Hotel Business Plan Haven Gate Fund

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HotelBusiness Plan: Haven Gate Fund

InstitutionAffiliation:

TABLEOF CONTENTS

  1. EXECUTIVE SUMMARY…………………………………….………….3

  2. PART I: ORGANIZATION PLAN………………………………………..4-9

Mission………………………………………………………………………..4

BusinessModel…………………………………….………………………….4

Strategy……………………………………………………………………….5

Facility………………………………………………………………………..6

Productand Services……………………………………………………….…6

HotelProduct and Services Offering………………………………………….6

ResidentialProducts and Services Offering……………………………….…8

AdministrativePlan……………………………………………………………9

  1. MARKETING PLAN……………………………………………..…………12-32

TargetMarket Overview……………………………………..………………..12

Tourismand Transportation…………………………………………….…….13

Housingand Population……………………………………….………………14

MarketingPlan………………………………………………………….…….16

Residential…………………………………………………………….………18

PrimaryCompetitors of the Subject Hotel…………………………….………21

SecondaryCompetitors of the SubjectHotel…………………………………………….23

SupplySummary and Comparison…………………………………….………25

ResidentialCompetition Analysis ……………………………………………25

FairmontPacific Rim ……………….…………………………..………..……25

Shangri-La………………………………….…………………………………26

JamesonHouse…………………………………………………………….….27

L’Hermitageen Ville…………………………………………………….……28

ThreeHarbor Green……………………………………………………………29

SupplySummary and Comparison……………………………………………………30

Pricingof the Hotel…………………………………………….………………30

ResidentialPricing………………………………………………………..……32

  1. PART III: FINANCIAL DOCUMENTS…………………………….……..35-46

Sourcesof Funds and Uses…………………………………………….………35

ExpectedFinancial Return…………………………………………………….36

DevelopmentBudget…………………………………………….……………..36

PermanentFinancing…………………………………….……………………..39

ProjectedHotel Performance………………………….………………………..39

ProjectedResidential Performance…………………….………………………..42

TaxCalculation………………………………………….………………………44

ExpectedEquity Returns…………………………….………………………….45

SensitivityAnalysis……………………………….…………………………….46

RiskManagement……………………………….………………………………48

Conclusion………………………………………….……………………………51

Appendix…………………………………………………………………………52

References……………………………………………………………………….55

EXECUTIVESUMMARY

HavenGate Fund, LLC (“Haven Gate”) is a project fund organizationwhich partners with the local developers in the international citiesto mainly develop mixed business projects. Most of the projects ofthe firm feature particularly luxury hotel factor. Haven Gaterecently acquired a 0.6 acre of a land or site in the downtownVancouver city. The company plans to develop a 60-story tower whichcomprises of a 150-room luxury hotel as well as 150 brand-name luxurycondominiums. The five possible brands which are being consideredhere include Ritz-Carlton, Mandarin Oriental, Four Seasons, and St.Regis.

Theproject will be situated in the downtown central part of theVancouver, British Columbia, one of the international gateway citiesand a home to the Winter Olympics 2010. The Vancouver city is diverseeconomically, with strong tourism base and is one of the most denselypopulated cities in the North America. The location of the project isnearby to the Robson Street shopping and entertainment district. Onthe other hand, the Coal Harbor beachfront makes it suitable andattractive to the corporate and leisure demanding clients includingsuperfluity condominium buyers.

Theproject is expected to be open in January 2020 based on a developmenttimeline of 36 months. The total construction cost which is expectedin this project is to be $362.8 million. Haven Gate is seeking debtas well as equity financing for the project as shown below.

Project Development Funding

Funding Source

Amount (Millions)

% of the Total Costs

Senior Construction Loan

$217.7

60%

Common Equity

$63.5

17.5%

Mezzanine Construction Cost

$54.4

15%

Haven Gate Equity

$27.2%

7.5%

Total

$362.8

100%

Itis expected that the 150 condominiums will sell at an average rate of3 units every month and manage to achieve an average sales of $1,450in every square foot, which will amount to $478.5 million in thegross sales income. Moreover, the luxury hotel is projected to atleast stabilize occupancy rate of 75% with daily rate being averagely$300 and attain a steadied EBITDA of about $3.1 million. The hotel isassumed to be sold approximately 10 years after opening with a grosssale of $35.1 million basing on the 9% terminal rate ofcapitalization. Note that the amounts in this business plan arepresented in Canadian dollars as the business will be located inCanadian city.

TheHaven Gate financial analysis for this project is somehowconservative given the current sluggish economic conditions and thestrained debt markets. Moreover, is anticipated to generate healthyincome returns to the investors, with a total equity before taxamounting to IRR of 18.9%. Also, the Haven Gate’s IRR is estimatedto reach 19.4% due to equity distribution of above 15% total currentreturns, while the residual equity investors are expected to realizean IRR of 18.7%.

PARTI: ORGANIZATION PLAN

HavenGate is a real estate venture and investment fund which partners withthe local developers in the international gateway worldwide cities tomainly develop a mixed business projects. Most of the firm’s plansfeature luxury hotel constituent.

Mission

HavenGate’s mission is to be viewed as a place for people, corporatesand tourists to relax and have peace of mind. We offer desired guestsilence, well-being, recovery and pleasure. Business travelers,corporates, tourists including long-range drivers will find a home torecover. Haven Gate is located around beachfront in Vancouver, aplace desirable and suitable for all.

BusinessModel

HavenGate acquired 0.6 acres of the land site at the Northern quadrant ofthe Thurlow Street and West Georgian Street in the suburbs of theVancouver city that it plans to build a sixty-story tower formixed-use business. The 20 floors of the lower side of the buildingwill be made up of 150-room branded luxury hotel. On the other hand,the 40 floors on the upper side of the building will be made up of150 luxury branded condominiums. The possible brands which are beingconsidered include Ritz-Carlton, Mandarin Oriental, Four Seasons, andSt. Regis. Haven Gate is seeking equity partners who will form ajoint venture that will undertake the development of this project.Haven Gate will contribute a portion of capital using entitled landas well as design costs and as a managing member who will beresponsible for the daily development, marketing, residential salesin addition to asset management obligations for this project.

Strategy

TheHaven Gate project presents a supreme opportunity to develop one ofthe best luxury hotel as well as condominiums in the Vancouver city,a place with strong Asian and U.S demand base capitalizing on theexpected demand growth from the expansion of the Vancouver Conventionand exhibition Center and more so future Winter Olympic Games whichhave high probability of being held in Vancouver few years after year2020 (Chan Kenneth, 2014).

Thelocation of this project within the CBD and propinquity to the RobsonStreet shopping and entertainment district makes it well positionedto attract leisure and corporate lodging demand. Moreover, downtownside of the Vancouver city is the most densely populated city side inCanada, and it represents among the top pupated urban centers in theworld (BC Stat, 2017). High demand for the luxury residence is mainlycaused by current residents of the British Columbia as well as nearbyprovinces and foreign residents seeking pied-a-terre or a second homein the Canada’s most lively coast city.

Giventhe strength of lodging market, the affiliation of the luxury brand,the product location in iconic 60-story tower and the above averagesize of the room in the downtown Vancouver is expected to penetratesuccessfully the high demand of the luxury, high-end boutique as wellas luxury hotels. Moreover, this subject hotel is expected to inducenew demand into the current market due to its new luxury brand. Theprojected performance of the hotel will be as follows:

Projected Hotel Performance (2017 $)

Opening

January 2020

Occupancy:

68/72/75%

ADR (2017 $):

C$300.00

Stabilized Total Revenue

$24.3 million

Stabilized House Profit

$6.2 million

Stabilized EBITDA

$3.1 million

Thehotel is expected to be sold after ten years of opening at a grosssale of $35.1 million basing on a 9% terminal rate of capitalization.

Facility

Thedevelopment of this project will be located within the vivaciousVancouver CBD, about two blocks from Robson Street restaurant,entertainment, and shopping district. The site is situatedapproximately 0.5 miles from the waterfront of the Coal Harbor andthe Stanley Park recreational facility. The immediate area whichsurrounds the development comprises of a mix of mid-rise andhigh-rise retail building, multi-family residential and officetowers. The summary of the surrounding, as well as map of the area,is presented in Appendix II:

Productand Services

Thedevelopment will be made up of 60-story mixed-use building in thedowntown Vancouver. The world-renown architects will design thebuilding. It is expected that it will be the second tallest structurein the city of Vancouver. The lower section of the building will becomprised of 150-room superfluity hotel. The upper part will containother brand-name luxury condominiums. The height of this buildingwill give it its prominence in the city skyline as well as an idealfeature for the luxury product.

Mostof the condominium and hotel customers are expected to be distinct.However, the co-location of the components of the project will makeit beneficial. Most of the residential buyer will mainly access hotelfitness, restaurant facilities and spa and they will be able toutilize the room service of the hotel, housekeeping and conciergeservices. The hotel will benefit from the fees and revenues fromthese offering including room night demand from the resident’sguests. Hotel will provide various products and services.

HotelProduct and Service Offering

of Hotel Facilities

Guest Room Type

Number

King (545 SF)

75

Double Queen (545 SF)

42

Executive Suites (1,090 SF)

30

Deluxe Suites (1,635 SF)

2

Presidential Suite (2,500 SF)

1

Total

150

of Hotel Facilities

Food and Beverages Types

Number of Seats

Celebrity Chef Restaurant (1)

80

Lounge(s) (2)

75

Total

155

Meeting Space

SF

Ballroom (divisible by 3)

6,000

Meeting Rooms(4)

3,200

Boardrooms (2)

800

Total

10,000

Other facilities Include:

2,000 SF Health Club7

Business Center

7,500 SF Luxury Branded Spa

Club Lounge (about 20% of the guest rooms will be converted to Club Rooms

Outdoor Pool with Whirlpool

Self-Parking Spaces

Gift Shop and

Underground Valet

Thehotel will mainly offer 150 guest rooms. The average room will beapproximately 545 square feet. The hotel will also provide 33 suiteswhich range from 1,000 square feet to the 2,500 square feet of thepresidential suite. Every hotel guest room will have highest qualityfurnishing with warm, rich woods as well as textured fabrics whichreflect a contemporary flair. The rooms will also have dual sinkswhich are laid in the slab, DVD player, 42 inch LCD flat panel TV,fretted linens and iPod docking station. Moreover, the rooms willoffer wireless internet connection, terry bathrobes, high-end bathfundamentals and stocked honor bar.

Everyguest will obtain housekeeping twice in a day, luxury custodianservices as well as services of the chauffeur-driven sedan. Moreover,club and suite guests will have private butler services as well ascomplimentary access to a club lounge which offers six per diembeverages and food presentations.

Thebusiness services will comprise of 10,000 SF of banquet and meetingspace with a celebrity-chef delicacy plus the staffed center ofbusiness offering secretary and complimentary services. The brandedluxury spa will mainly offer various healing treatments includingexclusive beauty and health products.

Theguests of the spa will also access steam and sauna room facilities aswell as fitness center and the pool of the hotel. The concept of thehotel will mainly be created and implemented by a renowned chef to bedetermined by management. The chef will offer to dine for theresidents and the hotel guests.

ResidentialProduct plus Service Offering

Residences Amenities Summary

Unit Type

SF

Number

1 Bedroom, 1 bath

1,450

15

1 Bedroom, 1 Bath, Den1

1,750

25

2 Bedroom, 2 Bath

1,950

30

2 Bedroom, 2.5 Bath, Den

2,300

54

Sub Penthouse

2,725

15

Penthouse

3,100- 3,500

7

Grand Penthouse

4,000

3

Common

6,025

1

Total

150

Common Element Facilities

3,000 SF Resident Lounge and Billiards Room

Indoor Lap Pool

1,500 SF Resident Lobby and Concierge Station

Management Offices and Boardroom

1,500 SF Fitness Center and Movement Studio

Facilities Shared with the Hotel

Celebrity Chef Restaurant and Lounges

Outdoor Pool with Whirlpool

7,500 SF Luxuries Branded Spa

Business Center and Gift Shop

Underground Valet and Self-Parking Spaces

Theresidence section will be made up of 150 luxury units which rangefrom one bedroom entities from 1,450 SF to a six-bedroom penthouse ata 6,025 SF. The project will be situated as the most luxurious anddesirable address in the city. Every residence will have afloor-ceiling window as well as the open floor plan to ensure maximumnatural light access. The apartment will come with magnificent viewsin various ways. The units facing the northern side will feature theCoal Harbor waterfront including cruise port while the units facingthe Western section will mainly feature the Coal Harbor and thePacific Ocean. On the other hand, units which will be facing East andSouth will provide a dramatic skyline of the Vancouver city.

Residentswill have an opportunity to select from three luxury packages whichfeature granite tile or finest marble and Sub Zero appliances,countertops and varicolored most beautiful hardwood carpeting andflooring. All the master bedrooms will be composed of marble bathswith large glass-enclosed showers with soaking tubs and variousshower heads. The units will have about 9.5-foot ceiling height, andLutron controlled lighting structures which will enable owners tocustomize their preferences of light with a touch of a button. Everyone-bedroom segment will have one parking space while other biggerunits will have at least two parking spaces. There will a valetparking and an elevator access to one’s residential floors of theluxurious condominium tower.

Inaddition to offering access to the hotel amenities and facilities, itwill feature billiard rooms and private resident lounges as well asan indoor lap pool plus a 1,500 square foot private fitness sector.The services which will be available to the residents are asproficient residential management association, luxurious 24-hourcustodian services, and sedan driven services including babysittingservices, dry-cleaning services, maintenance and housekeepingservices as well as housekeeping services which will be provided bythe restaurant. All the service will be funded via association ofcondominium dues and in some instances via-la-carte fees.

AdministrativePlan

HavenGate executive team is made up of four main principals, each having aminimum of 15 years’ experience in real estate development,transaction and operation. Mainly, two of these principals haveserved as corporate executives and entrepreneurs involved in theoperation, asset management and development of the luxury hotels inthe world. The remaining principals have at least experience in salesand development as well as a marketing luxury condominiumdevelopment.

HavenGate controls 0.6-acre site where the project is to be constructedand will contribute a minimum cost of entitlement and the land to theentire project. Haven Gate is looking for willing equity partners whowill provide the rest of the resources needed for the development ofthe project. Haven Gate will enter into a joint agreement with thewilling equity partners. Upon the agreement execution, a board ofdirectors will be chosen which will comprise of members of everyequity investor in proportion to the ownership interest. The board ofdirectors will assign the managing duty to the Haven Gate, subject toprecise controls and conditions as stipulated by the board. In thisdimension, Haven Gate will be accountable for management decision ofthe project and oversight of development activities, marketingeffort, residential sales as well as management duties for thisinvestment.

Significantinvestment and financial decisions for this project will be made bythe entire board of directors with the recommendation from the HavenGate. These decisions include: Firstly, entering into any loan whichis encumbering the property as well as financing of construction.Secondly, the decisions involving changes to the project opportunityand any other core changes to the development budget worth over $1million when the application of contingency funds is excluded.Thirdly, decisions which deal with changes to the business capitalstructure and selection, replacement or termination of the primaryvendors like sales broker, architect, hotel brand, general contractorand residence brand. The fourth one is any sales of residential whichinvolves more than five units and major changes to the housing’pricing. The last one is the decision involving investments of hotelcapital more so over $1 million, or sale of the hotel or the exitstrategy.

Theentitlement for the construction has already been secured whichallows the 60-story tower to be built. A famous architect has beenselected, and essential design documents are being drafted. Moreover,contractors are currently being interviewed, and selection isexpected to occur soon. All the candidates under vetting haveessential experience in the Vancouver construction market, and theyhave good relations with the local building personnel. Once thecontractors are selected, they will have weekly meetings with theproject construction managers to discuss the cost and the forecast ofthe completion.

Thereare various hotel brands which have expressed their interest inmanaging the condominiums and hotel as well as providing the brandlicense for the condominiums. Once they are one of them has beenselected, the manager will be designing process of the project on anadvise-seeking basis because the building will be expected to meetthe design standards of the brand. Over the time, the companymanagement will be accountable for the daily operation of this hoteland administration of the entire condominium association. In itsresponsibility as a hotel manager, it will be responsible for hiringand managing the staff, performing sales as well as marketing duties,and management of the guests’ relations and services. It will alsobe responsible for maintenance of the hotel grounds and building,generation of hotel budgets, forecast reviews of partners andapproval including distributing income to the Haven Gate.

Inthis concern, Haven Gate will mainly distribute this income to thejoint venture partners as per the agreement provided in the jointventure contract. There will be bi-annual meetings which will be heldat the Haven Gate and the management of the hotel to discuss andreview financial performance as well as expenditure plans of thebusiness. Moreover, the condominium association manager, that is themanagement company will hire and manage the entire staff, providesupport to the governance organization, deliver services to theresidents, maintain traditional sectors, and generate the budgetforecast for the approval by the association board. The Haven Gatewill run and control the board of the residential association untilthe 50% of the units have been completely transferred.

Thepartners of the joint venture will be responsible for all the salesand marketing of residential because luxury brands do not mainlyoffer marketing and sales services. These partners will beresponsible for selling the residence under a license using theluxury brand, which will mainly provide essential training and accessto marketing tools of the brand.

TheHaven Gate as a managing member will be accountable for approval andgeneration of the sales oversight and disclosure statement. Moreover,there will be the residential broker who will be tasked with andimplementation of strategic sales as well as marketing plans for theresidence. The Haven Gate will hold sales strategic meetings withresidence broker to mainly discuss sales progress and the forwardstrategy.

PARTII: MARKETING PLAN

TargetMarket Overview

Forthe past ten years, projects and achievements within the target havebeen realized. All these recent projects and accomplishments meanthat the future of this project is bright. The G Greater VancouverRegional District (GVDR) is the biggest metropolitan sector inWestern Canada and is the third largest in the entire country(Vancouver, 2015). GVDR serves as the entertainment, medical,commercial and the hub of transportation for the British Columbia andother nearby provinces. The core industry sectors include forestry,mining, insurance real estate, financial, tourism, film productionand health care.

Vancouverwas also selected as the host city for the year 2010 Winter OlympicGames. The construction projects and pre as well as post-gameactivities created over 100, 000 jobs and increased the GDP ofVancouver which increased the significant demand for lodging in thearea. Moreover, it is expected that Vancouver will also host otherOlympic games few years after 2020 which makes a possibility ofincreased opportunities after the opening of the project.

Forthe past decade, downtown Vancouver has contained about 24.5 millionSF of the office spaces with the vacancy rate ranging from 2% to2.5%. The primary employers in the downtown area include theCorporation, Jim Pattison Group, HSBC, RBC Financial, CanadianImperial Bank Group as well as Accenture. However, for the past tenyears, there have been various office projects in downtown. Amongthese office projects, is 145,000 SF office tower which was plannedin the year 2008 to commence in 2009 and to be situated in thesoutheast of this project. Moreover, according to Kenneth Chan(2017), a 28-storey tower is expected to be built in downtownVancouver. The new tower has been proposed for the 600 block of WestHastings Street in Vancouver.

Vancouveris also the third largest in the production of film and television inNorth America. For the past ten years, over 200 productions weremainly filmed in British Columbia annually with the majority of thembeing filmed partially in Vancouver which resulted in over $1 billionannual spending. The business supports about 30, 000 local jobs andhelps in generating domestic demand for lodging as well asresidential services within the area.

Tourismand Transportation

Vancouverhas continued to be among the top destinations in the North Americadue to its natural beauty, unique geography and cosmopolitanatmosphere. In the year 2007, approximately 8.9 million touriststoured Vancouver and spent about $4.6 billion. However, according toCBRE Hotel (2017), Vancouver received over ten million tourists lastyear, which is the highest rate of visitation in the history of thecity. The tourist sector contributed about $4.4 billion to theeconomy of Metro Vancouver and provided over 70, 000 jobs. Moreover,according to CBRE Hotel (2017), there is approximately 10, 400 hotelroom within downtown Vancouver and about 24, 000 in the MetroVancouver. Moreover, the source also evidenced that the tourism rateincreased by about 7.1% with mainly increase in the room occupancyrate last year. It is evidence here that the visitation rate has beenincreasing for the past decade more so after the 2010 Winter OlympicGames.

Vancouveris also the major point of embarkation for Alaskan cruise routes.Vancouver city gets about 230 cruise ship calls per year currentlywith each cruise stimulating over $2 million to the economy of thecity. However, this cruise ship is essential to the project due toone main reason. The cruise terminal is conveniently situated indowntown Vancouver in just proximity to shopping attractions and notfar from the International Airport.

Anotherimportant feature is the 133, 000 SF Vancouver Convention andExhibition Center (VCEC) which is located half a mile northeast ofthe site of construction. It is a center which hosts about 20city-wide events with a minimum of 1000 attendees. It generated about100,000 room nights in the downtown hotels ten year ago. However, itsexpansion paved the way for bigger opportunity for hotels nearby. A335, 000 SF, enlargement of the VCEC was placed adjacent to theprevious center. It was opened in the year 2009, whereby it allowedrenovations for existing VCEC. After it completion, VCEC offeredspace of 468,000 SF, and it currently generates about 250,000 roomnights for the hotels in downtown on a stabilized basis annually.

VancouverInternational Airport (VIA) is approximately 6 miles south ofproject’s site. It is the second busiest international airport inWestern Canada. It offers 111 destinations across the world andserves as the gateway to the Western Canada. Also, VIA accommodateda record of about 17.9 million passengers in 2008, indicating anincrease of about 2.0%. The expansion plan of the airport which beganin 2005 ensured that the airport increased its accommodation henceboosting its economic contribution.

Housingand Population

DowntownVancouver is the third most densely populated city in North America.The city has experienced a significant increase in some condominiumsconstruction since 1997 due to relaxation of restrictions on buildingheight. There are over 3, 600 condominium units which have beenconstructed in downtown Vancouver. Approximately, 80% of these condosare mainly under contract.

Accordingto Real Estate Board (2017), Metro Vancouver expects that newresident will need about 574,000 housing units from now till 2041.The newly developing as well as planned urban areas have a capacityfor approximately 250, 000 residents or about 20% of the region`stotal projected growth in the year 2040. It means that more houseswill be needed shortly for the inhabitants.

Accordingto Real Estate Board, the average cost of a single-family detachedhome has increased in the past one year unlike the between 1981 tothe year 2005. According to McElroy Justin (2016), the prices of thesold detached homes were $14 million in the past one and half years,but it increased to about $1.6 million after last year. However, itis anticipated that by the end of last year, it had increased up to$1.8 million amounting to an increase of$420,000.The residentialaverage sale prices in the past 39 years.

Moreover,McElroy Justin (2016) says that Financial Minister made an argumentthat investors should focus on residential properties and not justdetached homes. It is true because when one looks at the averageprices of the townhomes as well as apartments has risen much lessthan the detached homes. It shows that there is a shortage in theproject line. Moreover, according to Real Estate Board of Vancouver,the average value of a detached home have gone up by 159% in the pastdecade while residential have gone up by 81% ad apartments haveincreased by 61%. Furthermore, says that there is high demand forluxury property in Vancouver while explaining the reason why detachedhomes have exploded in their value than others. McElroy Justin(2016) explains that luxury properties are attractive and they have alower rate of dividend yield.

However,despite the financial crisis and factors which affect. Vancouverhousing sector, this area is still the best strong market fordevelopment because of its position as a gateway to the North Americamarket and international trade with the Asian nations. Moreover, itsgrowing focus, tourism appeal, growth in its population makes it thebest location to place the project.

MarketingPlan

Theresidential components and the hotel will be marketed mainly viainternationally-renowned luxury brand. The hotel brand offers accessto a bigger customer base that cannot be accessed with the use oftraditional marketing means. Moreover, customers are continuouslypatronizing brands and hotels which provide them with superior andquality product. Brands will be able to efficiently deliverconsistency compared to the independent hotels because of theirsophisticated marketing and operation systems as well as their marketresearch and customer focus. Thus, branded hotels mainly outdo theirnon-branded competition by about 20-30%. Moreover, every higher brandcan attain higher premium as a result of its loftier finishes, higherlevels of service as well as exclusive cache.

Extendingluxury hotel brand to the residential condominiums will enableinvestors to mainly capitalize on the reputation of the brandincluding services which are projected and expected to generatehigher sales incomes. Every luxury branded homes are to known to haverealized pricing premiums of about 25% to 35% as compared to thenon-branded residential business competitors. The brands which arebeing considered for this subject development include Ritz-Carlton,Mandarin Oriental, Four Seasons, and St. Regis. Most of the luxurybrands offer residential management and hotel sale services. However,there is no any comparable representation in all these brands inVancouver market currently.

Thedemand for lodging in Vancouver city is mainly seasonal. It has astrong spring as well as summer demand which comprised of an idealbalance of leisure, corporate and convention group travelers. Thedemand for leisure reduces in the late October due to frequent rainsand cold weather, but corporate including conference demand remainsstronger at this period. When the demand is mainly soft, it isprimarily driven by corporate travelers. Although the demand patternis seasonal, Vancouver lodging sector has been performing highly inthe history of its occupancy levels. In fact, between the year 2004and 2016, the luxury, as well as upscale hotels within Vancouver, hasbeen known to have achieved an average rate of occupation of about75%. However, the rate between the year 2004 and 2008 was about 74%which shows some rate of growth.

Giventhe strength of the market, the luxury brand of the hotel and thelocation of the tower and the above average room’s size, it meansthat the hotel will probably be successful in penetrating the currentluxury demand which is being accommodated at a high-end boutique aswell as luxury hotels. There are many things which control thismarket, and one of them is the great location which has seen downtownVancouver registering high hotel occupancy rates.

Accordingto Marr Garry (2016), the occupancy rate in downtown Vancouver was77% in 2015 which increased to about 78% in the following year. It isexpected that the occupancy rate will be about 79% this year.Moreover, the revenue per night per room in downtown Vancouver wasaverage $155 in 2015 which grew to averagely $178 in 2016 and isexcept to shoot up to $215 or $226 this year (Marr Garry, 2016).Withthis trend, it shows the project will be worth investing in marketingto reap all this increasing rate of occupancy.

Moreover,due to its international brand recognition, the hotel is expected toinduce new demand into the market using marketing of brand channelsand relationship of customers. The expanded VCEC will also benefitthe hotel and future Olympic Games. About 805 of the demand will bemade up of the non-group market because of its location and limitedconference space. However, the hotel will be able to attract C-levelof corporate leaders as well as celebrity guests who will beattending conference or convention at the VCEC. Analysis of demand bymarket segment has been presented below.

Luxury Hotel Demand Segmentation

Transient

Room Nights

Mix

Premium 4, 106 10%

Corporate 4,928 12%

Special Corporate 8,213 20%

Package 12,319 30%

Other Discount3,285 8%

Total Transient 32, 850 80%

Total Group 8,213 20%

TOTAL 41,063 100%

About$1.5 million will be utilized in hotel marketing before its opening.After that, about $1 million will be spent per year on sales andmarketing operations. The sales technique to be used in penetratingthe luxury clients within the market will consist of mainly straightbusiness to business sales, local events as well as print and onlineads in both source and local markets. The sales staff of the hotelwill include a Director of Sales and Marketing, sales coordinator andsales manager. They will mainly concentrate on building relationshipswith the local planners plus convention and tourism focal points inthe market. They will also focus on inducing a new demand byleveraging existing market channels and brand relationships. Also,they will supplement all these efforts with an inclusive marketingand advertising campaign. The proposed marketing and sales budget forthe fits year of the business have been presented below:

Expense

% of Budget

Budgeted Amount

Salaries and Wages

Brand Marketing &amp Group fee

Loyalty Program

Print Advertising

Electronic Advertising

Trade Shows

Entertainment

Sales Collateral

Miscellaneous

35

15

15

10

2

4

10

5

4

$350, 000

$150,000

$150,000

$100,000

$20,000

$40,000

$100,000

$50,000

$40,000

Total

100%

$1,000,000

Thedemand for the housing units is mostly g

Residential

enerateddue to increase in the housing development in a given market area.The increase being considered here might constitute of formation ofnew household within a given population or in-migration of thehouseholds from different areas. Various households mainly determinedemand for the luxury residences within a market area having adequateand high disposable income or sufficient net worth to support thepurchase of the high priced home.

Basedon the wealth profile and proximity, the primary market is for theresidence in the project development will comprise of downtownVancouver, North Vancouver and West Vancouver. Moreover, the need forthe luxury units is also engendered by wealthy buyers who are livingon the site, and they are seeking a second home within aninternational city gateway like Vancouver.

TheVancouver city downtown is experiencing a substantial increase inboth population and household number and trends anticipated tocontinue for the next five years. The area has a healthy economicstatus, a varied nature of culture and entertainment means as well asrenowned recreational activities. According to the market research, agiven area of the site which the project will be situated offersvarious advantages like pedestrian sociable streets, easy access toVancouver amenities including some shopping and entertainment optionsas well as immediacy to the Coal Harbor waterfront.

Basedon the location of the project site, unit pricing, luxury brandassociation, and services including amenities offered, the buyers arelikely to be aged about 45 years to 75 years old with annual incomeabove $150, 000 and high net worth. According to Real EstateStrategies, the total target of households is about 8, 200. Thus, thesubject development will have to capture about 1.7% of these totalhouseholds to sell to the proposed units.

Age Range

Income Band

15-24

25-44

45-64

65-74

75+

Under $25,000

4,894

17,262

13,268

5,656

8,009

$25,000-$49,999

2,746

24,611

15,759

5,209

5,447

$50,000-$74,999

897

18,411

13,095

3,412

2,574

$75,000-$99,999

283

10,672

9,184

1,952

1,474

$100,000-$149,999

126

9,825

10,976

1,582

541

$150,000+

50

4,073

7,165

1,053

541

Total

8,996

84,854

69,447

18,864

18,586

Source:Real Estate Strategies, Statistics Canada

Moreover,the democratic analysis is essential is to collect psychographic databeyond income and age so that one can understand a whole demandimage. It involves the study of the sociological and psychologicalcharacteristics of the potential consumers. That is their ideologicalbeliefs, values, emotional responses and attitudes and how theyaffect their daily purchasing decision. The inclusion of thepsychographic analysis in this study is to boost the total universeof the clients because some of the customers will fall out of theincome and age range defined above. When one considers bothpsychographic and demographic, the target buyers will include thesegments below:

  • Wealthy pensioners as well as empty nesters who wish to downsize from a bigger single-family home in the nearby conurbations (2 or 3 bedroom or even penthouse units)

  • Singles and divorcees who are seeking a low-maintenance lifestyle within the area with cultural and social activities (1 or 2 bedroom units).

  • International clients who travel frequently to Vancouver city and want to pied-a-terre in the Vancouver city (1 or 2 bedroom units)

  • Wealthy Canadians who are seeking a home in the urban coast location will fit all the types of units.

  • Lastly, corporations with long-term executive housing desires will fit for one bedroom unit.

Thecondominium unit mix has been planned with the target of all thesesegments in mind. The entire project offers 40 single-bedroom unitswhich will appeal mainly to singles, divorcees as well aspied-a-terre customers. Also, the 84 double-bedroom, as well as 15triple-bedroom units, are designed to meet the needs of retirees,second-home clients, young couples and empty nesters. Moreover, 11sub-penthouse units are mainly intended to address the need of theextremely wealthy buyers who need a cache of the penthouse unit whichis located in the iconic 5-star Vancouver hotel. All these customerswill mainly be second home buyers who will be sourcedinternationally.

Over$15 million for residential marketing and sales has been budgeted inaddition to about $333.5 million for a brand license as well as abrokerage fee. The residence will be mainly marketed by a brokeragecompany which will offer an extensive experience of selling expensivecondominiums projects and acquaintance with the market. All the salesactivities will occur primarily in the local sale point, which willbe mainly constructed after equity funding. The luxury center willalso be composed of a 2,000 SF model residence, 6-foot developmentscale model, and design plus décor center. Moreover, sales campaignfor two days will be held in the markets like New York, Dubai, HongKong, Seoul, San Francisco, Rio de Janeiro, Beijing, Shanghai,London, Montreal, Toronto, and Tokyo. Advertising and marketing willalso feature various efforts. These include:

  • Adverts in various print media like Robb Report, Wine Spectator, Wall Street Journal, and Architectural Digest.

  • Upscale customer exhibitions and events, for instance, exclusive opening gala and others including targeted direct mails which will be mainly sent to brand database schedules and wealthy residents.

  • Neighborhood and local comprehensive marketing where estate brokers and other source marketers will tour the vicinity.

  • Direct sales to the local executive corporates, music and film companies, sports team including celebrity purchases.

  • Wide-ranging public relation campaigns which will enhance media coverage and editorial exposure. The marketing and sales budget is offered below.

