HomeMy WebLinkAboutSDP 96-14C; LEGOLAND HOTEL CALIFORNIA; MARKET STUDY AND FINANCIAL PROJECTIONS; 2007-04-04Market Study and Financial Projections
For a Proposed Hotel at LEG0LAND California
Carlsbad, CA
Prepared for:
Mr. Nick Varney
Merlin Entertainments
C/0 The Blackstone Group
25/2 The Coda Centre
189 Munster Road
London, SW6 6AW
United Kingdom
April 4, 2007
~ Pinnacle
A d Vis O r y G r O U p
Introduction, Objective, and Scope Proposed Hotel at LEGOLAND California -Carlsbad, CA
Introduction, Objective, and Scope
Introduction and Objective
Pinnacle Advisory Group was engaged by Merlin Entertainments to evaluate the propriety of
developing a LEGO themed Hotel on the grounds of LEGOLAND California in Carlsbad, California.
The underlying objectives for this proposed development is for a resort hotel that would provide
lodging for visitors to LEGOLAND, promote a two to three day visitation to the park, and create a
new source of profit. The primary site that was identified to us by the representatives of LEGOLAND
is located directly east of the main entrance to the park.
The primary purpose of this study was to provide an in-depth analysis regarding the potential levels
of demand for the proposed hotel culminating with projections of performance levels, detailed
financial operating projections, and a report detailing our findings which would be suitable for the
purposes of securing financing or negotiating a management contract or lease agreement.
Scope of Research and Analysis
The primary scope of work completed during our research and analysis included:
1. An examination of the proposed site on the grounds of LEGOLAND California, which is being
considered for the proposed development, focusing on the likely suitability to satisfy
development criteria for a Hotel;
2. Meetings and interviews with representatives of LEGOLAND California;
3. The identification of the supply of existing hotels, which we deemed of relevance to this
analysis. Properties were deemed to be of relevance if they possessed the requisite facilities
and amenities necessary to accommodate a similar source of demand as the proposed hotel;
4. Research with the primary and secondary set of hotels included a site inspection at each
property. Facilities where such research was conducted include the following:
• Grand Pacific Palisades Resort
• Tamarack Beach Resort
• Residence Inn San Diego Carlsbad
• Courtyard San Diego Carlsbad
• Inns of America Suites Carlsbad
• Holiday Inn Carlsbad by the Sea
• Four Seasons Resort Aviara ·
• La Costa Resort and Spa
• Olympic Resort Hotel
• West Inn & Suites at Carlsbad
• Hilton Garden Inn Carlsbad Beach
5. Gathering information regarding the actual performance levels of many of the identified
hotels via our contact with on-site management, directly from ownership of the subject
properties, or via other sources such as Smith Travel Research;
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Introduction, Objective, and Scope Proposed Hotel at LEGOLAND California -Carlsbad, CA
6. A discussion, analysis, and review of data provided to us by representatives of LEGOLAND
California in order for us to gain a thorough understanding of the nature of LEGOLAND
visitors and plans for expansion at the park;
7. An identification, gathering, and analysis of data specific to comparable theme parks and
their respective lodging facilities;
8. Interviews with government officials, franchise representatives, and local operators with
regard to proposed new developments and changes at existing facilities in Carlsbad and the
surrounding market area, as well as the lodging market in general as it would relate to the
subject development;
9. Interviews with local government officials and other individuals with regard to the area
lodging market in general as it would relate to the subject development, including gathering
detailed information regarding other proposed developments. Interviews were conducted
with:
• Carlsbad Convention and Visitors Bureau
• Carlsbad Chamber of Commerce
• San Diego County Tax Assessor's Office
IO.A preparation of estimated usage levels for the proposed hotel from the three expected
primary sources of demand:
• Corporate Travelers;
• Group Travelers; and
• Leisure Travelers.
11. A preparation of facilities recommendations;
12. A preparation of projections of achievable average rate and occupancy for the proposed
hotel's first 10 years of operation, assumed to commence on January 1, 2010;
13. The identification, gathering, and analysis of financial statements and operating data of
comparable full-service hotels;
14. The preparation of financial projections for the proposed hotel during its first ten years of
operation;
15. An estimate for the construction costs for the proposed hotel based on general industry data
as well as from a review of recently build hotels in California;
16. The preparation of a valuation matrix; and
17. The preparation of this comprehensive report summarizing our findings, conclusions and
recommendations on the basis of the above.
