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CITY COUNCIL AGENDA ITEM NO. 17

Meeting Date: May 27, 2003

Subject/Title: Approve an Agreement for Payment of Contract Services with Vineyards at Marsh Creek, L.L.C. for a Market and Economic Feasibility study of a hotel by PKF Consulting for the proposed Vineyards at Marsh Creek Project located near Marsh Creek Road and the southerly extension of Fairview Avenue.

Submitted by: Howard Sword

Approved by: John Stevenson, City Manager

RECOMMENDATION
Approve an Agreement for Payment of Contract Services with Vineyards at Marsh Creek, L.L.C.
for a Market and Economic Feasibility study of a hotel by PKF Consulting for the proposed
Vineyards at Marsh Creek Project located near Marsh Creek Road and the southerly extension
of Fairview Avenue.

PREVIOUS ACTION
None.
BACKGROUND
Vineyards at Marsh Creek, L.L.C. is preparing an application for annexation and development of The Vineyards a mixed-use, planned community located in an unincorporated area within the City’s sphere of influence along the City’s southerly boundary. The proposed project is included within Special Planning Area (SPA) “J” as identified in the City’s General Plan. On March 11, 2003, a similar agreement was executed with this developer to cover the costs associated with the preparation of an EIR. On April 8, 2003, a similar agreement was executed with this developer to cover the costs associated for the Design Workshop Services.
The proposed Agreement for Payment of Contract Services is consistent with the City’s procedure to select a consultant (with the applicant’s concurrence) for the performance of various studies related to the project. To avoid potential conflicts of interest, the City enters into a contract with the applicant, whereby they agree to pay the full consultant costs established in a specific consultant agreement. The City then contracts with the consultant who works for, and reports directly to, the City.
The consultant contract with PKF Consulting for a Market and Economic Feasibility study of a proposed hotel is a separate Council action that follows this first contract item on the agenda. In accordance with this agreement, Vineyards at Marsh Creek, L.L.C. will deposit funds to perform the work. The City will draw from the funds deposited to pay the consultant costs. The total cost to the applicant is $20,000 for the consultant’s work, plus reimbursable expenses as described in the scope of work, not including the 10% contingency amount. The applicant also is responsible for all other standard application fees not addressed by either of these agreements.

FISCAL IMPACT
Vineyards at Marsh Creek, L.L.C. will pay the full cost of the work to be performed under the agreement between the City and PKF Consulting. The applicant has deposited $20,000 with the City that will be drawn down to pay for the costs under the agreement for the Design Workshop Services. The contract provides that, in any event, the applicant shall be liable to the City for the full and total costs and fees relating to that agreement.

ATTACHMENTS
Exhibit A – PKF Agreement
Exhibit B – PKF Document

Exhibit A

AGREEMENT FOR PAYMENT OF CONTRACT SERVICES
WITH VINEYARDS AT MARSH CREEK, L.L.C. FOR
MARKET AND ECONOMIC FEASIBILITY STUDY OF A HOTEL FOR VINEYARDS AT MARSH CREEK PROJECT

AGREEMENT made this 27th day of May 2003, between the CITY OF BRENTWOOD (“CITY”), a municipal corporation, and VINEYARDS AT MARSH CREEK, L.L.C ("APPLICANT").

For the consideration hereby acknowledged, the CITY and APPLICANT agree as follows:

SECTION 1. PURPOSE OF AGREEMENT. The APPLICANT desires to proceed with a Market and Economic Feasibility Study for a hotel as necessary, at the APPLICANT’S proposed development project. CITY and APPLICANT agree to engage a consultant to prepare a Market and Economic Feasibility Study. The CITY has selected PKF Consulting (“Consultant”) to prepare the Market and Economic Feasibility Study. APPLICANT agrees to pay all costs for production of subject Market and Economic Feasibility Study, in addition to all other applicable CITY development and application fees.

