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Herndon, Virginia

A Metropolis Capital Advisors Exclusive Offering

FINANCEMEMORANDUM

A168-suite Extended Stay, Limited Service Hotel

Washington, D.C. Metro Region

RESIDENCE INNBY MARRIOTT

Albert J. MissirlianManaging DirectorP: 301.657.4274F: 301.657.3698 [email protected]

Clifford MendelsonChief Executive OfficerP: 301.657.2022 F: [email protected]

CONFIDENTIALITY AND CONDITIONS

This Finance Memorandum (“Memorandum”) is furnished to prospective lenders solely to facilitate the financing of the Residence Inn, Herndon, VA (Property”). The Memorandum contains proprietary information and was prepared by Metropolis Capital Advisors LLC (“MetCap”) using information compiled from sources we consider to be reliable. By receipt of this Memorandum, you agree that: (a) the Memorandum and its contents are of a confidential nature and that you will hold and treat it in strictest confidence; (b) you will not reproduce, transmit or disseminate the information contained in the Memorandum through any means, or disclose this Memorandum or any of its contents to any other entity without the prior written authorization of MetCap nor will you use this Memorandum or any of its contents in any fashion or manner detrimental to the interests of MetCap or the borrower; and (c) upon request you will return the Memorandum without retaining any copy or extract of any portion thereof. This Memorandum does not purport to be all-inclusive or to contain all the information which prospective lenders may desire. Certain documents and materials are described herein in summary form. The summaries are not complete descriptions of the documents and materials. Interested parties are expected to review all such documents and materials independently. Financial projections are provided for reference purposes only and are based on assumptions relating to the general economy, competition and other factors beyond the control of MetCap and are, therefore subject to material variation. Additional information and an opportunity to inspect the Property will be made available to qualified lenders upon request. Each financing offer is to be based strictly and entirely upon the lender’s independent investigation, analysis, appraisal and evaluation of facts and circumstances deemed relevant by the lender. Neither Borrower, MetCap nor any of their respective directors, officers, agents or affiliates have made any representation or warranty, express or implied as to the accuracy or completeness of this Memorandum or any of its contents, and no legal commitment or obligation shall arise by reason of this Memorandum or its contents.

This Memorandum is submitted and received with the understanding that all negotiations for the financing of the herein described Property will be conducted through MetCap. The borrower and MetCap expressly reserve the right, at their sole discretion, to reject any or all expressions of interest or offers to finance the Property and/or terminate discussions with any entity at any time with or without notice.

For more information regarding the proposed financing, please contact:

TABLE OF CONTENTS

04

08

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I. EXECUTIVE SUMMARY The Financing Loan RequestProperty OverviewBorrowerHotel Management

II. PROPERTY DESCRIPTIONLocation MapAerialPhysical Description

III. MARKETLocal EconomyResidence Inn Top 20 Corporate AccountsDC Lodging MarketHotel Comparables

IV. FINANCIAL SUMMARYFinancialsFranchise Agreement SummaryManagement Agreement Summary

Metropolis Capital Advisors | Residence Inn by Marriott4

EXECUTIVE SUMMARY

THE FINANCINGMetropolis Capital Advisors is pleased to present for financing, the Residence Inn by Marriott, Herndon, Virginia, a 168-suite extended stay, limited service hotel built in 1988 and renovated in 2003 and 2011.

The property is conveniently located near the intersection of Elden Street and the Fairfax County Parkway (RT 7100) and is easily accessible from the Dulles Toll Road (RT 267). The hotel benefits from proximity to multiple demand generators, including Washington Dulles International Airport, businesses within the Dulles Technology Corridor and government agencies and contractors in the intelligence and cybersecurity fields.

The current loan on the property matures in June 2017 and the purpose of this financing is to pay off the existing $26,500,000 loan. We are seeking short-term bridge financing for the property in order to grow the net operating income by capitalizing on strong micro and macro economic drivers such as the arrival of metro, economic improvement due to increased government and technology spending as well as more efficient expense management due to a recent change in management companies. In addition the Borrower will be implementing a $1,500,000 property improvement plan that will include a complete replacement of all soft goods and will also convert four guest studio suites into a fitness center which will have a positive impact on corporate travelers.

5Metropolis Capital Advisors | Residence Inn by Marriott

HIGHLIGHTS• Residence Inn by Marriott brand with over 700 locations

globally, Residence Inn created and defined the Extended Stay lodging category

• Located 6 miles away, Washington Dulles International Airport with over 21.5 million annual passengers, is one of the main income generators for the property

• The property is located between the towns of Herndon and Reston, Virginia, the area known also as the Dulles Technology Corridor home to local headquarter offices such as Microsoft, Oracle, Comcast, Time Warner, Bechtel, Leidos, Amazon, AT&T, Honeywell and VW/Audi

• Herndon/Reston is also popular for government contracting. The hotel is surrounded by buildings that house employees from the Department of Interior, Veterans Affairs, Department of Justice and Defense and Homeland Security—In addition, loosening of sequestration will result in increased capital to government based businesses in the immediate area

• The expansion of the nearby Silver line of the WMATA metro, will continue to drive new commercial development in the Reston/Herndon area and will increase extended stay demand within the market

• Hotel market with no new extended stay hotel currently under construction or proposed hotel with a definitive construction start date

• The recent Marriott—Starwood merger opens up the property to Starwood Preferred Guest members

Residence Inn by Marriott

Located 6 miles away from Washington Dulles International Airport with over 21.5 million annual passengers

EXECUTIVE SUMMARY

6 Metropolis Capital Advisors | Residence Inn by Marriott

EXECUTIVE SUMMARY

LOAN REQUESTFirst Mortgage Request $26,500,000

Term 5 Years

Amortization Interest Only

Interest Rate Best Available

Liability Non-recourse, Limited to the Real Estate

Year One Proforma NOI $1,966,800

Value (6.25% cap) $31,450,000 / $187,000 Key

Loan to Value (LTV) 84.3%

Debt Yield 7.42%

Trailing 12 NOI $1,926,200

Stabilized NOI (2022) $2,708,000

Stabilized Value (7% cap) $38,685,000 / $236,000 Key

Stabilized Debt Yield 10.2%

LTV at Stabilization 68.5%

PROPERTY OVERVIEWAddress315 Elden Street Herndon, VA 20170

Number of Suites168 (reducing to 164)

Year Built/Renovated1988 / R-2003 & 2011

GenerationGeneration One

Site 281,834 SF / 6.47 Acres

AmenitiesWi-Fi (free), Meetings Room, Laundry, Sport Court and Pool

FranchiseExpires November 2023

Residence Inn by Marriott invented and continues to define the Extended Stay lodging category in North America. With over 700 locations worldwide and twice the footprint of its next largest competitor, Residence Inn’s high awareness brings huge occupancy premiums and legendary RevPAR Index compared to the category.

