CONSULTING USA

October 24, 2014 Mr. Gordon A. Hendry First Vice President CBRE / Public Institutions and Educational Services 101 West Washington Street, Suite 1000E Indianapolis, Indiana 46204 Re:

A CBRE COMPANY

Proposed Hotel in Downtown Ann Arbor, MI

Dear Mr. Hendry: In accordance with our engagement letter dated August 29, 2014, we have completed our market study with financial projections for a proposed hotel (the “Hotel”) to be located in a mixed-use project to be developed on the city block bounded by Liberty Street, Fifth Avenue, Library Lane and Division Street (‘the Site”) in downtown Ann Arbor. .As in all studies of this type, the estimated results are based on the assumption of competent and efficient management, and presume no significant changes in the status of the competitive lodging industry from those set forth in this report. The terms of our engagement are such that we have no obligation to revise our conclusions to reflect events or conditions that occur subsequent to the date of completion of our fieldwork. However, we are available to discuss the necessity for revisions in view of changes in the economy or other factors affecting the market. Since the future performance of the Subject is based on estimates and assumptions that are subject to uncertainty and variation, we do not represent them as results that will actually be achieved. The conclusions in this report are based upon our knowledge of the area market as of the completion of our fieldwork on September 25, 2014. It has been assumed that the Hotel would commence operations on January 1, 2017. We would be pleased to hear from you if we can be of further assistance in the interpretation and application of our findings and conclusions. We appreciate the opportunity to be of service. Very truly yours,

PKF Consulting USA

PKF Consulting USA | 321 North Clark Street | Suite 3400 | Chicago, IL 60654 TEL: 312-297-7665 | www.pkfc.com

CBRE / Public Institutions and Educational Services October 24, 2014

INTRODUCTION We understand that CBRE / Public Institutions and Educational Services has been engaged by the City of Ann Arbor to sell the Site. In connection with this assignment you have asked PKF Consulting USA (“PKF”) to prepare this market study to estimate the economic potential of a hotel located on the Site.

STUDY METHODOLOGY The conclusions and findings herein were developed from the following work steps and assumptions. We 

performed an evaluation of the suitability of the Site for hotel operations;



prepared a summary of market conditions in Ann Arbor;



determined market sources of demand, demand characteristics and trends pertinent to the Hotel;



prepared recommendations of hotel characteristics suited to the Site and market conditions.



prepared a model based on these recommendations and our market research to illustrate the Hotel’s expected future competitive environment including the expected supply of and demand for competitive lodging facilities;



estimated the utilization and average daily rates for the proposed Hotel for its first five years of operations, and



prepared estimates of cash flows from operations for the first five years of operations.

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CBRE / Public Institutions and Educational Services October 24, 2014

EXECUTIVE SUMMARY 

The Ann Arbor hotel market is vibrant and is expected to remain so during the projection period.



There is at least one other hotel under development in downtown Ann Arbor.



A modern and well managed hotel located at the Site would be an attractive alternative for many travelers to Ann Arbor, particularly those visiting the University.



Assuming an opening date of January 1, 2017, the following tables show estimated operating results for the Hotel for its first five years of operation.

Year 2017 2018 2019 2020 2021

Year 2017 2018 2019 2020 2021

Average Daily Rate $143.50 148.25 152.75 157.25 162.00

Estimated Rooms Revenue Annual Occupancy 68% 71% 74% 74% 74%

Rooms Revenue $5,381,000 5,722,000 6,156,000 6,402,000 6,545,000

Summary of Estimated Annual Operating Results Total Net Operating Ratio to Revenue Income Total Revenues $6,324,000 $1,507,000 24% 6,721,000 1,648,000 25% 7,230,000 1,861,000 26% 7,520,000 1,974,000 26% 7,688,000 1,988,000 26%

PROJECT OVERVIEW The Hotel is planned to be located within a mixed-use building (“the Project”) to be developed on the city block bounded by Liberty Street, Fifth Avenue, Library Lane and Division Street in downtown Ann Arbor. The Project is expected to offer retail and entertainment uses at the ground level and potentially residential

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CBRE / Public Institutions and Educational Services October 24, 2014

condominiums in addition to the Hotel on upper floors. The Project would be constructed on top of an existing subterranean parking structure. ANN ARBOR MARKET OVERVIEW The Ann Arbor Metropolitan Statistical Area (“MSA”) The Site is located in Ann Arbor Michigan, the county seat of Washtenaw County which comprises the Ann Arbor Metropolitan Statistical Area (“MSA”). Ann Arbor is located just over forty miles west of Detroit and is the home of the University of Michigan, (“the University”) one of the nation’s leading public research universities and the oldest university in Michigan. The University, with approximately 43,000 students and over 30,000 employees, is the major economic engine of the community. Additionally, the University’s research activity focused on science, technology, engineering and mathematics has attracted private companies to the region. Located within Ann Arbor’s Main Street District and a block from the University’s Central Campus, the Site is steps away from Central Campus buildings and the popular downtown retail, entertainment, eating and drinking places. The Site is approximately two miles east of the nearest access to Interstate 94, the major highway serving the area. The Hotel will be heavily influenced by the economic health of the City of Ann Arbor, the University and the region as a whole.

PKF Hospitality Research, LLC Data PKF Hospitality Research, LLC (PKF-HR) publishes a quarterly report entitled Hotel Horizons® describing the relationship of lodging activity to econometric data for the nation’s 55 largest MSAs. Hotel Horizons® is prepared using hotel data from Smith Travel Research and economic forecasts from Moody’s Analytics. A custom edition of Hotel Horizons® for the Ann Arbor MSA was prepared for this report and is shown in its entirety as Exhibit A.

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CBRE / Public Institutions and Educational Services October 24, 2014

Tourism and Visitation According to a 2012 study by Daniel Stynes of Michigan State University (the most recent data available) Washtenaw County welcomed 4.45 million visitors, up from 4.2 million in 2010 and resulting in 887,000 room nights. These visitors include attendees at University athletic and cultural events, prospective students and their families and friends and family members visiting students. Ann Arbor and the University also host numerous group events including summer continuing educational programs and camps, year round meetings and conferences relating to University departmental activities. The Ann Arbor business community also hosts meetings and conferences and attracts individual business travelers. The table below is excerpted from the Stynes study and shows trending visitation metrics from 2008-2011 and illustrates the effect of the recent recession.

Source: Economic Impacts of Tourist Spending on Washtenaw County 2011, Daniel Stynes, Michigan State University March 2012

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CBRE / Public Institutions and Educational Services October 24, 2014

Transportation Ann Arbor is located in southeastern Michigan, approximately 40 miles west of Detroit, 65 miles southeast of the state capitol in Lansing, 37 miles east of Jackson, 55 miles south of Flint and 50 miles north of Toledo, Ohio. The following map shows the major roadways connecting Ann Arbor to neighboring cities.

Ann Arbor is served by the Detroit Metropolitan Wayne County International airport (“DTW”), approximately 25 miles east of Ann Arbor on I-94. In 2012 DTW was the nation’s 16th busiest airport with 20 airlines flying to 160 destinations.

