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 Ohioís Lodging Market: 
Historical Analysis & 2006 Forecast
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By: David J. Sangree, MAI, CPA, ISHC, Laurel A. Keller, and Joseph Pierce
March 2006

Summary

This analysis reviews Ohioís three major lodging markets over the past five years and projects future hotel performance in the Cleveland, Columbus, and Cincinnati MSAís. It examines historic operating performance, hotel sales, new development and local attractions that affect demand to present a detailed view of each marketís performance and potential.

Metropolitan, State, and National Hotel Performance Comparisons

This chart shows the historical lodging performance for the Cleveland, Columbus, and Cincinnati MSA markets as well as for Ohio and the United States for YE2005.
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The major Ohio cities continue to lag behind the nation in terms of occupancy and average daily rate performance. The reasons for this trend are the relative ease of building new hotels in Ohio which increases supply and the more limited demand in the corporate, leisure, and group segments in Ohio compared to larger metropolitan areas in the United States.

The following sections present a detailed analysis of the individual Ohio hotel markets of Cleveland, Columbus, and Cincinnati.

Cleveland, Ohio

The Cleveland MSA includes hotels located in Cuyahoga, Ashtabula, Geauga, Lake, Lorain, and Medina counties (22,060 rooms). The Akron MSA (located directly south of the Cleveland MSA in Stark and Summit Counties) contains an additional 6,652 hotel rooms in Stark & Summit counties. Unless otherwise noted, the Akron MSA is not part of this analysis.

Historical Performance: The following chart depicts the past five yearís historical operating performance of the Cleveland MSAís hotels and our projection for 2006.
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Occupancy dipped slightly in 2005 after increasing in 2003 and 2004 despite the lack of new supply in the market. Although demand decreased in 2005, average daily rate climbed to the highest level recorded during the five year period. Based upon current economic conditions, we project occupancy levels to increase slightly in 2006 as compared to 2005. Furthermore, we project a more substantial increase in average daily rate, as Cleveland area hotel operators project additional rate increases in 2006.

Recent Hotel Sales: A total of 13 hotel sale transactions occurred in the greater Cleveland market during 2005. Below are three prominent sales.

  • The 113-room Courtyard by Marriott Beachwood sold for $8.2 million ($72,566 per room) according to the assessor's office to The Harp Group. This 4-story upscale hotel is located in the upscale suburb of Beachwood off I-271. It offers 960 square feet of meeting space, a business center, gift shop, outdoor pool, whirlpool and fitness center.
  • RJL Urban Lodging Fund, LP acquired the 216-room Embassy Suites Beachwood for $18.5 million or $85,648 per key as part of a portfolio transaction. This all-suites property is located at Chagrin Blvd. and I-271 and offers 5,500 square feet of meeting space, a business center, gift shop, indoor pool, fitness center and game room.
  • The Holiday Inn Cleveland Airport sold to Trans Hotels for $5 million ($34,246 per room). This property is located off I-71 near the airport. This 6-story, 146-room property offers 3,137 square feet of meeting space, business center, high-speed Internet access, game room, indoor pool and fitness center.
Proposed Hotel Development: As in 2004, few hotel properties entered the Cleveland regional market in 2005. The full-service 295-room Marriott Hotel opened in Warrensville Heights in the Chagrin Highlands corporate development in the summer of 2005. An AmeriHost opened in Concord Township with 55 rooms while three additional properties opened just south of the Cleveland MSA in nearby Akron. As the overall market continues to absorb the overbuilding of recent years, the limited development has prevented further occupancy declines as demand decreased in the Cleveland market in 2005. New developments in 2006 are also limited. Only two properties totaling 150 rooms are anticipated to open in Clevelandís southeastern suburbs of Twinsburg and Stow. The following chart depicts the projected hotel supply additions in the greater Cleveland area, including the Akron MSA, for 2006 and 2007.
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Leisure Attractions: Cleveland area attractions have on average had stronger influence on their local hotel market than have leisure attractions in the other Ohio MSAís. Additionally, they have been better performers than some other sectors of the local economy, but they too have had challenges. The following chart lists the top leisure-oriented attractions in the greater Cleveland market.
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These attractions combined to present Cleveland on a world stage which provides long-term benefits including international business opportunities.

The Cleveland lodging market has been soft for a number of years, exacerbated by the slumping economy. However, the RevPAR increase realized in 2005 is encouraging, as the improving national economy and lack of new supply in the market allowed for rate growth despite a decrease in overall demand for rooms. For 2006, hotel operators anticipate ADR growth in addition to minimal occupancy improvement. The positive movement will still be modest as the area lacks a significant new demand generator and continues to postpone the development of a new convention center.