Approximately one third of all business travel room nights are part of an ‘extended stay’. With its unique culture and service model that recognizes the different needs of long- stay guests, Residence Inn is optimally positioned to serve this large market segment.

Hotels offer spacious suites that are designed for longer stays with separate living, working and sleeping areas so you can work and relax. From fully equipped kitchens and grocery delivery to complimentary hot breakfast and free Wi-Fi, guests will have everything they need to thrive on the road.

With over 700 hotels worldwide and a pipeline of 223 properties, the brand’s growth continues in the U.S. and internationally throughout Central America, Europe, Africa and the Middle East.

BRAND PROFILE


West One Limited Partnership is led by Anthony Westreich. Anthony Westreich is Chairman and Chief Executive Officer for Monday Properties, one of the leading real estate investment, development, ownership and management firms in New York City and the Washington, D.C. region.

Westreich established Monday Properties in 2004 and under his leadership the firm has completed over 50 property transactions representing $12 billion in capital value and 27 million square feet, and has leased over 10 million square feet of office space.

Monday Properties has or currently owns a portfolio of Manhattan’s finest office buildings, including 230 Park Avenue, 237 Park Avenue, 1440 Broadway, 260 Park Avenue South, 386 Park Avenue South and 350 Madison Avenue. In addition, the firm owns over 3 million square feet of office properties in Rosslyn, VA making it the largest landlord in that submarket. Those assets include many notable buildings including 1000/1100 Wilson, 1812 North Moore Street and 1101 Wilson Boulevard. The company maintains its headquarters at 667 Madison Avenue in Manhattan, but also has offices at 1000 Wilson Boulevard in Rosslyn, Virginia.

Mr. Westreich serves on the board of the Grand Central Partnership and is a member of the Real Estate Board of New York, the Building Owners and Managers Association and the Young Presidents’ Organization. Mr. Westreich is a graduate of Southern Methodist University and has completed the Owner/President Management Program at Harvard Business School. In addition, Mr. Westreich is actively involved in many charitable causes such as WIZO, AIPAC, Lincoln Center, RETT, Mt. Sinai Hospital and many others.

www.mondayre.com

HERNDON LODGE GENERAL PARTNERSHIPThe partners of Herndon Lodge General Partnership are long-time Washington DC Developers who are active in hotels, office, retail, and residential properties.

GGJ/HERNDON LIMITED PARTNERSHIP – 50% OWNERRobert Gould & Stephen Grayson are the partners of GGJ/Herndon Limited Partnership. Both are long-time Washington DC developers who over the course of their 40 plus year careers have collectively developed over 750,000 square feet of commercial space, over 500 lots/townhomes/single family homes, over 400 multi-family units and nearly 500 keys including leading the development of the Residence Inn Herndon.

WEST ONE LIMITED PARTNERSHIP – 50% OWNER

BORROWER

Crescent Hotels & Resorts is an award winning, nationally recognized, top-3 operator of hotels and resorts. Crescent currently operates over 100 hotels, resorts & conference centers in the US and Canada.

Crescent is one of the few elite management companies approved to operate upper-upscale and luxury hotels under the brand families of Marriott, Hilton, Hyatt and IHG. Crescent also operates a collection of legendary independent lifestyle hotels and resorts. Crescent’s clients are made up of hotel REITs, private equity firms and major developers.

www.chrco.com

HOTEL MANAGEMENT

EXECUTIVE SUMMARY


PROPERTY DESCRIPTIONLOCATION MAP


Tysons Corner

Springhill

Wiehle-Reston East

Greensboro

Dulles Technology Corridor

FutureFuture

Future

Future


PROPERTY DESCRIPTIONPROPERTY DESCRIPTION

AERIAL


6 M

iles

To


PROPERTY DESCRIPTION

ConstructionSimilar to all Residence Inns – Generation One properties, the hotel features wood-frame construction. Exterior finishes are comprised of board-and-batten siding at the base and masonite staccato board (stucco appearance) above, along a tile roof.

UtilitiesThe property is provided with all necessary utilities, including water (Fairfax County Water Authority), sewage (Town of Herndon Sewer System), electric (Dominion Power), telephone (Verizon), gas (Columbia Gas of Virginia) and trash removal (Town of Herndon).

GatehouseThe gatehouse building contains the registration area and hearth room where a complimentary buffet breakfast is offered daily as well as evening receptions. Also located in the gatehouse building are guest laundry facilities, a meeting room and hotel administrative offices.

Guest SuitesThe 168 suites are split between 126 studio suites and 42 penthouse suites. Studio suites contain living/bedroom combination, kitchen, bath and dressing area. Penthouse suites, which are two levels, contain a living room, dining room, full kitchen, bath on the first level and an upstairs loft offering a separate bedroom and bath. All of the 168 guest suites and interior corridors were renovated in 2003 and again in 2011.

Suite AmenitiesFull kitchen, free high speed wireless internet access, work desk with lamp, pullout sofa bed, LCD TV, iron & ironing board, complimentary in-room coffee, and hairdryer.

