ANALYZING THE VIABILITY OF THE ANALYZING THE VIABILITY OF THE CONSTRUCTION AND OPERATION OF AN ......

ANALYZING THE VIABILITY OF THE CONSTRUCTION AND OPERATION OF AN

ALOFT HOTEL IN SAN DIEGO, CALIFORNIA

by Christopher Ford

Practicum Advisor: Mr. Roger Staiger

A practicum thesis submitted to Johns Hopkins University in conformity with the requirements for the degree of Master of Science in Real Estate

Washington, D.C. April, 2012

© 2012 Christopher Ford All Rights Reserved

Johns Hopkins University Real Estate Practicum

Analyzing the viability of the construction and operation of an Aloft hotel in San Diego, California Advisor: Roger Staiger

Aloft and its logo are the trademarks of Starwood Hotels & Resorts Worldwide, Inc. or its affiliates.

©2012 Christopher Ford. All rights reserved

San Diego Aloft Hotel

Page 2

Table of Contents

Executive Summary .................................................................................................................................... 4

Market Analysis and Site Selection ........................................................................................................... 7

San Diego Metropolitan Statistical Area .................................................................................................. 7

City of San Diego ...................................................................................................................................... 8

San Diego Economy ............................................................................................................................... 10

Hotel Market Analysis ............................................................................................................................ 16

Segmentation of Demand ........................................................................................................................ 23

Competitive Supply Analysis.................................................................................................................. 25

Competitive Location Analysis ............................................................................................................... 27

Analysis of Competitive Performance .................................................................................................... 28

Future Additions to Competitive Supply ................................................................................................ 32

Site Selection .............................................................................................................................................. 36

Highest and Best Use .............................................................................................................................. 39

Environmental Impact ............................................................................................................................. 43

Linkages and Transportation to the Site ................................................................................................. 56

Land Use & Public Policy ......................................................................................................................... 60

City of San Diego .................................................................................................................................... 60

Zoning ................................................................................................................................................. 60

The Port Act ............................................................................................................................................ 62

Port of San Diego .................................................................................................................................... 63

Board of Port Commissioners ............................................................................................................. 64

Port of San Diego Real Estate Department ......................................................................................... 65

Port Master Plan .................................................................................................................................. 68

Harbor Island - Planning District 2 ..................................................................................................... 72

California Environmental Quality Act .................................................................................................... 72

California Coastal Commission .............................................................................................................. 75

Revenue Taxes / Fees .............................................................................................................................. 79

Site Planning and Building Design .......................................................................................................... 83

The Site ................................................................................................................................................... 83


Page 3

Project Description .................................................................................................................................. 89

Project Elevations and Sections .............................................................................................................. 93

Building Placement on the Site ............................................................................................................. 103

Recently completed Aloft projects ........................................................................................................ 105

Design and Construction Management ................................................................................................. 108

Project Management Plan ..................................................................................................................... 108

Construction Budget ............................................................................................................................. 109

Project Schedule .................................................................................................................................... 114

Financial Analysis and Investment Structure ...................................................................................... 116

Expense Analysis .................................................................................................................................. 119

Operating Model ................................................................................................................................... 121

Pro forma Assumptions ......................................................................................................................... 124

Pro Forma.............................................................................................................................................. 124

Discounted Cash Flow Analysis and Assumptions ............................................................................... 125

Investment Structure and Returns ......................................................................................................... 129

Development Strategy and Risk Mitigation .......................................................................................... 133

Project Team ......................................................................................................................................... 133

Marketing .............................................................................................................................................. 135

Project Risks ......................................................................................................................................... 136

Conclusion ............................................................................................................................................... 140

Works Cited ............................................................................................................................................. 142

Appendix .................................................................................................................................................. 144


Page 4

Executive Summary The thesis summarizes investigation and analysis conducted to evaluate the viability of the construction

and operation of an Aloft hotel. The property is to be developed on a vacant parcel of land on Harbor

Island in San Diego, California. The site is positioned in the greater downtown area, within 250 yards of

the San Diego Bay with easy linkage to Lindbergh Field, San Diego’s central business district and tourist

attractions.

San Diego is a thriving metropolitan area with solid fundamentals. The city contains large research and

development clusters stimulating startup creation that will support economic recovery and office market

improvement. San Diego can be qualified as an agglomeration economy as it relates to technology,

defense and military, and notably tourism. Within the San Diego MSA exists several theme parks: Sea

World, Legoland, San Diego Zoo, and San Diego Zoo’s Wild Animal Park. The parks along with a mild

climate, the San Diego Bay, and other attractions draw both business and leisure customers to the area.

There are several infrastructure projects in various phases of development: airport expansion (10 new

gates to be completed in 2013), North Embarcadero project (upgrade of the downtown waterfront to be

completed in 2015), and the convention center expansion (to open in 2016). All of the above

developments allow the city to further expand its tour and travel industry and strengthen the market as a

convention and business travel destination.

Research included a thorough market and sub-market analysis of San Diego as basis for the financial pro

forma and assumptions. Additionally, an analysis of the hotel market by location and type was reviewed

and a competitive set was selected. Further analysis was conducted to evaluate how the project will

compete with the direct competition and its proposed market penetration. It was determined the hotel,

given its location and target customer base and appeal, would compete well within the competitive set of

hotels achieving a stabilized market share of 103%. This states the hotel will perform above the San

Diego hotel market in total and slightly above the chosen competitive set.


Page 5

The land is owned by the Port of San Diego and as the governing body is primarily responsible for

entitlements which differ from other jurisdictions. While the uses are limited by the Port of San Diego’s

charter, the site is looking for a use as there are no improvements currently on the site. The Port has

defined the land as open space currently. An extensive entitlement process exists to achieve project

approval for a coastal development permit. The Port currently does not have the site targeted for

development in the master plan and as such, an amendment to the Port’s Master Plan will need to be

applied. Consequently, an environmental impact report must be completed, presented to the Port for

approval and then presented to the California Coastal Commission for final approval and issuance for a

coastal development permit. While this process is extensive, hiring a California Environmental Quality

Act (CEQA) consultant can assist with a much smoother and timely process to complete.

The proposed project will include a five-story, 136 room hotel with a total floor area of approximately

68,740 square feet equating to a floor area ratio of approximately 0.30. The overall building length will

be 240', overall width at 110' and the building will be 75 feet tall. The 5.22 acre site is flat with very little

angulations and thus, minimal cut and fill site work is needed to prepare for construction. The project

will contain food and beverage outlets, an indoor pool, fitness center, and approximately 140 parking

spaces. The improvements will be positioned on the site to maximize views of the San Diego Bay and

Coronado Island Naval Base. In addition, the excess land can be used to expand parking for “Park and

Fly” patrons given the adjacency to the airport. In the future, if the hotel economics warrant, an

expansion to the facility can be pursued with additional sleeping rooms and amenities.

The project is assumed to begin the entitlement process by year end 2012 and open in 2016. Based on the

assumptions developed from the analysis and research, the total cost is estimated at $21.5M ($158K per

room and $313 per square foot). The project is forecasted to have an unlevered before tax internal rate of

return at 11.5% and a 17.8% levered return. The equity investment will be split 85 / 15 and as such, the

equity partner’s return is forecasted at 14.4% with the sponsor achieving 28% in the base case pro forma.


Page 6

Further analysis was accomplished with stochastic modeling utilizing Monte Carlo simulation. Oracle’s

software program Crystal Ball© was used to randomly select values within a defined range of each of the

major assumptions in the Excel© model to further dissect the expected risk of deviation of the base case

pro forma results. The examination derived an 18.5% risk the project does not meet the 11% hurdle rate

in the first tranche of the waterfall.

There are a number of other risks associated with the project of this complexity. Entitlement risk can be

mitigated with the addition of a CEQA consultant and California Coastal Commission lobbyist. Duration

risk has been minimized with including slack time in the project schedule and including subject matter

experts from the local market on the project team to get things done locally and address market specific

issues such as seismic activity. Legal risk is commonplace in California and can literally never be

eliminated. However, a solid attorney with extensive background in this type of project can greatly

diminish exposure of potential litigation.

Based on the following study and research, it is recommended to further pursue and analyze the

entitlement process by employing a CEQA consultant and begin initial discussions with the Port of San

Diego to option the land subject to California Coastal Commission approval.


Page 7

Market Analysis and Site Selection

San Diego Metropolitan Statistical Area

The San Diego-Carlsbad-San Marcos Metropolitan Statistical Area is located on the United States pacific

coast. The U.S. Census Bureau defines the San Diego metropolitan area as encompassing all of San

Diego County, which is of itself the second most populous county in the state of California and fifth most

populous in the United States. Greater San Diego is the 17th largest metropolitan statistical area in the

United States with over 3 million residents and 4th largest in California as well as being the major urban

area on the southern coast. Greater San Diego is anchored by the city of San Diego with other principal

cities of the metropolitan statistical area being Carlsbad, San Marcos, and National City.

The urban area and majority of the population of the San Diego metropolitan area is largely located

between the Pacific Ocean and the Peninsular Ranges. The San Diego urban area is the third largest in

California after the Los Angeles and San Francisco urbanized areas. The urban area largely reflects the

regions image as a relaxed beach and cosmopolitan environment with a mild climate. The area is

bordered by Orange County to the north, Mexico to the south, Imperial County to the east, and the Pacific

Ocean to the west. Metropolitan San Diego is renowned for its beach resorts, amusement parks, wildlife

parks and zoos as well many museums and beaches. The region is also home to a large home grown surf

and skateboard culture hosting many surfing events on its 70 miles of coastline.

Within the metropolitan boundaries is the San Diego Bay, a natural harbor considered by some as one of

the best on the North American west coast. The bay is flanked by the San Diego International Airport,

the busiest single runway airport in the world and the Port of San Diego, one of the busiest on the

American west coast. The U.S. Bureau of Transportation Statistics ranked the Port of San Diego as one

of America's top 30 U.S. container ship ports bringing in nearly 3,300,000 metric tons of cargo per year.

Together with the National City Marine Terminal, the Port of San Diego is the primary port of entry for

Honda, Acura, Isuzu, Volkswagen, Nissan, Mitsubishi Fuso, and Hino Motors into America.


Page 8

The metropolitan area's biggest industries are manufacturing, military, and tourism. The city’s economy

is composed of sciences (biotechnology/biosciences & computer sciences) as well as electronics

manufacturing, defense-related manufacturing, financial and business services, ship-repair, ship-

construction, software development, telecommunications, wireless research, agriculture and tourism.

Located in the metropolitan area, San Diego is host to the University of California, San Diego, located in

the coastal community of La Jolla. The San Diego metropolitan area is also host to one of the largest

naval fleets in the world and has become the largest concentration of naval facilities in the world.

Located in the area is the headquarters of the U.S. Navy's Eleventh Naval District and the principal

location for west coast and pacific ocean operations, containing five naval bases and one marine base.

City of San Diego With a population of over one million, the city of San Diego is the second most populous city in

California, and the eighth most populous in the United States. Money Magazine rated it the fifth best

place to live in 2006 and according to Forbes magazine the city ranks as the fifth wealthiest in the United

States. The city has mild, mostly dry weather, with an average of 201 days above 70 °F (21 °C) and low

rainfall (9–13 inches annually). The figure below depicts the mild year round climate with the primary

months for rainfall falling in the winter.

Climate data for San Diego (San Diego Airport), 1981-2010 normal temperatures Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year

Average high °F (°C)

65.7 (18.7)

65.6 (18.7)

66.2 (19.0)

68.2(20.1)

69.1(20.6)

71.4(21.9)

75.2(24.0)

76.9(24.9)

76.4(24.7)

73.4(23.0)

69.5 (20.8)

65.3 (18.5)

70.24(21.25)

Average low °F (°C)

49.5 (9.7)

51.2 (10.7)

53.7 (12.1)

56.4(13.6)

59.9(15.5)

62.5(16.9)

65.9(18.8)

67.2(19.6)

65.6(18.7)

61.1(16.2)

54.0 (12.2)

48.9 (9.4)

57.99(14.44)

Precipitation inches (mm)

1.98 (50.3)

2.27 (57.7)

1.81 (46)

0.78(19.8)

0.12(3)

0.07(1.8)

0.03(0.8)

0.02(0.5)

0.15(3.8)

0.57(14.5)

1.00 (25.4)

1.53 (38.9)

10.33(262.4)

Avg. precipitation

days 6.7 7.1 6.5 4.0 1.4 0.8 0.7 0.4 1.2 2.8 4.1 5.8 41.5

Sunshine hours 238.7 228.8 260.4 276.0 251.1 243.0 303.8 294.5 252.0 244.9 231.0 232.5 3,056.7

Source: NOAA and HKO (sun, 1961-1990)


Page 9

Recent Performance

San Diego’s recovery is strengthening. Boosted by tech, temporary employment and healthcare, total

employment is increasing. Although the unemployment rate remains close to 10%, it has shown little

improvement in the second half of 2011. The improving job market has boosted the labor force to above

its prerecession level, ahead of those of California and the U.S. Housing market indicators are mixed.

While the median house price has fallen since the middle of the year, sales and the issuance of

construction permits are trending upward.

Technology

Technology R&D will assist San Diego’s recovery in 2012. New and established tech companies with

operations in the metro area are driving down office vacancies and boosting payrolls. The number of local

startups increased by 50% in the first half of 2011 over the same period a year earlier, according to tech

industry group Connect. Tech capacity will receive a further boost when Johnson & Johnson opens a

biotech and health IT innovation center in 2012 at its local R&D facility. Tech manufacturing will also

help to boost near-term growth as private investment replaces ending federal supports for solar and other

renewable energy equipment. Soitec will open a solar plant next year in Rancho Bernardo, employing up

to 450 workers by the third quarter of 2012. In addition, faced with rising fuel and trans-Pacific shipping

costs, electronics manufacturer OnCore will begin insourcing production of console servers at its San

Marcos plant away from Asia next year.

Defense

In the near term, San Diego will outperform other Southern California metro areas with large defense

industries in the face of tightening Pentagon budgets. Northrup Grumman’s local operations are

benefiting from surging demand for civilian and military unmanned aerial vehicles. Since 2008, Northrup

Grumman, one of the metro area’s largest employers, has added 800 local jobs. The General Dynamic

NASSCO shipyard will receive a boost from the recent congressional authorization to build the third and

final Mobile Landing Platform ship, a project that will support 2,000 shipyard jobs.


Page 10

Tourism

A U.S. recovery in 2012 will help to further the recovery of weakened tourism, one of San Diego’s core

industries. Overnight visitors to the metro area increased an estimated 3% in 2011 from a year earlier,

according to the San Diego Convention and Visitors Bureau. However, visitor levels are below

prerecession levels and hotels remain reliant on discounts to fill rooms, many of which were newly

constructed or renovated in recent years. The area’s strong appeal to international visitors will help to

boost tourism industries in the near term and beyond. Domestic passengers through October at San Diego

International Airport, conversely the number of international passengers has increased. Signaling the

strength of the metro area’s international appeal, British Airways has resumed daily service from San

Diego to London Heathrow.

San Diego Economy San Diego’s recovery will improve in 2012, boosted by expanding tech services and recovering tourism.

In the near term, the metro area will be partially protected by a tightening Pentagon budget. Steady job

growth will drive the unemployment rate down toward 9% by the beginning of 2013. San Diego is

positioned to take advantage of tech R&D to drive high-value-added economic activity in the long term.

However, growth will match that of the U.S. for most of the forecast, as high business and real estate

costs will remain a major hurdle.

Demographics


Page 11

Population

The demographic outlook remains generally positive, although population growth will cool from recent

years. Population growth was largely unchanged for the second consecutive year and net domestic

outmigration increased slightly in 2011, according to the California Department of Finance. Higher gains

in housing affordability in the neighboring Riverside housing market and a relatively smaller share of

distressed home sales were among the factors curbing a decrease in net outmigration. Additionally,

recovering labor markets will provide a brief boost to population growth.

Real Estate Market

Prior to 2006, San Diego experienced a dramatic growth of real estate prices, to the extent the situation

was sometimes described as a "housing affordability crisis". Median home prices more than tripled

between 1998 and 2007. According to the California Association of Realtors, in May 2007, a median

house in San Diego cost $612,370. Growth of real estate prices has not been accompanied by comparable

growth of household incomes. The percentage of households that can afford to buy a median-priced

house fell below 20 percent in the early 2000s. The San Diego metropolitan area had the second worst

ratio of median house price to median household income of all metropolitan areas in the United States. As

a consequence, San Diego experienced negative net migration since 2004. Many residents are moving to

Riverside County and commuting daily from Temecula and Murrieta, to their jobs in San Diego. Others

are leaving the state altogether and moving to more affordable regions in the country.

San Diego home prices peaked in 2005 then declined as part of a nationwide trend. As of December 2010,

home prices were 60 percent higher than in 2000, but down 36 percent from the peak in 2005. The

median home price declined by more than $200,000 between 2005 and 2010, and sales dropped by 50

percent.

San Diego’s relatively low share of distressed home sales will limit further near-term declines in house

prices. The metro area’s share is the lowest within Southern California and slightly above half the state


Page 12

share. Nonetheless, an uptick in the foreclosure filing rate, which remains above the U.S. average, will be

enough to push down prices in 2012 by an additional 8%. Once house prices reach their final bottom by

mid-2012, they will have fallen peak to trough by 40% which is approximately 10 percentage points less

than the state decline but more than 5 percentage points above the U.S. fall.

Services and Government

The City of San Diego was incorporated in 1850. The City comprises 324 square miles and, as of January

1, 2011, the California Department of Finance estimates the population to be 1,311,882. The city, with

approximately 10,500 employees, provides a full range of governmental services including police and fire

protection, sanitation and health services, the construction and maintenance of streets and infrastructure,

recreational activities and cultural events, and the maintenance and operation of the water and sewer

utilities.

The city of San Diego operates under and is governed by the laws of the State of California and its own

Charter, as periodically amended since its adoption by the electorate in 1931. The city has operated under

a Strong-Mayor form of government since January 2006. The permanent departure from the city’s

previous Council-Manager form of government was approved by a vote of the public and became

effective January 1, 2011. The Mayor is elected at large to serve a four-year term. Under the Strong-

Mayor form of government, the Mayor is the Chief Executive Officer of the City and has direct oversight

over all City functions and services except for the city council, personnel, city clerk, independent budget

analysts, city attorney, ethics commission and city auditor departments. Under this form of government,

the city council is composed of eight members and is presided over by the council president, who is

selected by a majority vote of the city council. The Mayor presides over city council in closed session

meetings of the council. The council retains its legislative authority; however, all city council resolutions

and ordinances are subject to a veto of the Mayor except for certain ordinances including emergency

declarations and the city’s annual salary and appropriations ordinances. The city council may override a


Page 13

Mayoral veto with five votes. The city attorney, who is elected for a four-year term, serves as the chief

legal advisor and attorney for the city and all departments. During the city’s primary election held on

June 8, 2010, voters approved Measure D which made permanent the Strong-Mayor form of government

effective January 1, 2011. Additionally, Measure D increased the number of City Council districts from

eight to nine, and therefore, a corresponding increase of City Council votes required to override the

Mayor’s veto from five to six. The ninth council district will be added in 2012.

Top Employers

According to the City's 2010 Comprehensive Annual Financial Report, the top employers and leading

industries in the city are:

Number of Percentage ofEmployer Employees Total Employment

United States Navy 54,415 7.83%University of California San Diego 20,408 2.94%San Diego Unified School District 17,024 2.45%

San Diego County 15,164 2.18%Sharp Memorial Hospital 14,700 2.11%

City of San Diego 10,499 1.51%Kaiser Permanente 7,028 1.01%

Qualcomm, Inc. 6,000 0.86%UC San Diego Medical Center 5,549 0.80%

San Diego Gas and Electric Co. 5,075 0.73%Total Top Employers 155,862 22.42%

Source: http://www.sandiego.gov/comptroller/reports/pdf/cafr_2010.pdf


Page 14

The above employers and industries will create room accommodations demand for the hotel market.

These industries along with the convention center derive the lion’s share of the hotel room demand in San

Diego. As result the hotel and tourism business is subject to the health and growth of these industries.

San Diego Convention Center

The San Diego Convention Center is located in the Marina district of downtown San Diego near the Gas

Lamp Quarter, at 111 West Harbor Drive. The center is managed by the San Diego Convention Center

Corporation, a non-profit public benefit corporation. The convention center offers 615,701 square feet of

exhibit space and has a capacity of 125,000 patrons.

The center's most distinguishing feature is the Sails Pavilion, a 90,000-square-foot exhibit and special

event area. The Sails Pavilion's roof consists of distinctive Teflon-coated fiberglass "sails" intended to

reflect San Diego's maritime history, as well as to advertise the center's proximity to the San Diego shore.

The Pavilion was originally built as an open-air facility under the roof. However, the center found it hard

to convince potential users to book an open-air facility, so the Pavilion area was enclosed in glass, greatly

expanding the usable area of the center. San Diego voters approved a measure to fund construction of a

new convention center in 1983 on land owned by the Port of San Diego. Construction of the original

San Diego MSA Leading IndustriesNAICS Industry Employees (000's)

GVSL State and Local Government 179.2 ML Military Personnel 109.4 7221 Full Service Restaurants 50.5 GVF Federal Government 46.9 7222 Limited-Service Eating Places 41.8 5417 Scientific Research and Development Services 30.5 7211 Traveler Accommodation 28.9 5613 Employment Services 27.4 6211 Offices of Physicians 24.6 4451 Grocery Stores 23.8 6221 General Medical and Surgical Hospitals 23.4 5413 Architectural, Engineering, and Related Services 22.4 4521 Department Stores 20.0 5617 Services to Buildings and Dwellings 18.9 5415 Computer Systems Design and Related Services 17.5

Source: Moody's Precis U.S. Metro Report December 2011


Page 15

building began in March 1987 and was completed in November 1989. An expansion which doubled the

gross square footage of the facility was completed in September 2001. In September 2008 the center took

steps to acquire adjacent property for an additional expansion.

A proposed Phase 3 expansion would increase the capacity of the Convention Center by 33 percent and is

currently moving forward. The Convention Center is currently undergoing the environmental review,

permitting process, engaging the public community members and stakeholders as well as finalizing the

expansion design.

According to data presented to the Mayor’s Citizen Task Force on the Convention Center Expansion, a

proposed expansion could mean an additional $698 million annually in regional economic impact, $13.5

million in new tax revenue and 6,900 new jobs in addition to the 12,500 jobs already supported by the

Convention Center. Based on several studies, the Convention Center is recommending adding

approximately 200,000 – 225,000 sf of exhibit space; 100,000 sf of meeting space; and an 80,000 sf

ballroom. The target date for completion is early 2016. However, major civic projects like an expansion

have long-term planning horizons and any number of unforeseeable factors could influence the

timeframe.

The City of San Diego is exploring financing options for the estimated $520 million project with a

contingency reserve of $20 million. The current plan is to fund the bonds through a transient occupancy

tax on hotel room revenue of hotels with 30 or more rooms in a three-zone structure. The tax would be

tiered whereby charging the guests of hotels in the downtown area, and most closely associated with

Convention Center 3%, those guests staying at hotels in areas outside of downtown, and secondarily

closely identified with Convention Center 2% (Harbor Island and the subject development falls into this

zone), and those in the remainder of San Diego 1% of hotel room revenue. The hotel occupancy tax is

anticipated to produce $12.7 million annually. In addition, funding from the Port of San Diego will come

from an approved contribution of $3 million per year for the next 20 years.


Page 16

Hotel Market Analysis National Market

As the outlook for the economic expansion seems to become clear, many economists are still cautious in

their expectations for 2012. Similar to last year, the uncertainty in the Middle East has led to increases in

the price of oil. If the situation escalates and gas prices continue to rise, we can expect consumer spending

to decrease in the coming months. Meanwhile, the uncertainties surrounding the election will likely

weigh on business investment until an outcome becomes apparent. And, the shrinking labor participation

rate diminishes the positive signals coming from the unemployment rate decline. Moody Analytic’s

forecast for 2012 has weakened somewhat. Real personal income is forecast to increase 2.5 percent in

2012, down from a forecasted increase of 4.9 percent last October. Employment is expected to grow by

1.1 percent. The modest growth in the economy translates into continued growth for RevPAR of 5.8

percent in 2012, down from 8.2 percent in 2011.1

1 Revenue per available room (RevPAR) is defined as total room revenue divided by annual number of rooms available. Average Daily Rate (ADR) is defined as the total guest room revenue for

a given period divided by the total number of paid occupied rooms during the same period. This will be a blend of all room rates charged within a specified timeframe.


Page 17

Based on performance data through December of 2011 (provided by Smith Travel Research), and

Moody’s Analytics’ January 2012 domestic economic forecast, PKF-HR believes that RevPAR in the

U.S. will increase by 5.8 percent in 2012. This is the result of a projected 1.6 percent increase in

occupancy and a 4.1 percent gain in ADR. The 5.8 percent forecast increase in RevPAR is 30 basis

points less than PKF’s previous forecast released in December 2011. Diminished prospects for ADR

growth are the primary reason for the lowering of the RevPAR forecast. Moody’s has reduced its

projections for Real Personal Income growth, which in turn suppresses both inflation and real ADR

growth. On the other hand, the PKF forecast for increased occupancy in 2012 has improved because of

Moody’s more bullish outlook for gains in employment. Better than expected increases in occupancy,

combined with below expectation ADR growth, are consistent with the pattern observed during the fourth

quarter of 2011. Upper-tier hotels are projected to continue to lead the way in RevPAR growth in 2012.

Relatively high occupancy levels allow managers at these hotels to be more aggressive with their pricing

policies.


Page 18


Page 19

For 2012, PKF forecasts national upscale hotels to grow more than the national forecast by 160 basis

points in RevPAR (7.4% vs. 5.8%). This is driven by both occupancy and ADR growth within the

segment. This provides confidence in this segment to lead the growth to the national market. The same

holds true for 2013 with growth forecasted at 8.6% RevPAR for upscale properties relative to 6.6% to the

national forecast.

San Diego Regional Economic Summary

“Economic activity in the Twelfth District continued to grow at a moderate pace during the reporting

period of January through mid-February. Price increases for final goods and services were limited, and

upward wage pressures were minimal. Activity in District housing markets remained sluggish, and

demand for nonresidential real estate stayed weak overall. Financial institutions reported a small increase

in overall loan demand. Retail sales continued to expand. Modest improvements in sales were reported for

general merchandise such as apparel and smaller household items, with stronger gains noted for

traditional department stores than for discount chains. Demand also improved modestly for retailers of

major appliances and furniture, but it remained lackluster for electronics. Sales held relatively stable for

grocers, although upscale chains saw gains. Demand for business and consumer services rose a bit on net.

Sales grew further for providers of technology services to businesses and consumers. Similarly, demand

for professional services such as legal services and accounting ticked up on balance. Conditions in the

District's travel and tourism industry continued to strengthen, reflecting growth in both the business and

tourism segments of the market.”

San Diego Hotel Market Summary

In 2011, San Diego hotels finished the year with a RevPAR gain of 7.2%. This was the result of an

increase in occupancy of 3.8% and a 3.2% gain in average daily room rates (ADR). The 7.2% boost in

San Diego RevPAR was worse than the national average of 8.2%. San Diego's lower-priced properties

finished 2011 ahead of its upper priced properties in terms of RevPAR growth. The properties in this

category attained a 3.6% gain in ADR and saw a 3.9% increase in occupancy. Upper-priced hotels


Page 20

experienced an ADR growth rate of 3.1%, along with a 3.8% gain in occupancy. Looking towards 2012,

San Diego RevPAR is expected to grow 8.9%. Occupancy is forecast to rise 2.4%, while average room

rates are projected to increase 6.3%. Revenue is expected to continue to climb in 2013.


Page 21

In comparing PKF’s San Diego data to the national hotel market both historically and forecasted next 5

years, San Diego tends to command on average an 870 – 890 basis point occupancy premium to the

national market. In addition, San Diego commands an approximate $32 - $35 average daily rate premium

equating into a mirrored RevPAR advantage as well. However, it is interesting to note that San Diego’s

demand change on average is less than the national average drawing the conclusion that San Diego’s

demand correlates more with the local demand generators (e.g. San Diego Convention Center) vs. the

national market. Conversely, supply growth on average tends to be less in San Diego implying that the

San Diego vs. National Hotel Market Comparison Occupancy Average Daily Rate RevPAR Demand Δ Supply Δ

National San Diego Variance National San Diego Variance National San Diego Variance National San Diego Variance National San Diego Variance2007 62.8% 72.8% 10.0% 104.31 138.91 34.60 65.51 101.07 35.56 0.7% 1.1% 0.4% 1.2% 1.6% 0.4%2008 59.8% 69.2% 9.4% 107.40 142.54 35.14 64.23 98.66 34.43 -2.5% -3.1% -0.6% 2.4% 1.9% -0.5%2009 54.5% 62.7% 8.2% 98.08 125.06 26.98 53.50 78.37 24.87 -6.2% -6.2% 0.0% 2.9% 3.6% 0.7%2010 57.5% 66.4% 8.9% 98.05 122.00 23.95 56.41 80.97 24.56 7.3% 6.7% -0.6% 1.7% 0.8% -0.9%2011 60.1% 68.9% 8.8% 101.63 125.96 24.33 61.04 86.78 25.74 5.0% 4.1% -0.9% 0.6% 0.2% -0.4%2012 61.0% 70.6% 9.6% 105.83 133.92 28.09 64.60 94.52 29.92 2.2% 3.0% 0.8% 0.6% 0.6% 0.0%2013 62.2% 70.8% 8.6% 110.83 141.83 31.00 68.89 100.42 31.53 2.9% 1.2% -1.7% 1.0% 0.8% -0.2%2014 63.5% 71.4% 7.9% 115.96 149.54 33.58 73.63 106.74 33.11 3.7% 2.0% -1.7% 1.6% 1.2% -0.4%2015 64.1% 72.2% 8.1% 119.88 158.39 38.51 76.85 114.40 37.55 2.7% 2.6% -0.1% 1.7% 1.4% -0.3%2016 63.3% 72.4% 9.1% 121.98 165.11 43.13 77.17 119.49 42.32 0.7% 1.7% 1.0% 2.0% 1.5% -0.5%

10 Year AVG ('07-'16) 8.9% 31.93 31.96 -0.3% -0.2%5 Year AVG ('12-'16) 8.7% 34.86 34.89 -0.3% -0.3%


Page 22

city is becoming more developed and the barriers to entry are becoming higher with less access to

premium hotel spots within walking distance to the convention center.

San Diego Submarkets

The San Diego Downtown Area submarket consists of hotels located near the convention center, marina,

and Horton Plaza in the Central Business District in downtown San Diego. Also included in this

submarket are the resort hotels located on Coronado Island, and well as properties located south of the

airport. The population of hotels makes up 29.6% of the San Diego Market’s hotel rooms comprising of

78 hotels. Of those 78 hotels, 34 hotels fall in the upper priced segment where the subject hotel will

resides.

Downtown


Page 23

Segmentation of Demand Lodging demand typically falls into four main categories:

Business

Business travelers represent a large portion of lodging demand in most markets. They include people

traveling on business representing commercial, industrial and governmental organizations. Peak business

demand is usually experienced Monday through Thursday nights. Most business travelers in San Diego

visit due to government, calling on clients or conducting business. Most of the commercial travel will

come from the primary employers and industries mentioned previously.

