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Tourism  Policy  and  Planning   Politics  and  Plans  of  new  business  in  a  popular  destination  

Hotel  Project  Study  Case  Study       Hotel Limitation Measure for a special election Nov. 19. The measure would cap new hotels or expansion of existing ones to 25 rooms unless Sonoma achieves an annual occupancy rate of 80 percent, which the city has never done.     Facts:  

• Proposed  hotel:  59-­‐room  hotel  proposed  ½  block  west  of  plaza    

• Economic  benefits  (First  Five  Years)   o Estimated  Transient  Occupancy  Tax  (TOT)  =  $3,512,408   o Estimated  retail  sales  tax  =  $2,113,590   o Property  Tax  =  $1,835,000   o Total  Direct  Tax  Contribution  =  $7,460,998   o Estimated  construction  cost  =  $27,000,000   o Estimated  annual  payroll  =  $4,000,000   o Local  Job  Recruitment:  94  total  employees,  60  full-­‐time  and  34  part-­‐

time   o Estimated  additional  spending  with  community  merchants  =  

$41,400,000   • Community  benefits  

o Fits  within  the  parameters  of  the  City’s  General  Plan,  NO  VARIANCES   REQUIRED  

o Health  club  membership  available  to  Sonoma  Valley  residents   o Discounted  pricing  for  Sonoma  residents   o High  School  culinary  and  hospitality  internship  programs  for  local  

teens   • Environmental  benefits  

o LEED  certified   o Pedestrian  oriented   o Bicycles  available  to  guests   o Rain  water  recapture  and  reuse  strategies   o Energy  efficiency  strategies   o Recycled  construction  waste   o Sustainably  sourced  with  new  and  recycled  materials  

  (Tax  estimates  are  over  a  five-­‐year  period.  Source:  Kenwood  Investments,  LLC.   Spending  estimates  are  over  a  five-­‐year  period.  Source:  2001  Michigan  State  University   Dissertation  on  tourism  spending  impact).    

ATTACHMENT    “A”   ASSESSMENT  OF  THE  LARGE  HOTEL  GROWTH  MANAGEMENT  INITIATIVE’S  

POTENTIAL  IMPACT  ON  DEVELOPMENT  OPPORTUNITIES   ~SUMMARY~  

Sonoma’s  Lodging  Market   • City  currently  has  39  lodging  properties  with  a  total  of  527  rooms;  

50%  of  the  properties  have  no  more  than  3  rooms.     • Only  five  [5]  lodging  properties  have  more  than  25  rooms  but  provide  

78%  of  the  total  room  supply;  thirty  four  [34]  remaining  properties   account  for  22%  of  the  room  supply  

• Approximately  40%  of  lodging  properties  have  opened  during  the   past  10  years  

• In  the  past  10  years  lodging  properties  have  achieved  an  average   annual  occupancy  rate  of  62%    with  2006  being  the  peak  year  for   occupancy  at  66%  

• Since  2009  rates  have  been  improving  and  properties  achieved  an   average  annual  rate  of  65%  [in  2012  

  Given  the  initiative’s  cap  on  the  size  of  new  hotels,  KMA  compared  historic   occupancy  of  properties  with  over  25  rooms  and  with  less  than  25  rooms.    

• Properties  with  more  than  25  rooms  have  consistently  achieved  a   significantly  higher  average  annual  occupancy  rate  @  64%  over  the   past  10  years  with  a  peak  year  in  2012  of  67%  

• Properties  with  less  than  25  rooms  reflect  an  average  annual   occupancy  rate  @  53%  over  the  past  10  years  with  a  peak  year  in   2012  of  58%      

  CONCLUSION:  If  the  ballot  measure  is  approved  and  the  25-­‐room  cap   becomes  effective,  it  is  likely  that  new  lodging  development  will  continue  to   be  comprised  of  independently  operated  small  inns  and  hotels.  The  depth  of   the  investor  pools  for  these  type  properties  is  limited,  these  properties  lack   operating  efficiencies  and  marketing  advantages  of  larger  properties.         Seasonal  Demand  on  Average  Annual  Occupancy  Rate    

• City      of      Sonoma’s      lodging      market      is      largely      driven      by      leisure       travelers      with      peak      occupancy      months  being  summer  and   fall    “crush”  

• Over  a  10-­‐year  period,  August,  September  and  October  have  been   peak  months  with  an  average  occupancy  rate  of  77%  

• 2011  and  2012,  monthly  occupancy  exceeded  80%  during  only  the   month  of  September  

• Occupancy  rates  decline  sharply  in  the  winter  months  to  an  average  of   40%  or  less  in  December  and  January    

CONCLUSION:  Properties  with  26+  rooms  achieve  a  monthly  occupancy  rate  in   excess  of  80%  [only  five  lodging  properties  have  more  than  25  rooms]  during  the   months  of  August,  September  and  October.  The  monthly  occupancy  rate  for  lodging   with  less  than  25  rooms  has  not  exceeded  80%  at  any  time  during  the  10-­‐year   period.  The  required  80%  occupancy  rate  is  likely  not  achievable  with  only  small   lodging  properties.     Room  Revenues  

• The  average  daily  room  [ADR]  revenue  with  26+  rooms  have  historically   been  slightly  less  than  properties  averaging  $208;  ADR  of  properties  with  up   to  25  rooms  was  $218  

  CONCLUSION:  Because  of  their  relatively  higher  occupancy  rates,  the  amount  of   revenue  per  available  room  for  properties  26+  rooms  was  higher  at  $136  than   smaller  properties  that  were  $121  per  room.     Transient  Occupancy  Taxes  [TOT]  

• TOT  accounts  for  21%  of  entire  General  Fund  Budget     • TOT  revenues  are  the  second  largest  source  of  revenue  to  the  City   • 83%  of  the  TOT  revenues  are  being  generated  by  lodging  properties  with  

26+  rooms   • In  2011/2012  the  average  room  TOT  for  25+  properties  was  $4,980;  smaller  

properties  generated  an  average  of  $4,420   • TOT  generation  by  larger  properties  exceed  smaller  properties  by  13%    

  NOTE:  Transient  Occupancy  Tax  receipts  equate  to  21%  of  total  General  Fund   Revenue,  which  supports  the  core  services  of  the  City  of  Sonoma  [Police,  Fire,   Administration,  Planning,  Public  Works  and  Community  Activities].  100%  of  TOT   revenue  is  retained  by  the  City  and  is  not  shared  with  County  or  State  Governments.       CONCLUSION:  Given  that  lodging  properties  with  more  than  25  rooms  attain  higher   occupancy  rates  than  smaller  properties  they  also  generate  more  TOT  per  room,   which  sustains  current  services  and  supports  increased  public  services.         Market  Comparison         The  Hotel  Limitation  Measure  states,  in  part,  that  the  Planning  Commission  would   be  prohibited  from  granting  a  use  permit  [for  a  hotel  exceeding  25  rooms]  unless  it   found  that  “the  annualized  hotel  room      occupancy  rate  for  the  calendar  year   preceding  the  filing  of  the  hotel  application  exceeds  80%”    

• Regional  trend  data  indicates  the  average  occupancy  rate  for  market  areas   outside  Sonoma  in  2012  ranged  from  a  low  of  57%  to  a  high  of  71%  

• Sonoma  County  properties  averaged  70%   • In  2012,  only  three  market  areas  achieved  an  annual  occupancy  rate  of  80  %  

including  New  York  [84%],  San  Francisco  [83%]  and  Oahu  [85%].    

  CONCLUSION:  While  the  occupancy  rate  of  Sonoma  is  somewhat  below  the  other   market  comparisons,  experiences  of  other  markets  provide  further  evidence  of  the   inherent  difficulty  of  tourist  markets  to  attain  an  annual  occupancy  rate  in  excess  of   the  80%  threshold  identified  in  the  initiative.     OVERALL  CONCLUSION:     The  overall  conclusion  of  Keyser  Marston:   “It  is  our  professional  judgment  that  it  is  highly  unlikely  that  Sonoma’s  existing   lodging  properties  will      achieve  the  80%  annual  occupancy  rate  prescribed  by   the  initiative.  As  a  result,  if  the  initiative  is  approved  by  the  voters,  it  is  unlikely   that  any  hotels  over  25  rooms  will  be  built  in  the  City  of  Sonoma.”     Key  considerations:  

• Lodging  stock  has  not  achieved  the  80%  threshold  in  any  year  during  the   past  decade  

• The  stock’s  peak  annual  rate  of  66%  is  far  below  the  initiative’s  80%   • Lodging  demand  in  Sonoma  is  driven  by  seasonal  leisure  travel  [i.e.  tourism]  

  “Because  of  the  inherent  low  occupancy  rates  during  the  low-­‐tourist  season  and   the  concentration  of  demand  during  the  weekends,  it  is  very  difficult  for  leisure   lodging  markets  to  achieve  average  annual  occupancy  rates  in  excess  of  75%,   even  if  the  supply  of  new  properties  is  constrained.”        