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CBRE / Public Institutions and Educational Services October 24, 2014

Ann Arbor Hotel Market To develop conclusions relative to the competitive environment in which the Hotel would operate, we have analyzed the overall market and selected properties that we feel offer the most direct competition to the Hotel. The competitive properties have been selected based on and inspection of their facilities, location, market performance and orientation and rate structure. In 2013 there were 1,470 rooms in Ann Arbor that would be directly competitive with the Hotel. The historical occupancy and average daily rate (“ADR”) for these hotels is shown in the table below. Historical Market Performance of the Competitive Supply Annual

Percent

Occupied

Percent

Market

Average

Percent

Year

Supply

Change

Rooms

Change

Occupancy

Daily Rate

Change

REVPAR

Percent

2009

489,100

N/A

298,743

N/A

61.1%

$97.13

N/A

$59.33

N/A

2010

489,100

0.0%

306,914

2.7%

62.8%

96.42

-0.7%

60.50

2.0%

2011

489,100

0.0%

309,638

0.9%

63.3%

104.55

8.4%

66.19

9.4%

2012

497,130

1.6%

326,430

5.4%

65.7%

112.86

7.9%

74.11

12.0%

7.9%

357,401

9.5%

66.6%

116.89

3.6%

77.86

5.1%

Change

2013

536,550

CAAG

2.3%

YTD 8/2013

357,700

N/A

240,886

N/A

67.3%

$112.39

N/A

$75.69

N/A

YTD 8/2014

357,700

0.0%

248,453

3.1%

69.5%

121.48

8.1%

84.38

11.5%

4.6%

4.7%

7.0%

Source: PKF Consulting USA

As reflected in the table above, during this period the only addition to the supply was the Hilton Garden Inn in 2012. It should be noted that in terms of market occupancy and ADR, this hotel was absorbed completely in its first year of operation. Demand has exhibited robust growth since 2010 suggesting the area’s participation in the general economic recovery. Likewise, ADR has grown since 2011 and exceeded 2009 levels in 2011. RevPAR has increased at an average annual rate of 7 percent between 2009 and 2013 and year to date 2014 RevPAR growth is 11.5 percent over the same period in 2013. The competitive hotels range in size from 66 to 225 rooms and in 2013 reported occupancy levels ranging from 53 percent to 81 percent. These properties are described in the summary table below:

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CBRE / Public Institutions and Educational Services October 24, 2014

Competitive Set Profile

Rooms No.

Year Built

Meeting Space (sq. ft.) Sq. ft. per Total room Largest

F&B Fitness Outlet Center

Pool

Business Center

Primary Competition Weber`s Inn

158

1968

9,300

59

3,000

Yes

Yes

Yes

Yes

Holiday Inn Ann Arbor

225

1971

7,560

34

4,600

Yes

Yes

Yes

Yes

Courtyard Ann Arbor

160

1989

3,378

21

2,728

Yes

Yes

Yes

Yes

Hilton Garden Inn Ann Arbor

130

2012

4,064

31

3,680

Yes

Yes

Yes

Yes

Kensington Court

200

1967

7,906

40

5,568

Yes

Yes

Yes

Yes

Sheraton Hotel Ann Arbor

197

1981

15,000

76

6,300

Yes

Yes

Yes

Yes

Ross School Of Business Conference Center

105

1984

10,000

95

1,438

Yes

Yes

No

Yes

Inn at Michigan League Hotel Campus Inn Bell Tower Competitive Set Average

21

1931

16,981

809

5,238

Yes

Yes

No

Yes

208

1969

8,210

39

3,320

Yes

Yes

No

Yes

66

1948

300

5

300

No

Yes

No

No

111

1961

4,728

43

2,044

N/A

N/A

N/A

N/A

Source: PKF Consulting USA; individual property management and website

It should be noted that the Ross School of Business Conference Center requires guests to indicate an affiliation or connection to the University. According to interviews with hotel managers, between 75 and 85 percent of all demand in Ann Arbor is in some way related to the University.

Additions to the Market There is a new Residence Inn with 110 rooms presently under construction in downtown Ann Arbor and scheduled to open in late 2015. There are at least three other hotels (not counting the Hotel) in various planning stages in Ann Arbor. Because of uncertainty regarding their permitting and financing these hotels have not been included in the future supply.

Competitive Set Supply and Demand Analysis The demand captured by the competitive market consists predominantly of corporate business (51 percent), with the group and leisure segments generating the balance. The estimated 2013 market mix for competitive market is presented in the following table.

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CBRE / Public Institutions and Educational Services October 24, 2014

Competitive Market 2013 Mix of Demand Market Segment Room Nights

Ratio

Corp Individual

182,900

51%

Leisure

108,400

30%

66,000

18%

357,000

100%

Group Total

Source: PKF Consulting USA

The three segments are briefly described as follows: Corporate Individual: Individual travelers for business purposes, typically paying comparatively higher room rates and utilizing hotels Monday through Thursday. Leisure Individual: Individual travelers for leisure purposes such as athletic and cultural events or visiting student families. These travelers are typically more rate sensitive and tend to utilize hotels on weekends. Group: Groups of 10 or more including university related or business meeting attendees; SMERF (social, military, educational, religious and/or fraternal) organizations.

NEIGHBORHOOD OVERVIEW The neighborhood within which a hotel operates can have a significant impact on its operating performance. Emerging neighborhoods experiencing substantial growth can generate increasing levels of demand and provide an environment characterized by newer development and, more importantly, popular support facilities (e.g., restaurants, retail, entertainment, etc.). Conversely, a declining neighborhood or, in some cases, a mature one relative to a nearby emerging one, can be detrimental to a property’s operations. In this section, we address the location and development characteristics of the subject neighborhood.

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CBRE / Public Institutions and Educational Services October 24, 2014

Location The Site is located in Ann Arbor’s Central Business District. Maps depicting the Site’s location within the neighborhood and in relation to its competitive set and major demand generators are presented on the following pages.

Greater Ann Arbor Map

Holiday Inn

Campus Inn

Residence Inn (U/C)

Inn at the League

Weber’s Inn Bell Tower The Site Ross Conf. Center

Kensington Court Sheraton Courtyard Hilton Garden Inn

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CBRE / Public Institutions and Educational Services October 24, 2014

The map below shows the Site, competitive hotels, the University Central Campus and downtown Ann Arbor in more detail:

Downtown Ann Arbor Map Residence Inn (U/C)

Campus Inn

Inn at the League Downtown Ann Arbor

Bell Tower The Site Central Campus

Ross Conf. Center

The Ann Arbor Central Business District is shown above in the patterned area and is loosely bounded by William Street to the South, the University Central Campus to the East, Huron Street to the North and First Street to the West. The streets in this area are densely populated with colorful and popular retail shops, restaurants, bars and entertainment venues oriented to students, faculty and campus visitors. The Site is centrally located in this area with excellent accessibility to downtown businesses and the University’s Central Campus.

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CBRE / Public Institutions and Educational Services October 24, 2014

SITE DESCRIPTION The Site is located in the southwest quadrant of the block bounded by 5th Avenue, Liberty Street, Division Street and Library Lane and shown by the patterned area in the map below.

The Site is occupied by a subterranean parking structure recently built by the City. The facility comprises four levels and approximately 711 parking spaces. The Project is planned to be built on top of the parking structure. It is assumed that the first floor will contain primarily retail space consistent with neighboring areas in downtown Ann Arbor and that the Hotel and any other uses will be on upper floors.

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CBRE / Public Institutions and Educational Services October 24, 2014

According to the City “the garage columns and foundations were designed for the following building types… 

Medium Density Development – 4 story structural steel and composite slab with ceiling height of 13’6” (14’ at first floor)



High Density Development - -18 story structural steel and composite slab structure with ceiling height of 13’6” (14’ at first floor) approximately 240 feet tall.”