SECTION 2. SELECTION OF CONSULTANT. CITY and Consultant have separate Agreement for Contract Services for the Market and Economic Feasibility Study, dated May 27, 2003.
SECTION 3. PAYMENT TERMS FOR APPLICANT. APPLICANT agrees to pay the CITY all costs associated with preparation of the Market and Economic Feasibility Study, not to exceed $20,000 plus reimbursable, plus a 10% contingency of $2,000, without the APPLICANT’s written approval. APPLICANT shall pay CITY at the rates and for the hours actually performed by the Consultant in accordance with the rates set forth in Exhibit "A", attached hereto and made a part hereof. Consultant will bill CITY every 30 days for work already performed. Payment by the APPLICANT to the CITY shall be made within twenty-one (21) days after receipt of the Consultant's acceptable, undisputed itemized billing. The APPLICANT’s costs for the MARKET AND ECONOMIC FEASIBILITY STUDY are $20,000, not including the reimbursable and 10% contingency fee.
Upon execution of this contract, the APPLICANT shall deposit with the CITY $20,000 that represents the CITY’s costs. The CITY’s costs shall be drawn by the CITY based on the rates and for the hours actually performed by the Consultant in accordance with Consultant Agreement.
In any event, including a stoppage of the project for any reason, and regardless of the amount paid to the Consultant by the CITY, the APPLICANT shall be liable to the CITY for the full and total amount of the CITY’s costs established herein. Supplemental deposits may be made subsequent to the required deposit amounts as a result of mutually agreed-upon amendments to the Scope of Work or Additional Services provided herein. Such supplemental deposits shall be made for the full amount of the amendments and shall become part of the CITY’s costs, in addition to the amount stated above. The APPLICANT remains liable to the CITY for the full amount of the CITY’s costs regardless of the project’s pace or completion.
SECTION 4. MARKET AND ECONOMIC FEASIBILITY STUDY SCOPE OF WORK. The Consultant shall perform any and all work needed to complete the tasks outlined in the Consultant’s Proposal, attached as Exhibit “A” and incorporated herein by reference, and which shall serve as the Scope of Work for the MARKET AND ECONOMIC FEASIBILITY STUDY for a hotel at the project, except as the Scope may be amended by mutual written agreement among the APPLICANT, Community Development Director, and the Consultant’s authorized representative.
SECTION 5. TERMINATION. This Agreement may be terminated by either the CITY or the APPLICANT following thirty (30) days written notice of intention to terminate; thereafter, the APPLICANT shall be liable to the CITY only for those fees and costs earned by Consultant to the date of termination and which shall be substantiated by an itemized written statement certified and submitted to CITY by the Consultant. The CITY's right of termination shall be in addition to all other remedies available under law to the CITY. In any event, this Agreement shall expire at the time the work is completed, but no later than January 31, 2005.

SECTION 6. ADDITIONAL SERVICES. In addition to the ongoing services described herein, the CITY, APPLICANT and Consultant may agree in writing during the terms of this Agreement, that the Consultant shall perform additional services found to be necessary. Such additional services shall not be undertaken by the Consultant until there is an Agreement between the CITY and the APPLICANT as to the scope of the services and the cost to perform said services and the CITY has received written authorization to proceed from the APPLICANT.

SECTION 7. OWNERSHIP OF INFORMATION. All reports, exhibits, data, materials, or other work prepared by the Consultant in compliance with this Agreement shall become the property of the CITY.

SECTION 8. JURISDICTION. This Agreement shall be administered and interpreted under the laws of the State of California. Jurisdiction of litigation arising from the Agreement shall be in Contra Costa County. If any part of this Agreement is found in conflict with applicable laws, such part
shall be inoperative, null and void insofar as it conflicts with said laws, but the remainder of this Agreement shall be in full force and effect.

SECTION 9. ATTORNEY'S FEES. In the event either party to this Agreement brings an action to enforce or interpret this Agreement, the prevailing party in such action shall be entitled to reasonable attorney's fees, witness fees and legal costs. For purposes of this provision, "prevailing party" shall include a party which dismisses an action for recovery hereunder in exchange for payment of the sum allegedly due, performance of covenants allegedly breached, or consideration substantially equal to the relief sought in the action or proceeding.