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Discussion, consideration and possible action to accept the Impact Reports as described in Elections Code section 9212 (and any others identified by the Council)

of the proposed Hotel Limitation Measure

For the regular Council meeting held August 12, 2013

BACKGROUND: California Elections Code section 9212, provides that the “legislative  body  may  refer  the   proposed   initiative   measure   to   any   city   agency   or   agencies   for   a   report”   on topics specific to the proposed initiative or on “any  other  matters  the  legislative  body  requests  to  be  in  the  report”.      That   section also directs that “the  report  shall  be  presented  to  the  legislative  body  within  the  time  prescribed   by the legislative body, but no later than 30 days after the elections official certifies to the legislative body  the  sufficiency  of  the  petition”.     At the direction of the Council, a report on the financial impacts of the  initiative,   if  passed,  was  commissioned.    That  report  is  attached.     In  addition,  the  City’s  Planning Director  has  prepared  an  analysis  addressing  the  initiative’s  relationship    with  the  General  Plan  and    the   Development Code, and other planning related matters. The initiative prohibits new hotels of over 25 rooms  (  defined  as  “Large  Hotels”  in  the  ballot measure) and prohibits expansions of existing hotels to more than 25 rooms unless (a) in the year preceding the filing an application with the City for permission to  build  (or  expand)  such  hotels  Sonoma’s  hotel  room  occupancy  rate  exceeded  80%  and  (b)  the City finds that such development would not adversely affect the historic, small-town character of Sonoma. Under the initiative, bed and breakfast inns of more than five guest rooms are considered hotels and thus  governed  by  the  initiative’s  restrictions. The initiative measure does not indicate why or how its proponents determined that a hotel having more than 25 rooms should subject proposals for such hotels to the special restrictions set forth in the initiative. The initiative measure does not indicate why or how its proponents determined that only when annual occupancy exceeds 80% should hotels with more than 25 rooms be allowed.

The presentation of the Impact analysis will be divided into two phases:

� The first report will be a fiscal impact report presented by Keyser Marsten Associates � The second report has been prepared in-house by City staff and will discuss the initiative in

terms of its relationship with the General Plan and the Development Code , and other planning- related matters

FISCAL IMPACTS: The  first  key  impact  is  the  provision  to  restrict  the  development  of  “Large  Hotels”,  as   defined in the initiative, based on attaining a specified level of hotel occupancy. Following Council direction on July 15th, staff engaged the consultant Keyser Marston Associates [KMA] to prepare an analysis of fiscal impacts based solely on the proposed language of the initiative as submitted by proponents of the initiative. The City supplied to the Consultant the full Transient Occupancy Rate information contained in City records [beginning in 2000] and historical financial data. The analysis prepared by KMA focuses on the economic effects of placing a limitation on hotel growth as prescribed in   the   measure.     The   report   includes   an   overview   of   the   City’s lodging market, the occupancy rate experiences of other lodging markets and the implications of the initiative on lodging development opportunities in Sonoma. The report contains an analysis of the designation of the 80% annualized occupancy rate as set forth in the initiative, the feasibility of the City achieving the 80% occupancy rate and the comparability of that rate to industry standards. Staff has summarized the report in Attachment  “A”  including  full  impact  report  as  prepared  by  KMA.

DEVELOPMENT IMPACTS: City Planning staff was asked to review the potential impacts to the City of Sonoma’s  existing  growth  and  planning  policies  including  the  General  Plan,  Development  Code,  Urban   Growth Boundary and ability to seek public input and comments for proposed lodging property developments. Staff is to be acknowledged for their detailed review of the Ballot initiative and the unbiased nature of comparing existing City documents with the proposed revisions which would occur should the proposed ordinance be implemented.

General Plan: Staff detailed the modifications the ballot measure would make to the General Plan and included observations based on the revisions to the General Plan that would occur if the measure is approved by the voters. Staff observed with respect of certain elements of the General Plan, the policies  introduced  by  the  ballot  measure  would  “arguably  undercut  the  following  policies  of  the  Local   Economic Element, namely,

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Community Development Elements: This element of the General Plan establishes an Urban Growth Boundary. Staff discusses the potential outcome of the implementation of the hotel initiative. Staff notes that while the proposed “ballot measure appears to run counter to the objectives of . . . the Urban Growth Boundary. . . many other forms of commercial and residential development of equal or greater intensity than that of ‘Large Hotels’ would  continue  to  be  possible  within  city  limits.” Staff points to the ballot arguments submitted in support of the original Urban Growth Boundary initiative, which included:

� Encourage efficient growth patterns and protect the City of Sonoma Quality of life by concentrating future development largely within existing developed areas, consistent with the availability of infrastructure and services.

� Promote continued agricultural and open space uses lands outside of the Urban Growth Boundary.

� Prevent urban sprawl and shift city development from the developer to a citizen-driven process. � Emphasize infill development and support a thriving downtown center.

Development Pressure: The report  speaks  to  “development  pressure”  and  includes  a  10-year history of applications received for lodging facilities [2003-2013]. Of the 25 applications received, only three applications  have  been  made  that  meet  the  definition  of  a  “Large  Hotel”  as  used in the Ballot Measure. Of the three proposals, only one project was approved which was an expansion of an existing 19-room hotel  to  add  8  additional  rooms  effectively  transitioning  the  lodging  property  from  a  “small  hotel”  to  a   “large  hotel”  (using  the  parlance of the Ballot Measure). The other two proposals were withdrawn. One proposal was withdrawn “due   to   the   concerns   by   the   Planning   Commission   regarding   the   scale   and   intensity  of  the  development”; the second proposal was suspended at the request of the applicant.

Development Intensity: The   initiative   alleges   that   “large hotels over 25 rooms create imposing developments….[and   can]   concentrate   traffic   and   other   services…”     Staff’s   report   points   out   that   the   existing Development Code regulates the scale, mass and intensity of development. Based on Trip

Generation studies, hotels are at the lower range of traffic generation among uses normally expected in commercial zoning districts.

Effect of the Ballot Measure: Staff concludes that based on the Keyser Marsten studies, if adopted, the hotel measure will have the effect of prohibiting -- into the indefinite future -- all hotels of over 25 rooms, and preclude the expansion of existing hotels to more than 25 rooms. Although staff naturally expresses difficulty in predicting the implications of such a prohibition on the future development of the City, it points out that had it been in place during the last several decades, MacArthur Place and Sonoma Lodge could never have been approved, and the establishment and expansions of Sonoma Valley Inn, El Pueblo Inn and Inn at Sonoma would not have occurred.

Comparison to Existing Planning Process: There are presently significant review and public input processes in place which must be adhered to as part of the  City’s  consideration  of  any  development   application, including hotels. If the hotel measure is adopted, none of that process will be relevant. It will  “not be possible for the community and decision-making  bodies…to  weigh  the  circumstances  of  a   particular  proposal  on  a  particular  site.”    This  results  in  the  “public involvement being limited to the day of  the  vote.”    As  staff  points  out,  “the planning process does have the advantages of allowing for a case- by-case review of development applications as well as multiple opportunities for public input and participation.”  Such a process allows the City to grow and develop in a way that is consistent with the evolving standards and objectives of the community, an evolutionary process that the hotel measure forecloses.

ATTACHMENT  “A”

ASSESSMENT  OF  THE  LARGE  HOTEL  GROWTH  MANAGEMENT  INITIATIVE’S  POTENTIAL  IMPACT  ON   DEVELOPMENT OPPORTUNITIES

~SUMMARY~

Sonoma’s  Lodging  Market

� City currently has 39 lodging properties with a total of 527 rooms; 50% of the properties have no more than 3 rooms.

� Only five [5] lodging properties have more than 25 rooms but provide 78% of the total room supply; thirty four [34] remaining properties account for 22% of the room supply

� Approximately 40% of lodging properties have opened during the past 10 years

� In the past 10 years lodging properties have achieved an average annual occupancy rate of 62% with 2006 being the peak year for occupancy at 66%

� Since 2009 rates have been improving and properties achieved an average annual rate of 65% [in 2012]

Given  the  initiative’s  cap  on  the  size  of  new  hotels,  KMA  compared  historic  occupancy  of  properties  with   over 25 rooms and with less than 25 rooms.

� Properties with more than 25 rooms have consistently achieved a significantly higher average annual occupancy rate @ 64% over the past 10 years with a peak year in 2012 of 67%

� Properties with less than 25 rooms reflect an average annual occupancy rate @ 53% over the past 10 years with a peak year in 2012 of 58%

CONCLUSION: If the ballot measure is approved and the 25 room cap becomes effective, it is likely that new lodging development will continue to be comprised of independently operated small inns and hotels. The depth of the investor pools for these type properties is limited, these properties lack operating efficiencies and marketing advantages of larger properties.

Seasonal Demand on Average Annual Occupancy Rate

� City   of   Sonoma’s   lodging   market   is   largely   driven   by   leisure   travelers   with   peak   occupancy   months  being  summer  and  fall  “crush”

� Over a 10-year period, August, September and October have been peak months with an average occupancy rate of 77%

� 2011 and 2012, monthly occupancy exceeded 80% during only the month of September

� Occupancy rates decline sharply in the winter months to an average of 40% or less in December and January

CONCLUSION: Properties with 26+ rooms achieve a monthly occupancy rate in excess of 80% [only five lodging properties have more than 25 rooms] during the months of August, September and October. The monthly occupancy rate for lodging with less than 25 rooms has not exceeded 80% at any time during the 10-year period. The required 80% occupancy rate is likely not achievable with only small lodging properties.

