & EXP.2,566 33.6 21,385 81.37 2,945 35.5 24,542 89.65 3,146 36.5 26,219 94.52 3,225 36.5 26,875 96.88 3,306 36.5 27,548 99.31
NON-OPERATING INCOME & EXPENSE
Property Taxes 191 2.5 1,591 6.06 206 2.5 1,719 6.28 216 2.5 1,797 6.48 221 2.5 1,842 6.64 227 2.5 1,888 6.81
Insurance 39 0.5 323 1.23 40 0.5 331 1.21 41 0.5 339 1.22 42 0.5 348 1.25 43 0.5 357 1.29
Reserve for Replacement 153 2.0 1,273 4.84 248 3.0 2,063 7.54 345 4.0 2,876 10.37 354 4.0 2,948 10.63 363 4.0 3,022 10.89
Total Expenses 383 5.0 3,188 12.13 494 6.0 4,114 15.03 602 7.0 5,013 18.07 617 7.0 5,138 18.52 632 7.0 5,267 18.99
EBITDA LESS RESERVE $2,184 28.6 %$18,197 $69.24 $2,451 29.5 %$20,428 $74.62 $2,545 29.5 %$21,206 $76.44 $2,608 29.5 %$21,737 $78.36 $2,674 29.5 %$22,281 $80.32
*Departmental expenses are expressed as a percentage of departmental revenues.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
82
FIGURE 7-11
Extended-Stay Hotel 5 Year Pro Forma (000’s)
2020 (Calendar Year)2021 Stabilized 2023 2024
Number of Rooms:80 80 80 80 80
Occupancy:72%75%76%76%76%
Average Rate:$152.20 $159.23 $164.85 $168.98 $173.20
RevPAR:$109.59 $119.42 $125.29 $128.42 $131.63
Days Open:365 365 365 365 365
Occupied Rooms:21,024 %Gross PAR POR 21,900 %Gross PAR POR 22,192 %Gross PAR POR 22,192 %Gross PAR POR 22,192 %Gross PAR POR
OPERATING REVENUE
Rooms $3,200 98.6 %$40,000 $152.21 $3,487 98.6 %$43,588 $159.22 $3,658 98.6 %$45,725 $164.83 $3,750 98.6 %$46,875 $168.98 $3,844 98.6 %$48,050 $173.22
Other Operated Departments 35 1.1 441 1.68 37 1.0 457 1.67 38 1.0 471 1.70 39 1.0 483 1.74 40 1.0 495 1.78
Miscellaneous Income 12 0.4 147 0.56 12 0.3 152 0.56 13 0.3 157 0.57 13 0.3 161 0.58 13 0.3 165 0.59
Total Operating Revenues 3,247 100.0 40,588 154.44 3,536 100.0 44,197 161.45 3,708 100.0 46,353 167.10 3,801 100.0 47,518 171.30 3,897 100.0 48,709 175.59
DEPARTMENTAL EXPENSES *
Rooms 784 24.5 9,800 37.29 817 23.4 10,207 37.29 841 23.0 10,518 37.92 862 23.0 10,781 38.86 884 23.0 11,051 39.84
Other Operated Departments 23 65.7 290 1.10 24 65.2 298 1.09 24 65.0 306 1.10 25 65.0 314 1.13 26 65.0 321 1.16