Leisure

Leisure travelers visit San Diego for vacation, to attend sporting or social events, to shop, or to visit

friends and relatives. They might be staying over simply because they are traveling to other destinations

such as the cruise line business mentioned earlier. Leisure travelers may be individuals, couples, families,

or small groups. Travelers visiting hospitals and universities are typically included in this market

segment. Leisure room demand is often seasonal. In larger, more urban market areas, leisure room


Page 24

demand may be limited to weekends, summer months and holiday periods. However, with its mild

climate, San Diego is a viable vacation destination year round. Those in the desert areas will want to seek

a cooler destination and those in a colder climate will seek a warmer destination. San Diego offers both

year round. San Diego also offers the large theme parks of Sea World, San Diego Zoo, Wild Animal Park

and Legoland just north in Carlsbad, California.

Group

The group market consists of both leisure and business travelers. Leisure groups include bus tours,

school activities, athletic events, etc. Tour groups are often brought to an area for sightseeing and

attending special events. Business group meetings are typically associated with conferences, board

meetings, training programs, seminars, trade shows, and other gatherings. Often the sponsoring

organization will be from the local area. Out-of-town organizations may use local meeting facilities

because they often rotate the sites of their regional meetings. In San Diego, a large driver of group

business is the San Diego Convention Center. Many groups meet there throughout the year bringing large

number of attendees. While hotel locations around the convention center command a premium in room

rates, there are still cost conscience travelers that will prefer an upscale hotel away from the convention

center for a more economical price.

Other Travelers

Various lodging customers cannot be classified under the categories of business, leisure, or group. These

travelers may include construction workers, truckers, utility crews, airline personnel and others. Most

business in San Diego falling into this category comes from the airline crews at Lindbergh Field Airport.

While this business is typically lower priced, it provides a consistent occupancy of rooms and fills the

shoulder nights (Sunday and Thursday) along with weekends when other business demand is lower. As

with the law of supply and demand, this creates compression of the hotel offering fewer rooms and thus

only customers paying higher rate categories will be offered accommodations.


Page 25

In the San Diego market, Smith Travel Research captures this information from participating hotels in

most major markets. The data below represents the segmentation categories from the San Diego Market

in year 2007 – 2011.

As demonstrated above, the upscale segment tends to consistently follow the market Average Daily Rate

(ADR) at a percentage of 77-78%. This is a result of mix of business and various factors that make up

both the San Diego Market and the San Diego Upscale market. In addition, the average variance to

occupancy is approximately -5% to the total market. Therefore, in forecasting Occupancy and ADR this

relationship should remain somewhat consistent and reflected in the subject hotel pro forma.

Competitive Supply Analysis An evaluation of the subject hotel’s location and a survey with local hotel General Managers assisted in

determining the competitive set. Locational attributes hat were considered are (1) San Diego Bay views,

(2) adjacency of the airport, (3) location near the central business district, (4) location near the convention

center and (5) easy access to the theme parks. Hotels were selected by their location and similar traits.

While not all hotels in the set contain the same location benefits, each have either parity or better with the

subject hotel relating to the five attributes above.

The hotels chosen for the competitive set are: (1) The Hotel Indigo Gas Lamp Quarter (210 rooms), (2)

Best Western Plus Bayside Inn (122 rooms), (3) Homewood Suites Liberty Station (150 rooms), (4)

Courtyard Liberty Station (200 rooms) and (5) Holiday Inn Bayside (237 rooms). These upscale hotels

represent the best mix of location and amenity offerings. Hotels were chosen based on distance to the

convention center, local businesses and government institutions that would patronize the hotel for their

San Diego Downtown Room Revenue Segmentation

Total RevenueGroup Rooms

Contract Rooms

Transient Rooms

Group Revenue

Contract Revenue

Transient Revenue

Group ADR

Contract ADR

Transient ADR

TOTAL Market ADR

Upscale ADR

% of Total Market

TOTAL Market Occupancy

Upscale Occupancy

Var to Total Market

2007 685,339,259 1,898,705 161,628 1,777,452 343,077,881 12,467,902 329,793,467 $ 180.69 $ 77.14 $ 185.54 $ 178.58 $138.93 78% 77.0% 72.8% -4.2%2008 704,987,869 1,798,192 168,423 1,843,156 347,326,526 14,547,454 343,113,875 $ 193.15 $ 86.37 $ 186.16 $ 185.05 $142.54 77% 73.7% 69.2% -4.5%2009 617,387,409 1,565,747 159,108 2,127,590 289,155,761 12,626,628 315,605,012 $ 184.68 $ 79.36 $ 148.34 $ 160.26 $125.05 78% 68.3% 62.7% -5.6%2010 654,346,683 1,679,779 152,662 2,335,976 296,387,358 11,172,264 346,787,052 $ 176.44 $ 73.18 $ 148.45 $ 156.98 $122.04 78% 72.7% 66.4% -6.3%2011 703,876,753 1,752,462 172,976 2,401,178 317,069,997 12,776,190 374,030,556 $ 180.93 $ 73.86 $ 155.77 $ 162.69 $125.99 77% 75.4% 68.9% -6.5%

6 Year Average 673,187,595 1,738,977 162,959 2,097,070 318,603,505 12,718,088 341,865,992 $ 183.21 $ 78.04 $ 163.02 $ 168.34 $130.99 78% 73% 68% -5%Source: Smith Travel Research


Page 26

travel needs. In addition, competitive brands were selected based on their ability to poach Aloft hotel

type consumers and the Aloft’s opportunity to shift business away from the competitive hotels.

The set includes 919 rooms in total achieving a healthy occupancy of 80% and an ADR of $133 equating

to a RevPAR of $106 for full year 2011. This is above average performance compared to the total San

Diego upscale market and is driven by the downtown location of the hotels. Each hotel will compete for

business and leisure travelers. Group business is a secondary focus for the hotels due to limited meeting

space; however, it will be a determining factor when large conventions flood the market. This allows the

subject hotel and competitive set to increase room rates along the positive sloped demand curve as a result

of strong room demand and other travelers not related to the convention itself. It should also be noted, the

competitive set below runs a premium to San Diego’s lower priced segment which they reside.

Aloft San DiegoProfile of Competitive Facilities

Aloft San Diego

Number of Rooms 136Opening Year 2014Address Harbor Island Drive

San Diego, CA 92101

LocationHarbor Island, Near Downtown

CBD and AirportLast Refurbishment New buildBrand aloftAffiliation Starwood Hotels & ResortsMarket Mix Transient 93% Group 7% ContractFacilities/Amenities Restaurants re:fuel Restaurant (3 Meal) Lounges XYZ LoungeTotal Meeting Space (SF) 575King Rooms 87Double / Double Rooms 49SF / Guest Room 4Swimming Pool IndoorExercise Room YesGift Shop NoBusiness Center YesParking / Fees Yes - Self and ValetAirport Transportation Free Shuttle Service to Airport

No YesYes Yes Yes

140 12624

102 7095 167

5160 71

237210 122 150 200

Hotel Indigo San Diego Gaslamp Quarter

Best Western Plus Bayside Inn

Homewood Suites San Diego Airport Liberty

Station

Courtyard San Diego Airport Liberty Station

Holiday Inn San Diego Bayside

19722009 1985 2007 20084875 North Harbor Drive509 9th Ave 555 West Ash Street 2576 Laning Road 2592 Laning RoadSan Diego, CA 92106 San Diego, CA 92101 San Diego, CA 92101 San Diego, CA 92106 San Diego, CA 92106

Point Loma, Near Military and Shelter Island

Downtown, CBD, Gaslamp District Downtown, CBD

Liberty Station, Near Military, Airport


2012built 2009 2008 built 2007 built 2008Holiday InnIndigo Best Western Plus Homewood Suites Courtyard

Intercontential Hotel GroupIntercontential Hotel Group Best Western Hilton Hotels Worldwide Marriott International

75%85% 90% 90% 80%25%15% 10% 10% 20%0%0% 0% 0% 0%00 0 0 0

YesYes Yes None YesYesYes - 2 Bars Yes None Yes

5,0001,500 None 900 4,590

217 N/A 6 23OutdoorNo Indoor Indoor Indoor

YesYes Yes Yes YesNoNo No No No

Free ParkingYes - Valet Only Free Parking Free Parking Free ParkingNoNo No No No


Page 27

Competitive Location Analysis The grid below analyzes each of the hotels compared to the subject hotel development. Each of the hotels

are measured and weighted based on the most applicable attributes needed for success in the market. The

subject hotel location is considered the best of the six selected. Note that the Hotel Indigo from a location

perspective is very close in ranking, however it is only 3 of 5 in the current RevPAR index ranking of the

competitive set behind the two Liberty Station hotels.

FactorRating Criteria in Reverse Order of Importance

Aloft San Diego


Best Western Plus Bayside

Inn

Homewood Suites San

Diego Airport Liberty Station

Courtyard San Diego Airport

Liberty Station

Holiday Inn San Diego

Bayside Weight1 Travel times to employee housing 7 4 5 9 9 7 12 Visibility 10 7 4 8 9 6 23 Accessibility 9 10 7 9 9 9 3

4 Quality of Demand Generators 8 9 8 9 9 5 4

5 Access to Water 10 6 6 5 5 9 5

6 Access to Restaurants and Night Life 8 10 9 7 7 5 6

7 Access to Theme Parks 8 6 6 8 8 6 78 Expected travel time to airport 10 8 8 9 9 8 89 Amount of Class A Office Space within 5 miles 7 9 3 6 6 6 9

10 Travel Time to Convention Center 7 8 8 6 6 6 10Total 355 351 279 330 332 286 1933

18.4% 18.2% 14.4% 17.1% 17.2% 14.8% 100.0%Overall Ranking 1 2 6 4 3 5

Note: Based on ranking where 1=worst and 10=Best

Competitive Location Analysis

Percentage of Total Scores


Page 28

Analysis of Competitive Performance

Of the competitive set hotels above, both Liberty Station hotels command a premium in occupancy and

ADR equating to a higher share performance. These hotels are located near military installations and

capture government business demand. In addition, these hotels also are located in a mixed use facility

providing retail and dining venues. The subject site is in between the two primary demand generators for

the market in military installations and the San Diego Convention Center.

Competitive Set Individual Perfromance2011 Indices

Property Rooms OCC ADR RevPAR OCC ADR RevPAR OCC ADR RevPAR OCC ADR RevPARHotel Indigo San Diego Gaslamp Quarter 210 Opened in 2009 67% 127$ 85$ 71% 131$ 93$ 88.6% 98.6% 87.4%Best Western Plus Bayside Inn 122 64% 119$ 76$ 65% 120$ 78$ 69% 122$ 84$ 86.1% 91.9% 79.1%Homewood Suites San Diego Airport Liberty Station 150 92% 154$ 143$ 94% 154$ 145$ 91% 151$ 137$ 113.6% 113.7% 129.1%Courtyard San Diego Airport Liberty Station 200 84% 132$ 112$ 86% 139$ 120$ 89% 138$ 123$ 111.1% 103.9% 115.4%Holiday Inn San Diego Bayside 237 79% 99$ 78$ 77% 96$ 74$ 80% 100$ 80$ 99.8% 75.3% 75.2%

Total Competitive Set 919 75.1% 128$ 96$ 78% 129$ 101$ 80% 133$ 106$

2009 2010 2011


Page 29

Competitive Set RevPAR Index (2011)

With the Hotel Indigo having the best site location and being newer, the only explanation would be is

the Indigo brand affiliation is not as strong as part of the Intercontinental Hotel Group. Even with a

superior location in the central business district, their results are not as strong as one might expect.

Competitive Set Occupancy Performance by Month (2009 – 2011)

70.0%

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%



Inn

Homewood Suites San




0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

2009

2010

2011

Avg


Page 30

Competitive Set ADR Performance by Month (2009 – 2011)

Competitive Set RevPAR Performance by Month (2009 – 2011)

While the competitive set maintains a healthy occupancy year round, during the summer months where

business and leisure demand converge is where the highest rates are achieved.

100.00

110.00

120.00

130.00

140.00

150.00

160.00

2009

2010

2011

Avg

50.00 60.00 70.00 80.00 90.00

100.00 110.00 120.00 130.00 140.00 150.00

2009

2010

2011

Avg


Page 31

Competitive Set Occupancy Performance by Day of Week (2009 – 2011)

Competitive Set ADR Performance by Day of Week (2009 – 2011)

60.0

65.0

70.0

75.0

80.0

85.0

90.0

Sun Mon Tue Wed Thu Fri Sat

Jan 09 ‐Dec 09

Jan 10 ‐Dec 10

Jan 11 ‐Dec 11

Total 3 Yr

122.00

124.00

126.00

128.00

130.00

132.00

134.00

136.00


Jan 09 ‐Dec 09

Jan 10 ‐Dec 10

Jan 11 ‐Dec 11

Total 3 Yr


Page 32

Competitive Set RevPAR Performance by Day of Week (2009 – 2011)

The day of week RevPAR performance slightly mirrors the occupancy pattern. This is a result of typical

business demand for the majority of the year in weekday (Monday – Thursday) segments with leisure

dominating weekends (Friday – Saturday). ADR has traditionally peaked mid-week however; Thursday

had the strongest ADR performance in 2011.

Future Additions to Competitive Supply There are three hotels anticipated to come on-line with the next few years that will compete directly with

the subject hotel.

Sunroad Hotel Project

The project involves the partial redevelopment of a leasehold, which is currently leased by Sunroad

Marina Partners, LP, located at 955 Harbor Island Drive. This leasehold is currently developed with a

marina, support buildings, and surface parking. The project description includes the construction of a

limited service 4-story hotel with a total floor area of approximately 117,000 square feet, consisting of a

maximum of 175 rooms, fitness, 8,000 square feet meeting space, and common areas.

80.00

85.00

90.00

95.00

100.00

105.00

110.00

115.00

120.00


Jan 09 ‐Dec 09

Jan 10 ‐Dec 10

Jan 11 ‐Dec 11

Total 3 Yr


Page 33

Lane Field’s Two Hotel Project

Lane Field is located at 900 West Broadway in the North Embarcadero area of San Diego. Since the

1960's, Lane Field has been a surface parking lot for cruise and general public parking. It was also a

baseball stadium and the home of the Pacific Coast League Padres from 1936 to 1957. The

redevelopment is a public/private partnership between the Port and Lane Field San Diego Developers,

LLC. When completed, Lane Field will be home to two hotel towers, with a total of 450 rooms, a two-

acre public park/plaza, a view corridor and public access through "C" Street, more than 60,000 square feet

of restaurants and retail shops and approximately 1,000 parking spaces. The hotels will be a 250 room

Hilton Garden Inn and 200 room Homewood Suites with both residing in the upscale segment. Both are

anticipated to open June 2017.


Page 34

Sunr

oad

Hot

el O

pens

Alo

ft Sa

n D

iego

Lane

Fie

ld H

otel

s O

pen

Con

vent

ion

Cen

ter E

xpan

sion

Ope

nsA

ctua

lA

ctua

lA

ctua

lPr

ojec

ted

Proj

ecte

dPr

ojec

ted

Proj

ecte

dY

ear 1

Yea

r 2Y

ear 3

Yea

r 4Y

ear 5

Yea

r 6Y

ear 7

Yea

r 8Y

ear 9

Yea

r 10

Com

petit

ive

Set:

20

0920

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

25A

loft

San

Die

go13

613

613

613

613

613

613

613

613

613

6Ho

tel I

ndig

o Sa

n D

iego

Gas

lam

p Q

uarte

r10

6

210

21

0

210

21

0

210

21

0

210

21

0

210

21

0

210

21

0

210

21

0

210

21

0

Best

Wes

tern

Plu

s Ba

ysid

e In

n12

2

122

12

2

122

12

2

122

12

2

122

12

2

122

12

2

122

12

2

122

12

2

122

12

2

Hom

ewoo

d Su

ites

San

Die

go A

irpor

t Lib

erty

Sta

tion

150

15

0

150

15

0

150

15

0

150

15

0

150

15

0

150

15

0

150

15

0

150

15

0

150

C

ourty

ard

San

Die

go A

irpor

t Lib

erty

Sta

tion

200

20

0

200

20

0

200

20

0

200

20

0

200

20

0

200

20

0

200

20

0

200

20

0

200

Ho

liday

Inn

San

Die

go B

aysi

de23

7

237

23

7

237

23

7

237

23

7

237

23

7

237

23

7

237

23

7

237

23

7

237

23

7

Sun

Road

Hot

el (N

ew B

uild

)17

5

175

17

5

175

17

5

175

17

5

175

17

5

175

Hi

lton

Gar

den

Inn

Lane

Fie

ld (N

ew B

uild

)12

5

250

25

0

250

25

0

250

25

0

250

25

0

Hoem

wood

Sui

tes

Lane

Fie

ld (N

ew B

uild

)10

0

200

20

0

200

20

0

200

20

0

200

20

0

Tot

als

815

919

919

919

919

919

919

1,23

01,

455

1,68

01,

680

1,68

01,

680

1,68

01,

680

1,68

01,

680

Avai

labl

e Ro

oms

297,

475

33

5,43

5

335,

435

33

5,43

5

335,

435

33

5,43

5

335,

435

44

8,95

0

531,

075

61

3,20

0

613,

200

61

3,20

0

613,

200

61

3,20

0

613,

200

61

3,20

0

613,

200

C

hang

e in

Sup

ply

12.8

%0.

0%0.

0%0.

0%0.

0%0.

0%33

.8%

18.3

%15

.5%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Com

p Se

t Occ

upan

cy75

.1%

78.5

%80

.1%

81.2

%81

.8%

83.2

%94

.9%

82.2

%82

.0%

83.0

%83

.0%

83.0

%83

.0%

83.0

%83

.0%

83.0

%83

.0%

Tota

l Occ

upie

d Ro

oms

223,

465

26

3,15

9

268,

756

27

2,51

9

274,

426

27

9,09

1

318,

164

36

9,07

1

435,

503

50

8,66

8

508,

668

50

8,66

8

508,

668

50

8,66

8

508,

668

50

8,66

8

508,

668

C

hang

e in

Dem

and

17.8

%2.

1%1.

4%0.

7%1.

7%14

.0%

16.0

%18

.0%

16.8

%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%

Com

p Se

t AD

R12

8$

129

$

13

3$

140

$

14

5$

152

$

16

1$

169

$

17

6$

181

$

18

7$

191

$

19

6$

201

$

20

6$

211

$

21

7$

Cha

nge

in A

DR

0.8%

3.1%

5.1%

3.8%

5.1%

5.7%

5.0%

4.0%

3.0%

3.0%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

Com

p Se

t Rev

PAR

96$

10

1$

107

$

11

4$

119

$

12

7$

153

$

13

9$

144

$

15

0$

155

$

15

9$

163

$

16

7$

171

$

17

5$

180

$

C

hang

e in

Rev

PAR

5.3%

5.3%

6.6%

4.5%

6.9%

20.5

%-9

.0%

3.7%

4.2%

3.0%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Hot

el O

ccup

ancy

77.0

%78

.0%

79.0

%80

.0%

80.0

%80

.0%

80.0

%80

.0%

80.0

%80

.0%

Pen

etra

tion

93.7

%95

.1%

95.2

%96

.4%

96.4

%96

.4%

96.4

%96

.4%

96.4

%96

.4%

Hot

el A

DR

179.

00

190.

00

195.

00

200.

00

205.

00

210.

00

215.

00

221.

00

226.

00

235.

00

Pen

etra

tion

105.

8%10

7.9%

107.

6%10

7.1%

107.

1%10

7.0%

106.

9%10

7.2%

107.

0%10

8.5%

Cha

nge

in A

DR

6.1%

2.6%

2.6%

2.5%

2.4%

2.4%

2.8%

2.3%

4.0%

Hot

el R

evPA

R13

7.83

14

8.20

15

4.05

16

0.00

16

4.00

16

8.00

17

2.00

17

6.80

18

0.80

18

8.00

P

enet

ratio

n99

.1%

102.

7%10

2.4%

103.

3%10

3.3%

103.

2%10

3.1%

103.

4%10

3.2%

104.

7% C

hang

e in

Rev

PAR

7.5%

3.9%

3.9%

2.5%

2.4%

2.4%

2.8%

2.3%

4.0%

Occ

upan

cy A

naly

sis

PKF

San

Die

go M

arke

t For

ecas

t62

.7%

66.4

%68

.9%

70.6

%70

.8%

71.4

%72

.2%

72.4

%PK

F Sa

n D

iego

Mar

ket U

pper

-Pric

ed F

orec

ast

65.7

%69

.8%

72.5

%73

.8%

73.3

%73

.7%

74.4

%74

.4%

Com

petit

ive S

et A

ctua

l / F

orec

ast

75.1

%78

.5%

80.1

%81

.2%

81.8

%83

.2%

94.9

%82

.2%

82.0

%83

.0%

83.0

%83

.0%

83.0

%83

.0%

83.0

%83

.0%

83.0

%Va

rianc

e to

Mar

ket U

pper

-Pric

ed S

egm

ent

9.4%

8.7%

7.6%

7.4%

8.5%

9.5%

20.5

%7.

8%

Alof

t Hot

el F

orec

ast

0.0%

77.0

%78

.0%

79.0

%80

.0%

80.0

%80

.0%

80.0

%80

.0%

80.0

%80

.0%

Occ

upan

cy In

dex

0%94

%95

%95

%96

%96

%96

%96

%96

%96

%96

%A

DR

Ana

lysi

sPK

F Sa

n D

iego

Mar

ket F

orec

ast

125.

06

12

2.00

125.

96

13

3.92

141.

83

14

9.54

158.

39

16

5.11

PKF

San

Die

go M

arke

t Upp

er-P

riced

For

ecas

t16

3.08

158.

06

16

2.93

173.

78

18

4.59

194.

48

20

4.91

213.

27

C

ompe

titive

Set

Act

ual /

For

ecas

t12

8.00

129.

00

13

3.00

139.

78

14

5.09

152.

49

16

1.19

169.

25

17

6.02

181.

30

18

6.74

191.

40

19

6.19

201.

09

20

6.12

211.

27

21

6.56

-21.

5%-1

8.4%

-18.

4%-1

9.6%

-21.

4%-2

1.6%

-21.

3%-2

0.6%

Alof

t Hot

el F

orec

ast

-

17

9.00

190.

00

19

5.00

200.

00

20

5.00

210.

00

21

5.00

221.

00

22

6.00

235.

00

AD

R In

dex

0%10

6%10

8%10

8%10

7%10

7%10

7%10

7%10

7%10

7%10

9%R

evPA

R A

naly

sis

PKF

San

Die

go M

arke

t For

ecas

t78

.37

80.9

7

86

.78

94.5

2

10

0.42

106.

74

11

4.40

119.

49

PK

F Sa

n D

iego

Mar

ket U

pper

-Pric

ed F

orec

ast

107.

18

11

0.38

118.

07

12

8.18

135.

25

14

3.26

152.

48

15

8.75

Com

petit

ive S

et A

ctua

l / F

orec

ast

96.1

5

10

1.20

106.

56

11

3.56

118.

70

12

6.88

152.

89

13

9.13

144.

34

15

0.39

154.

90

15

8.78

162.

74

16

6.81

170.

98

17

5.26

179.

64

-1

0.3%

-8.3

%-9

.7%

-11.

4%-1

2.2%

-11.

4%0.

3%-1

2.4%

Alof

t Hot

el F

orec

ast

-

13

7.83

148.

20

15

4.05

160.

00

16

4.00

168.

00

17

2.00

176.

80

18

0.80

188.

00

Re

vPAR

Inde

x0%

99%

103%

102%

103%

103%

103%

103%

103%

103%

105%


Page 35

The analysis on the previous page provides both a historical and forward looking analysis of the

competitive set, new supply entering the market and competes with the subject property. PKF forecasts

and historical numbers were utilized to provide a comparison of how the competitive set performs relative

to the PKF Upper Priced segment. The forecast was calculated for the subject hotel evaluating location,

amenity offerings, and relative market share. As a result, the hotel stabilizes at an occupancy index of

96% demonstrating a slight premium to the market given its location to the Convention Center and airport

relative to other in the competitive set. The subject hotels ADR index stabilizes at 107% due mainly to

the new product, lower room count, aging competitive hotels and upscale finishes relative to the other

competitors. The resulting RevPAR index is at 103% which appears conservative relative to the brand

performance in other markets throughout the United States. These estimates will be utilized in

formulating the pro forma for the subject.


Page 36

Site Selection The site is located on San Diego’s Harbor Island just off North Harbor Drive in downtown San Diego.

According to the Port of San Diego, the land parcels can be assembled to allow for development to be

approved by the Port though its land use processes discussed later in this paper.

The site is bordered by North Harbor Drive to the North, Spanish Landing Park to the Northwest, The

Sheraton San Diego Hotel (east tower) to the South West and North Harbor Island Drive to the east.

There are currently no permanent improvements on the site. Parcel 007-041is currently under a

Temporary Use Permit (TUP) to the Sheraton San Diego which is renewed annually. The TUP would

expire upon an update to the Port Master Plan for this development.

The site consists of two separate parcels:

Parcel Acres Square Feet

007-041 2.33 101,688

007-003 2.89 126,065

TOTAL 5.22

The project site is located within the jurisdiction of the Port district, in the Harbor Island / Lindbergh

Field: Planning District 2 specifically inside the planning subarea of West Harbor Island of the certified

Port Master Plan (PMP). Planning District 2 embraces two different activities - the transportation hub of

San Diego International Airport (Lindbergh Field) with its ancillary commercial and industrial activities,

and Harbor Island with its public parks and tourist commercial orientation. Each serves an important

function in the regional economy and, in some ways, they are associated together. Both have been

developed and are recognized as being stabilized for the future vision of the master plan. The master plan


Page 37

retains Lindbergh Field in its present configuration, adding to the passenger terminal and making

improvements in parking and access. Aviation related industries and commerce will also be retained.

Development of unleased parcels on Harbor Island is expected to be completed with the construction of

the hotel on the east basin (Sunroad Project). Along Harbor Drive, from the Navy Estuary to the Coast

Guard facility, planning concepts focus on providing a sense of entry into downtown San Diego for

travelers coming via Lindbergh Field and Point Loma, with activities and landscape features that

strengthen the image of San Diego as a pleasant place to visit. Considerable attention is paid to

improvements in the general appearance of existing industrial uses and the planned expansion of these

uses. Public Park, pedestrian promenade and open space are reserved on the bayside and in the

circulation gateway of Harbor Island. Coastal access is enhanced by a shoreline park with leisure

facilities, including restroom, and a 1.3 mile bayside public pathway.

Adjacent Uses to the Subject Parcel


Page 38

Spanish Landing Park

Spanish Landing Park, subarea 21, extends along the north bank of the Harbor Island West Basin and

occupies 11.2 acres of land. Another 1.3 acres is designated for promenade in the form of a bicycle and

pedestrian path. This area is completely developed except for the possibility of a fishing pier near the west

end. Approximately one mile of public access to the shore is provided by this park. Historic markers

located in the park commemorate Juan Rodriguez Cabrillo's discovery of San Diego Bay in 1542, and the

exploratory party of Gaspar de Portola in 1769-70.

West Harbor Island

West Harbor Island, subarea 22, has been completely developed with commercial recreational uses such

as hotels, restaurants, marinas, and marine related commercial business. No changes to this 37.7 acre

commercial recreation area are anticipated. The Sheraton San Diego east tower is located in this subarea

along with the subject parcel.

East Basin Industrial

East of Harbor Island, subarea 24, is a tract of land leased by General Dynamics Corporation and

Lockheed Ocean Laboratory for aerospace and oceanographic research and development. These sites are

recommended for eventual redevelopment into a light, marine related industrial/business park to include

such activities as scientific laboratories, office space, marine oriented businesses and light manufacturing

plants, with some ancillary storage and warehousing where necessary to the conduct of primary industrial

activities.

Lindbergh Field

The Lindbergh Field subareas, 26 and 27, include the airport, runways, taxiways, aircraft parking aprons,

control tower, passenger terminals, and public parking. It has been designated an international airport in

the master plan and the primary uses would include the aforementioned. In addition, the uses typically


Page 39

included inside the terminals such as ticket sales, car rentals, air taxi, restaurants, and gift shop, would be

permitted. Approximately 52 acres of former Naval Training Center property west of Lindbergh Field has

been transferred to the Port and will be used for parking and future airport expansion. The Port has

committed to maintaining Lindbergh Field as San Diego's regional airport until an alternative is found.

An airport development study was undertaken to provide a long-range development plan for Lindbergh

Field in view of the continued increase in air traffic and the increased frequency of congestion in the

passenger terminals, terminal roads, auto parking lots and the main access roads linking the airport to the

city. As a first step, the Port has adopted an Immediate Action Program which has the following elements:

(1) Addition of an air terminal concourse, and associated aircraft apron areas;

(2) Modification of existing parking and airport roadway improvements;

(3) Modifications to the Harbor Drive interchange at Harbor Island Drive;

(4) Expansion of the airport fuel farm, and

(5) Regional access improvements including widening of Laurel Street.

The master plan proposes a new access road be constructed from Washington Street, along the north edge

of the airport, to the west side of the new west terminal. Most of the road is located on land occupied by

the U.S. Marine Corps Recruit Depot; however, the exact location, design and ownership will be decided

at a later date, and is subject to negotiation with the U.S. Navy.

Highest and Best Use Highest and best use is defined as the reasonably probable and legal use of vacant land or an improved

property, which is physically possible, appropriately supported, financially feasible, and that results in the

highest value. Since this parcel currently has no zoning (further explained in Land Use section of this

paper) the Port of San Diego will need to approve its change of (or in this case “define a”) use and


Page 40

navigate the appropriate approval levels through the California Coastal Commission. In discussions with

the Port’s Real Estate Asset Manager, the use would need to be consistent with the Port Act.

The Port Act defines the Port’s intent as “the promotion of commerce, navigation, fisheries, and

recreation.” Section 87 of the Port act specifically defines the uses of this site as maritime industrial,

retail or hotel. Other uses such as office and residential (including timeshare) are not allowed under the

Port act and would likely meet with extensive public and governmental/political opposition if one would

want to engage in public policy litigation. Therefore, given the intense opposition, hefty cost of litigation,

and extreme remote possibility of achieving approval, the uses are not evaluated in this analysis.

Maritime Industrial, while an allowed use, would be physically limited as the parcel is land locked on all

sides without direct access to the water to allow removal and launching of watercraft, wharfs, etc. The

FAA will need to impose height restrictions given the proximity to the airport and large cranes and

machinery would narrow the scope and type of watercraft / maritime industrial activities. In addition,

conversations with the Port have determined that an industrial use of this site would more than likely not

get approved as the adjacent uses would not be compatible with such a use. The Port also desires a

welcoming gateway from the airport entering San Diego. Occupying pristine tidelands with industrial

uses in this area would also not appear favorable in the eyes of the Board of Port Commissioners

regardless of the economics.

Retail and Hotel uses are feasibly, physically, and legally potential development projects and both are

permitted uses. Each would promote commerce and enhance the site in accordance with the Port’s

objectives. Today, foot traffic is limited to this area of tidelands and therefore would increase traffic and

require ample parking for either potential improvement. The uses would compliment adjacent uses and

not interfere with their current use. According to a local retail broker, the location would not be ideal for

retail development but remains a potential option. The location would not be accessible by foot such as


Page 41

Sea Port Village retail in downtown, nor would it tend to draw anchor stores. The broker estimates it

would be similar to one story in-line retail with local shop owners and limited brands.

In order to evaluate highest and best use a back of the envelope comparison of hotel and retail use is

analyzed as they are permissible uses on tidelands and physically feasible to construct and operate on the

site. The current hotel development is assumed in contrast to a large one story retail layout is assumed to

be built out at approximately twice the size of the hotels floor plate given the additional parking

requirements for retail established by the Port.

Given the premium market value relative to a retail building, a hotel is the highest and best use for the site

given the current parameters.