% of

Budgeted

Expense

Budget

Amount

Sales Center Construction

25%

$3,750,000

International Customer Events

20%

$3,000,000

Local Customer Events

16%

$2,400,000

Staffing (excluding broker fees)

10%

$1,500,000

Print Advertising

10%

$1,500,000

Brochures

5%

$750,000

Direct Mail

5%

$750,000

Miscellaneous

4%

$600,000

Overhead

3%

$450,000

Trade Shows

2%

$300,000

Total

100%

$15,000,000

Competition

PrimaryCompetitors of the Subject Hotel

Themain competitive hotel is made up of 3 hotels which represent 556rooms. These are the high rated hotels in Vancouver and they expectedto compete with the projected hotel due to their downtown location,an upscale rating of their product and healthy rate of theirposition.

OpusHotel, a 97-room hotel which is located about 0.8 miles south of thesubject hotel is one of the competitive sets opened 15 years ago. Itoffers competitive trendy upscale room product. In spite of itsposition at the top of the market, it is not considered one of theluxury providers as it does not offer luxury offers like amenities,services or luxury finishes. However, its unique location within YaleTown allows it to mainly attract a significant amount of demand inthe entertainment sector. However, it is essential that the subjecthotel will be located at a close location to CBD shopping center aswell as waterfront which boosts its superiority. Hence, the subjectproject is anticipated to compete with Opus Hotel for highly valuedleisure and entertainment.

Anotherone is Wedgewood Hotel. It is located about 0.3 miles south of thesubject business hotel within the heart of CBD. It is the smallestand at the same time, a highly rate and hotel in the competitive set.It was first as an apartment but converted to a hotel in 1984. TheWedgewood completed renovations of softwoods and its guest roomsrecently including renovation and expansion of its penthousecollections. It offers a traditional and old-world luxury services inits small boutique. However, its appeal is expected to be minimal andlimited as compared to luxurious and world-class Haven Gate. It isreported that it provide accommodations in a balanced mix manner ofthe corporate including transient demand. It is expected that it willcompete with the Haven Gate as they will be high-rated businesseswithin CBD area. S

Oneof the luxury hotels in Vancouver is Four Seasons. It was built in1976, and it has 376 rooms in total. However, the product has beendeteriorating for the past ten years due to lack of capitalinvestment, which limits are rate of potential. The 28-storey issituated within CBD, and it mainly offers city views in most of itsguestrooms and a view of the harbor in a limited number of itssuites. The property has a high rate mix of corporate as well asleisure from the U.S. The Four Seasons will be competitive with HavenGate a based on its strong, luxurious branding and its locationaround CBD. It is expected to compete with the project business forthe high-rated group, and small groups demand leisure more so fromthe United States.

SecondaryCompetitors of the Subject Hotel

Thesecondary set of competition is made up of 9 hotels which representabout 3, 406 rooms. These are competitive hotels due to theirlocation around the trade area and their upscale and classy productofferings. However, their size, different market orientation andtheir inferior product and service quality make them consideredsecondary competitors and not primary competitors to the subjectproject. Their brief descriptions follow below.

Thefirst one in this list under consideration is Pan Pacific andFairmont Hotel Waterfront. Both are located about 0.4 miles east ofthe business subject hotel. Another one is Westin Bayshore which islocated at about 0.4 miles to the north of the subject hotel. Allthese three hotels capture a significant high rated leisure hoteldemand due to their nearby location waterfront and superior views.They also accommodate averagely high group demand as they have largemeeting facilities and the fact that they are located at nearby VCEC.The subject hotel will probably compete with these hotels mainly forthe high-rated demand of leisure and to some degree, a small groupdemand. Moreover, the subject hotel is anticipated to competedirectly with the 46 Gold Rooms of Fairmont which has been reportedto have high occupancy rate within the area.

Oneof the hotels which accommodate more customers from the United Statesin the competitive project set is Marriot Pinnacle, which has 434rooms and it is located 0.2 miles northeast of the subject businesshotel. In spite of its upscale product, this hotel is still lackingADR competitive set because it mainly accommodates contract andairline tour groups. It is expected to compete with the subject hotelregarding demand of U.S corporate and leisure more so during off-peakperiods.

Amongthe largest and oldest hotels in the city is 556-roomed FairmontHotel Vancouver, which was opened in 1939. It operated as independentfor most of its years leading to its conversion and restoration in1996 as Fairmont. While its primary market segment is large groupdemand, its total of 36 Fairmont Gold rooms attracts a high-rateleisure and corporate demand throughout the year. All these upgradedrooms are reported to be achieving over 80% occupancy rate, hencemaking it a direct competitor with the subject hotel.

SuttonPlace Hotel is situated about 0.25 miles south of the subject hotel.It is co-managed with the 164-unit tower called La Grande Residence.It completed its soft wood renovation recently including La GrandeResidence. Sutton Place accommodates a substantial share of film andentertainment demand. Its location in the CBD makes it have a highmix of corporate demand. The subject hotel is likely to compete withthe Sutton Place Hotel for highly-rated film and entertainment demandas well as corporate demand due to proximate location of theproperty, entertainment demand area, and upscale product. Others likeHotel Le Soleil, Westin Grand, and Metropolitan Hotel will probablycompete with the subject hotel due to their location positioning andsmallness of their boutique.

SupplySummary and Comparison

Theoverall development of the offer a superior product to the hotelswhich are within the market and it is better positioned to attractluxury brand The Shangri-La is anticipated to be the closestcompetitor of the subject hotel regarding location, quality as wellas brand awareness. It should be noted in this case study that thelarge suites mix of the hotel is reasonably higher than those of itscompetitors which give it an advantage in attracting a high demandfor leisure. A comprehensive subject hotel’s suite mix summary ispresented below.

Suites

Suites 900+

Total Rooms

650+ SF

SF

Subject Hotel

150

33

33

Mix

22%

22%

Four Seasons

376

55

12

Mix

15%

3%

Shangri-La

119

24

1

Mix

20%

1%

Wedgewood

83

20

2

Mix

24%

2%

Opus

97

2

0

Mix

2%

0%

ResidentialCompetition Analysis

Thereare five main residential competitors. Two of them are luxury brandedcondominium schemes with one hotel luxury component, two-non-brandedcondominium schemes with no hotel, two luxuries branded condos ad oneon-branded condo project with one boutique hotel constituent. Asummary of every competitor as per study of real estate stats ispresented in the detailed manner below.

FairmontPacific Rim

Approximately0.4 miles northeast of the subject project is the Fairmont PacificRim which offers residents’ dramatic views of the harbor as well asNorth Mountains. The condo contains 175 residential located above theFairmont Hotel. Amenities that are provided include a daily conciergeservice, feverish outdoor swimming pool including a sun deck,full-service spa, fitness center, multi-functional section room,multi-media center and business center. Moreover, residents accesshotel services which consist of housekeeping, limousine service, andin- room dining. Every unit has one or two-car parking. A keyedelevator which leads to the residential floors of the condo tower andfree parking is available too.

TheFairmount also offer luxury finishes with kitchen line cabinets. Theunits are mainly offered with a choice of the hardwood floors withinthe existing sections and carpet I the bedrooms. All units havemaster marble baths, with glass enclosed showers and soaking tubs.However, limited upgrade options are available.

FairmontPacific Rim is one of the markets most luxurious living withinVancouver. The location of the property offers residents view of theharbor and most of the spectacular view of the city. The price of thesubject development reflects a competitive advantage over theexisting competition. The primary drawback of the Fairmont PacificRim is that it is mainly adjacent to the new VCEC thus trafficcongestion is one of the problem issues to the residents. Moreover,the project is not close to the prime retail shopping of the cityalong the Robson Street. The Fairmont unit mix, fee structure, andsize are given in the chart below.

TheFairmont Pacific Rim has 175 units. The project was completed in theearly month of the year 2010.

Shangri-La

Itis located in the West Georgia from the study project site, TheShangri-La Residence and Hotel comprises of almost the entire cityblock. The building is 61-strorey in height hence it is the tallestin the city. It includes commercial spaces for the Urban Fare store,which is convenient for the residents of the subject project. LikeFairmont Pacific Rim, it incorporates residential condos in a singlebuilding including a five-star hotel.

Ownersof the condos have full access and use of the hotel amenitiesincluding a whole-day concierge service, game room, housekeeping,media room, library, business center, full spa services, and outdoorswimming pool as well as dining. Within the first 15 stories of thisstructure is a hotel and 300 condos are located on floors 16 up to 61levels. It has 171 units which are live-work spaces hence it allowsowners to operate the small business from the condo unit. It also hasthe luxury in finishers and features like Fairmont Pacific Rim andsubject project. The units have a choice of hardwood floors livingand carpeted bedrooms. Also, master rooms have marble baths,oversized glass-walled showers, and soaking tubs. A limited number ofoptions and upgrades are given. The Shangri-La unit mix, feestructure, and size are given in the chart below.

TheShangri-La began its sale of condos early month of 2005. Since thatyear, most of the units have been sold with a beginning absorptionrate of 15 units every month. Another construction project wascompleted in the year 2009.

JamesonHouse

JamesonHouse is located on the West Hastings Street with 38 stories ofheight. It is made up of 150 residential units. The amenities ofthe building include 24-hour caretaker services, complimentarymembership next to the Terminal Club which comprised of full spaservices, restaurants, game room, billiard room, fitness facility andmeeting rooms. The Jameson House also has the media room and meetingroom for the purpose of residents use.

Allthe units on the higher floors have mainly feature views of thewater, North Mountains, and downtown Vancouver. The location of thebuilding is suitable along the West Hastings, and it is also a fewblocks from the Robson shopping district. Although Jameson offersupscale finishes, the problem is that they are not as deluxe as theone offered by Fairmont Pacific Rim and the Shangri- La. Kitchen hasglass cabinetry including Gagggenau ovens, Sub Zero refrigerators,dishwashers and range tops. Moreover, the master baths are mainlyincorporated with soaking tubs as well as glass-enclosed showers. Thestandard units are nine foot in height while penthouse units offerten-foot ceilings. The floors are made of travertine tiles andwall-to-wall carpets within the bedrooms. The available upgrades aretravertine flooring within the bedrooms as well as the kitchen in-built espresso coffee contrivance. Jameson House unit mix, feestructure, and size are given in the chart below.

Salesof the condos at Jameson House began early 2006. Since that time,over 144 condos have been placed under the contract. However, theinitial rate of absorption was high with an average of 20 units everymonth. However, due to current economic uncertainties, sales wentdown. The construction was delayed around 2008 due to financialproblems, but its completion occurred years late.

L’Hermitageen Ville

Theonly development which is located in Yale town is L’Hermitage enVille. It is at the corner of Robson as well as Richards Streets. Itwas developed with a hotel component just like a subject project. Itis not considered in this study to be ultra-luxury, but it isconsidered as a competitor because of its hotel component feature. Itis a 21-storey building with a total of 200 condo units. The hotel isa 3-6-roomed boutique structure. It is also inclusive of commercialspace for the retail stores on its first two lower levels. Like theabove condo components, the owners access amenities of the hotel andfacilities including fitness center, double roof-top gardens, spa,lounge as well as 24-hour custodian service.

Theinterior finishes of the L’Hermitage en Ville are averagelyupscale, but they do not meet the luxury standards of the competitorsmentioned above. The kitchens have Bosch kitchen appliances and SubZero Eggersmann cabinets as well polished stone countertops. Theunits are mainly offered with choice hardwood floors within theliving section and wall-to-wall carpet within the bedrooms. Moreover,the units are included with limestone tile bathrooms including masterbathrooms with Incorporated soaking tubs plus glass-enclosed showers.The heights within regular condo units are nine-foot while penthouseunits are 10.5-foot ceiling loftiness. There are limited upgradesavailable.

Thesales of units at L’Hermitage en Ville began in the year 2005.Since then over 200 condos units have been successfully sold with abeginning absorption rate of 10-13 units every month. The project wascompleted in the year 2008.

ThreeHarbor Green

TheThree Harbor Green was the last downtown waterfront developmentproject to be along the Coal Harbor. The building has 31 stories witha total of 81 luxury residences. It is the third largest residentialtower within Harbor Green area. All the 71 units in the Three HarborGreen were sold within two weeks.

TheThree Harbor Green feature one of the most luxurious interiorfinishes with dual-toned cabinetry and line kitchen appliances. Allunits have the floor to ceiling windows with an unobstructed view ofthe North Mountains and Coal Harbor. The floors are made of woolcarpets and porcelain tile. Perhaps, their upgrade is hardwood.Bathrooms mainly feature vanities with Italian-designing withdeck-mounted tubs as well as heated basalt or marble made floors. Allthe units offer Lutron meticulous lighting systems, as well ascovered balconies which are accessible via the living rooms. Servicesinclude 24-hour caretaker services, golf rooms, billiards, indoorswimming pool, media room, lounge, squash, and the health club.

Theprimary disadvantage of this property is that it is located at aproximate point to the new VCEC as well as the cruise port. Thus,there are traffic congestion problems with residents. Furthermore,the project is not in a close position to the Vancouver’s mainshopping and retail center Robson Street.

SupplySummary and Comparison

Basedon the similar properties gauged in the central market area, there isa robust long-term demand for ultra-luxury condos like thecondominiums in the subject project. Most of the properties that areon sale have mainly been absorbed. The five properties which we haveanalyzed offered an aggregate of 906 units, yet less 50 are remainingfor sale excluding resale availability. It is likely that all theremaining units of Three Harbor Green will be sold when thedevelopment opens in the year 2020. Moreover, the subject propertyhas been found to be superior to the three of the five currentcompetitors and mainly comparable to the Shangri-La and FairmontPacific Rim while having less than 18 units for sale currently.

Pricingof the Hotel

Basedon the competitive position of the Haven Gate as outlined in thecompetition section, it is anticipated that the property will achievethe top average daily rate (ADR) within the market upon itsstabilization. The premium projected is mainly based on the followingfactors:

  • The Haven Gate hotel will be the newest luxury product in the market with the best finishes and with quality above or with bar with industry competitive hotels.

  • The Haven Gate hotel will mainly benefit from the international luxury brand to be chosen.

  • The subject hotel will also accommodate mainly transient demand that is rate highly than group demand.

  • The Haven Gate hotel will benefit from the low room count it has, which will allow it to minimize its discounting rate and accommodate its demand selectively.

Arate segmentation and demand analysis is presented below which arefollowed by a qualitative description of the segment position asshown in Exhibit 1(Competitive Demand and Rate Segmentation).

ROOM

NIGHTS

MIX

RATE (C$)

Transient

Premium

4,106

10%

$500

Corporate

4,928

12%

$400

Special Corporate

8,213

20%

$215

Package

12,319

30%

$295

Other Discount

3,285

8%

$225

Total Transient

32,850

80%

$309

Total Group

8,213

20%

$260

Total

41,063

100%

$300

Total

75%

$300

Weekday

75%

$280

Weekend

76%

$345

TheADR of the subject hotel is expected to be $300 in 2017. Theprojected ADR is about $50 above the 2016 ADR ($250) for WedgewoodHotel as well as Opus Hotel, which are the highest-rated competitorsin the industry. The rate of premium is mainly supported by the HavenHotel luxury brand recognition as well as its luxury brand rooms,which include 20% Club level rooms and it is 22% of large suites.Moreover, it’s supported by its location which offers superiorviews of waterfront, skyline, and mountains. The ADR of the subjecthotel is also positioned higher by $90 of the 2016 ADR of FourSeasons Hotel despite its brand recognition internationally. It ismainly based on the fact that it is the smaller hotel in size henceable to limit its discounting and its superior quality than old FourSeasons’ products which have been deteriorating due to lack offinancial investment.

Duringthe peak season (May up to October) when the demand is highest in themarket, the Haven Gate is expected that it will achieve a significantaverage premium rate of about $100 over its competitive set which ismade up of mainly large scale hotels. A premium of about $60 abovethe hotel’s competitive set is expected in the remainder of theyear because its rate compression will be competitive than any otherhotel during the lower demand seasons.

TheHaven Gate’ corporate rate will probably be $400, which is about$30 to $50 above the rates quoted for the Opus Hotel, Four Seasonsand Wedgewood Hotel. The segment is mainly comprised of high-enddemand by corporate as well as high-rate leisure demand during thepeak season. The premium is primarily based on the lower room countof the hotel, and its high mix sets that achieve averagely higherrates during the peak season than the standard rooms.

Thespecial corporate rate of the Haven Gate is projected to be $215,which is approximate $5-15 above expected special corporate rate forthe Opus Hotel and Wedgewood Hotel as well as $ 25 above theprojected special corporate rates for the bigger classy competitorswithin the market. It is anticipated that the extraordinary corporatedemand will serve as the base of the hotel business during theoff-peak periods.

Thegroup of the subject hotel is expected to be about $260. Groups areestimated to be made up of a small corporate executive as well asfilm industry gatherings including some local social group demands.

ResidentialPricing

Theluxury brand condo units which are located in the subject developmentis expected to mainly achieve average sales price of about $1,450 inevery square foot. Remember that all the amounts are presented inCanadian dollars. It is positioned above the mean of the sale pricefor the 300-unit Shangri –La for about $1,200 each square footbecause of a high mix of the larger units as well as superior viewsof the subject development. Moreover, the projected price is alsogreater than the average prices for the L’Hermitage en Ville aswell as Jameson House because of their lower quality finishes, thehigher mix of their small units and lack of proper brand affiliation.

Theprojected price of the subject development is positioned averagelybelow the sale price of the Fairmont Pacific Rim ($1,600 in eachsquare foot) mainly because of sales period development which willoccur during the peak season as well as its location which allowsdirect views to harbor and waterfront.

Also,the projected price is as similar as the average price for the ThreeHarbor Place because of its similar period of sales which occurs inrecovering and down market as well as the similar level of quality.Despite the brand affiliation as well as hotel amenities of thesubject property, its location farther from the waterfront islimiting the ability of the subject property towards achieving apremium which is the one being attained by the Three Harbor Place. Ascreen short of the standard summary of pricing for the subjectdevelopment is as show below.

Thesubject development will mainly offer custom upgrades. However, it isrecently unclear if the developer will be able to make a sale ofthese upgrades which are mentioned in the premium cost. It is thecause why they have not been included in the analysis of pricing.

Theaverage projected pricing which is supported by the findings of theregression analysis of the multivariate shows that there is asignificant relationship between average income per tax filer ofVancouver and the vast population of Vancouver. Moreover, itindicates that there is a relationship between average condo pricingwithin the Primary Market Area and average income per tax filer ofVancouver and the vast population of Vancouver. Below is theregression equation:

AverageCondominium Price=5.845*Average Income Per Tax Filer + 0.19*GreaterVancouver Population – 370983.888

Basedon the population of the Province of British Columbia forecast forthe Greater Vancouver and the estimates of the changes in the incomeper tax filer, the price sales averages of the condos is anticipatedto range probably between $349 in every square foot and $402 betweenyears 2018 and 2031. It is when the development of the subjectproperty will be mainly in sales season. 2013 and 2016 competitiveluxury prices of sales achieved substantial premiums over the saleprice averages of the condominiums on the price per foot basis whichis ranging from 322% to 460%. When on applies an average of about375% to the projection, the future results is at an average pricesale of $1,405 in every square foot.

Aluxury premium of 387% must be applied to achieve the selling priceof the subject development of about $1,450 per square foot. Thepremiums are within the range of the luxury incentives which wererealized in the previous recent years. Moreover, high mix of thelarge units of the subject development justifies its increase inpremium above 375% averagely. The table below shows the actualprojected average income per tax file and Greater Vancouverpopulation including the expected condo prices.

year

Greater Vancouver

Average Income

per Taxpayer

Total Greater

Vancouver

Population

Primary Market Area

Average

Condominium Price

(Annual Avg)

Per Square Foot

Estimate (based on

1,200 SF average size)

Recent Average

Competitive

Luxury Sales

Price

Luxury premium

2013

52,921

2,188,573

342,878

$286

$1,314

460%

2014

57,246

2,221,613

410,031

$342

$1,200

351%

2015

61,000

2,249,725

459,019

$383

$1,230

322%

2016

63,000

2,293,438

433,121

$361

$1,314

460%

Projections Below

2017

60,000

2,333,513

423,203

$353

$1,365

387%

2018

58,000

2,373,933

419,195

$349

$1,352

387%

2019

60,000

2,414,772

438,646

$366

$1,415

387%

2020

62,000

2,454,686

457,922

$382

$1,477

387%

2021

65,000

2,494,292

482,984

$402

$1,558

387%

2022

70,000

2,533,976

519,751

$433

$1,676

387%

2023

72,000

2,573,727

538,995

$449

$1,738

387%

2024

74,000

2,613,470

558,239

$465

$1,800

387%

2025

77,000

2,652,982

583,283

$486

$1,881

387%

2026

75,000

2,692,324

579,070

$483

$1,868

387%

2027

73,000

2,731,391

574,805

$479

$1,854

387%

2028

78,000

2,770,030

611,373

$509

$1,972

387%

Average Luxury Premium 2013 – 2016

375%

Range of Premium 2013- 2016

322%-460%

Premium Applied

387%

Average Luxury Projection during Sales Period

$1,450

Sources:BC Stats, Real Estate Board of Greater Vancouver MLSLINK HPI

PARTIII: FINANCIAL DOCUMENTS

Sourcesof Funds and Uses

Thetotal cost of the project is expected to total to $362.8 million.Approximately $238 million or roughly 66% of the total cost ofdevelopment is allocated to condominium component, which results in acost of $1.6 million for every unit. It is approximated that thehotel component will be assigned about $125 million, or approximately34% of the total cost of development. It will thus result in a costwhich is considerably more than $834,000 or every hotel componentcore. However, a total of 36 months is expected to be spent for theentire development.

Thewhole project will be mainly financed with a combination of equityand debt. The sources, as well as the use table for the entireproject, have been presented below.

Sources and Uses

Sources

Uses

Senior loan

$217,709,072

Land &amp Related

$20,000,000

Mezzanine Loan

$54,427,268

General &amp Administrative

$12,000,000

Preferred Equity

$0

Design &amp Consultants

$15,300,000

Common Equity 1-Haven Gate

$27,213,634

Development Charges &amp Municipal Costs

$5,300,000

Common Equity 2

$63,498,479

Sales, Marketing, and Advertising

$15,000,000

Hard Construction Costs

$251,600,000

Building Operations

$4,700,000

Financing Costs

$38,948,454

Total sources

$362,848,454

Total sources

$362,848,454

Thenon-recourse loan for superior construction is appraised to be $217.7million. The rate of interest is estimated to be about 400 basispoints over a total of 30-dau LIBOR. However, the $54.4 millionentresol load is expected that it will have an interest rate of 1400basis points for a 30-day LIBOR. The entire loan will be interestedmainly, and the principal repayment will be of the condo salesproceeds and profit of hotel.

Thetotal equity funding which is needed for construction of the projectis about $90.7 million Haven Gate will raise about $27.2 million inthe form of design costs and entitled land. It will also seek theremaining equity from its joint venture partnership.

ExpectedFinancial Return

Thewhole project is expected to generate a total equity before tax IRRof about 18.9% as well as the net present value of $12.9 million(using the discount rate of 15%) basing on the ten year period of thehold. Moreover, the sensitivity analysis which incorporates downsideand upside risks in a more material pro indicates that there is 50%probability that the aggregate equity IRR will exceed 18%. Thus, as aresult of over 15% equity distribution of cumulative current return,the IRR of Haven Gate is expected to be 19.4%. However, the remainingequity is estimated that the investors will realize 18.7% IRR.

SUMMARYOF PROJECTED EQUITY RETURNS

Total Equity Return

IRR

18.9%

NPV at 15%

12,904,540

Common Equity 1 (Haven Gate) Return

IRR

19.4%

NPV at 15%

4,420,482

Common Equity 2 Return

IRR

18.7%

NPV at 15%

8,498,991

Therefore,despite the fact that the economic environment is volatile, theproject is in a good position to succeed given the ideal location,strong management, potential of the luxury brand and essential forteof the Vancouver city economy.

DevelopmentBudget

Thebudget of this development project was mainly developed basing on thehistory of developing comparable projects of Haven Gate and wasadjusted basing on the comments which the architects of the projectsand multiple contractors provided. The total cost of the subjectproject is expected to reach $362.8 million. Out of the total cost,69% or $251.6 million is estimated to be the cost of hardconstruction. Also, 10% contingency is mainly built into theseestimates. A detailed budget of the project development is attachedas the Exhibit 2. All amounts are obtainable in Canadian $.

Atotal of about $238 million or 66% of the aggregate cost ofdevelopment is allocated to the condo component which results in acost of about $1.6 million in every unit. About $125 million, whichis 34% of the total cost of development, is allocated to the hotelconstituent, hence results in a cost of averagely over $834,000 forevery hotel key.

Thebudget is based on a development timeline of 36 months from thebeginning of 2017 and incorporates rate of inflation of 3%. Also,this budget includes approximate $27 million of funds which have beenexpended on the development project including entitlement costs andland cost as part of the design cost.

Althoughin the contemporary year`s developers were able to secure theirsenior construction financing loan-to-cost ratio of about 80% to 90%,based on the recent strains on the lending sector it is approximatedthat the lender of the senior construction will mainly finance 60% ofthe total development cost for this project. Thus, based on the totalconstruction cost of $362.8 million, the senior constructor willraise $217.7 million. The loan will have an interest rate of 400basis points for an index of a 30-day LIBOR. The loan will mainlycomprise of interest while the principal will be repaid on thesettlement or closure of condominiums. The senior loan will primarilybe secured by the development project, and it is not expected thatthere will be any more security or a pledge of the investor assets.Although the total loan will mainly be a single project security, therepayment purpose will be allocated to the condo and hotel saleproceeds upon its closing. The release prices which will be used inrepaying the loan are expected to be the total gross sale price lessbroker or licensor and concessions fees. Extra proceeds from thecondo sales will mainly be used to pay down the allocation of hotelloan.

Additionalproceeds from the sales of condos will be used in paying out thehotel allowance loan. The proforma model in this project assumes thatthe construction loan will be fully repaid before the permanentplacement of financing. However, if this assumption fails, any unpaidprincipal will be undertaken by the permanent loans of the hotel uponmaturity. A permanent financing should be placed after two years ofopening to allow stabilization of the capitalized value of the hotel.

Basedon the limited availability of the equity, it is estimated that thejoint venture should successfully secure a mezzanine loan toadequately cover about 15% of the total cost of development, whichwill bring the debt level of the project to 75% of the entire budget.The terms of mezzanine are expected to be at 1400 basis points on topof the 30-day LIBOR. However, an LIBOR floor of about 3% has been putin place into the model. Concerning the senior construction loan, themezzanine loan will mainly be parsed between the condos and hotel ona percentage of the total cost basis. The project’s mezzanine willbe primarily funded and retired with the senior loan whereas thehotel loans will take any remaining principal upon its maturity.

Aninterest rate of 4% of LIBOR will be purchased for every loan for anestimated total cost of $2.5 million that is $2 million for the debtof senior loans and $500,000 for the entire mezzanine. Returns aremainly based on the projected average of 30-day LIBOR of about 3.5%.

Thetotal equity funds needed for the construction is about $90.7million. The Haven will contribute mainly $27.2 million in the formof costs incurred in the scheme design and entitled land. Theremaining $63.5 million regarding equity funds in being sought outcurrently and they will likely be syndicated to various investors.The distribution to equity partners will be apprehended in differentforms. Firstly, is the kind of profit from the condominiums sales andsecondly, in the form of funds from the permanent financing of thehotel. The third way is to profit from the operations of the hoteland lastly, is in the form of hotel sale. Every investor willindividually pay all the income taxes, but before as well as afterthe tax equity return estimates have been provided. See ProjectedEquity Returns from the expected returns below. Note also that thesources and uses the table for every given component of the projectdevelopment has been presented as Exhibit 3.

Sources and Uses

Sources

Uses

Senior loan

$217,709,072

Land &amp Related

$20,000,000

Mezzanine Loan

$54,427,268

General &amp Administrative

$12,000,000

Preferred Equity

$0

Design &amp Consultants

$15,300,000

Common Equity 1-Haven Gate

$27,213,634

Development Charges &amp Municipal Costs

$5,300,000

Common Equity 2

$63,498,479

Sales, Marketing, and Advertising

$15,000,000

Hard Construction Costs

$251,600,000

Building Operations

$4,700,000

Financing Costs

$38,948,454

Total sources

$362,848,454

Total sources

$362,848,454

PermanentFinancing

Thepermanent hotel loan is anticipated to be substantially funded in themonth of December 2021 as the performance of the hotel stabilizes.The loan is also expected to have a fixed rate of interest of 7.5% aswell as 30-year amortization period. The amount of loan is mainlybased on the value of hotel assuming capitalization rate of 8.5%. Themaximum value of loan value metric has been expected to be 65%, whilethe essential service of debt from the annual net income is 1.4.

Giventhe projected performance of the hotel (discussed below), a permanentloan of $24.1 million is mainly constrained by 65% loan to the valuerequirement, and the outcome is a good debt service ratio of coverageof 1.56. However, due to the current rate of interest, the spreadsfor the mezzanine loans 1200 to 1500 basis points, have no permanentmezzanine financing being assumed. The permanent hotel loan willmainly provide funds for distributions of equity because the hotelloan will have been fully paid in the year 2021 through the sales ofcondominium proceeds in August 2021.

ProjectedHotel Performance

Theperformance of the Haven Gate hotel is anticipated to stabilize inthe third operation year. A summary of hotel performance throughstabilization has been presented below. A full 10-year hotel pro-formas well as cash flow analysis has been given as Exhibit 4.

Year

% of

Year

% of

Year

% of

2020

Rev

2021

Rev

2022

Rev

Occupancy

68.0%

72.0%

75.0%

Average Daily Rate $300 (2016

$)

$303.08

$320.18

$337.85

RevPAR

$206.10

$230.53

$253.39

Total Revenue

$21,907,073

100%

$25,517,474

100%

$28,769,593

100%

Department Expenses

$11,784,372

54%

$13,474,592

53%

$14,872,724

52%

Gross Operating Profit

$10,122,701

46%

$12,042,882

47%

$13,896,869

48%

Unallocated Departments

$6,485,533

30%

$6,766,893

27%

$7,059,531

25%

House Profit

$3,637,168

17%

$5,275,989

21%

$6,837,337

24%

Other Deductions

$2,454,762

11%

$3,077,651

12%

$3,692,437

13%

EBIDTA

$1,182,407

5%

$2,198,337

9%

$3,144,900

11%

Theoccupancy of the subject hotel is expected to stabilize at 75% in theyear 2022. The stabilize occupancy is about 2 points above thecompetition set of 2016 occupancy as well as is supported by a 7-yearaverage occupancy (between 2010 and 2016) of the 83-roomed WedgewoodHotel as well as 97-roomed Opus Hotel, which were 82% as well as 77%correspondingly.

Theoccupancy of the peak season (May through October) of the subjecthotel is expected to be 84%, which is in a 1 point position below thecompetitive set of the year 2016 peak season occupancy rate of 85%.The demand of the peak season will mainly comprise of entertainmentas well as high rate leisure demand. During the off-peak period(November through April), the subject hotel is estimated to be havingan occupancy rate of 68%, which is 5 points on top of the 2016competitive set occupancy rate of 63%. The premium of the occupancyis mainly based on the small size of the subject hotel and itsinternational luxury brand. The demand during off-peak is anticipatedto include special corporate, small groups, entertainment and weekendleisure demand.

Giventhe location of the subject hotel in downtown Vancouver as well asits limited meeting place, it is anticipated that it will achieve astrong transient mix of the business of 80%. The subject hotel isalso expected to successfully capture the small high-end group ofcorporates because it is located near CBD.

Moreover,the subject hotel strong luxury brand, its new luxurious product,strong awareness internationally and its above-average size of roomswill enable the subject hotel to penetrate the current existingluxury demand which is being offered at the luxury hotels andhigh-end boutiques. Also, the subject hotel is anticipated to mainlybenefit from demand increase due to the renewed city focus on the joband economic developing and the expanded VCEC. The ADR of the subjecthotel is projected to mainly stabilize at $300.00 in 2016$ in thethird year. The ADR of the first and second years are anticipated tobe discounted by approximately 6.7% as well as 3.3% respectivelybecause the mixed demand of the hotel would have not yet beenoptimized. The rate of increase of ADR is estimated to be 2%. Thepricing section of the study gives detailed information about rateanalysis.

Theprojected expenses of the subject hotel are based on actualexpenditures of the comparable luxury as well as upscale hotelswithin Canada and United States, and actual estimates. In Exhibit 5,a comparison of the subject hotel expenses to the one for other fivecomparable hotels has been given. The exhibit is mainly based on thesubject hotel’s projected stabilized performance in a constant2016$). It also includes notes on certain expense projections.

Uponstabilization in the year 2022, the hotel is mainly expected toachieve house profit of $6.8 million which is 24% of the hotelrevenue as well as net house profit of $3.1 million about 11% of thetotal hotel revenue. The subject hotel’s higher margin can beassociated with high occupancy rate and high revenue base includinglow Vancouver utility rates plus low tax rate in Vancouver. Also,note that the subject Hotel Expense Comparison is a reflection of theprofit margin of the house of 12.7%. Due to the supposition that theexpenses will go up at high rate than the revenues, the actual marginis expected to be 11% when it is stabilized.