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Site and Neighborhood Evaluation Proposed Hotel at LEGOLAND California -Carlsbad, CA
Site and Neighborhood Evaluation
Introduction
The primary site identified is located on the grounds of LEGOLAND California adjacent to the main
entrance of the park in the City of Carlsbad, CA. The following map illustrates the location of the
proposed subject hotel within the local neighborhood.
C.?:,(1111).f ··-----·-·-····· -··--· ·······------_.,. ________ .., ____ -
Access and Visibility
Access to the site via automobile is both convenient and direct. LEGOLAND is proximate to
Interstate 5 via Cannon Road or Palomar Airport Road. Interstate 5 is a major north/south
directional highway that originates at the US/Mexico border and extends north through California,
Oregon, and Washington. Regionally, the highway is the primary link for San Diego, Orange County,
and Los Angeles.
Access to the area via airplane is slightly more challenging with the closest major airports being the
San Diego International Airport or the Los Angeles area airports such as the Los Angeles
International Airport, Long Beach Airport, Orange County's John Wayne Airport, Ontario
International Airport, and Burbank's Bob Hope Airport.
LEGOLAND and the hotel site are tucked back behind a hill and thus are not visible from the main
access roads of Cannon Road and Palomar Airport Road, nor is it visible from Interstate 5.
However, LEGOLAND signage from the main access roads is clear and easy to follow. It should be
noted however that the subject site's visibility to guests visiting LEGOLAND is excellent. Adjacent to
the main entrance to the park, the subject site will be seen by every guest entering through the
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Site and Neighborhood Evaluation Proposed Hotel at LEGOLAND California -Carlsbad, CA
main entrance. Furthermore, the proposed hotel development will be visible from various areas
within the park.
Neighborhood Analysis
LEGOLAND and the subject site are located along the border of the northwest and southwest
quadrant of the City of Carlsbad. The surrounding neighborhood is predominantly commercial with
much of the land being developed in recent years. The neighborhood is a strong tourist draw
anchored by LEGOLAND and the Flower Fields at Carlsbad Ranch, which is a 50-acre flower
garden on display from March through May. To the west of the Flower Fields is the Carlsbad
Premium Outlets, which includes 90 stores including Banana Republic, Barney's New York, Coach,
Crate and Barrel, Kenneth Cole, and Polo Ralph Lauren. Located adjacent to the subject site to the
west is the Grand Pacific Palisades Resort, which includes 90 hotel units, 200 timeshare units, and
the Karl Strauss Brewery and Restaurant. The area also has a strong concentration of office,
industrial, and R&D space with tenants including the Gemological Institute of America, National
Association of Music Merchants, and the Denso Automotive Engineering Company. The majority of
office space is located to the north, south, and east of the subject site. There are also two major
developments under construction adjacent to the subject site. Currently under development just
south of the subject site, is The Crossings at Carlsbad, a new $70million municipal golf course,
which is set to open in the summer of 2007. Also under development is a three-phase hotel and
timeshare development that will be located just east of the subject site. It is our understanding that
a 150-room Sheraton Hotel and a 150-unit timeshare development that will be known as the Grand
Pacific MarBrisa Resort will be developed by spring of 2008. Approximately six months later, we
understand that an additional 150-rooms will be added onto the Sheraton and 150-units will be
added onto the Grand Pacific MarBrisa Resort. The developers of the project are also considering
adding an additional 100 rooms to the Sheraton Hotel and 100 units to the Grand Pacific MarBrisa
approximately five to six years following the original opening date depending on market conditions
Advantages of the site include:
• Its location on the grounds of LEGOLAND overlooking the theme park will provide a unique
and desirable experience for LEGOLAND visitors;
• The site is able to extend into the parking lot of LEGOLAND and thus offers the flexibility for
a large-scale hotel and its amenities;
• Visibility to LEGOLAND visitors will be excellent given the site's location adjacent to the
main entrance to the park. Furthermore, the proposed hotel will be visible from many
locations within the park;
• Convenient accessibility to Interstate 5, the primary link between San Diego, Orange County,
and Los Angeles; and
• Strong proximity to other demand generators in the area including The Flower Fields at
Carlsbad Ranch, the beach, outlet shopping, and local golf courses.