Limited Service Hotel versus Full Service Hotel

In evaluating a hotel for the site, both full service and limited service hotels were assessed. In considering

the investment, a full service hotel would require increased investment due to the additional amenities and

finish requirements. In addition, most of the returns in full service hotel development projects occur at

reversion versus annual cash flows. However, limited service hotels tend to provide higher cash flows

relative to investment over a 10 year hold period and less of the overall return comes from the reversion.

As a result, a limited service hotel was chosen due to returns being more evenly skewed between annual

cash flows and reversion. This can further allow alternative strategies such as selling the asset sooner as

cash flows ramp up or refinancing to pull cash out tax free to either provide funds for expansion to pursue

Back of the Envelope Highest and Best UseRetail Hotel

Stabilized NOI 1,225,000 2,185,724 Development Costs 8,282,533 21,522,095 Yield on Costs 14.8% 10.2%Market Cap Rate 7.2% 9.0%Market Value 17,013,889 24,285,820


Page 42

other investments. In addition, limited service hotels are located in the sweet spot of the spectrum of

hotel offerings. As a limited service hotel, it provides a value priced option during good economic times

for those less likely to spend disposable income on tour and travel. In contract, during bad economic

times it provides a trade down option to full service hotels as companies and business travelers alike

curtail their travel budgets.

Aloft Branding

Aloft is a brand of Starwood Hotels & Resorts Worldwide, Inc. Starwood is one of the leading hotel and

leisure companies in the world with 1,090 properties in 100 countries and territories with 154,000

employees at its owned and managed properties. Starwood was a pioneer in creating the W branded

hotels in 1998. This full service hotel creation was one of the brands that lead to the boutique hotel

revolution whereby, hotels provided a pace to gather versus a place to sleep and eat. W hotels have

expanded internationally and domestically in the U.S. with great popularity.

As a result of the success of the W hotels, Starwood created the Aloft brand, the little brother to the W

hotel. Aloft is a limited service hotel that provides a boutique feel beyond the standard industry hotel. Its

unique setting and atmosphere provide the guests not only a place to stay, but also a place to be.

Recently Starwood Hotels & Resorts Worldwide unveiled a global pipeline for their Aloft brand of hotels

that is expected to bring the total hotels to 70 hotels around the world in 2013. Currently there are over

55 open on four continents with new Aloft hotels will opening in 2012-2013 in China, India, Malaysia,

Latin America and North America.

The Aloft brand was chosen for the project based on its limited distribution it is in its infancy along with

the strong appeal of the boutique design as evidenced by the W brand historically. In addition, Starwood

is pledging a large amount of investment in growing the brand; they have vested interest in making the

brand successful and profitable. As well, San Diego has a large number of hotels in the downtown area

and almost all brands are present in the marketplace. There is currently no Aloft branded hotel in the


Page 43

immediate area and therefore will not compete with other Aloft hotels in San Diego. Finally, Starwood

has presence in the market with their other brands, W, Westin, Four Points, and Sheraton. This

infrastructure allows for an easy plug and play option for access to key sales personnel and their client

base to provide comfort in achieving the projected operating results.

Environmental Impact In evaluating the site, an analysis was conducted relative to an anticipated Environmental Impact Report

(EIR) as required by the California Environmental Quality Act (CEQA). While a Phase I analysis will be

conducted, a cursory review was analyzed below. The environmental items were noted from previous

EIRs completed on recent development projects under California Coastal Commission review. The

approval process is further explained in detail in the land use section of this paper.

Below follows a similar format of the standard EIR the Port District utilizes to evaluate new projects

relative to California Environmental Quality Act in regards to aesthetics, air quality, biological resources,

geology and soils, greenhouse gases, hydrology and water quality, land use and planning, noise, public

services, transportation and utilities and service systems. There would need to be a full Environmental

Impact Report conducted on the project but the following is simply an estimation of environmental

impacts of the subject development.

Issue Impact Mitigation Measures

Aesthetics

Scenic Vistas The Proposed Project would not have a substantial adverse effect

No mitigation required.

Scenic Resources within a State Scenic Highway

The Proposed Project would not substantially damage any scenic resources, including, but not limited to, trees, rock outcroppings and historic buildings within a state scenic highway.



Page 44


Visual Character The Proposed Project would not substantially degrade the existing visual character or quality of the site and its surroundings.


Light or Glare The Proposed Project would not create a new substantial source of light or glare.


Air Quality

Consistency with

Applicable Air

Quality Plan

Implementation of the Proposed Project would not conflict because it is consistent with the use specified in the PMP.


Consistency with

Air Quality

Standards

Implementation of the Proposed Project would not exceed any air quality standard during construction or operation.


Objectionable

Odors

Implementation of the Proposed Project would not create objectionable odors affecting a substantial number of people.


Biological Resources

Candidate, Sensitive, or Special Status Species

The Proposed Project would not impact candidate, sensitive or special status species because the site does not contain natural habitat.


Riparian Habitat and Other Sensitive

Natural Communities

The Proposed Project would not impact riparian habitat or sensitive natural communities because no riparian habitat or other sensitive natural communities exist within the



Page 45


project site.

Wildlife Movement Corridors The Proposed Project would not affect any existing natural habitat that would lead to an alteration of migration patterns and the implementation of project design features would minimize the potential for avian collisions.


Wetlands The Proposed Project would not impact federally protected wetlands because no wetlands occur on the project site.


Conflicts with Local Policies or Ordinances

The Proposed Project would not conflict with any local policies or ordinances because the protected coastal resources identified by the Port District and the city of San Diego do not occur in the project area.


Habitat Conservation Plan (HCP) and Natural Community Conservation Plan (NCCP)

The Proposed Project would not conflict with any adopted HCP, NCCP or other approved habitat conservation plan because the Proposed Project is in compliance with the PMP and does not fall under any of the identified areas of biological significance and conservation.


Geology and Soils

Unstable Soils and Seismic Hazards

The Proposed Project is located on soil that is susceptible to seismic ground shaking and seismic-related liquefaction and may become unstable during a seismic

Proof Rolling

Prior to any additional site fills being placed, the site shall be proof rolled with a large, loaded, rubber-tired loader,


Page 46


event. water truck, or other heavy equipment to locate any soft or loose zones. Proof rolling is not required in areas designed for a structural floor slab. Loose or soft zones shall be replaced with properly compacted backfill. If the loose zone is greater than about one foot deep, in-place compaction may be difficult and over excavation may be required. Existing soil surfaces to receive new fill, footings or concrete slabs shall be scarified to a depth of 12 inches and recompacted.

Imported Soil Testing

A Geotechnical Engineer shall review and test all proposed import materials before their use. The soils shall not have any perishable, spongy, deleterious, or otherwise unsuitable material.

Fill Material Testing

The placement of engineered fill shall be performed under the observation and testing services of a geotechnical professional supervised by a California-registered Geotechnical Engineer. Tests shall be taken to determine the in-place moisture and relative compaction of engineered fill. A geotechnical professional supervised by a California-registered Geotechnical


Page 47


Engineer shall observe pile driving. All footing and slab subgrade soils shall be observed by a geotechnical or geologic professional prior to placement of steel and concrete to observe that the subgrade is satisfactory.

Fill Material Compaction

Fill material shall be placed in loose lifts no thicker than 8 inches, moisture conditioned, and processed as necessary to achieve uniform moisture content above optimum moisture content.

Soil Over-excavation

Existing soils below exterior surface improvements (e.g., asphalt parking, concrete sidewalk and lightly loaded appurtenant structures) shall be over-excavated and replaced with properly compacted non-expansive fill to provide a minimum thickness of 2 feet of engineered fill, measured from the finished subgrade surface. Over excavation shall extend at least 5 feet horizontally beyond the limits of the improvement.

Subsurface Wall Design

Subsurface walls shall be designed to resist the pressure exerted by retained soils plus


Page 48


any additional lateral forces due to loads placed adjacent to or near the wall.

Aggregate Base

Concrete paver units shall be supported on 6 inches of aggregate base over 12 inches of compacted subgrade; sand bedding shall be provided for the paver units over the aggregate base. A one-inch thick sand bedding over the aggregate base shall be used to support the paver units.

Soil Erosion or Topsoil Loss Implementation of the Proposed Project would not result in substantial soil erosion or loss of top soil.

Mitigation measure Soil Over-excavation (see above comments regarding the issue).

Waste Water Disposal Systems Implementation of the Proposed Project would not require the use of septic tanks or alternative waste water disposal systems.


Greenhouse Gases

Direct and indirect generation of Green House Gases (GHG) and Consistency with Applicable Plans Adopted for Reducing GHG

Implementation of the Proposed Project would not generate GHG emissions that would have a significant impact on the environmental or conflict with an applicable plan, policy, or regulation.


Hazards and Hazardous Materials

Transport, Use, Disposal and Accidental Release of Hazardous

The Proposed Project would not result in a significant impact



Page 49


Materials from reasonably foreseeable upset and accident conditions involving the release of hazardous materials into the environment.

Existing Hazardous Materials Site

Since the site has no current improvements no significant impact is anticipated.


Public and Private Airports Implementation of the Proposed Project would not result in a safety hazard due to a public airport or military airport.


Wildfire Implementation of the Proposed Project would not expose people or structures to a significant risk due to wildfire because the project site is not located in a community considered at risk from wildfire.


Emergency Response or Evacuation Plans

The Proposed Project is not part of and would not impair an adopted emergency response or evacuation plan.


Hydrology and Water Quality

Water Quality

Standards and

Requirements

The Project would not violate any water quality standards or waste discharge requirements or otherwise substantially degrade water quality and impacts related to water quality.


Groundwater Supplies and Recharge

Supplies and Implementation of the Project would not substantially deplete groundwater supplies or interfere substantially with groundwater



Page 50


recharge because landscaping would be available for groundwater recharge following construction and the Proposed Project’s potable water supply would not use groundwater.

Erosion, Siltation, Flooding The Proposed Project would not result in substantial erosion, siltation or flooding because the Proposed Project’s anticipated increase in storm water would not be substantial enough to cause a significant impact to either on-site or downstream drainage facilities.


Exceed Capacity of Stormwater Systems

Implementation of the Proposed Project would not exceed existing or planned stormwater drainage systems or provide additional sources of polluted runoff because the Project would implement BMPs and the anticipated increase in stormwater would not require the construction of new storm drain facilities


Land Use and Planning

Conflicts with Land Use Plans, Policies, and Regulations

The Proposed Project would be consistent with all applicable land use plans


Divide Established Communities The Proposed Project would not divide an established community.


Conflicts with Habitat Conservation Plans or Natural

The Proposed Project would not conflict with a habitat conservation plan or natural



Page 51


Community Conservation Plans community conservation plan.

Noise

Operational Increases in Ambient Noise Level

Use of amplified music during operation of any outdoor terrace would have the potential to periodically generate a substantial increase in exterior ambient noise levels.

The operation will comply with Section 59.5.0502 of the City of

San Diego Noise Ordinance.

Temporary Increases in Ambient Noise Level

Construction of the Proposed Project would include pile driving equipment during construction that would have the potential to result in short-term noise level increases that exceed the City’s Noise Ordinance standards.

Pile driving activities shall be limited to a period not to exceed six hours in a single day of construction.

Public Services

Fire Protection Services Due to one of the responding fire stations being above its annual workload capacity, the City of San Diego Fire Department has indicated that a new fire station is necessary in the area. The increased demand for fire protection service associated with the Proposed Project would contribute to the need for the City to construct an additional fire station. Construction of this station could cause additional impacts to the environment. Therefore, the Proposed Project would result in a significant impact on fire protection service by

Project Applicant shall pay its fair share of the cost of constructing a new fire station at in the vicinity of Liberty Station in the amount determined by the City of San Diego. Not to exceed $30,000.


Page 52


contributing to the need for the city to construct a new fire station.

Police Protection The Proposed Project will not result in temporary adverse impacts to service response times for police protection.


Schools The Proposed Project would not result in adverse impacts to service ratios or performance measures for schools because it would not result in a substantial increase in the population of school-age children in the area.


Parks The Proposed Project would not result in adverse impacts to parks because the Proposed Project would not result in a population increase or remove recreational facilities, and it includes new recreational facilities.


Other Public

Facilities

The Proposed Project would not result in adverse impacts to service ratios or performance measures for other public facilities, such as libraries, hospitals, or public roads, because it would not result in an increase in permanent population in the area.


Transportation/Traffic

Circulation System Performance Implementation of the Proposed Project would not cause any intersection or roadway to operate at an unacceptable level



Page 53


of or further deteriorate the performance of an intersection or roadway. Moreover, the Proposed Project would not result in an adverse impact to pedestrian and bicycle paths or mass transit.

Congestion Management Program

Implementation of the Proposed Project would not result in a conflict with any applicable CMP program for the study area.


Air Traffic Patterns Implementation of the Proposed Project does not include any components that would result in a change in air traffic patterns. However, no existing designated allowable height is currently established. In order to determine a maximum allowable height for that site an application to determine if the structure is a hazard to air navigation would have to be submitted to the Federal Aviation Administration (FAA). The FAA, after processing the application, would determine the maximum allowable height that could be constructed. The best indication of what would be permitted to be constructed on the site would be based on previous applications (proposed Sunroad hotel) and the height of the existing Sheraton hotel (east tower). Absent an actual finding from the FAA, the best estimate of the allowable height that would be permitted by the FAA would be approximately 155 feet above



Page 54


mean sea level.

Utilities and Service Systems

Wastewater Treatment Requirements

The Proposed Project would not exceed wastewater treatment requirements because the City of San Diego currently has adequate capacity to accommodate the increased wastewater demand from the Proposed Project.


New Water or Wastewater Facilities

The Proposed Project would not result in the construction of new water or wastewater treatment facilities or expansion of existing facilities because the City of San Diego currently has adequate water and wastewater facilities to serve the Proposed Project.


Storm water Drainage Facilities

All impacts associated with the construction of the new storm water drainage facilities on the project site would be less than significant or mitigated to a less than significant level.


Water Supply The Proposed Project would not require the expansion of existing facilities or entitlements because the SDCWA has projected the sufficient water supplies are available to serve the Proposed Project from existing resources.


Wastewater Treatment Capacity

The Proposed Project would not exceed the capacity of the City’s wastewater treatment system.



Page 55


Solid Waste Disposal

The Proposed Project would be served by a landfill with sufficient capacity to accommodate the Proposed Project because the Proposed Project would not substantially increase the City’s rate of solid waste disposal.


Compliance with Solid Waste Regulations

The Proposed Project would comply with all applicable regulations related to solid waste.


Energy The Proposed Project would not result in the wasteful, inefficient, and unnecessary consumption of energy because it would include energy efficiency measures that reduce energy use compared to a similar building of its size.


Source: Adapted from recent environmental impact reports from the Port of San Diego web site (www.portofsandiego.org)


Page 56

Linkages and Transportation to the Site

With the automobile being the primary means of transportation for over 80 percent of its residents, San

Diego is served by a network of freeways and highways. This includes Interstate 5, which runs south to

Tijuana, Mexico and runs north to Los Angeles; Interstate 8, which runs east to Imperial County and the

Arizona Sun Corridor; Interstate 15, which runs northeast through the Inland Empire to Las Vegas; and

Interstate 805, which splits from I-5 near the Mexican border and rejoins I-5 at Sorrento Valley.


Page 57

Major state highways include SR 94, which connects downtown with I-805, I-15 and East County; SR

163, which connects downtown with the northeast part of the city, intersects I-805 and merges with I-15

at Miramar; SR 52, which connects La Jolla with East County through Santee and SR 125; SR 56, which

connects I-5 with I-15 through Carmel Valley and Rancho Peñasquitos; SR 75, which spans San Diego

Bay as the San Diego-Coronado Bridge, and also passes through South San Diego as Palm Avenue; and

SR 905, which connects I-5 and I-805 to the Otay Mesa Port of Entry. The stretch of SR 163 that passes

through Balboa Park is San Diego's oldest freeway, and has been called one of America's most beautiful

parkways.

San Diego's roadway system provides an extensive network of routes for travel by bicycle. The dry and

mild climate of San Diego makes cycling a convenient and pleasant year-round option. At the same time,

the city's hilly, canyon-like terrain and significantly long average trip distances—brought about by strict

low-density zoning laws—somewhat restrict cycling for utilitarian purposes. Older and denser

neighborhoods around the downtown tend to be utility cycling oriented. This is partly because of the grid

street patterns now absent in newer developments farther from the urban core, where suburban style

arterial roads are much more common. As a result, a vast majority of cycling-related activities are

recreational. In 2006, San Diego was rated as the best city for cycling for U.S. cities with a population

over 1 million. Additionally, a 2011 study by Walk Score ranked San Diego the 18th most walkable of

the 50 largest cities in the United States.

San Diego is served by bus, trolley and Sprinter (light rail), Coaster (regional rail), and Amtrak. The

trolley primarily serves downtown and surrounding urban communities, Mission Valley, East County, and

coastal south bay. A planned Mid-Coast line will operate from Old Town to University City along the I-5

Freeway. The Amtrak and Coaster trains currently run along the coastline and connect San Diego with

Los Angeles, Orange County, Riverside, San Bernardino, and Ventura via Metrolink. There are two

Amtrak stations in San Diego, one in Downtown and another in Old Town.


Page 58

The city's primary commercial airport is the San Diego International Airport (SAN), also known as

Lindbergh Field. It is the busiest single-runway airport in the United States that served almost 17 million

passengers in 2011. It is located on San Diego Bay three miles (4.8 km) from downtown. San Diego

International Airport maintains scheduled flights to the rest of the United States including Hawaii, as well

as to Mexico, Canada and the United Kingdom. It is operated by an independent agency, the San Diego

Regional Airport Authority. In addition, the city itself operates two general-aviation airports,

Montgomery Field (MYF) and Brown Field (SDM).

Several regional transportation projects

have been undertaken in recent years to

deal with congestion in San Diego.

Notable efforts are on San Diego

freeways, San Diego Airport, and the

cruise terminal of the port. Freeway

projects include expansion of Interstates

5 and 805 around "The Merge," a rush-

hour spot where the two freeways meet.

Also, an expansion of Interstate 15

through the North County is underway

with the addition of high-occupancy-

vehicle (HOV) lanes. There is a tollway (The South Bay Expressway) connecting SR 54 and Otay Mesa,

near the Mexican border. According to a 2007 assessment, 37 percent of streets in San Diego were in

acceptable driving condition. The proposed budget fell $84.6 million short of bringing the city's streets to

an acceptable level. Port expansions included a second cruise terminal on Broadway Pier which opened

in 2010. Airport projects include expansion of Terminal 2, currently under construction and slated for

completion in 2013.


Page 59

The subject site will border North Harbor Drive that runs adjacent to the San Diego Bay though

downtown. In addition, access can be obtained to Interstate 5 on the north side of the airport. All modes

of transportation can be accessed within three miles of the subject site itself.


Page 60

Land Use & Public Policy

City of San Diego

Zoning

The subject parcels reside on Harbor Island in Grid 14 as defined by the City of San Diego Development

Services Department. The grid entails several uses including residential, commercial and industrial along

with military and airport uses. Harbor Island itself is surrounded by several planning communities:

Peninsula, Midway Pacific Highway, Uptown and Centre City. However, Harbor Island falls in a grayed

out section defined as tidelands under the jurisdiction of the Port of San Diego. As such, the city has no

zoning authority over the area and surrenders that authority to the Port of San Diego under the California

Port Act.

The city does oversee the permitting process under the land development code of the City of San Diego’s

Planning Division. An impact fee is assessed on each new commercial development built in the city. The

fees are deposited into the San Diego Housing Trust Fund to meet, in part, affordable housing needs in

San Diego. The fees are collected for non-residential development and must be paid to the Planning

Department prior to the issuance of a building permit. The impact fee is defined as the Citywide Housing

Impact Fee and became effective July 1, 1996 and is levied at $0.64 per square foot on any new hotel

development. Some exemptions may apply for Enterprise Zone and redevelopment areas however;

Harbor Island does not lie within the defined areas.

Government Services

There are multiple services administered by the city and county of San Diego. A few of the largest

services are listed below:

The San Diego Police Department offers a variety of resources related to crime prevention and

education, including crime statistics and maps, neighborhood division maps, as well as

instructions on reporting emergencies and non-emergencies.


Page 61

San Diego Fire-Rescue Department is a multi-faceted organization that provides city residents

with fire and life saving services including fire protection, emergency medical services and

lifeguard protection at San Diego beaches.

The City of San Diego has provided trash collection services to the public for over 90 years. In

2011, crews collected approximately 380,000 tons of trash from 315,000 residences and small

businesses in San Diego. Crews will also collect over 80,000 tons of household recyclables and

over 30,000 tons of yard waste.

San Diego Unified School District serves more than 132,000 students in pre-school through grade

12 and is the second largest district in California. The student population is extremely diverse,

representing more than 15 ethnic groups and more than 60 languages and dialects. More than

6,000 teachers are in classrooms at the district's various educational facilities, which include 107

traditional elementary schools, 11 K-8 schools, 24 traditional middle schools, 28 high schools, 45

charter schools, and 13 atypical/ alternative schools.

The Health and Human Services Agency provides a broad range of health and social services,

promoting wellness, self-sufficiency, and a better quality of life for all individuals and families in

San Diego County. The Agency integrates health and social services through a unified service-

delivery system. This system is family focused and community-based, reflective of business

principles in which services are delivered in a cost-effective and outcome-driven fashion.

City of San Diego Public Utilities Department operates the Water and Sewer utilities in San

Diego County. Water is supplied to residents by the Water Department of the City of San Diego.

The city receives its water from the Metropolitan Water District of Southern California.

All services can absorb the additional impact from the subject property with the exception of one. The

Fire station currently covering the parcel and the potential development is currently at capacity.


Page 62

Therefore, a new fire station will need to be developed at Liberty Station and as such the subject project

will need to contribute to the cost of construction.

The Port Act The Port Act centers on the Port of San Diego’s purpose and use of powers around the acquisition,

construction, maintenance, operation, development and regulation of harbor works and improvements,

including rail and water, for the development, operation, maintenance, control, regulation, and

management of the harbor of San Diego. This applies to the tidelands and lands lying under the inland

navigable waters of San Diego Bay, and for the promotion of commerce, navigation, fisheries, and

recreation thereon, may be established or organized and governed as provided in the Port Act. The Port

Act states, in part:

The district may use the powers and authority granted pursuant to the Act to protect, preserve, and

enhance (1)the physical access to the bay; (2) the natural resources of the bay, including plant and

animal life; and (3) the quality of water in the bay. The district shall not, at any time, grant, convey, give,

or alienate those lands, or any part thereof, to any individual, firm, or corporation for any purposes

whatever. However, the district, or its successors, may grant franchises thereon for limited periods, not

exceeding 66 years, for wharves and other public uses and purposes, and may lease those lands, or any

part thereof, for limited periods, not exceeding 66 years, for purposes consistent with the trusts upon

which those lands are held by the State of California, and with the requirements of commerce and

navigation, and collect and retain rents and other revenues from those leases, franchises, and privileges.

Note: One exception called out is the Port Act does not apply to public utilities operated under the jurisdiction of the Public

Utilities Commission of California.


Page 63

Port of San Diego

History

The San Diego Unified Port District was created December 18, 1962 after the California State legislature

passed Senate Bill 41 and the San Diego County Board of Supervisors certified it. The citizens, in 1964,

approved a $10.9 million bond for capital improvements. Improvements included the development of a

new air terminal, preparation for Harbor Island to be leased, and construction of a new cargo terminal in

National City. In 1970, the first cruise ship to offer scheduled cruises out of San Diego, since the creation

of the Port, began making 10-day trips to Mexico. In 1980, the Port in an effort to improve the ecological

balance of the Bay completed a wildlife refuge in Chula Vista. In 1983, The San Diego Cruise Industry

Consortium was formed to promote San Diego as a cruise destination and homeport. Three years later, the

B Street Pier Cruise Ship Terminal was officially dedicated and over 26,000 passengers embarked at the

terminal. In 1989, the $165 million, waterfront San Diego Convention Center opened. In 1990, the Pasha

Group began importing vehicles (Isuzus) at the National City Marine Terminal. A total of 15,589 vehicle

units were imported the first year. Pasha now imports over 400,000 vehicles annually. In 1993, the Port

and Tenth Avenue Cold Storage Company celebrated the grand opening of San Diego's first on-dock cold

storage facility, built for $11 million, at the Tenth Avenue Marine Terminal. In 2001, the Board of Port

Commissioners announced a major 20-year lease with Dole Food Company. This signified the Port's

entry into the refrigerated containerized cargo market. Dole ships 1.8 billion pounds of bananas annually.


Page 64

Board of Port Commissioners

The Board of Port Commissioners serves as the policy making body of the Port and gives overall

direction to the Port’s operational and administrative staffs in accordance with the interests of the overall


Page 65

district and each city. The commissioners serve without compensation and appointed to four-year terms

by their respective city councils of the cities included in the Port District - San Diego, National City,

Chula Vista, Imperial Beach, and Coronado. The commissioners, representative of the cities, are selected

in an appointive process conducted in a public forum, involving public hearings and citizen participation.

Commissioners are representative of the positions the city councils select in appointment. The

commissioner reports back to their respective city councils and the commissioner reports are scheduled at

the public meetings of the city councils. These meetings with local officials and citizens provide

opportunities for communication to be integrated into Port programs by the commissioners.

The Board of Port Commissioners conducts regularly scheduled public meetings to conduct Port District

business. Public testimony is accepted on specific items at the time the item is considered by the board.

When the Board of Port Commissioners determines a public hearing is required on a particular project or

matter, public notice of the meeting is placed in a newspaper of local circulation and notices are mailed to

known interested parties. Minutes of the Board of Port Commissioners' meetings provide a public record

of discussions, staff reports and actions taken. Minutes are made available to the interested public and

agencies upon request.

Port of San Diego Real Estate Department

Real estate is one of the strategic activity areas of the Port of San Diego. The Port of San Diego collects

rents from many hotels, restaurants, parking facilities, yacht clubs, and other tenants. around the San

Diego Bay. The Port currently administers approximately 600 separate tenancy agreements. As noted in

the Port’s annual report, revenue from real estate assets and developments, primarily building and ground

rents and concession fees, was approximately $71 million (57.4% of total revenues) in fiscal year 2010.

The Real Estate Department of the Port provides development and asset management services for the

Port’s Tideland Trust properties. The Real Estate Department’s responsibilities include partnering with


Page 66

the district’s member cities and stakeholders in the negotiation and planning of major real estate

development projects, project management, property acquisitions, appraisal preparation, feasibility

studies, lease negotiations, rent reviews, conducting ongoing market analysis, marketing available

properties, plan reviews of proposed tenant development projects, and administering and enforcing

tenancy documents and other types of agreements. The Real Estate Department also produces lease plats

and legal descriptions for all Port tidelands parcels and maintains detailed records of tenant project

improvements and utility easements.

Ground Rent / Leases

The subject parcels are owned by the Port of San Diego and as such, the Port controls all of the

entitlements pertaining to the use and improvements. Given the Port has ownership of the tidelands on the

San Diego coastline, the Port leases the parcels to tenants through long term ground leases. The ground

lease payment has a minimum rent component and percentage rent based on varying fee structures on

various revenue streams.

Port negotiates ground leases for hotels for a term of 50 to 66 years in duration depending upon type of

construction. The subject property would qualify for a 66 year lease due to its steel construction. The

Port’s ground rent is calculated by applying the corresponding rent percentages to the appropriate revenue

streams of the hotel and remitted monthly. There is also a minimum rent component that is an average of

the last three years total percentage rent payment. This provides a more predictable rent stream for the

Port as the hotel industry is significantly impacted by the economic cycles in Gross Domestic Product and

the U.S. financial markets. The minimum rent is re-calculated at defined cyclical rent resets as negotiated

in the ground lease during the lease term. The typically reset happens every 10 years in most leases.

The table below outlines the ground rent percentages and applied to the subject property from the Port’s

current standard lease language as approved by the Board of Commissioners:


Page 67

Revenue Stream Percentage

Gross income from rental of guest rooms, rental of in-room movies, sale of similar in-room entertainment services, charges for room service delivery, sale of telephone services, sale of laundry and dry-cleaning services and gross income from rental of conference and banquet rooms and sale of related merchandise and services provided to conference and banquet room users

7%

Gross income from sale of food from full-service restaurants and gross income from sale of food from limited-service restaurants, snack bars, and delicatessens

3%

Gross income from sale of alcoholic and nonalcoholic beverages for consumption on the Leased Premises (3% for off premises)

5%

Gross income from sale of merchandise including, but not limited to, gifts, novelties, souvenirs, clothing, luggage, jewelry, cigars, cigarettes, candy, sundries, and incidentals of any kind

5%

Gross income from any admission, cover, or other entertainment charges 5%

Gross income from rental of bicycles and other recreational equipment, and rental of recreational facilities

10%

Gross income from sale of parking services or rental of parking spaces 10%

Gross rental from any and all telecommunications equipment or space for telecommunications equipment, which shall include, but are not limited to, rooftop wireless antennas, antennas attached to a building façade, microwave antennas, and paging antennas

50%

Gross income from any and all activities, operations, and enterprises permitted under the terms of the Lease and not otherwise addressed within the foregoing provisions

10%

Ground rent is marked to market every ten years within the lease when the Port compares its rent to the

market rent of similar ground rents in the immediate area and other Ports in the U.S. The Port then

decides to raise or lower percentage rents charged to tenants. There is an arbitration clause in the Port’s

standard lease whereby tenants can dispute ground rent costs. This clause keeps the Port and its tenant

honest in its assessment of the then current ground rent.


Page 68

Entitlements

Request for Proposal

Under its leasing policy, if the Port receives an unsolicited business opportunity (i.e. the subject project),

the Port staff can request from the Board of Commissioners authorization to enter into an exclusive

negotiating agreement or initiate a public RFP process. The subject parcels have remained vacant since

the establishment of the Port Act. As noted in an interview with the Port’s Asset Manager, the Port would

like to see improvements made to the site as it is a gateway to the airport and Harbor Island. Given the

desire to develop the site, it is assumed exclusive negotiations could be obtained without an RFP process.

Mitigated Negative Declaration

Once a development is selected through the Port’s process it may be entitled through a mitigated negative

declaration if the development is determined to be trivial and not worth including in the Port’s Master

Plan. The process is administered by the Port staff to determine if the development is cohesive with the

intent of the Port Master Plan and if any environmental concerns are appropriately addressed. As this

process is reviewed in a public hearing, the public can oppose the development. This also allows the

California Coastal Commission the opportunity to validate a Port Master Plan Amendment is not needed.

These projects are typically less robust than a full new development or large adaptive reuse projects.

Typically new development or large adaptive reuse projects require a Port Master Plan Amendment to

insure the project is fully vetted in a public forum. As a result, a full Environmental Impact Report (EIR)

must be completed to validate all elements of the California Environmental Quality Act have been

addressed.

Port Master Plan

The Port Master Plan is intended to provide the official planning policies, consistent with a general

statewide purpose, for the physical development of the tide and submerged lands conveyed to the San

Diego Unified Port District. The planning policies are expressed graphically on the official master plan


Page 69

and precise plan maps and in written form in the plan. The Port Master Plan is submitted to the California

Coastal Commission for review and certification as to conformance with the Port Act. After plan

certification, either in its entirety or in part, coastal development permit authority for projects occurring

within the San Diego Port District's jurisdiction resides with the Board of Port Commissioners. For those

portions of the plan not certified, the uncertified areas will remain under the permit authority of the

California Coastal Commission.

Port Master Plans are to be prepared and adopted by the Port governing body. San Diego county and the

Port member cities are to incorporate the certified Port Master Plan into their local coastal programs. Port

Master Plans are to contain the following plan elements: 1) land and water use; 2) port facilities; 3)

environmental inventory, impact analysis and mitigation; 4) a listing of appealable projects; and 5)

provision for public hearings and public participation in port planning and development decisions. The

Port District, due to its basic purpose and organizational structure as a special district, utilizes

governmental processes and hearings, and citizen participation in a slightly different manner than the

more familiar general purpose form of government, such as a city or county. If the project is appealed by

anyone, final review of the project is returned to the California Coastal Commission.

