To:
Chris Bendon, Community Development Director, City of Aspen
Jessica Garrow, Long Range Planner, City of Aspen
From:
Travis Coggin, Development Director, Triumph Development
Date:
July 14, 2014
Subject:
Aspen Hotel Feasibility Study
Overview
Earlier this year the City of Aspen Community Development Department approached Triumph
Development and presented the challenge the City of Aspen was facing with understanding
the feasibility of developing new hotel products in Aspen. The following parameters were
provided as a target for zoning constraints and type of hotel the City was interested in
investigating feasibility given existing code requirements and a potential lodge incentive
program:
Zoning & Lot Area:
• 40,000 square foot lot – this is similar in size to the lot areas of the Limelight Hotel, the
Lift One Lodge parcel, The Sky Hotel Parcel, The Lift One Townhomes parcel.
• The parcel is zoned “Lodge” and has the associated zoning requirements related to
height, setbacks, density, FAR, etc.
Target Hotel Type
• Similar to the Limelight Hotel
o This is used for room size, occupancy, and Average Daily Rate (ADR)
assumptions in the model
§ The Average Daily Rate is the Total Room Revenue divided by the Total
Rooms Sold
o This also helps understand the finish level, amenity requirements, commercial /
restaurant spaces, etc.
STAR Report Summary
• Hotels Included:
o Limelight Lodge; The Sky Hotel; Aspen Meadows Resort; Snowmass Mountain
Chalet
• Metrics
o Reported Average Occupancy: 59%
o Reported Average Daily Rate: $258
P. 970.479.9990
F. 970.479.0619
12 Vail Road, Suite 700
Vail, CO 81657
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Disclaimer: This exercise is dependent on numerous assumptions that we believe to be
realistic but cannot be relied upon as “fixed” for all scenarios. As with any “model” it is highly
probable that assumptions can fluctuate either in a positive or negative manner very quickly.
However, at this time we believe that the assumptions in this model are strong approximations
of cost and revenue based on developer, contractor, and operator information. The
programmatic elements of the hotel are based on existing hotel design prototypes from
Marriott that resembles a Limelight-like product.
When determining feasibility, the financial hurdles we used in this exercise would be the same
that we would use when evaluating a project and are standard to the industry when evaluating
real estate development deals. If someone were to present us the scenario described in Model
3 (described later in the memo) we would spend the time and money to pursue it.
Background on Triumph Development
Founded in 2002, Triumph Development is a boutique developer that has offices in Vail, CO
and Bethesda, MD. We have experience across numerous real estate types including office,
retail, commercial, industrial, mixed use, hotel, medical and residential. Additionally, we own a
property management company, a luxury vacation rental company, and a Sotheby’s brokerage
office in Vail, CO.
We are currently involved in the development of $30M of single family homes in Vail, a medical
facility in Pennsylvania and are under planning review for a new hotel in Breckenridge, CO.
The hotel we’re developing in Breckenridge is a partnership with Urgo Hotels. Urgo is based in
Bethesda, MD and they currently own and operate hotels around the United States.
Process
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Triumph ordered a Smith Travel Research (STAR) Report that provided information
related to rate and occupancy for the Limelight Hotel and comparable hotels in Aspen
and Snowmass Village.
Triumph developed a model for a hotel similar to the Limelight Hotel and then spoke
with several local developers, contractors, lenders, and our hotel partners about the
assumptions.
o Where appropriate we adjusted our assumptions to account for local construction
prices, entitlement expense and local market factors.
Triumph reviewed the assumptions and model with the Community Development
Department to present the feasibility / unfeasibility of the hotel and options for bridging
the feasibility gap.
Triumph analyzed several iterations of the models that changed multiple assumptions
before presenting the final three models.
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There was also significant discussion related to how to address any deviations from current
city requirements including fees, affordable housing, height and free market residential.
Ultimately a decision was made to finalize three models:
Model 1
• Conforms with all current zoning requirements including 3 story height limit
• Pays full weight of city mitigation including fees and affordable housing
• Is “pure” hotel, meaning no free-market residential component is included
Model 2
• Allows for a 4th floor and uses all the SQFT on that 4th floor
• Allows for free market residential square footage to be equal to 50% of the hotel rooms
square footage.
• No city fee reductions; no affordable housing mitigation reductions
Model 3
• Took Model 2 and adjusted it the following ways:
o Reduced the Affordable Housing Mitigation requirement by 60%
o Filled that space in the building that was formerly affordable housing with hotel
rooms and free market residential units
Hotel feasibility was determined based on financial returns standard to the real estate
development industry and the product type.
Summary
Model 1
While it was made clear that the city was most interested in encouraging a hotel that is similar
to the Limelight Hotel because of it’s lower price point and ability to cater to a broad range of
guests, a new hotel with no free market component and an ADR similar to the Limelight’s failed
to achieve the required return. Based on the information in the STAR Report we modeled our
similar hotel to have an initial ADR of $270 and occupancy of 56%.
Pursuing the idea and feasibility of a pure hotel with no free market residential or deviations
from city requirements, we wanted to understand at what ADR a pure hotel becomes feasible.