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Site and Neighborhood Evaluation Proposed Hotel at LEGOLAND California -Carlsbad, CA
Disadvantages of this site include:
• Given the City of Carlsbad's height restrictions and the fact that the subject site is
surrounded by the theme park and the Grand Pacific Palisades Resort, a large portion of the
site will have limited views of the ocean;
• With the existing 90-room Grand Pacific Palisades Resort and the 250-room Sheraton
currently under constructing, there are already 340 hotel rooms located adjacent to the
subject site; and
• The subject site's location on-site at LEGOLAND will turn away some guests who may not
want to around the hustle and bustle of the theme park.
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Area Analysis
This section of the report will present data on both Carlsbad and San Diego County. The proposed
hotel will be affected from both local market area economic and demographic factors, as well as
from the County at large.
San Diego County Overview
San Diego County is located on the southwest corner of California and encompasses approximately
4,200 square miles. The County includes 18 incorporated cities including the communities of San
Diego, La Jolla, Del Mar, Escondido, Chula Vista, and Carlsbad. San Diego County is bordered by
Orange and Riverside Counties to the north, Imperial County to the east, the Pacific Ocean to the
west, and Mexico to the south.
San Diego County is most densely populated in the western and coastal areas where the 70 miles of
Pacific Ocean coastline supports year-round outdoor recreation and a high quality of life. Less
developed areas include San Diego's East County and parts of San Diego's North County, which is
characterized by gentle foothills and mountains. Many of these areas are also agricultural
communities where large quantities of flowers, produce, and wine are produced.
Once known as a military town fueled by the government and defense-related industries, the San
Diego County economy has diversified and evolved over the past two decades. While the military
link is still a presence today, technology, telecommunications, and the biomedical industries have
emerged as the largest growth sectors in the area.
Tourism is also a significant component of the San Diego area's economy. Renown for its idyllic
climate, world-class family attractions as well as its golf courses, spectator sports, beachfront
resorts, and its rich culture and history, San Diego visitor statistics have indicated a steady and
moderate growth.
The San Diego County lodging market, much like the rest of the country, suffered following the
events of September 11th and the national economic downturn. Occupancies began to recover at a
slow and steady pace beginning in 2003 and continued to recover through 2006. As of 2006,
overall occupancies were 73.3 percent, which is near the same levels achieved in 2000. While
average rates remained relatively stable from 2000 through 2004, average rate has increased
strongly in 2005 and 2006 increasing by 6.9 percent and 7.2 percent, respectively. The following
table displays occupancy, average daily rate, and RevPar statistics for San Diego County.
San Die10 Lod1in1 Market Statistics
Year Occue!nc~ % Chanse Avera~ Dail~ Rate % Chan!!!! RevPar % Chanse
2000 73.8% $109.18 $80.57
2001 69.8% -5.4% $110.79 1.5% $77.33 -4.0%
2002 68.4% -2.0% $110.81 0.0% $75.79 -2.0%
2003 69.5% 1.6% $111.34 0.5% $77.38 2.1%
2004 70.9% 2.0% $114.17 2.5% $80.95 4.6%
2005 72.3% 2.0% $122.00 6.9% $88.21 9.0%
2006 73.3% 1.4% $130.75 7.2% $95.84 8.7%
Source, Smith Travel Research
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Carlsbad Overview
The City of Carlsbad is located approximately 35 miles north of downtown San Diego and
approximately 85 miles southeast of downtown Los Angeles. Due in part to its location between the
San Diego and Los Angeles regions, as well as its high quality of life, the city has experienced a
tremendous amount of growth in the last decade. Already established as a strong corporate area for
the golfing industry, computers and software, telecommunications and bio-technology, available
land continues to be developed into office space as evidenced by the half million square feet of
office space currently under construction.
Furthermore, Carlsbad's coastal location and its convenient access to San Diego and Los Angeles
make it a popular weekend getaway for regional residents due to its family attractions, theme parks,
golf courses, beaches, and large resorts. Despite its strong regional following, Carlsbad does not
have the large-scale attractions nor the marketing dollars to attract a more national and
international demographic.
Area Map
O..lNMt).4l . ··--------. . ··-----· ·-· .... --· ----.. ,., ____ ... --· -
Economic and Demographic Analysis
Economic and demographic data compiled by Woods & Poole is presented in the paragraphs that
follow. It should be noted that this data does not directly correlate to hotel room night demand,
however is a good measure of the area's economic health. Furthermore, it is important to recognize
that these standard measures of economic health are not indices that one can look to without other
input in evaluating the health of the area's economy.