Total Expenses 807 24.9 10,090 38.40 840 23.8 10,506 38.38 866 23.4 10,824 39.02 888 23.3 11,095 40.00 910 23.3 11,372 41.00
DEPARTMENTAL INCOME 2,440 75.1 30,498 116.05 2,695 76.2 33,692 123.08 2,842 76.6 35,529 128.08 2,914 76.7 36,424 131.30 2,987 76.7 37,337 134.60
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 293 9.0 3,656 13.91 351 9.9 4,390 16.04 362 9.8 4,525 16.31 371 9.8 4,639 16.72 380 9.8 4,755 17.14
Info & Telecom Systems 18 0.6 229 0.87 22 0.6 274 1.00 23 0.6 283 1.02 23 0.6 290 1.05 24 0.6 297 1.07
Marketing 124 3.8 1,554 5.91 149 4.2 1,866 6.82 154 4.1 1,923 6.93 158 4.1 1,971 7.11 162 4.1 2,021 7.28
Franchise Fee 288 8.9 3,600 13.70 314 8.9 3,923 14.33 329 8.9 4,115 14.84 338 8.9 4,219 15.21 346 8.9 4,325 15.59
Prop. Operations & Maint.117 3.6 1,463 5.57 140 4.0 1,756 6.41 145 3.9 1,810 6.53 148 3.9 1,856 6.69 152 3.9 1,902 6.86
Utilities 110 3.4 1,371 5.22 132 3.7 1,646 6.01 136 3.7 1,697 6.12 139 3.7 1,740 6.27 143 3.7 1,783 6.43
Total Expenses 950 29.3 11,873 45.18 1,108 31.3 13,855 50.61 1,148 31.0 14,354 51.75 1,177 31.0 14,714 53.04 1,207 31.0 15,082 54.37
GROSS HOUSE PROFIT 1,490 45.8 18,625 70.87 1,587 44.9 19,836 72.46 1,694 45.6 21,174 76.33 1,737 45.7 21,710 78.26 1,780 45.7 22,255 80.23
Management Fee 97 3.0 1,218 4.63 106 3.0 1,326 4.84 111 3.0 1,391 5.01 114 3.0 1,426 5.14 117 3.0 1,461 5.27
INCOME BEFORE NON-OPR. INC. & EXP.1,393 42.8 17,407 66.24 1,481 41.9 18,510 67.62 1,583 42.6 19,784 71.32 1,623 42.7 20,284 73.12 1,664 42.7 20,794 74.96
NON-OPERATING INCOME & EXPENSE
Property Taxes 81 2.5 1,015 3.86 88 2.5 1,105 4.04 93 2.5 1,159 4.18 95 2.5 1,188 4.28 97 2.5 1,218 4.39
Insurance 39 1.2 485 1.84 40 1.1 497 1.81 41 1.1 509 1.84 42 1.1 522 1.88 43 1.1 535 1.93
Reserve for Replacement 65 2.0 812 3.09 106 3.0 1,326 4.84 148 4.0 1,854 6.68 152 4.0 1,901 6.85 156 4.0 1,948 7.02
Total Expenses 185 5.7 2,311 8.79 234 6.6 2,928 10.69 282 7.6 3,522 12.70 289 7.6 3,611 13.02 296 7.6 3,701 13.34
EBITDA LESS RESERVE $1,208 37.1 %$15,096 $57.44 $1,247 35.3 %$15,583 $56.92 $1,301 35.0 %$16,262 $58.62 $1,334 35.1 %$16,674 $60.11 $1,367 35.1 %$17,093 $61.62
*Departmental expenses are expressed as a percentage of departmental revenues.