Columbus, Ohio

As the state capital, the county seat for Franklin County and the largest city in Ohio, Columbus is the focal point for government activity within the state. Government related business provides a demand generator for hotel rooms in Columbus that is not significantly impacted by the rise and fall of economic activity within the state. Additionally, Ohio State University, the stateís largest university, is located in the Greater Columbus area and provides the area with a solid employment base as well as a significant demand driver for hotel rooms.

Historical Performance: The Columbus MSA experienced a significant increase in the supply of hotel rooms from January 2001 to December 2002. In that period, 28 hotels opened adding a net 2,567 guest rooms to the market.

The following table depicts the past five yearís historical performance of the Columbus MSAís hotels.
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As the table shows, despite the events of September 11th and the downturn of the national economy, Columbus posted a 2.5% increase in demand for the period 2001 to 2002. The demand growth was overshadowed by the increase in supply mentioned above resulting in a decline of 1.9 occupancy points. Occupancy continued to decline in 2003 as the growth in supply, 2.7% over 2002, outpaced the demand for hotel rooms. Occupancy grew in 2004 and again in 2005 as overall demand increased by 1.1% and 4.1% respectively, while the increase in the supply of hotel rooms grew 0.5% in 2004, with no new supply in 2005. Average daily rates recorded a minimal decline between 2001 and 2002 before increasing between 2003 and 2005. The 2005 ADR was recorded at $74.86, indicating a 4.8% increase from the 2004 ADR of $71.45. We project occupancy levels to increase in 2006 as compared to 2005 based upon current economic conditions with an above inflationary increase in average daily rate.

Recent Hotel Sales:Thirteen hotel sale transactions occurred in the greater Columbus market during 2005. Below are three prominent sales.

  • The 200-room Cherry Valley Lodge sold for $15.5 million ($77,500 per room) to WPH Cherry Valley. This resort property is located east of Columbus in Newark. It was built in 1993 and expanded in 2000. It features certified arboretums in two courtyards, 10,000 square feet of meeting space, a business center, gift shop, indoor pool, outdoor pool, fitness center, whirlpool, and game room. They are planning to add an indoor waterpark.
  • Ozre Lodging I, LLC acquired the 104-room Residence Inn by Marriott Worthington for approximately $4.3 million or $41,346 per key according to the assessorís office. This 4-story property is located off I-270 at 7300 Huntington Park Drive and is within walking distance to area shopping, dining and attractions. Amenities include 750 square feet of meeting space, free high-speed internet access, an outdoor pool, whirlpool and fitness room.
  • The Fairfield Inn Columbus North (now a Howard Johnson Hotel) sold to Asghar Khan for $2.15 million ($15,926 per room). This 3-story, 135-room property is located off I-71 at Morse Road and near area shopping malls and the Ohio Expo Center.
Proposed Hotel Development: Recent hotel developments have included the opening of the 116-room Hilton Garden Inn at Polaris which will be soon joined by a number of other additional hotel developments. The other property which opened in 2005 was a Hampton Inn with 76 rooms in the eastern suburb of Heath, which borders Newark. The following chart depicts planned hotel supply additions in the greater Columbus area for 2006 and 2007.
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The Polaris area around I-71 is rapidly becoming a major development node for the Columbus market with five projects announced and additional ones being discussed. These new projects at Polaris are projected to impact the existing market in Worthington where a bulk of the north side hotels are located. The Holiday Inn Fort Rapids will open with its indoor waterpark in the summer of 2006 and introduce the first indoor waterpark resort to the Columbus region.

Leisure Attractions:Columbus area attractions were a mixed bag of success and disappointment in 2005. COSI Columbus hosted Titanic: The Artifact Exhibition, in 2005 and was the most visited exhibit in COSI history with more than 226,000 visitors during its six-month run. Nationwide Arena, a focal point of the Arena District development in downtown Columbus, was dark many evenings as the NHL cancelled its 2004-2005 season as a result of a labor dispute lockout. The following chart lists the top leisure-oriented attractions in the greater Columbus market.
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Ohio State University provides exciting college football and basketball events, as well as other sporting competitions. Schottenstein Arena, a 19,500 seat facility on the OSU campus hosted the 2005 Division I Menís Ice Hockey Championship. In 2004 OSU and the City of Columbus hosted the NCAA Menís Basketball First and Second Rounds tournament at Nationwide Arena.