Inevery six years, the hotel is estimated that it would have completedsoft goods renovations. The cost of renovation of the soft goods isestimated to be $3 million which will increase at a rate of 3% everyyear. Although, the hotel is expected to be sold after ten years,note that the Pro-forma assumes that there will be full renovationevery twelve years with an estimated cost of doing so being 0.55 aswell as 2.75% of its revenue on the maintenance capital. Renovationcost is expected to be funded from the capital expenditure reserve ofthe hotel and will be depreciating one a 5-year MACRS program. Thecost for the initial development of the subject hotel is assumed tobe able to depreciate in different schedules as endorsed by the USGAAP. However, note that the building will be located in Canada whichhas more favorable treatment for the commercial buildings. But, it isnecessary to use the US GAAP in this analysis because it generatesconsiderably more stable returns. A major Maintenance Schedule plusAmortization Schedule and Hotel Depreciation are provided in Exhibit6 and seven respectively.

Theholding period for the subject hotel is estimated to be ten yearsfrom the opening date. The sale price of the hotel is based upon afinal rate of capitalization of 9% which is a little higher, that ismore conservative than the average rate of capitalization in themodern hotel transaction market (7.5% – 8.5%). The proceeds fromthe subject hotel sale in December of the year 2029 are presented inthe graph below. However, a complete hotel sales proceeds table whichincludes after-tax analysis is provided in the Exhibit 7.

Terminal Year

2029

Terminal Cap Rate

9%

Hotel NOI (Year Following Sale)

$3,155,221

Sales Price

$

35,058,008

Less: Transaction Costs

$

(1,752,900)

Less: Senior Loan Payoff

$

(21,792,282)

Less: Mezz Loan Payoff

$

Plus: Return of Unused Reserve

$

5,385,473

Before Tax Proceeds from Sale

$

16,898,299

Moreover,a consolidated statement which includes revenues, as well as cashflows from both condo and the hotel, is presented as Exhibit 8.

ProjectedResidential Performance

Softsales for the condos will begin after equity funds are sourced. During the weak sales season, reservation including refundabledeposits will be used to ensure that the market is acceptable of theprice of the product point. It is anticipated that the sales periodsof the condos will begin in the month of January 2018 with an openingevent of the primary sale office. The timing gives Haven Gate fullyear to mainly finalize its designing and building and file its mainpublic disclosure statement as required by the British ColumbiaStrata Property Act before the beginning of the sales. Moreover, itis anticipated that there will have the significant number ofvisitors in the Vancouver city which will help in heighteningawareness and increase the pool of buyers.

Thecondos are estimated to sell out over a period 50 months of averagesale pace of about three units in every month. However, this salepace is slightly lower as compared to the sale pace achieved recentlyby luxury competitors, which ranged from 10 to 20 sales in everymonth. The lower projection takes into account the current cooling inthe housing market. The competitive properties were mainly soldduring a rise in the real estate cycle which was fueled bylow-interest rates as well as flurry speculative activity byinvestors. While current sales activity is sluggish, demand forluxury housing in Vancouver should regain momentum over time based onthe city’s solid economic fundamentals, international gatewaylocation, and the attractive downtown residential environment. Also,mortgage interest rates are forecasted to remain low for the nextseveral years. The below chart reflects projected condominium saleson an annual basis.

Year

Units

SF Sold

C$/SF

Revenue (C$

Sold

000’s)

2018

36

79200

$1,450

$114,840.00

2019

36

79200

$1,450

$114,840.00

2020

36

79200

$1,450

$114,840.00

2021

36

79,200

$1,450

$114,840.00

2022

6

13,200

$1,450

$19,140.00

Total

150

330,000

$1,450

$478,500.00

Basedon an average sales price of $1,450 per square foot, total grosscondominium sales proceeds are projected to be $478.5 million. Overthe 50 month sales period, unit sales are expected to average $9.57million per month less a 4% brand license fee, a 3% brokercommission, and a 5% allowance for concessions/incentives. Net salesproceeds are estimated to be $421.1 million. Sales proceeds for eachunit will not be recognized or received until settlement, the processfor which will begin upon project completion in January 2020. Amaximum of 40 closings per month is planned due to the logisticalconstraints involved in occupying a high-rise tower.

Thejoint venture investors will be required to pay common assessmentsand property taxes for unsold units. Based on the 50 months sell outperiod, a total of $ 2.9 million will be needed to support thesecosts over the three years after opening ($2.4 million forcondominium fees and $500,000 for property taxes). Total condominiumEBITDA net of these costs is projected to be $418.1 million overthree years. After condo debt service is paid, a large portion of theremaining proceeds will be used to pay down the hotel portion of theloan. A monthly condominium pro forma and income statement arepresented as Exhibits 9 and 10. A summary before tax condominiumincome statement is presented below.

Year

Year

Year

Total

2020

2021

2022

Months

12

12

12

Condominium Unit Closings

108

36

6

150

Condominium Closings Proceeds

$344,520,000

$114,840,000

$19,140,000

$478,500,000

Less Sales Commissions

($24,116,400)

($8,038,800)

($1,339,800)

($33,495,000)

Less Concessions

($17,226,000)

($5,742,000)

($957,000)

($23,925,000)

Net Condominium Revenue

$303,177,600

$101,059,200

$16,843,200

$421,080,000

Developer Contribution of Condominium Fees, Property Taxes

$2,115,150

$813,629

$9,492

$2,938,272

Condominium EBITDA

$301,062,450

$100,245,571

$16,833,708

$418,141,728

TaxCalculations

Aspreviously stated, all equity distributions are expected to be madeon a pre-tax basis. Each investor will be responsible for the paymentof income taxes on its share of distributions. However, as a benefitto the investors, taxes for each investor category have beencalculated for both the condominium and hotel income. Taxcalculations are based on the below tax assumptions.

Marginal Tax Rate (Federal)

39%

Marginal Tax Rate (State/Province)

5%

Blended Tax Rate

42%

% of Condominium Distributions Taxable as Profit

20%

Capital Gains Tax (Recovery of Appreciation)

25%

Capital Gains Tax (Appreciable)

15%

Notethat condominium revenues will be earned in 2020 but, due to requireddebt payments, no distributions will be made to investors. It willrequire investors to pay taxes on condominium revenue from otherproceeds. However, in 2022, investors are expected to receivetax-free proceeds from the refinancing of the hotel. Furthermore, insubsequent years, the hotel is projected to generate a negative taxburden (available to offset taxes from investor income not related tothe project). The negative tax burden is due to the high depreciationexpense for the hotel, which results in negative earnings (despiteits positive cash flow). Projected equity returns are presented inthe attached exhibits both on a before-tax and after-tax basis.

ExpectedEquity Returns

Basedon a 10-year hold period, the subject development is expected togenerate a total equity IRR of 18.9% on a before-tax basis and 14.5%on an after-tax basis. A table reflecting total equity cash flows andreturns is presented as Exhibit 12.

Usinga 15% pre-tax discount rate and based on a 10-year hold period forthe hotel, the project results in an expected net present value (NPV)of $12.9 million (based on a 10-year hold period Canadian $). A 15%discount rate is considered appropriate for the risk level of theproject and appears conservative when compared to the 10.64% averagediscount rate reported for luxury hotel projects in the 4th Q 2016Price Waterhouse Coopers Korpacz Real Estate Investor Survey.

Inreturn for bringing the project to the joint venture, contributingthe land and design costs for the project, and managing thedevelopment and residential sales processes, Haven Gate will requirean accelerated return or “promote” on distributions above a 15%cumulative current return on equity. Up to a 15% cumulative currentreturn, distributions will be made on a pari passu basis. Between a15% and 25% cumulative current return, Haven Gate receivesdistributions at 5 points above its pari passu share. Above 25%cumulative current return, Haven Gate receives distributions at 10points above its pari passu share. A table reflecting thedistribution splits is presented below.

SUMMARY OF EQUITY DISTRIBUTION SPLITS

Equity Contributed

Haven Gate Contribution

30%

Common Equity Contribution

70%

Up to 15% Cumulative Return

% Chg

Haven Gate Split

30%

0%

Common Equity 2 Split

70%

0%

Between 15% and 25% Cumulative Return

Haven Gate Split

35%

5%

Common Equity 2 Split

65%

-5%

Above 25% Cumulative Return

Haven Gate Split

40%

5%

Common Equity 2 Split

60%

-5%

Asa result, the expected IRR for Haven Gate is 19.4%, while remainingequity IRR is 18.7%. Resulting before-tax returns to each equitytranche are quantified below. A complete before-tax and after-taxcash flow and returns analysis for each of the equity tranches arepresented as Exhibit 11.

SUMMARYOF PROJECTEDEQUITY RETURNS

Total Equity Return

IRR

18.9%

NPV at 15%

12,904,540

Common Equity 1 (Haven Gate) Return

IRR

19.4%

NPV at 15%

4,420,482

Common Equity 2 Return

IRR

18.7%

NPV at 15%

8,498,991

SensitivityAnalysis

Theexpected returns are based on several assumptions and estimatesoutlined above and in the project’s pro forma model. Theseassumptions are forward-looking and could vary materially based onchanges in market conditions and other factors. Thus, sensitivityanalyses have been completed to reflect the impact on total equityIRR resulting from a change in any one of the below materialdevelopment and pro forma assumptions. A graph of these results ispresented below.

RETURNSENSITIVITY ANALYSIS

Common

Equity IRR

% Chg

Haven Gate IRR

% Chg

Equity 2 IRR

% Chg

Expected Results

18.9%

19.4%

18.7%

$10 million Increase in Development Costs

17.1%

-9.5%

17.3%

-10.6%

17.0%

-9.2%

$100 PSF Decline in Residential Sales Price

13.9%

-26.3%

13.9%

-28.0%

13.9%

-25.5%

1-Year Delay of Residential Sell-Out

15.7%

-17.1%

15.8%

-18.2%

15.6%

-16.5%

100 Basis Point Spread Increase on Senior Debt

18.2%

-3.8%

18.5%

-4.2%

18.2%

-2.8%

5%

Decrease in Hotel Revenue

18.1%

-4.4%

18.4%

-4.8%

17.9%

-4.1%

1%

Increase in Cap Rate (Refinancing &amp Terminal)

18.6%

-1.7%

19.0%

-1.8%

18.4%

-1.6%

Themost material effect on IRR results from a negative change in eitheraverage residential sales prices or sales pace. A $100 reduction inaverage sales price negatively affects Total Equity IRR by 5 points(26.3%), and a one-year delay of unit sales decreases the projectedIRR by 3.2 points (17.1%).

Also,a Crystal Ball scenario analysis as given by Charnes (2012) has beencompleted to present the range of possible Total Equity IRR resultsgiven variations in material pro forma assumptions. The scenarioanalysis incorporates the IRR results for 1,000 trials assumingchanges in the following assumptions: 1) development timeline, 2)development costs, 3) residential sales pace, 3) average residentialselling price, and 4) hotel revenue.

Thedistribution of scenario results shows that Total Equity IRR mayrange from 2% to 35%, with 18% being the median and mean IRR. Thestandard deviation is 6%, resulting in a 68% probability of achievingan IRR between 12% and 24% (within one standard deviation). Furtheranalysis shows that total equity returns are 54% likely to be at orabove an 18% IRR and 70% likely to be above the selected 15% discountrate. Below are a frequency chart and scenario summary reflecting thevarious IRR results. (See Appendix I for the full Crystal Ballreport.)

Forecast:Total Equity IRR

1,000 Trials

Frequency Chart

983 Displayed

.031

31

.023

23.25

.016

15.5

.008

7.75

.000

0

2%

10%

18%

26%

35%

%

CRYSTALBALL SCENARIO RESULTS – TOTAL EQUITY IRR

Summary:

DisplayRange is from 2% to 35%

EntireRange is from -7% to 38%

After1,000 Trials, the Std. Error of the Mean is 0%

Statistics:

Value

Trials

1000

Mean

18%

Median

18%

Mode

Standard Deviation

6%

Variance

0%

Skewness

-0.34

Kurtosis

3.58

Coeff. of Variability

0.35

Range Minimum

-7%

Range Maximum

38%

Range Width

45%

Mean Std. Error

0.20%

Thebelow Crystal Ball sensitivity chart reflects that IRR results aremost sensitive to changes in the average residential sales price andresidential sales pace, supporting the findings of the simplesensitivity analysis presented at the beginning of this section.

RiskManagement

Thereare risks which can affect project development from moving forward.Possible risks are presented below along with associated riskmitigation plans.

AlthoughHaven Gate currently owns the subject site and all entitlements arein place, there is a risk that the City of Vancouver, the Province ofBritish Columbia, or the Federal Canadian government may enact lawsor moratoriums that would prevent the project from moving forwardwith its current uses Wiegelmann, (2012). It will be essential forHaven Gate to maintain regular meeting with critical governmentofficials to avoid any inconveniences.

Inthe current strained lending market, the project may not be able tosource construction debt promptly or at the prices assumed in the proforma (Emanuelsson et al., 2015). To mitigate the risk of being leftwith a partially constructed project without debt financing, no mainconstruction will begin on the project site until a debt commitmentletter has been signed and negotiation of loan documents is underwayBanaitiene and Banaitis, (2012). Also, any residential purchasecontracts, general contractor agreements, brand license agreements,and hotel operating agreements entered into before construction loanclosing will incorporate a joint venture termination right shouldfinancing not be sourced by a specified date (Huggie and Beverly,2017). It will give the partners more options to rework the projector return investor equity (if this is permitted in the joint ventureagreements).

Theconstruction and mezzanine loans are expected to have floatinginterest rates tied to the 30-day LIBOR (Silbernagel and Vaitkunas,2012). To mitigate the volatility of returns associated withfluctuations in LIBOR, LIBOR cap of 3.5% will be purchased. It willresult in an ex-ante increase in projected development costs but willeliminate the risk of significant cost overruns due to a rise in thebase rate during development.

Thepro forma assumes that the hotel is refinanced two years after hotelopening. This permanent loan would take out any remainingconstruction debt. There is a risk that no reasonably priced debtwill be available to refinance the hotel. The current pro formaassumes that the construction loan is paid down to a zero balancebefore placement of the permanent loan. However, if this does notoccur, the construction loan will mature two years after hotelopening, and funds may not be available to retire the debt. Also, anyhotel refinancing proceeds are expected to be returned to investorsas non-taxable equity returns. The delay in receipt of these proceedscould materially affect project returns. To mitigate refinancingrisk, Haven Gate will seek to gain an upfront permanent financingcommitment from the construction lender. Should this not be possible,Haven Gate will begin approaching friendly banks as soon as the hotelopens to discuss loan opportunities (Demirag et al., 2012) Haven Gatewill also present a plan to the joint venture partners six monthsbefore hotel opening detailing a plan to be implemented if financingis not available. This plan will evaluate various options including asale of the hotel, partner equity buyouts, or the pursuit ofnon-traditional debt financing.

Thereis a risk that no favorable agreement will be reached with a luxuryhotel and residences brand (Jayasudha and Vidivelli, 2016). Althoughthe risk is considered to be minor given the number of brands lackingrepresentation in the Vancouver marketplace and the prominentlocation and design quality of the subject development, steps arebeing taken to mitigate this risk. Haven Gate has traveled to theregional or brand headquarters for Ritz-Carlton, Mandarin Oriental,Four Seasons, and St. Regis to promote the subject development. Eachbrand expressed interest in branding the development. Haven Gate willsend a request for proposal to these and three other brands. Theseare Aman Resorts, Waldorf-Astoria, and InterContinental. The requestfor proposal process will allow Haven Gate and the joint venturepartners to compare brand strength, requirements, and terms side byside and negotiate a favorable agreement.

Equityreturns are highly dependent upon the project’s achievement of theresidential pricing assumptions in the pro forma (Purnus and Bodea,2015). Although the pro forma assumptions are considered reasonableand achievable, there is a risk that these pricing levels will not bereached (AICPA, 2016). The residential sales price must average aminimum of $1,045 per square foot which is $405 below the projectedpricing with all other assumptions remaining constant to break even(0% IRR). To mitigate the risk of moving forward with the projectwithout testing for market acceptance, Haven Gate will launch a softsales and marketing campaign before construction start. Experiencedluxury real estate brokers will be given a preview for theirhigh-value clients. Market acceptance will be determined based on thenumber of reservations received with refundable deposits. If therewill be a lack of interest in the residential units at the pro formapricing, the project will be reworked.

Equityreturns are dependent upon a profitable hotel operation. Overall,hotel results are highly volatile compared to other real estateclasses due to the transient nature of hotel demand. Moreover, thehotel business is a management-intensive operation, requiring quickresponses to market conditions and customer needs. There is a riskthat a hotel operator will not be able to achieve the pro formaresults due to lack of management expertise and a change in economicconditions, including costs for labor, utilities, and property taxes,or a material and adverse change in market lodging demand (Almarriand Blackwell, 2014). Mitigating this risk is the choice of anexperienced luxury operator, which has an international base ofcompetent management staff, appropriate management controls, accessto relevant market forecasting data, and a history of successfulperformance (Hartmann, et al., 2012).

Thereis a risk that the hotel sale will not provide the projected proceedsdue to a decrease in hotel performance, an increase in capitalizationrates, or a lack of interested parties at the forecasted terminationdate (Whittaker, 2012). The joint venture partners should be able toevaluate a potential sale of the hotel at any time after refinancingso that they can mitigate this risk. It will allow the joint venturepartners to capitalize on an economic upswing during the forecastedhold period, potentially increasing IRR. Likewise, the terminal datemay be extended should unfavorable economic conditions exist at thepredicted terminal date. It should be noted that only 7% of the TotalEquity IRR is derived from hotel sales proceeds.

Conclusion

Thesubject development is a presentation of a joint venture with achance to invest in a successful project. The project is about theconstruction of a luxury tower in downtown Vancouver as Appendix IIshows. The land which the subject project is to be developed has allthe necessary entitlements. It is also located in the prime businessdistrict and near Coal Harbor beachfront. In spite of the volatilityin the current economy, the project is in a good position to succeedgiven strong management, desirable location as well as the suitableeconomic condition of Vancouver city.

APPENDICES

AppendixI

CRYSTAL BALL SCENARIO RESULTS – TOTAL EQUITY IRR

Summary:

Display Range is from 2% to 35%

Entire Range is from -7% to 38%

After 1,000 Trials, the Std. Error of the Mean is 0%

Statistics:

Value

Trials

1000

Mean

18%

Median

18%

Mode

Standard Deviation

6%

Variance

0%

Skewness

-0.34

Kurtosis

3.58

Coeff. of Variability

0.35

Range Minimum

-7%

Range Maximum

38%

Range Width

45%

Mean Std. Error

0.20%

AppendixII

NOTE:

Exhibitincluding Appendix will be provided as a separate document.

References

AICPA.(2016). Reportingon Pro Forma Financial Information.https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AT-00401.pdf

Almarri,K., &amp Blackwell, P. (2014). Improving risk sharing and investmentappraisal for PPP procurement success in large greenprojects.&nbspProcedia-Socialand Behavioral Sciences,&nbsp119,847-856.http://ac.els-cdn.com/S1877042814021867/1-s2.0-S1877042814021867-main.pdf?_tid=7c623478-0757-11e7-8036-00000aacb35e&ampacdnat=1489345978_ae65594b25b9f236eef86d2d2452f95d

Banaitiene,N., &amp Banaitis, A. (2012).&nbspRiskmanagement in construction projects.INTECH Open Access Publisher.https://pdfs.semanticscholar.org/aec7/03c488fec34217a287de8571406c361a78f3.pdf

Banaitiene,N., &amp Banaitis, A. (2012).&nbspRiskmanagement in construction projects.INTECH Open Access Publisher.https://pdfs.semanticscholar.org/aec7/03c488fec34217a287de8571406c361a78f3.pdf

BCStats. (2017). Sub-ProvincialPopulation Projections.http://www.bcstats.gov.bc.ca/Files/7b7c178e-da8e-468c-922b-0faae039c8db/2016Sub-ProvincialPopulationEstimates.pdf

CBREHotels. (2017). Trendsin the Hotel Industry National Market Reporthttp://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx

Chan,K. (2014). CouldVancouver host the 2022 Olympic Winter Games?.http://www.vancitybuzz.com/2014/05/vancouver-host-2022-olympic-winter-games/

Chan,K. (2017). A tight squeeze: 28-storey office tower proposed fordowntown Vancouver. Retrieved from:http://dailyhive.com/vancouver/625-west-hastings-street-vancouver

Charnes,J. (2012).&nbspFinancialmodeling with crystal ball and excel.John Wiley &amp Sons.http://sbf.edu.vn/uploads/news/2013_07/Wiley.Financial.Modeling.with.Crystal.Ball.and.Excel.Mar.2007.pdf

Demirag,I., Khadaroo, I., Stapleton, P., &amp Stevenson, C. (2012). Thediffusion of risks in public private partnership contracts.Accounting,Auditing &amp Accountability Journal, 25(8), 1317-1339.http://www.academia.edu/download/30163320/diffusion_of_risksinppps_1_december_2010.pdf

Emanuelsson,R., Melander, O., &amp Molin, J. (2015). EconomicCommentaries.http://www.riksbank.se/Documents/Rapporter/Ekonomiska_kommentarer/2015/rap_ek_kom_nr6_150601_eng.pdf

Hartmann,T., Van Meerveld, H., Vossebeld, N., &amp Adriaanse, A. (2012).Aligning building information model tools and construction managementmethods.&nbspAutomationin construction,&nbsp22,605-613.http://s3.amazonaws.com/academia.edu.documents/39447630/1-s2-1.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&ampExpires=1489349580&ampSignature=oKPDAPqkjbWqGG3JUo8TrDycEDI%3D&ampresponse-content-disposition=inline%3B%20filename%3DAligning_building_information_model_tool.pdf

Huggie,M. &amp Beverly, H. (2017). JointVentures: General Contractors’ Risk Management Perspective.https://welcome.willis.com/globalevents/crm/Presentations/Joint%20Ventures%20-%20General%20Contractor%20Perspectives%20-%20Marie%20Huggins%20and%20Beverly%20Hill.ppt

Marr,G. (2016). Vancouver’shotel room rates hottest in Canada amid all-round property boom.Retrieved from:business.financialpost.com/personal-finance/mortgages-real-estate/vancouvers-hotel-room-rates-hottest-in-canada-amid-all-round-property-boom

McElroy,J. (2016). Onechart shows how unprecedented Vancouver’s real estate situation is.Retrievedfrom:globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/

Purnus,A., &amp Bodea, C. N. (2015). Financial management of theconstruction projects: A proposed cash flow analysis model at projectportfolio level.&nbspOrganization,Technology &amp Management in Construction: An InternationalJournal,&nbsp7(1),1217-1227.

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Silbernagel,C., &amp Vaitkunas, D. (2012). Mezzanine finance. BondCapital, 1-7.http://www.stblaw.com/docs/default-source/cold-fusion-existing-content/publications/pub1580.pdf?sfvrsn=2

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Hotel Business Plan Haven Gate Fund

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HotelBusiness Plan: Haven Gate Fund

InstitutionAffiliation:

TABLEOF CONTENTS

  1. EXECUTIVE SUMMARY…………………………………….………….3

  2. PART I: ORGANIZATION PLAN………………………………………..4-9

Mission………………………………………………………………………..4

BusinessModel…………………………………….………………………….4

Strategy……………………………………………………………………….5

Facility………………………………………………………………………..6

Productand Services……………………………………………………….…6

HotelProduct and Services Offering………………………………………….6

ResidentialProducts and Services Offering……………………………….…8

AdministrativePlan……………………………………………………………9

  1. MARKETING PLAN……………………………………………..…………12-32

TargetMarket Overview……………………………………..………………..12

Tourismand Transportation…………………………………………….…….13

Housingand Population……………………………………….………………14

MarketingPlan………………………………………………………….…….16

Residential…………………………………………………………….………18

PrimaryCompetitors of the Subject Hotel…………………………….………21

SecondaryCompetitors of the SubjectHotel…………………………………………….23

SupplySummary and Comparison…………………………………….………25

ResidentialCompetition Analysis ……………………………………………25

FairmontPacific Rim ……………….…………………………..………..……25

Shangri-La………………………………….…………………………………26

JamesonHouse…………………………………………………………….….27

L’Hermitageen Ville…………………………………………………….……28

ThreeHarbor Green……………………………………………………………29

SupplySummary and Comparison……………………………………………………30

Pricingof the Hotel…………………………………………….………………30

ResidentialPricing………………………………………………………..……32

  1. PART III: FINANCIAL DOCUMENTS…………………………….……..35-46

Sourcesof Funds and Uses…………………………………………….………35

ExpectedFinancial Return…………………………………………………….36

DevelopmentBudget…………………………………………….……………..36

PermanentFinancing…………………………………….……………………..39

ProjectedHotel Performance………………………….………………………..39

ProjectedResidential Performance…………………….………………………..42

TaxCalculation………………………………………….………………………44

ExpectedEquity Returns…………………………….………………………….45

SensitivityAnalysis……………………………….…………………………….46

RiskManagement……………………………….………………………………48

Conclusion………………………………………….……………………………51

Appendix…………………………………………………………………………52

References……………………………………………………………………….55

EXECUTIVESUMMARY

HavenGate Fund, LLC (“Haven Gate”) is a project fund organizationwhich partners with the local developers in the international citiesto mainly develop mixed business projects. Most of the projects ofthe firm feature particularly luxury hotel factor. Haven Gaterecently acquired a 0.6 acre of a land or site in the downtownVancouver city. The company plans to develop a 60-story tower whichcomprises of a 150-room luxury hotel as well as 150 brand-name luxurycondominiums. The five possible brands which are being consideredhere include Ritz-Carlton, Mandarin Oriental, Four Seasons, and St.Regis.

Theproject will be situated in the downtown central part of theVancouver, British Columbia, one of the international gateway citiesand a home to the Winter Olympics 2010. The Vancouver city is diverseeconomically, with strong tourism base and is one of the most denselypopulated cities in the North America. The location of the project isnearby to the Robson Street shopping and entertainment district. Onthe other hand, the Coal Harbor beachfront makes it suitable andattractive to the corporate and leisure demanding clients includingsuperfluity condominium buyers.

Theproject is expected to be open in January 2020 based on a developmenttimeline of 36 months. The total construction cost which is expectedin this project is to be $362.8 million. Haven Gate is seeking debtas well as equity financing for the project as shown below.

Project Development Funding

Funding Source

Amount (Millions)

% of the Total Costs

Senior Construction Loan

$217.7

60%

Common Equity

$63.5

17.5%

Mezzanine Construction Cost

$54.4

15%

Haven Gate Equity

$27.2%

7.5%

Total

$362.8

100%

Itis expected that the 150 condominiums will sell at an average rate of3 units every month and manage to achieve an average sales of $1,450in every square foot, which will amount to $478.5 million in thegross sales income. Moreover, the luxury hotel is projected to atleast stabilize occupancy rate of 75% with daily rate being averagely$300 and attain a steadied EBITDA of about $3.1 million. The hotel isassumed to be sold approximately 10 years after opening with a grosssale of $35.1 million basing on the 9% terminal rate ofcapitalization. Note that the amounts in this business plan arepresented in Canadian dollars as the business will be located inCanadian city.

TheHaven Gate financial analysis for this project is somehowconservative given the current sluggish economic conditions and thestrained debt markets. Moreover, is anticipated to generate healthyincome returns to the investors, with a total equity before taxamounting to IRR of 18.9%. Also, the Haven Gate’s IRR is estimatedto reach 19.4% due to equity distribution of above 15% total currentreturns, while the residual equity investors are expected to realizean IRR of 18.7%.

PARTI: ORGANIZATION PLAN

HavenGate is a real estate venture and investment fund which partners withthe local developers in the international gateway worldwide cities tomainly develop a mixed business projects. Most of the firm’s plansfeature luxury hotel constituent.

Mission

HavenGate’s mission is to be viewed as a place for people, corporatesand tourists to relax and have peace of mind. We offer desired guestsilence, well-being, recovery and pleasure. Business travelers,corporates, tourists including long-range drivers will find a home torecover. Haven Gate is located around beachfront in Vancouver, aplace desirable and suitable for all.

BusinessModel

HavenGate acquired 0.6 acres of the land site at the Northern quadrant ofthe Thurlow Street and West Georgian Street in the suburbs of theVancouver city that it plans to build a sixty-story tower formixed-use business. The 20 floors of the lower side of the buildingwill be made up of 150-room branded luxury hotel. On the other hand,the 40 floors on the upper side of the building will be made up of150 luxury branded condominiums. The possible brands which are beingconsidered include Ritz-Carlton, Mandarin Oriental, Four Seasons, andSt. Regis. Haven Gate is seeking equity partners who will form ajoint venture that will undertake the development of this project.Haven Gate will contribute a portion of capital using entitled landas well as design costs and as a managing member who will beresponsible for the daily development, marketing, residential salesin addition to asset management obligations for this project.

Strategy

TheHaven Gate project presents a supreme opportunity to develop one ofthe best luxury hotel as well as condominiums in the Vancouver city,a place with strong Asian and U.S demand base capitalizing on theexpected demand growth from the expansion of the Vancouver Conventionand exhibition Center and more so future Winter Olympic Games whichhave high probability of being held in Vancouver few years after year2020 (Chan Kenneth, 2014).

Thelocation of this project within the CBD and propinquity to the RobsonStreet shopping and entertainment district makes it well positionedto attract leisure and corporate lodging demand. Moreover, downtownside of the Vancouver city is the most densely populated city side inCanada, and it represents among the top pupated urban centers in theworld (BC Stat, 2017). High demand for the luxury residence is mainlycaused by current residents of the British Columbia as well as nearbyprovinces and foreign residents seeking pied-a-terre or a second homein the Canada’s most lively coast city.

Giventhe strength of lodging market, the affiliation of the luxury brand,the product location in iconic 60-story tower and the above averagesize of the room in the downtown Vancouver is expected to penetratesuccessfully the high demand of the luxury, high-end boutique as wellas luxury hotels. Moreover, this subject hotel is expected to inducenew demand into the current market due to its new luxury brand. Theprojected performance of the hotel will be as follows:

Projected Hotel Performance (2017 $)

Opening

January 2020

Occupancy:

68/72/75%

ADR (2017 $):

C$300.00

Stabilized Total Revenue

$24.3 million

Stabilized House Profit

$6.2 million

Stabilized EBITDA

$3.1 million

Thehotel is expected to be sold after ten years of opening at a grosssale of $35.1 million basing on a 9% terminal rate of capitalization.

Facility

Thedevelopment of this project will be located within the vivaciousVancouver CBD, about two blocks from Robson Street restaurant,entertainment, and shopping district. The site is situatedapproximately 0.5 miles from the waterfront of the Coal Harbor andthe Stanley Park recreational facility. The immediate area whichsurrounds the development comprises of a mix of mid-rise andhigh-rise retail building, multi-family residential and officetowers. The summary of the surrounding, as well as map of the area,is presented in Appendix II:

Productand Services

Thedevelopment will be made up of 60-story mixed-use building in thedowntown Vancouver. The world-renown architects will design thebuilding. It is expected that it will be the second tallest structurein the city of Vancouver. The lower section of the building will becomprised of 150-room superfluity hotel. The upper part will containother brand-name luxury condominiums. The height of this buildingwill give it its prominence in the city skyline as well as an idealfeature for the luxury product.

Mostof the condominium and hotel customers are expected to be distinct.However, the co-location of the components of the project will makeit beneficial. Most of the residential buyer will mainly access hotelfitness, restaurant facilities and spa and they will be able toutilize the room service of the hotel, housekeeping and conciergeservices. The hotel will benefit from the fees and revenues fromthese offering including room night demand from the resident’sguests. Hotel will provide various products and services.

HotelProduct and Service Offering

of Hotel Facilities

Guest Room Type

Number

King (545 SF)

75

Double Queen (545 SF)

42

Executive Suites (1,090 SF)

30

Deluxe Suites (1,635 SF)

2

Presidential Suite (2,500 SF)

1

Total

150

of Hotel Facilities

Food and Beverages Types

Number of Seats

Celebrity Chef Restaurant (1)

80

Lounge(s) (2)

75

Total

155

Meeting Space

SF

Ballroom (divisible by 3)

6,000

Meeting Rooms(4)

3,200

Boardrooms (2)

800

Total

10,000

Other facilities Include:

2,000 SF Health Club7

Business Center

7,500 SF Luxury Branded Spa

Club Lounge (about 20% of the guest rooms will be converted to Club Rooms

Outdoor Pool with Whirlpool

Self-Parking Spaces

Gift Shop and

Underground Valet

Thehotel will mainly offer 150 guest rooms. The average room will beapproximately 545 square feet. The hotel will also provide 33 suiteswhich range from 1,000 square feet to the 2,500 square feet of thepresidential suite. Every hotel guest room will have highest qualityfurnishing with warm, rich woods as well as textured fabrics whichreflect a contemporary flair. The rooms will also have dual sinkswhich are laid in the slab, DVD player, 42 inch LCD flat panel TV,fretted linens and iPod docking station. Moreover, the rooms willoffer wireless internet connection, terry bathrobes, high-end bathfundamentals and stocked honor bar.