THE HOTEL To compete effectively with the hotels in the competitive set it is recommended that the Hotel comprise approximately 150 rooms with 6,000 to 8,000 square feet of highly flexible meeting space. Depending on the brand selected the Hotel may or may not have a restaurant. In the absence of a restaurant in the Hotel it is assumed that first floor tenants will include restaurant tenants offering breakfast, lunch and dinner. It is further recommended that the Hotel be configured as at least a partially AllSuite hotel. Suites with separate sleeping and living rooms are extremely popular among prospective students and their families, visiting employers recruiting University students and travelers in general. Based on conversations with regional brand representatives, the following suitable all- suite hotel brands could be available at the Site: Brand Family

Brand Embassy Suites

Hilton

Homewood Suites

Starwood

Element

Hyatt

Hyatt House

Choice

Cambria Suites

InterContinental Hotel Group

Staybridge Suites

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CBRE / Public Institutions and Educational Services October 24, 2014

Available non all-suite brands may include: Brand Family

Brand

Starwood

aloft

Hyatt

Hyatt Place

InterContinental Hotel Group

Holiday Inn Express, Holiday Inn

Marriott representatives indicated that there were no available brands at the Site. Using the 150 room count modeled in this report, a combination of hotel brands might also be considered. Examples of this could be:  Element/aloft 

Staybridge/Holiday Inn Express

 Hyatt House/Hyatt Place The combination of hotel brands within a single building is a development model growing in popularity owing to marketing and operational efficiencies. This report assumes a single all-suite hotel of 150 rooms affiliated with one of the brands listed above.

PROJECTED PERFORMANCE OF THE COMPETITIVE MARKET OCCUPANCY As noted previously, demand in the market has grown at an average annual rate of 4.6 percent between 2009 and 2013. Year to date through August 2014, demand is up 3.1 percent over the same period in 2013. Historical monthly occupancy patterns indicate that demand in the competitive set is typically strongest in the latter part of the year. Accordingly, occupancy for the competitive set is estimated at 71 percent for year end 2014 compared to 67 percent in 2013. Overall demand growth for 2015-2018 has been estimated using the forecasts prepared in Exhibit A and stabilizing at 2 percent annually thereafter. The table below models the Hotel’s competitive set (including the Hotel and the Residence Inn) for the period 2014 through 2021:

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CBRE / Public Institutions and Educational Services October 24, 2014

Proposed Downtown Hotel Competitive Market Estimated Future Growth in Lodging Supply and Demand 2014 - 2021 2014

2015

2016

37

73

1,507 --------550,055 2.5%

1,580 --------576,700 4.8%

7.0% 6.0% 5.0%

3.8% 3.8% 3.8%

195,740 0 --------195,700 7.0% ---------

2017

2018

2019

2020

2021

1,730 --------631,450 9.5%

1,730 --------631,450 0.0%

1,730 --------631,450 0.0%

1,730 --------631,450 0.0%

1,730 --------631,450 0.0%

4.4% 4.4% 4.4%

1.7% 1.7% 1.7%

1.7% 1.7% 1.7%

2.0% 2.0% 2.0%

2.0% 2.0% 2.0%

2.0% 2.0% 2.0%

203,178 0 --------203,200 3.8% ---------

212,118 0 --------212,100 4.4% ---------

215,724 0 --------215,700 1.7% ---------

219,391 0 --------219,400 1.7% ---------

223,779 0 --------223,800 2.0% ---------

228,254 0 --------228,300 2.0% ---------

232,819 0 --------232,800 2.0% ---------

114,954 0 --------115,000 6.1% ---------

119,323 0 --------119,300 3.7% ---------

124,573 0 --------124,600 4.4% ---------

126,691 0 --------126,700 1.7% ---------

128,844 0 --------128,800 1.7% ---------

131,421 0 --------131,400 2.0% ---------

134,050 0 --------134,000 2.0% ---------

136,731 0 --------136,700 2.0% ---------

69,320 0 --------69,300 5.0% ---------

71,954 0 --------72,000 3.9% ---------

75,120 0 --------75,100 4.3% ---------

76,397 0 --------76,400 1.7% ---------

77,696 0 --------77,700 1.7% ---------

79,250 0 --------79,200 1.9% ---------

80,835 0 --------80,800 2.0% ---------

82,451 0 --------82,500 2.1% ---------

380,000 6.4%

394,500 3.8%

411,800 4.4%

418,800 1.7%

425,900 1.7%

434,400 2.0%

443,100 2.0%

452,000 2.0%

71%

72%

71%

66%

67%

69%

70%

72%

ROOMS SUPPLY Additions/(Deletions) to Supply Proposed Dow ntow n Hotel Residence Inn Cumulative Rooms Supply Total Annual Rooms Supply Grow th Over the Prior Year

DEMONSTRATED DEMAND IN BASE YR Corp Individual Leisure Group TOTAL DEMONSTRATED DEMAND GROWTH RATES Corp Individual Leisure Group PROJECTED DEMAND Corp Individual Demonstrated Induced/(Unsatisfied) Total Grow th Over Prior Year Leisure Demonstrated Induced/(Unsatisfied) Total Grow th Over Prior Year Group Demonstrated Induced/(Unsatisfied) Total Grow th Over Prior Year

Total Market Demand Grow th Over Prior Year Market Occupancy

150

1,470 --------536,550 0.0%

51% 30% 18% --------100% ---------

Source: PKF Consulting USA

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CBRE / Public Institutions and Educational Services October 24, 2014

AVERAGE DAILY RATE The competitive set is expected to achieve an average rate of roundly $126 in 2014. As the economy continues to recover, market ADR is expected to with the addition of the Subject and as a result of an assumed three percent inflation rate. Our projections of the ADR for the competitive set through 2021 are summarized in the following table. Projected Market Performance of the Competitive Supply Annual

Percent

Occupied

Percent

Market

Average

Percent

Year

Supply

Change

Rooms

Change

Occupancy

Daily Rate

Change

REVPAR

Change

2014

536,550

0.0%

380,000

6.3%

71%

$125.50

7.4%

$88.88

14.2%

2015

550,055

2.5%

394,500

3.8%

72%

$130.00

3.6%

93.24

4.9%

2016

576,700

4.8%

411,800

4.4%

71%

$134.50

3.5%

96.04

3.0%

2017

631,450

9.5%

418,800

1.7%

66%

$139.00

3.3%

92.19

-4.0%

2018

631,450

0.0%

425,900

1.7%

67%

$143.75

3.4%

96.96

5.2%

2019

631,450

0.0%

434,400

2.0%

69%

$148.00

3.0%

101.82

5.0%

2020

631,450

0.0%

443,100

2.0%

70%

$152.50

3.0%

107.01

5.1%

2021

631,450

0.0%

452,000

2.0%

72%

$157.00

3.0%

112.38

5.0%

CAAG

2.4%

2.5%

3.3%

Percent

3.4%

Source: PKF Consulting USA

PROJECTED PERFORMANCE OF THE HOTEL OCCUPANCY We have estimated the Hotel’s penetration of demand by market segment. The extent to which the Subject can capture demand from each market segment was estimated by performing a fair share penetration analysis. A hotel’s fair share is defined as the number of available rooms divided by the total supply of available rooms in the competitive market, including the Subject. Factors indicating the Subject would possess competitive advantages suggest a market penetration in excess of 100 percent of fair share, while competitive weaknesses are reflected in penetration less than 100 percent. We have projected the Subject’s penetration based on the following competitive factors by market segment. Corporate 

The Subject’s newness, all-suite configuration and location are expected to be powerful advantages within this segment.