Columbus benefits from its central location in Ohio and its status as the state capital. The development of the Polaris, the Arena District, and other major projects have encouraged economic growth in the Greater Columbus area. The stability provided by governmental activity and the area educational institutions bode well for the prospect of long-term economic growth in the Columbus region. The Columbus lodging market continues to show positive demand but still lags behind national trends. However, the decline in new supply has made way for improved occupancy and ADR yielding positive RevPAR growth in 2004 and 2005. Hotel operators can anticipate ADR and occupancy growth in 2006, resulting in a third consecutive year of RevPAR improvement.

Cincinnati, Ohio

Historical Performance:The Cincinnati MSA saw a large increase in the supply of hotel rooms between 1997 and 2000. According to Smith Travel Research, the occupancy percentage for the Cincinnati MSA stood at 60.2% in 1997 and declined year after year reaching a low point of 50.1% in 2001.

The following chart depicts the past five yearís historical performance of the Cincinnati MSAís hotels.
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Demand increases have been consistent over the past five years and are projected to continue. The growth in demand coupled with the modest overall decline in supply has allowed the market to absorb the pre-2001 supply additions and improve occupancy. The market saw a slight decline in ADR post 9/11, but has been able to advance rates each year since 2003. The combination of increased occupancy and ADR has afforded the Cincinnati market to post RevPAR growth each of the past five years. We project continued demand growth with limited increase in supply, which should afford occupancy and ADR levels to continue to grow in 2006 as compared to 2005 based upon current economic conditions.

Recent Hotel Sales: Nine hotel sale transactions occurred in the greater Cincinnati market during 2005. Below are three prominent sales.

  • The 275-room Holiday Inn Cincinnati North sold for $6.4 million ($23,273 per room) to Hauck Hospitality. The 12-story property is located off I-275 at 3855 Hauck Road. The property is 12 miles north of downtown Cincinnati and is situated on approximately 7 acres of land. Amenities include a restaurant, bar & lounge, indoor and outdoor pools, and 9,000 square feet of meeting space which comprises 7 meeting rooms and a 6,000 square foot ballroom.
  • Brahma Investment Group Inc. acquired the 148-room Quality Hotel & Suites Central for approximately $5.2 million or $35,135 per key. This property is located convenient to I-71 and I-75 at 4747 Montgomery Road in Norwood. Amenities include meeting space, restaurant, free high-speed internet access, an outdoor pool, and a fitness room.
  • The Holiday Inn Florence, KY (now a Home Suites) was acquired by an undisclosed buyer for approximately $1.6 million or $15,000 per room. This 105-room property is located at 8050 Holiday Place and is 13 miles from downtown Cincinnati. Amenities include a restaurant, bar & lounge, outdoor pool, high-speed Internet access and 1,290 square feet of meeting space comprised of four meeting rooms.
Proposed Hotel Development: The only hotel which opened in 2005 in the Cincinnati market, was the 100-room Hampton Inn & Suites Cincinnati Union Center, which opened in the Cincinnati suburb of West Chester. The following chart depicts properties currently under construction and planned hotel supply additions in the greater Cincinnati area.
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The Sheraton Cincinnati North Hotel was formerly a Radisson, which had been closed for two years while it underwent a $20 million renovation. When it reopened it became the only full-service hotel within walking distance of the Sharonville Convention Center. The Union Center/West Chester market is due to add two additional hotels while the indoor waterpark resort Great Wolf Lodge is due to open adjacent to the Kings Island amusement park.

Leisure Attractions: Cincinnatiís most widely visited attraction is Paramountís Kings Island, an amusement park located in suburban Mason, which attracts over three million people annually. The Ohio River area is one of Cincinnatiís premier entertainment districts featuring restaurants, nightclubs and gaming facilities. Several of these facilities have developed on floating barges and riverboats in an area located in Newport, Kentucky known as Riverboat Row. The following chart lists the top leisure-oriented attractions in the greater Cincinnati market.
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Cincinnatiís most widely attended events include Cincinnati Reds baseball, Cincinnati Bengals football, the Kroger Senior Classics Golf and Oktoberfest. Cincinnati also supports a number of cultural opportunities including the Cincinnati Opera, Cincinnati POPS, Cincinnati Symphony Orchestra, Cincinnati Playhouse in the Park and The May Festival.

The Cincinnati Convention Center is currently undergoing a $160 million expansion and reconfiguration. When completed in 2006, the facility will offer nearly 200,000 square feet of contiguous exhibition space, more than 100,000 square feet of meeting space including a 40,000 square foot ballroom, a 17,400 square foot ballroom, 37 meeting rooms and more than 750,000 gross square feet of space including pre-function areas and support space.