AmenitiesFree breakfast, free grocery shopping service, on-site laundry, outdoor pool, sport court, business center, boardroom, complimentary access to nearby Gold’s Gym, and a courtesy shuttle to the trade area, its businesses, retailers, and Dulles Airport.

Upcoming RenovationIn order to provide corporate business travelers with enhanced amenities, the Residence Inn Herndon will convert four guest studio suites into a fitness center and guest laundry in 2018 and replace all soft goods. It is anticipated that this renovation will cost approximately $1,500,000.

Address315 Elden Street Herndon, VA 20170

Number of Suites168 (reducing to 164)

Year Built/Renovated1988 / R-2003 & 2011

GenerationGeneration One

Site 281,834 SF / 6.47 Acres

LOBBY

SPORT COURT

168 suites

126 studio suites

42 penthouse suites

PHYSICAL DESCRIPTION


LOBBYPATIO

SWIMM

ING

POO

L

SPORT COURT

BREAKFAST BUFFE

T

MARKET

2 BEDROOM

SUITE

STUDIO SUITE

PROPERTY DESCRIPTION


MARKET

Washington Area Economy

Job Growth

>65,500 New Jobs During 12 Months Ending November 2016

Unemployment Rate

3.7%As of November 2016

Average Household Income

$121,439In 201658% Higher than US Average

Project Job Growth

43,600Per Year Over the Next 5 Years

LOCAL ECONOMYThe Washington area economy maintained its positive momentum in the 4th quarter of 2016. During the 12 months ending November 2016, the region added 65,500 new jobs. The rate of job growth in the metro area finally surpassed that of the entire nation this year, after trailing for years. The Professional/Business Services sector remained the largest source of new jobs in the Washington metro area in the 4th quarter, followed by the Education and Health Services, Leisure/Hospitality, Government, and Retail Trade sectors. Only Information – one of the region’s smaller employment sectors – had a net job loss over the 12-month period.

The unemployment rate in the Washington metro area stood at 3.7% as of November 2016, constituting a moderate increase off its low of 3.5% as of May 2016. Still, this is a 40 basis point decline from the metro area’s unemployment rate at November 2015. The region’s unemployment rate is the now fourth lowest among its peer metropolitan areas, trailing only Denver, Boston, and San Francisco, and is well below the national average of 4.6%.


The Washington metro area remains well-positioned for economic growth in the period ahead. This growth will continue to be driven by the private sector, as Federal employment and procurement have both been stagnant over the past several years. By 2020, the expectation is that the Federal government’s contribution to Washington’s Gross Regional Product will decrease to approximately 27%, down from the current level of 37%.

Average household income in the Washington metro area grew by 51% from 2000 to 2016, compared to just 36% nationally, and it currently exceeds the national average by 58%. By 2021, the Washington metro area’s average household income is projected to rise another 8%, compared to an increase of 9% nationally. The elevated household income in the Washington area yields greater discretionary spending and supports demand for retail goods and space.

The Washington metro economy continues to signal positive growth in the period ahead. For years, the region’s economic recovery was held back by sequestration, shutdowns, and other harmful effects of Federal budget instability. During this period, the region lost significant ground to its peer metro areas. Now that the Federal government has put budget-related turbulence to rest – at least for the time being – economic growth in the region has gained real traction. Job growth in particular has been strong, especially in high-paying sectors. We predict that 59,800 new jobs will be created in the region by the end of 2016, with the pace of annual job growth slowly declining in subsequent years. Overall, we expect annual job growth in the metro area to average 43,600 over the next five years.

The Bloomberg/University of Michigan index of consumer sentiment in the U.S. registered at 92.6 in December 2016. This reading is up from 92.6 in December 2015 and is not only above the long-term average, but it is in fact at its highest level since January 2004, when it was 103.8.

MARKET


MARKET

World-renowned as one of the earliest and most successful master-planned communities, Reston was designed to balance a strong job base with a high quality of life and diverse housing options. Midway between Tysons Corner and Washington Dulles International Airport, Reston offers excellent access to employers, workers and residents via the Dulles Toll Road and Fairfax County Parkway.

Commercial development is primarily clustered along three main arteries—Reston Parkway, Sunrise Valley Drive and Sunset Hills Road. Reston is home to four hotels, about 466,000 square feet of industrial/flex space and 1.7 million square feet of retail development, much of which is focused around the Reston Town Center.

Reston is the second largest office market in Fairfax County with almost 19.7 million square feet of space. Office buildings range from condominiums to the high-rise structures around the Reston Town Center. Other selected business parks in Reston include Campus Commons, Commerce Executive Park, Isaac Newton Square, Lake Fairfax Business Center and Parkridge.

Reston is home to major employers such as Accenture, BAE Systems, Fannie Mae, the corporate headquarters of Lafarge North America, Lockheed Martin, Sprint, Northrop Grumman, Oracle, Qinetiq North America, Raytheon, Sallie Mae, Siebel Systems, Unisys and the U.S. Geological Survey.

In addition to being one of the county’s largest business centers, Reston boasts 1,300 acres of open space and natural areas, including more than 60 miles of trails, dozens of recreational facilities and two golf courses.

RESTON SELECTED EMPLOYERSAmerican Society of Civil Engineers

Appian Artel

BAE Systems Bechtel

Berico Technologies Blue Canopy Group C2 Solutions Group

Carahsoft TechnologyCollege Entrance Exam Board

comScore Concept Solutions

Data Networks CorporationDefense Intelligence Agency

Fannie MaeGCI

HCA Virginia Reston Hospital Center hCentive

InScope InternationalL-3 Communications Stratis

LeidosLockheed Martin

LongView International Tech Solutions MAXIMUS

MetroStar SystemsMicrosoftNavstar

NCINII Holdings

Northrop GrummanNVR

OraclePragmatics

SercoSiemens

Software AGSprintSTG

QuadrantTeraThink

Thompson HospitalityThreat Track Security

Thundercat TechnologyTransaction Network Services

Unisys U.S. Bureau of Indian Affairs

U.S. General Services Administration U.S. Geological Survey

Vencore Verisign

Key:Headquarters Fortune 500 Headquarters

Population Profile

* Average of the median incomes for the combined census designated places within the market