Effective date of this Agreement shall the date first above written.

APPLICANT: Vineyards at Marsh Creek, L.L.C.

By: ____________________________________
(Authorized Signature)

Printed Name: ____________________________
Title: ___________________________________
Address: ________________________________
Phone: ________________ Fax: ____________


CITY OF BRENTWOOD:


_______________________________________
John Stevenson, City Manager

ATTEST:


_______________________________________
Karen Diaz, CMC, City Clerk

APPROVED TO AS TO FORM:


_______________________________________ Dated: ___________
Dennis Beougher, City Attorney

EXHIBIT B
Vineyards at Marsh Cheek
Market and Economic Feasibility Study
For a Proposed Hotel

May 5, 2003

Mr. Courtland Holman
Development Project Manager
City of Brentwood
150 City Park Way
Brentwood, California 94513-1396

Re: Proposed Hotel - Brentwood, California

Dear Mr. Holman:

Pursuant to our discussions, we are pleased to submit this revised proposal to perform a study of the potential market and economic feasibility of a proposed hotel to be located in Brentwood, California.

A. INTRODUCTION

As we understand it, representatives of the City of Brentwood (the City) are interested in the development of a hotel within the community. In order to assist you and your associates in assessing whether a hotel is a viable development opportunity for the City, we propose to perform a study that would encompass the following.

· Evaluate the appropriateness of the proposed site within Brentwood for the development of a hotel;

· Analyze the current and future market demand for a lodging facility within Brentwood;

· Based on the foregoing market analysis, develop a recommendation for the optimum type of lodging facility for the subject site, including potential franchise affiliations;

· Provide key planning criteria as to the sizing, concept, amenities to be provided, and timing of the development;

· Develop a statement of estimated annual operating results for the proposed project for its first five to ten years of operation. This statement would reflect all potential revenues and expenses associated with ongoing operations and would be the basis for analyzing the future economic feasibility of the hotel;

· Develop an estimate of the total development cost of the proposed hotel. Based on this cost estimate, together with our cash flow forecast, we will be able to evaluate the financial feasibility of the proposed development; and,

· At the appropriate time, prepare a formal report or reports on the market and economic feasibility of the proposed hotel. This report would be suitable for presentation to third parties for the purpose of securing mortgage financing and/or equity participation. This report would also be suitable for use in the negotiation of a lease, management or franchise agreement, as well as for presentation to potential developers.

The work program for the study will be concerned with the determination of current and potential future demand for lodging accommodations in the Brentwood market area, assessment of the existing and potential future competitive supply, and the share of the market that could reasonably be attained by the subject facility. Our workplan for such a study will be in several phases, as detailed later in this proposal.

B. PKF CONSULTING

As a point of background, we would like to provide you with a brief overview of our firm. PKF Consulting is a real estate consulting and appraisal firm with offices in eight major U.S. cities. As a member of the Pannell Kerr Forster International Association, we have an additional 250 offices in 75 countries.

The professional staff of PKF Consulting consists of approximately 100 consultants and appraisers, including designated Members of the Appraisal Institute (MAI), the American Society of Real Estate Counselors (CRE) and the International Society of Hospitality Consultants (ISHC). In addition, many of our professional staff are certified general real estate appraisers in the states in which we actively perform work.

Since its inception, PKF Consulting has placed a special emphasis on serving the hospitality and real estate industries. This work includes market analyses and feasibility studies in virtually every major domestic market, providing the firm with an unsurpassed body of knowledge regarding past and present market performance. Since 1983, we have also provided market value appraisals for all types of commercial real estate, with a primary focus on hotels, motels, resorts, and golf courses. Additionally, we own a database on U.S. hotel operating results that extends back to 1935.

PKF Consulting serves our United States and international clients from a base of offices in eight major cities: New York, Philadelphia, Washington, D.C., Atlanta, Los Angeles, Houston, Dallas and San Francisco, our headquarters.

