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-,--~- Mt:..Jchn-J. JeIlll3l'Js City of San Leandro May 31,2000 Page 7 SEDWAY GROUP Real Estate and Urban Economics which represents a 56 percent increase over the approximate 3,900 existing rooms in the Oakland metropolitan area. Most of these products are limited service, with a few extended stay facilities. Of the 2,200 minimum total rooms planned, proposed or under construction, between 725 and 925 rooms would be located in the Marina's primary market area, representing a 40 to 50 percent increase in supply. The most immediate competitor will be the 154-room Courtyard by Marriott on Hegenberger Road that is presently under construction. Expected to open in October 2000, room rates are anticipated to range from $80 to $85 per night. Two other potential hotels on Hegenberger Road are in the early planning stages and are about five years away from completion. Another future competitor in the primary market area is the planned Hawthorne Suites in San Leandro (121 rooms). In addition, although no applications have been submitted, two existing hotels in the Marina's secondary market area have plans for expansion, the Waterfront Plaza Hotel (an additional 194 rooms) and the Executive Inn Embarcadero Cove (80 new rooms). Based upon the amount of the supply in the pipeline, the lower end niches of the local hotel market (consisting oflimited service and extended stay products catering to business travelers) are expected to become oversupplied in the near future. Although local demand is anticipated to increase along with the expansion of the Oakland Airport and the City of Oakland's aggressive business attraction activities, tumaway business from San Francisco and Santa Clara County is expected to decrease as new hotels are added to these markets. Thus, if this sector of the hotel market were pursued, it would likely take a number of years until the anticipated overbuilt market absorbs the rooms and a developer would be interested in building a new product at the Marina. In addition to market considerations, a proposed hotel would encounter a very difficult financing environment in the next few years. Interestingly, the current supply pipeline is practically devoid of higher-end full service hotel product, with the exception of the three developments in the early planning stages where a target niche has not been finalized. Part of the dearth of this product is believed to be the result of the East Bay's limited ability to capture the leisure market, especially in comparison to San Francisco. With respect to the Marina, Sedway Group believes that a higher-end full service hotel is not a likely prospect due to the location and limited amenities to draw the leisure market. There may be a niche for a mid-range hotel product that combines quality business traveler accommodations with sufficient meeting space and services to attract groups and corporate meetings; this product should have an association with the golf course, providing golf packages for both meeting attendees and leisure travelers. Sedway Group believes that the key for the success of this concept is a strong relationship with the golf course, as there are few business/meeting hotels that have golf privileges in the inner East Bay. However, it is still quite possible that some level of public subsidy would be needed in order to for such a project to be realized. Restaurant Generally, San Leandro is not a regional dining destination. Most establishments appeal to the local market. The number of eating and drinking establishments in San Leandro overall has increased from 233 in 1994 to 264 in 1998 (13 percent). Despite this increase in the number of outlets, inflation adjusted taxable transactions at eating and drinking establishments increased by 6 percent from $76.0 million to $80.6 million over the same five year period. This 6 percent increase in sales lags inflation over the same period. With the exception of the Marina itself, the area west of Interstate 880 is not a dining destination as there are few full- and quick-service restaurants. The Marina's two restaurants draw customers from similar markets. The lunch crowd consists almost entirely of local businesses (approximately 80