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Population
The following table outlines historical and projected population trends for San Diego County, that
State of California, and the United States as a whole.
Population
San Diego State of United
County CA States
1990 2,512,365 29,959,515 249,622,814
2000 2,824,587 34,002,756 282,193,477
2005 2,933,462 36,132,147 296,410,404
Compound Annual Growth (CAGR)
CAGR 1990 -2000 1.97% 2.13% 2.07% ·
CAGR 2000 -2005 0.76% 1.22% 0.99%
CAGR 1990 -2005 1.42% 1.72% 1.57%
Pro[ected
2010 3,172,171 38,226,252 311,843,984
CAGR 2005 -2010 1.58% 1.13% 1.02%
Source: Woods & Poole Economics of Washington D.C.
Population in San Diego County has lagged behind growth rates in the State of California and the
United States between 1990 and 2005. The net compound annual growth rate in San Diego
County from 1990 through 2005 was 1.42 percent, which was slightly lower than 1. 72 percent
and 1.57 percent compound annual growth rates achieved in the State of California and the United
States, respectively. According to projections made by Woods and Poole, the San Diego County
population growth is expected to increase at a compound annual growth rate of 1.58 percent,
which is expected to be higher than the 1.13 percent and 1.02 percent increase projected for the
State of California and the United States, respectively.
Retail Sales
Similar to population growth trends, retail sales was slightly lower than the other two regions
studied from 1990 through 2005 in San Diego County. However growth in San Diego County is
expected to continue as retail sales is projected to increase at a compound annual growth rate of
2.54 percent from 2005 through 2010. This growth is higher than the 2.08 percent and 1.99
percent projected for the State of California and the Untied States, respectively.
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Retail Sales
San Diego State of United
Coun~ CA States
1990 $21,587 $251 $2,079,504
2000 $26,999 $317 $2,867,300
2005 $29,958 $358 $3,207,179
Compound Annual Growth (CAGR)
CAGR 1990 -2000 3.80% 3.96% 5.50%
CAGR 2000 -2005 2.10% 2.48% 2.27%
CAGR 1990 -2005 3.02% 3.28% 4.02%
Projected
2010 $33,969 $397 $3,538,596
CAGR 2005 -2010 2.54% 2.08% 1.99%
Note: The County and U.S are expressed in millions of dollars and as constant 2005 dollars.
The State of California is expressed in billions of dollars
Source: Woods & Poole Economics of Washington D.C.
Personal Income
Personal Income in San Diego County grew at 4.29 percent from 1990 through 2005, with a
majority of that growth occurring between 1990 through 2000. Comparatively, the State of
California and the United States grew at 3.48 percent and 3. 7 4 percent, respectively.
Projections from 2005 through 2010 indicate continued growth for San Diego County of around
2.73 percent, which is well above the growth rates in the State of California and the United States.
The tables below detail personal income growth of each region as compared against the national
averages.
Personal Income
San Diego State of United
County CA States
1990 $60,879 $753 $5,650,072
2000 $86,675 $1,033 $7,878,598
2005 $96,673 $1,098 $8,466,007
Compound Annual Growth (CAGRJ
CAGR 1990 -2000 6.06% 5.40% 5.70%
CAGR 2000 -2005 2.21% 1.24% 1.45%
CAGR 1990 -2005 4.29% 3.48% 3.74%
Pro"ected
2010 $110,609 $1,227 $9,396,818
CAGR 2005 -2010 2.73% 2.25% 2.11%
Note: The County and U.S are expressed in millions of dollars and as constant 2005 dollars.
The State of California is expressed in billions of dollars
Source: Woods & Poole Economics of Washington D.C.
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Wealth Index
The table below illustrates the "wealth index", which is relative of an area to that of the United
States as a whole (100% index). As shown in the table above, in 2005, San Diego County enjoyed
a wealth index of 116, which was significantly higher than any other region analyzed.
Wealth Index
1990
2000
2005
San Diego
County
108
111
116
Compound Annual Growth (CAGRJ
CAGR 1990-2000 0.44%
CAGR 2000 -2005 0.87%
CAGR 1990 -2005 0.64%
Projected
2010
CAGR 2005 -2010
116
0.04%
Note: Wealth indices reflect adjusted disposable income
State of
CA
110
109
107
-0.28%
-0.37%
-0.32%
107
0.01%
(i.e. buying power); figures are indexed to the average for the U.S., which is 100.