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
83
FIGURE 7-12
Combined Focus-Service/Extended-Stay Dual-Branded Hotel 5 Year Pro Forma (000’s)
2020 (Calendar Year)2021 Stabilized 2023 2024
Number of Rooms:200 200 200 200 200
Occupancy:72%75%76%76%76%
Average Rate:$167.94 $175.69 $181.90 $186.46 $191.13
RevPAR:$120.92 $131.77 $138.25 $141.71 $145.26
Days Open:365 365 365 365 365
Occupied Rooms:52,560 %Gross PAR POR 54,750 %Gross PAR POR 55,480 %Gross PAR POR 55,480 %Gross PAR POR 55,480 %Gross PAR POR
OPERATING REVENUE
Rooms $8,827 81.1 %$44,135 $167.94 $9,619 81.6 %$48,095 $175.69 $10,092 81.8 %$50,460 $181.90 $10,345 81.8 %$51,725 $186.46 $10,604 81.8 %$53,020 $191.13
Food 1,549 14.2 7,747 29.48 1,637 13.9 8,186 29.90 1,695 13.7 8,474 30.55 1,737 13.7 8,686 31.31 1,781 13.7 8,903 32.09
Beverage 348 3.2 1,739 6.62 365 3.1 1,824 6.66 377 3.1 1,883 6.79 386 3.1 1,930 6.96 396 3.1 1,978 7.13
Other Operated Departments 115 1.1 573 2.18 119 1.0 595 2.17 122 1.0 612 2.21 125 1.0 627 2.26 129 1.0 643 2.32
Miscellaneous Income 47 0.4 235 0.90 49 0.4 244 0.89 50 0.4 251 0.91 51 0.4 257 0.93 53 0.4 264 0.95
Total Operating Revenues 10,886 100.0 54,430 207.12 11,789 100.0 58,943 215.32 12,336 100.0 61,680 222.35 12,645 100.0 63,226 227.92 12,962 100.0 64,808 233.63
DEPARTMENTAL EXPENSES *
Rooms 2,163 24.5 10,814 41.15 2,253 23.4 11,263 41.15 2,321 23.0 11,606 41.84 2,379 23.0 11,896 42.88 2,439 23.0 12,194 43.96
Food & Beverage 1,357 71.5 6,784 25.81 1,409 70.4 7,043 25.73 1,450 70.0 7,250 26.14 1,486 70.0 7,431 26.79 1,523 70.0 7,617 27.46
Other Operated Departments 79 69.2 397 1.51 82 68.7 408 1.49 84 68.5 419 1.51 86 68.5 429 1.55 88 68.5 440 1.59
Total Expenses 3,599 33.1 17,995 68.47 3,743 31.8 18,715 68.37 3,855 31.3 19,275 69.48 3,951 31.2 19,757 71.22 4,050 31.2 20,251 73.00
DEPARTMENTAL INCOME 7,287 66.9 36,435 138.64 8,046 68.2 40,228 146.95 8,481 68.7 42,405 152.87 8,694 68.8 43,469 156.70 8,911 68.8 44,557 160.62
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 864 7.9 4,319 16.44 944 8.0 4,722 17.25 973 7.9 4,865 17.54 997 7.9 4,987 17.98 1,022 7.9 5,111 18.43
Info & Telecom Systems 50 0.5 250 0.95 55 0.5 275 1.00 57 0.5 283 1.02 58 0.5 290 1.05 59 0.5 297 1.07
Marketing 607 5.6 3,034 11.55 650 5.5 3,251 11.87 670 5.4 3,349 12.07 687 5.4 3,433 12.37 704 5.4 3,519 12.68
Franchise Fee 823 7.6 4,113 15.65 896 7.6 4,482 16.37 940 7.6 4,702 16.95 964 7.6 4,820 17.38 988 7.6 4,941 17.81
Prop. Operations & Maint.346 3.2 1,728 6.57 378 3.2 1,889 6.90 389 3.2 1,946 7.02 399 3.2 1,995 7.19 409 3.2 2,045 7.37
Utilities 313 2.9 1,564 5.95 343 2.9 1,713 6.26 353 2.9 1,765 6.36 362 2.9 1,809 6.52 371 2.9 1,854 6.68
Total Expenses 3,002 27.7 15,009 57.11 3,266 27.7 16,331 59.66 3,382 27.5 16,910 60.96 3,467 27.5 17,333 62.48 3,553 27.5 17,767 64.05
GROSS HOUSE PROFIT 4,285 39.2 21,427 81.53 4,780 40.5 23,898 87.30 5,099 41.2 25,495 91.91 5,227 41.3 26,135 94.22 5,358 41.3 26,790 96.58
Management Fee 327 3.0 1,633 6.21 354 3.0 1,768 6.46 370 3.0 1,850 6.67 379 3.0 1,897 6.84 389 3.0 1,944 7.01