Land Use Objectives

As defined in the Port Master Plan, each commercial area on Port Tidelands should have:

• Convenient access from major arterials or transportation terminals and ample on-site parking for

patrons.

• A unifying design theme enhancing the overall aesthetical qualities of the site and insuring

compatible land and water uses benefiting the unique aspect of commercial activities at bayside

locations.


Page 70

• A minimization of the competitive hardship to existing or potential business in the general

vicinity.

• A clustering of commercial activities enhancing cumulative attraction wherein complementary

and similar units have high incidence of customer interchange and draw more business by being

together.

Commercial Recreation Land Use

Within the Port Master Plan, land use demand forecasts have established a basis for anticipating

continued demand for commercial recreational type facilities due to trends drawn from the convergence

of numerous factors, of which the most significant are expendable income, paid holidays, leisure time,

population, education, travel habits, and new modes of transportation. It seems likely that activities

associated with water-based pursuits will continue to be among the most popular. The trends are almost

certain to have considerable repercussions on the full activities associated with commercial recreation

contribute to the economic base of the region with full-time jobs, secondary employment for part time

help, and spin-off employment opportunities in construction, warehousing, trucking, custodial, and

personal services. It is the intent of the master plan to create attractive destinations in carefully selected

locations around the bay to serve the needs of recreationalists for lodging, food, transportation services,

and entertainment. Site amenities are to be enhanced and over-commercialization is to be avoided by the

balanced development of commercial and public recreational facilities. The subject development parcels

are currently titled as open space with no use identified. During conversations with the Port Asset

Manager it is anticipated that the parcel will be planned commercial recreation given the adjacent uses.

The Port’s desire is to develop lodging and meeting facility services on the subject site.

Hotels and restaurants located on San Diego Bay cater to markets involving leisure recreation, tourism,

business travel and specialized conference facilities accommodating conventions, training, seminars and


Page 71

meetings. Hotels constitute a significant part of the San Diego recreation industry and, as generators of

ancillary business such as restaurants and specialty shops, have an important influence on land use. Uses

typically associated with hotels, frequently in the same building or on the same site, include lodging;

coffee shop; cocktail lounge and restaurant; specialty shops for gifts, sundries, cigarettes, candy, liquor,

clothing and sporting goods; tourist information and travel services; auto service station; personal services

such as dry cleaning, barber and beauty shop; convention, banquet and conference rooms; and

recreational facilities such as swimming pools, cabanas, game rooms, tennis courts, putting green, boat

and bicycle rental or charter, and theatrical entertainment. In addition to the manmade structures and

organized sports facilities, hotel locations on the bay feature waterfront locations with easy access to

beaches, scuba diving and snorkeling, deep sea fishing, sailing, water skiing, boat rides, and "whale

watching" during the whale migration season. New hotel locations are allocated in Planning District 2

where the subject site resides.

Specialty shopping involves the planned assembly of stores, frequently operating within a unified

building complex, designed to give patrons a varied selection of retail goods, personal services, and

entertainment facilities. Activities typically found in specialty shopping areas include restaurants and the

retail sale of ice cream, dessert items, beverages and sandwiches; artisan activities associated with the

production and sale of hand-crafted gift items, and original works of art; professional office space; retail

shops handling gifts, novelties, clothing, jewelry, and home furnishings; wholesale and retail fish sales,

fish and seafood processing, and unloading docks for vessels and trucks. Characteristic of shopping

centers, the specialty shopping developments allocated on tidelands are usually managed and operated as

a unit. Shopping areas will feature a major open space format, separate pedestrian traffic from vehicular

movement by emphasizing pedestrian mall and plaza developments improved with landscaping, sitting

areas, fountains and sculpture. Specialty shopping areas are allocated in Precise Plans for Planning

Districts 3 and 6. The port Master Plan does not call out for Specialty Shopping in Planning District 2


Page 72

where the subject site is located. More than likely, requesting specific entitlements for retail operations

would meet with opposition thereby extending the entitlement process.

Harbor Island - Planning District 2

Planning District 2 embraces two different activities (1) the transportation hub of San Diego International

Airport (Lindbergh Field) with its ancillary commercial and industrial activities, and (2) Harbor Island

with its public parks and commercial tourist orientation. Each serves an important function in the regional

economy and, in some ways, they are associated together. Both have been intensely developed and are

recognized as being stabilized for the future envisioned in the Master Plan.

The Harbor Island/Lindbergh Field Planning District contains approximately 996 acres, consisting of

about 816 acres of tidelands and 180 acres of submerged tidelands. A significant portion of the area is

already developed and is under long term lease commitment. The east end of the Harbor Island peninsula

is vacant and thus offers development potential uncomplicated by the presence of structures or lease

interest. A balanced allocation of use activities is provided within the major use categories of commercial,

industrial, public recreation, and public facilities. The subject parcel is one of the vacant lots located in

Planning District 2.

Large projects, such as the subject development project, will require an amendment to the Port Master

Plan to allow for a consistent and balanced development plan on tidelands. The amendment must be

approved through the California Coastal Commission and in order to adequately evaluate the

development. As a result, the California Coastal Commission will require an Environmental Impact

Report that fully analyzes compliance with the California Environmental Quality Act.

California Environmental Quality Act The California Environmental Quality Act (CEQA) of 1970 established the requirement that all but trivial

development projects undertaken by public or private parties are to be evaluated and reported upon as to

the environmental effects. The Act sets out guidelines for the environmental impact evaluation which

calls for a description of the proposed project and the environmental setting, an environmental analysis


Page 73

indicating impact and mitigation measures, alternative to the project, a description of irreversible

environmental changes, growth inducing impacts, a listing of agencies and individuals consulted in the

preparation of the report, and a public review of the draft Environmental Impact Report (EIR). The basic

process involved in processing plans and projects through the provision established in the California

Environmental Quality Act involves significant opportunities for public agency and citizen participation,

a lengthy period of review, and public hearings. Before taking action on a project, the responsible public

agency having jurisdiction over the area in which the project is located is required to certify the EIR as an

accurate statement of environmental circumstances and implications.

It is important to note, CEQA does not directly regulate land uses, but instead requires state and local

agencies within California to follow a protocol of analysis and public disclosure of environmental impacts

of proposed projects and adopt all feasible measures to mitigate those impacts. Because CEQA makes

environmental protection a mandatory part of every California state and local agency's decision making

process, it has become a model for environmental protection laws in other states. It has also become the

basis for numerous lawsuits concerning public and private projects.

Environmental Impact Report

An Environmental Impact Report (EIR) provides a review and analysis of the potential environmental

impacts resulting from implementation of the proposed project development and Port Master Plan

Amendments. As defined in the CEQA, public agencies are charged with the duty to avoid or

substantially lessen significant environmental effects, with consideration of other conditions, including

economic, social, technological, legal, and other benefits. As required by the CEQA, an EIR assesses the

potentially significant direct and indirect environmental effects of the proposed project as well as the

potentially significant cumulative impacts that could occur from implementation of the project.


Page 74

An EIR is an informational document, the purpose of which is to identify the potentially significant

effects of the project on the environment and to indicate the manner in which those significant effects can

be avoided or significantly lessened, including feasible mitigation measures; to identify any significant

and unavoidable adverse impacts that cannot be mitigated to below a less than significant level; and to

identify reasonable alternatives to the project that would avoid or substantially reduce significant adverse

environmental effects associated with the proposed project and achieve the project’s fundamental

objectives.

The EIR does not control the way in which a project can be developed or constructed; rather, the

governmental agency must respond to the information contained in the EIR by one of more of the seven

methods outlined below:

1. Changing a proposed project;

2. Imposing conditions on the approval of the project;

3. Adopting plans or ordinances to control a broader class of projects to avoid the adverse

changes;

4. Choosing an alternative way to meet the same need;

5. Disapproving the project;

6. Finding that changing or altering the project is not feasible;

7. Finding that the unavoidable significant environmental damage is acceptable.

The Final EIR is an informational document only. The Final EIR will be used by the Board of Port

Commissioners and San Diego Port staff as an informational document for the proposed project. The

Final EIR is anticipated to cover the following discretionary actions:

• Port Master Plan Amendment (PMPA) adoption by the District

• Project concept approval by the Port

• Coastal Development Permit (CDP) from the Port


Page 75

In addition, other agencies may use the information contained in this EIR when considering issuance or

authorization of the requisite permits for construction of the proposed project. Agencies expected to use

the EIR in their decision-making process include but are not limited to the following:

• PMPA certification by the California Coastal Commission

• General Construction Permit from the State Water Resources Control Board

• Building Permit from the City of San Diego

California Coastal Commission The California Coastal Commission was established by voter initiative in 1972 and later made permanent

by the legislature through adoption of the California Coastal Act of 1976. The Coastal Commission, in

partnership with coastal cities and counties, plans and regulates the use of land and water in the coastal

zone. Development activities, which are broadly defined by the Coastal Act to include construction of

buildings, divisions of land, and activities that change the intensity of use of land or public access to

coastal waters, generally require a coastal permit from either the Coastal Commission or the local

governing body (i.e. Port of San Diego).

Coastal Act

The Coastal Act includes specific policies that

address issues such as shoreline public access and

recreation, lower cost visitor accommodations,

terrestrial and marine habitat protection, visual

resources, landform alteration, agricultural lands,

commercial fisheries, industrial uses, water

quality, offshore oil and gas development,

transportation, development design, power plants,

ports, and public works. The policies of the

Coastal Act constitute the statutory standards


Page 76

applied to planning and regulatory decisions made by the Coastal Commission and by local governments,

pursuant to the Coastal Act. The Coastal Commission is an independent, quasi-judicial state agency. It is

composed of twelve voting members, appointed equally (four each) by the Governor, the Senate Rules

Committee, and the Speaker of the Assembly. The coastal zone, which was specifically mapped by the

Legislature, covers an area larger than the State of Rhode Island. On land the coastal zone varies in width

from several hundred feet in highly urbanized areas up to five miles in certain rural areas, and offshore

the coastal zone includes a three-mile-wide band of ocean.

California's coastal management program is carried out through a partnership between state and local

governments. Implementation of Coastal Act policies is accomplished primarily through the preparation

of local coastal programs that are required to be completed by each of the 15 counties and 60 cities

located in whole or in part in the coastal zone. Completed local coastal programs must be submitted to the

Coastal Commission for review and approval. A local coastal program includes a land use plan (i.e. Port

Master Plan) which may be the relevant portion of the local general plan, including any maps necessary to

administer it, and the zoning ordinances, zoning district maps, and other legal instruments necessary to

implement the land use plan. Coastal Act policies are the standards by which the Coastal Commission

evaluates the adequacy of local coastal programs. Amendments to certified land use plan (i.e. Port Master

Plan Amendment) and local coastal programs only become effective after approval by the Coastal

Commission. To ensure that coastal resources are effectively protected in light of changing

circumstances, such as new information and changing development pressures and impacts, the Coastal

Commission is required to review each certified local coastal programs (i.e. Port Master Plan) at least

once every five years.

Coastal Development Permit

Development within the coastal zone may not commence until a coastal development permit has been

issued by either the Coastal Commission or a local government (i.e. Port) that has a certified local coastal


Page 77

program. After certification of a local coastal program, coastal development permit authority is delegated

to the appropriate local government, but the Coastal Commission retains original permit jurisdiction over

certain specified lands (such as tidelands). The Commission also has appellate authority over

development approved by local governments in specified geographic areas as well as certain other

developments. The Coastal Commission reviews and acts on port master plans and amendments to them

from the industrial ports of Hueneme, Los Angeles, Long Beach, and San Diego. Commission approval is

necessary to allow port expansions to meet future growth needs.

Public Art

The Port started its public art initiatives in the early 1980s, primarily as means

of supporting its goals of community service and economic development with

attracting visitors to the tidelands, and enhancing and enriching people’s

experience. The Public Art Department was created in 1996, and the Port’s

public art initiative as extended to include tenant improvements in 2002.

Today, the Port counts some 100 Artworks in its tidelands Collection, along

with numerous tenant artworks and artworks on display in exhibitions.

The Public Art Department has several core responsibilities. It manages new acquisitions and exhibitions

funded from the Public Art Fund, as well as Artworks commissioned in conjunction with Port capital

development projects, which are funded directly from the capital budget. It helps to facilitate the

Artworks that Tenants commission in conjunction with their leasehold improvements, and to manage the

process of evaluating proposals for donations of artworks.

The Public Art Department receives a $1.2 million annual allocation to the Public Art Fund from the

Port’s operating budget (2010). In addition to public art acquisitions and exhibitions, the funding also

covers personnel, operations and collections management, including conservation and maintenance. The


Page 78

fund can accumulate money over time. Through the percent for art program, both Port capital

development projects and many tenant leasehold improvement projects are also required to set aside one

percent of their construction budgets for public art. The funding from these projects is separate from the

Public Art Fund. The Public Art Fund can be used to supplement the budget for Port capital development

program. Additionally, tenants can elect to contribute money to the fund instead of acquiring artworks on

their own. As was the case with previous hotel developments, the façade design can also be classified as

public art and used to satisfy the one percent requirement.

Proffers

There are several costs the subject project will be subjected in receiving approval. The current fire station

monitoring this parcel and project is currently undersized. As a condition for approval, the project will

need to donate funds to the expansion of the station. While this request has a large probability, it is only

an assumption as it was required for the new build Sunroad hotel project recently approved on Harbor

Island. Additionally, the Public Art Department will require 1% of construction costs to either be donated

to the department or spent on the project in advancing public artworks in San Diego. Finally, a

contribution to the citywide housing impact fee is assessed at $0.64 per square foot on any new hotel

development.

Ground Rent Abatement

In contrast to the proffers above, the project can receive rent abatement from the Port for any construction

related to the public facilities. This could represent enlarging the park next door through contribution of

excess land from the project or rerouting Harbor Island Drive along with relocating the sole stop light for

better circulation. There are many options but each would need to be evaluated based on economics,

goodwill within in the Port and city of San Diego and potential reduced processing time of entitlements.


Page 79

Revenue Taxes / Fees Transient Occupancy Tax is levied at 10.5% on lodging rooms revenue and passed onto guests of each

hotel. The tax is collected by the San Diego city treasurer and deposited for use in the city’s general fund.

Tourism Marketing District (TMD) assessment is levied at 2% of lodging revenue and is levied solely

upon lodging businesses with seventy (70) or more sleeping rooms. The costs are also passed onto guests

of each hotel and are collected by the San Diego city treasurer. Revenue generated by the TMD will be

used to promote tourism in San Diego. The funds are administered by a board of hotel representatives.

Future Revenue Fees

Proposed Convention Center Facilities District assessment is levied at 1-3% on hotels within the

Convention Center Facilities District. The resolution was passed January 24, 2012 at a city council

special hearing and the funds will be used to fund the payment of the bonds issued to expand the current

convention center. Principal amount of the debt of the project is not to exceed $575 million. Upon

retirement of the bonds the fees will no longer be collected. The subject property will reside in the zone

where 2% will be assessed on room revenue and also passed onto guests of the hotel as the specified rate

based on which zone the hotel resides.

Real Estate Property Taxes

Possessory Interest

Even though the subject parcel is leased from a tax exempt entity (the Port), for ad valorem tax

purposes, it will be valued and taxed under the possessory interest rules of the California

property tax code. These rules can be arcane and confusing, but the result at the end of the day is

that the parcel will be assessed and taxed at essentially a market value. To determine an

appropriate value on which to base property tax projections, the land value of the adjacent parcel,

Sheraton San Diego, (also leased from the port, also supporting a hotel, and recently re-assessed)

is instructive. The tax assumption in the pro forma was derived from this estimate.


Page 80

California Proposition 13

Proposition 13 (Prop 13) initiated sweeping changes to the California property tax system. Prop 13

capped, with limited exceptions, ad valorem property tax rates at one percent of full cash value at the time

of acquisition. Prior to Proposition 13, local jurisdictions independently established their tax rates and the

total property tax rate was the composite of the individual rates, with few limitations. Prop 13 rolled back

property values for tax purposes to their 1976 level. It gave state lawmakers responsibility for allocating

property tax revenues among local jurisdictions. Prior to Prop 13, jurisdictions established their tax rates

independently and property tax revenues depended solely on the rate levied and the assessed value of the

land within the agency’s boundaries. Prop 13 replaced the practice of annually reassessing property at

market value with a system based on cost at acquisition. Prior to Prop 13, if real estate sold for higher

prices, neighboring properties might have been reassessed based on the newly increased area values,

under Prop 13, the property is assessed for tax purposes only when it changes ownership. As long as the

property is not sold, future increases in assessed value are limited to an annual inflation factor of no more

than 2%. However, to remain conservative the real estate tax assumption in the pro forma is inflated at

3% inflation.


Page 81

CEQA and Coastal Commission Flow Chart

Port Master Plan Amendment (PMPA) and Coastal Development Permit (CDP)

Port sends out Notice of Preparation of EIR

Port prepares Draft EIR and processes PMPA

Draft EIR public review period (45 days)

Port prepares Final EIR (responses to comments on Draft EIR)

Port files Notice of Determination with County Clerk (within 5 days) and submits PMPA to CCC

Port Commission certifies EIR/adopts findings/processes proposed PMPA

California Coastal Commission review of PMPA Opponents have 30 days to file suit (see Litigation Flow Chart)

Port processes Coastal Development Permit (CDP)

PMPA Denial

Port Commission approves CDP and has 7 days to notify CCC

CCC receives Notice of Local Decision (10 days to appeal CDP)

No substantial issue found (Port decision final)

CDP appealed to CCC

CCC Substantial Issue Hearing (typically waived by the Port)

No appeal (Port decision final)

Substantial Issue found

Independent CEQA review and possible information requests (geology, biology, etc)

PMPA Approval

Return to Port for PMPA revisions

Opponents have 60 days to file suit (see Litigation Flow Chart)

CCC files Notice of Approval w/Resource Agencies

Opponents have 30 days to file suit (see Litigation Flow Chart)

Environmental Impact Report

Port Master Plan Amendment

Coastal Development

Permit

Coastal Development

Appeal

Coastal Development

Permit

De Novo

CCC De Novo Hearing on CDP

CDP Denial CDP Approval

Return to CCC for revisions or file suit challenging denial

Opponents have 60 days to file suit


Page 82

CEQA and Coastal Commission Litigation Flow Chart

Opponent files and serves petition/complaint within 30 days of the CEQA notice and within 60 days of the CCC action.

Agency certifies administrative record (2 – 6 months)

Applicant files answer to petition/complaint and requests hearing date (1 month)

Briefing completed (3 – 6 months)

Court hears oral argument (1 – 3 months)

Court issues Notice of Entry of Judgment (0 – 2 months)

Court issues decision (0 – 2 months)

Losing party (petitioner) may file Notice of Appeal with Court of Appeal (1 – 2 months)

Petitioner files reply brief (1 month)

Court hears oral argument (1 – 3 months)

Court issues decision (0 – 3 months)

Losing party appeals to California Supreme Court

No appeal (Court of Appeal decision final)

Respondent files opposition brief (1 – 2 months)

Petitioner files opening brief with appeal appendix

Trial Court*

8 – 21 months


Page 83

Site Planning and Building Design

The Site Located on Harbor Island in downtown San Diego at 32° 43.7´ North Latitude and 117° 11.8´ West

Longitude, the site has remained vacant since enacting the Port Act in 1962. The site is relatively level

with no improvements and minimal landscaping. Site work to prep for development would be relatively

simple without complex removal of prior improvements or balancing the site itself. The site is irregular

shaped but somewhat triangular. It consists of two parcels with 5.22 acres in total which is approximately

227,000 square feet. The site ranges from 13 to 15 feet above sea level with dramatic views of the San

Diego Bay and Coronado Island. The land falls under tidelands and is owned by the Port of San Diego.

In order to gain sole dominion of the property and zoning approval, a long term ground lease of 66 years

would need to be negotiated with the Port and added to the Port’s master plan and then approved by the

California Coastal Commission through respective public processes. (See the land use section of this

paper for more detail on the process)

Access

Entrance to the site would be from Harbor Island Drive as North Harbor Drive is too dense given the

current traffic from the airport on the North side of the road. The site would both ingress and egress from

Harbor Island Drive and will allow for ample circulation for the site. Additionally, the center median on

Harbor Island Drive would need to be cut to allow vehicular traffic to turn left when exiting from the site.

Appropriate fire lanes required by code will be included in the site plan.

Utilities

All needed utilities to the site are at curb side of both Harbor Island Drive as well as North Harbor Drive.

The utilities currently serve the adjacent Sheraton San Diego Hotel and all have capacity to handle the

additional demand generated by the subject hotel. Utilities are provided by the following vendors:


Page 84

Given the high cost of utilities and the large growth in utility cost over the past few years in the San

Diego market, there may be an opportunity to install Co-Generation plants to reduce energy costs and

potentially sell power back to the electric grid for further cost reduction. This option appears to be

feasible given the excess land on the site. The energy project will be underwritten after opening but

appropriate connections to building will be pre-wired/cut for ease and simplicity of installation.

Currently, California utility companies are providing rebates making these projects more economically

viable.

Site Plans

The site plans below represent the two parcels to assemble for the project. Parcel # 007-003 is currently

under a temporary use permit with Hertz rental cars. Hertz will typically use the site to park additional

cars needed for large conventions such as Comic-Con. Parcel # 007-041 is currently under a temporary

use permit for Sheraton San Diego to allow additional parking to their leasehold. This allows for ample

parking with large groups and catered events in the hotel. Collectively the two parcels totaling 5.22 acres

and according to the Port of San Diego can be assembled easily as the temporary use permits can be

closed in a matter of weeks before the start of construction.

Utility Company Name Payment Address

Sewage and Water The City Of San Diego Water & Wastewater Services

City Treasurer, Water Department, San Diego, CA 92187-0001

Television Lodgenet Interactive Corporation PO Box 952141, Saint Louis, MO 63195-2141

Phone AT&T PO Box 5019, Carol Stream, IL 60197-5019

Internet Black Box Network Services PO Box 86, Minneapolis, MN 55486-3079

Gas San Diego Gas & Electric, a division of Sempra Energy

PO Box 25111, Santa Ana, CA 92799-5111

Electricity San Diego Gas & Electric, a division of Sempra Energy

PO Box 25111, Santa Ana, CA 92799-5111


Page 85


Page 86


Page 87

Views from the Site

Facing North

Facing South


Page 88

Facing East

Facing West


Page 89

ALOFT SAN DIEGO FACILITIES PROGRAM

GUEST ROOMSKeys

Kings 74Double / Doubles 43ADA Kings 13ADA Double / Double 6

Total 136

FOOD & BEVERAGEOutlet/ Concept SFRestaurant/ Lounge (WXYZl) 3,216 Re-Fuel 900

Total 4,116 SF

FUNCTION SPACEType/ Divisions Rooms SFMeeting Rooms 1 850 Subtotal: Net Meeting Space 850 SF

OTHER AMENITIES / REVENUE SOURCES SFPool Yes IndoorFitness Center Yes 700

Project Description The proposed project involves the development of leasehold currently owned by the Port of San Diego

with no improvements on the site. The project will include a five story 136 room hotel with a total floor

area of approximately 68,740 square feet equating to a floor area ratio of approximately 0.30. The FAR

ratio is consistent with adjacent uses and other improvements on Harbor Island and provides more open

space on the parcels relative to other sites. The overall building length will be 240' and overall building

width 110'. The building will be 75 feet tall in total which in under the anticipated maximum allowable

height of 155 feet above mean sea level estimated to be required by the Federal Aviation Administration

given the proximity to the airport. Architectural elements and fenestrations may cause the maximum

building height to reach 95 feet in order to accommodate features such as a flag pole.

The ground floor will contain all amenities and

common area space along with 12 guest rooms

totaling 16,171sf. The remaining four floor

plates above are similar in size and configuration

at 13,309 sf with 31 guest rooms on each floor.

All guest room corridors will be double loaded

and the building will be L-shaped with the void

area occupied by the indoor pool on the ground

level. The room mix will consist of 74 king bed

rooms and 43 double occupancy queen bed

rooms. In addition, 13 king rooms and six queen rooms will be outfitted with enhancements to comply

with the updated 2010 Americans with Disabilities Act. The project will include a fitness center, food

and beverage operation, a pool and meeting space. The operation in total will employ 35-40 full time

hotel employees.


Page 90

Construction will adhere to all building codes with the applicable state amendments as it relates to fire

and life safety, mechanical, plumbing and electric. The 2010 ADA Standards for Accessible Design will

also be followed to provide the required path of travel. Fire protection will include automatic sprinkler

system- NFPA 13, with standpipes and an automatic fire alarm system. Building will fall within Type II-

B and contain the appropriate rated fire components and meet or exceed the current standard required by

code.

The design allows for maximum use of a minimum footprint

with an efficient layout and the use of building materials

translating into cost efficiency. The hotel’s mid-rise

classification allows for a smaller lot size while maintaining

setback and green-space compliance as dictated by the Port.

The design is flexible and changes can also be adapted to meet specific site and market constraints or

requirements.

Open Areas, Promenade, and Landscaping

The portion of the promenade located north of the Project site (along the North Harbor Drive) will not be

altered as a part of the proposed project. Harbor Island Drive will be altered by cutting the median to

allow vehicular traffic to exit left from the site. The project proposes enhanced public access within

Harbor Island and will include a pedestrian promenade around the site and connecting to the current

pedestrian path via easement along the Southeast portion of the site. The promenade will connect the

current promenade that runs along North Harbor Drive. Pedestrian access would be available adjacent to

the hotel building to provide access to Harbor Island Drive and its promenade. Additionally, pedestrian

access to the hotel will be available from all sides of the parcel via the pedestrian paths currently in place.


Page 91

Additional public access enhancements include landscaping, benches, and signage adjacent to the

pathways identifying the promenade as open to the public. A detailed landscape plan would be prepared

for review and approval of the Port prior to construction of the hotel. Certain mature and scenic trees

would be incorporated into the exterior design of the hotel and common areas.

Easement

There are the typical utility easements on the site, however, no plan currently exists and therefore, soil

borings will need to be done in order to adequately locate the utilities. In addition, there is an existing

public sidewalk that lies inside the property line and will need to be maintained by the future leaseholder.

The easement will not impact planning of the site layout in any way.

Parking

The Port of Sand Diego has established Tidelands Parking Guidelines (adopted December 12, 2000) to

provide ample parking based on surveys conducted by the Port. These guidelines cover all of the

tidelands including Harbor Island. The requirements for Harbor Island are outlined in the table below and

require, at a minimum, 113 parking spaces.

A total of 136 parking spaces for hotel use will be provided on surface lots around the structure itself to

accommodate hotel guests. Additional public parking in the vicinity of the site is located on the southern

side of Harbor Island Drive.

Port of San Diego Parking Requirements

Land Use UnitHarbor Island Requirement

Proposed Hotel

Spaces Required

Hotel room 0.6 136 82Hotel Restaurant seat 0.12 118 14

Hotel Restaurant & Kitchen ksf 8.0 2,000 16Hotel Conference Space ksf 1.2 530 1

Hotel Dock Slip berth 0.4 ‐ 0Hotel Retail ksf 2.5 ‐ 0

Total Spaces Required 113


Page 92

Public Art

As required by the Port of San Diego, the project will include one percent of its construction costs as

public art. A portion of this will include the façade of the building itself as it reflects architectural

appointments that can be defined as public art according to the Port. In addition, throughout the exterior

additional outdoor sculpture will be placed and also be classified as public art. It is important to note that

public art must allow public viewing at all times, therefore interior finishes and sculptures will not be

classified as public art as to not allow 24 hour access to the public not staying as guest of the hotel.

Sustainability

The hotel will be designed for a lowered environmental impact. Outdoor landscaping will be designed to

give a fresh, green image on the outside of the hotel. The interior design will use natural wood treatments

and materials such as cork to reduce negative effects on the environment. Guest rooms have soap

dispensers in the shower instead of bottles, and the option to keep towels for multiple uses. Parking spots

are designated specifically for hybrid vehicles, encouraging guests to make environmentally responsible

choices.


Page 93

Project Elevations and Sections Front Elevation

Rear Elevation


Page 94

Side Elevations


Page 95

Building Sections


Page 96

First Floor / Lobby / Meeting Space / Pool Layout

Typical Floor Plate (Floors 2 – 5)


Page 97

Floor MatrixKing

Rooms

Queen / Queen Rooms

King ADA Rooms

Queen / Queen ADA

RoomsTotal

Rooms Area5 19 10 1 1 31 13,309 SF4 17 10 3 1 31 13,309 SF3 16 9 4 2 31 13,309 SF2 16 9 4 2 31 13,309 SFG 6 5 1 0 12 16,171 SF

Total 74 43 13 6 136 69,407 SF

Typical Guest Room

King Room Layout Double Queen Room Layout

King rooms bay size will be 15’0” x 18’19” and queen rooms will be 17'-7" X 18'-9". Guest rooms will

be configured with a ratio of approximately 65% king beds and 35% double queen beds. The relationship

will appeal to business travelers, group customers and leisure guests with families. The matrix below lays

out the number of rooms on each floor. The design will permit connecting rooms for multiple guests to

circulate better between the two rooms.


Page 98

Typical King Room Typical King Bathroom

Technology

Technology has changed how hotel guests conduct

business and how they travel. Travelers want easy to

use, intuitive self service technology. The hotel will

integrate state of the art technologies to help travelers

stay connected in every space, all the time.

Starwood Hotels has developed proprietary software

which all Aloft hotels will run as the base infrastructure.

Each of these systems are integrated to provide the tools

necessary to run the hotel efficiently:

Galaxy Lightspeed – the property management system provides the backbone of the system for

the other property software to run through.

Starguest Response – web-based, property level workflow management tool allowing the

property to record, measure and resolve guest requests and issues.

Central Reservations System (CRS) –integrated with the property management system the CRS is

where all reservations flow directly to Galaxy Lightspeed.


Page 99

Point of Sale – retail, food and beverage and meeting space operations are linked to Galaxy

Lightspeed to assure accurate and timely billing of charges.

The hotel will also commit to making the guest experience as easy and productive as possible giving

guests the freedom to customize how they do business on the road.

Touch & Go (Kiosk) – the fastest and most efficient way to get to the room. Guests have the

ability to swipe their credit card, choose their exact room with a mapping feature, confirm their

rate and get their room keys all with touch screen technology.

In Touch (Business Center) – two stations are included for the guests to conduct business with

printing, downloading and email access while staying at the hotel.

Wireless HSIA –The hotel is fully wireless to allow guests easy access to the web anytime. The

hotel is fully wireless throughout the property – guests will never be more than a click away from

a reliable connection.

The Aloft Network

Telephone System – the hotel will use a converged network solution using the same infrastructure

for voice, HSIA and data transfer.

High Speed Internet Access (HSIA) – HSIA is accessible in all guestrooms and public spaces

with solutions for both wired or wireless connectivity.

Timelox System (room key)– both guestrooms and back of house operations are controlled

through a standardized system.

Guest Room

The hotel will offer the latest in-room technology so guests can connect anytime they choose.

Television– every guestroom has a 42” LCD wall mounted TV.


Page 100

Programming – Lodgenet will be designated as the provider for all in-room based entertainment.

Movies– the most current in Hollywood silver screen will provide numerous options to tailor each

guests visit.

Atmosphere

Aloft hotels have reinvented the travel experience by changing what

used to be an overnight apology into an indulgent overnight stay. The

unique sensory program is a perfect example of how the DNA of W

hotels is inherent throughout the brand. A full program has been

developed incorporating aroma, music and lighting into the design of the

hotel.