Source: Woods & Poole Economics of Washington D.C.
Employment
United
States
100
100
100
0.00%
0.00%
0.00%
100
0.00%
The table below presents total employment data for San Diego County, the State of California, and
the United States. As shown in the table, employment growth between 1990 through 2005 in San
Diego County has exceeded that of the other areas reviewed in the table. Projections made by
Woods and Poole display continued growth of 2.60 percent between 2005 and 2010, which is far
stronger growth than any of the other regions analyzed.
Total Em~loyment Analysis
San Diego State of United
County CA States
1980 989,645 12,776,784 114,231,187
1990 1,437,356 16,965,207 139,380,891
2000 1,733,524 19,626,032 166,758,782
2005 1,858,879 20,426,450 172,587,009
Come,ound Annual Growth
CAGR 1990 -2000 3.17% 2.46% 3.03%
CAGR 2000 -2005 1.41% 0.80% 0.69%
CAGR 1990 -2005 2.37% 1.70% 1.96%
Protected
2010 2,113,680 22,128,289 186,079,920
CAGR 2005 -2010 2.60% 1.61% 1.52%
Source: Woods & Poole Economic Report
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Closer examination of data via an analysis of employment distribution, by industry, reveals modest
growth in several sectors, such as Wholesale Trade, Retail Trade, F.I.R.E., Services, and
Government. Other sectors have experienced slight declines including the Manufacturing, Utilities
and the Agriculture and Mining sectors.
In 2005, the Services sector represented approximately 37 percent of the county's total jobs, the
largest sector. Government represented the second largest sector making up over 19 percent of the
county's workforce. The Retail Trade sectors, which represents over 15 percent of the county's total
jobs, was third, follow the Service and Government industry. The Woods and Poole Economic report
projects that overall job growth particularly in the Services sector will fuel the county's employment
growth through 2010, with the overall effect being a 2.60 percent increase in employment. The
following table details San Diego County's historical and projected employment by sector.
San Diego Coun!X Em~loxment Statistical Analxsis
Projected
Employment by Sector ~ 1990 2000 2005 2010
Agriculture & Mining 29,965 33,948 42,808 42,420 45,211
Construction 46,649 81,413 95,193 101,815 109,063
Manufacturing 112,255 140,265 139,649 123,178 130,434
Utilities 31,833 43,512 63,383 60,848 70,094
Wholesale Trade 27,204 51,529 60,936 66,345 72,755
Retail Trade 147,599 228,709 266,875 286,616 307,967
F.I.R.E. 84,373 117,629 152,893 173,112 184,460
Services 223,131 414,373 594,738 687,148 808,001
Government 286,636 325,978 317,049 359,764 385,695
Total Employment 989,645 1,437,356 1,733,524 1,858,879 2,113,680
Compound Annual Growth '80-'90 90-'00 00-'05. Proj. '05 -201Q
Agriculture & Mining 1.26% 3.94% -0.18% 1.28%
Construction 5.73% 2.64% 1.35% 1.38%
Manufacturing 2.25% -0.07% -2.48% 1.15%
Utilities 3.17% 6.47% -0.81% 2.87%
Wholesale Trade 6.60% 2.83% 1.72% 1.86%
Retail Trade 4.48% 2.61% 1.44% 1.45%
F.I.R.E. 3.38% 4.47% 2.52% 1.28%
Services 6.39% 6.21% 2.93% 3.29%
Government 1.29% -0.46% 2.56% 1.40%
Total Emelolment 3.80% 3.17% 1.41% 2.60%
Absolute/Total Change '.fill:..:2.Q 90-'00 00 -'05 Proj. '05 -2QlQ
Agriculture & Mining 3,983 8,860 -388 2,791
Construction 34,764 13,780 6,622 7,248
Manufacturing 28,010 -616 -16,471 7,256
Utilities 11,679 19,871 -2,535 9,246
Wholesale Trade 24,325 9,407 5,409 6,410
Retail Trade 81,110 38,166 19,741 21,351
F.1.R.E. 33,256 35,264 20,219 11,348
Services 191,242 180,365 92,410 120,853
Government 39,342 -8,929 42,715 25,931
Total Employment 447,711 296,168 125,355 254,801
Source: Woods & Poole Economic Report
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Major Employers
Carlsbad's major employers are well distributed throughout the economic spectrum. The following
table details Carlsbad's top employers as of date of this engagement.