INCOME BEFORE NON-OPR. INC. & EXP.3,959 36.2 19,794 75.32 4,426 37.5 22,129 80.84 4,729 38.2 23,645 85.24 4,848 38.3 24,239 87.38 4,969 38.3 24,846 89.57
NON-OPERATING INCOME & EXPENSE
Property Taxes 272 2.5 1,361 5.18 295 2.5 1,474 5.38 308 2.5 1,542 5.56 316 2.5 1,581 5.70 324 2.5 1,620 5.84
Insurance 78 0.7 388 1.48 79 0.7 397 1.45 81 0.7 407 1.47 83 0.7 417 1.51 86 0.7 428 1.54
Reserve for Replacement 218 2.0 1,089 4.14 354 3.0 1,768 6.46 493 4.0 2,467 8.89 506 4.0 2,529 9.12 518 4.0 2,592 9.35
Total Expenses 567 5.2 2,837 10.80 728 6.2 3,639 13.29 883 7.2 4,417 15.92 905 7.2 4,527 16.32 928 7.2 4,640 16.73
EBITDA LESS RESERVE $3,391 31.0 %$16,957 $64.52 $3,698 31.3 %$18,490 $67.54 $3,846 31.0 %$19,228 $69.32 $3,942 31.1 %$19,711 $71.06 $4,041 31.1 %$20,206 $72.84
*Departmental expenses are expressed as a percentage of departmental revenues.
Convention, Sports & Entertainment
Facilities Consulting
Chicago, Illinois
April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
84
FIGURE 7-13
PROPOSED HOTEL AND CONVENTION CENTER FIRST STABILIZED YEAR (2022)
Number of Rooms:200
Occupancy (Paid Rooms):76%
Average Rate:$181.90
RevPAR:$138.25
Days Open:365
Occupied Rooms (Paid):55,480
(000's)PAR POR
Operating Revenue
Rooms $10,092 81.8 $50,460 $181.90
Food 1,695 13.7 8,474 30.55
Beverage 377 3.1 1,883 6.79
Other Operated Departments 122 1.0 612 2.21
Miscellaneous Income 50 0.4 251 0.91
Total Operating Revenues $12,336 100.0 $61,680 $222.35
Department Expenses
Rooms $2,321 23.0 $11,606 $41.84
Food & Beverage 1,450 70.0 7,250 26.14
Other Operated Departments 84 68.5 419 1.51
Total Expenses $3,855 31.3 $19,275 $69.48
Departmental Income $8,481 68.7 $42,405 $152.87
Undistributed Operating Expense
Administrative & General $973 7.9 $4,865 $17.54
Marketing 670 5.4 3,349 12.07
Franchise Fee 940 7.6 4,702 16.95
Prop. Operations & Maint.389 3.2 1,946 7.02
Utilities 353 2.9 1,765 6.36
Info & Telecom Systems 57 0.5 283 1.02
Total Expense $3,382 27.5 $16,910 $60.96
Gross House Profit $5,099 41.2 $25,495 $91.91
Management Fee $370 3.0 $1,850 $6.67
Income Before Non-Opr. Inc. & Exp.$4,729 38.2 $23,645 $85.24
Non-Operating Income & Expense
Property Taxes $308 2.5 1,542 5.56
Insurance 81 0.7 $407 $1.47
Reserve for Replacement 493 4.0 2,467 8.89
Total Expense $883 7.2 $4,417 $15.92
EBITDA Less Reserve $3,846 31.0 $19,228 $69.32
*Departmental expenses are expressed as a percentage of departmental revenues.
% of
Gross
Our analysis projects a profitable hotel operation. The stabilized operating
revenue comprises primarily of rooms and food and beverage revenue, with a
relatively small portion derived from other income sources. On the cost side,
departmental expenses total 31.3% of revenue in a stabilized year, while
undistributed operating expenses total 27.5% of total revenues; this assumes that
Pro Forma Conclusion
Convention, Sports & Entertainment
Facilities Consulting
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April 13, 2018 Projection of Income and Expense
Proposed Hotel and Convention Center – Bozeman, Montana
85
the property would be operated competently by a well-known hotel operator.