Room Revenues

� The average daily room [ADR] revenue with 26+ rooms have historically been slightly less than properties averaging $208; ADR of properties with up to 25 rooms was $218

CONCLUSION: Because of their relatively higher occupancy rates, the amount of revenue per available room for properties 26+ rooms was higher at $136 than smaller properties which was $121 per room.

Transient Occupancy Taxes [TOT]

� TOT accounts for 21% of entire General Fund Budget

� TOT revenues are the second largest source of revenue to the City

� 83% of the TOT revenues are being generated by lodging properties with 26+ rooms

� In 2011/2012 the average room TOT for 25+ properties was $4,980; smaller properties generated an average of $4,420

� TOT generation by larger properties exceed smaller properties by 13%

NOTE: Transient Occupancy Tax receipts equate to 21% of total General Fund Revenue which supports the core services of the City of Sonoma [Police, Fire, Administration, Planning, Public Works and Community Activities]. 100% of TOT revenue is retained by the City and is not shared with County or State Governments.

CONCLUSION: Given that lodging properties with more than 25 rooms attain higher occupancy rates than smaller properties they also generate more TOT per room which sustains current services and supports increased public services.

Market Comparison

The Hotel Limitation Measure states, in part, that the Planning Commission would be prohibited from granting a use permit [ for a hotel exceeding 25 rooms] unless it found that “the  annualized  hotel  room   occupancy  rate  for  the  calendar  year  preceding  the  filing  of  the  hotel  application  exceeds  80%”

� Regional trend data indicates the average occupancy rate for market areas outside Sonoma in 2012 ranged from a low of 57% to a high of 71%

� Sonoma County properties averaged 70%

� In 2012, only three market areas achieved an annual occupancy rate of 80 % including New York [84%], San Francisco [83%] and Oahu [85%].

CONCLUSION: While the occupancy rate of Sonoma is somewhat below the other market comparisons, experiences of other markets provide further evidence of the inherent difficulty of tourist markets to attain an annual occupancy rate in excess of the 80% threshold identified in the initiative.

OVERALL CONCLUSION:

The overall conclusion of Keyser Marston:

“It is our  professional  judgment  that  it  is  highly  unlikely  that  Sonoma’s  existing  lodging  properties  will   achieve the 80% annual occupancy rate prescribed by the initiative. As a result, if the initiative is approved by the voters, it is unlikely that any hotels  over  25  rooms  will  be  built  in  the  City  of  Sonoma.”

Key considerations:

� Lodging stock has not achieved the 80% threshold in any year during the past decade � The  stock’s  peak  annual  rate  of  66%  is  far  below  the  initiative’s  80% � Lodging demand in Sonoma is driven by seasonal leisure travel [i.e. tourism]

“Because of the inherent low occupancy rates during the low-tourist season and the concentration of demand during the weekends, it is very difficult for leisure lodging markets to achieve average annual occupancy  rates  in  excess  of  75%,  even  if  the  supply  of  new  properties  is  constrained.”  

� �

ASSESSMENT OF THE LARGE HOTEL GROWTH MANAGEMENT INITIATIVE’S POTENTIAL

IMPACT ON DEVELOPMENT OPPORTUNITIES

Prepared for City of Sonoma

Prepared by Keyser Marston Associates, Inc.

August 2013

Table of Contents

Page

I. INTRODUCTION 1

II. OVERVIEW OF CITY OF SONOMA’S LODGING MARKET 2

A. Existing Room Supply 2

B. Occupancy Rates 3

C. Room Revenues 7

D. City Transient Occupancy Taxes (TOT) 8

III. OCCUPANCY RATE EXPERIENCES OF OTHER LODGING MARKETS 10

A. Leisure-Driven Seasonal Lodging Market Areas 10

B. Diversified Lodging Market Areas 12

IV. IMPLICATIONS OF INITIATIVE ON LODGING DEVELOPMENT OPPORTUNITES IN SONOMA 13

A. Feasibility of Achieving the 80% Average Annual Occupancy Threshold to Permit Development of Lodging Properties with over 25 Rooms 13

B. Development Opportunities With a 25-Room Cap 13

V. LIMITING CONDITIONS 14 TABLES

Table 1: City of Sonoma Lodging Inventory

Table 2: City of Sonoma Historic Average Monthly Lodging Occupancy Rates

Table 3: Sample Seasonal Leisure Markets Historic Occupancy Trends

Table 4: Lodging Occupancy Rates of U.S. Metropolitan Market

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I. INTRODUCTION Keyser Marston Associates, Inc. (KMA) has been retained by the City of Sonoma to evaluate the economic issues associated with the “large hotel growth management initiative” (The Hotel Limitation Measure) which may be brought forth to the voters in a November election. A key provision of the initiative is a limitation on the development of hotels over 25 rooms and the expansion of existing hotels to exceed a total of 25 rooms. Specifically, the initiative would amend the City’s General Plan to add the following Policy 5.10:

“Preserve Sonoma’s small-town character by managing the growth of new hotels. No new large hotel over 25 rooms, and no expansion of an existing hotel to exceed a total of 25 rooms, shall be permitted unless Sonoma’s annualized hotel room occupancy rate exceeds 80 percent. The City may permit a new large hotel or expansion of an existing hotel to exceed a total of 25 rooms if it determines that: (a) Sonoma’s existing annualized hotel room occupancy rate exceeds 80%; and (b) such approval will not adversely affect the historic small-town characteristics that give Sonoma its unique sense of place.”

The purpose of KMA’s analysis is to evaluate the impact that the initiative would have on the character of new hotel development and the expansion of existing hotels in the City given:

� The conditions of the lodging market in Sonoma;

� The experiences of other lodging markets in California; and

� The underwriting criteria of new institutional investment-grade lodging development The data in this report regarding Sonoma’s hotel inventory, occupancy rates and transient occupancy tax revenue have been provided by the City of Sonoma. Information regarding other lodging markets is from data published by nationally recognized firms that specialize in collecting data on hospitality businesses. While KMA believes that these third party sources are reliable, we cannot guarantee their accuracy. This report summarizes our review of current market conditions as well as our conclusions regarding the potential impacts of the initiative.

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II. OVERVIEW OF CITY OF SONOMA’S LODGING MARKET A. Existing Room Supply

The City of Sonoma is currently served by 39 lodging properties, offering a total of 527 rooms. With an average of 14 rooms per property and a median of only 3 rooms, the inventory is largely comprised of small, independently-operated inns and vacation rentals. Fifty percent (50%) of the properties have no more than 3 rooms. Only two properties are affiliated with national chains and The Lodge at Sonoma, with 182 rooms, is the only hotel with more than 100 rooms. Only five properties have more than 25 rooms, but provide 78% of the total room supply. Thirty-four of the 39 properties (87% of the properties) have fewer than 26 rooms, accounting for 22% of the total room supply. A summary of lodging by property size is below; a detailed inventory of lodging is provided in Table 1. City�of�Sonoma�Lodging�Inventory� by�Property�Room�Count�

1�to�25�Room� Properties�

26+�Room� Properties�

Total� Properties�

Number�of�Properties�/�%�of�Total� 34� 87%� 5� 13%� 39� 100.0%� Number�of�Rooms�/�%�of�Total� 118� 22%� 409� 78%� 527� 100.0%� Average�Room�Count� 3� 82� 14� Median�Room�Count� 2� 64� 3� Source:�City�of�Sonoma,�July�2013�

26+�Room� Properties 12.8%

Less�than� 5�Rooms 87.2%

City�of�Sonoma Distribution�of�Lodging�Properties�

by�Size�of�Property

26+�Room� Properties 77.6%

Less�than�5� Rooms 22.4%

City�of�Sonoma Distribution�of�Lodging�Property�Rooms�by�

Size�of�Property

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Of the 35 properties with a known opening date, approximately 40% have opened during the past 10 years. These 15 properties offer 43 rooms, or 8% of the total room supply in the City of Sonoma. The Lodge at Sonoma, accounting for 35% of lodging rooms in Sonoma, was built in 2000. B. Occupancy Rates ��� �$QQXDO�2FFXSDQF\�5DWHV�

As noted in the introduction to this report, the ballot initiative prohibits the development of new hotels with over 25 rooms unless the average annual occupancy rate achieved by Sonoma’s existing lodging inventory exceeds 80%. As detailed in Table 2 and summarized below, over the past 10 years, Sonoma’s lodging properties have achieved an average annual occupancy rate of 62%. As shown in the following chart, 2006 was the peak year for occupancy, when the average annual rate reached 66%. Rates dipped during the recent recession, reaching a low of 57% in 2009. Since then, rates have been improving and the properties achieved an average annual rate of 65% in 2012.