In addition to our long-standing expertise in the hotel industry, we would bring to you in this engagement substantial familiarity with the East Bay hotel market in general, and the Contra Costa County hotel market in particular. Within the past several years we have either appraised, evaluated or prepared market feasibility studies for the following hotels located in the East Bay market area.

Holiday Inn ExpressRadisson HotelHilton HotelWoodfin SuitesFour Points by SheratonMarriott CourtyardMarriott HotelLafayette Park HotelCourtyard by MarriottW Suites HotelHilton Garden Inn (Proposed)AmeriSuites (Proposed)Hawthorn SuitesStaybridge Suites (Proposed)Hilton HotelRamada InnHampton InnMarriott City CenterClaremont Hotel & SpaHilton AirportCourtyard by MarriottClarion Lake MerrittJack London Square (Proposed)Hilton HotelResidence InnSheraton InnRamada InnEmbassy SuitesRadisson HotelBest Western Wellex InnHoliday Inn Express Antioch, CABerkeley, CAConcord, CAEmeryville, CAEmeryville, CAEmeryville, CAFremont, CALafayette, CALivermore, CANewark, CANewark, CANewark, CANewark, CANewark, CANewark, CAOakland, CAOakland, CAOakland, CAOakland, CAOakland, CAOakland, CAOakland, CAOakland, CAPleasanton, CAPleasanton, CAPleasanton, CAPleasanton, CAWalnut Creek, CAUnion City, CAUnion City, CAUnion City, CA

In order to give you a further understanding of the depth of our experience, attached for your review is a partial listing of additional existing and proposed hotels, resorts, and other types of properties our office has evaluated during the past several years.

Given the historical role of PKF Consulting in the hospitality industry, our knowledge of the local market, we are of the opinion that there is no firm that can provide the services available through us.

To assist you in evaluating the market support for the proposed project, we intend to conduct a study as discussed in the following text.

C. PHASE I - MARKET DEMAND ANALYSIS

1. Introductory Meeting

The first phase of our engagement will involve meeting with you and your associates for the purpose of understanding your goals and objectives for this project, as well as to review in detail any preliminary development programming you may have for this development.

2. Site Analysis

Since the location of a hotel within its market is of major importance to the success of a project, we will analyze and evaluate the following factors regarding the subject’s location and possible advantages/disadvantages in comparison with potential competitors.

· Accessibility of the transportation network and demand generators
· Visibility from various access points
· Ambiance of the area as it might impact demand
· Relationship to demand sources and attractions
· Climate and seasonality which may impact demand

3. Area Review

We will gather and analyze relevant statistical data regarding the local and regional market area to determine whether the economic environment appears suitable for the project. We will examine possible correlation between key economic factors and the demand for hotel rooms, and will use available forecasts of these indicators in our evaluation of potential future demand.

4. Primary Research

We will perform primary market research within the local market. This will include interviews with key demand generators, inspection and evaluation of competitive and comparable facilities, and discussions with executives knowledgeable about the area’s lodging market. Among those whom we may conduct such interviews are:

· Appropriate city and county officials
· Major employers in the market area
· Management of local tourist attractions
· Owners and managers of potentially competitive hotels
· Officials in tourism, development, and transportation
· Bankers, editors, and development-organization representatives
· Convention Bureau authorities
· Redevelopment Agency officials

5. Supply and Demand Estimates

On the basis of the foregoing analysis, we will estimate potential growth in both the demand for, and the supply of lodging facilities in the competitive market area. We will then evaluate each of the principal segments of demand and describe their characteristics in this particular market and their historical performance. Then we will estimate growth rates in demand for each of these market segments and project the anticipated future demand.

The next step is an estimate of the competitive supply, including historical growth trends and potential additions to the supply. We will evaluate the competitive potential of proposed or rumored projects with respect to your development, and estimate expected performance of the competitive supply over the projection period including the subject property’s first five years of operation.