Aroma - The sense of smell is more powerful in both creating and evoking memories than any of

the senses. Scent has the ability to affect one’s mood, stress level, and sense of well-being.

Music - Studies have shown that the presence of music changes one’s mood and makes one feel

more comfortable and at ease. Just like W Hotels, aloft hotels has made music an essential

element in each property incorporating it throughout the public spaces to assure guests are always

energized.

Lighting – An intelligently designed lighting

program sets the mood and creates a vibe.

The hotel will embrace this concept and

design each space using timed lighting to

enhance the atmosphere. The lighting

program adjusts automatically throughout the day transforming the public space over time. Large,

abundant windows allow for natural light to pour in during the day and as the day draws to a

close, the interior lights alter to create a warm glow inviting guests to gather for a cocktail or to


Page 101

unwind from a hectic day. Lighting is essential to creating a unique environment for the guests,

and brings harmony to the hassle of the daily grind.

Amenities

Food and Beverage Platform

Aloft’s grab-and-go concept, “re:fuel,” is redefining guest

expectations. Guests want fresh, fun and fulfilling options when

they’re on the road and re:fuel is designed to deliver. Design is

inspired by a residential kitchen pantry and will draw guests in to

take a closer look. The innovative food menu focuses on fresh, healthy and savory options provides an

alternative to ordinary choices that characterize the market.

The re:fuel menu provides a variety of options for the aloft guest 24 hours a day, 7 days a week. Re:fuel

delivers a total experience, one that never compromises taste for the sake of convenience. From fresh

baked breakfast items to delicious twists on classic sandwiches and salads, the re:fuel menu offers a full

range of flavors at value conscious pricing.

A unique rotational menu providing flexibility to accommodate

varying tastes from season to season is provided. Re:fuel’s core menu

offers a range of flavors, from the classics to the contemporary.

Starwood supplies a detailed set of operating procedures to provide all the

information needed to operate efficiently. Detailed checklists and

pictures take the operational guesswork out of the process. The

guidelines cover set-up to break down as well as details on packaging

and product placement. Capturing an impulse buy is never lost in re:fuel where the counter, cooler and

freezer are strategically transitioned throughout the day. Freshness and consistency are key at re:fuel so

production and distribution are important considerations to assure success.


Page 102

Fitness Center

“Re:charge” will contain the latest in cardio

equipment and free weights. The facility will be

design with elements of energy allowing for a

morning or afternoon workout.

Pool

“Splash” will be designed to provide

an comfortable indoor pool experience

to enjoy a refreshing swim or a

memorable weekend away with the

family. The design will bring the

outside inside with sliding operable doors to enjoy the fantastic weather for 300 days of the year. This

flexibility will allow a year round use of the pool and facilities.


Page 103

Improvement Placement The building will be located on the southern end of the site. The structure will front Harbor Island Drive

where both ingress and egress of the site will reside. The location of the structure will allow for the

largest amount of rooms to have southern views of the San Diego Bay, Coronado Island Naval Base, and

an extraordinary day and night views of the San Diego downtown skyline. These rooms will be able to be

sold at premium rates and support profitability. In addition, the rooms on the smaller side of the structure

will face west and will provide romantic sunset views of the pacific each night towards Point Loma along

with the pleasant view of Spanish Landing Park.

Placement of the structure also allows for future expansion if the success of the hotel warrants.

Additional rooms can be connected through the rear side of the structure towards Spanish Landing Park.

Additional, mechanical and HVAC capacity along with additional elevators will need to be added.

Surface parking spaces can be expanded in the near term and utilize the excess land for “Park and Fly” for

the adjacent airport or “Park and Cruise” berths at the Broadway Cruise Ship Terminal. This will again,

increase profitability and allow a sharing of transportation by utilizing the airport shuttle fleet at the

Sheraton San Diego than runs every 15 minutes.


Page 104


Page 105

Recently completed Aloft projects Adu Dabi, United Arab Emirates

Austin, Texas


Page 106

Shuman, Brussels

Chapel Hill, North Carolina


Page 107

New York New York

Houston, Texas Galleria


Page 108

Design and Construction Management

Project Management Plan Based on advice from a local project manager, a project of this size would be handled by one competent

project manager. Industry typical pricing would be 2% of the project budget plus expenses of

approximately $25K. The budget allocates $350K for this work plus expenses. The project manager will

work for the owner and manage all the procurement of services, manages design consultants, coordinates

permitting effort and manages all aspects of the construction effort (schedule, budget, design, and

quality). In the budget below, staffing and expenses were increased to be conservative in estimated costs.

Procurement

Design Procurement

In today’s environment a request for proposals (RFP) will be conducted for architecture and interior

design services for a competitive price. The conceptual documents provided by Aloft would serve as the

basis for bid for the architects. In addition, a civil and structural engineering will be included in the RFP.

The project manager will administer pre-qualification, the RFP, bid evaluation and award the work. The

architect /engineering fee would be 10% of construction costs (Aloft budget is $490K for all A/E Fees).

The project will utilize a design build method with the Mechanical Electrical Plumbing/Fire

Protection/Low voltage work but would anticipate $20K to have an engineer develop good design criteria

as a basis for bid. This method can typically save 5% on Mechanical Electrical Plumbing/Fire

Protection/Low Voltage construction costs which comprise approximately 33% of construction costs.

General Contractor Procurement

In today’s environment, a competitive bid process would be conducted for the project but only with

qualified contractors. The project manager would handle pre-qualification, RFP, bid evaluation and

award for the work. The general contractor would submit pricing for Mechanical Electrical


Page 109

Plumbing/Fire Protection/Low voltage work on a design build basis using the criteria developed as the

basis for bid.

Contract Analysis

As the most utilized and accepted document form in the industry, the American Institute of Architects

(AIA) documents will be the basis for contracting. AIA documents do not confirm to any one state law

but do provide a solid basis of contract provisions that are enforceable. AIA documents are intended to

reflect the normal, reasonable expectations and actions of the parties to design and construction. Risks

are allocated based on the party who has direct control over the specific process. Where no party has

control, risk is allocated to the party who is in the best protection to protect against loss. Where no party

has risk the risk will be allocated to the owner. Any modification to the documents will be shown in such

a manner that additions to and deletions from are clearly noted by all parties. AIA contract form 101-

2007 would be for stipulated sum or lump sum contract. This along with the AIA general condition form

201-2007 will be the contract form.

Quality Control

Quality control is to be handled by a certified testing agency. As such $20,000 was included in the

budget for this service.

Construction Budget The initial project budget below was provided by Starwood Development for a prototypical 136 room

Aloft hotel. A review with a local project manager dictated adjustments upward as select costs were

either understated or not included. The budget is preliminary and will be trued up once more detailed

documents are available. As a result the contingency line item was increased to 30% of costs to be

conservative allowing for the extended entitlement process and potential budget overruns. Current

pricing was utilized and then inflated at 3.0% inflation up through 2016 to arrive at the budget below.


Page 110

Method of Delivery

A Design-Bid-Build delivery method will be utilized for the project. The project is not complicated and

pricing is very competitive in the current environment. Design-Bid-Build is a form of project delivery

whereby the contracting agency either performs the design work in-house or negotiates with an

engineering design firm to prepare drawings and specifications under a design services contract, and then

separately contracts for construction by engaging a contractor through competitive bidding. Under this

arrangement, the contracting agency warrants to the contractor that the drawings and specifications are

complete and free from error with the contracting agency taking the risk. The selection process for

Aloft Construction Budget Cost Summary15-Jan-12 Keys 136

Gross Square Fee 68,740

Budget Budget BudgetPer Aloft Prototype Budget and Adjusted by local project manager Per Key Per GSF CommentsLand Not Included Leasehold InterestFinancing and Taxes 1,747,512 12,849 25.42 Working Capital 185,000 1,360 2.69 Site Work 700,000 5,147 10.18 Site is a fill area and caissons or piles

will need to be usedBuilding Construction 11,965,720 87,983 174.07 Trade Costs 10,500,000 77,206 152.75 General Condions & Fee 1,400,000 10,294 20.37 Interior Signage 12,720 94 0.19 Exterior Signage 53,000 390 0.77

Operating Supplies & Equipment 632,664 4,652 Guestrooms 379,255 2,789 Public Areas & Heart of House 132,520 974 Beverage & Food 29,126 214 Collateral 2,974 22 Freight, Warehousing, Purchasing, Tax, Inflation Allowance and Pick/Pack 88,789 653

Laundry & IT 458,124 3,369 Informaition Technology - Including Tax and Freight 377,515 2,776 Laundry Equipment - Including Tax and Freight 80,609 593

Kitchen Equipment 150,572 1,107

Furniture, Fixtures & Equipment 1,211,399 8,907 Guest Rooms 786,536 5,783 Graphics 2,338 17 Guest Room Corridors 83,779 616 Public Area & Heart of the House 172,199 1,266 Purchasing Fee 34,268 252 Freight & Warehousing - 8% 75,588 556 Tax - 6% 56,691 417 Installation - Included in Construction -

Professional Fees 890,000 6,544 Architects & EngineersMiscellaneous 400,000 2,941 Testing/Inspections 50,000 368 CEQA / Entitlement Consultants 200,000 California Coastal Commission Lobbyist 200,000

Miscellaneous 40,000 294

Permitting, Legal & Insurance 700,000 5,147 Insurance 75,000 551 Legal Fees 275,000 2,022 Municipal & Utility Fees 100,000 735 Permits 250,000 1,838

Project Management 350,000 2,574 Salaries & Wages 200,000 1,471 Travel & Expenses 150,000 1,103

Pre-Opening 300,000 2,206

Contingency - 40% (Entitlements, Low construction estitmates from Aloft 2,231,104 0 16,405 Large contingency as overall Budget appears low according to local

TOTAL 21,522,095 158,251 project manager


Page 111

design-bid-build is usually based on negotiated terms for the design contract and lowest responsible bid

for the construction contract.

Typically the method includes three parties: an owner, a

designer (architect or engineer), and the builder (general

contractor). In design-bid-build, there are two contracts

between these parties as they work together to plan, design, and

construct the project. The first contract is the owner-designer

contract, which involves planning, design, and construction

administration. The second contract is the owner-contractor contract, which involves construction. An

indirect, third-party relationship exists between the designer and the contractor due to these two contracts.

The delivery method offers the advantage of being widely applicable, well understood, with well-

established and clearly defined roles for the parties involved. It offers the owner a significant amount of

control over the end product, as the facility's features are determined and specified prior to selection of

the contractor.

Once completed, the design package is issued to interested general contractors, who prepare bids for the

work and execute contracts with subcontractors. The contractor submitting the lowest responsive bid will

be selected to perform the construction. The contractor will be responsible for constructing the hotel in

accordance with the design. The architect will maintain limited oversight of the work and respond to

questions about the design on behalf of the owner.

Another advantage of this method is a competitive bidding process. In today’s environment pricing is

very aggressive due to the low volume of construction activity. It also establishes a well defined project


Page 112

prior to contract bidding so there is little confusion around what is expected from the general contractor.

Finally, the process is universally understood in the industry and provides well defined roles of all parties.

On the other hand, there are hindrances to the process with design not having input from contractors and

subcontractors who may have a better, faster or cheaper way of achieving the same design intent.

Contractors are not engaged until the design is complete and ready for bid. As such, change orders are

common and the owner has full exposure to any cost increases created. Delay claims and disputes are

common relative to Design-Bid-Build method as there is no one party centrally responsible or

accountable.

LEED Certification

The project will be LEED certified whereby it will be registered early in the design process while

incorporating the requirements into the design of the project. Throughout the hotel’s design and

construction, LEED items will be documented in full to formulate the application. Then upon end of the

construction period, a complete application is filed. After submission, the project will receive an

administrative approval, and then 30 days later there will be a preliminary LEED review. After another

30 days there may be supplemental submittal of additional required documents. A second preliminary

LEED application if completed and then, three weeks later, the final LEED review will be accomplished.

In the end, accurate and detailed tracking and reporting will be the key element in achieving LEED

certification.


Page 113

Process of Delivery

The development will be completed in five phases:

Schematic Design – In this phase the architect will create a building shape and floor plan based on the

project program. An initial design scheme that seeks to define the general scope and conceptual design of

the project including scale and relationships between building components will be produced. The process

will start with the Aloft prototype and the architect will refine the design. At the end of the schematic

design phase the architect will present rough sketches to the owner for approval. These sketches will

provide the owner with the opportunity to verify the architect has correctly interpreted the desired

functional relationships.

Design Development – In this phase the schematic design of the building and floor plan is further

developed in greater detail. The structural, mechanical, electrical, plumbing and fire protection systems

are selected; doors and windows are chosen, as well as some interior materials and colors. This will

provide a basis for the preparation of construction documents. These drawings will specifically define the

site plan, floor plans and exterior elevations. It is important the owner provide input to the architect at this

time as the design development drawings are used as the basis for the construction drawings and

preliminary cost estimates in building the hotel.

Construction Document – This phase is where the majority of the drawing is completed and the

documents set forth the detailed requirements for the construction of the hotel. The construction

documents are the dimensioned drawings used to obtain estimates or bids from contractors. These

drawings are then used to by the contractor to construct the project. In addition to final floor plans,

building sections and elevations, the drawing set includes building details and door and window

schedules. There are usually few design changes during this phase. Then, the construction documents are

sent out to multiple contractors to obtain an estimated cost of the project. The drawings are distributed,

questions about the drawings are fielded, the bids are collected and a contractor is awarded the project.


Page 114

Bidding and Negotiating - In this process the bids from the different vendors are analyzed as to

completeness and how competitive the pricing will be. It is important to note the lowest bidder in this

phase may not have included all appropriate items and thus the bids must be reviewed in detail. Then the

negotiating will take place whereby the owner through the services rendered by the architect contests the

offer made by the contractor to obtain more favorable terms that better match the proposed construction

intent and the owner’s budget.

Construction Administration – During this phase, the architect assists the owner with issues that occur

during construction. The architect will answer contractor questions, process paperwork submitted by the

contractor and advise the owner on changes that may occur during the project. This will include

reviewing applications for payment, shop drawings/submittal review, answering requests for information

and ultimately certifying substantial completion of the project to achieve the certificate of occupancy.

Project Schedule The chart on the following page outlines the anticipated construction schedule for the project based on

detailed discussions with a local San Diego project manager currently in the process of applying for a

coastal development permit.


Page 115


Page 116

Financial Analysis and Investment Structure A detailed feasibility analysis has been carried out on the proposed development. A full pro forma and

investment analysis will follow. The primary document is the pro forma and the assumptions that make

up the forecast of future results. As such the following assumptions are detailed as to how they were

derived and their behavior moving forward along with incorporating market comments from previous

portions of this paper.

In hotels operating expenses are made up through fixed and variable expenses. Fixed expenses typically

do not fluctuate with levels of business (e.g. occupancy) and tend to grow at or above inflation during the

holding period of the project. Variable expenses do fluctuate with levels of business and tend to be

somewhat linear as business levels increase.

PKF Hospitality Research conducts an extensive analysis of annual expenses and their behavior in the

hotel business. Below are the various components of the hotel profit and loss statement as defined by the

Uniform System of Accounts for the Lodging Industry, 10th edition. These definitions, as defined by

PKF, are consistent to all brands and hotel types and can be used as a rule of thumb on how they are

derived and relate to hotel performance. These will include statistics, revenue and expense definitions.

Statistics

Occupancy Percentage - The percentage of available rooms occupied for a given period. It is computed by

dividing the number of paid guest rooms occupied for a period by the number of rooms available for the

same period.

ADR (Average Daily Rate) - Total guest room revenue for a given period divided by the total number of

paid occupied rooms during the same period. This will be a blend of all room rates charged within a

specified timeframe.

RevPAR (Revenue Per Available Room) - Rooms revenue divided by the annual number of available

rooms.


Page 117

Revenues

Rooms Revenue – is derived from the rental of sleeping rooms, no-show charges, early departure and late

checkout fees, pet fees, and charges for rollaway beds and cribs.

Food and Beverage Revenue – is derived from the sale of food, alcohol, and nonalcoholic beverages in

restaurants, lounges, room service, mini-bar, and banquet rooms. Also includes revenue from public room

rentals, service charges, and the rental of audio/visual and other meeting room equipment.

Other Operated Departments – These are revenues from departments operated by the hotel such as

telecommunications, internet connections, guest laundry, retail shops, recreational facilities, and parking

operations.

Rentals and Other Income – These are revenues from the rental of stores or other space in the hotel for

activities not operated by the hotel. Also includes income from interest, cash discounts, cancellation and

attrition penalties, and other services provided to guests by outside firms for which the hotels receives a

commission or concession.

Expenses

Rooms Expenses - Includes salaries, wages, and benefits for the front desk personnel, reservations staff,

revenue management, housekeeping and laundry workers, bell staff, and concierge personnel. In addition,

rooms department expenses include linen, guest supplies, commissions to travel agents, complimentary

breakfast and social hour costs, and reservation system charges assessed by franchise companies.

Food and Beverage Expenses - Includes the costs of food, alcohol, and non-alcoholic beverages sold,

together with the salaries, wages, and employee benefits for managers, kitchen personnel, servers,

bartenders, cashiers, and hosts. Other applicable expenses include laundry, linen, china, glassware,

silverware, operating supplies, audio/ visual equipment, music, and entertainment.


Page 118

Other Operated Departments Expenses - Includes the salaries, wages, benefits, cost of goods sold, and

other expenses associated with the operation of other revenue producing departments operated by the

hotel.

Administrative and General Expenses - Expenditures for the operations of the general manager’s office,

the accounting department, human resources, security, information systems, and other similar activities.

Examples of expenditures include salaries, wages, benefits, professional fees, credit card commissions,

bad debts, telecommunications and computer maintenance, office supplies, and postage.

Sales and Marketing Expenses - Expenditures to sell and promote the hotel’s services and enhance its

image to the general public. These include salaries, wages, benefits, media advertising, agency fees, e-

commerce, outside sales representation, outdoor advertising, trade shows, and public relations. Also

included in this expense category are payments made to franchisors and referral agencies for franchise

royalties, marketing assessments, and guest loyalty programs. Does not include payments made for

reservation services and/or systems.

Repairs and Maintenance Expenses - Payments for salaries, wages, benefits, maintenance contracts, tools,

and supplies to maintain the buildings, grounds, furniture, and equipment of the hotel. Not included are

costs associated with the maintenance of computer, point-of-sale, and telecommunications systems, as

well as major capital purchases.

Utilities Expenses - Costs for electricity, gas and other fuels, steam, water, and sewer.

Management Fees - Fees paid for management services and supervision of the property. Includes both

base fees (typically calculated off of total gross revenues) and incentive fees (typically calculated as a

percentage of cash flow in excess of an owner’s hurdle rate). Both are negotiated within the hotel

management agreement


Page 119

Property and Other Taxes - Includes real estate taxes, personal property taxes, business and occupation

taxes, and all other taxes except payroll and income taxes. Does not include occupancy, sales, or any

other taxes based on revenue.

Insurance - Includes premiums paid for insuring buildings and contents, liability, fidelity, and theft

coverage. Premiums for workers’ compensation insurance are not included in this category.

Other Fixed Charges - Includes deductions for capital replacement reserves, rent, interest, depreciation,

amortization, and income taxes.

Expense Analysis Below illustrates the various components of the PKF analysis of how the expenses behave in the various

types of hotels in which the subject property compares. These are: hotels less than 150 rooms, hotels with

ADR between $100 and $300, hotels in the Mountain and Pacific Region of the United States.


Page 120

In addition to the PKF comparisons above, the subject property was further analyzed by comparing two

local upscale hotels from another brand for reasonableness of the estimated revenues and costs. Also,

Starwood development provided comparable Aloft hotels financials for hotels in a similar size as the

subject property. This data was used in determining the subject property’s pro forma however, it is not

presented in this paper due to non-disclosure commitments.

PKF Comparable Analysis2010 $ PAR % of Revenue 2010 $ PAR % of Revenue 2010 $ PAR % of Revenue 2011 $ PAR % of Revenue 2011 $ PAR % of Revenue

RevenueRooms $27,007 79.5% $34,633 66.7% 35,366 63.9% 5184 91.7% 7,926 89.7%

Food and Beverage 4,868 14.3% 14,721 28.3% 16,232 29.3% 384 6.8% 755 8.5%Other Operated Departments 1,836 5.4% 1,846 3.6% 2,886 5.2% 77 1.4% 87 1.0%

Rentals and Other Income 254 0.7% 733 1.4% 845 1.5% 7 0.1% 64 0.7%Total Revenue $33,965 100.0% $51,933 100.0% $55,329 100.0% 5,652 100.0% 8,832 100.0%Departmental Expenses

Rooms $7,416 27.5% $9,437 27.2% $11,057 31.3% 948 18.3% 2,029 25.6%Food and Beverage 4,246 87.2% 10,980 74.6% $13,123 80.8% 301 78.4% 576 76.3%

Other Operated Departments 1,337 72.8% 1,258 68.1% 1,985 68.8% 49 63.6% 36 41.4%Total Departmental Expenses $12,999 38.3% $21,675 41.7% $26,165 47.3% $1,298 23.0% $2,641 29.9%

Total Departmental Income $20,966 61.7% $30,258 58.3% $29,164 52.7% $4,354 77.0% $6,191 70.1%

Undistributed Operating ExpensesAdministrative and General $3,620 10.7% $4,888 14.4% $5,392 15.9% 452 1.3% 956 2.8%

Sales and Marketing 3,068 9.0% 4,742 14.0% 4,816 14.2% 388 1.1% 746 2.2%Repairs and Maintenance 1,967 5.8% 2,496 7.3% $2,776 8.2% 168 0.5% 496 1.5%

Utilities 1,651 4.9% 2,236 6.6% 2,100 6.2% 205 0.6% 411 1.2%Total Undistributed Expenses $10,306 30.3% $14,362 42.3% $15,084 44.4% $1,213 3.6% $2,609 7.7%

Gross Operating Profit $10,660 31.4% $15,896 30.6% $14,080 25.4% $3,141 55.6% $3,582 40.6%

Management Fees $1,233 3.6% $1,674 3.2% $1,629 2.9% 450 8.0% 353 4.0%

Income Before Fixed Charges $9,427 27.8% $14,222 27.4% $12,451 22.5% $2,691 47.6% $3,229 36.6%

Fixed ChargesProperty and Other Taxes $1,209 3.6% $1,735 3.3% $1,634 3.0% 90 1.6% 196 2.2%

Insurance 393 1.2% 579 1.1% 867 1.6% 1512 26.8% 81 0.9%Total Fixed Charges $1,602 4.7% $2,314 4.5% $2,501 4.5% $1,602 28.3% $277 3.1%

Reserve for Replacement -

Net Operating Income** $7,825 23.0% $11,908 22.9% $9,950 18.0% $1,089 19.3% $2,952 33.4%

Percentage of Occupancy 69.10% 69.30% 69.90% 72.10% 73.00%Average Daily Rate $107.13 $137.00 $138.63 $132.51 $197.00RevPAR $73.99 $94.88 $96.89 $95.58 $143.81

Hotels <150 Rooms Average Hotels with Rates $100 to $300 Mountain / Pacific HotelsSan Diego Upscale Hotel (Not

Disclosed)151 Room Aloft Brand Hotel

in CA


Page 121

Operating Model Below is a typical staffing model utilized when operating an Aloft hotel. This model can slightly vary

depending on location and mix of business. For the purposes of this analysis, it was utilized to determine

staffing levels of the hotel and salary and wage expense as a result.

In addition, sample schedules were provided were also utilized for this analysis.


Page 122


Page 123


Page 124

Pro forma Assumptions After careful comparison of the market data, the staffing guides above and PKF Trends, the following

assumptions were utilized in deriving the subject property pro forma.

Pro Forma The following represents the Base Case pro forma for the subject property. This pro forma was derived

utilizing the market analysis to arrive at an initial occupancy and then stabilizing in year four at 80%.

While not included in the analysis, Starwood currently operates the Sheraton San Diego adjacent to the

hotel and there are other potential synergies that exist where resources could be shared further reducing

costs and increasing Net Operating Income.

Pro Forma AssumptionsAloft San DiegoHotel Aloft San DiegoBase Year 2016Current Year 2011Number of Rooms 136Available Rooms 49,640Occupied Rooms 38,223Revenue Inflation 2.5%Expense Inflation 3.0%

Revenues Inflated to 2016 2011 MethodRoom Occupancy 77% See Market AnalysisAverage Daily rate 179.00 See Market Analysis

Total Food & Beverage 17.33 15.32 Per Occupied RoomTotal Other Operated Departments 1.93 1.71 Per Occupied Room

Rentals & Other Income 1.45 1.28 Per Occupied Room

ExpensesRooms 55.47 47.85 Per Occupied Room

Food and Beverage 78.3% 78.3% Percentage of Food and Beverage RevenueOther Operating Departments 61.8% 61.8% Percentage of Other Department Revenue

Rentals and Other Income 0.0% 0.0% Percentage of Rentals and Other Income Revenue

Support CostsAdministrative & General 14.65 12.64 Cost Per Available RoomCredit Card Commissions 2.3% 2.3% Percentage of Total Revenue

Marketing 4.50 3.88 Cost Per Available RoomSPG Fees 2.3% 2.3% Percentage of Total Revenue

Program Fee 3.6% 3.6% Percentage of Total RevenueProperty Operations & Maintenance 8.43 7.27 Cost Per Available Room

Energy 7.36 6.35 Cost Per Available RoomReal Estate Taxes 4.08 3.52 Per Market Analysis (Per Available Room)

Insurance 1.52 1.31 Cost Per Available RoomGround Rent 5.47% 5.47% Calculated based upon Port of San Diego Ground Lease then percentage of Revenue

Base Managemetn Fee 3.0% 3.0% Percentage of Total Revenue (Per Contract)Incentive Management Fee Per Contract 15% of Cash Flow After 12% Return is achieved by ownership

Reserve for Replacement 5.0% 5.0% Per Contract


Page 125

Discounted Cash Flow Analysis and Assumptions The pro forma above has been utilized to analyze the subject property through the discounted cash flow

matrix. It utilizes cash flow derived from the operation of the hotel (Net Operating Income) and a

residual (reversion) upon sale at the end of a 10 year holding period.

Revenues once stabilized will grow at or around consumer price index (CPI) of 2.5%. While most

investors would expect better than CPI growth in this asset class, CPI was utilized to be conservative.

Expenses are pegged at 3.0% growth, which is approximately current inflation growth in 2011, again

allowing expense to grow faster than revenues provides another level of conservancy to the assumptions.

Aloft San DiegoBase Case Pro Forma(000's)

- 1 2 3 4 5 6 7 8 9 10 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Hotel Rooms 136 136 136 136 136 136 136 136 136 136 137 Hotel Rooms Available 49,640 49,640 49,640 49,640 49,640 49,640 49,640 49,640 49,640 49,640 50,005 Hotel Rooms Occupied 38,223 38,719 39,216 39,712 39,712 39,712 39,712 39,712 39,712 39,712 40,004 Hotel Occupancy 77.0% 78.0% 79.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0%Hotel ADR USD 179.00 190.00 195.00 200.00 205.00 210.00 215.00 221.00 226.00 235.00 243.00 Hotel RevPAR USD 137.83 148.20 154.05 160.00 164.00 168.00 172.00 176.80 180.80 188.00 194.40

Revenues:Total Rooms 6,842 7,357 7,647 7,942 8,141 8,340 8,538 8,776 8,975 9,332 9,721 Total Food & Beverage 663 688 714 741 760 779 798 818 839 860 888 Total Other Operated Departments 74 77 80 83 85 87 89 91 94 96 99 Rentals & Other Income 55 57 60 62 63 65 67 68 70 72 74 Total Revenues 7,634 8,179 8,501 8,828 9,049 9,270 9,492 9,754 9,977 10,360 10,782 Change 9.8% 5.8% 3.0% 2.8% 3.0% 3.0% 3.6% 2.5% 3.1% 103.1%

Departmental Expenses:Total Rooms 2,120 2,201 2,285 2,372 2,432 2,492 2,555 2,619 2,684 2,751 2,841 Food & Beverage 519 539 559 580 595 610 625 641 657 673 695 Total Other Operated Departments 46 47 49 51 52 54 55 56 58 59 61 Rentals & Other Income - - - - - - - - - - - Total Departmental Expenses 2,685 2,788 2,894 3,004 3,079 3,156 3,235 3,316 3,399 3,483 3,597

Departmental Profits:Total Rooms 4,722 5,155 5,362 5,570 5,709 5,847 5,983 6,158 6,291 6,581 6,880 Food & Beverage 144 149 155 161 165 169 173 178 182 187 193 Total Other Operated Departments 28 29 30 32 32 33 34 35 36 37 38 Rentals & Other Income 55 57 60 62 63 65 67 68 70 72 74 Total Departmental Profits 4,949 5,391 5,607 5,825 5,970 6,114 6,257 6,439 6,579 6,876 7,185

Undistributed Operating Expenses:Administrative & General 727 746 764 783 803 823 844 865 886 908 938 Credit Card Commissions 176 188 196 203 208 213 218 224 229 238 248 Marketing 223 229 235 240 246 253 259 265 272 279 288 SPG Fees 176 188 196 203 208 213 218 224 229 238 248 Program Fee 275 294 306 318 326 334 342 351 359 373 388 Property Operations & Maintenance 418 429 440 451 462 473 485 497 510 522 539 Energy 365 375 384 394 403 413 424 434 445 456 471 Total Undistributed Operating Exps 2,360 2,448 2,519 2,592 2,657 2,723 2,790 2,862 2,931 3,016 3,121

GROSS OPERATING PROFIT 2,589 2,943 3,087 3,233 3,314 3,392 3,468 3,577 3,647 3,861 4,064 33.9% 36.0% 36.3% 36.6% 36.6% 36.6% 36.5% 36.7% 36.6% 37.3% 37.7%

Fixed Charges:Real Estate Taxes 203 208 213 218 224 229 235 241 247 253 261 Insurance 75 77 79 81 83 85 87 90 92 94 97 Ground Rent 418 447 465 483 495 507 519 534 546 567 590 Total Fixed Charges 696 732 757 782 802 822 842 864 884 914 948

EBITDA BEFORE MGMT FEES 1,893 2,210 2,330 2,451 2,512 2,570 2,626 2,713 2,763 2,947 3,116 Management Fees:Base Fees 229 245 255 265 271 278 285 293 299 311 323 Total Management Fees 229 245 255 265 271 278 285 293 299 311 323

Net Operating Income 1,664 1,965 2,075 2,186 2,240 2,292 2,341 2,420 2,464 2,636 2,793


Page 126

Capitalization Rates

The table below was created by PWC for the select service lodging industry for the national market.

In analyzing capitalization rates in the market, the subject property was also reviewed with other recent

sales in the San Diego Market. As a result, the initial capitalization rate is estimated at 9.0% and the

residual capitalization rate at 9.5%. While the estimates provide a lower value based on comparisons to

the market, the estimate allows the analysis to be conservative as the residual value is a large part of the

returns and the estimate relies heavily on this metric.


Page 127

Discount Rate

The discount rate utilized is derived by utilizing the current 10-year treasury rate in the market (2.25%)

and adding a premium due to the fact that hotel assets contain more risk and tend to fluctuate with market

more dramatically. Therefore 5% is added to the treasury for the additional risk related to being a hotel

asset. Finally, based that this project does not currently exist and the large amount of process to work

through with entitlements an additional risk premium of 4% is added to compensate for this unknown. As

a result, the total discount is calculated at 11.25% and has been rounded to 12% to remain conservative.

Loan Terms

The construction loan is calculated at interest only and included as part of the development cost in total.