After a 3.0% of total revenues management fee, and 7.2% of total revenues in fixed
expenses, a EBITDA less reserve ratio of 31.0% ($3.85 million) is forecast by 2022,
the first stabilized year.
Convention, Sports & Entertainment
Facilities Consulting
Chicago, Illinois
April 13, 2018 Statement of Assumptions and Limiting Conditions
Proposed Hotel and Convention Center – Bozeman, Montana 86
8. Statement of Assumptions and Limiting Conditions
1. This report is to be used in whole and not in part.
2. All information, financial operating statements, estimates, and opinions
obtained from parties not employed by HVS are assumed to be true and
correct. We can assume no liability resulting from misinformation.
3. Unless noted, we assume that there are no encroachments, zoning violations,
or building violations encumbering the Proposed Hotel and Convention Center.
4. The proposed facility is assumed to be in full compliance with all applicable
federal, state, local, and private codes, laws, consents, licenses, and regulations
(including a liquor license where appropriate). We assume that all licenses,
permits, certificates, franchises, and so forth can be freely renewed or
transferred to a purchaser.
5. We are not required to give testimony or attendance in court by reason of this
analysis without previous arrangements, and only when our standard per-
diem fees and travel costs are paid prior to the appearance.
6. If the reader is making a fiduciary or individual investment decision and has
any questions concerning the material presented in this report, it is
recommended that the reader contact us.
7. We take no responsibility for any events or circumstances that take place
subsequent to the date of our report.
8. No responsibility is assumed for matters of a legal nature, nor do we render
any opinion as to title, which is assumed to be marketable and free of any deed
restrictions and easements.
9. We assume that there are no hidden or unapparent conditions of the sub-soil
or structures, such as underground storage tanks, that would render the
proposed property more or less valuable. No responsibility is assumed for
these conditions or for any engineering that may be required to discover them.
10. We have not considered the presence of potentially hazardous materials such
as asbestos, urea formaldehyde foam insulation, any form of toxic waste,
polychlorinated biphenyls (PCB), pesticides, mold, or lead-based paints. The
appraisers are not qualified to detect hazardous substances, and we urge the
client to retain an expert in this field if desired.
Convention, Sports & Entertainment
Facilities Consulting
Chicago, Illinois
April 13, 2018 Statement of Assumptions and Limiting Conditions
Proposed Hotel and Convention Center – Bozeman, Montana 87
11. The Americans with Disabilities Act (ADA) became effective on January 26,
1992. We have assumed that the proposed property will be designed in
accordance with the various detailed requirements of the ADA.
12. We have made no survey of the subject site, and we assume no responsibility
in connection with such matters.
13. The estimated operating results presented in this report are based on an
evaluation of the overall economy and neither take into account nor make
provision for the effect of any sharp rise or decline in local or national
economic conditions. To the extent that wages and other operating expenses
may advance during the economic life of the property, we expect that the
prices of food, beverages, and services will be adjusted to at least offset those
advances. We do not warrant that the estimates will be attained, but they have
been prepared on the basis of information obtained during the course of this
study.
14. The quality of a facility's on-site management has a direct effect on a
property's economic performance. The demand and financial forecasts
presented in this analysis assume responsible ownership and competent
management. Any departure from this assumption may have a significant
impact on the projected operating results.
15. We do not warrant our estimates. We use information obtained during our
market research and are intended to reflect reasonable expectations.
16. Many of the figures presented in this report were generated using
sophisticated computer models that make calculations based on numbers
carried out to three or more decimal places. In the interest of simplicity, most
numbers have been rounded. Thus, these figures may be subject to small
rounding errors.
17. It is agreed that our liability to the client is limited to the amount of the fee
paid as liquidated damages. Our responsibility is limited to the client and use
of this report by third parties shall be solely at the risk of the client or third
parties. The use of this report is also subject to the terms and conditions
outlined in our engagement letter with the client.