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CBRE / Public Institutions and Educational Services October 24, 2014

Group 

It has been assumed that the Hotel will offer approximately 6,000 to 8,000 square feet of flexible meeting space. As with corporate business, the Subject’s location, newness and quality level are expected to create an advantage over most hotels in the market. The Sheraton, Kensington and Holiday Inn all have a larger compliment of guest rooms and significantly more meeting space than the Hotel. As a result they attract larger groups which the Hotel will not be able to accommodate.

Leisure 

This segment is typically the most price sensitive and the Hotel is expected to be among the highest priced hotels in the market. However, because of its location in downtown Ann Arbor, proximate to the University and downtown Ann Arbor entertainment and retail attractions, and the attractiveness of all-suite accommodations to families, the Subject is expected to have a significant advantage in the leisure segment.

The Subject represents 8.7 percent of total market supply (150 rooms divided by 1,730 total rooms available in the competitive set). Based on the aforementioned competitive factors, it is estimated that the Subject will achieve a stabilized penetration level of 110 percent of its fair share in 2019, resulting in a stabilized occupancy of 74 percent. Projections for the first five years of operations are presented in the table below:

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CBRE / Public Institutions and Educational Services October 24, 2014

Proposed Downtown Hotel Market Penetration and Projected Occupancy 2017

2018

2019

2020

2021

54,750 631,450 ==== 8.7% ====

54,750 631,450 ==== 8.7% ====

54,750 631,450 ==== 8.7% ====

54,750 631,450 ==== 8.7% ====

54,750 631,450 ==== 8.7% ====

215,700 126,700 76,400 ------418,800 ------418,800

219,400 128,800 77,700 ------425,900 ------425,900

223,800 131,400 79,200 ------434,400 ------434,400

228,300 134,000 80,800 ------443,100 ------443,100

232,800 136,700 82,500 ------452,000 ------452,000

18,700 11,000 6,600 ------36,300 -------

19,000 11,200 6,700 ------36,900 -------

19,400 11,400 6,900 ------37,700 -------

19,800 11,600 7,000 ------38,400 -------

20,200 11,900 7,200 ------39,300 -------

110% 105% 75% -------

115% 105% 80% -------

115% 110% 80% -------

115% 105% 80% -------

115% 98% 80% -------

20,600 11,500 5,000 ------37,100 ====

21,900 11,700 5,400 ------39,000 ====

22,300 12,500 5,500 ------40,300 ====

22,800 12,200 5,600 ------40,600 ====

23,200 11,600 5,700 ------40,500 ====

MARKET SHARE CAPTURED

8.9%

9.2%

9.3%

9.2%

9.0%

OVERALL MARKET PENETRATION

102% ------68% -------

106% ------71% -------

107% ------74% -------

106% ------74% -------

103% ------74% -------

56% 31% 13% ------100% ====

56% 30% 14% ------100% ====

55% 31% 14% ------100% ====

56% 30% 14% ------100% ====

57% 29% 14% ------100% ====

TOTAL ROOMS AVAILABLE Proposed Dow ntow n Hotel Competitive Market Fair Share of Supply

ESTIMATED TOTAL MARKET DEMAND Corp Individual Leisure Group TOTAL

FAIR SHARE OF DEMAND Corp Individual Leisure Group TOTAL

SUBJECT PENETRATION Corp Individual Leisure Group

ROOM NIGHTS CAPTURED Corp Individual Leisure Group TOTAL CAPTURED DEMAND

SUBJECT OCCUPANCY

MARKET MIX Corp Individual Leisure Group TOTAL Source: PKF Consulting USA

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CBRE / Public Institutions and Educational Services October 24, 2014

AVERAGE DAILY RATE Our estimates of annual ADR for the Hotel are based on its expected competitive position and perceived price/value relationship as compared to its competitors, taking into account age, condition, quality levels and location. As discussed earlier, the average age of the competitive set is 53 years. Rate characteristics vary with market segment. Typically the Corporate segment is the least rate sensitive and Leisure demand is the most. The full service hotels in the competitive set are in good to fair condition. It is expected that the Subject will tend to penetrate the more rate insensitive components of this segment. As such, the Hotel is estimated to have a stabilized ADR of $120 (expressed in 2013 dollars) a roundly 9 percent premium over the competitive set. Our projections for occupancy, ADR and RevPAR for the Hotel are summarized in the following table. Projected Market Performance of the Subject Hotel Annual

Percent

Occupied

Percent

Occupancy

Year

Supply

Change

Rooms

Change

Percentage Penetration Daily Rate

2017

54,750

N/A

37,500

N/A

68%

106%

143.50

3.0%

98.29

N/A

110%

2018

54,750

0.0%

38,600

2.9%

71%

107%

148.25

3.4%

104.52

6.3%

110%

2019

54,750

0.0%

40,300

4.4%

74%

110%

152.75

3.0%

112.44

7.6%

113%

2020

54,750

0.0%

40,600

0.7%

74%

108%

157.25

3.0%

116.61

3.7%

112%

2021

54,750

0.0%

40,400

-0.5%

74%

106%

162.00

3.0%

119.54

2.5%

109%

CAAG

0.0%

1.9%

Market

Average

3.1%

Percent

Percent

Change

REVPAR Change

Revenue Yield

5.0%

Source: PKF Consulting USA

FINANCIAL ANALYSIS BASIS FOR CASH FLOW PROJECTIONS To develop estimates of cash flows from operations for the Subject, the 2012 financial performance of five comparably sized and performing all-suite hotels were analyzed. These hotels range in size from 134 to 152 rooms and in 2013 achieved an average RevPAR of $88. The 2013 financial statements for the comparables are presented on the following two pages. For reasons of confidentiality, the identity of these hotels cannot be disclosed, nor can the actual dollar amount of revenues and expenses.

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CBRE / Public Institutions and Educational Services October 24, 2014

Proposed Downtown Hotel Operating Results of Comparable Hotels

Ratio Revenues Rooms Food & Beverage Other Operated Departments Rentals and Other Income Total Revenues

Hotel A Per Room

95.0% 0.0% 4.1% 0.9% 100.0%

$31,877 0 1,383 305 33,566

Departmental Expenses Rooms Food & Beverage Other Operated Departments Total Departmental Expenses

30.0% N/A 90.1% 32.2%

9,575 0 1,246 10,820

Departmental Profit

67.8%

Undistributed Expenses Administrative & General Marketing Property Operation and Maintenance Utility Costs Total Undistributed Operating Expenses Gross Operating Profit Base Management Fee Fixed Expenses Property Taxes Insurance Total Fixed Expenses Net Operating Income

P.O.R. 122.0589 0.00 5.30 1.17 128.52

Ratio

Hotel B Per Room

P.O.R.

Ratio

Hotel C Per Room

P.O.R.