Everyguest will obtain housekeeping twice in a day, luxury custodianservices as well as services of the chauffeur-driven sedan. Moreover,club and suite guests will have private butler services as well ascomplimentary access to a club lounge which offers six per diembeverages and food presentations.

Thebusiness services will comprise of 10,000 SF of banquet and meetingspace with a celebrity-chef delicacy plus the staffed center ofbusiness offering secretary and complimentary services. The brandedluxury spa will mainly offer various healing treatments includingexclusive beauty and health products.

Theguests of the spa will also access steam and sauna room facilities aswell as fitness center and the pool of the hotel. The concept of thehotel will mainly be created and implemented by a renowned chef to bedetermined by management. The chef will offer to dine for theresidents and the hotel guests.

ResidentialProduct plus Service Offering

Residences Amenities Summary

Unit Type

SF

Number

1 Bedroom, 1 bath

1,450

15

1 Bedroom, 1 Bath, Den1

1,750

25

2 Bedroom, 2 Bath

1,950

30

2 Bedroom, 2.5 Bath, Den

2,300

54

Sub Penthouse

2,725

15

Penthouse

3,100- 3,500

7

Grand Penthouse

4,000

3

Common

6,025

1

Total

150

Common Element Facilities

3,000 SF Resident Lounge and Billiards Room

Indoor Lap Pool

1,500 SF Resident Lobby and Concierge Station

Management Offices and Boardroom

1,500 SF Fitness Center and Movement Studio

Facilities Shared with the Hotel

Celebrity Chef Restaurant and Lounges

Outdoor Pool with Whirlpool

7,500 SF Luxuries Branded Spa

Business Center and Gift Shop

Underground Valet and Self-Parking Spaces

Theresidence section will be made up of 150 luxury units which rangefrom one bedroom entities from 1,450 SF to a six-bedroom penthouse ata 6,025 SF. The project will be situated as the most luxurious anddesirable address in the city. Every residence will have afloor-ceiling window as well as the open floor plan to ensure maximumnatural light access. The apartment will come with magnificent viewsin various ways. The units facing the northern side will feature theCoal Harbor waterfront including cruise port while the units facingthe Western section will mainly feature the Coal Harbor and thePacific Ocean. On the other hand, units which will be facing East andSouth will provide a dramatic skyline of the Vancouver city.

Residentswill have an opportunity to select from three luxury packages whichfeature granite tile or finest marble and Sub Zero appliances,countertops and varicolored most beautiful hardwood carpeting andflooring. All the master bedrooms will be composed of marble bathswith large glass-enclosed showers with soaking tubs and variousshower heads. The units will have about 9.5-foot ceiling height, andLutron controlled lighting structures which will enable owners tocustomize their preferences of light with a touch of a button. Everyone-bedroom segment will have one parking space while other biggerunits will have at least two parking spaces. There will a valetparking and an elevator access to one’s residential floors of theluxurious condominium tower.

Inaddition to offering access to the hotel amenities and facilities, itwill feature billiard rooms and private resident lounges as well asan indoor lap pool plus a 1,500 square foot private fitness sector.The services which will be available to the residents are asproficient residential management association, luxurious 24-hourcustodian services, and sedan driven services including babysittingservices, dry-cleaning services, maintenance and housekeepingservices as well as housekeeping services which will be provided bythe restaurant. All the service will be funded via association ofcondominium dues and in some instances via-la-carte fees.

AdministrativePlan

HavenGate executive team is made up of four main principals, each having aminimum of 15 years’ experience in real estate development,transaction and operation. Mainly, two of these principals haveserved as corporate executives and entrepreneurs involved in theoperation, asset management and development of the luxury hotels inthe world. The remaining principals have at least experience in salesand development as well as a marketing luxury condominiumdevelopment.

HavenGate controls 0.6-acre site where the project is to be constructedand will contribute a minimum cost of entitlement and the land to theentire project. Haven Gate is looking for willing equity partners whowill provide the rest of the resources needed for the development ofthe project. Haven Gate will enter into a joint agreement with thewilling equity partners. Upon the agreement execution, a board ofdirectors will be chosen which will comprise of members of everyequity investor in proportion to the ownership interest. The board ofdirectors will assign the managing duty to the Haven Gate, subject toprecise controls and conditions as stipulated by the board. In thisdimension, Haven Gate will be accountable for management decision ofthe project and oversight of development activities, marketingeffort, residential sales as well as management duties for thisinvestment.

Significantinvestment and financial decisions for this project will be made bythe entire board of directors with the recommendation from the HavenGate. These decisions include: Firstly, entering into any loan whichis encumbering the property as well as financing of construction.Secondly, the decisions involving changes to the project opportunityand any other core changes to the development budget worth over $1million when the application of contingency funds is excluded.Thirdly, decisions which deal with changes to the business capitalstructure and selection, replacement or termination of the primaryvendors like sales broker, architect, hotel brand, general contractorand residence brand. The fourth one is any sales of residential whichinvolves more than five units and major changes to the housing’pricing. The last one is the decision involving investments of hotelcapital more so over $1 million, or sale of the hotel or the exitstrategy.

Theentitlement for the construction has already been secured whichallows the 60-story tower to be built. A famous architect has beenselected, and essential design documents are being drafted. Moreover,contractors are currently being interviewed, and selection isexpected to occur soon. All the candidates under vetting haveessential experience in the Vancouver construction market, and theyhave good relations with the local building personnel. Once thecontractors are selected, they will have weekly meetings with theproject construction managers to discuss the cost and the forecast ofthe completion.

Thereare various hotel brands which have expressed their interest inmanaging the condominiums and hotel as well as providing the brandlicense for the condominiums. Once they are one of them has beenselected, the manager will be designing process of the project on anadvise-seeking basis because the building will be expected to meetthe design standards of the brand. Over the time, the companymanagement will be accountable for the daily operation of this hoteland administration of the entire condominium association. In itsresponsibility as a hotel manager, it will be responsible for hiringand managing the staff, performing sales as well as marketing duties,and management of the guests’ relations and services. It will alsobe responsible for maintenance of the hotel grounds and building,generation of hotel budgets, forecast reviews of partners andapproval including distributing income to the Haven Gate.

Inthis concern, Haven Gate will mainly distribute this income to thejoint venture partners as per the agreement provided in the jointventure contract. There will be bi-annual meetings which will be heldat the Haven Gate and the management of the hotel to discuss andreview financial performance as well as expenditure plans of thebusiness. Moreover, the condominium association manager, that is themanagement company will hire and manage the entire staff, providesupport to the governance organization, deliver services to theresidents, maintain traditional sectors, and generate the budgetforecast for the approval by the association board. The Haven Gatewill run and control the board of the residential association untilthe 50% of the units have been completely transferred.

Thepartners of the joint venture will be responsible for all the salesand marketing of residential because luxury brands do not mainlyoffer marketing and sales services. These partners will beresponsible for selling the residence under a license using theluxury brand, which will mainly provide essential training and accessto marketing tools of the brand.

TheHaven Gate as a managing member will be accountable for approval andgeneration of the sales oversight and disclosure statement. Moreover,there will be the residential broker who will be tasked with andimplementation of strategic sales as well as marketing plans for theresidence. The Haven Gate will hold sales strategic meetings withresidence broker to mainly discuss sales progress and the forwardstrategy.

PARTII: MARKETING PLAN

TargetMarket Overview

Forthe past ten years, projects and achievements within the target havebeen realized. All these recent projects and accomplishments meanthat the future of this project is bright. The G Greater VancouverRegional District (GVDR) is the biggest metropolitan sector inWestern Canada and is the third largest in the entire country(Vancouver, 2015). GVDR serves as the entertainment, medical,commercial and the hub of transportation for the British Columbia andother nearby provinces. The core industry sectors include forestry,mining, insurance real estate, financial, tourism, film productionand health care.

Vancouverwas also selected as the host city for the year 2010 Winter OlympicGames. The construction projects and pre as well as post-gameactivities created over 100, 000 jobs and increased the GDP ofVancouver which increased the significant demand for lodging in thearea. Moreover, it is expected that Vancouver will also host otherOlympic games few years after 2020 which makes a possibility ofincreased opportunities after the opening of the project.

Forthe past decade, downtown Vancouver has contained about 24.5 millionSF of the office spaces with the vacancy rate ranging from 2% to2.5%. The primary employers in the downtown area include theCorporation, Jim Pattison Group, HSBC, RBC Financial, CanadianImperial Bank Group as well as Accenture. However, for the past tenyears, there have been various office projects in downtown. Amongthese office projects, is 145,000 SF office tower which was plannedin the year 2008 to commence in 2009 and to be situated in thesoutheast of this project. Moreover, according to Kenneth Chan(2017), a 28-storey tower is expected to be built in downtownVancouver. The new tower has been proposed for the 600 block of WestHastings Street in Vancouver.

Vancouveris also the third largest in the production of film and television inNorth America. For the past ten years, over 200 productions weremainly filmed in British Columbia annually with the majority of thembeing filmed partially in Vancouver which resulted in over $1 billionannual spending. The business supports about 30, 000 local jobs andhelps in generating domestic demand for lodging as well asresidential services within the area.

Tourismand Transportation

Vancouverhas continued to be among the top destinations in the North Americadue to its natural beauty, unique geography and cosmopolitanatmosphere. In the year 2007, approximately 8.9 million touriststoured Vancouver and spent about $4.6 billion. However, according toCBRE Hotel (2017), Vancouver received over ten million tourists lastyear, which is the highest rate of visitation in the history of thecity. The tourist sector contributed about $4.4 billion to theeconomy of Metro Vancouver and provided over 70, 000 jobs. Moreover,according to CBRE Hotel (2017), there is approximately 10, 400 hotelroom within downtown Vancouver and about 24, 000 in the MetroVancouver. Moreover, the source also evidenced that the tourism rateincreased by about 7.1% with mainly increase in the room occupancyrate last year. It is evidence here that the visitation rate has beenincreasing for the past decade more so after the 2010 Winter OlympicGames.

Vancouveris also the major point of embarkation for Alaskan cruise routes.Vancouver city gets about 230 cruise ship calls per year currentlywith each cruise stimulating over $2 million to the economy of thecity. However, this cruise ship is essential to the project due toone main reason. The cruise terminal is conveniently situated indowntown Vancouver in just proximity to shopping attractions and notfar from the International Airport.

Anotherimportant feature is the 133, 000 SF Vancouver Convention andExhibition Center (VCEC) which is located half a mile northeast ofthe site of construction. It is a center which hosts about 20city-wide events with a minimum of 1000 attendees. It generated about100,000 room nights in the downtown hotels ten year ago. However, itsexpansion paved the way for bigger opportunity for hotels nearby. A335, 000 SF, enlargement of the VCEC was placed adjacent to theprevious center. It was opened in the year 2009, whereby it allowedrenovations for existing VCEC. After it completion, VCEC offeredspace of 468,000 SF, and it currently generates about 250,000 roomnights for the hotels in downtown on a stabilized basis annually.

VancouverInternational Airport (VIA) is approximately 6 miles south ofproject’s site. It is the second busiest international airport inWestern Canada. It offers 111 destinations across the world andserves as the gateway to the Western Canada. Also, VIA accommodateda record of about 17.9 million passengers in 2008, indicating anincrease of about 2.0%. The expansion plan of the airport which beganin 2005 ensured that the airport increased its accommodation henceboosting its economic contribution.

Housingand Population

DowntownVancouver is the third most densely populated city in North America.The city has experienced a significant increase in some condominiumsconstruction since 1997 due to relaxation of restrictions on buildingheight. There are over 3, 600 condominium units which have beenconstructed in downtown Vancouver. Approximately, 80% of these condosare mainly under contract.

Accordingto Real Estate Board (2017), Metro Vancouver expects that newresident will need about 574,000 housing units from now till 2041.The newly developing as well as planned urban areas have a capacityfor approximately 250, 000 residents or about 20% of the region`stotal projected growth in the year 2040. It means that more houseswill be needed shortly for the inhabitants.

Accordingto Real Estate Board, the average cost of a single-family detachedhome has increased in the past one year unlike the between 1981 tothe year 2005. According to McElroy Justin (2016), the prices of thesold detached homes were $14 million in the past one and half years,but it increased to about $1.6 million after last year. However, itis anticipated that by the end of last year, it had increased up to$1.8 million amounting to an increase of$420,000.The residentialaverage sale prices in the past 39 years.

Moreover,McElroy Justin (2016) says that Financial Minister made an argumentthat investors should focus on residential properties and not justdetached homes. It is true because when one looks at the averageprices of the townhomes as well as apartments has risen much lessthan the detached homes. It shows that there is a shortage in theproject line. Moreover, according to Real Estate Board of Vancouver,the average value of a detached home have gone up by 159% in the pastdecade while residential have gone up by 81% ad apartments haveincreased by 61%. Furthermore, says that there is high demand forluxury property in Vancouver while explaining the reason why detachedhomes have exploded in their value than others. McElroy Justin(2016) explains that luxury properties are attractive and they have alower rate of dividend yield.

However,despite the financial crisis and factors which affect. Vancouverhousing sector, this area is still the best strong market fordevelopment because of its position as a gateway to the North Americamarket and international trade with the Asian nations. Moreover, itsgrowing focus, tourism appeal, growth in its population makes it thebest location to place the project.

MarketingPlan

Theresidential components and the hotel will be marketed mainly viainternationally-renowned luxury brand. The hotel brand offers accessto a bigger customer base that cannot be accessed with the use oftraditional marketing means. Moreover, customers are continuouslypatronizing brands and hotels which provide them with superior andquality product. Brands will be able to efficiently deliverconsistency compared to the independent hotels because of theirsophisticated marketing and operation systems as well as their marketresearch and customer focus. Thus, branded hotels mainly outdo theirnon-branded competition by about 20-30%. Moreover, every higher brandcan attain higher premium as a result of its loftier finishes, higherlevels of service as well as exclusive cache.

Extendingluxury hotel brand to the residential condominiums will enableinvestors to mainly capitalize on the reputation of the brandincluding services which are projected and expected to generatehigher sales incomes. Every luxury branded homes are to known to haverealized pricing premiums of about 25% to 35% as compared to thenon-branded residential business competitors. The brands which arebeing considered for this subject development include Ritz-Carlton,Mandarin Oriental, Four Seasons, and St. Regis. Most of the luxurybrands offer residential management and hotel sale services. However,there is no any comparable representation in all these brands inVancouver market currently.

Thedemand for lodging in Vancouver city is mainly seasonal. It has astrong spring as well as summer demand which comprised of an idealbalance of leisure, corporate and convention group travelers. Thedemand for leisure reduces in the late October due to frequent rainsand cold weather, but corporate including conference demand remainsstronger at this period. When the demand is mainly soft, it isprimarily driven by corporate travelers. Although the demand patternis seasonal, Vancouver lodging sector has been performing highly inthe history of its occupancy levels. In fact, between the year 2004and 2016, the luxury, as well as upscale hotels within Vancouver, hasbeen known to have achieved an average rate of occupation of about75%. However, the rate between the year 2004 and 2008 was about 74%which shows some rate of growth.

Giventhe strength of the market, the luxury brand of the hotel and thelocation of the tower and the above average room’s size, it meansthat the hotel will probably be successful in penetrating the currentluxury demand which is being accommodated at a high-end boutique aswell as luxury hotels. There are many things which control thismarket, and one of them is the great location which has seen downtownVancouver registering high hotel occupancy rates.

Accordingto Marr Garry (2016), the occupancy rate in downtown Vancouver was77% in 2015 which increased to about 78% in the following year. It isexpected that the occupancy rate will be about 79% this year.Moreover, the revenue per night per room in downtown Vancouver wasaverage $155 in 2015 which grew to averagely $178 in 2016 and isexcept to shoot up to $215 or $226 this year (Marr Garry, 2016).Withthis trend, it shows the project will be worth investing in marketingto reap all this increasing rate of occupancy.

Moreover,due to its international brand recognition, the hotel is expected toinduce new demand into the market using marketing of brand channelsand relationship of customers. The expanded VCEC will also benefitthe hotel and future Olympic Games. About 805 of the demand will bemade up of the non-group market because of its location and limitedconference space. However, the hotel will be able to attract C-levelof corporate leaders as well as celebrity guests who will beattending conference or convention at the VCEC. Analysis of demand bymarket segment has been presented below.

Luxury Hotel Demand Segmentation

Transient

Room Nights

Mix

Premium 4, 106 10%

Corporate 4,928 12%

Special Corporate 8,213 20%

Package 12,319 30%

Other Discount3,285 8%

Total Transient 32, 850 80%

Total Group 8,213 20%

TOTAL 41,063 100%

About$1.5 million will be utilized in hotel marketing before its opening.After that, about $1 million will be spent per year on sales andmarketing operations. The sales technique to be used in penetratingthe luxury clients within the market will consist of mainly straightbusiness to business sales, local events as well as print and onlineads in both source and local markets. The sales staff of the hotelwill include a Director of Sales and Marketing, sales coordinator andsales manager. They will mainly concentrate on building relationshipswith the local planners plus convention and tourism focal points inthe market. They will also focus on inducing a new demand byleveraging existing market channels and brand relationships. Also,they will supplement all these efforts with an inclusive marketingand advertising campaign. The proposed marketing and sales budget forthe fits year of the business have been presented below:

Expense

% of Budget

Budgeted Amount

Salaries and Wages

Brand Marketing &amp Group fee

Loyalty Program

Print Advertising

Electronic Advertising

Trade Shows

Entertainment

Sales Collateral

Miscellaneous

35

15

15

10

2

4

10

5

4

$350, 000

$150,000

$150,000

$100,000

$20,000

$40,000

$100,000

$50,000

$40,000

Total

100%

$1,000,000

Thedemand for the housing units is mostly g

Residential

enerateddue to increase in the housing development in a given market area.The increase being considered here might constitute of formation ofnew household within a given population or in-migration of thehouseholds from different areas. Various households mainly determinedemand for the luxury residences within a market area having adequateand high disposable income or sufficient net worth to support thepurchase of the high priced home.

Basedon the wealth profile and proximity, the primary market is for theresidence in the project development will comprise of downtownVancouver, North Vancouver and West Vancouver. Moreover, the need forthe luxury units is also engendered by wealthy buyers who are livingon the site, and they are seeking a second home within aninternational city gateway like Vancouver.

TheVancouver city downtown is experiencing a substantial increase inboth population and household number and trends anticipated tocontinue for the next five years. The area has a healthy economicstatus, a varied nature of culture and entertainment means as well asrenowned recreational activities. According to the market research, agiven area of the site which the project will be situated offersvarious advantages like pedestrian sociable streets, easy access toVancouver amenities including some shopping and entertainment optionsas well as immediacy to the Coal Harbor waterfront.

Basedon the location of the project site, unit pricing, luxury brandassociation, and services including amenities offered, the buyers arelikely to be aged about 45 years to 75 years old with annual incomeabove $150, 000 and high net worth. According to Real EstateStrategies, the total target of households is about 8, 200. Thus, thesubject development will have to capture about 1.7% of these totalhouseholds to sell to the proposed units.

Age Range

Income Band

15-24

25-44

45-64

65-74

75+

Under $25,000

4,894

17,262

13,268

5,656

8,009

$25,000-$49,999

2,746

24,611

15,759

5,209

5,447

$50,000-$74,999

897

18,411

13,095

3,412

2,574

$75,000-$99,999

283

10,672

9,184

1,952

1,474

$100,000-$149,999

126

9,825

10,976

1,582

541

$150,000+

50

4,073

7,165

1,053

541

Total

8,996

84,854

69,447

18,864

18,586

Source:Real Estate Strategies, Statistics Canada

Moreover,the democratic analysis is essential is to collect psychographic databeyond income and age so that one can understand a whole demandimage. It involves the study of the sociological and psychologicalcharacteristics of the potential consumers. That is their ideologicalbeliefs, values, emotional responses and attitudes and how theyaffect their daily purchasing decision. The inclusion of thepsychographic analysis in this study is to boost the total universeof the clients because some of the customers will fall out of theincome and age range defined above. When one considers bothpsychographic and demographic, the target buyers will include thesegments below:

  • Wealthy pensioners as well as empty nesters who wish to downsize from a bigger single-family home in the nearby conurbations (2 or 3 bedroom or even penthouse units)

  • Singles and divorcees who are seeking a low-maintenance lifestyle within the area with cultural and social activities (1 or 2 bedroom units).

  • International clients who travel frequently to Vancouver city and want to pied-a-terre in the Vancouver city (1 or 2 bedroom units)

  • Wealthy Canadians who are seeking a home in the urban coast location will fit all the types of units.

  • Lastly, corporations with long-term executive housing desires will fit for one bedroom unit.

Thecondominium unit mix has been planned with the target of all thesesegments in mind. The entire project offers 40 single-bedroom unitswhich will appeal mainly to singles, divorcees as well aspied-a-terre customers. Also, the 84 double-bedroom, as well as 15triple-bedroom units, are designed to meet the needs of retirees,second-home clients, young couples and empty nesters. Moreover, 11sub-penthouse units are mainly intended to address the need of theextremely wealthy buyers who need a cache of the penthouse unit whichis located in the iconic 5-star Vancouver hotel. All these customerswill mainly be second home buyers who will be sourcedinternationally.

Over$15 million for residential marketing and sales has been budgeted inaddition to about $333.5 million for a brand license as well as abrokerage fee. The residence will be mainly marketed by a brokeragecompany which will offer an extensive experience of selling expensivecondominiums projects and acquaintance with the market. All the salesactivities will occur primarily in the local sale point, which willbe mainly constructed after equity funding. The luxury center willalso be composed of a 2,000 SF model residence, 6-foot developmentscale model, and design plus décor center. Moreover, sales campaignfor two days will be held in the markets like New York, Dubai, HongKong, Seoul, San Francisco, Rio de Janeiro, Beijing, Shanghai,London, Montreal, Toronto, and Tokyo. Advertising and marketing willalso feature various efforts. These include:

  • Adverts in various print media like Robb Report, Wine Spectator, Wall Street Journal, and Architectural Digest.

  • Upscale customer exhibitions and events, for instance, exclusive opening gala and others including targeted direct mails which will be mainly sent to brand database schedules and wealthy residents.

  • Neighborhood and local comprehensive marketing where estate brokers and other source marketers will tour the vicinity.

  • Direct sales to the local executive corporates, music and film companies, sports team including celebrity purchases.

  • Wide-ranging public relation campaigns which will enhance media coverage and editorial exposure. The marketing and sales budget is offered below.

% of

Budgeted

Expense

Budget

Amount

Sales Center Construction

25%

$3,750,000

International Customer Events

20%

$3,000,000

Local Customer Events

16%

$2,400,000

Staffing (excluding broker fees)

10%

$1,500,000

Print Advertising

10%

$1,500,000

Brochures

5%

$750,000

Direct Mail

5%

$750,000

Miscellaneous

4%

$600,000

Overhead

3%

$450,000

Trade Shows

2%

$300,000

Total

100%

$15,000,000

Competition

PrimaryCompetitors of the Subject Hotel

Themain competitive hotel is made up of 3 hotels which represent 556rooms. These are the high rated hotels in Vancouver and they expectedto compete with the projected hotel due to their downtown location,an upscale rating of their product and healthy rate of theirposition.

OpusHotel, a 97-room hotel which is located about 0.8 miles south of thesubject hotel is one of the competitive sets opened 15 years ago. Itoffers competitive trendy upscale room product. In spite of itsposition at the top of the market, it is not considered one of theluxury providers as it does not offer luxury offers like amenities,services or luxury finishes. However, its unique location within YaleTown allows it to mainly attract a significant amount of demand inthe entertainment sector. However, it is essential that the subjecthotel will be located at a close location to CBD shopping center aswell as waterfront which boosts its superiority. Hence, the subjectproject is anticipated to compete with Opus Hotel for highly valuedleisure and entertainment.

Anotherone is Wedgewood Hotel. It is located about 0.3 miles south of thesubject business hotel within the heart of CBD. It is the smallestand at the same time, a highly rate and hotel in the competitive set.It was first as an apartment but converted to a hotel in 1984. TheWedgewood completed renovations of softwoods and its guest roomsrecently including renovation and expansion of its penthousecollections. It offers a traditional and old-world luxury services inits small boutique. However, its appeal is expected to be minimal andlimited as compared to luxurious and world-class Haven Gate. It isreported that it provide accommodations in a balanced mix manner ofthe corporate including transient demand. It is expected that it willcompete with the Haven Gate as they will be high-rated businesseswithin CBD area. S

Oneof the luxury hotels in Vancouver is Four Seasons. It was built in1976, and it has 376 rooms in total. However, the product has beendeteriorating for the past ten years due to lack of capitalinvestment, which limits are rate of potential. The 28-storey issituated within CBD, and it mainly offers city views in most of itsguestrooms and a view of the harbor in a limited number of itssuites. The property has a high rate mix of corporate as well asleisure from the U.S. The Four Seasons will be competitive with HavenGate a based on its strong, luxurious branding and its locationaround CBD. It is expected to compete with the project business forthe high-rated group, and small groups demand leisure more so fromthe United States.

SecondaryCompetitors of the Subject Hotel

Thesecondary set of competition is made up of 9 hotels which representabout 3, 406 rooms. These are competitive hotels due to theirlocation around the trade area and their upscale and classy productofferings. However, their size, different market orientation andtheir inferior product and service quality make them consideredsecondary competitors and not primary competitors to the subjectproject. Their brief descriptions follow below.

Thefirst one in this list under consideration is Pan Pacific andFairmont Hotel Waterfront. Both are located about 0.4 miles east ofthe business subject hotel. Another one is Westin Bayshore which islocated at about 0.4 miles to the north of the subject hotel. Allthese three hotels capture a significant high rated leisure hoteldemand due to their nearby location waterfront and superior views.They also accommodate averagely high group demand as they have largemeeting facilities and the fact that they are located at nearby VCEC.The subject hotel will probably compete with these hotels mainly forthe high-rated demand of leisure and to some degree, a small groupdemand. Moreover, the subject hotel is anticipated to competedirectly with the 46 Gold Rooms of Fairmont which has been reportedto have high occupancy rate within the area.

Oneof the hotels which accommodate more customers from the United Statesin the competitive project set is Marriot Pinnacle, which has 434rooms and it is located 0.2 miles northeast of the subject businesshotel. In spite of its upscale product, this hotel is still lackingADR competitive set because it mainly accommodates contract andairline tour groups. It is expected to compete with the subject hotelregarding demand of U.S corporate and leisure more so during off-peakperiods.

Amongthe largest and oldest hotels in the city is 556-roomed FairmontHotel Vancouver, which was opened in 1939. It operated as independentfor most of its years leading to its conversion and restoration in1996 as Fairmont. While its primary market segment is large groupdemand, its total of 36 Fairmont Gold rooms attracts a high-rateleisure and corporate demand throughout the year. All these upgradedrooms are reported to be achieving over 80% occupancy rate, hencemaking it a direct competitor with the subject hotel.

SuttonPlace Hotel is situated about 0.25 miles south of the subject hotel.It is co-managed with the 164-unit tower called La Grande Residence.It completed its soft wood renovation recently including La GrandeResidence. Sutton Place accommodates a substantial share of film andentertainment demand. Its location in the CBD makes it have a highmix of corporate demand. The subject hotel is likely to compete withthe Sutton Place Hotel for highly-rated film and entertainment demandas well as corporate demand due to proximate location of theproperty, entertainment demand area, and upscale product. Others likeHotel Le Soleil, Westin Grand, and Metropolitan Hotel will probablycompete with the subject hotel due to their location positioning andsmallness of their boutique.

SupplySummary and Comparison

Theoverall development of the offer a superior product to the hotelswhich are within the market and it is better positioned to attractluxury brand The Shangri-La is anticipated to be the closestcompetitor of the subject hotel regarding location, quality as wellas brand awareness. It should be noted in this case study that thelarge suites mix of the hotel is reasonably higher than those of itscompetitors which give it an advantage in attracting a high demandfor leisure. A comprehensive subject hotel’s suite mix summary ispresented below.

Suites

Suites 900+

Total Rooms

650+ SF

SF

Subject Hotel

150

33

33

Mix

22%

22%

Four Seasons

376

55

12

Mix

15%

3%

Shangri-La

119

24

1

Mix

20%

1%

Wedgewood

83

20

2

Mix

24%

2%

Opus

97

2

0

Mix

2%

0%

ResidentialCompetition Analysis

Thereare five main residential competitors. Two of them are luxury brandedcondominium schemes with one hotel luxury component, two-non-brandedcondominium schemes with no hotel, two luxuries branded condos ad oneon-branded condo project with one boutique hotel constituent. Asummary of every competitor as per study of real estate stats ispresented in the detailed manner below.

FairmontPacific Rim

Approximately0.4 miles northeast of the subject project is the Fairmont PacificRim which offers residents’ dramatic views of the harbor as well asNorth Mountains. The condo contains 175 residential located above theFairmont Hotel. Amenities that are provided include a daily conciergeservice, feverish outdoor swimming pool including a sun deck,full-service spa, fitness center, multi-functional section room,multi-media center and business center. Moreover, residents accesshotel services which consist of housekeeping, limousine service, andin- room dining. Every unit has one or two-car parking. A keyedelevator which leads to the residential floors of the condo tower andfree parking is available too.

TheFairmount also offer luxury finishes with kitchen line cabinets. Theunits are mainly offered with a choice of the hardwood floors withinthe existing sections and carpet I the bedrooms. All units havemaster marble baths, with glass enclosed showers and soaking tubs.However, limited upgrade options are available.

FairmontPacific Rim is one of the markets most luxurious living withinVancouver. The location of the property offers residents view of theharbor and most of the spectacular view of the city. The price of thesubject development reflects a competitive advantage over theexisting competition. The primary drawback of the Fairmont PacificRim is that it is mainly adjacent to the new VCEC thus trafficcongestion is one of the problem issues to the residents. Moreover,the project is not close to the prime retail shopping of the cityalong the Robson Street. The Fairmont unit mix, fee structure, andsize are given in the chart below.

TheFairmont Pacific Rim has 175 units. The project was completed in theearly month of the year 2010.

Shangri-La

Itis located in the West Georgia from the study project site, TheShangri-La Residence and Hotel comprises of almost the entire cityblock. The building is 61-strorey in height hence it is the tallestin the city. It includes commercial spaces for the Urban Fare store,which is convenient for the residents of the subject project. LikeFairmont Pacific Rim, it incorporates residential condos in a singlebuilding including a five-star hotel.

Ownersof the condos have full access and use of the hotel amenitiesincluding a whole-day concierge service, game room, housekeeping,media room, library, business center, full spa services, and outdoorswimming pool as well as dining. Within the first 15 stories of thisstructure is a hotel and 300 condos are located on floors 16 up to 61levels. It has 171 units which are live-work spaces hence it allowsowners to operate the small business from the condo unit. It also hasthe luxury in finishers and features like Fairmont Pacific Rim andsubject project. The units have a choice of hardwood floors livingand carpeted bedrooms. Also, master rooms have marble baths,oversized glass-walled showers, and soaking tubs. A limited number ofoptions and upgrades are given. The Shangri-La unit mix, feestructure, and size are given in the chart below.

TheShangri-La began its sale of condos early month of 2005. Since thatyear, most of the units have been sold with a beginning absorptionrate of 15 units every month. Another construction project wascompleted in the year 2009.

JamesonHouse

JamesonHouse is located on the West Hastings Street with 38 stories ofheight. It is made up of 150 residential units. The amenities ofthe building include 24-hour caretaker services, complimentarymembership next to the Terminal Club which comprised of full spaservices, restaurants, game room, billiard room, fitness facility andmeeting rooms. The Jameson House also has the media room and meetingroom for the purpose of residents use.

Allthe units on the higher floors have mainly feature views of thewater, North Mountains, and downtown Vancouver. The location of thebuilding is suitable along the West Hastings, and it is also a fewblocks from the Robson shopping district. Although Jameson offersupscale finishes, the problem is that they are not as deluxe as theone offered by Fairmont Pacific Rim and the Shangri- La. Kitchen hasglass cabinetry including Gagggenau ovens, Sub Zero refrigerators,dishwashers and range tops. Moreover, the master baths are mainlyincorporated with soaking tubs as well as glass-enclosed showers. Thestandard units are nine foot in height while penthouse units offerten-foot ceilings. The floors are made of travertine tiles andwall-to-wall carpets within the bedrooms. The available upgrades aretravertine flooring within the bedrooms as well as the kitchen in-built espresso coffee contrivance. Jameson House unit mix, feestructure, and size are given in the chart below.