Sources: Fairfax County Department of Housing and Community Services, Housing and

Population Estimates 2013, American Community Survey (ACS) 2012 Five-Year Estimates


ECONOMIC BASE

Industry Jobs Share

Professional, Scientific, and Technical Services 24,413 38.2%

Information 5,402 8.4%

Health Care and Social Assistance 4,362 6.8%

Administrative and Support and Waste Management 4,292 6.7%

Finance and Insurance 3,604 5.6%

Accommodation and Food Services 3,293 5.2%

Retail Trade 2,931 4.6%

Educational Services 2,863 4.5%

Construction 2,161 3.4%

Other 10,617 16.6%

Total 63,938 100.0%

MARKET

RESTON IS HOME TO THE HIGHEST CONCENTRATION OF LARGE FIRMS

(100+ EMPLOYEES) IN FAIRFAX COUNTY.

Source: U.S. Census, Bureau County Business

Patterns 2012

Sources: Virginia Employment Commission, Second Quarter 2013, and Fairfax County Public Schools


MARKET

The Herndon submarket is located in northwest Fairfax County, between Reston and Washington Dulles International Airport. It enjoys excellent accessibility via the Dulles Toll Road (Route 267) and Fairfax County Parkway (Route 7100/286).

The Town of Herndon is one of the region’s most dynamic office, retail and hotel centers. Herndon’s historic downtown includes numerous restaurants and shops, a farmer’s market and fairs and festivals held throughout the year.

Commercial development is focused along Elden Street, Herndon Parkway, Spring Street and Worldgate Drive. Office space totals more than 5.7 million square feet and runs the gamut from small condominiums to high-rise structures along the Dulles Toll Road.

Additionally, the submarket boasts more than 1.1 million square feet of industrial/flex space, as well as 1.3 million square feet of retail development. Due to its proximity to Dulles Airport, the submarket has 10 hotels with more than 1,560 rooms.

Herndon is home to the Center for Innovative Technology (CIT), a nonprofit institution founded by the Commonwealth of Virginia to foster technological innovation through partnerships between Virginia businesses and its colleges and universities. To date, the CIT has been instrumental in not only creating and retaining jobs, but also thrusting Virginia into the world spotlight as a leader in technological innovation.

Major employers in Herndon include the Air Line Pilots Association, Boeing, ITT Industries, Northwest Federal Credit Union, Parsons Brinckerhoff, SAVVIS Communications, Verizon and the federal government.

HERNDON SELECTED EMPLOYERS

AbraxasAir Line Pilots Assoc. Amazon Web Services

Automated Based Systems Boeing

Booz Allen HamiltonBritish Standards Institution CGI

Cisco Systems Clear WirelessContinental Building Supplies

CRGT GuidantCyberdata Technologies

DigiconDRS Technical Services

Engineering Management & IntegrationExelis

Fairfax County Public Schools Fannie MaeFreddie Mac

GLOBAL Integrated Security Harris Corporation

International Solutions Group KmartKohl’s

Logical ParadigmMarriott

Metropolitan Healthcare ServicesMicroPact

Navy Federal Credit Union Northwest Federal Credit Union

NveORI

PaladionParsons Brinckerhoff

Raytheon Trusted Computer Solutions Search Technologies

Smithsonian Institution Software Catalysts

Time Warner Entertainment Town of Herndon

U.S. General Services Administration VerintViON

U.S. Customs and Border Protection Zenetex

Key:Headquarters

* Average of the median incomes for the combined census designated places within the market

Sources: Fairfax County Department of Housing and Community Services, Housing and

Population Estimates 2013, American Community Survey (ACS) 2012 Five-Year Estimates

Population Profile


MARKET

ECONOMIC BASE

Industry Jobs Share

Professional, Scientific, and Technical Services 24,413 38.2%

Information 5,402 8.4%

Health Care and Social Assistance 4,362 6.8%

Administrative and Support and Waste Management 4,292 6.7%

Finance and Insurance 3,604 5.6%

Accommodation and Food Services 3,293 5.2%

Retail Trade 2,931 4.6%

Educational Services 2,863 4.5%

Construction 2,161 3.4%

Other 10,617 16.6%

Total 63,938 100.0%

NEARLY 30 PERCENT OF FIRMS

ARE MID-SIZED, WITH BETWEEN

10 AND 100 EMPLOYEES.

Source: U.S. Census, Bureau County Business

Patterns 2012

Sources: Virginia Employment Commission, Second Quarter 2013, and Fairfax County Public Schools


MARKET

Continued strength and eager anticipation are two possible ways to describe the current Reston/Herndon submarket. Quarterover-quarter vacancy ticked down 40 basis points (BPS), to close the second quarter 2016 at 16.7%—below the five-year average—which signals the strength of the Reston/Herndon submarket as it was able to recover within three months from Booz Allen Hamilton’s vacancy from 13200 Woodland Park Drive, which accounted for 1.7% of the submarket’s total inventory, and spiked the vacancy rate by 70 BPS in the first quarter 2016. New leasing activity in Reston/Herndon at mid-year totaled 636,000 SF, the highest level of any Northern Virginia submarket. Year-to-date Class A leasing activity, at 477,000 SF, is nearly double that of Tysons (the next highest submarket). Reston/ Herndon was home to NoVA’s largest lease of the second quarter of 2016, as Ellucian committed to 97,000 SF at Tishman Speyer’s 2003 Edmund Halley Drive. Technology and contractor tenants signed a variety of deals in the second quarter of 2016, including Iron Bow’s sublease of 47,000 SF

RESTON/HERNDON OFFICE SUBMARKET

Reston Town Center

at 2303 Dulles Station Boulevard, Exostar’s 28,000 SF lease at 2325 Dulles Corner Boulevard, ScienceLogic’s 27,000 SF expansion at 10700 Parkridge Boulevard, and Skybitz’ new lease for 23,000 SF at 2300 Dulles Station Boulevard. The two largest move-outs were from the same building: Harris Corporation and DRS Technologies vacated a combined 151,000 SF at 12930 Worldgate Drive. Offsetting this was Noblis’ occupying 147,000 SF at 2002 Edmund Halley Drive.