This interest was assumed at 5.0% over the construction and entitlement period. Once complete, the hotel

will be permanently financed through a local lending institution. In speaking with a local lender, terms

for a loan would be at 5.25 - 5.5% interest (5.5% is assumed) with a requirement of 65% loan-to-value

creating the need for more equity to be secured. The term would be 20 years and the loan fully amortized.

No refinancing is assumed in the analysis but could easily be done to pull cash out for other investments

or future expansion to the hotel tax free at the time of withdrawal.

Discounted Cash Flow Assumptions

Based on the analysis and review, below outlines the assumptions utilized in the financial analysis in the

appendix.


Page 128

San Diego AloftFinancial Analysis AssumptionsConsttruction Start Date 1/16/2015Opening Date 1/1/2016Construction Cost Inflation 2.5%

Building Depreciation 39.5 YearsPersonal Property Depreciation 10.0 YearsAcquisition Cap Rate 9.0%

Development Costs Breakdown $ %Land - 0.0% Ground Lease w/Port of San DiegoBuilding Construction 20,010,696 93.0%FF&E 1,211,399 5.6%Pre-Opening 300,000 1.4%TOTAL Development Costs 21,522,095 100.0%

Equity AssumptionsTotal Development Costs 21,522,095 100%Loan Financing 13,814,494 64.2%Equity Needed 7,707,600 35.8%

Partnership FundingSponsor 1,156,140 15% Per JV AgreementEquity Partner 6,551,460 85%Total Equity 7,707,600 100%

Water FallFirst Waterfall

Pari Passu of cash flows up to -> 11.0% Per JV Agreement

Second WaterfallPari Passu of cash flows up to -> 18.0% Per JV Agreement

Third WaterfallSponsor Promote 35.0% Per JV AgreementEquity Partner 65.0%

Loan TermsStabilized NOI 2,185,724 2019 Year 4Going in Cap Rate 9.0% Based off of Korpaz ReportValue 24,285,820

Owner's Priority 12.00% Per Management AgreementIncentive management Fee 15.00% Per Management AgreementFurniture, Fixtures and Equipment Reserves 5.0% Per Management Agreement

Take Out - First MortgageLoan Fees and Closing Costs 1.25% Per lenderAmortization 20.0 YearsInterest Rate 5.50% Annual Rate per lenderPayments per Year 12 Assumed monthly paymentsDebt Service Coverage 1.4 Per lenderMax Loan on Debt Service Coverage Ratio (YR 1) 20,158,937

Max Loan to Value (proforma) 65.0%Max Loan Based on Loan to Value 15,785,783

Max Loan to Value on Actual Construction Costs 65.0%13,989,361

Loan Amount (Min of 3 options above) 13,989,361 Less Loan Fees 174,867 Financing Proceeds 13,814,494

Dispostion AssumptionsGoing in Cap Rate 9.00% Based on PWC and Market dataSelling Costs 3.00% Per LenderResidual Cap Rate 9.50% Based on PWC and Market data

Discount Rates Reconcilitaion10-Year Treasury Rate (10Year Average) 2.25%Investment Risk 5.00% As the riskiest asset class of real estate, a hotel will require additional discount rate due to the incremental riskDevelopment Risk 4.00% Imputed based on riskiness of the actual development being builtTotal Discount Rate 11.25%

Market Discount Rate 12.00% Based on 10-Year Treasury and additional imputed risks relating to asset class and new developmentSelling Cost 3.00% Based upon estimate of lenderTax AssumptionsMarginal Income Tax Rate 39.60% Utilized maximum US tax rate to be conservativeCapital Gains Tax 20.00% Current US capital gains tax rate


Page 129

Investment Structure and Returns The Investment structure for the project will be an 85/15 investment with the equity partner providing

85% of the equity needed and 15% provided by the sponsor/developer. The cash flow from the project

would be split as follows:

First Tranche split pari passu between in the investors based on investment to an internal rate of

return of 11.0%. The Second Tranche will be split 75% to equity partner and 25% to the sponsor

to an internal rate of return to 18% based on investment. Finally, the Last Tranche will provide

the sponsor with a 35% promote on the remaining cash flow and the remaining 65% would be

split pari passu to both the sponsor and investor.


Page 130


Page 131

PROJECT FUNDINGEquity ContributionsSponsor 15% (1,156,140)Equity Partner 85% (6,551,460)Total 100% (7,707,600)

Cash Proceeds for Distribution 29,353,987

Project Cash Flow 21,646,387Profit $21,646,387IRR 17.78%Multiple 3.81xSTRUCTURETier 1 0.000285959

BoP BalanceEquity Contributions (7,707,600)Accrual 11.00% (361,562)Paydown 8,069,162EoP BalanceCash left for distribution 21,284,825IRR Check 0.89% 361,562

Tier 2 0.000453567

Starting BalanceEquity Contributions (7,707,600)Accrual 18.00%Paydown 8,300,240BalanceCash left for distribution 21,053,748IRR Check 1.4% 592,640Cash Flows to each tranche:I. Pari Passu to an IRR of 11.00% 8,069,162

Sponsor 15.00% 1,210,374Equity Partner 85.00% 6,858,788

II. Splits up to an IRR of 18.00% 231,078Sponsor 25.00% 57,769Equity Partner 75.00% 173,308

Cash left for Distribution 21,053,748

III. Sponsor Promote 35.00% 7,368,812

Cash to Equity 65.00% 13,684,936Sponsor 15.00% 2,052,740Equity Partner 85.00% 11,632,196


Page 132

The full analysis of the waterfall of cash flows by year is located in the appendix of this paper. The

summary of returns for each inventor class is outlined below.

INVESTOR CASH FLOWSSPONSOR

Equity Investment (1,156,140)Proceeds 10,689,696CF 9,533,556Profit 9,533,556 % of Total Profit 44.0%IRR 28.01%Multiple 9.25x

EQUITY PARTNEREquity Investment (6,551,460)Proceeds 18,664,292CF 12,112,832Profit 12,112,832 % of Total Profit 56.0%IRR 14.44%Multiple 2.85x


Page 133

Development Strategy and Risk Mitigation

Project Team Once the project has received the appropriate capital commitments, a top notch project team is to be

assembled. Each of the players below is paramount to success of the project. All would be subject matter

experts in their field and look to do what is best for the project and project team, not defined by their

profession or title.

Project Manager

The point person for the project team will be the Project Manager. This person will be the primary liaison

between the ownership and the other members of the team. This role is pivotal to the success of any

project and securing one with a proven track record will more than likely assure success. As stated earlier

one solid project manger should be able to complete the project on time and under budget.

Architect

Architect is a key position for the project. This position is trained the planning, design and oversight of

the construction of buildings. The position will have a specialized expertise in hotels and will have a

local practice given the seismic issues the project will need to address in California.

Civil Engineer

This position will work with the project manager and Port of San Diego to address soils, traffic and

complete a Phase One analysis of the site. This information will be used in developing the Environmental

Impact Report for the Port and Coastal Commission to comply with CEQA. This position will also have

a specialty focus in structural engineering.


Page 134

General Contractor

This team member will be responsible to assemble the construction team and subcontractors. In addition,

this member will be responsible for purchasing all the materials to create the subject property along with

the planning schedule to complete on time. This player is keenly focused on the construction budget as

not to go over the GMP of the project as it will be at their expense.

Other Project Team Members

Other members of the project team will also be assembled based on the specifics of this particular

development. Lawyers, designers, ADA consultants and estimators are a few common members of any

project team. In addition, the subject project will include a CEQA consultant to reduce processing time

for the environmental impact report. Also, a California Coastal Commission lobbyist will be employed to

lean on established relationships to understand the focus of the commission and specifically where the

issues may arise in the project approval and address them early in the development process.

Operator / Brand

As stated before, the project will fly the flag of the Aloft brand. There are currently no Aloft branded

hotels in San Diego downtown and the closest Aloft hotel is in Escondido, California. Starwood Hotels

will be asked to manage the property as they have a proven track record and infrastructure in San Diego

with the Westin Gas Lamp, Sheraton San Diego, W San Diego and the Westin San Diego. This will

allow access to talented managers and line staff employed at the subject hotel with already trained

employees ready to start on opening day. Starwood recently centralized their sales team in the San Diego

market which has proven to provide better penetration of target accounts and securing new business at

equal or lower costs. In addition, since Starwood operates the adjacent Sheraton hotel, there are potential

synergies to share services such as; airport shuttle service, engineering talent, consolidate contracting for

leverage and consolidating the parking operation to an outside operator for better service with improved

economic terms.


Page 135

Marketing Marketing the hotel will start approximately 18 months prior to the hotel opening. This will allow time to

create awareness in the market place. Marketing activities will be done through participation in Starwood

Global and National promotions, regional marketing and local property initiatives administered by the

General Manager and market sales team. Starwood, though its ecommerce team, will be relied upon to

generate the awareness though email blasts and website development. Given a large part of the hotel will

be transient, marketing directly to the business and leisure segments will be important to secure business

to ramp up to the stabilized occupancy level of 80%. In the short run, the hotel will partner with on-line

travel agents to drive trial of the hotel, however, these channels cost up to 15% of rooms revenue and will

need to be engaged cautiously as not to burden the hotel will additional costs.

The primary goal will be to utilize digital media to efficiently target key audiences online. Then engage

with key targets both in relevant content and where they naturally consume media. This would entail

implementing cohesive, integrated print and digital programs with target-appropriate media partners while

engaging select target audiences across multiple touch points.

Ecommerce strategy will entail the following specific initiatives:

1. Optimize hotel’s local web site - Ensure accurate/updated content and leverage all available

opportunities to promote hotel website to drive business to the hotel’s lowest cost distribution

channel.

2. Paid Search – The hotel would utilize Paid Search to include Pay Per Click, display and

retargeting campaigns to ensure visibility to travelers on line. Utilizing technology and

optimization to focus on driving down cost per click while increasing conversion.

3. Search Engine Optimization (SEO) - Enhance visibility through increased natural search rankings

by ensuring the website is written and built with strong SEO strategies. To include optimized

copy, alt and meta search tags and an effective off-site SEO strategy driving inbound linking to


Page 136

the property’s website. Thus increasing the site’s relevance in Google and achieving strong

natural search rankings and page placement on keyword searches.

4. GDS Advertising – The global distribution systems in which airlines, car rental and hotels are

transacted are the systems in which brick and mortal travel agents book rooms. The hotel will

launch an opening campaign to create awareness of the opening hotel, its location and amenities.

Finally, a sales blitz will be conducted in the local market to large employers and industries mentioned

earlier in this paper. The companies in the direct area will be targeted for business travelers as well as

social functions.

Although group business will represent a smaller portion of this subject hotels business, it cannot be

ignored. The local Starwood sales team will pursue the right type of group business (rooms only, large

conventions, and small corporate meetings) to provide base business to allow the hotel to reduce

discounts and increase transient room rates through compression with less inventory available. This will

also drive awareness in the group segment to potentially provide transient customers as their travel needs

dictate.

Project Risks There are many risks associated with a development project of this type. The verbiage below reviews

each of the primary risks to the project and the mitigation strategy included in the project plan to reduce

exposure to them.

Entitlement Risk

In this project, the most complex phase will be the entitlement process. The Port of San Diego, Coastal

Commission and local building permitting office are involved in getting the project approved and ready

for construction. While complex, the risk has been mitigated by hiring experienced CEQA consultant to

guide others in developing the Environmental Impact report for the port master plan amendment. In

addition, a Coastal Commission Lobbyist will also be engaged to articulate the projects mission to the


Page 137

commission and seek to understand their issues with it. Finally, as a LEED certified and sustainable

development, political appointees tend to favor projects with limited impact on environment while

producing increased tax revenues for the betterment of their city and state. A well intended strategy of

the process and commitment to reducing the carbon footprint of the project will more than likely

minimize delays.

Construction Risks

Construction risks involve various risks of design intent, budget overruns and delay in project schedules.

This risk has been mitigated by utilizing a large construction budget contingency, hiring a qualified

project manager and sourcing only skilled general contractors and consultants with a proven track record.

Pro Forma Risk

The pro forma provided in this paper is simply an estimate of future performance. Many assumptions

went into the development of the pro forma and as such these estimates can and will be inaccurate. The

primary mitigation strategy for this risk was to be ultra-conservative in their estimates. Increasing

expense growth and lowering revenue growth rates beyond historical levels provide confidence that the

returns to the owners are reasonable. In addition, San Diego is a hotel agglomeration economy whereby

Leisure and Hospitality Services represents 12.7% of total employment in San Diego and only represents

10.7% and 10.0% in California and the United States respectively. San Diego is a hotel town and given

the planned expansion to the convention center and airport, it will be for many years to come. Additional,

Monte Carlo analysis was completed on the various assumptions and discussed below

Duration Risk

Duration is simply the risk in delay of the project. Delays can come in many segments in this project

from coastal commission approval to seismic construction requirements. While delays are common in

this type of construction and entitlement process, slack time was built into the project plan and many of

the potential bottlenecks will have seasoned consultants focused on it. Delays can be expected in any


Page 138

project but with the slack time included in the critical path, they are somewhat mitigated as well as

expected.

Legal Risk

Litigation is common place in California. Many labor unions have partnered with environmental groups

to slow development for a favorable labor agreement. This risk can never be fully mitigated, as such

hiring the right legal team and following the correct CEQA process leaves fewer opening for opposition.

A fully vetted Environmental Impact Report will provide less opportunity to opposition as the EIR is the

source document that would need to be challenged. Without the EIR, such as a mitigated negative

declaration, opposition could produce anything to challenge the project.

All risks in the project will be monitored by the project team and by the sponsor. The key to success with

the project is to address concerns with the public and political opponents early in the process. While we

will not always agree on the ultimate solution, an old fashioned compromise may prove much more

beneficial in the long run to avoid delays and litigation.

Additionally, the partnership will be set up as a single purpose entity and a Limited Liability Corporation

(LLC). The largest legal benefit of an LLC is that limited liability companies provide all the same

liability protection as a corporation--but with much less red tape. A regular corporation, for example,

requires regular stockholders meetings, a board of directors, regular board meetings, and of course

records of all these activities and bodies. But a limited liability company doesn't.

A second benefit of an LLC relates to the income taxes that investors pay on profits and capital gains. A

limited liability company can be almost whatever tax entity it wants to be for income tax purposes. A

limited liability company that is owned by two or more persons can be a partnership, a C corporation, or

even an S corporation. Therefore, a LLC can choose to be taxed in whatever way is most favorable to the

investment or the owners.


Page 139

Stochastic Modeling

In order to further clarify risk in the project, Oracle’s Crystal Ball© software was utilized. The software

utilizes Monte Carlo simulation within the Excel© spreadsheet and qualifies the return distribution

graphically below. Various assumptions were selected and given either an appropriate range of values or

a standard deviation. The software then utilizes this information to derive various results at rapid speed as

the assumptions are loaded at different values.

In the analysis of the subject project, the software ran 100,000 simulations on the excel model and

determined that there is a probability of 18.5% the project does not met the first tranche hurdle rate of

11.0%. Not only does the software provide a different mean of 16.1% IRR (versus the Excel© model of

17.8%) it also identifies the level of risk associated with the project and the certainty of the estimate.


Page 140

Conclusion The preceding analysis provides an extensive evaluation of the various components of the proposed

project located on Harbor Island in downtown San Diego. The project entails the development of a 136

room Aloft hotel with an approximately 68,740 square feet. The project will reside on a 5.22 acre parcel

of land just 250 yards from the San Diego Bay and adjacent to the airport.

Through extensive market analysis, San Diego is noted with strong market fundamentals with large

infrastructure projects in various phases of planning. One of the projects is an expansion of the

convention center. The center is one of the largest economic engines in San Diego and will bring larger

conventions and more hotel patrons to the area. Both the convention center and the subject property are

scheduled to open in 2016. This provides further comfort in the financial projections as demand will be

pushed outward from the convention center and impact the subject project.

The most complex phases of getting the project off the ground will be entitlements. The entitlement

process is lengthy and covers the city, Port of San Diego and the California Coastal Commission. The

process can be challenged by the public and litigation can result. An experienced CEQA consultant will

assist in the process of entitlements but cannot guarantee entitlement success. Patience is vital during the

lengthy course of action to reach successful achievement of a coastal development permit.

The market and competitive set was selected and analyzed arriving at forecasted revenue assumptions.

Then an analysis of various expense line items where compared to other sources to arrive at a

conservative pro forma providing comfort in the operating economics. Then, a before and after tax

analysis was evaluated ultimately down to the investor cash flows.

The proposed investment is forecasted to produce an unlevered internal rate of return of 11.5% with a

levered return of 17.8%. The investors are split 85% from the equity partner resulting in an 14.4% return

and the sponsor investment of the remaining 15% resulting in a 28% return mainly due to the sponsor’s

promote upon sale at the end of the 10 year holding period. Additionally, stochastic modeling was


Page 141

completed on the base case pro forma to determine there is an 18.5% chance the project will not meet the

first tranche internal rate of return of 11% in the waterfall of returns.

Ultimately, it is recommended to pursue the project given the returns to the various investors and the

potential upside of the market and the convention center. Even though the risk of not meeting the hurdle

rate of 11% should be a concern to most investors the upside in the return given the conservancy of the

base case estimates provides additional comfort of solid projected performance. While an elongated

entitlement process can sway one away from the project of this nature, patience and resolve can pay large

dividends on an investment such as the subject property.

It is recommended to further pursue and analyze the entitlement process by hiring a CEQA consultant and

engage in initial discussions with the Port of San Diego to option the land subject to California Coastal

Commission approval of the Port Master Plan Amendment.


Page 142

Works Cited http://en.wikipedia.org/wiki/California_Environmental_Quality_Act Environmental Impact Report. (n.d.).

City of San Diego Presentation to Public (January 2012). (n.d.).

Federal Reserve Bank Beige Book, February 29, 2012. (n.d.).

http://en.wikipedia.org/wiki/Construction_management. (n.d.).

http://en.wikipedia.org/wiki/Port_of_San_Diego. (n.d.).

http://en.wikipedia.org/wiki/San_Diego. (n.d.).

http://en.wikipedia.org/wiki/San_Diego#Transportation. (n.d.).

http://en.wikipedia.org/wiki/San_Diego_Convention_Center. (n.d.).

http://en.wikipedia.org/wiki/San_Diego_metropolitan_area. (n.d.).

http://fyi.uwex.edu/downtown‐market‐analysis/analysis‐of‐opportunities‐by‐sector/lodging/. (n.d.).

http://www.californiataxdata.com/pdf/Prop13.pdf. (n.d.).

http://www.coastal.ca.gov/whoweare.html. (n.d.).

http://www.factasy.com/. (n.d.).

http://www.portofsandiego.org. (n.d.).

http://www.portofsandiego.org/. (n.d.).

http://www.portofsandiego.org/real‐estate.html. (n.d.).

http://www.portofsandiego.org/real‐estate.html (as adapted from previous EIRs). (n.d.).

http://www.reedconstructiondata.com/rsmeans/models/retail‐store/. (n.d.).

http://www.sandiego.gov/. (n.d.).

http://www.sandiego.gov/. (n.d.).

http://www.sandiego.gov/comptroller/reports/pdf/cafr_2010.pdf. (n.d.).

http://www.sandiego.gov/planning/community/pdf/cow/planningprocess.pdf. (n.d.).

http://www.smccd.edu/accounts/smccd/departments/facilities/designbuild.shtml. (n.d.).

Moody’s Analytics (Precis Report December 2011) . (n.d.).

PKF Hotel Horizons Econometric Forecasts of U.S. Lodging Markets (March 2012 – May 2012). (n.d.).


Page 143

Port of San Diego Master Plan,. (n.d.).

Port of San Diego Public Art Master Plan as amended March 2011. (n.d.).

The California Port Act as updated November 20, 2008. (n.d.).

Interviews with the following individuals:

CEO, San Diego Convention and Visitors Bureau

San Diego Retail Broker

Local San Diego Hotel General Managers

Chairman, Board of Port Commissioners

Senior Asset Manager, Port of San Diego

San Diego Real Estate Attorney

San Diego Project Manager

California Architect

National Construction Procurement Company

California Environmental Attorney

Structural Engineer

Vice President of Development, Starwood Hotels

Tax Attorney

CEQA Consultant


Page 144

Appendix

Competitive Analysis

Project Construction Budget

Pro Forma

Financial Analysis

Investor Waterfall Distribution

Monte Carlo Analysis

Aloft San DiegoProfile of Competitive Facilities

Aloft San Diego

Number of Rooms 136Opening Year 2014Address Harbor Island Drive

San Diego, CA 92101

LocationHarbor Island, Near Downtown

CBD and AirportLast Refurbishment New buildBrand aloftAffiliation Starwood Hotels & ResortsMarket Mix Transient 93% Group 7% ContractFacilities/Amenities Restaurants re:fuel Restaurant (3 Meal)

237210 122 150 200


Best Western Plus Bayside Inn

Homewood Suites San Diego Airport Liberty Station



19722009 1985 2007 20084875 North Harbor Drive509 9th Ave 555 West Ash Street 2576 Laning Road 2592 Laning RoadSan Diego, CA 92106 San Diego, CA 92101 San Diego, CA 92101 San Diego, CA 92106 San Diego, CA 92106

Point Loma, Near Military and Shelter Island

Downtown, CBD, Gaslamp District Downtown, CBD



2012built 2009 2008 built 2007 built 2008Holiday InnIndigo Best Western Plus Homewood Suites Courtyard

Intercontential Hotel GroupIntercontential Hotel Group Best Western Hilton Hotels Worldwide Marriott International

75%85% 90% 90% 80%25%15% 10% 10% 20%0%0% 0% 0% 0%00 0 0 0

YesYes Yes None Yes Restaurants re:fuel Restaurant (3 Meal) Lounges XYZ LoungeTotal Meeting Space (SF) 575King Rooms 87Double / Double Rooms 49SF / Guest Room 4Swimming Pool IndoorExercise Room YesGift Shop NoBusiness Center YesParking / Fees Yes - Self and ValetAirport Transportation Free Shuttle Service to Airport

No YesYes Yes Yes

140 12624

102 7095 167

5160 71

21

Yes

YesYes Yes None YesYesYes - 2 Bars Yes None Yes

5,0001,500 None 900 4,590

7 N/A 6 23OutdoorNo Indoor Indoor Indoor

Yes Yes Yes YesNoNo No No No

Free ParkingYes - Valet Only Free Parking Free Parking Free ParkingNoNo No No No

Copyright © and (P) 1988–2009 Microsoft Corporation and/or its suppliers. All rights reserved. http://www.microsoft.com/mappoint/Certain mapping and direction data © 2009 NAVTEQ. All rights reserved. The Data for areas of Canada includes information taken with permission from Canadian authorities, including: © Her Majesty the Queen in Right of Canada, © Queen's Printer for Ontario. NAVTEQ and NAVTEQ ON BOARD are trademarks of NAVTEQ. © 2009 Tele Atlas North America, Inc. All rights reserved. Tele Atlas and Tele Atlas North America are trademarks of Tele Atlas, Inc. © 2009 by Applied Geographic Systems. All rights reserved.

CF Map1

0 mi 0.5 1 1.5 2

FactorRating Criteria in Reverse Order of Importance

Aloft San Diego



Inn

Homewood Suites San


Courtyard San Diego Airport

Liberty Station

Holiday Inn San Diego Bayside Weight

1 Travel times to employee housing 7 4 5 9 9 7 12 Visibility 10 7 4 8 9 6 23 Accessibility 9 10 7 9 9 9 3

4 Quality of Demand Generators 8 9 8 9 9 5 4

5 Access to Water 10 6 6 5 5 9 5

6 Access to Restaurants and Night Life 8 10 9 7 7 5 67 Access to Theme Parks 8 6 6 8 8 6 78 Expected travel time to airport 10 8 8 9 9 8 89 Amount of Class A Office Space within 5 miles 7 9 3 6 6 6 910 Travel Time to Convention Center 7 8 8 6 6 6 10

Total 355 351 279 330 332 286 193318.4% 18.2% 14.4% 17.1% 17.2% 14.8% 100.0%

Overall Ranking 1 2 6 4 3 5 Note: Based on ranking where 1=worst and 10=Best

Competitive Location Analysis

Percentage of Total Scores

Sunroad Hotel Opens

Aloft San Diego Lane Field Hotels Open

Convention Center Expansion OpensActual Actual Actual Projected Projected Projected Projected Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Competitive Set: 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025Aloft San Diego 136 136 136 136 136 136 136 136 136 136Hotel Indigo San Diego Gaslamp Quarter 106 210 210 210 210 210 210 210 210 210 210 210 210 210 210 210 210 Best Western Plus Bayside Inn 122 122 122 122 122 122 122 122 122 122 122 122 122 122 122 122 122 Homewood Suites San Diego Airport Liberty Station 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 Courtyard San Diego Airport Liberty Station 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 Holiday Inn San Diego Bayside 237 237 237 237 237 237 237 237 237 237 237 237 237 237 237 237 237 Sun Road Hotel (New Build) 175 175 175 175 175 175 175 175 175 175 Hilton Garden Inn Lane Field (New Build) 125 250 250 250 250 250 250 250 250 Hoemwood Suites Lane Field (New Build) 100 200 200 200 200 200 200 200 200 Totals 815 919 919 919 919 919 919 1,230 1,455 1,680 1,680 1,680 1,680 1,680 1,680 1,680 1,680

Available Rooms 297,475 335,435 335,435 335,435 335,435 335,435 335,435 448,950 531,075 613,200 613,200 613,200 613,200 613,200 613,200 613,200 613,200 Change in Supply 12.8% 0.0% 0.0% 0.0% 0.0% 0.0% 33.8% 18.3% 15.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Comp Set Occupancy 75.1% 78.5% 80.1% 81.2% 81.8% 83.2% 94.9% 82.2% 82.0% 83.0% 83.0% 83.0% 83.0% 83.0% 83.0% 83.0% 83.0%Total Occupied Rooms 223,465 263,159 268,756 272,519 274,426 279,091 318,164 369,071 435,503 508,668 508,668 508,668 508,668 508,668 508,668 508,668 508,668 Change in Demand 17.8% 2.1% 1.4% 0.7% 1.7% 14.0% 16.0% 18.0% 16.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Comp Set ADR 128$ 129$ 133$ 140$ 145$ 152$ 161$ 169$ 176$ 181$ 187$ 191$ 196$ 201$ 206$ 211$ 217$ Change in ADR 0.8% 3.1% 5.1% 3.8% 5.1% 5.7% 5.0% 4.0% 3.0% 3.0% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

Comp Set RevPAR 96$ 101$ 107$ 114$ 119$ 127$ 153$ 139$ 144$ 150$ 155$ 159$ 163$ 167$ 171$ 175$ 180$ Change in RevPAR 5.3% 5.3% 6.6% 4.5% 6.9% 20.5% -9.0% 3.7% 4.2% 3.0% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025Hotel Occupancy 77.0% 78.0% 79.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Penetration 93.7% 95.1% 95.2% 96.4% 96.4% 96.4% 96.4% 96.4% 96.4% 96.4%

Hotel ADR 179.00 190.00 195.00 200.00 205.00 210.00 215.00 221.00 226.00 235.00 Penetration 105.8% 107.9% 107.6% 107.1% 107.1% 107.0% 106.9% 107.2% 107.0% 108.5% Change in ADR 6.1% 2.6% 2.6% 2.5% 2.4% 2.4% 2.8% 2.3% 4.0%

Hotel RevPAR 137.83 148.20 154.05 160.00 164.00 168.00 172.00 176.80 180.80 188.00 Penetration 99.1% 102.7% 102.4% 103.3% 103.3% 103.2% 103.1% 103.4% 103.2% 104.7% Change in RevPAR 7.5% 3.9% 3.9% 2.5% 2.4% 2.4% 2.8% 2.3% 4.0%

Occupancy AnalysisPKF San Diego Market Forecast 62.7% 66.4% 68.9% 70.6% 70.8% 71.4% 72.2% 72.4%PKF San Diego Market Forecast 62.7% 66.4% 68.9% 70.6% 70.8% 71.4% 72.2% 72.4%PKF San Diego Market Upper-Priced Forecast 65.7% 69.8% 72.5% 73.8% 73.3% 73.7% 74.4% 74.4%Competitive Set Actual / Forecast 75.1% 78.5% 80.1% 81.2% 81.8% 83.2% 94.9% 82.2% 82.0% 83.0% 83.0% 83.0% 83.0% 83.0% 83.0% 83.0% 83.0%Variance to Market Upper-Priced Segment 9.4% 8.7% 7.6% 7.4% 8.5% 9.5% 20.5% 7.8%

Aloft Hotel Forecast 0.0% 77.0% 78.0% 79.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0%Occupancy Index 0% 94% 95% 95% 96% 96% 96% 96% 96% 96% 96%ADR AnalysisPKF San Diego Market Forecast 125.06 122.00 125.96 133.92 141.83 149.54 158.39 165.11 PKF San Diego Market Upper-Priced Forecast 163.08 158.06 162.93 173.78 184.59 194.48 204.91 213.27 Competitive Set Actual / Forecast 128.00 129.00 133.00 139.78 145.09 152.49 161.19 169.25 176.02 181.30 186.74 191.40 196.19 201.09 206.12 211.27 216.56

-21.5% -18.4% -18.4% -19.6% -21.4% -21.6% -21.3% -20.6%

Aloft Hotel Forecast - 179.00 190.00 195.00 200.00 205.00 210.00 215.00 221.00 226.00 235.00 ADR Index 0% 106% 108% 108% 107% 107% 107% 107% 107% 107% 109%RevPAR AnalysisPKF San Diego Market Forecast 78.37 80.97 86.78 94.52 100.42 106.74 114.40 119.49 PKF San Diego Market Upper-Priced Forecast 107.18 110.38 118.07 128.18 135.25 143.26 152.48 158.75 Competitive Set Actual / Forecast 96.15 101.20 106.56 113.56 118.70 126.88 152.89 139.13 144.34 150.39 154.90 158.78 162.74 166.81 170.98 175.26 179.64

-10.3% -8.3% -9.7% -11.4% -12.2% -11.4% 0.3% -12.4%

Aloft Hotel Forecast - 137.83 148.20 154.05 160.00 164.00 168.00 172.00 176.80 180.80 188.00 RevPAR Index 0% 99% 103% 102% 103% 103% 103% 103% 103% 103% 105%

Aloft Construction Budget Cost Summary15-Jan-12 Keys 136

Gross Square Feet 68,740

Budget Budget BudgetPer Aloft Prototype Budget and Adjusted by local project manager Per Key Per GSF CommentsLand Not Included Leasehold InterestFinancing and Taxes 1,747,512 12,849 25.42 Working Capital 185,000 1,360 2.69 Site Work 700,000 5,147 10.18 Site is a fill area and caissons or piles

will need to be usedBuilding Construction 11,965,720 87,983 174.07 Trade Costs 10,500,000 77,206 152.75 General Condions & Fee 1,400,000 10,294 20.37 Interior Signage 12,720 94 0.19 Exterior Signage 53,000 390 0.77

Operating Supplies & Equipment 632,664 4,652 Guestrooms 379,255 2,789 Public Areas & Heart of House 132,520 974 Beverage & Food 29,126 214 Collateral 2,974 22 Freight, Warehousing, Purchasing, Tax, Inflation Allowance and Pick/Pack 88,789 653

Laundry & IT 458,124 3,369 Informaition Technology - Including Tax and Freigh 377,515 2,776 Laundry Equipment - Including Tax and Freigh 80,609 593

Kitchen Equipment 150,572 1,107

Furniture, Fixtures & Equipment 1,211,399 8,907 Guest Rooms 786,536 5,783 Graphics 2,338 17 Guest Room Corridors 83,779 616 Public Area & Heart of the House 172,199 1,266 Purchasing Fee 34,268 252 Freight & Warehousing - 8% 75,588 556 Tax - 6% 56,691 417 Installation - Included in Construction -