Top Employers in the City of Carlsbad
Company
Callaway Golf
LEGOLAND California
lnvitrogen
La Costa Resort and Spa
City of Carlsbad Unified School District
Four Seasons Resort Aviara
Taylor Made/Adidas Golf
City of Carlsbad
Gemological Institute of America
Acushnet (Cobra Golf, Titleist, Footjoy)
Seasilver USA
Tyco Healthcare
24-Hour Fitness
ViaSat Inc
Software of the Month Club (SOMC Group)
Ashworth
Beckman Coulter
San Diego Gas and Electric
Hoehn Motors (Mercedes Benz/Acura/Porsche/Audi)
Upper Deck
Source: SourceBook
Unemployment
# of Employees
2,500
1,100
960
950
950
900
727
619
600
535
500
500
450
450
410
400
355
325
300
300
The following table details unemployment rates for the City of Carlsbad, San Diego County, the
State of California, and the United States as a whole.
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
Unemployment Rate
Year City of Carlsbad San Diego County State of California United States
1997 3.5% 4.3% 6.4% 5.4%
1998 2.8% 3.5% 6.0% 4.9%
1999 2.5% 3.1% 5.3% 4.5%
2000 2.5% 3.9% 4.9% 4.2%
2001 2.7% 4.2% 5.4% 4.0%
2002 3.4% 5.1% 6.7% 4.7%
2003 3.4% 5.2% 6.8% 5.8%
2004 3.1% 4.7% 6.2% 6.0%
2005 2.8% 4.3% 5.4% 5.5%
2006 2.5% 3.9% 4.8% 5.1%
Source: Bureau of Labor and Statistics
Note: Not Seasonally Adjusted
The City of Carlsbad's unemployment rates have historically been well below the County, the State,
and the United States as a whole. Following the events of September 1 it\ unemployment rates in
Carlsbad increased slightly from 2.5 percent in 2000 to a high of 3.4 percent in 2002. Since that
time, unemployment rates have been on a slow and steady decline down to 2.5 percent as of year-
end 2006.
Commercial Real Estate Market
While there is already a modest existing base of corporations occupying office space in the City of
Carlsbad, the area is undergoing a building boom as approximately 500,000 square feet of office
space has been added into the market in 2006 and approximately a half million square feet of
office space is currently under construction. Carlsbad's convenient location in between the San
Diego and Los Angeles metropolitan areas as well as its intelligent employee pool and high quality
of life is driving the area's popularity as a corporate office destination. The Carlsbad office market
identified by CB Richard Ellis has been inventoried as approximately 3.6 million square feet of
space as of year-end 2006. A majority of the existing office space and the office spaces currently
under construction are located along Palomar Airport Road, which is proximate to the subject site. It
should be noted that while the strength of the area's local office market will most certainly have an
impact on the local hotel's markets performance, it would not have a direct impact on the proposed
subject development, as the proposed hotel will be targeting a different source of demand.
The following table displays the most important statistical data for the Carlsbad office market as
compiled by CB Richard Ellis over the past year and a half.
tarlsbad Office Statistics
Year Total Supply Occupied Space Vacancy Rate
3rd Quarter 2005 3,014,087 2,806,115 6.9%
4th Quarter 2005 3,063,100 2,836,431 7.4%
1st Quarter 2006 3,170,278 2,970,550 6.3%
2nd Quarter 2006 3,227,406 2,924,030 9.4%
3rd Quarter 2006 3,287,406 2,955,378 10.1%
4th Quarter 2006 31560,146 2,944,241 17.3%
Source: CB Richard £//is
YTD Net Absorption (SF)
63,217
92,443
107,178
49,670
83,799
69,689
Under Construction
164,306
361,953
254,775
603,585
684,026
497,167
Average Asking Lease Rate
$25.56
$26.16
$29.28
$30.12
$28.92
$30.00
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Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
As the chart above illustrates, the local office market is dealing with a strong influx in overall supply
increasing the total available space from just over three million square feet of office space to just
under 3.6 million square feet. While total occupied space has increased by approximately five
percent from the third quarter of 2005 through the fourth quarter of 2006, the increase in supply
has far exceeded the increases in demand and thus vacancy rates have increased from a low of 6.9
percent to a high of 17.3 percent. While a 10.4 percent increase in vacancy rates in a year and a
half might be concerning to some, indicators such as positive net absorption and increasing average
lease rates indicate that the office market in Carlsbad is still healthy. The local office market has
experienced positive net absorption in the last six quarters and average asking lease rates have
increased by approximately 17 percent since the third quarter of 2005.