Average�Annual� Occupancy� 2003� 2004� 2005 2006� 2007� 2008� 2009 2010� 2011� 2012 Avg� Total�Properties� 57%� 59%� 64%� 66%� 66%� 64%� 57%� 58%� 63%� 65%� 62%� Source:�City�of�Sonoma,�July�2013�

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City�of�Sonoma Average�Annual�Occupancy

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Given the initiative’s cap on the size of new hotels, KMA has compared the historic occupancy rates of Sonoma’s properties with over 25 rooms to the rates achieved by properties with 25 or fewer rooms. As shown in the following chart, the properties with more than 25 rooms have consistently achieved a significantly higher average annual occupancy rate than the properties with less than 26 rooms. The average annual rate for the 26+ room properties was 64% over the past 10 years, while the average annual rate for smaller properties was 53%. The peak occupancy rate for the small properties was 58%, which was reached in 2012. In comparison, the larger hotels achieved an average annual rate of 67% in 2012. City�of�Sonoma�Average�Annual�Lodging�Occupancy�Trends�by�Property�Size� �� �� �� Average�Annual� Occupancy� 2003� 2004 2005 2006 2007 2008 2009 2010� 2011� 2012 Avg� 26+�Room�Properties� 60%� 62%� 67%� 69%� 68%� 66%� 60%� 61%� 66%� 67%� 64%� 1�to�25�Rooms�Props.� 47%� 49%� 53%� 56%� 56%� 56%� 47%� 48%� 54%� 58%� 53%� Source:�City�of�Sonoma,�July�2013�

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City�of�Sonoma Average�Annual�Occupancy�Rate

by�Property�Size

26+�Room�Properties 1�to�25�Rooms�Props.

80%� initiative� threshold

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As is the case with the broader Sonoma Valley lodging market, the City of Sonoma’s lodging market is largely driven by leisure travelers attracted to the area’s world-class wineries and abundant recreational opportunities. Monthly lodging occupancy rates reflect the seasonality of leisure travelers, with the peak occupancy months being during the summer and the fall “crush.” Over the 10-year period, August, September, and October have, on average, been the peak occupancy months with an average monthly occupancy rate of 77%. During 2011 and 2012, monthly occupancy exceeded 80% during only the month of September. Occupancy rates decline sharply during the winter months, with the rates averaging 40% or less during the months of December and January. Monthly occupancy data for Sonoma City properties is detailed in Table 2 and summarized below. City�of�Sonoma�Monthly�Lodging�Occupancy�Rate�Trends,�All�Properties� �� �� �� Seasonal� Occupancy� Jan� Feb� Mar� Apr� May� Jun� Jul� Aug� Sep� Oct� Nov� Dec� 2012� 44%� 49%� 55%� 63%� 67%� 71%� 77%� 77%� 81%� 79%� 68%� 41%� 2009� 36%� 38%� 47%� 54%� 59%� 61%� 69%� 75%� 70%� 74%� 57%� 40%� 2006� 42%� 56%� 62%� 68%� 71%� 78%� 77%� 76%� 79%� 82%� 62%� 41%� 10ͲYr�Avg� 39%� 47%� 54%� 62%� 66%� 70%� 74%� 77%� 77%� 77%� 59%� 40%� Source:�City�of�Sonoma,�July�2013�

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City�of�Sonoma Monthly�Occupancy�in�2006,�2009,�2012�and�10Ͳyear�Avg.

Total�Properties

2012 2009 2006 10ͲYr�Avg

80%� initiative� threshold

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For comparison purposes, KMA has separately analyzed the monthly occupancy rates of properties with 26+ rooms and the rates achieved by properties with 25 or fewer rooms. As illustrated on the following chart and detailed on Table 2, the properties with 26+ rooms frequently achieve a monthly occupancy rate in excess of 80% during the months of August, September, and October. In comparison, the monthly occupancy rate for lodging with fewer than 26 rooms has not exceeded 80% at any time during the 10-year period.

Occupancy�Rate� by�Property�Size� Jan� Feb� Mar� Apr� May� Jun� Jul� Aug� Sep� Oct� Nov� Dec� 10ͲYear�Average� 26+�Rooms� 42%� 49%� 55%� 64%� 69%� 72%� 76%� 81%� 80%� 80%� 62%� 41%� 1�to�25�Rooms� 29%� 41%� 48%� 51%� 57%� 60%� 63%� 65%� 68%� 67%� 47%� 33%� Total�Properties� 39%� 47%� 54%� 62%� 66%� 70%� 74%� 77%� 77%� 77%� 59%� 40%�

2012� 26+�Rooms� 47%� 51%� 55%� 67%� 68%� 73%� 77%� 80%� 83%� 81%� 73%� 41%� 1�to�25�Rooms� 36%� 44%� 52%� 49%� 64%� 66%� 74%� 68%� 75%� 71%� 51%� 41%� Total�Properties� 44%� 49%� 55%� 63%� 67%� 71%� 77%� 77%� 81%� 79%� 68%� 41%� Source:�City�of�Sonoma,�July�2013�

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City�of�Sonoma 2012�Monthly�Occupancy

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C. Room Revenues In FY 2011/2012, the average daily room rate (ADR) of Sonoma’s lodging properties approximated $210. This represented an increase of 6% over the prior year. Room rates have almost recovered to their pre-recession high of $212 in FY 2007/08. Rates dropped from FY 2008/09 through FY 2009/10, and started to recover in FY 2010/11. Another useful measure of performance is the amount of revenues per available room (RevPar), which is a calculation of the total amount of hotel room revenue generated each year divided by the total number of rooms in the lodging inventory. This metric takes into account both room rates and occupancy rates. In 2012, the Rev Par for Sonoma properties averaged $133, which represented an 8% increase over RevPar in FY 2010/11.

�City�of�Sonoma�Lodging�Properties,�Room�Rate�and�Rev�Par�Trends� Fiscal�Year� ADR� %�Change� Rev�Par� %�Change� FY�2011/12� $210� 6%� $133� 8%� FY�2010/11� $199� 3%� $124� 12%� FY�2009/10� $193� Ͳ6%� $110� Ͳ8%� FY�2008/09� $206� Ͳ3%� $120� Ͳ15%� FY�2007/08� $212� 5%� $141� 8%� FY�2006/07� $201� 6%� $131� 5%�

The average daily rate of properties with 26+ rooms has historically been slightly less than the average daily rates of properties with up to 25 rooms. In 2012, the ADR of the 26+ room properties averaged $208 while the ADR of properties with up to 25 rooms was $218. Because of their relatively higher occupancy rates, however, the RevPar of the 26+ room properties was significantly higher at $136 than the RevPar of properties with up to 25 rooms, which was $121. City of Sonoma, FY 05/06, FY 08/09, FY 11/12: Room Rate and RevPar by Room Count

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$200

$250

Room�Rate RevPar Room�Rate RevPar Room�Rate RevPar

FY�2005/2006 FY�2008/2009 FY�2011/2012

26+�Rooms 1�to�25�Rooms Total�Properties

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D. City Transient Occupancy Taxes (TOT)

The City of Sonoma levies a 10% transient occupancy tax (TOT) on all lodging properties. In FY 2011/12, over $2.5 million of TOT revenues was collected by the City, accounting for approximately 21% of the City’s entire General Fund budget. TOT revenues are the second largest source of revenue to the City of Sonoma1. Over the past 10-years, TOT revenues have funded, on average, 22% of the City’s General Fund budget, with approximately 83% of the TOT revenues being generated by lodging with 26+ rooms. Transient�Occupancy�Tax�(TOT)�Revenues�

Fiscal�Year� TOT��

Revenue� Total�GF�� Revenue�

TOT�%� of�GF�

TOT�from� Hotels���

>25�Rooms�

TOT�from�Hotels� >25�Rooms�as�a�%�

of�All�TOT� 2011/2012� $2,524,098� $11,779,222� 21%� $2,015,453� 80%� 2010/2011� $2,224,368� $11,808,237� 19%� $1,791,487� 81%� 2009/2010� $1,990,562� $10,794,094� 18%� $1,611,386� 81%� 2008/2009� $2,206,020� $9,224,724� 24%� $1,789,612� 81%� 2007/2008� $2,622,107� $10,063,588� 26%� $2,165,550� 83%� �10�Year�Total� $21,985,245� $98,005,020� 22%� $18,130,977� 82%� Source:�City�of�Sonoma,�July�2013�

1 The largest source of revenue to the City of Sonoma is property taxes. In 2012, property taxes totaled $2.8 million.

TOT�from� Hotels

>�25�Rooms 17.1%

TOT�from� Hotels�

<�26�Rooms 4.3%

NonͲTOT� GF�Revenue

78.6%

City�of�Sonoma FY�11/12�TOT�Share�of� General�Fund�Revenue

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Given that the lodging properties with more than 25 rooms generally attain significantly higher occupancy rates than the smaller properties, they also generate more TOT per room to the City. In FY 2011/12, for example, the average per room TOT generated by the properties with more than 25 rooms was $4,980, which exceeded the $4,420 generated by the smaller properties by approximately 13%. TOT�Revenue�by�Property�Size�

Hotel�Size� FY�11/12� TOT�

TOT�per� Property�

TOT�per�� Room�

26+�Rooms� $2,015,453� $403,100� $4,980� 1�to�25�Rooms� $508,645� $15,000� $4,420� Total�Properties� $2,524,098� $64,700� $4,850�

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III. OCCUPANCY RATE EXPERIENCES OF OTHER LODGING MARKETS

A. Leisure-Driven Seasonal Lodging Market Areas

To provide some context for evaluating Sonoma’s occupancy rates relative to industry norms, KMA has reviewed occupancy rate trend data for other leisure markets in California, including the broader Sonoma County, Napa County, Monterey/Carmel, and the Coachella Valley. As summarized on the following chart and detailed on Table 3, the average occupancy rate for these market areas in 2012 ranged from a low of 57% for the Coachella Valley to a high of 71% for Napa County. Sonoma County properties averaged 70% while properties in the Monterey/Carmel area averaged 69%. Seasonal�Leisure�Market� Occupancy�Rates� 2006� 2007� 2008� 2009� 2010� 2011� 2012� Avg� City�of�Sonoma� 66%� 66%� 64%� 57%� 58%� 63%� 65%� 63%� Napa�County� 69%� 74%� 72%� 66%� 66%� 73%� 71%� 70%� Sonoma�County� 69%� 68%� 66%� 59%� 63%� 68%� 70%� 66%� Monterey/Carmel� 69%� 67%� 67%� 58%� 65%� 67%� 69%� 66%� Coachella�Valley� 65%� 61%� 58%� 50%� 51%� 55%� 57%� 57%� Source:�PKF�Trends�in�the�Hotel�Industry�Northern�California,�Southern�California�Lodging�Forecast.�

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2006 2007 2008 2009 2010 2011 2012

Lodging�Occupancy�Rates Sample�Seasonal�Leisure�Markets

City�of�Sonoma Napa�County Sonoma�County Monterey/Carmel Coachella�Valley

80%� initiative� threshold

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Similar to the City of Sonoma, the average annual occupancy rates of these other leisure-driven markets is constrained by seasonal and day of the week variability in market demand. An examination of the monthly data reveals occupancy rates of less than 50% during the winter months, climbing up to the 80% to 85% range during the height of the season.

2012�Monthly� Occupancy� Jan� Feb� Mar� Apr� May� Jun� Jul� Aug� Sep� Oct� Nov� Dec� Avg� City�of�Sonoma� 44%� 49%� 55%� 63%� 67%� 71%� 77%� 77%� 81%� 79%� 68%� 41%� 65%� Sonoma�County� 51%� 60%� 63%� 67%� 72%� 77%� 82%� 83%� 82%� 79%� 67%� 56%� 70%� Napa�County� 48%� 57%� 65%� 71%� 76%� 79%� 82%� 80%� 84%� 82%� 63%� 46%� 71%� Source:�City�of�Sonoma,�July�2013�

While the occupancy rate of City of Sonoma’s lodging properties is somewhat below the other leisure-driven markets, the experiences of these other markets provides further evidence of the inherent difficulty of leisure-drive markets to attain an average annual occupancy rate in excess of the 80% threshold identified in the Initiative. Even at the peak of the season, occupancy rates typically do not exceed 90%, and during the low-season rates dip below 60%.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

City�of�Sonoma,�Sonoma�County,�and�Napa�County 2012�Seasonal�Occupancy

City�of�Sonoma Sonoma�County Napa�County

80%� initiative� threshold

Keyser Marston Associates, Inc. Page 12 \\Sf-fs2\wp\19\19331\001\001-001.docx

B. Diversified Lodging Market Areas Diversified lodging markets are ones in which room demand is generated by several sources, typically comprised of business travel, meeting/group travel, and leisure travel. Multiple sources of demand enable these markets to sustain higher daily and monthly occupancy rates throughout the year. Commercial demand is generally constant throughout the year, while conventions are concentrated in the fall and the spring. Leisure travel is typically concentrated during the summer months and, often, during the weekends. Markets with strong demand from each of these sources and limited growth in supply are able to achieve annual occupancy rates in the mid to high 70% range. The ability of even strong markets to sustain rates in the 80% range is limited, however, due to the addition of new hotels, which increase the supply and suppress market-wide occupancy levels. KMA reviewed the average annual occupancy rates of major metropolitan areas throughout the country since 2006. As detailed on Table 4, in 2006 New York City achieved the highest average annual occupancy rate of 81%, which was the highest in the nation and the only market with an occupancy rate in excess of 80%. The average occupancy rate for all US hotels was 63% in 2006, but the average for the selected “high-occupancy” markets was 71%. San Francisco achieved an average annual rate of 76% in 2006. Most markets were impacted during the recession, with the average annual occupancy rate for all hotels in the United States falling to 55% in 2009. Performance metrics in 2012 indicate many market areas have recovered from the recession. In 2012, three market areas achieved an average annual occupancy rate in excess of 80%, including New York (84%), San Francisco (83%), and Oahu (85%). The average for the selected group of “high-occupancy markets” was 72%. The following chart, which compares the 2012 monthly occupancy rate of City of San Francisco hotels to the occupancy rate of Sonoma hotels, illustrates the greater impact that seasonal demand has on Sonoma’s lodging properties. As shown, while San Francisco’s properties do experience lower occupancy during the winter, the difference between peak occupancy during the summer (93%) and low occupancy during the winter (68%) is 25 percentage points. In comparison, for Sonoma properties, the difference between peak occupancy (81%) and low occupancy (41%) is 40 percentage points. It is also interesting to note that while Sonoma’s peak occupancy rate is only 12 percentage points less than San Francisco’s peak occupancy rate, Sonoma’s low occupancy rate is 27 percentage points lower than San Francisco’s low occupancy rate. 2012�Monthly� Occupancy� Jan� Feb� Mar� Apr� May� Jun� Jul� Aug� Sep� Oct� Nov� Dec� Avg� City�of�Sonoma1� 44%� 49%� 55%� 63%� 67%� 71%� 77%� 77%� 81%� 79%� 68%� 41%� 65%� City�of�San�Francisco2� 68%� 75%� 78%� 80%� 85%� 91%� 90%� 93%� 90%� 90%� 78%� 72%� 83%� 1)�Source:�City�of�Sonoma,�July�2013� 2)Source:�PKF�Consulting�

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IV. IMPLICATIONS OF INITIATIVE ON LODGING DEVELOPMENT OPPORTUNITES IN SONOMA

A. Feasibility of Achieving the 80% Average Annual Occupancy Threshold to Permit Development of Lodging Properties with over 25 Rooms

Based on the data presented in Section II B of this report, it is our professional judgment that it is highly unlikely that Sonoma’s existing lodging properties will achieve the 80% average annual occupancy rate prescribed by the initiative. As a result, if the initiative is approved by the voters, it is unlikely that any hotels over 25 rooms will be built in the City of Sonoma. This is due to the following key considerations:

� The lodging stock in Sonoma has not achieved the 80% threshold in any year during the past decade and the stock’s peak annual rate of 66% is far below the initiative’s 80% threshold. The average annual occupancy rate over the past decade is 62% and the average annual rate in 2012 was 65%. The current average annual occupancy rate would have to increase by 23% in order to achieve the 80% threshold.

� Lodging demand in Sonoma is driven by seasonal leisure travel and the average annual occupancy rate of other seasonal leisure-travel dominant markets is less than 80%. For example, over the past ten years, Sonoma County’s lodging’s peak average annual occupancy rate was 70%, Napa County’s peak was 74%, Monterey/Carmel’s peak was 69%, and the Coachella Valley’s peak was 65%. Because of the inherent low occupancy rates during the low-tourist season and the concentration of demand during the weekends, it is very difficult for leisure lodging markets to achieve average annual occupancy rates in excess of 75%, even if the supply of new properties is constrained.

� An 80% average annual occupancy rate is unusual throughout the nation. In 2012, only three metropolitan market areas in the nation achieved an 80% average annual occupancy rate: San Francisco, New York, and Oahu. Each of these markets is very large and is supported by a diversified demand from business travel, convention visitors, and leisure visitors. Occupancy rates in these markets do not fluctuate as much per month because seasonal tourism comprises only one source of lodging demand.

B. Development Opportunities With a 25-Room Cap

The lodging properties with 25 or fewer rooms that are currently serving the Sonoma and Napa Valley markets range from single cottages to small luxury hotels. If the ballot measure is approved and the 25-room cap becomes effective, it is likely that new lodging development in Sonoma will continue to be comprised of independently operated small inns and hotels. Examples of these types of properties include: Hotel Les Mars in Healdsburg, the North Block Hotel in Yountville, and the Ledson Hotel in Sonoma. The depth of the investor pool for these types of properties is limited, however, as these properties do not have the room count, the operating efficiencies, and typically the marketing advantages of properties that are associated with a national or international reservation system.

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V. LIMITING CONDITIONS

The data in this report regarding Sonoma’s hotel inventory, occupancy rates and transient occupancy tax revenue have been provided by the City of Sonoma. Information regarding other lodging markets is from data published by nationally recognized firms that specialize in collecting data on hospitality businesses. While KMA believes that these third party sources are reliable, KMA is not responsible for the accuracy of these data sources.