Professional Fees 890,000 6,544 Architects & EngineersMiscellaneous 400,000 2,941 Testing/Inspections 50,000 368 CEQA / Entitlement Consultants 200,000 California Coastal Commission Lobbyist 200,000

Miscellaneous 40,000 294

Permitting, Legal & Insurance 700,000 5,147 Insurance 75,000 551 L l F 275 000 2 022Legal Fees 275,000 2,022 Municipal & Utility Fees 100,000 735 Permits 250,000 1,838

Project Management 350,000 2,574 Salaries & Wages 200,000 1,471 Travel & Expenses 150,000 1,103

Pre-Opening 300,000 2,206

Contingency - 40% (Entitlements, Low construction estitmates from Aloft 2,231,104 0 16,405 Large contingency as overall Budget appears low according to local

TOTAL 21,522,095 158,251 porject manager

Pro Forma AssumptionsAloft San DiegoHotel Aloft San DiegoBase Year 2016Current Year 2011Number of Rooms 136Available Rooms 49,640Occupied Rooms 38,223Revenue Inflation 2.5%Expense Inflation 3.0%

Revenues Inflated to 2016 2011 MethodRoom Occupancy 77% See Market Analysis

Average Daily rate 179.00 See Market AnalysisTotal Food & Beverage 17.33 15.32 Per Occupied Room

Total Other Operated Departments 1.93 1.71 Per Occupied RoomRentals & Other Income 1.45 1.28 Per Occupied Room

ExpensesRooms 55.47 47.85 Per Occupied Room

Food and Beverage 78.3% 78.3% Percentage of Food and Beverage RevenueOther Operating Departments 61.8% 61.8% Percentage of Other Department Revenue

Rentals and Other Income 0.0% 0.0% Percentage of Rentals and Other Income Revenue

Support CostsAdministrative & General 14.65 12.64 Cost Per Available RoomCredit Card Commissions 2.3% 2.3% Percentage of Total Revenue

Marketing 4.50 3.88 Cost Per Available RoomSPG Fees 2.3% 2.3% Percentage of Total Revenue

Program Fee 3.6% 3.6% Percentage of Total RevenueProperty Operations & Maintenance 8.43 7.27 Cost Per Available Room

Energy 7.36 6.35 Cost Per Available RoomReal Estate Taxes 4.08 3.52 Per Market Analysis (Per Available Room)

Insurance 1.52 1.31 Cost Per Available RoomGround Rent 5.47% 5.47% Calculated based upon Port of San Diego Ground Lease then percentage of Revenue

Base Managemetn Fee 3.0% 3.0% Percentage of Total Revenue (Per Contract)Incentive Management Fee Per Contract 15% of Cash Flow After 12% Return is achieved by ownership

Reserve for Replacement 5.0% 5.0% Per Contract

Aloft San DiegoBase Case Pro Forma(000's)

- 1 2 3 4 5 6 7 8 9 10 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Hotel Rooms 136 136 136 136 136 136 136 136 136 136 137 Hotel Rooms Available 49,640 49,640 49,640 49,640 49,640 49,640 49,640 49,640 49,640 49,640 50,005 Hotel Rooms Occupied 38,223 38,719 39,216 39,712 39,712 39,712 39,712 39,712 39,712 39,712 40,004 Hotel Occupancy 77.0% 78.0% 79.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0%Hotel ADR USD 179.00 190.00 195.00 200.00 205.00 210.00 215.00 221.00 226.00 235.00 243.00 Hotel RevPAR USD 137.83 148.20 154.05 160.00 164.00 168.00 172.00 176.80 180.80 188.00 194.40

Revenues:Total Rooms 6,842 7,357 7,647 7,942 8,141 8,340 8,538 8,776 8,975 9,332 9,721 Total Food & Beverage 663 688 714 741 760 779 798 818 839 860 888 Total Other Operated Departments 74 77 80 83 85 87 89 91 94 96 99 Rentals & Other Income 55 57 60 62 63 65 67 68 70 72 74 Total Revenues 7,634 8,179 8,501 8,828 9,049 9,270 9,492 9,754 9,977 10,360 10,782 Change 9.8% 5.8% 3.0% 2.8% 3.0% 3.0% 3.6% 2.5% 3.1% 103.1%

Departmental Expenses:Total Rooms 2,120 2,201 2,285 2,372 2,432 2,492 2,555 2,619 2,684 2,751 2,841 Food & Beverage 519 539 559 580 595 610 625 641 657 673 695 Total Other Operated Departments 46 47 49 51 52 54 55 56 58 59 61 Rentals & Other Income - - - - - - - - - - - Total Departmental Expenses 2,685 2,788 2,894 3,004 3,079 3,156 3,235 3,316 3,399 3,483 3,597

Departmental Profits:Total Rooms 4,722 5,155 5,362 5,570 5,709 5,847 5,983 6,158 6,291 6,581 6,880 Food & Beverage 144 149 155 161 165 169 173 178 182 187 193 Total Other Operated Departments 28 29 30 32 32 33 34 35 36 37 38 R t l & Oth I 55 57 60 62 63 65 67 68 70 72 74Rentals & Other Income 55 57 60 62 63 65 67 68 70 72 74 Total Departmental Profits 4,949 5,391 5,607 5,825 5,970 6,114 6,257 6,439 6,579 6,876 7,185

Undistributed Operating Expenses:Administrative & General 727 746 764 783 803 823 844 865 886 908 938 Credit Card Commissions 176 188 196 203 208 213 218 224 229 238 248 Marketing 223 229 235 240 246 253 259 265 272 279 288 SPG Fees 176 188 196 203 208 213 218 224 229 238 248 Program Fee 275 294 306 318 326 334 342 351 359 373 388 Property Operations & Maintenance 418 429 440 451 462 473 485 497 510 522 539 Energy 365 375 384 394 403 413 424 434 445 456 471 Total Undistributed Operating Exps 2,360 2,448 2,519 2,592 2,657 2,723 2,790 2,862 2,931 3,016 3,121

GROSS OPERATING PROFIT 2,589 2,943 3,087 3,233 3,314 3,392 3,468 3,577 3,647 3,861 4,064 33.9% 36.0% 36.3% 36.6% 36.6% 36.6% 36.5% 36.7% 36.6% 37.3% 37.7%

Fixed Charges:Real Estate Taxes 203 208 213 218 224 229 235 241 247 253 261 Insurance 75 77 79 81 83 85 87 90 92 94 97 Ground Rent 418 447 465 483 495 507 519 534 546 567 590 Total Fixed Charges 696 732 757 782 802 822 842 864 884 914 948

EBITDA BEFORE MGMT FEES 1,893 2,210 2,330 2,451 2,512 2,570 2,626 2,713 2,763 2,947 3,116 Management Fees:Base Fees 229 245 255 265 271 278 285 293 299 311 323 Total Management Fees 229 245 255 265 271 278 285 293 299 311 323

Net Operating Income 1,664 1,965 2,075 2,186 2,240 2,292 2,341 2,420 2,464 2,636 2,793

San Diego AloftFinancial Analysis AssumptionsConsttruction Start Date 1/16/2015Opening Date 1/1/2016Construction Cost Inflation 2.5%

Building Depreciation 39.5 YearsPersonal Property Depreciation 10.0 YearsAcquisition Cap Rate 9.0%

Development Costs Breakdown $ %Land - 0.0% Ground Lease w/Port of San DiegoBuilding Construction 20,010,696 93.0%FF&E 1,211,399 5.6%Pre-Opening 300,000 1.4%TOTAL Development Costs 21,522,095 100.0%

Equity AssumptionsTotal Development Costs 21,522,095 100%Loan Financing 13,814,494 64.2%Equity Needed 7,707,600 35.8%

Partnership FundingSponsor 1,156,140 15% Per JV AgreementEquity Partner 6,551,460 85%Total Equity 7,707,600 100%

Water FallFirst Waterfall

Pari Passu of cash flows up to -> 11.0% Per JV Agreement

Second WaterfallPari Passu of cash flows up to -> 18.0% Per JV Agreement

Third WaterfallSponsor Promote 35.0% Per JV AgreementEquity Partner 65.0%

Loan TermsStabilized NOI 2,185,724 2019 Year 4Going in Cap Rate 9.0% Based off of Korpaz ReportValue 24,285,820

Owner's Priority 12.00% Per Management AgreementIncentive management Fee 15 00% Per Management AgreementIncentive management Fee 15.00% Per Management AgreementFurniture, Fixtures and Equipment Reserves 5.0% Per Management Agreement

Take Out - First MortgageLoan Fees and Closing Costs 1.25% Per lenderAmortization 20.0 YearsInterest Rate 5.50% Annual Rate per lenderPayments per Year 12 Assumed monthly paymentsDebt Service Coverage 1.4 Per lenderMax Loan on Debt Service Coverage Ratio (YR 1) 20,158,937

Max Loan to Value (proforma) 65.0%Max Loan Based on Loan to Value 15,785,783

Max Loan to Value on Actual Construction Costs 65.0%13,989,361

Loan Amount (Min of 3 options above) 13,989,361 Less Loan Fees 174,867 Financing Proceeds 13,814,494

Dispostion AssumptionsGoing in Cap Rate 9.00% Based on PWC and Market dataSelling Costs 3.00% Per LenderResidual Cap Rate 9.50% Based on PWC and Market data

Discount Rates Reconcilitaion10-Year Treasury Rate (10Year Average) 2.25%Investment Risk 5.00% As the riskiest asset class of real estate, a hotel will require additional discount rate due to the incremental riskDevelopment Risk 4.00% Imputed based on riskiness of the actual development being builtTotal Discount Rate 11.25%

Market Discount Rate 12.00% Based on 10-Year Treasury and additional imputed risks relating to asset class and new developmenSelling Cost 3.00% Based upon estimate of lenderTax AssumptionsMarginal Income Tax Rate 39.60% Utilized maximum US tax rate to be conservativeCapital Gains Tax 20.00% Current US capital gains tax rate

Aloft San DiegoDiscounted Cash Flow AnalysisBefore Tax

Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

NOI from Profroma 1,664,049 1,965,117 2,075,345 2,185,724 2,240,367 2,292,240 2,341,273 2,420,487 2,463,626 2,636,075 2,792,682 Owner's Priority 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651

Cash in excess of Owner Priority - - - - - - - - - 53,423 210,030 Less: Incentive Management Fee 15.0% - - - - - - - - - 8,013 31,505 Less: FF&E Expenditures 381,685 408,941 425,028 441,417 452,452 463,515 474,607 487,713 498,863 517,987 539,091 Add: FF&E Reserve 381,685 408,941 425,028 441,417 452,452 463,515 474,607 487,713 498,863 517,987 539,091

Cash Flow Before Debt Service 1,664,049 1,965,117 2,075,345 2,185,724 2,240,367 2,292,240 2,341,273 2,420,487 2,463,626 2,628,061 2,761,177

Debt Service From Amort Schedule 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 DSC Ratio 1.46 1.72 1.82 1.92 1.96 2.01 2.05 2.12 2.16 2.30 2.42

DSC Ratio (After FF&E Reserve) 1.12 1.36 1.45 1.53 1.57 1.60 1.64 1.69 1.72 1.85 1.95

Free Cash Flow 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 1,323,288 1,487,723 1,620,839

Less: Depreciation of Building 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 Less Depreciation of FF&E 159,308 200,202 242,705 293,365 338,611 384,962 432,423 481,194 531,080 582,879 477,480

Less Pre-Opening Costs Year one 300,000 Taxable Income 571,003 1,131,177 1,198,901 1,258,621 1,268,018 1,273,540 1,275,112 1,305,555 1,298,807 1,411,444 1,649,959

Free Cash flow 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 1,323,288 1,487,723 1,620,839 Investment (1,541,520) (6,166,080)

Residual 18,481,078 Before Tax Cash Flow (1,541,520) (6,166,080) 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 1,323,288 19,968,802 1,620,839

Annual Cash on Cash

Cash Flow Before Debt Service 1,664,049 1,965,117 2,075,345 2,185,724 2,240,367 2,292,240 2,341,273 2,420,487 2,463,626 2,628,061 2,761,177 Investment (4,304,419) (17,217,676)

Residual Value 28,514,748 Total Cash Flow before Debt Service and Tax (4,304,419) (17,217,676) 1,664,049 1,965,117 2,075,345 2,185,724 2,240,367 2,292,240 2,341,273 2,420,487 2,463,626 31,142,809 2,761,177

Before Tax Analysis - Assumptions Levered UnLeveredDiscount Rate 12.00% Net Present Value $2,979,166 Net Present Value $29,268,941Selling Costs 3.00% IRR 17.8% IRR 11.5%Residual Cap Rate 9.50%p

Adjusted Basis Taxable Income Taxes Due upon SaleAcquisition Costs 21,522,095 Expected Selling Prince 29,396,647 Total Gain on Sale 6,387,176

Less Land Costs 0 Selling Expenses 881,899 Marginal Tax Rate 20.0%Less Preopening 300,000 Net Sales Proceeds 28,514,748 taxes Due upon Sale 1,277,435

Depreciable Costs 21,222,095 Adjusted Basis 22,127,572 Add Capital Investment (FF&E) 4,552,207 Total Gain on Sale 6,387,176 Net Sales Proceeds 28,514,748

Add Land - Less mortgage balance 12/31/25 8,756,235 Less Depreciation 3,646,730 Less Taxes on Sale 1,277,435

Adjusted Basis 22,127,572 Net Provceeds 18,481,078

Aloft San DiegoDiscounted Cash Flow AnalysisAfter Tax

Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

NOI from Profroma 1,664,049 1,965,117 2,075,345 2,185,724 2,240,367 2,292,240 2,341,273 2,420,487 2,463,626 2,636,075 2,792,682 Owner's Priority 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651 2,582,651

Cash in excess of Owner Priority - - - - - - - - - 53,423 210,030 Less: Incentive Management Fee 15.0% - - - - - - - - - 8,013 31,505 Less: FF&E Expenditures 381,685 408,941 425,028 441,417 452,452 463,515 474,607 487,713 498,863 517,987 539,091 Add: FF&E Reserve 381,685 408,941 425,028 441,417 452,452 463,515 474,607 487,713 498,863 517,987 539,091

Cash Flow Before Debt Service 1,664,049 1,965,117 2,075,345 2,185,724 2,240,367 2,292,240 2,341,273 2,420,487 2,463,626 2,628,061 2,761,177

Debt Service From Amort Schedule 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 1,140,338 DSC Ratio 1.46 1.72 1.82 1.92 1.96 2.01 2.05 2.12 2.16 2.30 2.42

DSC Ratio (After FF&E Reserve) 1.12 1.36 1.45 1.53 1.57 1.60 1.64 1.69 1.72 1.85 1.95

Free Cash Flow 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 1,323,288 1,487,723 1,620,839

Less: Depreciation of Building 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 506,600 Less Depreciation of FF&E 159,308 200,202 242,705 293,365 338,611 384,962 432,423 481,194 531,080 582,879 477,480

Less Pre-Opening Costs Year one 300,000 Taxable Income 571,003 1,131,177 1,198,901 1,258,621 1,268,018 1,273,540 1,275,112 1,305,555 1,298,807 1,411,444 1,649,959

Tax Rate 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6%Taxes 226,117 447,946 474,765 498,414 502,135 504,322 504,944 517,000 514,328 558,932 653,384

After Tax Cash Flow 297,594 683,231 724,136 760,207 765,883 769,218 770,168 788,555 784,480 852,512 996,576 Investment (1,541,520) (6,166,080)

Residual 18,481,078 After Tax Cash Flow (1,541,520) (6,166,080) 297,594 683,231 724,136 760,207 765,883 769,218 770,168 788,555 784,480 19,333,591 996,576 Annual Cash on Cash

Before Tax Analysis - Assumptions LeveredDiscount Rate 12.00% Net Present Value $1,526,863Selling Costs 3.00% IRR 15.0%Residual Cap Rate 9.50%

Adjusted Basis Taxable Income Taxes Due upon SaleAdjusted Basis Taxable Income Taxes Due upon SaleAcquisition Costs 21,522,095 Expected Selling Prince 29,396,647 Total Gain on Sale 6,387,176 Less Land Costs 0 Selling Expenses 881,899 Marginal Tax Rate 20.0%Less Preopening 300,000 Net Sales Proceeds 28,514,748 taxes Due upon Sale 1,277,435

Depreciable Costs 21,222,095 Adjusted Basis 22,127,572 Add Capital Investment (FF&E) 4,552,207 Total Gain on Sale 6,387,176 Net Sales Proceeds 28,514,748

Add Land - Less mortgage balance 12/31/25 8,756,235 Less Depreciation 3,646,730 Less Taxes on Sale 1,277,435

Adjusted Basis 22,127,572 Net Provceeds 18,481,078

Aloft San DiegoFF&E Depreciation Schedule

Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026** 2016 159,308 159,308 159,308 159,308 159,308 159,308 159,308 159,308 159,308 159,308

2017 40,894 40,894 40,894 40,894 40,894 40,894 40,894 40,894 40,894 40,894 2018 42,503 42,503 42,503 42,503 42,503 42,503 42,503 42,503 42,503 2019 50,660 50,660 50,660 50,660 50,660 50,660 50,660 50,660 2020 45,245 45,245 45,245 45,245 45,245 45,245 45,245 2021 46,352 46,352 46,352 46,352 46,352 46,352 2022 47,461 47,461 47,461 47,461 47,461 2023 48,771 48,771 48,771 48,771 2024 49,886 49,886 49,886 2025 51,799 51,799 2026 53,909

TOTAL Annual Depereciation 159,308 200,202 242,705 293,365 338,611 384,962 432,423 481,194 531,080 582,879 477,480 Accumulated Depreciation 159,308 359,511 602,216 895,582 1,234,192 1,619,154 2,051,577 2,532,771 3,063,851 3,646,730 4,124,210

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026Assumes reserve balance accrual is spent each year**Includes initial FF&E during construction

Fixed Rate Mortgage Summary

Initial Principal 13,814,494 Interest Rate 5.50% Fixed/YearTerm 20 YearsFirst Pay Date 1‐Jan‐16 1st of Month ONLY

Summary Statistics

Mortgage Payment 95,028.15 per month Ending BalanceDate 1‐Oct‐10Payoff Amount #N/A

Total Payment 95,028.15 per month

Total Interest 8,992,262.52 39.43% Bank Yield 5.64%Total Principal 13,814,494.47 60.57%Total Payment 22,806,756.99 100.00%

End Date December‐35Months 240Years 20.0

16,000,000120,000.00 Payment PrincipalI t t B l

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

‐

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

1‐Jan‐16

1‐Jun‐17

1‐Nov‐18

1‐Apr‐20

1‐Sep‐21

1‐Feb‐23

1‐Jul‐2

4

29‐Nov‐25

29‐Apr‐27

29‐Sep

‐28

28‐Feb

‐30

31‐Jul‐31

29‐Nov‐32

29‐Apr‐34

29‐Sep

‐35

28‐Feb

‐37

31‐Jul‐38

29‐Nov‐39

29‐Apr‐41

29‐Sep

‐42

29‐Feb

‐44

31‐Jul‐45

Payment PrincipalInterest Balance

Fixed Rate Mortgage SummaryAmortization Schedule

Period DateActual

PaymentRequired Payment BoP Principal Interest EoP

1 1‐Jan‐16 95,028.15 95,028.15 13,814,494.47 31,711.72 63,316.43 13,782,782.75 2 1‐Feb‐16 95,028.15 95,028.15 13,782,782.75 31,857.07 63,171.09 13,750,925.68 3 1‐Mar‐16 95,028.15 95,028.15 13,750,925.68 32,003.08 63,025.08 13,718,922.61 4 1‐Apr‐16 95,028.15 95,028.15 13,718,922.61 32,149.76 62,878.40 13,686,772.85 5 1‐May‐16 95,028.15 95,028.15 13,686,772.85 32,297.11 62,731.04 13,654,475.73 6 1‐Jun‐16 95,028.15 95,028.15 13,654,475.73 32,445.14 62,583.01 13,622,030.59 7 1‐Jul‐16 95,028.15 95,028.15 13,622,030.59 32,593.85 62,434.31 13,589,436.75 8 1‐Aug‐16 95,028.15 95,028.15 13,589,436.75 32,743.24 62,284.92 13,556,693.51 9 1‐Sep‐16 95,028.15 95,028.15 13,556,693.51 32,893.31 62,134.85 13,523,800.20 10 1‐Oct‐16 95,028.15 95,028.15 13,523,800.20 33,044.07 61,984.08 13,490,756.13 11 1‐Nov‐16 95,028.15 95,028.15 13,490,756.13 33,195.52 61,832.63 13,457,560.61 12 1‐Dec‐16 95,028.15 95,028.15 13,457,560.61 33,347.67 61,680.49 13,424,212.94 13 1‐Jan‐17 95,028.15 95,028.15 13,424,212.94 33,500.51 61,527.64 13,390,712.43 14 1‐Feb‐17 95,028.15 95,028.15 13,390,712.43 33,654.06 61,374.10 13,357,058.38 15 1‐Mar‐17 95,028.15 95,028.15 13,357,058.38 33,808.30 61,219.85 13,323,250.07 16 1‐Apr‐17 95,028.15 95,028.15 13,323,250.07 33,963.26 61,064.90 13,289,286.82 17 1‐May‐17 95,028.15 95,028.15 13,289,286.82 34,118.92 60,909.23 13,255,167.89 18 1‐Jun‐17 95,028.15 95,028.15 13,255,167.89 34,275.30 60,752.85 13,220,892.59 19 1‐Jul‐17 95,028.15 95,028.15 13,220,892.59 34,432.40 60,595.76 13,186,460.19 20 1‐Aug‐17 95,028.15 95,028.15 13,186,460.19 34,590.21 60,437.94 13,151,869.98 21 1‐Sep‐17 95,028.15 95,028.15 13,151,869.98 34,748.75 60,279.40 13,117,121.23 22 1‐Oct‐17 95,028.15 95,028.15 13,117,121.23 34,908.02 60,120.14 13,082,213.22 23 1‐Nov‐17 95,028.15 95,028.15 13,082,213.22 35,068.01 59,960.14 13,047,145.21 24 1‐Dec‐17 95,028.15 95,028.15 13,047,145.21 35,228.74 59,799.42 13,011,916.47 25 1 J 18 95 028 15 95 028 15 13 011 916 47 35 390 20 59 637 95 12 976 526 2725 1‐Jan‐18 95,028.15 95,028.15 13,011,916.47 35,390.20 59,637.95 12,976,526.27 26 1‐Feb‐18 95,028.15 95,028.15 12,976,526.27 35,552.41 59,475.75 12,940,973.86 27 1‐Mar‐18 95,028.15 95,028.15 12,940,973.86 35,715.36 59,312.80 12,905,258.50 28 1‐Apr‐18 95,028.15 95,028.15 12,905,258.50 35,879.05 59,149.10 12,869,379.45 29 1‐May‐18 95,028.15 95,028.15 12,869,379.45 36,043.50 58,984.66 12,833,335.95 30 1‐Jun‐18 95,028.15 95,028.15 12,833,335.95 36,208.70 58,819.46 12,797,127.25 31 1‐Jul‐18 95,028.15 95,028.15 12,797,127.25 36,374.65 58,653.50 12,760,752.60 32 1‐Aug‐18 95,028.15 95,028.15 12,760,752.60 36,541.37 58,486.78 12,724,211.23 33 1‐Sep‐18 95,028.15 95,028.15 12,724,211.23 36,708.85 58,319.30 12,687,502.37 34 1‐Oct‐18 95,028.15 95,028.15 12,687,502.37 36,877.10 58,151.05 12,650,625.27 35 1‐Nov‐18 95,028.15 95,028.15 12,650,625.27 37,046.12 57,982.03 12,613,579.15 36 1‐Dec‐18 95,028.15 95,028.15 12,613,579.15 37,215.92 57,812.24 12,576,363.23 37 1‐Jan‐19 95,028.15 95,028.15 12,576,363.23 37,386.49 57,641.66 12,538,976.74 38 1‐Feb‐19 95,028.15 95,028.15 12,538,976.74 37,557.84 57,470.31 12,501,418.90 39 1‐Mar‐19 95,028.15 95,028.15 12,501,418.90 37,729.98 57,298.17 12,463,688.92 40 1‐Apr‐19 95,028.15 95,028.15 12,463,688.92 37,902.91 57,125.24 12,425,786.00 41 1‐May‐19 95,028.15 95,028.15 12,425,786.00 38,076.63 56,951.52 12,387,709.37 42 1‐Jun‐19 95,028.15 95,028.15 12,387,709.37 38,251.15 56,777.00 12,349,458.21 43 1‐Jul‐19 95,028.15 95,028.15 12,349,458.21 38,426.47 56,601.68 12,311,031.74 44 1‐Aug‐19 95,028.15 95,028.15 12,311,031.74 38,602.59 56,425.56 12,272,429.15 45 1‐Sep‐19 95,028.15 95,028.15 12,272,429.15 38,779.52 56,248.63 12,233,649.63 46 1‐Oct‐19 95,028.15 95,028.15 12,233,649.63 38,957.26 56,070.89 12,194,692.37 47 1‐Nov‐19 95,028.15 95,028.15 12,194,692.37 39,135.81 55,892.34 12,155,556.56

Fixed Rate Mortgage Summary48 1‐Dec‐19 95,028.15 95,028.15 12,155,556.56 39,315.19 55,712.97 12,116,241.37 49 1‐Jan‐20 95,028.15 95,028.15 12,116,241.37 39,495.38 55,532.77 12,076,745.99 50 1‐Feb‐20 95,028.15 95,028.15 12,076,745.99 39,676.40 55,351.75 12,037,069.59 51 1‐Mar‐20 95,028.15 95,028.15 12,037,069.59 39,858.25 55,169.90 11,997,211.34 52 1‐Apr‐20 95,028.15 95,028.15 11,997,211.34 40,040.94 54,987.22 11,957,170.40 53 1‐May‐20 95,028.15 95,028.15 11,957,170.40 40,224.46 54,803.70 11,916,945.94 54 1‐Jun‐20 95,028.15 95,028.15 11,916,945.94 40,408.82 54,619.34 11,876,537.13 55 1‐Jul‐20 95,028.15 95,028.15 11,876,537.13 40,594.03 54,434.13 11,835,943.10 56 1‐Aug‐20 95,028.15 95,028.15 11,835,943.10 40,780.08 54,248.07 11,795,163.02 57 1‐Sep‐20 95,028.15 95,028.15 11,795,163.02 40,966.99 54,061.16 11,754,196.03 58 1‐Oct‐20 95,028.15 95,028.15 11,754,196.03 41,154.76 53,873.40 11,713,041.27 59 1‐Nov‐20 95,028.15 95,028.15 11,713,041.27 41,343.38 53,684.77 11,671,697.89 60 1‐Dec‐20 95,028.15 95,028.15 11,671,697.89 41,532.87 53,495.28 11,630,165.02 61 1‐Jan‐21 95,028.15 95,028.15 11,630,165.02 41,723.23 53,304.92 11,588,441.79 62 1‐Feb‐21 95,028.15 95,028.15 11,588,441.79 41,914.46 53,113.69 11,546,527.33 63 1‐Mar‐21 95,028.15 95,028.15 11,546,527.33 42,106.57 52,921.58 11,504,420.75 64 1‐Apr‐21 95,028.15 95,028.15 11,504,420.75 42,299.56 52,728.60 11,462,121.20 65 1‐May‐21 95,028.15 95,028.15 11,462,121.20 42,493.43 52,534.72 11,419,627.76 66 1‐Jun‐21 95,028.15 95,028.15 11,419,627.76 42,688.19 52,339.96 11,376,939.57 67 1‐Jul‐21 95,028.15 95,028.15 11,376,939.57 42,883.85 52,144.31 11,334,055.72 68 1‐Aug‐21 95,028.15 95,028.15 11,334,055.72 43,080.40 51,947.76 11,290,975.32 69 1‐Sep‐21 95,028.15 95,028.15 11,290,975.32 43,277.85 51,750.30 11,247,697.47 70 1‐Oct‐21 95,028.15 95,028.15 11,247,697.47 43,476.21 51,551.95 11,204,221.27 71 1‐Nov‐21 95,028.15 95,028.15 11,204,221.27 43,675.47 51,352.68 11,160,545.79 72 1‐Dec‐21 95,028.15 95,028.15 11,160,545.79 43,875.65 51,152.50 11,116,670.14 73 1‐Jan‐22 95,028.15 95,028.15 11,116,670.14 44,076.75 50,951.40 11,072,593.39 74 1‐Feb‐22 95,028.15 95,028.15 11,072,593.39 44,278.77 50,749.39 11,028,314.62 75 1‐Mar‐22 95 028 15 95 028 15 11 028 314 62 44 481 71 50 546 44 10 983 832 9175 1‐Mar‐22 95,028.15 95,028.15 11,028,314.62 44,481.71 50,546.44 10,983,832.91 76 1‐Apr‐22 95,028.15 95,028.15 10,983,832.91 44,685.59 50,342.57 10,939,147.32 77 1‐May‐22 95,028.15 95,028.15 10,939,147.32 44,890.40 50,137.76 10,894,256.93 78 1‐Jun‐22 95,028.15 95,028.15 10,894,256.93 45,096.14 49,932.01 10,849,160.79 79 1‐Jul‐22 95,028.15 95,028.15 10,849,160.79 45,302.83 49,725.32 10,803,857.95 80 1‐Aug‐22 95,028.15 95,028.15 10,803,857.95 45,510.47 49,517.68 10,758,347.48 81 1‐Sep‐22 95,028.15 95,028.15 10,758,347.48 45,719.06 49,309.09 10,712,628.42 82 1‐Oct‐22 95,028.15 95,028.15 10,712,628.42 45,928.61 49,099.55 10,666,699.81 83 1‐Nov‐22 95,028.15 95,028.15 10,666,699.81 46,139.11 48,889.04 10,620,560.70 84 1‐Dec‐22 95,028.15 95,028.15 10,620,560.70 46,350.58 48,677.57 10,574,210.11 85 1‐Jan‐23 95,028.15 95,028.15 10,574,210.11 46,563.02 48,465.13 10,527,647.09 86 1‐Feb‐23 95,028.15 95,028.15 10,527,647.09 46,776.44 48,251.72 10,480,870.65 87 1‐Mar‐23 95,028.15 95,028.15 10,480,870.65 46,990.83 48,037.32 10,433,879.82 88 1‐Apr‐23 95,028.15 95,028.15 10,433,879.82 47,206.20 47,821.95 10,386,673.62 89 1‐May‐23 95,028.15 95,028.15 10,386,673.62 47,422.57 47,605.59 10,339,251.05 90 1‐Jun‐23 95,028.15 95,028.15 10,339,251.05 47,639.92 47,388.23 10,291,611.13 91 1‐Jul‐23 95,028.15 95,028.15 10,291,611.13 47,858.27 47,169.88 10,243,752.86 92 1‐Aug‐23 95,028.15 95,028.15 10,243,752.86 48,077.62 46,950.53 10,195,675.24 93 1‐Sep‐23 95,028.15 95,028.15 10,195,675.24 48,297.98 46,730.18 10,147,377.26 94 1‐Oct‐23 95,028.15 95,028.15 10,147,377.26 48,519.34 46,508.81 10,098,857.92 95 1‐Nov‐23 95,028.15 95,028.15 10,098,857.92 48,741.72 46,286.43 10,050,116.20 96 1‐Dec‐23 95,028.15 95,028.15 10,050,116.20 48,965.12 46,063.03 10,001,151.08 97 1‐Jan‐24 95,028.15 95,028.15 10,001,151.08 49,189.55 45,838.61 9,951,961.53