86.3% 12.4% 1.0% 0.3% 100.0%

$32,357 4,639 377 99 37,472

$116.52 16.71 1.36 0.36 134.94

98.6% 0.0% 0.3% 1.1% 100.0%

$32,690 0 108 356 33,154

$117.74 0.00 0.39 1.28 119.42

36.66 0.00 4.77 41.43

26.2% 82.4% 172.8% 34.5%

8,466 3,821 651 12,938

30.49 13.76 2.34 46.59

19.4% N/A 260.6% 20.0%

6,344 0 282 6,626

22.85 0.00 1.01 23.87

22,746

87.09

65.5%

24,534

88.35

80.0%

26,528

95.55

10.3% 10.4% 4.5% 4.1% 29.3%

3,467 3,475 1,518 1,388 9,848

13.28 13.30 5.81 5.32 37.71

7.5% 13.7% 5.0% 5.5% 31.7%

2,815 5,130 1,885 2,051 11,881

10.14 18.47 6.79 7.38 42.78

7.8% 11.1% 3.0% 3.6% 25.6%

2,600 3,696 1,007 1,190 8,492

9.36 13.31 3.63 4.29 30.59

38.4%

12,897

49.38

33.8%

12,653

45.57

54.4%

18,036

64.96

4.5%

1,506

5.77

2.5%

927

3.34

3.5%

1,160

4.18

8.3% 0.5% 8.8%

2,802 164 2,966

10.73 0.63 11.36

0.4% 0.7% 1.2%

162 278 440

0.58 1.00 1.58

4.8% 0.7% 5.6%

1,605 243 1,849

5.78 0.88 6.66

25.1%

8,425

32.26

30.1%

11,287

40.64

45.3%

15,027

54.12

Source: PKF Consulting USA

20

CBRE / Public Institutions and Educational Services October 24, 2014

Proposed Downtown Hotel Operating Results of Comparable Hotels

Ratio

Hotel D Per Room

P.O.R.

Ratio

Hotel E Per Room

P.O.R.

Weighted Average Ratio Per Room P.O.R.

Revenues Rooms Food & Beverage Other Operated Departments Rentals and Other Income Total Revenues

90.3% 8.3% 1.3% 0.1% 100.0%

$30,561 2,801 427 48 33,838

$123.41 11.31 1.73 0.20 136.65

64.9% 30.8% 4.3% 0.0% 100.0%

$33,188 15,743 2,183 0 51,115

$135.56 64.31 8.92 0.00 208.78

0.849337 12.3% 2.3% 0.4% 100.0%

$32,136 7,656 876 200 37,837

$122.68 29.81 3.34 0.75 144.45

Departmental Expenses Rooms Food & Beverage Other Operated Departments Total Departmental Expenses

24.7% 75.1% 113.7% 29.9%

7,537 2,102 486 10,126

30.44 8.49 1.96 40.89

30.1% 63.0% 87.5% 42.6%

9,976 9,911 1,911 21,798

40.75 40.48 7.81 89.04

25.9% 68.4% 102.8% 32.9%

8,339 5,236 901 12,431

31.84 20.39 3.44 47.46

Departmental Profit

70.1%

23,712

95.75

57.4%

29,316

119.75

67.1%

25,406

96.99

Undistributed Expenses Administrative & General Marketing Property Operation and Maintenance Utility Costs Total Undistributed Operating Expenses

11.2% 14.3% 7.1% 5.8% 38.3%

3,780 4,837 2,390 1,949 12,956

15.26 19.53 9.65 7.87 52.32

10.9% 12.9% 5.7% 7.0% 36.5%

5,555 6,614 2,927 3,562 18,659

22.69 27.02 11.96 14.55 76.21

9.6% 12.6% 5.1% 5.4% 32.7%

3,634 4,765 1,947 2,031 12,377

13.87 18.19 7.43 7.75 47.25

Gross Operating Profit

31.8%

10,756

43.43

20.9%

10,657

43.53

34.4%

13,029

49.74

3.1%

1,055

4.26

3.0%

1,535

6.27

3.2%

1,229

4.69

0.2% 0.1% 0.3%

74 27 101

0.30 0.11 0.41

2.3% 0.8% 3.0%

1,158 385 1,543

4.73 1.57 6.30

3.0% 0.6% 3.6%

1,126 220 1,345

4.30 0.84 5.14

28.4%

9,600

38.77

14.8%

7,580

30.96

27.6%

10,454

39.91

Base Management Fee Fixed Expenses Property Taxes Insurance Total Fixed Expenses Net Operating Income

Source: PKF Consulting USA

21

1

CBRE / Public Institutions and Educational Services October 24, 2014

DEPARTMENTAL REVENUES AND EXPENSES Direct or departmental revenues and expenses, which typically vary with occupancy, are generally analyzed on a per-occupied-room (“POR”) basis, which varies with occupancy, while undistributed expenses, which are more fixed in nature, are typically analyzed on a per-available-room (“PAR”) basis. Rooms Revenues and Expenses Rooms revenues are based on the number of occupied rooms multiplied by the Average Daily Rate. The following table shows the room revenues for the five calendar years beginning January 1, 2017, the assumed opening date for the Hotel.

Year 2017 2018 2019 2020 2021

Estimated Rooms Revenue Average Annual Daily Rate Occupancy $143.50 68% 148.25 71% 152.75 74% 157.25 74% 162.00 74%

Rooms Revenue $5,381,000 5,722,000 6,156,000 6,402,000 6,545,000

Rooms expenses consist of salaries and wages, employee benefits, commissions, contract cleaning, laundry and uniform cleaning, linens, operating supplies, guest room amenities, reservations costs associated with access to and support from a hotel chain central reservation system, frequent guest program fees, and other items related to the rooms department. As can be seen in the following table, based on the comparables, we have estimated an expense of $32.00 per occupied room, or 24.3 percent of rooms revenue.

Comparables A B C D E Weighted Average Subject Stabilized Year

Rooms Expense Per Occupied Room

Ratio to Rms Revenue

$36.66 30.49 22.85 30.44 40.75 31.84 $32.00

30.0% 26.2% 19.4% 24.7% 30.1% 25.9% 24.3%

22

CBRE / Public Institutions and Educational Services October 24, 2014

Food and Beverage Revenues and Expenses Food & Beverage revenue is derived from food sales as well as sales of alcoholic and non-alcoholic beverages. This line item also includes meeting room rentals, conference services, cover charges, miscellaneous banquet income and miscellaneous other income. The food and beverage revenue generated by the Subject will be primarily generated from meetings, functions and banquets but also includes revenues from the restaurant, lounge and other outlets and in-room dining. Comparable data are shown in the table below. Food & Beverage Revenue Total Amount Per Occupied Room Comparables A B C D E Weighted Average Subject Stabilized Year

$0 695,855 0 420,116 2,298,520 N/A $812,000

0.00 16.71 0.00 11.31 64.31 29.81 $20.00

Food & Beverage expenses include all expenditures related to the operations of food and beverage outlets. Salaries and wages, cost of food and beverage sold, and the cost of supplies and equipment are typical food and beverage expenses. We estimate that the Subject will incur a food and beverage expense ratio of 75 percent of departmental revenues upon stabilization, in-line with comparable properties with food and beverage operations. Food & Beverage Expense Ratio to F&B Rev. Comparables A N/A B 82.4% C N/A D 75.1% E 63.0% Weighted Average 68.4% Subject Stabilized Year 75.0%

Other Operated Departments Revenues and Expenses Other operated departments (OOD) revenue include income generated from the sale of services related to any other operated department at the Hotel, such as a

23

CBRE / Public Institutions and Educational Services October 24, 2014

telephone, internet, in-room movies, newsstand, gift shop, valet services and other revenue generating departments. As can be seen in the following table, in a stabilized year of operation revenues in this department have been estimated to be $2.00 per occupied room. Other Operated Departments Revenue Per Occupied Room Comparables A $5.30 B 1.36 C 0.39 D 1.73 E 8.92 Weighted Average 3.34 Subject Stabilized Year $2.00

OOD expenses include the cost of goods sold, salaries and wages and related employee benefits affiliated with the operation of these departments. Based upon the comparables’ historical results, the OOD expense is projected to be 90 percent of the OOD revenue. Other Operated Departments Expense Ratio to O.O.D. Rev. Comparables A 90.1% B 172.8% C 260.6% D 113.7% E 87.5% Weighted Average 102.8% Subject Stabilized Year 90.0%

Rentals and Other Income Income in this category is primarily derived from the rental of meeting space and other space in the Hotel. Based on the historical results of the hotel, these revenues, expressed net of expenses, have been estimated to be $1.00 per occupied room.