The current average direct asking rent of $29.98 PSF is the highest rental rate in over five years, and reflects a tightening market. In addition to the oft-cited Reston Town Center, the submarket contains another thriving minimarket: Wiehle-Reston East. This area is the westernmost and most-utilized of the Silver Line Metro stations, and nearby office buildings have benefitted. Vacancy within one-half mile of Reston’s only Metro station was 15.3% at the end of second quarter 2016, and within one-quarter mile of the station is even lower at 9.8%.


RESIDENCE INN TOP 20 CORPORATE ACCOUNTSACCOUNT RANK ACCOUNT NAME 2016 Room Nights

1 NEC CORPORATION 1,992

2 US DEPT OF DEFENSE 1,598

3 NOMAD TEMPORARY HOUSING 1,168

4 BECHTEL CORP 977

5 DEPT OF HOMELAND SECURITY 875

6 US DEPT OF STATE 800

7 HCENTIVE 715

8 MICROSOFT CORP 676

9 LOCKHEED MARTIN CORP 605

10 LEIDOS HOLDINGS INC 466

11 FEDERAL NATIONAL MORTGAGE ASSN 444

12 SMALL BUSINESS ASSOCIATION 432

13 MANTECH 394

14 MARRIOTT INTERNATIONAL INC 388

15 ZOOMDATA 380

16 ALE SOLUTIONS 366

17 US HEALTH & HUMAN SVC DEPT 363

18 CACI INTERNATIONAL INC 355

19 EXPEDIA INC 352

20 US DEPT OF STATE 331

MARKET

The Washington D.C. lodging market has historically been one of the most stable of the major U.S. markets, principally due to the volume of demand related to the federal government. This demand includes government and military employees, as well as private-sector employees traveling on government-related business. Although the levels of demand fluctuated during the recession and subsequent government shutdown and sequestration, the volume of travel related to government activity, complemented by steady tourism demand, sustained occupancy in the mid-60% range even in the slowest years. This stability extends to the average daily rate (ADR), as the government-related demand is tied to the federal per-diem rate, which is set annually. Although the per diem varies by season, this rate is an anchor for the market and serves as a benchmark for corporate and group rates. Thus, while RevPAR for the top 25 U.S. metropolitan markets declined 19% in 2009, the D.C. market experienced only an 8.6% decline. Average rate in D.C. fell by only 5.5% that year, compared to over 22% in New York City and approximately 15% in Chicago and San Francisco.

DC LODGING MARKET The controlled downside provided by the government sector comes at a cost. Given the magnitude of demand that is tied to this rate, it is difficult for the market to achieve ADR growth beyond the parameters of the per-diem change. Rate growth has been further constrained by the sequestration, which reduced government travel activity in 2013 and enabled other segments to benefit from discounted rates offered in response to sluggish government demand. Because of these influences, average rate in the market remained essentially flat between 2009 and 2014. RevPAR demonstrated similar stability between 2009 and 2013, but significant occupancy growth in 2014 supported a RevPAR increase of over 5.0% that year. This pace of growth was sustained in 2015 and continued into 2016, as government demand stabilized and was supplemented by increased activity in the commercial and convention sectors of the market. In 2015 occupancy surpassed the 70% mark for the first time since 2005, and the impetus of RevPAR growth shifted to average rate, which outpaced inflation in both 2015 and 2016. ADR growth was also supported by the opening of new, higher-rated supply.


MARKET

More than 800 hotels and approximately 111,500 rooms constitute the lodging landscape of the Greater Washington, D.C. MSA. The District of Columbia itself offers approximately 130 hotels totaling more than 30,200 rooms.

The market’s breakdown by chain scales is in line with national trends for economy, midscale, upper-midscale, and upscale hotels; however, approximately 41.5% of all guestrooms in the District of Columbia are classified as upper-upscale, representing a proportionately greater share of the market when compared with similar markets in the U.S.

The inventory of hotels located in the District of Columbia has increased by 3,680 rooms (12.2%) since 2014; another 2,000 guestrooms are scheduled to open by the end of 2017. In total, over 30 hotels are under construction or proposed for development in the market. These projects are in varying stages of development, and it is unlikely that all will be completed, but supply is expected to increase by at least 15% by 2020. Although this volume of new supply is significant, it is notable that all the hotels that opened within the past decade have been absorbed. Furthermore, as of 2016, both occupancy and average rate had regained their prior peak levels. While the recovery from the recession contributed to this growth, this historical resilience suggests that the new supply will have only a moderate impact on the market’s overall performance. In the near term, the influx of new hotels is anticipated to cause some competitive pressure that will affect both occupancy and average rate. However, the impact is expected to be muted in 2017 due to a strong convention calendar; the market will also benefit from demand related to the inauguration and the Women’s March in January. Moreover, the change in administration, the related changes in various governmental positions and entities, and the public- and private-sector responses to those changes, should generate additional demand through at least the first quarter of the year.

SUPPLY TRENDS

Washington, DC


MARKET

Tourism is a mainstay of the Washington, D.C. economy and a significant demand generator for the local lodging market. The city is the eighth most popular destination in the U.S., after New York, Miami, Los Angeles, Orlando, San Francisco, Las Vegas, and Honolulu. In 2015, a total of 21.3 million people visited the city, up from 15.0 million in 2005. Of these visitors, 2.0 million originated from outside the U.S., up from 1.0 million ten years earlier. The most popular destinations are the National Park Service locations on the Mall (33.5 million visitors in 2015) and the Smithsonian locations on the Mall (27.4 million visitors in 2015)

Total visitor spending in 2015 equaled $7.1 billion; of this amount, $2.4 billion was spent on lodging, and about $2.0 billion was spent on food and beverage. Although comprising only 7% of the total number of visitors, international travelers accounted for 27% of total visitor spending in 2015.