Fixed Rate Mortgage Summary98 1‐Feb‐24 95,028.15 95,028.15 9,951,961.53 49,415.00 45,613.16 9,902,546.54 99 1‐Mar‐24 95,028.15 95,028.15 9,902,546.54 49,641.48 45,386.67 9,852,905.05 100 1‐Apr‐24 95,028.15 95,028.15 9,852,905.05 49,869.01 45,159.15 9,803,036.05 101 1‐May‐24 95,028.15 95,028.15 9,803,036.05 50,097.57 44,930.58 9,752,938.47 102 1‐Jun‐24 95,028.15 95,028.15 9,752,938.47 50,327.19 44,700.97 9,702,611.29 103 1‐Jul‐24 95,028.15 95,028.15 9,702,611.29 50,557.85 44,470.30 9,652,053.44 104 1‐Aug‐24 95,028.15 95,028.15 9,652,053.44 50,789.58 44,238.58 9,601,263.86 105 1‐Sep‐24 95,028.15 95,028.15 9,601,263.86 51,022.36 44,005.79 9,550,241.50 106 1‐Oct‐24 95,028.15 95,028.15 9,550,241.50 51,256.21 43,771.94 9,498,985.29 107 1‐Nov‐24 95,028.15 95,028.15 9,498,985.29 51,491.14 43,537.02 9,447,494.15 108 1‐Dec‐24 95,028.15 95,028.15 9,447,494.15 51,727.14 43,301.01 9,395,767.01 109 1‐Jan‐25 95,028.15 95,028.15 9,395,767.01 51,964.22 43,063.93 9,343,802.79 110 1‐Feb‐25 95,028.15 95,028.15 9,343,802.79 52,202.39 42,825.76 9,291,600.39 111 1‐Mar‐25 95,028.15 95,028.15 9,291,600.39 52,441.65 42,586.50 9,239,158.74 112 1‐Apr‐25 95,028.15 95,028.15 9,239,158.74 52,682.01 42,346.14 9,186,476.73 113 1‐May‐25 95,028.15 95,028.15 9,186,476.73 52,923.47 42,104.69 9,133,553.26 114 1‐Jun‐25 95,028.15 95,028.15 9,133,553.26 53,166.03 41,862.12 9,080,387.23 115 1‐Jul‐25 95,028.15 95,028.15 9,080,387.23 53,409.71 41,618.44 9,026,977.52 116 1‐Aug‐25 95,028.15 95,028.15 9,026,977.52 53,654.51 41,373.65 8,973,323.01 117 1‐Sep‐25 95,028.15 95,028.15 8,973,323.01 53,900.42 41,127.73 8,919,422.58 118 1‐Oct‐25 95,028.15 95,028.15 8,919,422.58 54,147.47 40,880.69 8,865,275.12 119 1‐Nov‐25 95,028.15 95,028.15 8,865,275.12 54,395.64 40,632.51 8,810,879.47 120 1‐Dec‐25 95,028.15 95,028.15 8,810,879.47 54,644.96 40,383.20 8,756,234.52 121 1‐Jan‐26 95,028.15 95,028.15 8,756,234.52 54,895.41 40,132.74 8,701,339.10 122 1‐Feb‐26 95,028.15 95,028.15 8,701,339.10 55,147.02 39,881.14 8,646,192.09 123 1‐Mar‐26 95,028.15 95,028.15 8,646,192.09 55,399.77 39,628.38 8,590,792.31 124 1‐Apr‐26 95,028.15 95,028.15 8,590,792.31 55,653.69 39,374.46 8,535,138.63 125 1‐May‐26 95 028 15 95 028 15 8 535 138 63 55 908 77 39 119 39 8 479 229 86125 1‐May‐26 95,028.15 95,028.15 8,535,138.63 55,908.77 39,119.39 8,479,229.86 126 1‐Jun‐26 95,028.15 95,028.15 8,479,229.86 56,165.02 38,863.14 8,423,064.84 127 1‐Jul‐26 95,028.15 95,028.15 8,423,064.84 56,422.44 38,605.71 8,366,642.40 128 1‐Aug‐26 95,028.15 95,028.15 8,366,642.40 56,681.04 38,347.11 8,309,961.36 129 1‐Sep‐26 95,028.15 95,028.15 8,309,961.36 56,940.83 38,087.32 8,253,020.52 130 1‐Oct‐26 95,028.15 95,028.15 8,253,020.52 57,201.81 37,826.34 8,195,818.71 131 1‐Nov‐26 95,028.15 95,028.15 8,195,818.71 57,463.99 37,564.17 8,138,354.73 132 1‐Dec‐26 95,028.15 95,028.15 8,138,354.73 57,727.36 37,300.79 8,080,627.37 133 1‐Jan‐27 95,028.15 95,028.15 8,080,627.37 57,991.95 37,036.21 8,022,635.42 134 1‐Feb‐27 95,028.15 95,028.15 8,022,635.42 58,257.74 36,770.41 7,964,377.68 135 1‐Mar‐27 95,028.15 95,028.15 7,964,377.68 58,524.76 36,503.40 7,905,852.92 136 1‐Apr‐27 95,028.15 95,028.15 7,905,852.92 58,792.99 36,235.16 7,847,059.93 137 1‐May‐27 95,028.15 95,028.15 7,847,059.93 59,062.46 35,965.69 7,787,997.47 138 1‐Jun‐27 95,028.15 95,028.15 7,787,997.47 59,333.17 35,694.99 7,728,664.30 139 1‐Jul‐27 95,028.15 95,028.15 7,728,664.30 59,605.11 35,423.04 7,669,059.19 140 1‐Aug‐27 95,028.15 95,028.15 7,669,059.19 59,878.30 35,149.85 7,609,180.89 141 1‐Sep‐27 95,028.15 95,028.15 7,609,180.89 60,152.74 34,875.41 7,549,028.15 142 1‐Oct‐27 95,028.15 95,028.15 7,549,028.15 60,428.44 34,599.71 7,488,599.71 143 1‐Nov‐27 95,028.15 95,028.15 7,488,599.71 60,705.41 34,322.75 7,427,894.30 144 1‐Dec‐27 95,028.15 95,028.15 7,427,894.30 60,983.64 34,044.52 7,366,910.66 145 1‐Jan‐28 95,028.15 95,028.15 7,366,910.66 61,263.15 33,765.01 7,305,647.52 146 1‐Feb‐28 95,028.15 95,028.15 7,305,647.52 61,543.94 33,484.22 7,244,103.58 147 1‐Mar‐28 95,028.15 95,028.15 7,244,103.58 61,826.01 33,202.14 7,182,277.57

Fixed Rate Mortgage Summary148 1‐Apr‐28 95,028.15 95,028.15 7,182,277.57 62,109.38 32,918.77 7,120,168.19 149 1‐May‐28 95,028.15 95,028.15 7,120,168.19 62,394.05 32,634.10 7,057,774.14 150 1‐Jun‐28 95,028.15 95,028.15 7,057,774.14 62,680.02 32,348.13 6,995,094.11 151 1‐Jul‐28 95,028.15 95,028.15 6,995,094.11 62,967.31 32,060.85 6,932,126.81 152 1‐Aug‐28 95,028.15 95,028.15 6,932,126.81 63,255.91 31,772.25 6,868,870.90 153 1‐Sep‐28 95,028.15 95,028.15 6,868,870.90 63,545.83 31,482.32 6,805,325.07 154 1‐Oct‐28 95,028.15 95,028.15 6,805,325.07 63,837.08 31,191.07 6,741,487.99 155 1‐Nov‐28 95,028.15 95,028.15 6,741,487.99 64,129.67 30,898.49 6,677,358.32 156 1‐Dec‐28 95,028.15 95,028.15 6,677,358.32 64,423.60 30,604.56 6,612,934.73 157 1‐Jan‐29 95,028.15 95,028.15 6,612,934.73 64,718.87 30,309.28 6,548,215.86 158 1‐Feb‐29 95,028.15 95,028.15 6,548,215.86 65,015.50 30,012.66 6,483,200.36 159 1‐Mar‐29 95,028.15 95,028.15 6,483,200.36 65,313.49 29,714.67 6,417,886.88 160 1‐Apr‐29 95,028.15 95,028.15 6,417,886.88 65,612.84 29,415.31 6,352,274.04 161 1‐May‐29 95,028.15 95,028.15 6,352,274.04 65,913.56 29,114.59 6,286,360.47 162 1‐Jun‐29 95,028.15 95,028.15 6,286,360.47 66,215.67 28,812.49 6,220,144.80 163 1‐Jul‐29 95,028.15 95,028.15 6,220,144.80 66,519.16 28,509.00 6,153,625.65 164 1‐Aug‐29 95,028.15 95,028.15 6,153,625.65 66,824.04 28,204.12 6,086,801.61 165 1‐Sep‐29 95,028.15 95,028.15 6,086,801.61 67,130.31 27,897.84 6,019,671.30 166 1‐Oct‐29 95,028.15 95,028.15 6,019,671.30 67,437.99 27,590.16 5,952,233.30 167 1‐Nov‐29 95,028.15 95,028.15 5,952,233.30 67,747.08 27,281.07 5,884,486.22 168 1‐Dec‐29 95,028.15 95,028.15 5,884,486.22 68,057.59 26,970.56 5,816,428.62 169 1‐Jan‐30 95,028.15 95,028.15 5,816,428.62 68,369.52 26,658.63 5,748,059.10 170 1‐Feb‐30 95,028.15 95,028.15 5,748,059.10 68,682.88 26,345.27 5,679,376.22 171 1‐Mar‐30 95,028.15 95,028.15 5,679,376.22 68,997.68 26,030.47 5,610,378.54 172 1‐Apr‐30 95,028.15 95,028.15 5,610,378.54 69,313.92 25,714.23 5,541,064.62 173 1‐May‐30 95,028.15 95,028.15 5,541,064.62 69,631.61 25,396.55 5,471,433.01 174 1‐Jun‐30 95,028.15 95,028.15 5,471,433.01 69,950.75 25,077.40 5,401,482.26 175 1‐Jul‐30 95 028 15 95 028 15 5 401 482 26 70 271 36 24 756 79 5 331 210 90175 1‐Jul‐30 95,028.15 95,028.15 5,401,482.26 70,271.36 24,756.79 5,331,210.90 176 1‐Aug‐30 95,028.15 95,028.15 5,331,210.90 70,593.44 24,434.72 5,260,617.46 177 1‐Sep‐30 95,028.15 95,028.15 5,260,617.46 70,916.99 24,111.16 5,189,700.47 178 1‐Oct‐30 95,028.15 95,028.15 5,189,700.47 71,242.03 23,786.13 5,118,458.44 179 1‐Nov‐30 95,028.15 95,028.15 5,118,458.44 71,568.55 23,459.60 5,046,889.89 180 1‐Dec‐30 95,028.15 95,028.15 5,046,889.89 71,896.58 23,131.58 4,974,993.32 181 1‐Jan‐31 95,028.15 95,028.15 4,974,993.32 72,226.10 22,802.05 4,902,767.21 182 1‐Feb‐31 95,028.15 95,028.15 4,902,767.21 72,557.14 22,471.02 4,830,210.08 183 1‐Mar‐31 95,028.15 95,028.15 4,830,210.08 72,889.69 22,138.46 4,757,320.38 184 1‐Apr‐31 95,028.15 95,028.15 4,757,320.38 73,223.77 21,804.39 4,684,096.62 185 1‐May‐31 95,028.15 95,028.15 4,684,096.62 73,559.38 21,468.78 4,610,537.24 186 1‐Jun‐31 95,028.15 95,028.15 4,610,537.24 73,896.53 21,131.63 4,536,640.71 187 1‐Jul‐31 95,028.15 95,028.15 4,536,640.71 74,235.22 20,792.94 4,462,405.50 188 1‐Aug‐31 95,028.15 95,028.15 4,462,405.50 74,575.46 20,452.69 4,387,830.03 189 1‐Sep‐31 95,028.15 95,028.15 4,387,830.03 74,917.27 20,110.89 4,312,912.77 190 1‐Oct‐31 95,028.15 95,028.15 4,312,912.77 75,260.64 19,767.52 4,237,652.13 191 1‐Nov‐31 95,028.15 95,028.15 4,237,652.13 75,605.58 19,422.57 4,162,046.55 192 1‐Dec‐31 95,028.15 95,028.15 4,162,046.55 75,952.11 19,076.05 4,086,094.44 193 1‐Jan‐32 95,028.15 95,028.15 4,086,094.44 76,300.22 18,727.93 4,009,794.22 194 1‐Feb‐32 95,028.15 95,028.15 4,009,794.22 76,649.93 18,378.22 3,933,144.29 195 1‐Mar‐32 95,028.15 95,028.15 3,933,144.29 77,001.24 18,026.91 3,856,143.05 196 1‐Apr‐32 95,028.15 95,028.15 3,856,143.05 77,354.17 17,673.99 3,778,788.88 197 1‐May‐32 95,028.15 95,028.15 3,778,788.88 77,708.71 17,319.45 3,701,080.17

Fixed Rate Mortgage Summary198 1‐Jun‐32 95,028.15 95,028.15 3,701,080.17 78,064.87 16,963.28 3,623,015.30 199 1‐Jul‐32 95,028.15 95,028.15 3,623,015.30 78,422.67 16,605.49 3,544,592.64 200 1‐Aug‐32 95,028.15 95,028.15 3,544,592.64 78,782.10 16,246.05 3,465,810.53 201 1‐Sep‐32 95,028.15 95,028.15 3,465,810.53 79,143.19 15,884.96 3,386,667.34 202 1‐Oct‐32 95,028.15 95,028.15 3,386,667.34 79,505.93 15,522.23 3,307,161.42 203 1‐Nov‐32 95,028.15 95,028.15 3,307,161.42 79,870.33 15,157.82 3,227,291.08 204 1‐Dec‐32 95,028.15 95,028.15 3,227,291.08 80,236.40 14,791.75 3,147,054.68 205 1‐Jan‐33 95,028.15 95,028.15 3,147,054.68 80,604.15 14,424.00 3,066,450.53 206 1‐Feb‐33 95,028.15 95,028.15 3,066,450.53 80,973.59 14,054.56 2,985,476.94 207 1‐Mar‐33 95,028.15 95,028.15 2,985,476.94 81,344.72 13,683.44 2,904,132.22 208 1‐Apr‐33 95,028.15 95,028.15 2,904,132.22 81,717.55 13,310.61 2,822,414.67 209 1‐May‐33 95,028.15 95,028.15 2,822,414.67 82,092.09 12,936.07 2,740,322.58 210 1‐Jun‐33 95,028.15 95,028.15 2,740,322.58 82,468.34 12,559.81 2,657,854.24 211 1‐Jul‐33 95,028.15 95,028.15 2,657,854.24 82,846.32 12,181.83 2,575,007.92 212 1‐Aug‐33 95,028.15 95,028.15 2,575,007.92 83,226.03 11,802.12 2,491,781.89 213 1‐Sep‐33 95,028.15 95,028.15 2,491,781.89 83,607.49 11,420.67 2,408,174.40 214 1‐Oct‐33 95,028.15 95,028.15 2,408,174.40 83,990.69 11,037.47 2,324,183.71 215 1‐Nov‐33 95,028.15 95,028.15 2,324,183.71 84,375.65 10,652.51 2,239,808.07 216 1‐Dec‐33 95,028.15 95,028.15 2,239,808.07 84,762.37 10,265.79 2,155,045.70 217 1‐Jan‐34 95,028.15 95,028.15 2,155,045.70 85,150.86 9,877.29 2,069,894.84 218 1‐Feb‐34 95,028.15 95,028.15 2,069,894.84 85,541.14 9,487.02 1,984,353.70 219 1‐Mar‐34 95,028.15 95,028.15 1,984,353.70 85,933.20 9,094.95 1,898,420.50 220 1‐Apr‐34 95,028.15 95,028.15 1,898,420.50 86,327.06 8,701.09 1,812,093.44 221 1‐May‐34 95,028.15 95,028.15 1,812,093.44 86,722.73 8,305.43 1,725,370.72 222 1‐Jun‐34 95,028.15 95,028.15 1,725,370.72 87,120.21 7,907.95 1,638,250.51 223 1‐Jul‐34 95,028.15 95,028.15 1,638,250.51 87,519.51 7,508.65 1,550,731.00 224 1‐Aug‐34 95,028.15 95,028.15 1,550,731.00 87,920.64 7,107.52 1,462,810.37 225 1‐Sep‐34 95 028 15 95 028 15 1 462 810 37 88 323 61 6 704 55 1 374 486 76225 1‐Sep‐34 95,028.15 95,028.15 1,462,810.37 88,323.61 6,704.55 1,374,486.76 226 1‐Oct‐34 95,028.15 95,028.15 1,374,486.76 88,728.42 6,299.73 1,285,758.34 227 1‐Nov‐34 95,028.15 95,028.15 1,285,758.34 89,135.10 5,893.06 1,196,623.24 228 1‐Dec‐34 95,028.15 95,028.15 1,196,623.24 89,543.63 5,484.52 1,107,079.61 229 1‐Jan‐35 95,028.15 95,028.15 1,107,079.61 89,954.04 5,074.11 1,017,125.57 230 1‐Feb‐35 95,028.15 95,028.15 1,017,125.57 90,366.33 4,661.83 926,759.24 231 1‐Mar‐35 95,028.15 95,028.15 926,759.24 90,780.51 4,247.65 835,978.74 232 1‐Apr‐35 95,028.15 95,028.15 835,978.74 91,196.58 3,831.57 744,782.15 233 1‐May‐35 95,028.15 95,028.15 744,782.15 91,614.57 3,413.58 653,167.58 234 1‐Jun‐35 95,028.15 95,028.15 653,167.58 92,034.47 2,993.68 561,133.11 235 1‐Jul‐35 95,028.15 95,028.15 561,133.11 92,456.29 2,571.86 468,676.82 236 1‐Aug‐35 95,028.15 95,028.15 468,676.82 92,880.05 2,148.10 375,796.77 237 1‐Sep‐35 95,028.15 95,028.15 375,796.77 93,305.75 1,722.40 282,491.01 238 1‐Oct‐35 95,028.15 95,028.15 282,491.01 93,733.40 1,294.75 188,757.61 239 1‐Nov‐35 95,028.15 95,028.15 188,757.61 94,163.02 865.14 94,594.60 240 1‐Dec‐35 95,028.15 95,028.15 94,594.60 94,594.60 433.56 0.00

San Diego AloftWaterfallWaterfall Sample Period 1 2 3 4 5 6 7 8 9 10 11 12($MMs) Total 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025

PROJECT FUNDINGEquity Contributions (1,541,520) (6,166,080) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Sponsor 15% (1,156,140) (231,228) (924,912) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Equity Partner 85% (6,551,460) (1,310,292) (5,241,168) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total 100% (7,707,600) (1,541,520) (6,166,080) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Proceeds for Distribution 29,353,987 0 0 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 1,323,288 19,968,802

Project Cash Flow 21,646,387 (1,541,520) (6,166,080) 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 1,323,288 19,968,802Profit $21,646,387IRR 17.78%Multiple 3.81x

STRUCTURETier 1 0.000285959

BoP Balance 0 (1,541,520) (7,721,324) (7,266,354) (6,506,266) (5,629,184) (4,633,913) (3,575,139) (2,455,067) (1,275,989) (7,200) 0Equity Contributions (7,707,600) (1,541,520) (6,166,080) 0 0 0 0 0 0 0 0 0 0Accrual 11.00% (361,562) 0 (13,724) (68,742) (64,691) (57,924) (50,116) (41,255) (31,829) (21,857) (11,360) (64) 0Paydown 8,069,162 0 0 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 7,264 0EoP Balance (1,541,520) (7,721,324) (7,266,354) (6,506,266) (5,629,184) (4,633,913) (3,575,139) (2,455,067) (1,275,989) (7,200) 0 0Cash left for distribution 21,284,825 0 0 0 0 0 0 0 0 0 0 1,316,024 19,968,802IRR Check 0.89% 361,562 (1,541,520) (6,166,080) 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 7,264 0

Tier 2 0.000453567Starting Balance 0 (1,541,520) (7,729,423) (7,315,134) (6,593,913) (5,752,254) (4,788,300) (3,756,058) (2,657,329) (1,494,013) (235,015) 0Equity Contributions (7,707,600) (1,541,520) (6,166,080) 0 0 0 0 0 0 0 0 0 0Accrual 18.00% 0 (21,823) (109,423) (103,558) (93,348) (81,433) (67,786) (53,173) (37,619) (21,150) (3,327) 0Paydown 8,300,240 0 0 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 238,342 0Balance (1,541,520) (7,729,423) (7,315,134) (6,593,913) (5,752,254) (4,788,300) (3,756,058) (2,657,329) (1,494,013) (235,015) 0 0Cash left for distribution 21,053,748 0 0 0 0 0 0 0 0 0 0 1,084,946 19,968,802IRR Check 1.4% 592,640 (1,541,520) (6,166,080) 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 238,342 0

Cash Flows to each tranche:I. Pari Passu to an IRR of 11.00% 8,069,162 0 0 523,711 824,780 935,007 1,045,386 1,100,029 1,151,902 1,200,935 1,280,149 7,264 0

Sponsor 15.00% 1,210,374 0 0 78,557 123,717 140,251 156,808 165,004 172,785 180,140 192,022 1,090 0Equity Partner 85.00% 6,858,788 0 0 445,155 701,063 794,756 888,578 935,025 979,116 1,020,794 1,088,127 6,175 0

II. Splits up to an IRR of 18.00% 231,078 0 0 0 0 0 0 0 0 0 0 231,078 0Sponsor 25.00% 57,769 0 0 0 0 0 0 0 0 0 0 57,769 0Equity Partner 75.00% 173,308 0 0 0 0 0 0 0 0 0 0 173,308 0

Cash left for Distribution 21,053,748 0 0 0 0 0 0 0 0 0 0 1,084,946 19,968,802

III. Sponsor Promote 35.00% 7,368,812 0 0 0 0 0 0 0 0 0 0 379,731 6,989,081

Cash to Equity 65.00% 13,684,936 0 0 0 0 0 0 0 0 0 0 705,215 12,979,721Sponsor 15.00% 2,052,740 0 0 0 0 0 0 0 0 0 0 105,782 1,946,958Equity Partner 85.00% 11,632,196 0 0 0 0 0 0 0 0 0 0 599,433 11,032,763

INVESTOR CASH FLOWSSPONSOR

Equity Investment (1,156,140) (231,228) (924,912) 0 0 0 0 0 0 0 0 0 0Proceeds 10,689,696 0 0 78,557 123,717 140,251 156,808 165,004 172,785 180,140 192,022 544,372 8,936,039CF 9,533,556 (231,228) (924,912) 78,557 123,717 140,251 156,808 165,004 172,785 180,140 192,022 544,372 8,936,039Profit $9,533,555.8% of Total Profit 44.0%IRR 28.01%Multiple 9.25x

EQUITY PARTNEREquity Investment (6,551,460) (1,310,292) (5,241,168) 0 0 0 0 0 0 0 0 0 0Proceeds 18,664,292 0 0 445,155 701,063 794,756 888,578 935,025 979,116 1,020,794 1,088,127 778,915 11,032,763CF 12,112,832 (1,310,292) (5,241,168) 445,155 701,063 794,756 888,578 935,025 979,116 1,020,794 1,088,127 778,915 11,032,763Profit $12,112,831.6% of Total Profit 56.0%IRR 14.44%Multiple 2.85x

Check TRUE

Crystal Ball Full Report.xlsx

Crystal Ball Report - FullSimulation started on 4/22/2012 at 7:41 AMSimulation stopped on 4/22/2012 at 7:42 AM

Run preferences:Number of trials run 100,000Extreme speedMonte CarloRandom seedPrecision control on Confidence level 95.00%

Run statistics:Total running time (sec) 56.02Trials/second (average) 1,785Random numbers per sec 71,399

Crystal Ball data:Assumptions 40 Correlations 0 Correlated groups 0Decision variables 0Forecasts 4

Page 1Page 1


Forecasts

Worksheet: [FINAL CRYSTAL BALL Ver4 Aloft San Diego Financial Analysis.xlsx]DCF Analysis Before Tax

Forecast: Levered IRR Cell: V38

Summary:Entire range is from -21.7% to 34.7%Base case is 17.8%After 99,908 trials, the std. error of the mean is 0.0%

Statistics: Forecast valuesTrials 99,908Base Case 17.8%Mean 16.1%Median 16.4%Mode ---ModeStandard Deviation 5.7%Variance 0.3%Skewness -0.3397Kurtosis 3.27Coeff. of Variability 0.3517Minimum -21.7%Maximum 34.7%Range Width 56.4%Mean Std. Error 0.0%Cell Errors 92

Page 2


Forecast: Levered IRR (cont'd) Cell: V38

Percentiles: Forecast values0% -21.7%10% 8.8%20% 11.3%30% 13.2%40% 14.8%50% 16.4%60% 17.8%70% 19.4%80% 21.1%90% 23.2%100% 34.7%

Page 3


Forecast: Levered NPV Cell: V37

Summary:Entire range is from ($17,954,245) to $19,641,399Base case is $2,979,166After 100,000 trials, the std. error of the mean is $10,682

Statistics: Forecast valuesTrials 100,000Base Case $2,979,166Mean $2,334,906Median $2,441,016Mode ---Standard Deviation $3,377,840Variance $11,409,804,581,732Skewness -0.1989Kurtosis 3.29Coeff. of Variability 1.45Coeff. of Variability 1.45Minimum ($17,954,245)Maximum $19,641,399Range Width $37,595,644Mean Std. Error $10,682

Page 4


Forecast: Levered NPV (cont'd) Cell: V37

Percentiles: Forecast values0% ($17,954,245)10% ($1,999,650)20% ($417,006)30% $682,93740% $1,603,96750% $2,441,01160% $3,261,32470% $4,145,48380% $5,142,09690% $6,547,486100% $19,641,399

Page 5


Forecast: Unlevered IRR Cell: Z38

Summary:Entire range is from -21.3% to 24.8%Base case is 13.0%After 99,989 trials, the std. error of the mean is 0.0%

Statistics: Forecast valuesTrials 99,989Base Case 13.0%Mean 12.6%Median 12.9%Mode ---Standard Deviation 3.3%Variance 0.1%Skewness -0.6800Kurtosis 4.48Coeff. of Variability 0.2598Minimum -21.3%Maximum 24.8%Range Width 46.1%Range Width 46.1%Mean Std. Error 0.0%Cell Errors 11

Page 6


Forecast: Unlevered IRR (cont'd) Cell: Z38

Percentiles: Forecast values0% -21.3%10% 8.4%20% 10.1%30% 11.2%40% 12.1%50% 12.9%60% 13.7%70% 14.5%80% 15.3%90% 16.5%100% 24.8%

Page 7


Forecast: Unlevered NPV Cell: Z37

Summary:Entire range is from ($16,106,897) to $102,314,540Base case is $31,268,941After 100,000 trials, the std. error of the mean is $36,758

Statistics: Forecast valuesTrials 100,000Base Case $31,268,941Mean $31,254,132Median $30,942,098Mode ---Standard Deviation $11,623,948Variance #################Skewness 0.1564Kurtosis 3.14Coeff. of Variability 0.3719Minimum ($16,106,897)Maximum $102,314,540Range Width $118,421,437Range Width $118,421,437Mean Std. Error $36,758

Page 8


Forecast: Unlevered NPV (cont'd) Cell: Z37

Percentiles: Forecast values0% ($16,106,897)10% $16,606,38720% $21,518,25230% $25,034,16640% $28,048,35450% $30,942,01960% $33,917,98270% $37,067,39680% $40,877,74090% $46,216,062100% $102,314,540

End of Forecasts

Page 9


Assumptions

Worksheet: [FINAL CRYSTAL BALL Ver4 Aloft San Diego Financial Analysis.xlsx]Assumptions

Assumption: Residual Cap Rate Cell: C71

Normal distribution with parameters:Mean 9.50%Std. Dev. 0.95%

Worksheet: [FINAL CRYSTAL BALL Ver4 Aloft San Diego Financial Analysis.xlsx]Base Case 10-Year Pro Froma

Assumption: Year 2 Average Daily Rate USD Cell: C10

Normal distribution with parameters:Mean 190.00Std. Dev. 19.00

Assumption: Year 2 Occupancy % Cell: C9

Triangular distribution with parameters:Minimum 68.0%Likeliest 78.0%Maximum 88.0%

Page 10


Assumption: Year 3 Average Daily Rate USD Cell: D10


Assumption: Year 3 Occupancy % Cell: D9


Assumption: Year 4 Average Daily Rate USD Cell: E10


Assumption: Year 4 Occupancy % Cell: E9

Triangular distribution with parameters:Triangular distribution with parameters:Minimum 70.0%Likeliest 80.0%Maximum 90.0%

Page 11


Assumption: Year 5 Average Daily Rate USD Cell: F10


Assumption: Year 5 Occupancy % Cell: F9


Assumption: Year 6 Average Daily Rate USD Cell: G10


Assumption: Year 6 Occupancy % Cell: G9


Page 12


Assumption: Year 7 Average Daily Rate USD Cell: H10


Assumption: Year 7 Occupancy % Cell: H9


Assumption: Year 1 Average Daily Rate USD Cell: B10


Assumption: Year 1 Occupancy % Cell: B9


Page 13


Assumption: Year 8 Average Daily Rate USD Cell: I10


Assumption: Year 8 Occupancy % Cell: I9


Assumption: Year 9 Average Daily Rate USD Cell: J10


Assumption: Year 9 Occupancy % Cell: J9


Page 14


Assumption: Year 10 Average Daily Rate USD Cell: K10


Assumption: Year 10 Occupancy % Cell: K9


Assumption: Year 11 Average Daily Rate USD Cell: L10


Assumption: Year 11 Occupancy % Cell: L9


Page 15


Worksheet: [FINAL CRYSTAL BALL Ver4 Aloft San Diego Financial Analysis.xlsx]Pro Forma Assumptions

Assumption: Revenue Inflation Cell: C10


Assumption: Expense Inflation Cell: C11


Assumption: Food and Beverage Revenue per Sold Room Cell: E17


Assumption: Other Operated Departments Revenue per Sold Room Cell: E18


Page 16


Assumption: Rentals and Other Income Revenue per Sold Room Cell: E19


Assumption: Rooms Expenses per Sold Room Cell: E22


Assumption: Food and Beverage Expense % Cell: E23


Assumption: Other Operating Departments Expense % Cell: E24

Normal distribution with parameters:Normal distribution with parameters:Mean 61.8%Std. Dev. 6.2%

Page 17


Assumption: Administrative and General Cost Per Available Room Cell: E28


Assumption: Sales and Marketing Cost Per Available Room Cell: E30


Assumption: Starwood Preferred Guests Fee % of Total Revenue Cell: E31


Assumption: Program Fee % of Total Revenue Cell: E32

Normal distribution with parameters:Normal distribution with parameters:Mean 3.6%Std. Dev. 0.4%

Page 18


Assumption: Property Operations and Maintenance Expense per Available Room Cell: E33


Assumption: Energy Expense Per Available Room Cell: E34


Assumption: Real Estate Tax Expense per Available Room Cell: E35


Assumption: Insurance Expense per Available Room Cell: E36

Normal distribution with parameters:Normal distribution with parameters:Mean 1.31Std. Dev. 0.13

Page 19


Assumption: Ground Rent to Port (% of Total Revenue) Cell: E37


End of Assumptions

Page 20

Date post:	31-Jan-2018
Category:	Documents
Upload:	truongnguyet
View:	232 times
Download:	0 times

ANALYZING THE VIABILITY OF THE ANALYZING THE VIABILITY OF THE CONSTRUCTION AND OPERATION OF AN ......

Documents