18. Although this analysis employs various mathematical calculations, the final
estimates are subjective and may be influenced by our experience and other
factors not specifically outlined in this report.
19. HVS Convention, Sports & Entertainment Facilities Consulting prepared this
report. All opinions, recommendations, and conclusions expressed during this
assignment are rendered by the staff of this organization, as employees, rather
than as individuals.
Convention, Sports & Entertainment
Facilities Consulting
Chicago, Illinois
April 13, 2018 Statement of Assumptions and Limiting Conditions
Proposed Hotel and Convention Center – Bozeman, Montana 88
20. This report is set forth as a market study of the Proposed Hotel and
Convention Center; this is not an appraisal report.
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Facilities Consulting
Chicago, Illinois
April 13, 2018 Certification
Proposed Hotel and Convention Center – Bozeman, Montana 89
9. Certification
The undersigned certify that, to the best of our knowledge and belief:
1. the statements of fact presented in this report are true and correct;
2. the reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, impartial,
and unbiased professional analyses, opinions, and conclusions;
3. we have no (or the specified) present or prospective interest in the property
that is the subject of this report and no (or the specified) personal interest
with respect to the parties involved;
4. we have no bias with respect to the property that is the subject of this report
or to the parties involved with this assignment;
5. our engagement in this assignment was not contingent upon developing or
reporting predetermined results;
6. our compensation for completing this assignment is not contingent upon the
development or reporting of a predetermined value or direction in value that
favors the cause of the client, the amount of the value opinion, the attainment
of a stipulated result, or the occurrence of a subsequent event directly related
to the intended use of this analysis; and
7. Tom Hazinski and Brian Harris participated in the analysis.
Tom Hazinski
Managing Director, Convention-Sports-Entertainment
Brian Harris
Director, Convention-Sports-Entertainment
Convention, Sports & Entertainment
Facilities Consulting
Chicago, Illinois
April 13, 2018 Penetration Explaination
Proposed Hotel and Convention Center – Bozeman, Montana 90
i. Penetration Explanation
Let us illustrate the penetration adjustment with an example.
A market has three existing hotels with the following operating statistics:
BASE-YEAR OCCUPANCY AND PENETRATION LEVELS
Based upon each hotel’s room count, market segmentation, and annual occupancy,
the annual number of room nights accommodated in the market from each market
segment can be quantified, as set forth below.
MARKET-WIDE ROOM NIGHT DEMAND
The following discussion will be based upon an analysis of the commercial market
segment. The same methodology is applied for each market segment to derive an
estimate of a hotel’s overall occupancy. The table below sets forth the commercial
demand accommodated by each hotel. Each hotel’s commercial penetration factor
is computed by:
1) calculating the hotel’s market share % of commercial demand (commercial
room nights accommodated by subject hotel divided by total commercial room
nights accommodated by all hotels) and
2) dividing the hotel’s commercial market share % by the hotel’s fair share %.
Property
Number
of Rooms Fair Share Commercial
Meeting and
Group Leisure Occupancy
Hotel A 100 23.5 %60 %20 %20 %75.0 %100.8 %
Hotel B 125 29.4 70 10 20 65.0 87.4
Hotel C 200 47.1 30 60 10 80.0 107.5
Totals/Average 425 100.0 %47 %38 %15 %74.4 %100.0 %
Penetration
Market
Segment
Annual Room
Night
Demand
Commercial 54,704 47.4 %
Meeting and Group 43,481 37.7
Leisure 17,246 14.9
Total 115,431 100.0 %
Percentage of
Total
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April 13, 2018 Penetration Explaination
Proposed Hotel and Convention Center – Bozeman, Montana 91
The following table sets forth each hotel’s fair share, commercial market share,
and commercial penetration factor.
COMMERCIAL SEGMENT PENETRATION FACTORS
If a new 100-room hotel enters the market, the fair share of each hotel changes
because of the new denominator, which has increased by the 100 rooms that have
been added to the market.