Salesof the condos at Jameson House began early 2006. Since that time,over 144 condos have been placed under the contract. However, theinitial rate of absorption was high with an average of 20 units everymonth. However, due to current economic uncertainties, sales wentdown. The construction was delayed around 2008 due to financialproblems, but its completion occurred years late.

L’Hermitageen Ville

Theonly development which is located in Yale town is L’Hermitage enVille. It is at the corner of Robson as well as Richards Streets. Itwas developed with a hotel component just like a subject project. Itis not considered in this study to be ultra-luxury, but it isconsidered as a competitor because of its hotel component feature. Itis a 21-storey building with a total of 200 condo units. The hotel isa 3-6-roomed boutique structure. It is also inclusive of commercialspace for the retail stores on its first two lower levels. Like theabove condo components, the owners access amenities of the hotel andfacilities including fitness center, double roof-top gardens, spa,lounge as well as 24-hour custodian service.

Theinterior finishes of the L’Hermitage en Ville are averagelyupscale, but they do not meet the luxury standards of the competitorsmentioned above. The kitchens have Bosch kitchen appliances and SubZero Eggersmann cabinets as well polished stone countertops. Theunits are mainly offered with choice hardwood floors within theliving section and wall-to-wall carpet within the bedrooms. Moreover,the units are included with limestone tile bathrooms including masterbathrooms with Incorporated soaking tubs plus glass-enclosed showers.The heights within regular condo units are nine-foot while penthouseunits are 10.5-foot ceiling loftiness. There are limited upgradesavailable.

Thesales of units at L’Hermitage en Ville began in the year 2005.Since then over 200 condos units have been successfully sold with abeginning absorption rate of 10-13 units every month. The project wascompleted in the year 2008.

ThreeHarbor Green

TheThree Harbor Green was the last downtown waterfront developmentproject to be along the Coal Harbor. The building has 31 stories witha total of 81 luxury residences. It is the third largest residentialtower within Harbor Green area. All the 71 units in the Three HarborGreen were sold within two weeks.

TheThree Harbor Green feature one of the most luxurious interiorfinishes with dual-toned cabinetry and line kitchen appliances. Allunits have the floor to ceiling windows with an unobstructed view ofthe North Mountains and Coal Harbor. The floors are made of woolcarpets and porcelain tile. Perhaps, their upgrade is hardwood.Bathrooms mainly feature vanities with Italian-designing withdeck-mounted tubs as well as heated basalt or marble made floors. Allthe units offer Lutron meticulous lighting systems, as well ascovered balconies which are accessible via the living rooms. Servicesinclude 24-hour caretaker services, golf rooms, billiards, indoorswimming pool, media room, lounge, squash, and the health club.

Theprimary disadvantage of this property is that it is located at aproximate point to the new VCEC as well as the cruise port. Thus,there are traffic congestion problems with residents. Furthermore,the project is not in a close position to the Vancouver’s mainshopping and retail center Robson Street.

SupplySummary and Comparison

Basedon the similar properties gauged in the central market area, there isa robust long-term demand for ultra-luxury condos like thecondominiums in the subject project. Most of the properties that areon sale have mainly been absorbed. The five properties which we haveanalyzed offered an aggregate of 906 units, yet less 50 are remainingfor sale excluding resale availability. It is likely that all theremaining units of Three Harbor Green will be sold when thedevelopment opens in the year 2020. Moreover, the subject propertyhas been found to be superior to the three of the five currentcompetitors and mainly comparable to the Shangri-La and FairmontPacific Rim while having less than 18 units for sale currently.

Pricingof the Hotel

Basedon the competitive position of the Haven Gate as outlined in thecompetition section, it is anticipated that the property will achievethe top average daily rate (ADR) within the market upon itsstabilization. The premium projected is mainly based on the followingfactors:

  • The Haven Gate hotel will be the newest luxury product in the market with the best finishes and with quality above or with bar with industry competitive hotels.

  • The Haven Gate hotel will mainly benefit from the international luxury brand to be chosen.

  • The subject hotel will also accommodate mainly transient demand that is rate highly than group demand.

  • The Haven Gate hotel will benefit from the low room count it has, which will allow it to minimize its discounting rate and accommodate its demand selectively.

Arate segmentation and demand analysis is presented below which arefollowed by a qualitative description of the segment position asshown in Exhibit 1(Competitive Demand and Rate Segmentation).

ROOM

NIGHTS

MIX

RATE (C$)

Transient

Premium

4,106

10%

$500

Corporate

4,928

12%

$400

Special Corporate

8,213

20%

$215

Package

12,319

30%

$295

Other Discount

3,285

8%

$225

Total Transient

32,850

80%

$309

Total Group

8,213

20%

$260

Total

41,063

100%

$300

Total

75%

$300

Weekday

75%

$280

Weekend

76%

$345

TheADR of the subject hotel is expected to be $300 in 2017. Theprojected ADR is about $50 above the 2016 ADR ($250) for WedgewoodHotel as well as Opus Hotel, which are the highest-rated competitorsin the industry. The rate of premium is mainly supported by the HavenHotel luxury brand recognition as well as its luxury brand rooms,which include 20% Club level rooms and it is 22% of large suites.Moreover, it’s supported by its location which offers superiorviews of waterfront, skyline, and mountains. The ADR of the subjecthotel is also positioned higher by $90 of the 2016 ADR of FourSeasons Hotel despite its brand recognition internationally. It ismainly based on the fact that it is the smaller hotel in size henceable to limit its discounting and its superior quality than old FourSeasons’ products which have been deteriorating due to lack offinancial investment.

Duringthe peak season (May up to October) when the demand is highest in themarket, the Haven Gate is expected that it will achieve a significantaverage premium rate of about $100 over its competitive set which ismade up of mainly large scale hotels. A premium of about $60 abovethe hotel’s competitive set is expected in the remainder of theyear because its rate compression will be competitive than any otherhotel during the lower demand seasons.

TheHaven Gate’ corporate rate will probably be $400, which is about$30 to $50 above the rates quoted for the Opus Hotel, Four Seasonsand Wedgewood Hotel. The segment is mainly comprised of high-enddemand by corporate as well as high-rate leisure demand during thepeak season. The premium is primarily based on the lower room countof the hotel, and its high mix sets that achieve averagely higherrates during the peak season than the standard rooms.

Thespecial corporate rate of the Haven Gate is projected to be $215,which is approximate $5-15 above expected special corporate rate forthe Opus Hotel and Wedgewood Hotel as well as $ 25 above theprojected special corporate rates for the bigger classy competitorswithin the market. It is anticipated that the extraordinary corporatedemand will serve as the base of the hotel business during theoff-peak periods.

Thegroup of the subject hotel is expected to be about $260. Groups areestimated to be made up of a small corporate executive as well asfilm industry gatherings including some local social group demands.

ResidentialPricing

Theluxury brand condo units which are located in the subject developmentis expected to mainly achieve average sales price of about $1,450 inevery square foot. Remember that all the amounts are presented inCanadian dollars. It is positioned above the mean of the sale pricefor the 300-unit Shangri –La for about $1,200 each square footbecause of a high mix of the larger units as well as superior viewsof the subject development. Moreover, the projected price is alsogreater than the average prices for the L’Hermitage en Ville aswell as Jameson House because of their lower quality finishes, thehigher mix of their small units and lack of proper brand affiliation.

Theprojected price of the subject development is positioned averagelybelow the sale price of the Fairmont Pacific Rim ($1,600 in eachsquare foot) mainly because of sales period development which willoccur during the peak season as well as its location which allowsdirect views to harbor and waterfront.

Also,the projected price is as similar as the average price for the ThreeHarbor Place because of its similar period of sales which occurs inrecovering and down market as well as the similar level of quality.Despite the brand affiliation as well as hotel amenities of thesubject property, its location farther from the waterfront islimiting the ability of the subject property towards achieving apremium which is the one being attained by the Three Harbor Place. Ascreen short of the standard summary of pricing for the subjectdevelopment is as show below.

Thesubject development will mainly offer custom upgrades. However, it isrecently unclear if the developer will be able to make a sale ofthese upgrades which are mentioned in the premium cost. It is thecause why they have not been included in the analysis of pricing.

Theaverage projected pricing which is supported by the findings of theregression analysis of the multivariate shows that there is asignificant relationship between average income per tax filer ofVancouver and the vast population of Vancouver. Moreover, itindicates that there is a relationship between average condo pricingwithin the Primary Market Area and average income per tax filer ofVancouver and the vast population of Vancouver. Below is theregression equation:

AverageCondominium Price=5.845*Average Income Per Tax Filer + 0.19*GreaterVancouver Population – 370983.888

Basedon the population of the Province of British Columbia forecast forthe Greater Vancouver and the estimates of the changes in the incomeper tax filer, the price sales averages of the condos is anticipatedto range probably between $349 in every square foot and $402 betweenyears 2018 and 2031. It is when the development of the subjectproperty will be mainly in sales season. 2013 and 2016 competitiveluxury prices of sales achieved substantial premiums over the saleprice averages of the condominiums on the price per foot basis whichis ranging from 322% to 460%. When on applies an average of about375% to the projection, the future results is at an average pricesale of $1,405 in every square foot.

Aluxury premium of 387% must be applied to achieve the selling priceof the subject development of about $1,450 per square foot. Thepremiums are within the range of the luxury incentives which wererealized in the previous recent years. Moreover, high mix of thelarge units of the subject development justifies its increase inpremium above 375% averagely. The table below shows the actualprojected average income per tax file and Greater Vancouverpopulation including the expected condo prices.

year

Greater Vancouver

Average Income

per Taxpayer

Total Greater

Vancouver

Population

Primary Market Area

Average

Condominium Price

(Annual Avg)

Per Square Foot

Estimate (based on

1,200 SF average size)

Recent Average

Competitive

Luxury Sales

Price

Luxury premium

2013

52,921

2,188,573

342,878

$286

$1,314

460%

2014

57,246

2,221,613

410,031

$342

$1,200

351%

2015

61,000

2,249,725

459,019

$383

$1,230

322%

2016

63,000

2,293,438

433,121

$361

$1,314

460%

Projections Below

2017

60,000

2,333,513

423,203

$353

$1,365

387%

2018

58,000

2,373,933

419,195

$349

$1,352

387%

2019

60,000

2,414,772

438,646

$366

$1,415

387%

2020

62,000

2,454,686

457,922

$382

$1,477

387%

2021

65,000

2,494,292

482,984

$402

$1,558

387%

2022

70,000

2,533,976

519,751

$433

$1,676

387%

2023

72,000

2,573,727

538,995

$449

$1,738

387%

2024

74,000

2,613,470

558,239

$465

$1,800

387%

2025

77,000

2,652,982

583,283

$486

$1,881

387%

2026

75,000

2,692,324

579,070

$483

$1,868

387%

2027

73,000

2,731,391

574,805

$479

$1,854

387%

2028

78,000

2,770,030

611,373

$509

$1,972

387%

Average Luxury Premium 2013 – 2016

375%

Range of Premium 2013- 2016

322%-460%

Premium Applied

387%

Average Luxury Projection during Sales Period

$1,450

Sources:BC Stats, Real Estate Board of Greater Vancouver MLSLINK HPI

PARTIII: FINANCIAL DOCUMENTS

Sourcesof Funds and Uses

Thetotal cost of the project is expected to total to $362.8 million.Approximately $238 million or roughly 66% of the total cost ofdevelopment is allocated to condominium component, which results in acost of $1.6 million for every unit. It is approximated that thehotel component will be assigned about $125 million, or approximately34% of the total cost of development. It will thus result in a costwhich is considerably more than $834,000 or every hotel componentcore. However, a total of 36 months is expected to be spent for theentire development.

Thewhole project will be mainly financed with a combination of equityand debt. The sources, as well as the use table for the entireproject, have been presented below.

Sources and Uses

Sources

Uses

Senior loan

$217,709,072

Land &amp Related

$20,000,000

Mezzanine Loan

$54,427,268

General &amp Administrative

$12,000,000

Preferred Equity

$0

Design &amp Consultants

$15,300,000

Common Equity 1-Haven Gate

$27,213,634

Development Charges &amp Municipal Costs

$5,300,000

Common Equity 2

$63,498,479

Sales, Marketing, and Advertising

$15,000,000

Hard Construction Costs

$251,600,000

Building Operations

$4,700,000

Financing Costs

$38,948,454

Total sources

$362,848,454

Total sources

$362,848,454

Thenon-recourse loan for superior construction is appraised to be $217.7million. The rate of interest is estimated to be about 400 basispoints over a total of 30-dau LIBOR. However, the $54.4 millionentresol load is expected that it will have an interest rate of 1400basis points for a 30-day LIBOR. The entire loan will be interestedmainly, and the principal repayment will be of the condo salesproceeds and profit of hotel.

Thetotal equity funding which is needed for construction of the projectis about $90.7 million Haven Gate will raise about $27.2 million inthe form of design costs and entitled land. It will also seek theremaining equity from its joint venture partnership.

ExpectedFinancial Return

Thewhole project is expected to generate a total equity before tax IRRof about 18.9% as well as the net present value of $12.9 million(using the discount rate of 15%) basing on the ten year period of thehold. Moreover, the sensitivity analysis which incorporates downsideand upside risks in a more material pro indicates that there is 50%probability that the aggregate equity IRR will exceed 18%. Thus, as aresult of over 15% equity distribution of cumulative current return,the IRR of Haven Gate is expected to be 19.4%. However, the remainingequity is estimated that the investors will realize 18.7% IRR.

SUMMARYOF PROJECTED EQUITY RETURNS

Total Equity Return

IRR

18.9%

NPV at 15%

12,904,540

Common Equity 1 (Haven Gate) Return

IRR

19.4%

NPV at 15%

4,420,482

Common Equity 2 Return

IRR

18.7%

NPV at 15%

8,498,991

Therefore,despite the fact that the economic environment is volatile, theproject is in a good position to succeed given the ideal location,strong management, potential of the luxury brand and essential forteof the Vancouver city economy.

DevelopmentBudget

Thebudget of this development project was mainly developed basing on thehistory of developing comparable projects of Haven Gate and wasadjusted basing on the comments which the architects of the projectsand multiple contractors provided. The total cost of the subjectproject is expected to reach $362.8 million. Out of the total cost,69% or $251.6 million is estimated to be the cost of hardconstruction. Also, 10% contingency is mainly built into theseestimates. A detailed budget of the project development is attachedas the Exhibit 2. All amounts are obtainable in Canadian $.

Atotal of about $238 million or 66% of the aggregate cost ofdevelopment is allocated to the condo component which results in acost of about $1.6 million in every unit. About $125 million, whichis 34% of the total cost of development, is allocated to the hotelconstituent, hence results in a cost of averagely over $834,000 forevery hotel key.

Thebudget is based on a development timeline of 36 months from thebeginning of 2017 and incorporates rate of inflation of 3%. Also,this budget includes approximate $27 million of funds which have beenexpended on the development project including entitlement costs andland cost as part of the design cost.

Althoughin the contemporary year`s developers were able to secure theirsenior construction financing loan-to-cost ratio of about 80% to 90%,based on the recent strains on the lending sector it is approximatedthat the lender of the senior construction will mainly finance 60% ofthe total development cost for this project. Thus, based on the totalconstruction cost of $362.8 million, the senior constructor willraise $217.7 million. The loan will have an interest rate of 400basis points for an index of a 30-day LIBOR. The loan will mainlycomprise of interest while the principal will be repaid on thesettlement or closure of condominiums. The senior loan will primarilybe secured by the development project, and it is not expected thatthere will be any more security or a pledge of the investor assets.Although the total loan will mainly be a single project security, therepayment purpose will be allocated to the condo and hotel saleproceeds upon its closing. The release prices which will be used inrepaying the loan are expected to be the total gross sale price lessbroker or licensor and concessions fees. Extra proceeds from thecondo sales will mainly be used to pay down the allocation of hotelloan.

Additionalproceeds from the sales of condos will be used in paying out thehotel allowance loan. The proforma model in this project assumes thatthe construction loan will be fully repaid before the permanentplacement of financing. However, if this assumption fails, any unpaidprincipal will be undertaken by the permanent loans of the hotel uponmaturity. A permanent financing should be placed after two years ofopening to allow stabilization of the capitalized value of the hotel.

Basedon the limited availability of the equity, it is estimated that thejoint venture should successfully secure a mezzanine loan toadequately cover about 15% of the total cost of development, whichwill bring the debt level of the project to 75% of the entire budget.The terms of mezzanine are expected to be at 1400 basis points on topof the 30-day LIBOR. However, an LIBOR floor of about 3% has been putin place into the model. Concerning the senior construction loan, themezzanine loan will mainly be parsed between the condos and hotel ona percentage of the total cost basis. The project’s mezzanine willbe primarily funded and retired with the senior loan whereas thehotel loans will take any remaining principal upon its maturity.

Aninterest rate of 4% of LIBOR will be purchased for every loan for anestimated total cost of $2.5 million that is $2 million for the debtof senior loans and $500,000 for the entire mezzanine. Returns aremainly based on the projected average of 30-day LIBOR of about 3.5%.

Thetotal equity funds needed for the construction is about $90.7million. The Haven will contribute mainly $27.2 million in the formof costs incurred in the scheme design and entitled land. Theremaining $63.5 million regarding equity funds in being sought outcurrently and they will likely be syndicated to various investors.The distribution to equity partners will be apprehended in differentforms. Firstly, is the kind of profit from the condominiums sales andsecondly, in the form of funds from the permanent financing of thehotel. The third way is to profit from the operations of the hoteland lastly, is in the form of hotel sale. Every investor willindividually pay all the income taxes, but before as well as afterthe tax equity return estimates have been provided. See ProjectedEquity Returns from the expected returns below. Note also that thesources and uses the table for every given component of the projectdevelopment has been presented as Exhibit 3.

Sources and Uses

Sources

Uses

Senior loan

$217,709,072

Land &amp Related

$20,000,000

Mezzanine Loan

$54,427,268

General &amp Administrative

$12,000,000

Preferred Equity

$0

Design &amp Consultants

$15,300,000

Common Equity 1-Haven Gate

$27,213,634

Development Charges &amp Municipal Costs

$5,300,000

Common Equity 2

$63,498,479

Sales, Marketing, and Advertising

$15,000,000

Hard Construction Costs

$251,600,000

Building Operations

$4,700,000

Financing Costs

$38,948,454

Total sources

$362,848,454

Total sources

$362,848,454

PermanentFinancing

Thepermanent hotel loan is anticipated to be substantially funded in themonth of December 2021 as the performance of the hotel stabilizes.The loan is also expected to have a fixed rate of interest of 7.5% aswell as 30-year amortization period. The amount of loan is mainlybased on the value of hotel assuming capitalization rate of 8.5%. Themaximum value of loan value metric has been expected to be 65%, whilethe essential service of debt from the annual net income is 1.4.

Giventhe projected performance of the hotel (discussed below), a permanentloan of $24.1 million is mainly constrained by 65% loan to the valuerequirement, and the outcome is a good debt service ratio of coverageof 1.56. However, due to the current rate of interest, the spreadsfor the mezzanine loans 1200 to 1500 basis points, have no permanentmezzanine financing being assumed. The permanent hotel loan willmainly provide funds for distributions of equity because the hotelloan will have been fully paid in the year 2021 through the sales ofcondominium proceeds in August 2021.

ProjectedHotel Performance

Theperformance of the Haven Gate hotel is anticipated to stabilize inthe third operation year. A summary of hotel performance throughstabilization has been presented below. A full 10-year hotel pro-formas well as cash flow analysis has been given as Exhibit 4.

Year

% of

Year

% of

Year

% of

2020

Rev

2021

Rev

2022

Rev

Occupancy

68.0%

72.0%

75.0%

Average Daily Rate $300 (2016

$)

$303.08

$320.18

$337.85

RevPAR

$206.10

$230.53

$253.39

Total Revenue

$21,907,073

100%

$25,517,474

100%

$28,769,593

100%

Department Expenses

$11,784,372

54%

$13,474,592

53%

$14,872,724

52%

Gross Operating Profit

$10,122,701

46%

$12,042,882

47%

$13,896,869

48%

Unallocated Departments

$6,485,533

30%

$6,766,893

27%

$7,059,531

25%

House Profit

$3,637,168

17%

$5,275,989

21%

$6,837,337

24%

Other Deductions

$2,454,762

11%

$3,077,651

12%

$3,692,437

13%

EBIDTA

$1,182,407

5%

$2,198,337

9%

$3,144,900

11%

Theoccupancy of the subject hotel is expected to stabilize at 75% in theyear 2022. The stabilize occupancy is about 2 points above thecompetition set of 2016 occupancy as well as is supported by a 7-yearaverage occupancy (between 2010 and 2016) of the 83-roomed WedgewoodHotel as well as 97-roomed Opus Hotel, which were 82% as well as 77%correspondingly.

Theoccupancy of the peak season (May through October) of the subjecthotel is expected to be 84%, which is in a 1 point position below thecompetitive set of the year 2016 peak season occupancy rate of 85%.The demand of the peak season will mainly comprise of entertainmentas well as high rate leisure demand. During the off-peak period(November through April), the subject hotel is estimated to be havingan occupancy rate of 68%, which is 5 points on top of the 2016competitive set occupancy rate of 63%. The premium of the occupancyis mainly based on the small size of the subject hotel and itsinternational luxury brand. The demand during off-peak is anticipatedto include special corporate, small groups, entertainment and weekendleisure demand.

Giventhe location of the subject hotel in downtown Vancouver as well asits limited meeting place, it is anticipated that it will achieve astrong transient mix of the business of 80%. The subject hotel isalso expected to successfully capture the small high-end group ofcorporates because it is located near CBD.

Moreover,the subject hotel strong luxury brand, its new luxurious product,strong awareness internationally and its above-average size of roomswill enable the subject hotel to penetrate the current existingluxury demand which is being offered at the luxury hotels andhigh-end boutiques. Also, the subject hotel is anticipated to mainlybenefit from demand increase due to the renewed city focus on the joband economic developing and the expanded VCEC. The ADR of the subjecthotel is projected to mainly stabilize at $300.00 in 2016$ in thethird year. The ADR of the first and second years are anticipated tobe discounted by approximately 6.7% as well as 3.3% respectivelybecause the mixed demand of the hotel would have not yet beenoptimized. The rate of increase of ADR is estimated to be 2%. Thepricing section of the study gives detailed information about rateanalysis.

Theprojected expenses of the subject hotel are based on actualexpenditures of the comparable luxury as well as upscale hotelswithin Canada and United States, and actual estimates. In Exhibit 5,a comparison of the subject hotel expenses to the one for other fivecomparable hotels has been given. The exhibit is mainly based on thesubject hotel’s projected stabilized performance in a constant2016$). It also includes notes on certain expense projections.

Uponstabilization in the year 2022, the hotel is mainly expected toachieve house profit of $6.8 million which is 24% of the hotelrevenue as well as net house profit of $3.1 million about 11% of thetotal hotel revenue. The subject hotel’s higher margin can beassociated with high occupancy rate and high revenue base includinglow Vancouver utility rates plus low tax rate in Vancouver. Also,note that the subject Hotel Expense Comparison is a reflection of theprofit margin of the house of 12.7%. Due to the supposition that theexpenses will go up at high rate than the revenues, the actual marginis expected to be 11% when it is stabilized.

Inevery six years, the hotel is estimated that it would have completedsoft goods renovations. The cost of renovation of the soft goods isestimated to be $3 million which will increase at a rate of 3% everyyear. Although, the hotel is expected to be sold after ten years,note that the Pro-forma assumes that there will be full renovationevery twelve years with an estimated cost of doing so being 0.55 aswell as 2.75% of its revenue on the maintenance capital. Renovationcost is expected to be funded from the capital expenditure reserve ofthe hotel and will be depreciating one a 5-year MACRS program. Thecost for the initial development of the subject hotel is assumed tobe able to depreciate in different schedules as endorsed by the USGAAP. However, note that the building will be located in Canada whichhas more favorable treatment for the commercial buildings. But, it isnecessary to use the US GAAP in this analysis because it generatesconsiderably more stable returns. A major Maintenance Schedule plusAmortization Schedule and Hotel Depreciation are provided in Exhibit6 and seven respectively.

Theholding period for the subject hotel is estimated to be ten yearsfrom the opening date. The sale price of the hotel is based upon afinal rate of capitalization of 9% which is a little higher, that ismore conservative than the average rate of capitalization in themodern hotel transaction market (7.5% – 8.5%). The proceeds fromthe subject hotel sale in December of the year 2029 are presented inthe graph below. However, a complete hotel sales proceeds table whichincludes after-tax analysis is provided in the Exhibit 7.

Terminal Year

2029

Terminal Cap Rate

9%

Hotel NOI (Year Following Sale)

$3,155,221

Sales Price

$

35,058,008

Less: Transaction Costs

$

(1,752,900)

Less: Senior Loan Payoff

$

(21,792,282)

Less: Mezz Loan Payoff

$

Plus: Return of Unused Reserve

$

5,385,473

Before Tax Proceeds from Sale

$

16,898,299

Moreover,a consolidated statement which includes revenues, as well as cashflows from both condo and the hotel, is presented as Exhibit 8.

ProjectedResidential Performance

Softsales for the condos will begin after equity funds are sourced. During the weak sales season, reservation including refundabledeposits will be used to ensure that the market is acceptable of theprice of the product point. It is anticipated that the sales periodsof the condos will begin in the month of January 2018 with an openingevent of the primary sale office. The timing gives Haven Gate fullyear to mainly finalize its designing and building and file its mainpublic disclosure statement as required by the British ColumbiaStrata Property Act before the beginning of the sales. Moreover, itis anticipated that there will have the significant number ofvisitors in the Vancouver city which will help in heighteningawareness and increase the pool of buyers.

Thecondos are estimated to sell out over a period 50 months of averagesale pace of about three units in every month. However, this salepace is slightly lower as compared to the sale pace achieved recentlyby luxury competitors, which ranged from 10 to 20 sales in everymonth. The lower projection takes into account the current cooling inthe housing market. The competitive properties were mainly soldduring a rise in the real estate cycle which was fueled bylow-interest rates as well as flurry speculative activity byinvestors. While current sales activity is sluggish, demand forluxury housing in Vancouver should regain momentum over time based onthe city’s solid economic fundamentals, international gatewaylocation, and the attractive downtown residential environment. Also,mortgage interest rates are forecasted to remain low for the nextseveral years. The below chart reflects projected condominium saleson an annual basis.

Year

Units

SF Sold

C$/SF

Revenue (C$

Sold

000’s)

2018

36

79200

$1,450

$114,840.00

2019

36

79200

$1,450

$114,840.00

2020

36

79200

$1,450

$114,840.00

2021

36

79,200

$1,450

$114,840.00

2022

6

13,200

$1,450

$19,140.00

Total

150

330,000

$1,450

$478,500.00

Basedon an average sales price of $1,450 per square foot, total grosscondominium sales proceeds are projected to be $478.5 million. Overthe 50 month sales period, unit sales are expected to average $9.57million per month less a 4% brand license fee, a 3% brokercommission, and a 5% allowance for concessions/incentives. Net salesproceeds are estimated to be $421.1 million. Sales proceeds for eachunit will not be recognized or received until settlement, the processfor which will begin upon project completion in January 2020. Amaximum of 40 closings per month is planned due to the logisticalconstraints involved in occupying a high-rise tower.

Thejoint venture investors will be required to pay common assessmentsand property taxes for unsold units. Based on the 50 months sell outperiod, a total of $ 2.9 million will be needed to support thesecosts over the three years after opening ($2.4 million forcondominium fees and $500,000 for property taxes). Total condominiumEBITDA net of these costs is projected to be $418.1 million overthree years. After condo debt service is paid, a large portion of theremaining proceeds will be used to pay down the hotel portion of theloan. A monthly condominium pro forma and income statement arepresented as Exhibits 9 and 10. A summary before tax condominiumincome statement is presented below.

Year

Year

Year

Total

2020

2021

2022

Months

12

12

12

Condominium Unit Closings

108

36

6

150

Condominium Closings Proceeds

$344,520,000

$114,840,000

$19,140,000

$478,500,000

Less Sales Commissions

($24,116,400)

($8,038,800)

($1,339,800)

($33,495,000)

Less Concessions

($17,226,000)

($5,742,000)

($957,000)

($23,925,000)

Net Condominium Revenue

$303,177,600

$101,059,200

$16,843,200

$421,080,000

Developer Contribution of Condominium Fees, Property Taxes

$2,115,150

$813,629

$9,492

$2,938,272

Condominium EBITDA

$301,062,450

$100,245,571

$16,833,708

$418,141,728

TaxCalculations

Aspreviously stated, all equity distributions are expected to be madeon a pre-tax basis. Each investor will be responsible for the paymentof income taxes on its share of distributions. However, as a benefitto the investors, taxes for each investor category have beencalculated for both the condominium and hotel income. Taxcalculations are based on the below tax assumptions.

Marginal Tax Rate (Federal)

39%

Marginal Tax Rate (State/Province)

5%

Blended Tax Rate

42%

% of Condominium Distributions Taxable as Profit

20%

Capital Gains Tax (Recovery of Appreciation)

25%

Capital Gains Tax (Appreciable)

15%

Notethat condominium revenues will be earned in 2020 but, due to requireddebt payments, no distributions will be made to investors. It willrequire investors to pay taxes on condominium revenue from otherproceeds. However, in 2022, investors are expected to receivetax-free proceeds from the refinancing of the hotel. Furthermore, insubsequent years, the hotel is projected to generate a negative taxburden (available to offset taxes from investor income not related tothe project). The negative tax burden is due to the high depreciationexpense for the hotel, which results in negative earnings (despiteits positive cash flow). Projected equity returns are presented inthe attached exhibits both on a before-tax and after-tax basis.

ExpectedEquity Returns

Basedon a 10-year hold period, the subject development is expected togenerate a total equity IRR of 18.9% on a before-tax basis and 14.5%on an after-tax basis. A table reflecting total equity cash flows andreturns is presented as Exhibit 12.

Usinga 15% pre-tax discount rate and based on a 10-year hold period forthe hotel, the project results in an expected net present value (NPV)of $12.9 million (based on a 10-year hold period Canadian $). A 15%discount rate is considered appropriate for the risk level of theproject and appears conservative when compared to the 10.64% averagediscount rate reported for luxury hotel projects in the 4th Q 2016Price Waterhouse Coopers Korpacz Real Estate Investor Survey.

Inreturn for bringing the project to the joint venture, contributingthe land and design costs for the project, and managing thedevelopment and residential sales processes, Haven Gate will requirean accelerated return or “promote” on distributions above a 15%cumulative current return on equity. Up to a 15% cumulative currentreturn, distributions will be made on a pari passu basis. Between a15% and 25% cumulative current return, Haven Gate receivesdistributions at 5 points above its pari passu share. Above 25%cumulative current return, Haven Gate receives distributions at 10points above its pari passu share. A table reflecting thedistribution splits is presented below.

SUMMARY OF EQUITY DISTRIBUTION SPLITS

Equity Contributed

Haven Gate Contribution

30%

Common Equity Contribution

70%

Up to 15% Cumulative Return

% Chg

Haven Gate Split

30%

0%

Common Equity 2 Split

70%

0%

Between 15% and 25% Cumulative Return

Haven Gate Split

35%

5%

Common Equity 2 Split

65%

-5%

Above 25% Cumulative Return

Haven Gate Split

40%

5%

Common Equity 2 Split

60%

-5%

Asa result, the expected IRR for Haven Gate is 19.4%, while remainingequity IRR is 18.7%. Resulting before-tax returns to each equitytranche are quantified below. A complete before-tax and after-taxcash flow and returns analysis for each of the equity tranches arepresented as Exhibit 11.

SUMMARYOF PROJECTEDEQUITY RETURNS

Total Equity Return

IRR

18.9%

NPV at 15%

12,904,540

Common Equity 1 (Haven Gate) Return

IRR

19.4%

NPV at 15%

4,420,482

Common Equity 2 Return

IRR

18.7%

NPV at 15%

8,498,991

SensitivityAnalysis

Theexpected returns are based on several assumptions and estimatesoutlined above and in the project’s pro forma model. Theseassumptions are forward-looking and could vary materially based onchanges in market conditions and other factors. Thus, sensitivityanalyses have been completed to reflect the impact on total equityIRR resulting from a change in any one of the below materialdevelopment and pro forma assumptions. A graph of these results ispresented below.