Table�1 City�of�Sonoma�Lodging�Inventory Impacts�of�"Large�Hotel�Growth�Management�Initiative"�on�Lodging�Development�Opportunities City�of�Sonoma,�California August�5,�2013 Source:�City�of�Sonoma,�July�2013

Business� License� Date Rooms�

Total� Rooms

Total� Properties

Avg.� Rooms�/� Property

Median� Rooms�/� Property

26+�Room�Properties 409 5 82 64 The�Lodge�at�Sonoma�Renaissance�Resort�&�Spa� 2000 182 Best�Western�Plus�Sonoma�Valley�Inn� 1988 80 Mac�Arthur�Place 1998 64 El�Pueblo�Inn 1988 53 El�Dorado�Hotel 1989 30

1�to�25�Room�Properties 118 34 3 2 Inn�at�Sonoma 2002 19 Sonoma�Hotel 1998 16 Cinnamon�Bear�Creekside�Inn�Inc 2010 7 Kenwood�Ramekins 2009 6 Ledson�Hotel 2003 6 Bungalow�313�(Brickhouse�Bungalow) 1999 5 Swiss�Hotel 1992 5 Mission�B�&�B 2009 4 Victorian�Garden�Inn 1988 4 Cooperage�Inn 1988 3 The�Cottage NA 3 Hidden�Oak 1999 3 Rose�Garden�B�&�B 1999 3 Sonoma�Farm�House 2000 3 Auberge�Sonoma 2008 2 Peter�Mathis 2006 2 Schaefer�House 2009 2 Sonoma�farm�House�#2 2011 2 Susan's 1999 2 Woodfield�Properties NA 2 Alexandra's�Plaza�Suite 1999 1 An�Inn�2�Remember 2010 6 Andrea's�Hidden�Cottage 1997 1 Beautiful�Places NA 1 Benziger�Solana�Cottage 2005 1 Bungalow�Sonoma 2011 1 Caroline's�Cottage 2011 1 Casa�de�Carroll NA 1 Cottage�Sonoma 2003 1 Cuneo�Cottage 1999 1 Donner�Cottage 1999 1 InnWine�Country 2008 1 Mary�Jean's�Place 2009 1 Kate�Murphys�Cottage 1999 1

Total�Properties 527 39 14 3

Inventory�for�individual�properties�is�subject�to�availability.

Prepared�by:�Keyser�Marston�Associates,�Inc. Filename:�\\SfͲfs2\wp\19\19331\001\tables�08�05�13;�1Ͳhotels�by�size;�8/7/2013;�jj

Table�2 City�of�Sonoma�Historic�Average�Monthly�Lodging�Occupancy�Rates,�by�Year��and�Size�of�Property1

Impacts�of�"Large�Hotel�Growth�Management�Initiative"�on�Lodging�Development�Opportunities City�of�Sonoma,�California August�5,�2013 Source:�City�of�Sonoma,�July�2013

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg Januar Febru March April May June July Augus Septe Octob Nove Dece

26+�Rooms 2012 47.2% 50.6% 55.3% 67.2% 68.0% 72.5% 77.5% 80.1% 83.1% 80.8% 73.4% 41.5% 66.9% 2011 43.0% 53.5% 59.9% 69.1% 67.4% 71.8% 81.1% 78.7% 84.6% 78.0% 59.5% 43.7% 65.8% 2010 37.7% 38.7% 43.3% 57.6% 61.5% 69.4% 74.8% 83.1% 78.7% 78.0% 67.7% 41.8% 61.1% 2009 39.0% 39.4% 47.3% 57.1% 60.7% 63.9% 73.3% 80.1% 73.1% 76.9% 61.4% 42.6% 59.8% 2008 41.8% 51.8% 65.1% 69.4% 75.4% 76.3% 76.6% 83.9% 76.5% 82.4% 56.1% 36.8% 66.0% 2007 45.1% 53.6% 58.8% 67.5% 76.4% 74.4% 76.6% 84.1% 86.4% 83.3% 61.6% 48.2% 68.1% 2006 46.5% 58.5% 64.4% 69.2% 74.8% 82.1% 79.3% 77.6% 80.7% 84.0% 65.2% 42.5% 68.7% 2005 41.7% 54.1% 59.0% 70.3% 69.4% 75.5% 78.7% 82.3% 83.4% 81.4% 64.0% 39.6% 66.9% 2004 40.5% 47.6% 53.1% 60.2% 68.0% 71.1% 75.8% 75.6% 76.7% 77.8% 56.6% 37.9% 61.8% 2003 38.4% 40.7% 43.0% 55.1% 68.6% 66.0% 70.6% 81.1% 76.1% 77.4% 56.4% 39.7% 59.5%

42.1% 48.9% 55.1% 64.3% 69.1% 72.3% 76.4% 80.6% 79.9% 80.0% 62.0% 41.4% 64.5%

1�to�25�Rooms 2012 35.7% 43.8% 52.3% 49.0% 63.8% 65.7% 73.7% 68.3% 74.7% 71.2% 51.0% 41.2% 57.7% 2011 31.1% 41.4% 46.3% 56.2% 59.0% 57.1% 65.0% 65.9% 69.2% 66.8% 48.8% 33.1% 53.8% 2010 25.9% 33.5% 42.5% 45.3% 53.5% 51.4% 54.5% 59.1% 64.5% 65.7% 44.8% 33.5% 48.2% 2009 24.9% 34.6% 46.4% 44.5% 53.0% 51.5% 51.9% 56.5% 61.3% 63.6% 40.8% 30.0% 47.0% 2008 32.2% 44.3% 54.4% 59.0% 62.8% 68.4% 64.4% 72.7% 65.3% 68.1% 48.3% 33.6% 56.2% 2007 29.7% 46.0% 48.9% 54.2% 59.6% 65.1% 69.6% 72.5% 74.4% 70.1% 51.2% 34.6% 56.5% 2006 24.5% 44.3% 55.9% 61.0% 60.8% 64.8% 67.4% 70.6% 73.4% 72.1% 47.9% 32.5% 56.5% 2005 29.4% 43.7% 52.0% 52.9% 55.0% 58.5% 64.1% 66.1% 68.1% 66.8% 45.3% 31.5% 53.0% 2004 33.2% 37.4% 41.9% 47.8% 52.8% 56.8% 57.7% 57.0% 64.9% 62.7% 44.2% 33.2% 49.4% 2003 20.9% 36.7% 40.4% 45.5% 50.5% 54.3% 57.2% 63.7% 61.6% 57.2% 44.5% 29.1% 46.8%

28.9% 40.7% 48.4% 51.5% 57.2% 59.5% 62.6% 65.2% 67.7% 66.7% 46.7% 33.3% 52.6%

Total�Properties 2012 44.5% 49.2% 54.7% 63.2% 67.0% 71.0% 76.6% 77.4% 81.3% 78.7% 67.7% 41.4% 64.8% 2011 40.6% 51.1% 57.1% 66.5% 64.6% 68.6% 77.5% 75.9% 81.2% 75.5% 57.2% 41.4% 63.1% 2010 35.3% 37.7% 43.1% 55.0% 59.9% 65.7% 70.4% 77.7% 75.6% 75.4% 62.7% 40.0% 58.4% 2009 36.1% 38.4% 47.1% 54.4% 58.9% 61.2% 68.5% 74.9% 70.5% 74.0% 57.1% 40.0% 57.0% 2008 39.8% 50.2% 63.0% 67.3% 72.7% 74.7% 74.1% 81.6% 74.2% 79.4% 54.5% 36.2% 64.0% 2007 42.1% 52.0% 56.7% 64.8% 72.9% 72.5% 75.1% 81.7% 83.9% 80.6% 59.5% 45.4% 65.7% 2006 42.1% 55.6% 62.3% 67.6% 71.4% 77.9% 77.0% 76.3% 79.2% 81.6% 61.8% 40.5% 66.1% 2005 39.2% 51.9% 57.5% 66.5% 66.4% 72.4% 75.7% 79.0% 80.2% 78.5% 60.1% 37.9% 64.0% 2004 39.1% 45.6% 50.9% 57.6% 64.9% 68.1% 72.1% 71.8% 74.3% 74.7% 54.1% 37.0% 59.3% 2003 35.0% 40.0% 42.5% 53.2% 65.0% 63.6% 68.1% 77.8% 73.2% 74.1% 54.1% 37.7% 57.1%

39.4% 47.2% 53.6% 61.6% 66.5% 69.6% 73.6% 77.4% 77.4% 77.3% 58.8% 39.7% 62.0%

1 Average�based�on�the�total�number�of�rooms�occupied�and�available�in�each�size�category�by�month.

Prepared by: Keyser Marston Associates, Inc. Filename: \\Sf-fs2\wp\19\19331\001\tables 08 05 13; 2-wtd avg mo occ; 8/7/2013; jj

Table�3 Sample�Seasonal�Leisure�Markets�Historic�Occupancy�Trends Impacts�of�"Large�Hotel�Growth�Management�Initiative"�on�Lodging�Development�Opportunities City�of�Sonoma,�California August�5,�2013 Source:�PKF�Trends�in�the�Hotel�Industry�Northern�California,�Southern�California�Lodging�Forecast.