The greater Washington, D.C. area benefits from the availability of three major airports: Ronald Reagan Washington National Airport (DCA), Washington Dulles International Airport (IAD), and Baltimore International Thurgood Marshal Airport (BWI). Collectively these three airports provide access to most major domestic and international destinations, either through direct or connecting flights. This ease of access facilitates travel for both tourists and the convention segment. It is also a key attribute that supports local business activity, including the government sector. The passage of the FAA Reauthorization bill in 2012 increased the number of takeoff and landing slots at DCA; the expansion of service at this most-conveniently located airport has resulted in over 4.2 million additional passengers annually. During the same period, BWI recorded 1.4 million additional passengers, and IAD 1.4 million fewer passengers, primarily due to changes in flight service. All three airports are currently undergoing renovation projects, including an expansion at DCA, which should support further increases in passenger activity in future years. Moreover, the extension of the Metrorail service to IAD will significantly improve the accessibility of this airport and is expected to enhance the appeal and utilization of this facility.

TOURISM AND VISITATION

AIRPORT ACTIVITY

Washington Dulles International Airport (IAD)

Ronald Reagan Washington National Airport (DCA)

Washington, DC


MARKET

The Washington DC Area (which includes Fairfax County) fiscal year 2017 and historical per diem can be seen in the chart below.

LOCAL PER DIEM

Month 2017 2016 2015 2014

Oct $231 222 222 219

Nov $182 179 177 184

Dec $182 179 177 184

Jan $182 179 177 184

Feb $182 179 177 184

Mar $242 226 229 224

Apr $242 226 229 224

May $242 226 229 224

June $242 226 229 224

July $172 174 162 167

Aug $172 174 162 167

Sept $231 222 222 219

The overall outlook for the Washington D.C. market is favorable. The federal government will continue to be a significant demand generator for the lodging industry and stabilizing presence for the economy overall. Although the opportunity for notable ADR growth is somewhat constrained by the government per-diem rates, increasing levels of demand from the commercial and convention segments of the market should enable hoteliers to optimize average rate during peak demand periods. This in turn will lead to increases in the per-diem rates in subsequent years. Near-term concerns principally comprise the potential new supply. If additions to supply outpace demand growth, the hard-won rate increases of the past three years could be undermined, and the pattern of minimal rate growth that characterized the post-recessionary years could return. In this regard, the positive demand factors anticipated for 2017 should be beneficial. Demand related to the inauguration, Women’s March, and the change in administration will all occur in the first quarter of 2017, which has historically been the market’s slowest period, thus mitigating the impact of the new supply. The strong convention calendar, and particularly the number of citywide conventions on the books, should benefit the market through the balance of the year.

DC Lodging Market section source: Leffet, C. (2017, January 17). HVS Market Pulse: Washington DC.

MARKET OUTLOOK


MARKET

There are 703 rooms that most directly compete with the Residence Inn Herndon in the Reston-Herndon market.

HOTEL COMPARABLES

Hotel City. State # of Rooms Open Date

Staybridge Suites Dulles Herndon, VA 112 1991

Courtyard Herndon Reston Herndon, VA 146 1987

Homewood Suites Dulles International Airport Herndon, VA 109 1998

Hyatt House Herndon Herndon, VA 104 1999

Springhill Suites Herndon Reston Herndon, VA 136 1999

Hampton Inn Suites Herndon Reston Herndon, VA 96 2007


Homewood Suites

Staybridge SuitesCourtyard Marriott

Hyatt House

Springhill Suites

Hampton Inn & Suites


MARKET

STAYBRIDGE SUITES DULLES, HERNDON, VAThis 112 key hotel opened in 1991. It is located 4.25 miles southwest of the Residence Inn on Coppermine Road. The hotel is an extended stay hotel with exterior guest suite entrances and one bedroom and two bedroom/two bath suites. The hotel offers a business center, outdoor swimming pool, fitness center, SportCourt, BBQ area, free high-speed internet, and a complimentary breakfast buffet.

COURTYARD HERNDON, RESTON, VAThis 146 key hotel opened in 1987. It is located 2.1 miles south of the Residence Inn on Herndon Parkway. The hotel is a select service hotel with 134 rooms and 12 suites. The hotel offers 2 meeting rooms, laundry facilities, fitness center, free high-speed internet and indoor pool. HOMEWOOD SUITES DULLES INTERNATIONAL AIRPORT, HERNDON, VAThis 109 key hotel opened in 1998 and underwent a full renovation completed in January of 2017. It is located 3.85 miles southwest of the Residence Inn on Sunrise Valley Drive. The hotel is an extended stay hotel with one bedroom and two bedroom/two bath suites. The hotel offers a business center, meeting rooms, indoor swimming pool, fitness center, laundry facilities, free high-speed internet and a complimentary breakfast buffet.

HYATT HOUSE, HERNDON, VAThis 104 key hotel opened in 1999 originally as a Hawthorn Suites and had three floors renovated in December of 2016.. It is located 1.25 miles south of the Residence Inn on Herndon Parkway. The hotel is an extended stay hotel with studio, one bedroom and two bedroom/two bath suites. The hotel offers a business center, meeting rooms, outdoor swimming pool, fitness center, BBQ area, SportCourt, complimentary wfi, and a complimentary breakfast buffet. SPRINGHILL SUITES HERNDON RESTON, HERNDON, VAThis 136 key hotel opened in 1999. The lobby, fitness center and meeting rooms were renovated in October of 2015. It is located 1 mile south of the Residence Inn on Spring Street. The hotel is an extended stay hotel with studio suites. The hotel offers a fitness center, laundry facilities, free high-speed internet and complimentary breakfast buffet.

HAMPTON INN SUITES HERNDON, RESTON, VAThis 96 key hotel opened in 2007 and recently the lobby underwent renovation in March 2016. It is located 1 mile south of the Residence Inn on Herndon Parkway. The hotel is a limited service hotel with 96 rooms and suites. The hotel offers a fitness center, laundry facilities, free high-speed internet and complimentary breakfast buffet.