RETURNSENSITIVITY ANALYSIS

Common

Equity IRR

% Chg

Haven Gate IRR

% Chg

Equity 2 IRR

% Chg

Expected Results

18.9%

19.4%

18.7%

$10 million Increase in Development Costs

17.1%

-9.5%

17.3%

-10.6%

17.0%

-9.2%

$100 PSF Decline in Residential Sales Price

13.9%

-26.3%

13.9%

-28.0%

13.9%

-25.5%

1-Year Delay of Residential Sell-Out

15.7%

-17.1%

15.8%

-18.2%

15.6%

-16.5%

100 Basis Point Spread Increase on Senior Debt

18.2%

-3.8%

18.5%

-4.2%

18.2%

-2.8%

5%

Decrease in Hotel Revenue

18.1%

-4.4%

18.4%

-4.8%

17.9%

-4.1%

1%

Increase in Cap Rate (Refinancing &amp Terminal)

18.6%

-1.7%

19.0%

-1.8%

18.4%

-1.6%

Themost material effect on IRR results from a negative change in eitheraverage residential sales prices or sales pace. A $100 reduction inaverage sales price negatively affects Total Equity IRR by 5 points(26.3%), and a one-year delay of unit sales decreases the projectedIRR by 3.2 points (17.1%).

Also,a Crystal Ball scenario analysis as given by Charnes (2012) has beencompleted to present the range of possible Total Equity IRR resultsgiven variations in material pro forma assumptions. The scenarioanalysis incorporates the IRR results for 1,000 trials assumingchanges in the following assumptions: 1) development timeline, 2)development costs, 3) residential sales pace, 3) average residentialselling price, and 4) hotel revenue.

Thedistribution of scenario results shows that Total Equity IRR mayrange from 2% to 35%, with 18% being the median and mean IRR. Thestandard deviation is 6%, resulting in a 68% probability of achievingan IRR between 12% and 24% (within one standard deviation). Furtheranalysis shows that total equity returns are 54% likely to be at orabove an 18% IRR and 70% likely to be above the selected 15% discountrate. Below are a frequency chart and scenario summary reflecting thevarious IRR results. (See Appendix I for the full Crystal Ballreport.)

Forecast:Total Equity IRR

1,000 Trials

Frequency Chart

983 Displayed

.031

31

.023

23.25

.016

15.5

.008

7.75

.000

0

2%

10%

18%

26%

35%

%

CRYSTALBALL SCENARIO RESULTS – TOTAL EQUITY IRR

Summary:

DisplayRange is from 2% to 35%

EntireRange is from -7% to 38%

After1,000 Trials, the Std. Error of the Mean is 0%

Statistics:

Value

Trials

1000

Mean

18%

Median

18%

Mode

Standard Deviation

6%

Variance

0%

Skewness

-0.34

Kurtosis

3.58

Coeff. of Variability

0.35

Range Minimum

-7%

Range Maximum

38%

Range Width

45%

Mean Std. Error

0.20%

Thebelow Crystal Ball sensitivity chart reflects that IRR results aremost sensitive to changes in the average residential sales price andresidential sales pace, supporting the findings of the simplesensitivity analysis presented at the beginning of this section.

RiskManagement

Thereare risks which can affect project development from moving forward.Possible risks are presented below along with associated riskmitigation plans.

AlthoughHaven Gate currently owns the subject site and all entitlements arein place, there is a risk that the City of Vancouver, the Province ofBritish Columbia, or the Federal Canadian government may enact lawsor moratoriums that would prevent the project from moving forwardwith its current uses Wiegelmann, (2012). It will be essential forHaven Gate to maintain regular meeting with critical governmentofficials to avoid any inconveniences.

Inthe current strained lending market, the project may not be able tosource construction debt promptly or at the prices assumed in the proforma (Emanuelsson et al., 2015). To mitigate the risk of being leftwith a partially constructed project without debt financing, no mainconstruction will begin on the project site until a debt commitmentletter has been signed and negotiation of loan documents is underwayBanaitiene and Banaitis, (2012). Also, any residential purchasecontracts, general contractor agreements, brand license agreements,and hotel operating agreements entered into before construction loanclosing will incorporate a joint venture termination right shouldfinancing not be sourced by a specified date (Huggie and Beverly,2017). It will give the partners more options to rework the projector return investor equity (if this is permitted in the joint ventureagreements).

Theconstruction and mezzanine loans are expected to have floatinginterest rates tied to the 30-day LIBOR (Silbernagel and Vaitkunas,2012). To mitigate the volatility of returns associated withfluctuations in LIBOR, LIBOR cap of 3.5% will be purchased. It willresult in an ex-ante increase in projected development costs but willeliminate the risk of significant cost overruns due to a rise in thebase rate during development.

Thepro forma assumes that the hotel is refinanced two years after hotelopening. This permanent loan would take out any remainingconstruction debt. There is a risk that no reasonably priced debtwill be available to refinance the hotel. The current pro formaassumes that the construction loan is paid down to a zero balancebefore placement of the permanent loan. However, if this does notoccur, the construction loan will mature two years after hotelopening, and funds may not be available to retire the debt. Also, anyhotel refinancing proceeds are expected to be returned to investorsas non-taxable equity returns. The delay in receipt of these proceedscould materially affect project returns. To mitigate refinancingrisk, Haven Gate will seek to gain an upfront permanent financingcommitment from the construction lender. Should this not be possible,Haven Gate will begin approaching friendly banks as soon as the hotelopens to discuss loan opportunities (Demirag et al., 2012) Haven Gatewill also present a plan to the joint venture partners six monthsbefore hotel opening detailing a plan to be implemented if financingis not available. This plan will evaluate various options including asale of the hotel, partner equity buyouts, or the pursuit ofnon-traditional debt financing.

Thereis a risk that no favorable agreement will be reached with a luxuryhotel and residences brand (Jayasudha and Vidivelli, 2016). Althoughthe risk is considered to be minor given the number of brands lackingrepresentation in the Vancouver marketplace and the prominentlocation and design quality of the subject development, steps arebeing taken to mitigate this risk. Haven Gate has traveled to theregional or brand headquarters for Ritz-Carlton, Mandarin Oriental,Four Seasons, and St. Regis to promote the subject development. Eachbrand expressed interest in branding the development. Haven Gate willsend a request for proposal to these and three other brands. Theseare Aman Resorts, Waldorf-Astoria, and InterContinental. The requestfor proposal process will allow Haven Gate and the joint venturepartners to compare brand strength, requirements, and terms side byside and negotiate a favorable agreement.

Equityreturns are highly dependent upon the project’s achievement of theresidential pricing assumptions in the pro forma (Purnus and Bodea,2015). Although the pro forma assumptions are considered reasonableand achievable, there is a risk that these pricing levels will not bereached (AICPA, 2016). The residential sales price must average aminimum of $1,045 per square foot which is $405 below the projectedpricing with all other assumptions remaining constant to break even(0% IRR). To mitigate the risk of moving forward with the projectwithout testing for market acceptance, Haven Gate will launch a softsales and marketing campaign before construction start. Experiencedluxury real estate brokers will be given a preview for theirhigh-value clients. Market acceptance will be determined based on thenumber of reservations received with refundable deposits. If therewill be a lack of interest in the residential units at the pro formapricing, the project will be reworked.

Equityreturns are dependent upon a profitable hotel operation. Overall,hotel results are highly volatile compared to other real estateclasses due to the transient nature of hotel demand. Moreover, thehotel business is a management-intensive operation, requiring quickresponses to market conditions and customer needs. There is a riskthat a hotel operator will not be able to achieve the pro formaresults due to lack of management expertise and a change in economicconditions, including costs for labor, utilities, and property taxes,or a material and adverse change in market lodging demand (Almarriand Blackwell, 2014). Mitigating this risk is the choice of anexperienced luxury operator, which has an international base ofcompetent management staff, appropriate management controls, accessto relevant market forecasting data, and a history of successfulperformance (Hartmann, et al., 2012).

Thereis a risk that the hotel sale will not provide the projected proceedsdue to a decrease in hotel performance, an increase in capitalizationrates, or a lack of interested parties at the forecasted terminationdate (Whittaker, 2012). The joint venture partners should be able toevaluate a potential sale of the hotel at any time after refinancingso that they can mitigate this risk. It will allow the joint venturepartners to capitalize on an economic upswing during the forecastedhold period, potentially increasing IRR. Likewise, the terminal datemay be extended should unfavorable economic conditions exist at thepredicted terminal date. It should be noted that only 7% of the TotalEquity IRR is derived from hotel sales proceeds.

Conclusion

Thesubject development is a presentation of a joint venture with achance to invest in a successful project. The project is about theconstruction of a luxury tower in downtown Vancouver as Appendix IIshows. The land which the subject project is to be developed has allthe necessary entitlements. It is also located in the prime businessdistrict and near Coal Harbor beachfront. In spite of the volatilityin the current economy, the project is in a good position to succeedgiven strong management, desirable location as well as the suitableeconomic condition of Vancouver city.

APPENDICES

AppendixI

CRYSTAL BALL SCENARIO RESULTS – TOTAL EQUITY IRR

Summary:

Display Range is from 2% to 35%

Entire Range is from -7% to 38%

After 1,000 Trials, the Std. Error of the Mean is 0%

Statistics:

Value

Trials

1000

Mean

18%

Median

18%

Mode

Standard Deviation

6%

Variance

0%

Skewness

-0.34

Kurtosis

3.58

Coeff. of Variability

0.35

Range Minimum

-7%

Range Maximum

38%

Range Width

45%

Mean Std. Error

0.20%

AppendixII

NOTE:

Exhibitincluding Appendix will be provided as a separate document.

References

AICPA.(2016). Reportingon Pro Forma Financial Information.https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AT-00401.pdf

Almarri,K., &amp Blackwell, P. (2014). Improving risk sharing and investmentappraisal for PPP procurement success in large greenprojects.&nbspProcedia-Socialand Behavioral Sciences,&nbsp119,847-856.http://ac.els-cdn.com/S1877042814021867/1-s2.0-S1877042814021867-main.pdf?_tid=7c623478-0757-11e7-8036-00000aacb35e&ampacdnat=1489345978_ae65594b25b9f236eef86d2d2452f95d

Banaitiene,N., &amp Banaitis, A. (2012).&nbspRiskmanagement in construction projects.INTECH Open Access Publisher.https://pdfs.semanticscholar.org/aec7/03c488fec34217a287de8571406c361a78f3.pdf

Banaitiene,N., &amp Banaitis, A. (2012).&nbspRiskmanagement in construction projects.INTECH Open Access Publisher.https://pdfs.semanticscholar.org/aec7/03c488fec34217a287de8571406c361a78f3.pdf

BCStats. (2017). Sub-ProvincialPopulation Projections.http://www.bcstats.gov.bc.ca/Files/7b7c178e-da8e-468c-922b-0faae039c8db/2016Sub-ProvincialPopulationEstimates.pdf

CBREHotels. (2017). Trendsin the Hotel Industry National Market Reporthttp://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx

Chan,K. (2014). CouldVancouver host the 2022 Olympic Winter Games?.http://www.vancitybuzz.com/2014/05/vancouver-host-2022-olympic-winter-games/

Chan,K. (2017). A tight squeeze: 28-storey office tower proposed fordowntown Vancouver. Retrieved from:http://dailyhive.com/vancouver/625-west-hastings-street-vancouver

Charnes,J. (2012).&nbspFinancialmodeling with crystal ball and excel.John Wiley &amp Sons.http://sbf.edu.vn/uploads/news/2013_07/Wiley.Financial.Modeling.with.Crystal.Ball.and.Excel.Mar.2007.pdf

Demirag,I., Khadaroo, I., Stapleton, P., &amp Stevenson, C. (2012). Thediffusion of risks in public private partnership contracts.Accounting,Auditing &amp Accountability Journal, 25(8), 1317-1339.http://www.academia.edu/download/30163320/diffusion_of_risksinppps_1_december_2010.pdf

Emanuelsson,R., Melander, O., &amp Molin, J. (2015). EconomicCommentaries.http://www.riksbank.se/Documents/Rapporter/Ekonomiska_kommentarer/2015/rap_ek_kom_nr6_150601_eng.pdf

Hartmann,T., Van Meerveld, H., Vossebeld, N., &amp Adriaanse, A. (2012).Aligning building information model tools and construction managementmethods.&nbspAutomationin construction,&nbsp22,605-613.http://s3.amazonaws.com/academia.edu.documents/39447630/1-s2-1.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&ampExpires=1489349580&ampSignature=oKPDAPqkjbWqGG3JUo8TrDycEDI%3D&ampresponse-content-disposition=inline%3B%20filename%3DAligning_building_information_model_tool.pdf

Huggie,M. &amp Beverly, H. (2017). JointVentures: General Contractors’ Risk Management Perspective.https://welcome.willis.com/globalevents/crm/Presentations/Joint%20Ventures%20-%20General%20Contractor%20Perspectives%20-%20Marie%20Huggins%20and%20Beverly%20Hill.ppt

Marr,G. (2016). Vancouver’shotel room rates hottest in Canada amid all-round property boom.Retrieved from:business.financialpost.com/personal-finance/mortgages-real-estate/vancouvers-hotel-room-rates-hottest-in-canada-amid-all-round-property-boom

McElroy,J. (2016). Onechart shows how unprecedented Vancouver’s real estate situation is.Retrievedfrom:globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/

Purnus,A., &amp Bodea, C. N. (2015). Financial management of theconstruction projects: A proposed cash flow analysis model at projectportfolio level.&nbspOrganization,Technology &amp Management in Construction: An InternationalJournal,&nbsp7(1),1217-1227.

RealEstate Board. (2017). Population Growth Takes Off! Retrieved from:http://www.rebgv.org/population-growth-takes

Silbernagel,C., &amp Vaitkunas, D. (2012). Mezzanine finance. BondCapital, 1-7.http://www.stblaw.com/docs/default-source/cold-fusion-existing-content/publications/pub1580.pdf?sfvrsn=2

Vancouver,M. (2015). Housing data book.&nbspNewhousing units are more than what appears in Figure,&nbsp1.http://www.metrovancouver.org/services/regional-planning/PlanningPublications/MV_Housing_Data_Book.pdf

Whittaker,C. (2012). Sale and leaseback transactions in the hospitalityindustry.&nbspAccountingand Financial Management,362.http://ebook.umaha.ac.id/E-BOOK%20TECHNOLOGY/INDUSTRIAL%20TECHNOLOGY/INDUSTRIAL%20MANAGEMENT/%5BPeter_Harris,_Marco_Mongiello%5D_Accounting_and_Fin(BookFi.org).pdf

Wiegelmann,T. W. (2012).&nbspRiskManagement in the Real Estate Development Industry&nbsp(Doctoraldissertation, Bond University, Australia).http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1116&ampcontext=theses

Hotel Business Plan Haven Gate Fund

  • Uncategorized

HotelBusiness Plan: Haven Gate Fund

InstitutionAffiliation:

TABLEOF CONTENTS

  1. EXECUTIVE SUMMARY…………………………………….………….3

  2. PART I: ORGANIZATION PLAN………………………………………..4-9

Mission………………………………………………………………………..4

BusinessModel…………………………………….………………………….4

Strategy……………………………………………………………………….5

Facility………………………………………………………………………..6

Productand Services……………………………………………………….…6

HotelProduct and Services Offering………………………………………….6

ResidentialProducts and Services Offering……………………………….…8

AdministrativePlan……………………………………………………………9

  1. MARKETING PLAN……………………………………………..…………12-32

TargetMarket Overview……………………………………..………………..12

Tourismand Transportation…………………………………………….…….13

Housingand Population……………………………………….………………14

MarketingPlan………………………………………………………….…….16

Residential…………………………………………………………….………18

PrimaryCompetitors of the Subject Hotel…………………………….………21

SecondaryCompetitors of the SubjectHotel…………………………………………….23

SupplySummary and Comparison…………………………………….………25

ResidentialCompetition Analysis ……………………………………………25

FairmontPacific Rim ……………….…………………………..………..……25

Shangri-La………………………………….…………………………………26

JamesonHouse…………………………………………………………….….27

L’Hermitageen Ville…………………………………………………….……28

ThreeHarbor Green……………………………………………………………29

SupplySummary and Comparison……………………………………………………30

Pricingof the Hotel…………………………………………….………………30

ResidentialPricing………………………………………………………..……32

  1. PART III: FINANCIAL DOCUMENTS…………………………….……..35-46

Sourcesof Funds and Uses…………………………………………….………35

ExpectedFinancial Return…………………………………………………….36

DevelopmentBudget…………………………………………….……………..36

PermanentFinancing…………………………………….……………………..39

ProjectedHotel Performance………………………….………………………..39

ProjectedResidential Performance…………………….………………………..42

TaxCalculation………………………………………….………………………44

ExpectedEquity Returns…………………………….………………………….45

SensitivityAnalysis……………………………….…………………………….46

RiskManagement……………………………….………………………………48

Conclusion………………………………………….……………………………51

Appendix…………………………………………………………………………52

References……………………………………………………………………….55

EXECUTIVESUMMARY

HavenGate Fund, LLC (“Haven Gate”) is a project fund organizationwhich partners with the local developers in the international citiesto mainly develop mixed business projects. Most of the projects ofthe firm feature particularly luxury hotel factor. Haven Gaterecently acquired a 0.6 acre of a land or site in the downtownVancouver city. The company plans to develop a 60-story tower whichcomprises of a 150-room luxury hotel as well as 150 brand-name luxurycondominiums. The five possible brands which are being consideredhere include Ritz-Carlton, Mandarin Oriental, Four Seasons, and St.Regis.

Theproject will be situated in the downtown central part of theVancouver, British Columbia, one of the international gateway citiesand a home to the Winter Olympics 2010. The Vancouver city is diverseeconomically, with strong tourism base and is one of the most denselypopulated cities in the North America. The location of the project isnearby to the Robson Street shopping and entertainment district. Onthe other hand, the Coal Harbor beachfront makes it suitable andattractive to the corporate and leisure demanding clients includingsuperfluity condominium buyers.

Theproject is expected to be open in January 2020 based on a developmenttimeline of 36 months. The total construction cost which is expectedin this project is to be $362.8 million. Haven Gate is seeking debtas well as equity financing for the project as shown below.

Project Development Funding

Funding Source

Amount (Millions)

% of the Total Costs

Senior Construction Loan

$217.7

60%

Common Equity

$63.5

17.5%

Mezzanine Construction Cost

$54.4

15%

Haven Gate Equity

$27.2%

7.5%

Total

$362.8

100%

Itis expected that the 150 condominiums will sell at an average rate of3 units every month and manage to achieve an average sales of $1,450in every square foot, which will amount to $478.5 million in thegross sales income. Moreover, the luxury hotel is projected to atleast stabilize occupancy rate of 75% with daily rate being averagely$300 and attain a steadied EBITDA of about $3.1 million. The hotel isassumed to be sold approximately 10 years after opening with a grosssale of $35.1 million basing on the 9% terminal rate ofcapitalization. Note that the amounts in this business plan arepresented in Canadian dollars as the business will be located inCanadian city.

TheHaven Gate financial analysis for this project is somehowconservative given the current sluggish economic conditions and thestrained debt markets. Moreover, is anticipated to generate healthyincome returns to the investors, with a total equity before taxamounting to IRR of 18.9%. Also, the Haven Gate’s IRR is estimatedto reach 19.4% due to equity distribution of above 15% total currentreturns, while the residual equity investors are expected to realizean IRR of 18.7%.

PARTI: ORGANIZATION PLAN

HavenGate is a real estate venture and investment fund which partners withthe local developers in the international gateway worldwide cities tomainly develop a mixed business projects. Most of the firm’s plansfeature luxury hotel constituent.

Mission

HavenGate’s mission is to be viewed as a place for people, corporatesand tourists to relax and have peace of mind. We offer desired guestsilence, well-being, recovery and pleasure. Business travelers,corporates, tourists including long-range drivers will find a home torecover. Haven Gate is located around beachfront in Vancouver, aplace desirable and suitable for all.

BusinessModel

HavenGate acquired 0.6 acres of the land site at the Northern quadrant ofthe Thurlow Street and West Georgian Street in the suburbs of theVancouver city that it plans to build a sixty-story tower formixed-use business. The 20 floors of the lower side of the buildingwill be made up of 150-room branded luxury hotel. On the other hand,the 40 floors on the upper side of the building will be made up of150 luxury branded condominiums. The possible brands which are beingconsidered include Ritz-Carlton, Mandarin Oriental, Four Seasons, andSt. Regis. Haven Gate is seeking equity partners who will form ajoint venture that will undertake the development of this project.Haven Gate will contribute a portion of capital using entitled landas well as design costs and as a managing member who will beresponsible for the daily development, marketing, residential salesin addition to asset management obligations for this project.

Strategy

TheHaven Gate project presents a supreme opportunity to develop one ofthe best luxury hotel as well as condominiums in the Vancouver city,a place with strong Asian and U.S demand base capitalizing on theexpected demand growth from the expansion of the Vancouver Conventionand exhibition Center and more so future Winter Olympic Games whichhave high probability of being held in Vancouver few years after year2020 (Chan Kenneth, 2014).

Thelocation of this project within the CBD and propinquity to the RobsonStreet shopping and entertainment district makes it well positionedto attract leisure and corporate lodging demand. Moreover, downtownside of the Vancouver city is the most densely populated city side inCanada, and it represents among the top pupated urban centers in theworld (BC Stat, 2017). High demand for the luxury residence is mainlycaused by current residents of the British Columbia as well as nearbyprovinces and foreign residents seeking pied-a-terre or a second homein the Canada’s most lively coast city.

Giventhe strength of lodging market, the affiliation of the luxury brand,the product location in iconic 60-story tower and the above averagesize of the room in the downtown Vancouver is expected to penetratesuccessfully the high demand of the luxury, high-end boutique as wellas luxury hotels. Moreover, this subject hotel is expected to inducenew demand into the current market due to its new luxury brand. Theprojected performance of the hotel will be as follows:

Projected Hotel Performance (2017 $)

Opening

January 2020

Occupancy:

68/72/75%

ADR (2017 $):

C$300.00

Stabilized Total Revenue

$24.3 million

Stabilized House Profit

$6.2 million

Stabilized EBITDA

$3.1 million

Thehotel is expected to be sold after ten years of opening at a grosssale of $35.1 million basing on a 9% terminal rate of capitalization.

Facility

Thedevelopment of this project will be located within the vivaciousVancouver CBD, about two blocks from Robson Street restaurant,entertainment, and shopping district. The site is situatedapproximately 0.5 miles from the waterfront of the Coal Harbor andthe Stanley Park recreational facility. The immediate area whichsurrounds the development comprises of a mix of mid-rise andhigh-rise retail building, multi-family residential and officetowers. The summary of the surrounding, as well as map of the area,is presented in Appendix II:

Productand Services

Thedevelopment will be made up of 60-story mixed-use building in thedowntown Vancouver. The world-renown architects will design thebuilding. It is expected that it will be the second tallest structurein the city of Vancouver. The lower section of the building will becomprised of 150-room superfluity hotel. The upper part will containother brand-name luxury condominiums. The height of this buildingwill give it its prominence in the city skyline as well as an idealfeature for the luxury product.

Mostof the condominium and hotel customers are expected to be distinct.However, the co-location of the components of the project will makeit beneficial. Most of the residential buyer will mainly access hotelfitness, restaurant facilities and spa and they will be able toutilize the room service of the hotel, housekeeping and conciergeservices. The hotel will benefit from the fees and revenues fromthese offering including room night demand from the resident’sguests. Hotel will provide various products and services.

HotelProduct and Service Offering

of Hotel Facilities

Guest Room Type

Number

King (545 SF)

75

Double Queen (545 SF)

42

Executive Suites (1,090 SF)

30

Deluxe Suites (1,635 SF)

2

Presidential Suite (2,500 SF)

1

Total

150

of Hotel Facilities

Food and Beverages Types

Number of Seats

Celebrity Chef Restaurant (1)

80

Lounge(s) (2)

75

Total

155

Meeting Space

SF

Ballroom (divisible by 3)

6,000

Meeting Rooms(4)

3,200

Boardrooms (2)

800

Total

10,000

Other facilities Include:

2,000 SF Health Club7

Business Center

7,500 SF Luxury Branded Spa

Club Lounge (about 20% of the guest rooms will be converted to Club Rooms

Outdoor Pool with Whirlpool

Self-Parking Spaces

Gift Shop and

Underground Valet

Thehotel will mainly offer 150 guest rooms. The average room will beapproximately 545 square feet. The hotel will also provide 33 suiteswhich range from 1,000 square feet to the 2,500 square feet of thepresidential suite. Every hotel guest room will have highest qualityfurnishing with warm, rich woods as well as textured fabrics whichreflect a contemporary flair. The rooms will also have dual sinkswhich are laid in the slab, DVD player, 42 inch LCD flat panel TV,fretted linens and iPod docking station. Moreover, the rooms willoffer wireless internet connection, terry bathrobes, high-end bathfundamentals and stocked honor bar.

Everyguest will obtain housekeeping twice in a day, luxury custodianservices as well as services of the chauffeur-driven sedan. Moreover,club and suite guests will have private butler services as well ascomplimentary access to a club lounge which offers six per diembeverages and food presentations.

Thebusiness services will comprise of 10,000 SF of banquet and meetingspace with a celebrity-chef delicacy plus the staffed center ofbusiness offering secretary and complimentary services. The brandedluxury spa will mainly offer various healing treatments includingexclusive beauty and health products.

Theguests of the spa will also access steam and sauna room facilities aswell as fitness center and the pool of the hotel. The concept of thehotel will mainly be created and implemented by a renowned chef to bedetermined by management. The chef will offer to dine for theresidents and the hotel guests.

ResidentialProduct plus Service Offering

Residences Amenities Summary

Unit Type

SF

Number

1 Bedroom, 1 bath

1,450

15

1 Bedroom, 1 Bath, Den1

1,750

25

2 Bedroom, 2 Bath

1,950

30

2 Bedroom, 2.5 Bath, Den

2,300

54

Sub Penthouse

2,725

15

Penthouse

3,100- 3,500

7

Grand Penthouse

4,000

3

Common

6,025

1

Total

150

Common Element Facilities

3,000 SF Resident Lounge and Billiards Room

Indoor Lap Pool

1,500 SF Resident Lobby and Concierge Station

Management Offices and Boardroom

1,500 SF Fitness Center and Movement Studio

Facilities Shared with the Hotel

Celebrity Chef Restaurant and Lounges

Outdoor Pool with Whirlpool

7,500 SF Luxuries Branded Spa

Business Center and Gift Shop

Underground Valet and Self-Parking Spaces

Theresidence section will be made up of 150 luxury units which rangefrom one bedroom entities from 1,450 SF to a six-bedroom penthouse ata 6,025 SF. The project will be situated as the most luxurious anddesirable address in the city. Every residence will have afloor-ceiling window as well as the open floor plan to ensure maximumnatural light access. The apartment will come with magnificent viewsin various ways. The units facing the northern side will feature theCoal Harbor waterfront including cruise port while the units facingthe Western section will mainly feature the Coal Harbor and thePacific Ocean. On the other hand, units which will be facing East andSouth will provide a dramatic skyline of the Vancouver city.

Residentswill have an opportunity to select from three luxury packages whichfeature granite tile or finest marble and Sub Zero appliances,countertops and varicolored most beautiful hardwood carpeting andflooring. All the master bedrooms will be composed of marble bathswith large glass-enclosed showers with soaking tubs and variousshower heads. The units will have about 9.5-foot ceiling height, andLutron controlled lighting structures which will enable owners tocustomize their preferences of light with a touch of a button. Everyone-bedroom segment will have one parking space while other biggerunits will have at least two parking spaces. There will a valetparking and an elevator access to one’s residential floors of theluxurious condominium tower.

Inaddition to offering access to the hotel amenities and facilities, itwill feature billiard rooms and private resident lounges as well asan indoor lap pool plus a 1,500 square foot private fitness sector.The services which will be available to the residents are asproficient residential management association, luxurious 24-hourcustodian services, and sedan driven services including babysittingservices, dry-cleaning services, maintenance and housekeepingservices as well as housekeeping services which will be provided bythe restaurant. All the service will be funded via association ofcondominium dues and in some instances via-la-carte fees.

AdministrativePlan

HavenGate executive team is made up of four main principals, each having aminimum of 15 years’ experience in real estate development,transaction and operation. Mainly, two of these principals haveserved as corporate executives and entrepreneurs involved in theoperation, asset management and development of the luxury hotels inthe world. The remaining principals have at least experience in salesand development as well as a marketing luxury condominiumdevelopment.

HavenGate controls 0.6-acre site where the project is to be constructedand will contribute a minimum cost of entitlement and the land to theentire project. Haven Gate is looking for willing equity partners whowill provide the rest of the resources needed for the development ofthe project. Haven Gate will enter into a joint agreement with thewilling equity partners. Upon the agreement execution, a board ofdirectors will be chosen which will comprise of members of everyequity investor in proportion to the ownership interest. The board ofdirectors will assign the managing duty to the Haven Gate, subject toprecise controls and conditions as stipulated by the board. In thisdimension, Haven Gate will be accountable for management decision ofthe project and oversight of development activities, marketingeffort, residential sales as well as management duties for thisinvestment.

Significantinvestment and financial decisions for this project will be made bythe entire board of directors with the recommendation from the HavenGate. These decisions include: Firstly, entering into any loan whichis encumbering the property as well as financing of construction.Secondly, the decisions involving changes to the project opportunityand any other core changes to the development budget worth over $1million when the application of contingency funds is excluded.Thirdly, decisions which deal with changes to the business capitalstructure and selection, replacement or termination of the primaryvendors like sales broker, architect, hotel brand, general contractorand residence brand. The fourth one is any sales of residential whichinvolves more than five units and major changes to the housing’pricing. The last one is the decision involving investments of hotelcapital more so over $1 million, or sale of the hotel or the exitstrategy.

Theentitlement for the construction has already been secured whichallows the 60-story tower to be built. A famous architect has beenselected, and essential design documents are being drafted. Moreover,contractors are currently being interviewed, and selection isexpected to occur soon. All the candidates under vetting haveessential experience in the Vancouver construction market, and theyhave good relations with the local building personnel. Once thecontractors are selected, they will have weekly meetings with theproject construction managers to discuss the cost and the forecast ofthe completion.

Thereare various hotel brands which have expressed their interest inmanaging the condominiums and hotel as well as providing the brandlicense for the condominiums. Once they are one of them has beenselected, the manager will be designing process of the project on anadvise-seeking basis because the building will be expected to meetthe design standards of the brand. Over the time, the companymanagement will be accountable for the daily operation of this hoteland administration of the entire condominium association. In itsresponsibility as a hotel manager, it will be responsible for hiringand managing the staff, performing sales as well as marketing duties,and management of the guests’ relations and services. It will alsobe responsible for maintenance of the hotel grounds and building,generation of hotel budgets, forecast reviews of partners andapproval including distributing income to the Haven Gate.

Inthis concern, Haven Gate will mainly distribute this income to thejoint venture partners as per the agreement provided in the jointventure contract. There will be bi-annual meetings which will be heldat the Haven Gate and the management of the hotel to discuss andreview financial performance as well as expenditure plans of thebusiness. Moreover, the condominium association manager, that is themanagement company will hire and manage the entire staff, providesupport to the governance organization, deliver services to theresidents, maintain traditional sectors, and generate the budgetforecast for the approval by the association board. The Haven Gatewill run and control the board of the residential association untilthe 50% of the units have been completely transferred.

Thepartners of the joint venture will be responsible for all the salesand marketing of residential because luxury brands do not mainlyoffer marketing and sales services. These partners will beresponsible for selling the residence under a license using theluxury brand, which will mainly provide essential training and accessto marketing tools of the brand.

TheHaven Gate as a managing member will be accountable for approval andgeneration of the sales oversight and disclosure statement. Moreover,there will be the residential broker who will be tasked with andimplementation of strategic sales as well as marketing plans for theresidence. The Haven Gate will hold sales strategic meetings withresidence broker to mainly discuss sales progress and the forwardstrategy.

PARTII: MARKETING PLAN

TargetMarket Overview

Forthe past ten years, projects and achievements within the target havebeen realized. All these recent projects and accomplishments meanthat the future of this project is bright. The G Greater VancouverRegional District (GVDR) is the biggest metropolitan sector inWestern Canada and is the third largest in the entire country(Vancouver, 2015). GVDR serves as the entertainment, medical,commercial and the hub of transportation for the British Columbia andother nearby provinces. The core industry sectors include forestry,mining, insurance real estate, financial, tourism, film productionand health care.

Vancouverwas also selected as the host city for the year 2010 Winter OlympicGames. The construction projects and pre as well as post-gameactivities created over 100, 000 jobs and increased the GDP ofVancouver which increased the significant demand for lodging in thearea. Moreover, it is expected that Vancouver will also host otherOlympic games few years after 2020 which makes a possibility ofincreased opportunities after the opening of the project.

Forthe past decade, downtown Vancouver has contained about 24.5 millionSF of the office spaces with the vacancy rate ranging from 2% to2.5%. The primary employers in the downtown area include theCorporation, Jim Pattison Group, HSBC, RBC Financial, CanadianImperial Bank Group as well as Accenture. However, for the past tenyears, there have been various office projects in downtown. Amongthese office projects, is 145,000 SF office tower which was plannedin the year 2008 to commence in 2009 and to be situated in thesoutheast of this project. Moreover, according to Kenneth Chan(2017), a 28-storey tower is expected to be built in downtownVancouver. The new tower has been proposed for the 600 block of WestHastings Street in Vancouver.