24

CBRE / Public Institutions and Educational Services October 24, 2014 Rentals and Other Income Per Occupied Room Comparables A B C D E Weighted Average Subject Stabilized Year

$1.17 0.36 1.28 0.20 0.00 0.75 $1.00

Per Day $112 41 148 20 0 64 $111

Administrative and General The administrative and general (“A&G”) category includes the salary and wages of the general manager and office staff, cash overages and shortages, credit card commissions, bad debt expense, security, data processing costs, accounting payroll expense, and professional fees. In 2013 the comparables illustrated below experienced an A&G average expense of $3,634 per available room, or 9.6 percent of total revenue. Based on this, the Subject’s stabilized A&G expense is estimated to be equal to 9.1 percent of total revenue, or $3,800 per available room. Administrative and General Per Available Room Ratio to Total Rev. Comparables A B C D E Weighted Average Subject Stabilized Year

$3,467 2,815 2,600 3,780 5,555 3,634 $3,800

10.3% 7.5% 7.8% 11.2% 10.9% 9.6% 9.1%

Sales and Marketing (Including Franchise Fees) This expense includes the cost of advertising, printing of brochures, salaries associated with sales and marketing personnel, marketing fees and other costs associated with an ongoing sales and promotion program. Based on the performance of the comparables, the Hotel’s stabilized marketing expense is estimated to be $4,800 per available room, or 11.5 percent of total revenue in a stabilized year of operation.

25

CBRE / Public Institutions and Educational Services October 24, 2014

Comparables A B C D E Weighted Average Subject Stabilized Year

Marketing Per Available Room

Ratio to Total Rev.

$3,475 5,130 3,696 4,837 6,614 4,765 $4,800

10.4% 13.7% 11.1% 14.3% 12.9% 12.6% 11.5%

Property Operations and Maintenance Property operations and maintenance expenses are a function of building age and usage and comprise engineering salaries, wages, employee benefits, normal maintenance of the building, normal maintenance of electrical, mechanical and refrigeration equipment, and engineering operating supplies. Based on the 2013 performance of the comparables, property operations and maintenance expenses are estimated to be $2,000 per available room upon stabilization. Property Operation and Maintenance Per Available Room Ratio to Total Rev. Comparables A B C D E Weighted Average Subject Stabilized Year

$1,518 1,885 1,007 2,390 2,927 1,947 $2,000

4.5% 5.0% 3.0% 7.1% 5.7% 5.1% 4.8%

Utility Costs Utility costs are generally particular to the location, climate, and type of hotel structure. Energy and utility expenses include electricity, gas, water, and sewer charges. In a stabilized year of operation utility expenses are expected to be $2,000 per available room, consistent with the 2013 expenses incurred by the comparables.

26

CBRE / Public Institutions and Educational Services October 24, 2014 Utility Costs Per Available Room

Ratio to Total Rev.

$1,388 2,051 1,190 1,949 3,562 2,031 $2,000

4.1% 5.5% 3.6% 5.8% 7.0% 5.4% 4.8%

Comparables A B C D E Weighted Average Subject Stabilized Year

Management Fees A base management fee of 3.0 percent of gross revenues has been assumed, in line with industry standards.

Real Estate and Personal Property Taxes Real estate taxes for selected Ann Arbor hotels in 2013 ranged from $1,284 (the Candlewood) to $2,702 (the Hilton Garden Inn) per available room, averaging $2,000 Accordingly, stabilized real estate taxes for the Hotel have been estimated at $2,000 per available room. Insurance Insurance expenses account for liability and property insurance coverage of the hotel. The comparables had an average insurance expense per available room of $220 in 2013. Based on the performance of the comparables, we estimate the Hotel will incur an insurance expense equal to $200 per available room upon stabilization. Insurance Per Available Room Comparables A B C D E Weighted Average Subject Stabilized Year

$164 278 243 27 385 220 $200

27

CBRE / Public Institutions and Educational Services October 24, 2014

Reserve for Replacement Reserve for replacement is the amount required for the periodic replacement of certain short-lived items such as carpeting, draperies, furniture, fixtures, and equipment. As such, we have estimated a stabilized reserve for capital replacement of 4.0 percent, with a ramp up from 2 percent in the first year and three percent in the second year, reflecting the new construction of the Hotel.

ESTIMATED OPERATING RESULTS The previous analysis estimated the income and expenses incurred in the operation of the Hotel in a base year of operation. In the following analysis, we provide estimated income and expenses for the Hotel during the period January 1, 2017 through December 31, 2021, the first five years of operations. The estimate of the performance for the Hotel in the base year is used as a basis for our analysis, adjusted to reflect the effects of inflation, business development, and variations in occupancy. To portray price level changes, we have assumed an inflation rate of 3.0 percent throughout the period. The estimated annual operating results for the Hotel for the period January 1, 2017 through December 31, 2021, are presented on the following page.

28

CBRE / Public Institutions and Educational Services October 24, 2014 Proposed Downtown Hotel Projected Operating Results Calendar Years

2017 150 54,750 37,500 68% $143.50 $98.29 Amount Ratio

2018 150 54,750 38,600 71% $148.25 $104.52 Amount Ratio

2019 150 54,750 40,300 74% $152.75 $112.44 Amount Ratio

2020 150 54,900 40,710 74% $157.25 $116.61 Amount Ratio

2021 150 54,750 40,400 74% $162.00 $119.54 Amount Ratio

$5,381,000 820,000 82,000 41,000 6,324,000

85.1% 13.0% 1.3% 0.6% 100.0%

$5,722,000 869,000 87,000 43,000 6,721,000

85.1% 12.9% 1.3% 0.6% 100.0%

$6,156,000 934,000 93,000 47,000 7,230,000

85.1% 12.9% 1.3% 0.7% 100.0%

$6,402,000 972,000 97,000 49,000 7,520,000

85.1% 12.9% 1.3% 0.7% 100.0%

$6,545,000 994,000 99,000 50,000 7,688,000

85.1% 12.9% 1.3% 0.7% 100.0%

Departmental Expenses Rooms Food & Beverage Other Operated Departments Total Departmental Expenses

1,365,000 635,000 74,000 2,074,000

25.4% 77.4% 90.2% 32.8%

1,426,000 665,000 78,000 2,169,000

24.9% 76.5% 89.7% 32.3%

1,501,000 703,000 84,000 2,288,000

24.4% 75.3% 90.3% 31.6%

1,553,000 728,000 87,000 2,368,000

24.3% 74.9% 89.7% 31.5%

1,594,000 747,000 89,000 2,430,000

24.4% 75.2% 89.9% 31.6%

Departmental Profit

4,250,000

67.2%

4,552,000

67.7%

4,942,000

68.4%

5,152,000

68.5%

5,258,000

68.4%

Undistributed Expenses Administrative & General Marketing Property Operation and Maintenance Utility Costs Total Undistributed Operating Expenses