As we increased the ADR we also had to increase several items including room size,
restaurant size, construction costs and finish allowances to account for someone paying a
significantly higher room rate. Additionally, we ordered a second STAR Report of luxury hotels
in Aspen and Vail so we could have a benchmark for our ADR and occupancy. Those
benchmark hotels included:
• The Little Nell; The St. Regis; The Arrabelle; The Lodge at Vail; The Sonnenalp Hotel
• Key STAR Report Metrics:
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o Reported Average Occupancy: 51%
o Reported Average Daily Rate: $495
In order to deliver a feasible hotel that only generates revenues from hotel rooms, we had to
achieve an ADR of $875 and occupancy of 48%. Compared to the luxury competitive set which
achieved an ADR $495 and an occupancy of 51%, our ADR is astronomically higher and
unachievable. This equates to an ADR more than triple the Limelight’s comp set as shown in
the STAR Report and nearly double the ADR of the STAR Report’s luxury hotels. No
developer, equity investor or lender would pursue a project with those assumptions.
Model 2
In this iteration we returned to the rate and occupancy assumptions based off the STAR
Report we generated for the Limelight and it’s competitive set. We added free market
residential at a rate of 50% of the hotel room square footage. There was no reduction in city
fees or mitigation requirements. For the sales aspect of the model, we reached out to the city’s
real estate broker, Andrew Ernemann, for his thoughts on what new condos would sell for. This
model also increased the building’s height from 3 to 4 stories.
This model also failed to deliver the returns necessary to attract equity and debt investors.
Model 3
The final iteration of the analysis took Model 2 and made the following adjustments:
• Reduced the affordable housing mitigation requirement by 60%
o This opened up 10,700 square feet in the building
• Capped mitigation once the reduction was in place so that any new hotel rooms or
residential square feet would not generate any new affordable housing requirement
• Backfilled the 10,700 square feet with new hotel rooms and free market residential
The ADR and occupancy remained the same and there was no reduction in city fees.
This version delivers a return that makes this a feasible project and it would be a project that
our development team would seriously consider pursuing if it were to pass across our desk.
Conclusions / Challenges to Feasibility / Observations
A pure hotel that fits within the current City of Aspen zoning requirements is not a feasible
project. However, should the community be willing to deviate from its height, free market and
affordable housing requirements there is the opportunity to close the feasibility gap.
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Feasibility is purely a function of revenue and expense. As a pure hotel, the revenue is not
substantial enough to cover the expenses and provide a return to the equity investor and to
pay the annual debt expense.
Since there is a limit to how much you can raise the revenue through rate and occupancy
increases – as we see in the STAR Reports - the focus turns to reducing costs. There are
several ways to reduce the cost of the project. One way is to reduce the fees, and other
requirements like affordable housing. The other is to allow for the construction of free market
residential units where the revenue from the sales is used to pay down the cost of the project
to a point where the hotel can service the debt.
Reductions in fees and affordable housing requirements are beneficial, but those reductions
alone are not substantial enough to deliver a feasible project. It will require a combination of
increased height, allowed FAR, and free market residential, as well as decreased fees and
affordable housing mitigation to create a feasible hotel.
A few observations stuck out to us as we analyzed the challenge the city faces:
Land Price - This is a significant barrier to entry and is the same cost regardless of what is
developed.
City Fees & Entitlement Uncertainty - Several of these fees seem to be disproportionate with
the actual impact on the city. The parking fee / encroachment fee is one example. Just during
this exercise the parking fee was doubled from $25 per day to $50 per day for the duration of
the project. Additionally, having a solid understanding from the outset of the timing for city
approvals is critical to estimate cost and attract capital. The more uncertain the project is from
the outset, the higher the return the equity investor will require.
Parcel Size - The parcel size that we modeled applies to a small number of existing sites. It
could be extremely difficult, and expensive, to assemble a parcel of this size in the future.
Employee Generation - The generation and mitigation seem disproportionate to what may
actually be. Commercial uses vary widely and so do the employees they require. Additionally,
the generation and mitigation requirements for a free market residential unit that is within a
hotel development seem high. Hotel employees would certainly have more than enough
capacity to handle any maintenance, housekeeping, management, and service requests of the
free market units therefore this mitigation seems like something to be evaluated.
Summary Table of Models 1-3 on the following page.
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Hotel Rooms Hotel Sqft Condo Units Condo SQFT Affordable Housing SQFT Affordable Housing Reduction Model 2: Limelight Style – No Reductions Model 1: Pure Hotel 109 49,050 -­‐ -­‐ 12,000 Model 3: Limelight Style -­‐ Modified 126 50,400 17 25,200 18,500 144 57,600 20 28,800 7,800 0% 0% 60% ADR Occupancy $875.00 48% $270.00 56% $270.00 56% Allowed FAR in Zone District Building Footprint Stories Height -­‐ Approximate Total SQFT based on footprint 110,000 32,851 3 34.5 110,000 32,851 4 46.0 110,000 32,851 4 46.0 98,553 131,404 131,404 Building SQFT -­‐ Above Grade Parking -­‐ Below Grade Total -­‐ Above + Below 98,074 22,575 120,649 131,328 34,930 166,258 131,442 35,070 166,512 6