Vancouveris also the third largest in the production of film and television inNorth America. For the past ten years, over 200 productions weremainly filmed in British Columbia annually with the majority of thembeing filmed partially in Vancouver which resulted in over $1 billionannual spending. The business supports about 30, 000 local jobs andhelps in generating domestic demand for lodging as well asresidential services within the area.

Tourismand Transportation

Vancouverhas continued to be among the top destinations in the North Americadue to its natural beauty, unique geography and cosmopolitanatmosphere. In the year 2007, approximately 8.9 million touriststoured Vancouver and spent about $4.6 billion. However, according toCBRE Hotel (2017), Vancouver received over ten million tourists lastyear, which is the highest rate of visitation in the history of thecity. The tourist sector contributed about $4.4 billion to theeconomy of Metro Vancouver and provided over 70, 000 jobs. Moreover,according to CBRE Hotel (2017), there is approximately 10, 400 hotelroom within downtown Vancouver and about 24, 000 in the MetroVancouver. Moreover, the source also evidenced that the tourism rateincreased by about 7.1% with mainly increase in the room occupancyrate last year. It is evidence here that the visitation rate has beenincreasing for the past decade more so after the 2010 Winter OlympicGames.

Vancouveris also the major point of embarkation for Alaskan cruise routes.Vancouver city gets about 230 cruise ship calls per year currentlywith each cruise stimulating over $2 million to the economy of thecity. However, this cruise ship is essential to the project due toone main reason. The cruise terminal is conveniently situated indowntown Vancouver in just proximity to shopping attractions and notfar from the International Airport.

Anotherimportant feature is the 133, 000 SF Vancouver Convention andExhibition Center (VCEC) which is located half a mile northeast ofthe site of construction. It is a center which hosts about 20city-wide events with a minimum of 1000 attendees. It generated about100,000 room nights in the downtown hotels ten year ago. However, itsexpansion paved the way for bigger opportunity for hotels nearby. A335, 000 SF, enlargement of the VCEC was placed adjacent to theprevious center. It was opened in the year 2009, whereby it allowedrenovations for existing VCEC. After it completion, VCEC offeredspace of 468,000 SF, and it currently generates about 250,000 roomnights for the hotels in downtown on a stabilized basis annually.

VancouverInternational Airport (VIA) is approximately 6 miles south ofproject’s site. It is the second busiest international airport inWestern Canada. It offers 111 destinations across the world andserves as the gateway to the Western Canada. Also, VIA accommodateda record of about 17.9 million passengers in 2008, indicating anincrease of about 2.0%. The expansion plan of the airport which beganin 2005 ensured that the airport increased its accommodation henceboosting its economic contribution.

Housingand Population

DowntownVancouver is the third most densely populated city in North America.The city has experienced a significant increase in some condominiumsconstruction since 1997 due to relaxation of restrictions on buildingheight. There are over 3, 600 condominium units which have beenconstructed in downtown Vancouver. Approximately, 80% of these condosare mainly under contract.

Accordingto Real Estate Board (2017), Metro Vancouver expects that newresident will need about 574,000 housing units from now till 2041.The newly developing as well as planned urban areas have a capacityfor approximately 250, 000 residents or about 20% of the region`stotal projected growth in the year 2040. It means that more houseswill be needed shortly for the inhabitants.

Accordingto Real Estate Board, the average cost of a single-family detachedhome has increased in the past one year unlike the between 1981 tothe year 2005. According to McElroy Justin (2016), the prices of thesold detached homes were $14 million in the past one and half years,but it increased to about $1.6 million after last year. However, itis anticipated that by the end of last year, it had increased up to$1.8 million amounting to an increase of$420,000.The residentialaverage sale prices in the past 39 years.

Moreover,McElroy Justin (2016) says that Financial Minister made an argumentthat investors should focus on residential properties and not justdetached homes. It is true because when one looks at the averageprices of the townhomes as well as apartments has risen much lessthan the detached homes. It shows that there is a shortage in theproject line. Moreover, according to Real Estate Board of Vancouver,the average value of a detached home have gone up by 159% in the pastdecade while residential have gone up by 81% ad apartments haveincreased by 61%. Furthermore, says that there is high demand forluxury property in Vancouver while explaining the reason why detachedhomes have exploded in their value than others. McElroy Justin(2016) explains that luxury properties are attractive and they have alower rate of dividend yield.

However,despite the financial crisis and factors which affect. Vancouverhousing sector, this area is still the best strong market fordevelopment because of its position as a gateway to the North Americamarket and international trade with the Asian nations. Moreover, itsgrowing focus, tourism appeal, growth in its population makes it thebest location to place the project.

MarketingPlan

Theresidential components and the hotel will be marketed mainly viainternationally-renowned luxury brand. The hotel brand offers accessto a bigger customer base that cannot be accessed with the use oftraditional marketing means. Moreover, customers are continuouslypatronizing brands and hotels which provide them with superior andquality product. Brands will be able to efficiently deliverconsistency compared to the independent hotels because of theirsophisticated marketing and operation systems as well as their marketresearch and customer focus. Thus, branded hotels mainly outdo theirnon-branded competition by about 20-30%. Moreover, every higher brandcan attain higher premium as a result of its loftier finishes, higherlevels of service as well as exclusive cache.

Extendingluxury hotel brand to the residential condominiums will enableinvestors to mainly capitalize on the reputation of the brandincluding services which are projected and expected to generatehigher sales incomes. Every luxury branded homes are to known to haverealized pricing premiums of about 25% to 35% as compared to thenon-branded residential business competitors. The brands which arebeing considered for this subject development include Ritz-Carlton,Mandarin Oriental, Four Seasons, and St. Regis. Most of the luxurybrands offer residential management and hotel sale services. However,there is no any comparable representation in all these brands inVancouver market currently.

Thedemand for lodging in Vancouver city is mainly seasonal. It has astrong spring as well as summer demand which comprised of an idealbalance of leisure, corporate and convention group travelers. Thedemand for leisure reduces in the late October due to frequent rainsand cold weather, but corporate including conference demand remainsstronger at this period. When the demand is mainly soft, it isprimarily driven by corporate travelers. Although the demand patternis seasonal, Vancouver lodging sector has been performing highly inthe history of its occupancy levels. In fact, between the year 2004and 2016, the luxury, as well as upscale hotels within Vancouver, hasbeen known to have achieved an average rate of occupation of about75%. However, the rate between the year 2004 and 2008 was about 74%which shows some rate of growth.

Giventhe strength of the market, the luxury brand of the hotel and thelocation of the tower and the above average room’s size, it meansthat the hotel will probably be successful in penetrating the currentluxury demand which is being accommodated at a high-end boutique aswell as luxury hotels. There are many things which control thismarket, and one of them is the great location which has seen downtownVancouver registering high hotel occupancy rates.

Accordingto Marr Garry (2016), the occupancy rate in downtown Vancouver was77% in 2015 which increased to about 78% in the following year. It isexpected that the occupancy rate will be about 79% this year.Moreover, the revenue per night per room in downtown Vancouver wasaverage $155 in 2015 which grew to averagely $178 in 2016 and isexcept to shoot up to $215 or $226 this year (Marr Garry, 2016).Withthis trend, it shows the project will be worth investing in marketingto reap all this increasing rate of occupancy.

Moreover,due to its international brand recognition, the hotel is expected toinduce new demand into the market using marketing of brand channelsand relationship of customers. The expanded VCEC will also benefitthe hotel and future Olympic Games. About 805 of the demand will bemade up of the non-group market because of its location and limitedconference space. However, the hotel will be able to attract C-levelof corporate leaders as well as celebrity guests who will beattending conference or convention at the VCEC. Analysis of demand bymarket segment has been presented below.

Luxury Hotel Demand Segmentation

Transient

Room Nights

Mix

Premium 4, 106 10%

Corporate 4,928 12%

Special Corporate 8,213 20%

Package 12,319 30%

Other Discount3,285 8%

Total Transient 32, 850 80%

Total Group 8,213 20%

TOTAL 41,063 100%

About$1.5 million will be utilized in hotel marketing before its opening.After that, about $1 million will be spent per year on sales andmarketing operations. The sales technique to be used in penetratingthe luxury clients within the market will consist of mainly straightbusiness to business sales, local events as well as print and onlineads in both source and local markets. The sales staff of the hotelwill include a Director of Sales and Marketing, sales coordinator andsales manager. They will mainly concentrate on building relationshipswith the local planners plus convention and tourism focal points inthe market. They will also focus on inducing a new demand byleveraging existing market channels and brand relationships. Also,they will supplement all these efforts with an inclusive marketingand advertising campaign. The proposed marketing and sales budget forthe fits year of the business have been presented below:

Expense

% of Budget

Budgeted Amount

Salaries and Wages

Brand Marketing &amp Group fee

Loyalty Program

Print Advertising

Electronic Advertising

Trade Shows

Entertainment

Sales Collateral

Miscellaneous

35

15

15

10

2

4

10

5

4

$350, 000

$150,000

$150,000

$100,000

$20,000

$40,000

$100,000

$50,000

$40,000

Total

100%

$1,000,000

Thedemand for the housing units is mostly g

Residential

enerateddue to increase in the housing development in a given market area.The increase being considered here might constitute of formation ofnew household within a given population or in-migration of thehouseholds from different areas. Various households mainly determinedemand for the luxury residences within a market area having adequateand high disposable income or sufficient net worth to support thepurchase of the high priced home.

Basedon the wealth profile and proximity, the primary market is for theresidence in the project development will comprise of downtownVancouver, North Vancouver and West Vancouver. Moreover, the need forthe luxury units is also engendered by wealthy buyers who are livingon the site, and they are seeking a second home within aninternational city gateway like Vancouver.

TheVancouver city downtown is experiencing a substantial increase inboth population and household number and trends anticipated tocontinue for the next five years. The area has a healthy economicstatus, a varied nature of culture and entertainment means as well asrenowned recreational activities. According to the market research, agiven area of the site which the project will be situated offersvarious advantages like pedestrian sociable streets, easy access toVancouver amenities including some shopping and entertainment optionsas well as immediacy to the Coal Harbor waterfront.

Basedon the location of the project site, unit pricing, luxury brandassociation, and services including amenities offered, the buyers arelikely to be aged about 45 years to 75 years old with annual incomeabove $150, 000 and high net worth. According to Real EstateStrategies, the total target of households is about 8, 200. Thus, thesubject development will have to capture about 1.7% of these totalhouseholds to sell to the proposed units.

Age Range

Income Band

15-24

25-44

45-64

65-74

75+

Under $25,000

4,894

17,262

13,268

5,656

8,009

$25,000-$49,999

2,746

24,611

15,759

5,209

5,447

$50,000-$74,999

897

18,411

13,095

3,412

2,574

$75,000-$99,999

283

10,672

9,184

1,952

1,474

$100,000-$149,999

126

9,825

10,976

1,582

541

$150,000+

50

4,073

7,165

1,053

541

Total

8,996

84,854

69,447

18,864

18,586

Source:Real Estate Strategies, Statistics Canada

Moreover,the democratic analysis is essential is to collect psychographic databeyond income and age so that one can understand a whole demandimage. It involves the study of the sociological and psychologicalcharacteristics of the potential consumers. That is their ideologicalbeliefs, values, emotional responses and attitudes and how theyaffect their daily purchasing decision. The inclusion of thepsychographic analysis in this study is to boost the total universeof the clients because some of the customers will fall out of theincome and age range defined above. When one considers bothpsychographic and demographic, the target buyers will include thesegments below:

  • Wealthy pensioners as well as empty nesters who wish to downsize from a bigger single-family home in the nearby conurbations (2 or 3 bedroom or even penthouse units)

  • Singles and divorcees who are seeking a low-maintenance lifestyle within the area with cultural and social activities (1 or 2 bedroom units).

  • International clients who travel frequently to Vancouver city and want to pied-a-terre in the Vancouver city (1 or 2 bedroom units)

  • Wealthy Canadians who are seeking a home in the urban coast location will fit all the types of units.

  • Lastly, corporations with long-term executive housing desires will fit for one bedroom unit.

Thecondominium unit mix has been planned with the target of all thesesegments in mind. The entire project offers 40 single-bedroom unitswhich will appeal mainly to singles, divorcees as well aspied-a-terre customers. Also, the 84 double-bedroom, as well as 15triple-bedroom units, are designed to meet the needs of retirees,second-home clients, young couples and empty nesters. Moreover, 11sub-penthouse units are mainly intended to address the need of theextremely wealthy buyers who need a cache of the penthouse unit whichis located in the iconic 5-star Vancouver hotel. All these customerswill mainly be second home buyers who will be sourcedinternationally.

Over$15 million for residential marketing and sales has been budgeted inaddition to about $333.5 million for a brand license as well as abrokerage fee. The residence will be mainly marketed by a brokeragecompany which will offer an extensive experience of selling expensivecondominiums projects and acquaintance with the market. All the salesactivities will occur primarily in the local sale point, which willbe mainly constructed after equity funding. The luxury center willalso be composed of a 2,000 SF model residence, 6-foot developmentscale model, and design plus décor center. Moreover, sales campaignfor two days will be held in the markets like New York, Dubai, HongKong, Seoul, San Francisco, Rio de Janeiro, Beijing, Shanghai,London, Montreal, Toronto, and Tokyo. Advertising and marketing willalso feature various efforts. These include:

  • Adverts in various print media like Robb Report, Wine Spectator, Wall Street Journal, and Architectural Digest.

  • Upscale customer exhibitions and events, for instance, exclusive opening gala and others including targeted direct mails which will be mainly sent to brand database schedules and wealthy residents.

  • Neighborhood and local comprehensive marketing where estate brokers and other source marketers will tour the vicinity.

  • Direct sales to the local executive corporates, music and film companies, sports team including celebrity purchases.

  • Wide-ranging public relation campaigns which will enhance media coverage and editorial exposure. The marketing and sales budget is offered below.

% of

Budgeted

Expense

Budget

Amount

Sales Center Construction

25%

$3,750,000

International Customer Events

20%

$3,000,000

Local Customer Events

16%

$2,400,000

Staffing (excluding broker fees)

10%

$1,500,000

Print Advertising

10%

$1,500,000

Brochures

5%

$750,000

Direct Mail

5%

$750,000

Miscellaneous

4%

$600,000

Overhead

3%

$450,000

Trade Shows

2%

$300,000

Total

100%

$15,000,000

Competition

PrimaryCompetitors of the Subject Hotel

Themain competitive hotel is made up of 3 hotels which represent 556rooms. These are the high rated hotels in Vancouver and they expectedto compete with the projected hotel due to their downtown location,an upscale rating of their product and healthy rate of theirposition.

OpusHotel, a 97-room hotel which is located about 0.8 miles south of thesubject hotel is one of the competitive sets opened 15 years ago. Itoffers competitive trendy upscale room product. In spite of itsposition at the top of the market, it is not considered one of theluxury providers as it does not offer luxury offers like amenities,services or luxury finishes. However, its unique location within YaleTown allows it to mainly attract a significant amount of demand inthe entertainment sector. However, it is essential that the subjecthotel will be located at a close location to CBD shopping center aswell as waterfront which boosts its superiority. Hence, the subjectproject is anticipated to compete with Opus Hotel for highly valuedleisure and entertainment.

Anotherone is Wedgewood Hotel. It is located about 0.3 miles south of thesubject business hotel within the heart of CBD. It is the smallestand at the same time, a highly rate and hotel in the competitive set.It was first as an apartment but converted to a hotel in 1984. TheWedgewood completed renovations of softwoods and its guest roomsrecently including renovation and expansion of its penthousecollections. It offers a traditional and old-world luxury services inits small boutique. However, its appeal is expected to be minimal andlimited as compared to luxurious and world-class Haven Gate. It isreported that it provide accommodations in a balanced mix manner ofthe corporate including transient demand. It is expected that it willcompete with the Haven Gate as they will be high-rated businesseswithin CBD area. S

Oneof the luxury hotels in Vancouver is Four Seasons. It was built in1976, and it has 376 rooms in total. However, the product has beendeteriorating for the past ten years due to lack of capitalinvestment, which limits are rate of potential. The 28-storey issituated within CBD, and it mainly offers city views in most of itsguestrooms and a view of the harbor in a limited number of itssuites. The property has a high rate mix of corporate as well asleisure from the U.S. The Four Seasons will be competitive with HavenGate a based on its strong, luxurious branding and its locationaround CBD. It is expected to compete with the project business forthe high-rated group, and small groups demand leisure more so fromthe United States.

SecondaryCompetitors of the Subject Hotel

Thesecondary set of competition is made up of 9 hotels which representabout 3, 406 rooms. These are competitive hotels due to theirlocation around the trade area and their upscale and classy productofferings. However, their size, different market orientation andtheir inferior product and service quality make them consideredsecondary competitors and not primary competitors to the subjectproject. Their brief descriptions follow below.

Thefirst one in this list under consideration is Pan Pacific andFairmont Hotel Waterfront. Both are located about 0.4 miles east ofthe business subject hotel. Another one is Westin Bayshore which islocated at about 0.4 miles to the north of the subject hotel. Allthese three hotels capture a significant high rated leisure hoteldemand due to their nearby location waterfront and superior views.They also accommodate averagely high group demand as they have largemeeting facilities and the fact that they are located at nearby VCEC.The subject hotel will probably compete with these hotels mainly forthe high-rated demand of leisure and to some degree, a small groupdemand. Moreover, the subject hotel is anticipated to competedirectly with the 46 Gold Rooms of Fairmont which has been reportedto have high occupancy rate within the area.

Oneof the hotels which accommodate more customers from the United Statesin the competitive project set is Marriot Pinnacle, which has 434rooms and it is located 0.2 miles northeast of the subject businesshotel. In spite of its upscale product, this hotel is still lackingADR competitive set because it mainly accommodates contract andairline tour groups. It is expected to compete with the subject hotelregarding demand of U.S corporate and leisure more so during off-peakperiods.

Amongthe largest and oldest hotels in the city is 556-roomed FairmontHotel Vancouver, which was opened in 1939. It operated as independentfor most of its years leading to its conversion and restoration in1996 as Fairmont. While its primary market segment is large groupdemand, its total of 36 Fairmont Gold rooms attracts a high-rateleisure and corporate demand throughout the year. All these upgradedrooms are reported to be achieving over 80% occupancy rate, hencemaking it a direct competitor with the subject hotel.

SuttonPlace Hotel is situated about 0.25 miles south of the subject hotel.It is co-managed with the 164-unit tower called La Grande Residence.It completed its soft wood renovation recently including La GrandeResidence. Sutton Place accommodates a substantial share of film andentertainment demand. Its location in the CBD makes it have a highmix of corporate demand. The subject hotel is likely to compete withthe Sutton Place Hotel for highly-rated film and entertainment demandas well as corporate demand due to proximate location of theproperty, entertainment demand area, and upscale product. Others likeHotel Le Soleil, Westin Grand, and Metropolitan Hotel will probablycompete with the subject hotel due to their location positioning andsmallness of their boutique.

SupplySummary and Comparison

Theoverall development of the offer a superior product to the hotelswhich are within the market and it is better positioned to attractluxury brand The Shangri-La is anticipated to be the closestcompetitor of the subject hotel regarding location, quality as wellas brand awareness. It should be noted in this case study that thelarge suites mix of the hotel is reasonably higher than those of itscompetitors which give it an advantage in attracting a high demandfor leisure. A comprehensive subject hotel’s suite mix summary ispresented below.

Suites

Suites 900+

Total Rooms

650+ SF

SF

Subject Hotel

150

33

33

Mix

22%

22%

Four Seasons

376

55

12

Mix

15%

3%

Shangri-La

119

24

1

Mix

20%

1%

Wedgewood

83

20

2

Mix

24%

2%

Opus

97

2

0

Mix

2%

0%

ResidentialCompetition Analysis

Thereare five main residential competitors. Two of them are luxury brandedcondominium schemes with one hotel luxury component, two-non-brandedcondominium schemes with no hotel, two luxuries branded condos ad oneon-branded condo project with one boutique hotel constituent. Asummary of every competitor as per study of real estate stats ispresented in the detailed manner below.

FairmontPacific Rim

Approximately0.4 miles northeast of the subject project is the Fairmont PacificRim which offers residents’ dramatic views of the harbor as well asNorth Mountains. The condo contains 175 residential located above theFairmont Hotel. Amenities that are provided include a daily conciergeservice, feverish outdoor swimming pool including a sun deck,full-service spa, fitness center, multi-functional section room,multi-media center and business center. Moreover, residents accesshotel services which consist of housekeeping, limousine service, andin- room dining. Every unit has one or two-car parking. A keyedelevator which leads to the residential floors of the condo tower andfree parking is available too.

TheFairmount also offer luxury finishes with kitchen line cabinets. Theunits are mainly offered with a choice of the hardwood floors withinthe existing sections and carpet I the bedrooms. All units havemaster marble baths, with glass enclosed showers and soaking tubs.However, limited upgrade options are available.

FairmontPacific Rim is one of the markets most luxurious living withinVancouver. The location of the property offers residents view of theharbor and most of the spectacular view of the city. The price of thesubject development reflects a competitive advantage over theexisting competition. The primary drawback of the Fairmont PacificRim is that it is mainly adjacent to the new VCEC thus trafficcongestion is one of the problem issues to the residents. Moreover,the project is not close to the prime retail shopping of the cityalong the Robson Street. The Fairmont unit mix, fee structure, andsize are given in the chart below.

TheFairmont Pacific Rim has 175 units. The project was completed in theearly month of the year 2010.

Shangri-La

Itis located in the West Georgia from the study project site, TheShangri-La Residence and Hotel comprises of almost the entire cityblock. The building is 61-strorey in height hence it is the tallestin the city. It includes commercial spaces for the Urban Fare store,which is convenient for the residents of the subject project. LikeFairmont Pacific Rim, it incorporates residential condos in a singlebuilding including a five-star hotel.

Ownersof the condos have full access and use of the hotel amenitiesincluding a whole-day concierge service, game room, housekeeping,media room, library, business center, full spa services, and outdoorswimming pool as well as dining. Within the first 15 stories of thisstructure is a hotel and 300 condos are located on floors 16 up to 61levels. It has 171 units which are live-work spaces hence it allowsowners to operate the small business from the condo unit. It also hasthe luxury in finishers and features like Fairmont Pacific Rim andsubject project. The units have a choice of hardwood floors livingand carpeted bedrooms. Also, master rooms have marble baths,oversized glass-walled showers, and soaking tubs. A limited number ofoptions and upgrades are given. The Shangri-La unit mix, feestructure, and size are given in the chart below.

TheShangri-La began its sale of condos early month of 2005. Since thatyear, most of the units have been sold with a beginning absorptionrate of 15 units every month. Another construction project wascompleted in the year 2009.

JamesonHouse

JamesonHouse is located on the West Hastings Street with 38 stories ofheight. It is made up of 150 residential units. The amenities ofthe building include 24-hour caretaker services, complimentarymembership next to the Terminal Club which comprised of full spaservices, restaurants, game room, billiard room, fitness facility andmeeting rooms. The Jameson House also has the media room and meetingroom for the purpose of residents use.

Allthe units on the higher floors have mainly feature views of thewater, North Mountains, and downtown Vancouver. The location of thebuilding is suitable along the West Hastings, and it is also a fewblocks from the Robson shopping district. Although Jameson offersupscale finishes, the problem is that they are not as deluxe as theone offered by Fairmont Pacific Rim and the Shangri- La. Kitchen hasglass cabinetry including Gagggenau ovens, Sub Zero refrigerators,dishwashers and range tops. Moreover, the master baths are mainlyincorporated with soaking tubs as well as glass-enclosed showers. Thestandard units are nine foot in height while penthouse units offerten-foot ceilings. The floors are made of travertine tiles andwall-to-wall carpets within the bedrooms. The available upgrades aretravertine flooring within the bedrooms as well as the kitchen in-built espresso coffee contrivance. Jameson House unit mix, feestructure, and size are given in the chart below.

Salesof the condos at Jameson House began early 2006. Since that time,over 144 condos have been placed under the contract. However, theinitial rate of absorption was high with an average of 20 units everymonth. However, due to current economic uncertainties, sales wentdown. The construction was delayed around 2008 due to financialproblems, but its completion occurred years late.

L’Hermitageen Ville

Theonly development which is located in Yale town is L’Hermitage enVille. It is at the corner of Robson as well as Richards Streets. Itwas developed with a hotel component just like a subject project. Itis not considered in this study to be ultra-luxury, but it isconsidered as a competitor because of its hotel component feature. Itis a 21-storey building with a total of 200 condo units. The hotel isa 3-6-roomed boutique structure. It is also inclusive of commercialspace for the retail stores on its first two lower levels. Like theabove condo components, the owners access amenities of the hotel andfacilities including fitness center, double roof-top gardens, spa,lounge as well as 24-hour custodian service.

Theinterior finishes of the L’Hermitage en Ville are averagelyupscale, but they do not meet the luxury standards of the competitorsmentioned above. The kitchens have Bosch kitchen appliances and SubZero Eggersmann cabinets as well polished stone countertops. Theunits are mainly offered with choice hardwood floors within theliving section and wall-to-wall carpet within the bedrooms. Moreover,the units are included with limestone tile bathrooms including masterbathrooms with Incorporated soaking tubs plus glass-enclosed showers.The heights within regular condo units are nine-foot while penthouseunits are 10.5-foot ceiling loftiness. There are limited upgradesavailable.

Thesales of units at L’Hermitage en Ville began in the year 2005.Since then over 200 condos units have been successfully sold with abeginning absorption rate of 10-13 units every month. The project wascompleted in the year 2008.

ThreeHarbor Green

TheThree Harbor Green was the last downtown waterfront developmentproject to be along the Coal Harbor. The building has 31 stories witha total of 81 luxury residences. It is the third largest residentialtower within Harbor Green area. All the 71 units in the Three HarborGreen were sold within two weeks.

TheThree Harbor Green feature one of the most luxurious interiorfinishes with dual-toned cabinetry and line kitchen appliances. Allunits have the floor to ceiling windows with an unobstructed view ofthe North Mountains and Coal Harbor. The floors are made of woolcarpets and porcelain tile. Perhaps, their upgrade is hardwood.Bathrooms mainly feature vanities with Italian-designing withdeck-mounted tubs as well as heated basalt or marble made floors. Allthe units offer Lutron meticulous lighting systems, as well ascovered balconies which are accessible via the living rooms. Servicesinclude 24-hour caretaker services, golf rooms, billiards, indoorswimming pool, media room, lounge, squash, and the health club.

Theprimary disadvantage of this property is that it is located at aproximate point to the new VCEC as well as the cruise port. Thus,there are traffic congestion problems with residents. Furthermore,the project is not in a close position to the Vancouver’s mainshopping and retail center Robson Street.

SupplySummary and Comparison

Basedon the similar properties gauged in the central market area, there isa robust long-term demand for ultra-luxury condos like thecondominiums in the subject project. Most of the properties that areon sale have mainly been absorbed. The five properties which we haveanalyzed offered an aggregate of 906 units, yet less 50 are remainingfor sale excluding resale availability. It is likely that all theremaining units of Three Harbor Green will be sold when thedevelopment opens in the year 2020. Moreover, the subject propertyhas been found to be superior to the three of the five currentcompetitors and mainly comparable to the Shangri-La and FairmontPacific Rim while having less than 18 units for sale currently.

Pricingof the Hotel

Basedon the competitive position of the Haven Gate as outlined in thecompetition section, it is anticipated that the property will achievethe top average daily rate (ADR) within the market upon itsstabilization. The premium projected is mainly based on the followingfactors:

  • The Haven Gate hotel will be the newest luxury product in the market with the best finishes and with quality above or with bar with industry competitive hotels.

  • The Haven Gate hotel will mainly benefit from the international luxury brand to be chosen.

  • The subject hotel will also accommodate mainly transient demand that is rate highly than group demand.

  • The Haven Gate hotel will benefit from the low room count it has, which will allow it to minimize its discounting rate and accommodate its demand selectively.

Arate segmentation and demand analysis is presented below which arefollowed by a qualitative description of the segment position asshown in Exhibit 1(Competitive Demand and Rate Segmentation).

ROOM

NIGHTS

MIX

RATE (C$)

Transient

Premium

4,106

10%

$500

Corporate

4,928

12%

$400

Special Corporate

8,213

20%

$215

Package

12,319

30%

$295

Other Discount

3,285

8%

$225

Total Transient

32,850

80%

$309

Total Group

8,213

20%

$260

Total

41,063

100%

$300

Total

75%

$300

Weekday

75%

$280

Weekend

76%

$345

TheADR of the subject hotel is expected to be $300 in 2017. Theprojected ADR is about $50 above the 2016 ADR ($250) for WedgewoodHotel as well as Opus Hotel, which are the highest-rated competitorsin the industry. The rate of premium is mainly supported by the HavenHotel luxury brand recognition as well as its luxury brand rooms,which include 20% Club level rooms and it is 22% of large suites.Moreover, it’s supported by its location which offers superiorviews of waterfront, skyline, and mountains. The ADR of the subjecthotel is also positioned higher by $90 of the 2016 ADR of FourSeasons Hotel despite its brand recognition internationally. It ismainly based on the fact that it is the smaller hotel in size henceable to limit its discounting and its superior quality than old FourSeasons’ products which have been deteriorating due to lack offinancial investment.

Duringthe peak season (May up to October) when the demand is highest in themarket, the Haven Gate is expected that it will achieve a significantaverage premium rate of about $100 over its competitive set which ismade up of mainly large scale hotels. A premium of about $60 abovethe hotel’s competitive set is expected in the remainder of theyear because its rate compression will be competitive than any otherhotel during the lower demand seasons.

TheHaven Gate’ corporate rate will probably be $400, which is about$30 to $50 above the rates quoted for the Opus Hotel, Four Seasonsand Wedgewood Hotel. The segment is mainly comprised of high-enddemand by corporate as well as high-rate leisure demand during thepeak season. The premium is primarily based on the lower room countof the hotel, and its high mix sets that achieve averagely higherrates during the peak season than the standard rooms.

Thespecial corporate rate of the Haven Gate is projected to be $215,which is approximate $5-15 above expected special corporate rate forthe Opus Hotel and Wedgewood Hotel as well as $ 25 above theprojected special corporate rates for the bigger classy competitorswithin the market. It is anticipated that the extraordinary corporatedemand will serve as the base of the hotel business during theoff-peak periods.

Thegroup of the subject hotel is expected to be about $260. Groups areestimated to be made up of a small corporate executive as well asfilm industry gatherings including some local social group demands.

ResidentialPricing

Theluxury brand condo units which are located in the subject developmentis expected to mainly achieve average sales price of about $1,450 inevery square foot. Remember that all the amounts are presented inCanadian dollars. It is positioned above the mean of the sale pricefor the 300-unit Shangri –La for about $1,200 each square footbecause of a high mix of the larger units as well as superior viewsof the subject development. Moreover, the projected price is alsogreater than the average prices for the L’Hermitage en Ville aswell as Jameson House because of their lower quality finishes, thehigher mix of their small units and lack of proper brand affiliation.

Theprojected price of the subject development is positioned averagelybelow the sale price of the Fairmont Pacific Rim ($1,600 in eachsquare foot) mainly because of sales period development which willoccur during the peak season as well as its location which allowsdirect views to harbor and waterfront.

Also,the projected price is as similar as the average price for the ThreeHarbor Place because of its similar period of sales which occurs inrecovering and down market as well as the similar level of quality.Despite the brand affiliation as well as hotel amenities of thesubject property, its location farther from the waterfront islimiting the ability of the subject property towards achieving apremium which is the one being attained by the Three Harbor Place. Ascreen short of the standard summary of pricing for the subjectdevelopment is as show below.

Thesubject development will mainly offer custom upgrades. However, it isrecently unclear if the developer will be able to make a sale ofthese upgrades which are mentioned in the premium cost. It is thecause why they have not been included in the analysis of pricing.

Theaverage projected pricing which is supported by the findings of theregression analysis of the multivariate shows that there is asignificant relationship between average income per tax filer ofVancouver and the vast population of Vancouver. Moreover, itindicates that there is a relationship between average condo pricingwithin the Primary Market Area and average income per tax filer ofVancouver and the vast population of Vancouver. Below is theregression equation:

AverageCondominium Price=5.845*Average Income Per Tax Filer + 0.19*GreaterVancouver Population – 370983.888

Basedon the population of the Province of British Columbia forecast forthe Greater Vancouver and the estimates of the changes in the incomeper tax filer, the price sales averages of the condos is anticipatedto range probably between $349 in every square foot and $402 betweenyears 2018 and 2031. It is when the development of the subjectproperty will be mainly in sales season. 2013 and 2016 competitiveluxury prices of sales achieved substantial premiums over the saleprice averages of the condominiums on the price per foot basis whichis ranging from 322% to 460%. When on applies an average of about375% to the projection, the future results is at an average pricesale of $1,405 in every square foot.