623,000 787,000 328,000 328,000 2,066,000

9.9% 12.4% 5.2% 5.2% 32.7%

642,000 810,000 338,000 338,000 2,128,000

9.6% 12.1% 5.0% 5.0% 31.7%

661,000 835,000 348,000 348,000 2,192,000

9.1% 11.5% 4.8% 4.8% 30.3%

681,000 860,000 358,000 358,000 2,257,000

9.1% 11.4% 4.8% 4.8% 30.0%

701,000 886,000 369,000 369,000 2,325,000

9.1% 11.5% 4.8% 4.8% 30.2%

Gross Operating Profit

2,184,000

34.5%

2,424,000

36.1%

2,750,000

38.0%

2,895,000

38.5%

2,933,000

38.2%

190,000

3.0%

202,000

3.0%

217,000

3.0%

226,000

3.0%

231,000

3.0%

328,000 33,000 361,000

5.2% 0.5% 5.7%

338,000 34,000 372,000

5.0% 0.5% 5.5%

348,000 35,000 383,000

4.8% 0.5% 5.3%

358,000 36,000 394,000

4.8% 0.5% 5.2%

369,000 37,000 406,000

4.8% 0.5% 5.3%

1,633,000

25.8%

1,850,000

27.5%

2,150,000

29.7%

2,275,000

30.3%

2,296,000

29.9%

126,000

2.0%

202,000

3.0%

289,000

4.0%

301,000

4.0%

308,000

4.0%

$1,507,000

23.8%

$1,648,000

24.5%

$1,861,000

25.7%

$1,974,000

26.3%

$1,988,000

25.9%

Number of Units: Number of Annual Rooms Available: Number of Rooms Occupied: Annual Occupancy: Average Daily Rate: Revenue Per Available Room: Revenues Rooms Food & Beverage Other Operated Departments Rentals and Other Income Total Revenues

Base Management Fee Fixed Expenses Property Taxes Insurance Total Fixed Expenses Net Operating Income FF&E Reserve Net Operating Income After Reserve Source: PKF Consulting USA

Full Year of Operation

29

Ann Arbor/Jackson, MI Upper-Priced October 15, 2014 LodgingMarket Market Summary Lodging Summary

Economic Summary Economic Summary The U.S. economic expansion period is continuing as expected. Growth picked up after first quarter GDP came to a standstill and the positive outlook for the year remains intact. Moody’s Analytics recently reported that, “It has long been our view that the U.S. economy will finally jump to a higher pace of growth this year. Since the recovery began almost five years ago, real GDP has grown just over 2% per year. Growth should accelerate closer to 3% this year and to 4% in 2015.” The U.S. is on track to reach full employment by 2016, but that assumes that the housing market continues to improve. Unfortunately, weak job, wage growth, and stiff underwriting standards for home loans have suppressed sales for new homes. If interest rates rise as expected, along with the end of quantitative easing, they could hinder the housing recovery.

By year-end 2014, hotels in the Ann Arbor/Jackson, MI lodging market are forecast to see a RevPAR increase of 8.1 percent. This is the result of both an estimated increase in occupancy of 3.7 percent and a 5.6 percent rise in average daily rates (ADR). The 9.5 percent change in the market RevPAR is greater than the national projection of a 8.2 percent increase. Looking towards 2015, market RevPAR is expected to grow 5.6 percent compared to 6.7 percent for the U.S. The Ann Arbor/Jackson, MI market occupancy levels are expected to range from 66.3 percent to 68.0 percent during the 5-year forecast period. The forecast is based on hotel data through August 2014 for all hotels in the market and economic data as of October 2014.

Forecast Summary

Moody’s is forecasting the Ann Arbor/Jackson, MI market to have a slow 2014 with employment growing 1.1 percent and income increasing 0.6 percent.

Market Snapshot: Current Year

The arrows indicate the forecast direction of change over the current year vs. the previous year.

Occupancy Occupancy will increase to 66.6%, better than the previous year's rate of 64.2%.

Average Daily Rate ADR growth expectations are increasing, 5.6% vs. the past year's rate of 3.1%

Year

Occ

∆ Occ

ADR

RevPAR

∆ RevPAR

2009

57.2%

-11.3%

$96.65

∆

-5.5%

$55.31

-16.2%

2010

59.6%

4.1%

$96.21

-0.4%

$57.33

3.6%

2011

61.7%

3.5%

$104.48

8.6%

$64.47

12.4%

ADR

2012

62.9%

2.0%

$116.64

11.6%

$73.42

13.9%

2013

64.2%

2.0%

$120.28

3.1%

$77.22

5.2%

2014F

66.6%

3.7%

$126.97

5.6%

$84.56

9.5%

2015F

68.0%

2.1%

$131.31

3.4%

$89.30

5.6%

2016F

67.0%

-1.5%

$135.60

3.3%

$90.86

1.7%

2017F

66.3%

-1.0%

$138.23

1.9%

$91.70

0.9%

2018F

66.7%

0.5%

$140.86

1.9%

$93.95

2.5%

Long Run Averages - 1988 to 2013 Occupancy: 61.2%

∆

ADR:

Revenue Per Available Room

2.7%

∆

RevPAR:

3.7%

Source: PKF Hospitality Research, STR, Inc.

RevPAR growth projections for this year are climbing to 9.5% as compared to the past year's rate of 5.2%

Number of Standard Deviations

3.0

Supply Supply change is less active, 0.0% vs. the past year's rate of 6.4%

Demand Forecast demand growth is decreasing to 3.7% vs. the past year's growth of 8.6%

Exhibit 1*: Performance Grade vs. Long Run Average

2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0

2009

2010

2011

Source: PKF Hospitality Research

2012

2013

2014F 2015F 2016F 2017F 2018F Source: PKF Hospitality Research, STR, Inc.

* See exhibit descriptions on Page 4

www.pkfc.com

Page 1

Price: $1995

Hotel Horizons® Custom Forecast - October 15, 2014

Ann Arbor/Jackson, MI Upper-Priced Market

Ann Arbor, Metropolitan Statistical Area Economic Summary Summary Ann Arbor,MIMI Metropolitan Statistical Area Economic Below are a select number of variables that drive the PKF-HR econometric forecasts contained in this report. Income and employment are important barometers of economic health and are used in every Hotel Horizons ® forecast model. The lodging market is part of the larger economy, and the forces that affect us nationally also affect lodging, but in different magnitudes and time periods (see Exhibits 4 and 5 below). Exhibits 2 - 6 provide an overview of current economic history and forecast, and provide explanation of what to expect in the future, and how that affects the lodging industry.

Exhibit 2*: Annual Income Change

Exhibit 3*: Annual Employment Change

Real Personal Income

See graph below

Total Payroll Employment

See graph below

6%

5% 4%

4%

3%

2%

2% 1%

0%

0%

-2%

-1% -2%

-4%

-3%

-6%

-4%

Source: Moody's Analytics

Source: Moody's Analytics *See exhibit descriptions on Page 4

*See exhibit descriptions on Page 4

Exhibit 4*: Annual Income vs. RevPAR Change Income (Left)

Exhibit 5*: Annual Employment vs. Demand Change

RevPAR (Right)

Employment (Left) 10%

4%

Demand^ (Right)

3%

9.0%

9%

3%

8.0%

8%

3%

7%

2%

6%

2%

4%

2%

7.0% 6.0%

2%

5.0%

5%

4.0%

1%

3.0%

3%

1%

2%

1%

2.0%

1%

1.0%

1%

0%

0%

0%

Source: Moody's Analytics,PKF Hospitality Research, STR, Inc.