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg

Napa�County 2012 48.0% 56.9% 64.8% 70.7% 76.3% 79.3% 81.6% 80.1% 83.7% 82.1% 63.3% 45.6% 70.6% 2011 49.2% 58.1% 65.3% 72.8% 73.2% 78.4% 84.8% 83.8% 87.0% 83.7% 65.3% 52.3% 72.7% 2010 43.5% 53.5% 59.9% 64.5% 72.3% 75.0% 77.4% 74.8% 76.8% 80.6% 61.8% 45.5% 65.6% 2009 44.6% 45.5% 51.2% 63.7% 66.5% 72.0% 74.5% 79.5% 68.5% 76.9% 61.2% 41.7% 65.8% 2008 55.3% 57.1% 72.2% 79.5% 78.6% 83.6% 78.5% 86.1% 79.7% 82.1% 68.2% 46.5% 72.4% 2007 47.5% 64.1% 68.8% 73.5% 73.9% 78.3% 81.9% 82.4% 90.6% 87.2% 73.9% 56.1% 73.7% 2006 52.8% 60.7% 64.8% 63.6% 71.4% 75.8% 74.4% 77.4% 77.9% 81.9% 63.5% 49.1% 69.1%

48.7% 56.6% 63.9% 69.8% 73.2% 77.5% 79.0% 80.6% 80.6% 82.1% 65.3% 48.1% 70.0%

Sonoma�County 2012 51.3% 59.9% 62.8% 67.0% 71.7% 77.1% 81.8% 82.7% 82.2% 79.0% 67.0% 56.3% 69.9% 2011 48.1% 54.7% 60.5% 64.3% 72.9% 75.0% 82.2% 80.3% 83.0% 75.2% 64.4% 50.9% 67.6% 2010 42.1% 49.6% 54.7% 60.3% 67.4% 69.5% 76.9% 74.8% 75.1% 72.8% 61.1% 47.2% 63.4% 2009 43.7% 50.1% 54.1% 58.2% 63.2% 61.3% 71.3% 75.7% 69.9% 74.8% 54.3% 41.8% 58.8% 2008 40.2% 57.8% 63.6% 64.0% 71.8% 74.8% 74.1% 85.5% 75.2% 75.4% 59.5% 46.1% 65.8% 2007 51.1% 61.8% 63.9% 66.0% 72.5% 80.5% 80.8% 81.4% 73.0% 76.3% 62.1% 50.7% 68.2% 2006 55.5% 58.0% 61.9% 66.3% 73.7% 78.3% 82.6% 83.2% 80.6% 77.6% 67.8% 51.9% 69.1%

47.4% 56.0% 60.2% 63.7% 70.5% 73.8% 78.5% 80.5% 77.0% 75.9% 62.3% 49.3% 66.1%

Monterey�/�Carmel 2012 48.2% 58.9% 63.5% 68.4% 71.5% 79.1% 83.4% 84.2% 78.5% 74.7% 62.5% 49.7% 68.6% 2011 43.2% 59.3% 58.3% 66.3% 82.5% 70.7% 83.2% 84.4% 79.5% 73.7% 62.0% 51.2% 66.6% 2010 41.6% 51.7% 58.1% 67.2% 70.9% 71.4% 79.9% 82.7% 72.2% 71.0% 60.4% 44.8% 64.7% 2009 40.7% 47.5% 53.6% 58.5% 57.3% 62.2% 69.0% 72.8% 67.1% 69.6% 56.7% 50.1% 58.2% 2008 47.4% 58.4% 67.5% 62.2% 69.1% 72.5% 78.1% 81.8% 76.2% 74.4% 62.9% 47.5% 66.5% 2007 50.6% 62.4% 64.8% 67.2% 65.7% 72.8% 83.3% 86.7% 80.1% 72.8% 63.2% 47.5% 66.5% 2006 51.4% 63.2% 65.2% 73.6% 76.6% 74.9% 84.4% 83.0% 77.2% 73.3% 62.4% 48.2% 69.4%

46.2% 57.3% 61.6% 66.2% 70.5% 71.9% 80.2% 82.2% 75.8% 72.8% 61.4% 48.4% 65.8%

Coachella�Valley�1

2012 56.9% 2011 54.8% 2010 50.5% 2009 50.4% 2008 57.5% 2007 61.4% 2006 65.0%

56.6%

1 Monthly�data�not�availabe�for�Coachella.

Prepared by: Keyser Marston Associates, Inc. Filename: \\Sf-fs2\wp\19\19331\001\tables 08 05 13; 3-other mkts data; 8/7/2013; jj

Table�4 Lodging�Occupancy�Rates�of�U.S.�Metropolitan�Markets Impacts�of�"Large�Hotel�Growth�Management�Initiative"�on�Lodging�Development�Opportunities City�of�Sonoma,�California August�5,�2013 Source:�PKF�Trends�in�the�Hotel�Industry�Ͳ�United�States�Metro�Areas.

2006 2009 2012

Boston 67.4% 62.3% 71.7% New�York 81.0% 77.6% 83.6% Chicago 68.1% 56.6% 66.7% Fort�Lauderdale 70.8% 63.8% 72.6% Miami 72.2% 65.3% 76.4% Orlando 67.3% 59.3% 68.8% Washington�DC 69.0% 65.4% 67.5% Austin 69.2% 61.1% 68.1% Houston 66.2% 56.3% 65.4% New�Orleans 62.2% 58.1% 67.8% San�Antonio 69.1% 57.3% 63.3% Anaheim n/a 64.4% 73.0% Los�Angeles 75.9% 64.8% 75.4% Oahu n/a 73.4% 84.7% San�Diego 73.7% 63.8% 70.6% San�Francisco1 76.0% 76.0% 83.0% Seattle 71.0% 61.7% 71.2%

70.6% 64.0% 72.3%

Avg.�All�US�Cities 63.3% 54.7% 62.4%

1Represents�the�average�occupancy�of�hotels�within�the�City�of�San�Francisco.

Lodging�Occupancy� Rates�of�U.S.� Metropolitan�Markets

Avg.�Selected�High� Occupancy��Markets

Prepared by: Keyser Marston Associates, Inc. Filename: \\Sf-fs2\wp\19\19331\001\tables 08 05 13; 4-natl mkts data; 8/7/2013; jj

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Tourism  Policy  and  Planning   Politics  and  Plans  of  new  business  in  a  popular  destination  

    The  following  two  op-­‐ed  articles  represent  two  points  of  view  regarding  the   addition  of  a  proposed  as  a  59-­‐room  property  1/2  block  West  of  the  Plaza,   downtown  Sonoma.  It  conforms  to  the  requirements  of  the  General  Plan  and  has   actually  been  redesigned  based  on  community  input  from  what  is  shown  on  the   website:  http://www.hotelprojectsonoma.com     Please  read  the  following  two  positions,  one  for  and  one  against.      

For  the  measure:     What  you  should  know  about  the  ‘Hotel   Limitation  Measure’   Op-­‐Ed   By  Jennifer  Yankovich     The  citizens  of  Sonoma  deserve  a  voice  regarding  the  pace  and  size  of  hotel  growth   in  the  future.  Hotel  development  in  the  City  of  Sonoma  needs  to  be  regulated.     On  these  points  we  agree.     Both  the  city’s  General  Plan  and  its  Development  Code  provide  numerous   opportunities  for  public  input  and  require  several  layers  of  staff,  committee  and   commission  review,  including  impact  studies  for  traffic,  parking,  environment  and   infrastructure  for  hotel  development  projects.  The  process  takes  many  months  and,   for  larger  projects,  even  years  to  complete.  There  are  no  existing  “loopholes”   allowing  a  speedy  approval  without  extensive  consideration  of  community  impacts.     There  is  no  need  for  a  costly  and  divisive  ballot  initiative  to  usurp  the  existing   regulatory  process  and  the  City  Council’s  ability  to  govern  and  provide  managed   growth.  This  process  has  promoted  a  balanced  and  economically  viable  mix  of   commercial  development,  including  that  of  large  hotels  in  our  community.     The  board  of  directors  of  the  Sonoma  Valley  Chamber  of  Commerce,  made  up  of   local  business  and  community  leaders,  encourages  city  voters  to  consider  this  when   making  a  choice  about  whether  or  not  to  sign  a  petition  to  place  a  costly  and  short-­‐   sighted  “Hotel  Limitation  Measure”  on  the  ballot  for  special  election.     The  proposed  measure  does  not  provide  a  reasonable  or  inclusive  process  for   citizens  and  elected  officials  to  make  informed  decisions  about  future  hotel   development  in  the  city.  To  the  contrary,  it  includes  reactive  and  seemingly   arbitrary  conditions  that  fundamentally  hijack  the  public  process,  holding  the  City  