The Cincinnati areaís continual expansion of regional attractions coupled with the limited growth in hotel guest room supply has helped bolster the Cincinnati occupancy and ADR in recent years. The expansion and reconfiguration of the convention center and the overall economic growth of the region bode well for the prospects of the hospitality industry in Cincinnati. The Cincinnati lodging market continues to absorb the overbuilding of the late 1990s causing its occupancy to lag behind that of the other two major cities in the state. However, demand for hotel rooms has been consistently stronger than Columbus or Cleveland and has afforded the market the opportunity to grow occupancy, ADR and thus RevPAR year after year.

Ohio Outlook

The three major Ohio metropolitan areas are each showing signs of growth although at different speeds. The Cleveland market was the only one to record a decline in demand in 2005 which is not expected for 2006. The Cincinnati market will benefit from the expansion of the convention center which should boost demand for the downtown properties. The Columbus market is benefiting from its government base and stronger corporate growth than in the other two major cities.

Authors

David J. Sangree, MAI, CPA, ISHC is President of Hotel & Leisure Advisors. He performs appraisals, feasibility studies, impact studies, and other consulting reports for hotels, resorts, waterparks, golf courses, amusement parks, conference centers, and other leisure properties. He has performed more than 1,000 hotel studies and more than 100 indoor waterpark resort market feasibility and/or appraisal studies across the United States and Canada. He was formerly employed by US Realty Consultants in Cleveland and Columbus, Pannell Kerr Forster in Chicago, and Westin Hotels in Chicago, New York, Fort Lauderdale, and Cincinnati. Mr. Sangree received his Bachelor of Science degree from Cornell University School of Hotel Administration in 1984. He became a certified public accountant in 1989. He became an MAI member of the Appraisal Institute in 1995 and a member of the International Society of Hospitality Consultants in 1996.

Since 1987, Mr. Sangree has provided consulting services to banks, hotel companies, developers, management companies, and other parties involved in the lodging sector throughout the United States, Canada, and the Caribbean. He has spoken on various hospitality matters at seminars throughout the United States, and has written numerous articles for, and is frequently quoted in, magazines and newspapers covering the hospitality field. He can be reached via telephone at (216) 228-7000 ext. 1 or via e-mail at dsangree@hladvisors.com.

Joseph Pierce is a Senior Associate with Hotel & Leisure Advisors. He received an MBA from Michigan State Universityís hospitality program in 1981 and a Bachelor of Science in Accounting from the State University of New York at Brockport in 1978. He has a wide range of experience in operations and accounting in hotels and resorts. Mr. Pierce has been a Controller and Director of Finance and Accounting for Clarion, Renaissance, Marriott, and Westin Hotels. He also managed an independently-owned hotel, The Talbott Hotel in Chicago. Mr. Pierce has performed appraisals, market feasibility studies, and impact studies nationally. He can be reached via telephone at (216) 228-7000 ext. 3 or via e-mail at jpierce@hladvisors.com.

Laurel A. Keller is an Associate with Hotel & Leisure Advisors. She received her Bachelor of Science in Hospitality Management from Purdue University in 1997. She has been active in valuation and consulting for hotels, resorts and other leisure oriented income-producing properties since 2001. She previously held management positions with the Sheraton Cleveland Airport Hotel and the Sheraton Cleveland City Center Hotel. She can be reached via telephone at (216) 228-7000 ext. 2 or via e-mail at lkeller@hladvisors.com.

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Contact:

Hotel & Leisure Advisors, LLC
14805 Detroit Avenue
Suite 420
Cleveland, Ohio 44107-3921
Phone: 216-228-7000
Fax: 216-228-7320
Web: HLAdvisors.com

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Also See: Indoor Waterparks and Hotels - Year end 2005 Overview / David Sangree / February 2006
David J. Sangree Forms New National Hospitality Consulting Firm: Hotel & Leisure Advisors / October 2005
Hotel Capitalization Rates Drop Further / May 2005
Clevelandís Lodging Market: A Slow Climb Back / David J. Sangree & Joseph Pierce/ February 2005
Indoor Waterpark Resorts Continue Impressive Growth in Ď05; a Viable Segment of the Travel / David J. Sangree / January 2005
Indoor Waterpark Resorts Expand Nationwide / David J. Sangree / April 2004
Appraisal and Financing of Indoor Waterpark Resorts / David J. Sangree / October 2003
Cleveland Lodging Market at Bottom with Improvement Predicted / US Realty Consultants, Inc. / January 2004
Hotel Capitalization Rates Drop Again / David J. Sangree, MAI, CPA, ISHC / April 2004
Hotel Capitalization Rates Drop / David J. Sangree, MAI, CPA, ISHC / February 2003
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