Aluxury premium of 387% must be applied to achieve the selling priceof the subject development of about $1,450 per square foot. Thepremiums are within the range of the luxury incentives which wererealized in the previous recent years. Moreover, high mix of thelarge units of the subject development justifies its increase inpremium above 375% averagely. The table below shows the actualprojected average income per tax file and Greater Vancouverpopulation including the expected condo prices.

year

Greater Vancouver

Average Income

per Taxpayer

Total Greater

Vancouver

Population

Primary Market Area

Average

Condominium Price

(Annual Avg)

Per Square Foot

Estimate (based on

1,200 SF average size)

Recent Average

Competitive

Luxury Sales

Price

Luxury premium

2013

52,921

2,188,573

342,878

$286

$1,314

460%

2014

57,246

2,221,613

410,031

$342

$1,200

351%

2015

61,000

2,249,725

459,019

$383

$1,230

322%

2016

63,000

2,293,438

433,121

$361

$1,314

460%

Projections Below

2017

60,000

2,333,513

423,203

$353

$1,365

387%

2018

58,000

2,373,933

419,195

$349

$1,352

387%

2019

60,000

2,414,772

438,646

$366

$1,415

387%

2020

62,000

2,454,686

457,922

$382

$1,477

387%

2021

65,000

2,494,292

482,984

$402

$1,558

387%

2022

70,000

2,533,976

519,751

$433

$1,676

387%

2023

72,000

2,573,727

538,995

$449

$1,738

387%

2024

74,000

2,613,470

558,239

$465

$1,800

387%

2025

77,000

2,652,982

583,283

$486

$1,881

387%

2026

75,000

2,692,324

579,070

$483

$1,868

387%

2027

73,000

2,731,391

574,805

$479

$1,854

387%

2028

78,000

2,770,030

611,373

$509

$1,972

387%

Average Luxury Premium 2013 – 2016

375%

Range of Premium 2013- 2016

322%-460%

Premium Applied

387%

Average Luxury Projection during Sales Period

$1,450

Sources:BC Stats, Real Estate Board of Greater Vancouver MLSLINK HPI

PARTIII: FINANCIAL DOCUMENTS

Sourcesof Funds and Uses

Thetotal cost of the project is expected to total to $362.8 million.Approximately $238 million or roughly 66% of the total cost ofdevelopment is allocated to condominium component, which results in acost of $1.6 million for every unit. It is approximated that thehotel component will be assigned about $125 million, or approximately34% of the total cost of development. It will thus result in a costwhich is considerably more than $834,000 or every hotel componentcore. However, a total of 36 months is expected to be spent for theentire development.

Thewhole project will be mainly financed with a combination of equityand debt. The sources, as well as the use table for the entireproject, have been presented below.

Sources and Uses

Sources

Uses

Senior loan

$217,709,072

Land &amp Related

$20,000,000

Mezzanine Loan

$54,427,268

General &amp Administrative

$12,000,000

Preferred Equity

$0

Design &amp Consultants

$15,300,000

Common Equity 1-Haven Gate

$27,213,634

Development Charges &amp Municipal Costs

$5,300,000

Common Equity 2

$63,498,479

Sales, Marketing, and Advertising

$15,000,000

Hard Construction Costs

$251,600,000

Building Operations

$4,700,000

Financing Costs

$38,948,454

Total sources

$362,848,454

Total sources

$362,848,454

Thenon-recourse loan for superior construction is appraised to be $217.7million. The rate of interest is estimated to be about 400 basispoints over a total of 30-dau LIBOR. However, the $54.4 millionentresol load is expected that it will have an interest rate of 1400basis points for a 30-day LIBOR. The entire loan will be interestedmainly, and the principal repayment will be of the condo salesproceeds and profit of hotel.

Thetotal equity funding which is needed for construction of the projectis about $90.7 million Haven Gate will raise about $27.2 million inthe form of design costs and entitled land. It will also seek theremaining equity from its joint venture partnership.

ExpectedFinancial Return

Thewhole project is expected to generate a total equity before tax IRRof about 18.9% as well as the net present value of $12.9 million(using the discount rate of 15%) basing on the ten year period of thehold. Moreover, the sensitivity analysis which incorporates downsideand upside risks in a more material pro indicates that there is 50%probability that the aggregate equity IRR will exceed 18%. Thus, as aresult of over 15% equity distribution of cumulative current return,the IRR of Haven Gate is expected to be 19.4%. However, the remainingequity is estimated that the investors will realize 18.7% IRR.

SUMMARYOF PROJECTED EQUITY RETURNS

Total Equity Return

IRR

18.9%

NPV at 15%

12,904,540

Common Equity 1 (Haven Gate) Return

IRR

19.4%

NPV at 15%

4,420,482

Common Equity 2 Return

IRR

18.7%

NPV at 15%

8,498,991

Therefore,despite the fact that the economic environment is volatile, theproject is in a good position to succeed given the ideal location,strong management, potential of the luxury brand and essential forteof the Vancouver city economy.

DevelopmentBudget

Thebudget of this development project was mainly developed basing on thehistory of developing comparable projects of Haven Gate and wasadjusted basing on the comments which the architects of the projectsand multiple contractors provided. The total cost of the subjectproject is expected to reach $362.8 million. Out of the total cost,69% or $251.6 million is estimated to be the cost of hardconstruction. Also, 10% contingency is mainly built into theseestimates. A detailed budget of the project development is attachedas the Exhibit 2. All amounts are obtainable in Canadian $.

Atotal of about $238 million or 66% of the aggregate cost ofdevelopment is allocated to the condo component which results in acost of about $1.6 million in every unit. About $125 million, whichis 34% of the total cost of development, is allocated to the hotelconstituent, hence results in a cost of averagely over $834,000 forevery hotel key.

Thebudget is based on a development timeline of 36 months from thebeginning of 2017 and incorporates rate of inflation of 3%. Also,this budget includes approximate $27 million of funds which have beenexpended on the development project including entitlement costs andland cost as part of the design cost.

Althoughin the contemporary year`s developers were able to secure theirsenior construction financing loan-to-cost ratio of about 80% to 90%,based on the recent strains on the lending sector it is approximatedthat the lender of the senior construction will mainly finance 60% ofthe total development cost for this project. Thus, based on the totalconstruction cost of $362.8 million, the senior constructor willraise $217.7 million. The loan will have an interest rate of 400basis points for an index of a 30-day LIBOR. The loan will mainlycomprise of interest while the principal will be repaid on thesettlement or closure of condominiums. The senior loan will primarilybe secured by the development project, and it is not expected thatthere will be any more security or a pledge of the investor assets.Although the total loan will mainly be a single project security, therepayment purpose will be allocated to the condo and hotel saleproceeds upon its closing. The release prices which will be used inrepaying the loan are expected to be the total gross sale price lessbroker or licensor and concessions fees. Extra proceeds from thecondo sales will mainly be used to pay down the allocation of hotelloan.

Additionalproceeds from the sales of condos will be used in paying out thehotel allowance loan. The proforma model in this project assumes thatthe construction loan will be fully repaid before the permanentplacement of financing. However, if this assumption fails, any unpaidprincipal will be undertaken by the permanent loans of the hotel uponmaturity. A permanent financing should be placed after two years ofopening to allow stabilization of the capitalized value of the hotel.

Basedon the limited availability of the equity, it is estimated that thejoint venture should successfully secure a mezzanine loan toadequately cover about 15% of the total cost of development, whichwill bring the debt level of the project to 75% of the entire budget.The terms of mezzanine are expected to be at 1400 basis points on topof the 30-day LIBOR. However, an LIBOR floor of about 3% has been putin place into the model. Concerning the senior construction loan, themezzanine loan will mainly be parsed between the condos and hotel ona percentage of the total cost basis. The project’s mezzanine willbe primarily funded and retired with the senior loan whereas thehotel loans will take any remaining principal upon its maturity.

Aninterest rate of 4% of LIBOR will be purchased for every loan for anestimated total cost of $2.5 million that is $2 million for the debtof senior loans and $500,000 for the entire mezzanine. Returns aremainly based on the projected average of 30-day LIBOR of about 3.5%.

Thetotal equity funds needed for the construction is about $90.7million. The Haven will contribute mainly $27.2 million in the formof costs incurred in the scheme design and entitled land. Theremaining $63.5 million regarding equity funds in being sought outcurrently and they will likely be syndicated to various investors.The distribution to equity partners will be apprehended in differentforms. Firstly, is the kind of profit from the condominiums sales andsecondly, in the form of funds from the permanent financing of thehotel. The third way is to profit from the operations of the hoteland lastly, is in the form of hotel sale. Every investor willindividually pay all the income taxes, but before as well as afterthe tax equity return estimates have been provided. See ProjectedEquity Returns from the expected returns below. Note also that thesources and uses the table for every given component of the projectdevelopment has been presented as Exhibit 3.

Sources and Uses

Sources

Uses

Senior loan

$217,709,072

Land &amp Related

$20,000,000

Mezzanine Loan

$54,427,268

General &amp Administrative

$12,000,000

Preferred Equity

$0

Design &amp Consultants

$15,300,000

Common Equity 1-Haven Gate

$27,213,634

Development Charges &amp Municipal Costs

$5,300,000

Common Equity 2

$63,498,479

Sales, Marketing, and Advertising

$15,000,000

Hard Construction Costs

$251,600,000

Building Operations

$4,700,000

Financing Costs

$38,948,454

Total sources

$362,848,454

Total sources

$362,848,454

PermanentFinancing

Thepermanent hotel loan is anticipated to be substantially funded in themonth of December 2021 as the performance of the hotel stabilizes.The loan is also expected to have a fixed rate of interest of 7.5% aswell as 30-year amortization period. The amount of loan is mainlybased on the value of hotel assuming capitalization rate of 8.5%. Themaximum value of loan value metric has been expected to be 65%, whilethe essential service of debt from the annual net income is 1.4.

Giventhe projected performance of the hotel (discussed below), a permanentloan of $24.1 million is mainly constrained by 65% loan to the valuerequirement, and the outcome is a good debt service ratio of coverageof 1.56. However, due to the current rate of interest, the spreadsfor the mezzanine loans 1200 to 1500 basis points, have no permanentmezzanine financing being assumed. The permanent hotel loan willmainly provide funds for distributions of equity because the hotelloan will have been fully paid in the year 2021 through the sales ofcondominium proceeds in August 2021.

ProjectedHotel Performance

Theperformance of the Haven Gate hotel is anticipated to stabilize inthe third operation year. A summary of hotel performance throughstabilization has been presented below. A full 10-year hotel pro-formas well as cash flow analysis has been given as Exhibit 4.

Year

% of

Year

% of

Year

% of

2020

Rev

2021

Rev

2022

Rev

Occupancy

68.0%

72.0%

75.0%

Average Daily Rate $300 (2016

$)

$303.08

$320.18

$337.85

RevPAR

$206.10

$230.53

$253.39

Total Revenue

$21,907,073

100%

$25,517,474

100%

$28,769,593

100%

Department Expenses

$11,784,372

54%

$13,474,592

53%

$14,872,724

52%

Gross Operating Profit

$10,122,701

46%

$12,042,882

47%

$13,896,869

48%

Unallocated Departments

$6,485,533

30%

$6,766,893

27%

$7,059,531

25%

House Profit

$3,637,168

17%

$5,275,989

21%

$6,837,337

24%

Other Deductions

$2,454,762

11%

$3,077,651

12%

$3,692,437

13%

EBIDTA

$1,182,407

5%

$2,198,337

9%

$3,144,900

11%

Theoccupancy of the subject hotel is expected to stabilize at 75% in theyear 2022. The stabilize occupancy is about 2 points above thecompetition set of 2016 occupancy as well as is supported by a 7-yearaverage occupancy (between 2010 and 2016) of the 83-roomed WedgewoodHotel as well as 97-roomed Opus Hotel, which were 82% as well as 77%correspondingly.

Theoccupancy of the peak season (May through October) of the subjecthotel is expected to be 84%, which is in a 1 point position below thecompetitive set of the year 2016 peak season occupancy rate of 85%.The demand of the peak season will mainly comprise of entertainmentas well as high rate leisure demand. During the off-peak period(November through April), the subject hotel is estimated to be havingan occupancy rate of 68%, which is 5 points on top of the 2016competitive set occupancy rate of 63%. The premium of the occupancyis mainly based on the small size of the subject hotel and itsinternational luxury brand. The demand during off-peak is anticipatedto include special corporate, small groups, entertainment and weekendleisure demand.

Giventhe location of the subject hotel in downtown Vancouver as well asits limited meeting place, it is anticipated that it will achieve astrong transient mix of the business of 80%. The subject hotel isalso expected to successfully capture the small high-end group ofcorporates because it is located near CBD.

Moreover,the subject hotel strong luxury brand, its new luxurious product,strong awareness internationally and its above-average size of roomswill enable the subject hotel to penetrate the current existingluxury demand which is being offered at the luxury hotels andhigh-end boutiques. Also, the subject hotel is anticipated to mainlybenefit from demand increase due to the renewed city focus on the joband economic developing and the expanded VCEC. The ADR of the subjecthotel is projected to mainly stabilize at $300.00 in 2016$ in thethird year. The ADR of the first and second years are anticipated tobe discounted by approximately 6.7% as well as 3.3% respectivelybecause the mixed demand of the hotel would have not yet beenoptimized. The rate of increase of ADR is estimated to be 2%. Thepricing section of the study gives detailed information about rateanalysis.

Theprojected expenses of the subject hotel are based on actualexpenditures of the comparable luxury as well as upscale hotelswithin Canada and United States, and actual estimates. In Exhibit 5,a comparison of the subject hotel expenses to the one for other fivecomparable hotels has been given. The exhibit is mainly based on thesubject hotel’s projected stabilized performance in a constant2016$). It also includes notes on certain expense projections.

Uponstabilization in the year 2022, the hotel is mainly expected toachieve house profit of $6.8 million which is 24% of the hotelrevenue as well as net house profit of $3.1 million about 11% of thetotal hotel revenue. The subject hotel’s higher margin can beassociated with high occupancy rate and high revenue base includinglow Vancouver utility rates plus low tax rate in Vancouver. Also,note that the subject Hotel Expense Comparison is a reflection of theprofit margin of the house of 12.7%. Due to the supposition that theexpenses will go up at high rate than the revenues, the actual marginis expected to be 11% when it is stabilized.

Inevery six years, the hotel is estimated that it would have completedsoft goods renovations. The cost of renovation of the soft goods isestimated to be $3 million which will increase at a rate of 3% everyyear. Although, the hotel is expected to be sold after ten years,note that the Pro-forma assumes that there will be full renovationevery twelve years with an estimated cost of doing so being 0.55 aswell as 2.75% of its revenue on the maintenance capital. Renovationcost is expected to be funded from the capital expenditure reserve ofthe hotel and will be depreciating one a 5-year MACRS program. Thecost for the initial development of the subject hotel is assumed tobe able to depreciate in different schedules as endorsed by the USGAAP. However, note that the building will be located in Canada whichhas more favorable treatment for the commercial buildings. But, it isnecessary to use the US GAAP in this analysis because it generatesconsiderably more stable returns. A major Maintenance Schedule plusAmortization Schedule and Hotel Depreciation are provided in Exhibit6 and seven respectively.

Theholding period for the subject hotel is estimated to be ten yearsfrom the opening date. The sale price of the hotel is based upon afinal rate of capitalization of 9% which is a little higher, that ismore conservative than the average rate of capitalization in themodern hotel transaction market (7.5% – 8.5%). The proceeds fromthe subject hotel sale in December of the year 2029 are presented inthe graph below. However, a complete hotel sales proceeds table whichincludes after-tax analysis is provided in the Exhibit 7.

Terminal Year

2029

Terminal Cap Rate

9%

Hotel NOI (Year Following Sale)

$3,155,221

Sales Price

$

35,058,008

Less: Transaction Costs

$

(1,752,900)

Less: Senior Loan Payoff

$

(21,792,282)

Less: Mezz Loan Payoff

$

Plus: Return of Unused Reserve

$

5,385,473

Before Tax Proceeds from Sale

$

16,898,299

Moreover,a consolidated statement which includes revenues, as well as cashflows from both condo and the hotel, is presented as Exhibit 8.

ProjectedResidential Performance

Softsales for the condos will begin after equity funds are sourced. During the weak sales season, reservation including refundabledeposits will be used to ensure that the market is acceptable of theprice of the product point. It is anticipated that the sales periodsof the condos will begin in the month of January 2018 with an openingevent of the primary sale office. The timing gives Haven Gate fullyear to mainly finalize its designing and building and file its mainpublic disclosure statement as required by the British ColumbiaStrata Property Act before the beginning of the sales. Moreover, itis anticipated that there will have the significant number ofvisitors in the Vancouver city which will help in heighteningawareness and increase the pool of buyers.

Thecondos are estimated to sell out over a period 50 months of averagesale pace of about three units in every month. However, this salepace is slightly lower as compared to the sale pace achieved recentlyby luxury competitors, which ranged from 10 to 20 sales in everymonth. The lower projection takes into account the current cooling inthe housing market. The competitive properties were mainly soldduring a rise in the real estate cycle which was fueled bylow-interest rates as well as flurry speculative activity byinvestors. While current sales activity is sluggish, demand forluxury housing in Vancouver should regain momentum over time based onthe city’s solid economic fundamentals, international gatewaylocation, and the attractive downtown residential environment. Also,mortgage interest rates are forecasted to remain low for the nextseveral years. The below chart reflects projected condominium saleson an annual basis.

Year

Units

SF Sold

C$/SF

Revenue (C$

Sold

000’s)

2018

36

79200

$1,450

$114,840.00

2019

36

79200

$1,450

$114,840.00

2020

36

79200

$1,450

$114,840.00

2021

36

79,200

$1,450

$114,840.00

2022

6

13,200

$1,450

$19,140.00

Total

150

330,000

$1,450

$478,500.00

Basedon an average sales price of $1,450 per square foot, total grosscondominium sales proceeds are projected to be $478.5 million. Overthe 50 month sales period, unit sales are expected to average $9.57million per month less a 4% brand license fee, a 3% brokercommission, and a 5% allowance for concessions/incentives. Net salesproceeds are estimated to be $421.1 million. Sales proceeds for eachunit will not be recognized or received until settlement, the processfor which will begin upon project completion in January 2020. Amaximum of 40 closings per month is planned due to the logisticalconstraints involved in occupying a high-rise tower.

Thejoint venture investors will be required to pay common assessmentsand property taxes for unsold units. Based on the 50 months sell outperiod, a total of $ 2.9 million will be needed to support thesecosts over the three years after opening ($2.4 million forcondominium fees and $500,000 for property taxes). Total condominiumEBITDA net of these costs is projected to be $418.1 million overthree years. After condo debt service is paid, a large portion of theremaining proceeds will be used to pay down the hotel portion of theloan. A monthly condominium pro forma and income statement arepresented as Exhibits 9 and 10. A summary before tax condominiumincome statement is presented below.

Year

Year

Year

Total

2020

2021

2022

Months

12

12

12

Condominium Unit Closings

108

36

6

150

Condominium Closings Proceeds

$344,520,000

$114,840,000

$19,140,000

$478,500,000

Less Sales Commissions

($24,116,400)

($8,038,800)

($1,339,800)

($33,495,000)

Less Concessions

($17,226,000)

($5,742,000)

($957,000)

($23,925,000)

Net Condominium Revenue

$303,177,600

$101,059,200

$16,843,200

$421,080,000

Developer Contribution of Condominium Fees, Property Taxes

$2,115,150

$813,629

$9,492

$2,938,272

Condominium EBITDA

$301,062,450

$100,245,571

$16,833,708

$418,141,728

TaxCalculations

Aspreviously stated, all equity distributions are expected to be madeon a pre-tax basis. Each investor will be responsible for the paymentof income taxes on its share of distributions. However, as a benefitto the investors, taxes for each investor category have beencalculated for both the condominium and hotel income. Taxcalculations are based on the below tax assumptions.

Marginal Tax Rate (Federal)

39%

Marginal Tax Rate (State/Province)

5%

Blended Tax Rate

42%

% of Condominium Distributions Taxable as Profit

20%

Capital Gains Tax (Recovery of Appreciation)

25%

Capital Gains Tax (Appreciable)

15%

Notethat condominium revenues will be earned in 2020 but, due to requireddebt payments, no distributions will be made to investors. It willrequire investors to pay taxes on condominium revenue from otherproceeds. However, in 2022, investors are expected to receivetax-free proceeds from the refinancing of the hotel. Furthermore, insubsequent years, the hotel is projected to generate a negative taxburden (available to offset taxes from investor income not related tothe project). The negative tax burden is due to the high depreciationexpense for the hotel, which results in negative earnings (despiteits positive cash flow). Projected equity returns are presented inthe attached exhibits both on a before-tax and after-tax basis.

ExpectedEquity Returns

Basedon a 10-year hold period, the subject development is expected togenerate a total equity IRR of 18.9% on a before-tax basis and 14.5%on an after-tax basis. A table reflecting total equity cash flows andreturns is presented as Exhibit 12.

Usinga 15% pre-tax discount rate and based on a 10-year hold period forthe hotel, the project results in an expected net present value (NPV)of $12.9 million (based on a 10-year hold period Canadian $). A 15%discount rate is considered appropriate for the risk level of theproject and appears conservative when compared to the 10.64% averagediscount rate reported for luxury hotel projects in the 4th Q 2016Price Waterhouse Coopers Korpacz Real Estate Investor Survey.

Inreturn for bringing the project to the joint venture, contributingthe land and design costs for the project, and managing thedevelopment and residential sales processes, Haven Gate will requirean accelerated return or “promote” on distributions above a 15%cumulative current return on equity. Up to a 15% cumulative currentreturn, distributions will be made on a pari passu basis. Between a15% and 25% cumulative current return, Haven Gate receivesdistributions at 5 points above its pari passu share. Above 25%cumulative current return, Haven Gate receives distributions at 10points above its pari passu share. A table reflecting thedistribution splits is presented below.

SUMMARY OF EQUITY DISTRIBUTION SPLITS

Equity Contributed

Haven Gate Contribution

30%

Common Equity Contribution

70%

Up to 15% Cumulative Return

% Chg

Haven Gate Split

30%

0%

Common Equity 2 Split

70%

0%

Between 15% and 25% Cumulative Return

Haven Gate Split

35%

5%

Common Equity 2 Split

65%

-5%

Above 25% Cumulative Return

Haven Gate Split

40%

5%

Common Equity 2 Split

60%

-5%

Asa result, the expected IRR for Haven Gate is 19.4%, while remainingequity IRR is 18.7%. Resulting before-tax returns to each equitytranche are quantified below. A complete before-tax and after-taxcash flow and returns analysis for each of the equity tranches arepresented as Exhibit 11.

SUMMARYOF PROJECTEDEQUITY RETURNS

Total Equity Return

IRR

18.9%

NPV at 15%

12,904,540

Common Equity 1 (Haven Gate) Return

IRR

19.4%

NPV at 15%

4,420,482

Common Equity 2 Return

IRR

18.7%

NPV at 15%

8,498,991

SensitivityAnalysis

Theexpected returns are based on several assumptions and estimatesoutlined above and in the project’s pro forma model. Theseassumptions are forward-looking and could vary materially based onchanges in market conditions and other factors. Thus, sensitivityanalyses have been completed to reflect the impact on total equityIRR resulting from a change in any one of the below materialdevelopment and pro forma assumptions. A graph of these results ispresented below.

RETURNSENSITIVITY ANALYSIS

Common

Equity IRR

% Chg

Haven Gate IRR

% Chg

Equity 2 IRR

% Chg

Expected Results

18.9%

19.4%

18.7%

$10 million Increase in Development Costs

17.1%

-9.5%

17.3%

-10.6%

17.0%

-9.2%

$100 PSF Decline in Residential Sales Price

13.9%

-26.3%

13.9%

-28.0%

13.9%

-25.5%

1-Year Delay of Residential Sell-Out

15.7%

-17.1%

15.8%

-18.2%

15.6%

-16.5%

100 Basis Point Spread Increase on Senior Debt

18.2%

-3.8%

18.5%

-4.2%

18.2%

-2.8%

5%

Decrease in Hotel Revenue

18.1%

-4.4%

18.4%

-4.8%

17.9%

-4.1%

1%

Increase in Cap Rate (Refinancing &amp Terminal)

18.6%

-1.7%

19.0%

-1.8%

18.4%

-1.6%

Themost material effect on IRR results from a negative change in eitheraverage residential sales prices or sales pace. A $100 reduction inaverage sales price negatively affects Total Equity IRR by 5 points(26.3%), and a one-year delay of unit sales decreases the projectedIRR by 3.2 points (17.1%).

Also,a Crystal Ball scenario analysis as given by Charnes (2012) has beencompleted to present the range of possible Total Equity IRR resultsgiven variations in material pro forma assumptions. The scenarioanalysis incorporates the IRR results for 1,000 trials assumingchanges in the following assumptions: 1) development timeline, 2)development costs, 3) residential sales pace, 3) average residentialselling price, and 4) hotel revenue.

Thedistribution of scenario results shows that Total Equity IRR mayrange from 2% to 35%, with 18% being the median and mean IRR. Thestandard deviation is 6%, resulting in a 68% probability of achievingan IRR between 12% and 24% (within one standard deviation). Furtheranalysis shows that total equity returns are 54% likely to be at orabove an 18% IRR and 70% likely to be above the selected 15% discountrate. Below are a frequency chart and scenario summary reflecting thevarious IRR results. (See Appendix I for the full Crystal Ballreport.)

Forecast:Total Equity IRR

1,000 Trials

Frequency Chart

983 Displayed

.031

31

.023

23.25

.016

15.5

.008

7.75

.000

0

2%

10%

18%

26%

35%

%

CRYSTALBALL SCENARIO RESULTS – TOTAL EQUITY IRR

Summary:

DisplayRange is from 2% to 35%

EntireRange is from -7% to 38%

After1,000 Trials, the Std. Error of the Mean is 0%

Statistics:

Value

Trials

1000

Mean

18%

Median

18%

Mode

Standard Deviation

6%

Variance

0%

Skewness

-0.34

Kurtosis

3.58

Coeff. of Variability

0.35

Range Minimum

-7%

Range Maximum

38%

Range Width

45%

Mean Std. Error

0.20%

Thebelow Crystal Ball sensitivity chart reflects that IRR results aremost sensitive to changes in the average residential sales price andresidential sales pace, supporting the findings of the simplesensitivity analysis presented at the beginning of this section.

RiskManagement

Thereare risks which can affect project development from moving forward.Possible risks are presented below along with associated riskmitigation plans.

AlthoughHaven Gate currently owns the subject site and all entitlements arein place, there is a risk that the City of Vancouver, the Province ofBritish Columbia, or the Federal Canadian government may enact lawsor moratoriums that would prevent the project from moving forwardwith its current uses Wiegelmann, (2012). It will be essential forHaven Gate to maintain regular meeting with critical governmentofficials to avoid any inconveniences.

Inthe current strained lending market, the project may not be able tosource construction debt promptly or at the prices assumed in the proforma (Emanuelsson et al., 2015). To mitigate the risk of being leftwith a partially constructed project without debt financing, no mainconstruction will begin on the project site until a debt commitmentletter has been signed and negotiation of loan documents is underwayBanaitiene and Banaitis, (2012). Also, any residential purchasecontracts, general contractor agreements, brand license agreements,and hotel operating agreements entered into before construction loanclosing will incorporate a joint venture termination right shouldfinancing not be sourced by a specified date (Huggie and Beverly,2017). It will give the partners more options to rework the projector return investor equity (if this is permitted in the joint ventureagreements).

Theconstruction and mezzanine loans are expected to have floatinginterest rates tied to the 30-day LIBOR (Silbernagel and Vaitkunas,2012). To mitigate the volatility of returns associated withfluctuations in LIBOR, LIBOR cap of 3.5% will be purchased. It willresult in an ex-ante increase in projected development costs but willeliminate the risk of significant cost overruns due to a rise in thebase rate during development.

Thepro forma assumes that the hotel is refinanced two years after hotelopening. This permanent loan would take out any remainingconstruction debt. There is a risk that no reasonably priced debtwill be available to refinance the hotel. The current pro formaassumes that the construction loan is paid down to a zero balancebefore placement of the permanent loan. However, if this does notoccur, the construction loan will mature two years after hotelopening, and funds may not be available to retire the debt. Also, anyhotel refinancing proceeds are expected to be returned to investorsas non-taxable equity returns. The delay in receipt of these proceedscould materially affect project returns. To mitigate refinancingrisk, Haven Gate will seek to gain an upfront permanent financingcommitment from the construction lender. Should this not be possible,Haven Gate will begin approaching friendly banks as soon as the hotelopens to discuss loan opportunities (Demirag et al., 2012) Haven Gatewill also present a plan to the joint venture partners six monthsbefore hotel opening detailing a plan to be implemented if financingis not available. This plan will evaluate various options including asale of the hotel, partner equity buyouts, or the pursuit ofnon-traditional debt financing.

Thereis a risk that no favorable agreement will be reached with a luxuryhotel and residences brand (Jayasudha and Vidivelli, 2016). Althoughthe risk is considered to be minor given the number of brands lackingrepresentation in the Vancouver marketplace and the prominentlocation and design quality of the subject development, steps arebeing taken to mitigate this risk. Haven Gate has traveled to theregional or brand headquarters for Ritz-Carlton, Mandarin Oriental,Four Seasons, and St. Regis to promote the subject development. Eachbrand expressed interest in branding the development. Haven Gate willsend a request for proposal to these and three other brands. Theseare Aman Resorts, Waldorf-Astoria, and InterContinental. The requestfor proposal process will allow Haven Gate and the joint venturepartners to compare brand strength, requirements, and terms side byside and negotiate a favorable agreement.

Equityreturns are highly dependent upon the project’s achievement of theresidential pricing assumptions in the pro forma (Purnus and Bodea,2015). Although the pro forma assumptions are considered reasonableand achievable, there is a risk that these pricing levels will not bereached (AICPA, 2016). The residential sales price must average aminimum of $1,045 per square foot which is $405 below the projectedpricing with all other assumptions remaining constant to break even(0% IRR). To mitigate the risk of moving forward with the projectwithout testing for market acceptance, Haven Gate will launch a softsales and marketing campaign before construction start. Experiencedluxury real estate brokers will be given a preview for theirhigh-value clients. Market acceptance will be determined based on thenumber of reservations received with refundable deposits. If therewill be a lack of interest in the residential units at the pro formapricing, the project will be reworked.

Equityreturns are dependent upon a profitable hotel operation. Overall,hotel results are highly volatile compared to other real estateclasses due to the transient nature of hotel demand. Moreover, thehotel business is a management-intensive operation, requiring quickresponses to market conditions and customer needs. There is a riskthat a hotel operator will not be able to achieve the pro formaresults due to lack of management expertise and a change in economicconditions, including costs for labor, utilities, and property taxes,or a material and adverse change in market lodging demand (Almarriand Blackwell, 2014). Mitigating this risk is the choice of anexperienced luxury operator, which has an international base ofcompetent management staff, appropriate management controls, accessto relevant market forecasting data, and a history of successfulperformance (Hartmann, et al., 2012).

Thereis a risk that the hotel sale will not provide the projected proceedsdue to a decrease in hotel performance, an increase in capitalizationrates, or a lack of interested parties at the forecasted terminationdate (Whittaker, 2012). The joint venture partners should be able toevaluate a potential sale of the hotel at any time after refinancingso that they can mitigate this risk. It will allow the joint venturepartners to capitalize on an economic upswing during the forecastedhold period, potentially increasing IRR. Likewise, the terminal datemay be extended should unfavorable economic conditions exist at thepredicted terminal date. It should be noted that only 7% of the TotalEquity IRR is derived from hotel sales proceeds.

Conclusion

Thesubject development is a presentation of a joint venture with achance to invest in a successful project. The project is about theconstruction of a luxury tower in downtown Vancouver as Appendix IIshows. The land which the subject project is to be developed has allthe necessary entitlements. It is also located in the prime businessdistrict and near Coal Harbor beachfront. In spite of the volatilityin the current economy, the project is in a good position to succeedgiven strong management, desirable location as well as the suitableeconomic condition of Vancouver city.

APPENDICES

AppendixI

CRYSTAL BALL SCENARIO RESULTS – TOTAL EQUITY IRR

Summary:

Display Range is from 2% to 35%

Entire Range is from -7% to 38%

After 1,000 Trials, the Std. Error of the Mean is 0%

Statistics:

Value

Trials

1000

Mean

18%

Median

18%

Mode

Standard Deviation

6%

Variance

0%

Skewness

-0.34

Kurtosis

3.58

Coeff. of Variability

0.35

Range Minimum

-7%

Range Maximum

38%

Range Width

45%

Mean Std. Error

0.20%

AppendixII

NOTE:

Exhibitincluding Appendix will be provided as a separate document.

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