6. Market Share Estimates and Projected Occupancy And Average Room Rate

As a starting point for our estimate of the proposed hotel’s operating performance, we will relate the property’s size to the competitive supply, both existing and potential. This ratio, called fair share, is then related to projected competitive demand and adjusted to reflect the share of the market which we would reasonably expect the property to capture in its first five years of operation based on identifiable attributes demanded in the market such as: location, price, quality, and amenities. Based on this analysis, we will develop our projection of the potential occupancy and average room rate the lodging facility could achieve over its first five to ten years of operation.

7. Evaluation of Food and Beverage Supply and Demand

During field interviews, we will include questions regarding food and beverage preference, dining habits, and attitudes. One the basis of this research, together with the evaluation of facilities in competitive properties, we will prepare estimates of the expected food and beverage patronage at the proposed hotel, including:

· The percentage of “in-house” business that would be captured by meal period and outlet.
· The number of average daily covers that should be captured from the local dining market, by meal period and outlet.
· Average checks that could be attained by outlet and meal period.
· Potential banquet room demand and expected room service volume based on the estimated market mix.

8. Facilities Recommendations

Base on or analysis, we will prepare recommendations for facilities that, in our opinion, will best meet demonstrated market demand, including:

· Concept and quality level of the property.
· Number of guest units, mix of room types, and in-room amenities.
· Size and type of restaurant and lounge facilities (if appropriate).
· Banquet and meeting space requirements based on potential function demand.
· Related services and amenities to be provided, including parking, recreation and other facilities.

These recommendations can provide you with background for a design program and will serve as the basis for our estimate of operating results.

9. Interim Summary Report

To provide you with a preliminary indication of our findings regarding the potential for the proposed hotel, we will furnish you with a brief summary report outlying our initial conclusions and opinions concerning the ability of the local market to support the development of a new hotel at the subject site. In addition, this report will also include our estimates of attainable average daily rates and occupancy levels for each of the first five years of operation of the proposed hotel. This letter report is for your internal management use only, and is not to be distributed to an outside third party without our prior consent

At the conclusion of the first phase of the report, if the initial results are positive and with your authorization, we would next develop a detailed cash flow forecast for the proposed hotel.

D. PHASE II - ANALYSIS OF ECONOMIC FEASIBILITY AND COMMUNITY IMPACT

1. Projected Operating Results and Prospective Value Estimate

Using our market research as a basis, we would estimate occupancy and average daily room rate, total sales, and operating expenses of the proposed hotel for the first ten years of operation. These statements would include all revenues and expenses and result in a “bottom line” of income before depreciation, amortization, interest, and taxes on income. Based on this cash flow forecast, we would then develop a preliminary estimate of the prospective market value of the proposed hotel through the Income Capitalization Approach to value. This valuation will be used to evaluate the overall feasibility of the project.

Since the estimated operating results will be based on estimates and assumptions, which are subject to uncertainty and variation, we will not represent them as results that will actually be achieved.

2. Preliminary Analysis of Economic Feasibility

After we have developed the above cash flow forecast, we will then develop an analysis of the economic viability of the proposed hotel. We will develop an estimate of the total development cost of the proposed hotel, as well as a proposed financing plan. We will compare the prospective value of the property as determined by the Income Capitalization approach discussed above with the projected cost estimates to determine the viability of the development. Should we determine that there would be a shortfall between the development cost and the prospective value, we will highlight the level of difference and discuss with you ways in which it may be mitigated.

3. Economic Benefits to the Community

Each dollar collected by a hotel eventually recycles or multiplies itself, creating many levels of economic activity in the community. As employers, hotels pay wages, these wage earners, in turn, make purchases from local businesses. As taxpayers, hotels add revenue to community coffers. As consumers, hotels buy goods and services from area businesses. In addition to these indirect benefits, direct economic benefits manifest themselves in the form of:

· Transient Occupancy Taxes
· Sales Taxes
· Property Taxes
· New employment, with many positions being in targeted income groups (low income)

Our report would analyze and present our estimations of the various economic benefits to the City from the construction and operation of the proposed convention center hotel. We would quantify the dollar amount of these likely benefits both during the construction period of the hotel and also for its first ten years of operation.