COMMERCIAL SEGMENT FAIR SHARE
The new hotel’s penetration factor is projected for its first year of operation. It is
estimated that the hotel would capture (penetrate) only 85% of its fair share as it
establishes itself in the market. The new hotel’s market share and room night
capture can be calculated based upon the hotel’s estimated penetration factor.
When the market share of the existing hotels and that of the new hotel are added
up, they no longer equal 100% because of the new hotel’s entry into the market.
The market share of each hotel must be adjusted to reflect the change in the
denominator that comprises the sum of each hotel’s market share.
This adjustment can be mathematically calculated by dividing each hotel’s market
share percentages by the new denominator of 97.1%. The resulting calculations
reflect each hotel’s new adjusted market share. The sum of the adjusted market
shares equals 100%, indicating that the adjustment has been successfully
completed. Once the market shares have been calculated, the penetration factors
can be recalculated (adjusted market share divided by fair share) to derive the
adjusted penetration factors based upon the new hotel’s entry into the market.
Note that each existing hotel’s penetration factor actually increases because the
new hotel is capturing (penetrating) less than its fair share of demand.
Property
Number
of Rooms Fair Share
Commercial
Capture
Hotel A 100 23.5 %16,425 30.0 %127.6 %
Hotel B 125 29.4 20,759 37.9 129.0
Hotel C 200 47.1 17,520 32.0 68.1
Totals/Average 425 100.0 %54,704 100.0 %100.0 %
Commercial
Penetration
Commercial
Market Share
Property
Number of
Rooms
Hotel A 100 19.0 %
Hotel B 125 23.8
Hotel C 200 38.1
New Hotel 100 19.0
Total 525 100.0 %
Fair Share
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April 13, 2018 Penetration Explaination
Proposed Hotel and Convention Center – Bozeman, Montana 92
COMMERCIAL SEGMENT PROJECTIONS (YEAR 1)
In its second year of operation, the new hotel is projected to penetrate above its
fair share of demand. A penetration rate of 130% has been chosen, as the new
hotel is expected to perform at a level commensurate with Hotel A and Hotel B in
this market segment. The same calculations are performed to adjust market share
and penetration factors. Note that now the penetration factors of the existing
hotels decline below their original penetration rates because of the new hotel’s
above-market penetration. Also, note that after the market share adjustment, the
new hotel retains a penetration rate commensurate with Hotel A and Hotel B,
though the penetration rates of all three hotels have declined by approximately
nine percentage points because of the reapportionment of demand.
Once the market shares of each hotel have been adjusted to reflect the entry of the
new hotel into the market, the commercial room nights captured by each hotel
may be projected by multiplying the hotel’s market share percentage by the total
commercial room-night demand. This calculation is shown below.
COMMERCIAL SEGMENT PROJECTIONS (YEAR 2)
Property
Number
of Rooms Fair Share
Hist./Proj.
Penetration
Factor
Hist./Proj.
Market
Share
Adjusted
Market
Share
Adjusted
Penetration
Factor
Projected
Capture
Hotel A 100 19.0 %127.6 %24.3 %25.0 %131.4 %13,688
Hotel B 125 23.8 129.0 30.7 31.6 132.8 17,299
Hotel C 200 38.1 68.1 25.9 26.7 70.1 14,600
New Hotel 100 19.0 85.0 16.2 16.7 87.5 9,117
Totals/Average 525 100.0 %97.1 %100.0 %54,704
Property
Number
of Rooms Fair Share
Hist./Proj.
Penetration
Factor
Hist./Proj.
Market
Share
Adjusted
Market
Share
Adjusted
Penetration
Factor
Projected
Capture
Hotel A 100 19.0 %131.4 %25.0 %23.1 %121.5 %12,662
Hotel B 125 23.8 132.8 31.6 29.3 122.9 16,004
Hotel C 200 38.1 70.1 26.7 24.7 64.8 13,507
New Hotel 100 19.0 130.0 24.8 22.9 120.3 12,531
Totals/Average 525 100.0 %108.1 %100.0 %54,704