0.0%

Source: Moody's Analytics, PKF Hospitality Research, STR, Inc. *See exhibit descriptions on Page 4

*See exhibit descriptions on Page 4

Exhibit 6*: Average Annual Growth Rates 3.0%

Ann Arbor, MI Metropolitan Statistical Area 1988 to 2013

2.6%

Ann Arbor, MI Metropolitan Statistical Area 2014 to 2018

2.8% 2.4%

2.0%

2.0%

2.2%

1.7% 1.4%

1.0% 0.8% 0.0%

Change in Total Employment

Change in Consumer Price Index

Change in Gross Metro Product

Change in Real Personal Income

Source: Moody's Analytics

www.pkfc.com

Page 2

PKF Hospitality Research

Hotel Horizons® Custom Forecast - October 15, 2014

Ann Arbor/Jackson, MI Upper-Priced Market

Ann Arbor/Jackson, MI Upper-Priced Market Summary Ann Arbor/Jackson, MI Upper-Priced Market Summary The graphs on the left illustrate the annual magnitude of change in performance during the historical and forecasted period 2009 to 2018. Used as a relative benchmark, each market segment is plotted against a common index value of 2009 = 100. This method provides clear insight of how the subject market is expected to perform relative to the U.S. lodging market in the specified period. The charts on the right compare near-term historical compound annual growth rates (CAGR) to the CAGRs for the forecast period.

Exhibit 7*: Occupancy Change

Exhibit 10*: Compound Average Annual Supply Change Past 5 Years

All U.S.

Ann Arbor/Jackson, MI Upper-Priced Market

Next 5 Years

5%

130

120

2.1%

2.3%

110

100

0% 90

2009

2010

2011

2012

2013

2014F

2015F

2016F

2017F

Ann Arbor/Jackson, MI Upper-Priced Market

2018F

Source: PKF Hospitality Research, STR, Inc.

Source: PKF Hospitality Research, STR, Inc *See exhibit descriptions on Page 4

*See exhibit descriptions on Page 4

Exhibit 8*: ADR Change

Exhibit 11*: Compound Average Annual Demand Change

All U.S.

Past 5 Years

Ann Arbor/Jackson, MI Upper-Priced Market

Next 5 Years

10%

150 140 130

5%

120

5.1% 3.1%

110 100 90

0% 2009

2010

2011

2012

2013

2014F

2015F

2016F

2017F

Ann Arbor/Jackson, MI Upper-Priced Market

2018F

Source: PKF Hospitality Research, STR, Inc

Source: PKF Hospitality Research, STR, Inc *See exhibit descriptions on Page 4

*See exhibit descriptions on Page 4

Exhibit 9*: RevPAR Change All U.S.

Exhibit 12*: Compound Average Annual RevPAR Change Past 5 Years

Ann Arbor/Jackson, MI Upper-Priced Market

10%

180

Next 5 Years

8.7%

170 160 150

5%

140

4.0%

130 120 110 100 90

0% 2009

2010

2011

2012

2013

2014F

2015F

2016F

2017F

Ann Arbor/Jackson, MI Upper-Priced Market

2018F

Source: PKF Hospitality Research, STR, Inc

Source: PKF Hospitality Research, STR, Inc *See exhibit descriptions on Page 4

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*See exhibit descriptions on Page 4

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PKF Hospitality Research

Hotel Horizons® Custom Forecast - October 15, 2014

Ann Arbor/Jackson, MI Upper-Priced Market

Annual Forecast Annual Forecast Ann Arbor/Jackson, MI Upper-Priced Market Forecast Year

Period

Occ

∆ Supply

∆ Demand

2009

Annual

57.2%

∆

-11.3%

$96.65

-5.5%

$55.31

-16.2%

0.0%

-11.3%

2010

Annual

59.6%

4.1%

$96.21

-0.4%

$57.33

3.6%

0.0%

4.1%

2011

Annual

61.7%

3.5%

$104.48

8.6%

$64.47

12.4%

-0.1%

3.5%

2012

Annual

62.9%

2.0%

$116.64

11.6%

$73.42

13.9%

2.2%

4.2%

2013

Annual

64.2%

2.0%

$120.28

3.1%

$77.22

5.2%

6.4%

8.6%

Occ

∆

ADR

ADR

RevPAR

∆

RevPAR

2014F

Annual

66.6%

3.7%

$126.97

5.6%

$84.56

9.5%

0.0%

3.7%

2015F

Annual

68.0%

2.1%

$131.31

3.4%

$89.30

5.6%

1.6%

3.8%

2016F

Annual

67.0%

-1.5%

$135.60

3.3%

$90.86

1.7%

6.0%

4.4%

2017F

Annual

66.3%

-1.0%

$138.23

1.9%

$91.70

0.9%

2.8%

1.7%

2018F

Annual

66.7%

0.5%

$140.86

1.9%

$93.95

2.5%

1.2%

1.7%

Source: PKF Hospitality Research, STR, Inc

Emp

Emp^

CPI

CPI^

GMP

GMP^

Income

Income^

Total Employment (1,000s)

% Change

Consumer Price Index ('82-'84=100)

% Change

Gross Metro Product ($ billions) (year=2000)

% Change

Real Personal Income ($ millions) (year=2005)

% Change

Ann Arbor, MI Metropolitan Statistical Area MSA Economic Forecast

Year

Period

2009

Annual

193.54

-2.9%

198.28

0.6%

18.53

-4.4%

13,358

-4.5%

2010

Annual

196.35

1.5%

203.15

2.5%

19.58

5.7%

13,572

1.6%

2011

Annual

199.00

1.3%

212.45

4.6%

19.75

0.9%

13,807

1.7%

2012

Annual

202.78

1.9%

216.92

2.1%

19.77

0.1%

14,294

3.5%

2013

Annual

206.70

1.9%

219.46

1.2%

20.14

1.9%

14,462

1.2%

2014F

Annual

209.03

1.1%

224.14

2.1%

20.28

0.7%

14,556

0.6%

2015F

Annual

213.13

2.0%

230.12

2.7%

20.90

3.0%

14,980

2.9%

2016F

Annual

217.34

2.0%

236.73

2.9%

21.58

3.3%

15,453

3.2%

2017F

Annual

219.80

1.1%

244.10

3.1%

22.14

2.6%

15,804

2.3%

2018F

Annual

221.27

0.7%

251.68

3.1%

22.62

2.2%

16,131

2.1%

Source: Moody's Analytics

Note on Market and MSA Names: STR, Inc and Moody’s Analytics occasionally differ in their monikers for corresponding geographic areas. In this case, STR refers to the subject area as Ann Arbor/Jackson, MI Upper-Priced hotels, while Moody’s refers to it as Ann Arbor, MI Metropolitan Statistical Area. Economic forecast data in this report carries the Ann Arbor, MI Metropolitan Statistical Area title, while forecasts using STR data are labeled Ann Arbor/Jackson, MI Upper-Priced. For a detailed description of how we forecast, please visit http://www.pkfc.com/en/pkf-hr/PublicationsAndData/HotelHorizons/HowWeForecast.aspx

Exhibit Definitions Exhibit 1

Occupancy levels, ADR change and RevPAR change are plotted on a fixed "grade" scale. Measured as current value minus the mean, divided by the series' standard deviation. Grades: A: Very strong, greater than one standard deviation above long run average. B: Strong, within one standard deviation above long run average C: Somewhat weak, within one standard deviation below long run average. D: Weak, below one standard deviation of the long run average.

Exhibits 2 - 5

Year over year change in Income, Employment, RevPAR and Demand.

Exhibit 6

Average annual Employment, Comsumer Price Index, Gross Domestic Product, and Real Personal Income change for the MSA.

Exhibits 7-9

Index based change charts with base year 2009 = 100. These exhibits illustrate the magnitude of change.

Exhibits 10-12

Compound average annual RevPAR, Demand and Supply change.

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PKF Hospitality Research