Interviews with local office brokers and published office reports from a variety of brokerage
companies in the area exhibited a positive outlook for the next few years. Many predict continued
leasing activity at a moderate and steady pace. While vacancy rates are unlikely to decline due to
the nearly 500,000 square feet of office space that is currently under construction, many believe
that increases in leasing activity will eventually absorb the new supply.
Transportation
The transportation infrastructure is an integral component to the success of any real estate
development. The purpose of a well-organized transportation network is to provide businesses and
customers with good locations, easy access, and functionalism.
Highway Transportation
Carlsbad offers convenient and direct access to the San Diego and Los Angeles metropolitan areas
via Interstate 5. Interstate 5 is a major north/south directional highway that originates at the
US/Mexico border and extends north through California, Oregon, and Washington. Few highways in
the Carlsbad area travel in an easVwest direction. State Route 78 just north of Carlsbad travels in
an easVwest direction beginning in Oceanside and terminates near Escondido at the Interstate 15
interchange. The main east/west highway in the area is Interstate 8, which begins near San Diego
and travels along the US/Mexican border into Arizona. The following table displays mileage and
driving time of a few of the major cities in the regi9n.
Distance from Major Cities
City Mileage
San Diego, CA 35
Los Angeles, CA 85
Las Vegas, NV 315
Phoenix, AZ 385
Tucson, AZ 437
Source: Pinnacle Advisory Group
Air Transportation
Driving Time (approximate)
35 minutes
1 1/2 hours
4 1/2 hours
5 1/2 hours
6 1/2 hours
The closest major airport to the Carlsbad area is the San Diego International Airport, which is
approximately 35 miles from Carlsbad. Other major airports that are located in the region are
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Pinnacle Advisory Group ~
Area Analysis Proposed Hotel at LEGOLAND California -Carlsbad, CA
located in Orange County and the Los Angeles area; however, many of these airports are over an
hour (driving time) away from Carlsbad. The closest of these airports is John Wayne Orange County
Airport located approximately 50 miles from Carlsbad. Other airports in the Orange County/Los
Angeles area include Long Beach Airport (75 miles), Ontario Airport (80 miles), Los Angeles
International Airport (90 miles), and Bob Hope Burbank Airport (100 miles). Locally, Carlsbad is
home to the McClellan-Palomar Airport, which accommodates a few regional commercial flights as
well as private planes.
The following chart presents the most updated historic passenger volume for the San Diego
International Airport.
San Diego International Airport • Total Passenger Statistics
18,000,000 ....----------------------------~
17,500,000 -j------------------------===-
17,000,000 +-----------------------
16,500,000 +-----------------------
16,000,000 +--------------------
15,500,000 +-----
15,000,000
14,500,000
14,000,000
13,500,000
1999 2000 2001
Source: San Diego International Airport
2002 2003 2004 2005 2006
In a pattern typical of major airports throughout the nation, San Diego International Airport had
fewer passengers (approximately 888,000) in 2002 compared to 2000, a result of declining
economic conditions and the September 11, 2001 terrorist attacks. The airport showed a modest
recovery of 2.2 percent in 2003 over 2002; however recovered strong in 2004 and 2005
increasing by 7 .3 percent and 6.1 percent, respectively. Passenger volume at San Diego
International Airport began to stabilize in 2006 increasing by only 0.6 percent to a high of 17 .5
million passengers.
According to Simat Helliesen & Eichner, Inc (SH&E), consultants in the aviation industry, passenger
volume is expected to increase between 0.4 and 0.6 percent on an annual basis increasing. its
passenger volume to between 27.1 and 32.7 million passengers by 2030. Based on this forecast, it
is expected that without investments in airport improvements such as additional gates and taxiway
extensions, the airport will not be able to operate at such high volumes. While no master plans have
been developed at this time, it is expected that the Airport Authority will be selecting a site in the
near future and will begin to plan and design new airport expansions.
The following table presents the aggregate historic passenger volume for the five airports located in
the Orange County/Los Angeles area.
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