Council  and  citizens  of  Sonoma  hostage  under  its  extreme  and  exclusive  seizure  of   power.     The  newly  formed  group  proposing  this  measure,  Preserving  Sonoma,  is  chaired  by   a  former  mayor  of  the  city  (who,  ironically,  approved  the  current  General  Plan  the   measure  is  seeking  to  amend)  and  includes  vocal  members  who  do  not  live,  work  or   pay  taxes  in  the  City  of  Sonoma.     If  this  group  is  able  to  gather  enough  petition  signatures  from  registered  city  voters,   the  City  Council  will  be  required  to  hold  a  special  election  that  the  county’s  registrar   of  voters  estimates  will  cost  city  tax-­‐payers  between  $20,000  and  $34,000,  in   addition  to  staff  salaries  and  legal  costs  already  being  incurred  to  address  the   proposal.     The  measure  precludes  any  consideration  of  a  hotel  development  of  more  than  25   rooms  without  all  existing  hotel  rooms  and  other  overnight  lodging   accommodations  exceeding  an  80  percent  annualized  occupancy  rate.  This  absurdly   high  occupancy  rate  has  not  been  achieved  other  than  in  a  few,  most-­‐internationally   marketed  destinations  in  the  world.     Sonoma  currently  enjoys  a  healthy  occupancy  rate  of  nearly  65  percent.  The   proposed  ballot  measure  effectively  nullifies  the  current  review  process  to   determine  if  a  hotel  development  would  contribute  to  the  character,  local  business   mix  and  revenue  streams  to  support  city  services.     At  a  time  when  California  cities  are  still  reeling  from  post-­‐redevelopment  fiscal   realities,  the  proposal  is  even  more  unwelcome.  Paid  by  overnight  visitors,  TOT   (transient  occupancy  tax,  or  hotel  room  tax)  is  the  largest  source  of  revenue  to  the   city’s  general  fund.     One-­‐hundred  percent  of  TOT  stays  in  the  city  to  pay  for  our  roads,  parks,  police  and   fire,  as  well  as  community  youth,  senior,  arts  and  environmental  programs.   This  has  made  hotel  projects  a  natural  fit  for  Sonoma’s  organic  brand  of  agriculture,   open-­‐space  and  history,  as  well  as  supporting  its  locally-­‐owned  service  and  retail   businesses.     The  city’s  regulatory  process  has  provided  an  enviable  balance  of  large  and  small   hotels,  creating  a  consistent  and  healthy  revenue  stream  and  contributing  to   Sonoma’s  unique  business  mix.  Some  larger  hotels  in  the  city  provide  a  welcome   diversity  and  landscape  along  major  commercial  corridors  that  might  have   otherwise  been  developed  into  housing,  large  retail  or  “strip  centers.”     Larger  hotels  promote  local  retail  stores  and  restaurants,  and  some  smaller  hotels   and  bed  and  breakfast  properties  feel  they  benefit  from  their  marketing,  referrals   and  community  presence.     The  proposed  Hotel  Limitation  Measure  does  not  promote  anything  other  than  a   vocal  minority  group’s  opinion  that  a  hotel  with  more  than  25  rooms  is  bad.  

The  measure  is  too  extreme,  too  costly  and  simply  does  not  provide  an  inclusive   process  to  achieve  responsible  stewardship  of  our  community.     Sonoma  has  a  history  of  civic  involvement  by  residents  who  are  passionate  about   the  quality  of  life  in  our  city.  This  has  served  us  well.  Let’s  continue  to  be  active  in   the  process  and  work  together  to  preserve  the  unique  character  of  our  small  town.   •••   Jennifer  Yankovich  is  CEO  of  the  Sonoma  Valley  Chamber  of  Commerce.      

Against  the  measure:    

Small  hotels  are  better  for  Sonoma   Op-­‐Ed   By  Larry  Barnett     Chamber  of  Commerce  CEO  Jennifer  Yankovich’s  recent  Op-­‐Ed  piece  (“What  you   should  know  about  the  Hotel  Limitation  Measure,”  Index-­‐Tribune,  April  16)  was   notable  for  its  expression  of  faith  and  confidence  in  the  status  quo  when  it  comes  to   large  hotel  development  in  Sonoma.  The  chamber’s  record  includes  favoring   Rosewood  Hotel’s  hillside  hotel  monstrosity  in  1999,  and  opposing  the  formation  of   the  Urban  Growth  Boundary  to  stop  city  sprawl  the  following  year.  Both  initiative   measures  passed  overwhelmingly,  which  suggests  that  the  chamber  board’s  opinion   is  a  reliable  anti-­‐barometer  of  citizen  sentiment.  Jennifer’s  editorial  produced  a  nice   surge  of  new  supporters  for  our  petition,  however,  and  we  appreciate  the  PR.     Some  opponents  to  our  proposed  initiative  seem  to  have  a  grudge  against  simple   democracy  and  letting  citizens  of  Sonoma  occasionally  have  a  direct  vote  in  setting   public  policy.  They  instead  prefer  that  politically-­‐appointed  commissioners  and  five   City  Council  members  have  the  perpetual  and  exclusive  right  to  determine  what   happens  in  Sonoma,  public  opinion  notwithstanding.  In  general,  representative   democracy  works  well,  but  not  always.  In  rare  instances,  issues  are  of  such   importance  that  democracy  must  include  all  the  voters,  not  just  five.  The  initiative   process  exists  for  just  that  purpose.     Jennifer’s  characterization  of  our  effort  as  “divisive”  implies  that  difference  of   opinion  is  bad.  To  the  contrary,  it  is  the  life-­‐blood  of  democracy;  as  society  evolves,   so  must  its  rules.  Unfortunately,  the  chamber  is  divisive  when  it  labels  petition   supporters  as  people  who  “do  not  live,  work  or  pay  taxes  in  the  City  of  Sonoma.”     Here’s  the  facts:  our  proposed  initiative  is  not  a  ban  or  moratorium  on  new  hotels.  It   sets  a  limitation  on  the  number  of  rooms  of  a  new  hotel  until  such  time  as  Sonoma’s   annual  occupancy  rate  justifies  a  large  hotel  exceeding  25  rooms.  Linking  hotel   growth  with  occupancy  provides  a  rational  benchmark  for  future  growth  so  that   infrastructure  affecting  traffic,  parking  and  pedestrian  safety  is  not  outstripped  by   large  hotel  development.  It  allows  our  existing  overnight  visitor-­‐serving  

establishments  to  increase  their  occupancy  rate  and  reduces  the  justification  for   using  tax  money  and  levied  funds  to  promote  filling  empty  rooms.     In  2013,  approximately  $758,000  will  be  spent  by  the  Visitors  Bureau  to  operate   and  help  to  promote  higher  hotel  occupancy.  This  includes  $450,000  from  a  new  2   percent  levy  on  all  rooms  that  the  Tourism  Improvement  District  has  created  with   city  approval  and  that  can  only  be  used  for  promotion.  It  also  includes  $218,000   from  the  Redevelopment  Agency  successor  and  $90,000  from  the  County  of  Sonoma.     Given  this  enormous  sum,  much  of  which  could  have  gone  into  city  coffers  as   unencumbered  TOT,  it  seems  reasonable  to  conclude  that  slowing  large  hotel   growth  would  be  wise  until  room  occupancy  improves.   The  chamber  complains  that  a  special  election  costs  too  much,  but  compared  with   the  money  spent  on  promoting  hotel  occupancy,  $30,000  is  a  pittance  and  a  small   price  to  pay  to  give  the  citizens  a  voice.  A  small  group  of  us,  what  Jennifer  derisively   calls  “a  vocal  minority,”  may  have  initiated  this  idea,  but  even  big  ideas  always  begin   small;  after  the  election  we  will  be  “a  vocal  majority.”     The  intent  of  our  Hotel  Limitation  Measure  is  to  encourage  the  development  of  small   hotels  rather  than  large.  Those  who  live  near  the  Renaissance  Lodge  at  Sonoma   know  how  severe  the  impacts  of  a  large  hotel  can  be  on  the  quality  of  life.     Noise  is  a  constant  problem  from  large  parties,  events,  big-­‐rig  deliveries,  garbage   trucks  and  restaurant  roof-­‐fans.  Intrusive  noise  is  simply  in  the  nature  of  large   hotels  combining  multiple  uses  on  one  property.  Small  hotels  under  25  rooms  have   much  lower  impacts.     Sonoma’s  Urban  Growth  Boundary  expires  in  six-­‐and-­‐a-­‐half  years.  Without  renewal   (which,  based  on  history,  the  chamber  will  oppose),  vast  new  parcels  of  land  will   become  available  for  development,  potentially  with  large  hotels  if  our  measure  is   not  approved.     Of  Sonoma’s  507  overnight  rooms,  roughly  350  are  in  four  large  hotels.  Despite  the   opinion  of  the  chamber,  smaller  25-­‐room  hotels  (like  the  Sonoma  Hotel)  are  under-­‐ represented.  Encouraging  small  hotel  development  is  at  the  heart  of  our  proposal,   producing  increased  TOT  while  preserving  our  small  town  character  for  the  next   decade  or  two.     Sonoma  is  a  such  a  sweet  little  town,  and  most  residents  want  to  keep  it  that  way.   When  the  majority  of  voters  in  Sonoma  approve  the  Hotel  Limitation  Measure,  we   will  have  come  a  long  way  toward  accomplishing  that  goal.   •  •  •   Larry  Barnett  is  chair  of  the  Preserving  Sonoma  Committee  and  a  former  Sonoma  City   Council  member  and  mayor.