Our foregoing findings of Phases I and II of our analysis will be presented to you both verbally, and in a brief summary report. Due to the abbreviated nature of this summary report, it is restricted for your internal management use.

E. PHASE III - FORMAL REPORT PRESENTATION

At the conclusion of Phase II, if you so desire, we will prepare a detailed report outlining our conclusions and recommendations concerning the project. The report will be presented in a format generally acceptable to major sources of debt and equity financing and franchise and management organizations. Though the exact format of the report will evolve as the engagement progresses, the following probable section headings provide an outline of the expected final report.

· Introduction (Project Concept and Study Methodology)
· Summary of Conclusions and Recommendation
· Area Economic/Demographic Review
· Site Location Evaluation
· Competitive Supply and Demand
· Recommended Facilities
· Market Position - Subject Property
· Statement of Estimated Annual Operating Results
· Feasibility Analysis

F. ANTICIPATED DELIVERY DATE

Based on our present scheduling and your timely acceptance, we should be able to commence Phase I of the engagement within approximately two weeks of receiving your authorization to proceed. Barring unforeseen circumstances, we envision completing Phase I of our study within approximately three weeks. Phases II and III would be initiated upon receipt of your authorization, and would require approximately two additional weeks to complete.

H. PROFESSIONAL FEES

Our fees are commensurate with services rendered and are based on time expended by our professionals, charged at our normal billing rates as indicated below, and are not in any way contingent upon the results of our work.
Our normal hourly billing rates at this time are as follows.

Executive and Senior Vice PresidentsVice PresidentsAssociatesConsultants $250 - $350$175 - $250$120 - $175$100 - $110

Based on our understanding of the scope of this engagement, we estimate our professional fee for various phases of the engagement to be as follows.

Phase I - Market Demand AnalysisPhase II - Analysis of Economic Feasibility and BenefitsPhase III - Formal Report Presentation Total $12,000$5,500$2,500$20,000


As can be noted, the professional fee for Phase I of our study is $12,000, with the total fee for the entire study being $20,000.

In addition to our professional fees, we require reimbursement for any out-of-pocket expenses incurred in the performance of the assignment. Such expenses may include transportation and lodging costs, out-of-pocket expenses incurred by us while in the field, supplies, and report printing costs.

If, at any time during the course of the study, we form an initial opinion that there is insufficient market support for the proposed hotel, we will suspend the assignment at that point and discuss our findings with you. If you desire that we terminate the assignment at this point, we will write you a brief letter summarizing our findings and charge you only for that time actually incurred to date at our regular hourly rates, plus expenses. Again, we will only proceed from one phase to the next upon your authorization.

As it customary in assignments of this nature, we request a retainer of $8,000 to commence Phase I of the assignment. The remaining balance of our fees, plus out-of-pocket expenses, will be billed to you at the end of each phase of the study. The final copies of the reports will be released after receipt of all payments.

I. LIMITATIONS OF THE STUDY

Our report will be subject to the attached standard statement of assumptions and limiting conditions.

J. APPROVAL AND ACCEPTANCE

If this letter correctly states the nature of the work to be undertaken and the arrangements are satisfactory, please sign the enclosed copy of this letter and return it to us, together with the requested retainer, as our authorization to commence the assignment.

We appreciate the opportunity to submit this proposal and we look forward to working with you on this very interesting assignment.

Sincerely,

PKF Consulting


________________________________
Thomas E. Callahan, CPA, CRE, MAI
Executive Vice President


APPROVED AND ACCEPTED:


By: ______________________________


Title: ______________________________


Date: ______________________________

City Administration
City of Brentwood City Council
150 City Park Way
Brentwood, CA 94513
(925) 516-5440
Fax (925) 516-5441
E-mail allcouncil@brentwoodca.gov