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MARKET

RESIDENCE INN VS. COMP SET AND INDUSTRY SEGMENTS

Source: STR STAR Report

Occupancy (%) Supply

Current Month % Chg Year to

Date % Chg Running 3 Month % Chg

Running 12

Month

% Chg

Month % Chg

YTD % Chg

Run 3 Mon %

Chg

Run 12 Mon %

Chg

Residence Inn Herndon Reston 58.8 20.9 58.8 20.9 57.7 0.1 75.0 0.4 0.0 0.0 0.0 0.3

Market: Washington, DC-MD-VA 56.4 9.4 56.4 9.4 59.4 6.9 72.5 2.8 2.0 2.0 1.9 1.4

Market Class: Upscale Class 59.5 10.0 59.5 10.0 62.1 6.9 75.3 3.7 3.4 3.4 3.6 4.4

Tract: Dulles Airport Area, VA 63.8 9.6 63.8 9.6 62.8 5.3 74.8 2.6 -1.1 -1.1 -1.1 -0.2

Tract Scale: Upscale Chains 64.5 9.6 64.5 9.6 62.4 4.6 75.1 1.5 0.0 0.0 0.0 0.0

Competitive Set: Competitors 62.2 5.6 62.2 5.6 61.8 -0.5 74.9 0.9 0.0 0.0 0.0 0.0

Average Daily Rate Demand



Running 12

Month

% Chg

Month % Chg

YTD % Chg

Run 3 Mon %

Chg

Run 12 Mon %

Chg

Residence Inn Herndon Reston 134.80 10.5 134.80 10.5 131.67 7.0 130.15 -2.5 20.9 20.9 0.1 0.6



Tract: Dulles Airport Area, VA 117.18 17.1 117.18 17.1 108.66 9.1 110.23 3.3 8.3 8.3 4.1 2.4


Competitive Set: Competitors 137.68 22.9 137.68 22.9 126.77 13.3 126.93 2.5 5.6 5.6 -0.5 0.9

RevPAR Revenue



Running 12

Month

% Chg

Month % Chg

YTD % Chg

Run 3 Mon %

Chg

Run 12 Mon %

Chg

Residence Inn Herndon Reston 79.31 33.6 79.31 33.6 75.97 7.1 97.56 -2.2 33.6 33.6 7.1 -1.9



Tract: Dulles Airport Area, VA 74.78 28.3 74.78 28.3 68.29 14.9 82.46 6.0 26.9 26.9 13.6 5.7


Competitive Set: Competitors 85.64 29.8 85.64 29.8 78.40 12.7 95.12 3.5 29.8 29.8 12.7 3.5

Census/Sample - Properties & Rooms Pipeline

Census Sample Sample % Market: Washington, DC-MD-VA

Properties Rooms Properties Rooms Rooms In Construction Planning

Market: Washington, DC-MD-VA 711 110126 615 105348 95.7 Properties Rooms Properties Rooms

Market Class: Upscale Class 159 24683 154 24564 99.5 22 4069 41 5735

Tract: Dulles Airport Area, VA 62 10201 61 10092 98.9

Tract Scale: Upscale Chains 34 6747 34 6747 100.0

Competitive Set: Competitors 6 703 6 703 100.0


FINANCIAL SUMMARY2016 Jan-17 T12 2017 2018 2019 2020 2021 2022

# of Keys 168 168 168 164 ** 164 164 164 164

ADR $135.03 $129.94 $132.57 $142.75 $148.10 $153.08 $158.23 $163.06

Occ 75.10% 75.00% 77.00% 76.80% 77.00% 77.50% 77.50% 77.50%

Revpar $101.43 $97.44 $102.09 $108.66 $112.43 $115.99 $118.89 $126.37

Room/Suite Revenue $5,888,454 98.65% $5,991,199 98.66% $6,260,088 98.72% $6,562,735 98.78% $6,826,553 98.79% $7,121,463 98.79% $7,340,908 98.80% $7,564,598 98.80%

F&B Revenue 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

Other Income 51,922 0.87% 52,865 0.87% 49,083 0.77% 49,187 0.74% 50,762 0.73% 52,736 0.73% 54,138 0.73% 55,762 0.73%

Misc. Income 28,358 0.48% 28,407 0.47% 31,816 0.50% 31,904 0.48% 32,947 0.48% 34,249 0.48% 35,180 0.47% 36,236 0.47%

Total Revenue 5,968,734 100.00% 6,072,471 100.00% 6,340,987 100.00% 6,643,826 100.00% 6,910,262 100.00% 7,208,448 100.00% 7,430,226 100.00% 7,656,595 100.00%

Room/Suite Expense 1,598,931 27.15% 1,614,245 26.94% 1,614,529 25.79% 1,658,392 25.27% 1,696,751 24.86% 1,742,237 24.46% 1,774,171 24.17% 1,809,655 23.92%

F&B Expense (20) 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

Other Expense 27,922 98.46% 27,709 97.54% 24,222 49.35% 22,562 45.87% 23,009 69.84% 23,626 68.98% 23,976 68.15% 24,455 67.49%

Total Expense 1,626,833 27.26% 1,641,954 27.04% 1,638,751 25.84% 1,680,954 25.30% 1,719,760 24.89% 1,765,862 24.50% 1,798,147 24.20% 1,834,110 23.95%

Gross Operating Income 4,341,901 72.74% 4,430,517 72.96% 4,702,236 74.16% 4,962,872 74.70% 5,190,502 75.11% 5,442,585 75.50% 5,632,079 75.80% 5,822,485 76.05%

Admin & General 475,568 7.97% 479,578 7.90% 497,496 7.85% 495,107 7.45% 510,302 7.38% 526,605 7.31% 538,556 7.25% 549,328 7.17%

IT Expense 51,607 0.86% 53,887 0.89% 66,012 1.04% 67,662 1.02% 69,354 1.00% 71,088 0.99% 72,865 0.98% 74,322 0.97%

Sales & Marketing 248,455 4.16% 249,772 4.11% 309,800 4.89% 298,388 4.49% 306,138 4.43% 314,355 4.36% 321,557 4.33% 327,988 4.28%

R&M 335,969 5.63% 328,179 5.40% 345,368 5.45% 359,136 5.41% 369,206 5.34% 379,560 5.27% 390,207 5.25% 398,011 5.20%

Utilities 176,996 2.97% 170,472 2.81% 202,322 3.19% 208,391 3.14% 212,559 3.08% 216,810 3.01% 221,146 2.98% 225,569 2.95%

Total Undistributed Expense 1,288,595 21.59% 1,281,888 21.11% 1,420,998 22.41% 1,428,685 21.50% 1,467,558 21.24% 1,508,417 20.93% 1,544,331 20.78% 1,575,218 20.57%

GOP Before Fees 3,053,306 51.16% 3,148,629 51.85% 3,281,239 51.75% 3,534,187 53.20% 3,722,944 53.88% 3,934,168 54.58% 4,087,748 55.02% 4,247,267 55.47%

Management Fees (2.5%) 145,334 2.43% 151,812 2.50% 158,531 2.50% 166,096 2.50% 172,757 2.50% 180,211 2.50% 185,756 2.50% 189,471 2.47%

Franchise & Marketing Fees 471,199 7.89% 483,766 7.97% 501,121 7.90% 525,347 7.91% 546,466 7.91% 570,073 7.91% 587,640 7.91% 599,393 7.83%

GOP After Fees 2,436,773 40.83% 2,513,051 41.38% 2,621,587 41.34% 2,842,744 42.79% 3,003,722 43.47% 3,183,884 44.17% 3,314,352 44.61% 3,458,404 45.17%

Property Taxes 289,713 4.85% 294,693 4.85% 288,350 4.55% 294,117 4.43% 299,999 4.34% 305,999 4.25% 312,119 4.20% 318,362 4.16%

Insurance 57,963 0.97% 49,248 0.81% 51,840 0.82% 52,877 0.80% 53,934 0.78% 55,013 0.76% 56,113 0.76% 57,236 0.75%

Other Fixed* 30,875 0.52% 0 0.00% 1,320 0.02% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

NOI Before Reserves & Debt Service 2,058,222 34.48% 2,169,110 35.72% 2,280,077 35.96% 2,495,750 37.56% 2,649,788 38.35% 2,822,871 39.16% 2,946,119 39.65% 3,082,806 40.26%

Replacement Reserve 313,320 5.25% 242,899 4.00% 313,320 4.94% 328,284 4.94% 341,449 4.94% 356,183 4.94% 367,141 4.94% 374,484 4.89%

Net Operating Income (Loss) 1,744,902 29.23% 1,926,211 31.72% 1,966,757 31.02% 2,167,467 32.62% 2,308,339 33.40% 2,466,688 34.22% 2,578,978 34.71% 2,708,322 35.37%

* Other Fixed Expense was a warehouse rental expense that has since been terminated ** 2018 includes removing 4 guestrooms from service to construct a Fitness Center at a cost of approx. $500,000

FINANCIALS


FRANCHISE AGREEMENT SUMMARY

FRANCHISEEHerndon Lodge LLC

FRANCHISORMarriott International, Inc.

DATE OF AGREEMENTOriginal – November 2, 1998 / Renewal – November 8, 2013

TERMTen years

FEESFranchise Fee equal to five percent (5%) of gross room revenues.

Marketing Fund Fee equal to two and one half percent (2.5%) of gross room revenues for contribution to Franchisor’s marketing System.

FINANCIAL SUMMARY


FINANCIAL SUMMARY

TERMINATIONTermination by Manager: Manager may terminate this Agreement upon notice to Owner for Cause-Owner, provided that Owner fails to perform, keep or fulfill a covenant set forth in the Agreement in any material respect and has failed to cure within 30 days of notice or immediately and without regard to a cure period if Owner fails to pay salary costs; or Owner fails to ensure the operating accounts contain no less that the required minimum working capital for five consecutive days after Owner’s receipt of notice by Manger.

Termination by Owner: Owner may terminate this Agreement upon notice to Manager for Cause-Manager, provided that Manager fails to perform, keep or fulfill a covenant set forth in the Agreement in any material respect and has failed to cure within 30 days of notice or upon closing of the sale of the Hotel by Owner or transfer of the Hotel to Lender or an unrelated third-party through foreclosure of the Mortgage of deed in lieu thereof or in the event that a material portion of the Hotel is damaged or destroyed by fire, earthquake or other casualty and Owner is unable to rebuild the Hotel, due to circumstances beyond Owner’s reasonable control; or the Hotel or any part thereof is taken in condemnation or eminent domain proceedings and the remaining portions of the Hotel, in the reasonable judgment of Owner, cannot be operated in a manner that would generate the level of return on investment which is acceptable to Owner; or(d) At any time upon thirty (30) days’ prior written notice, for any reason or no reason.

MANAGEMENT AGREEMENT SUMMARY

OPERATORCrescent Hotels & Resorts, LLC

DATE OF AGREEMENTNovember 20, 2015

TERMTen Years with automatic renewal for two successive five year periods.

FEESManagement Fee equal to one and one-quarter percent (1.25%) of Hotel Gross Revenue for the months of December 2015 and January 2106. Commencing February 2016 and continuing for the remainder of the Term, the Managemet Fee shall equal two and one-half percent (2.5%) of the Hotel Gross Revenues.

Accounting Fee paid on a monthly basis in the amount of One Thousand Eight Hundred Dollars ($1,800)

Clifford MendelsonChief Executive OfficerP: 301.657.2022 F: [email protected]

Albert J. MissirlianManaging DirectorP: 301.657.4274F: 301.657.3698 [email protected]

Metropolis Capital Advisors4630 Montgomery AvenueSuite 600Bethesda, Maryland 20814P: 301.761.3700

metcapadvisors.com

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