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.. I . . No Lodging Forecast To date, occupancy has stabilized with the continued increases in the lodging supply. I The major contributor to the lodging supply has been in the limited service segment. Overall financial performance is still increasing due to the continued growth in II . average rates. New construction is still on the rise ---especially in secondary and tertiary markets --- however these two segments are seeing their supply growth slow with caution. Mortgage money has been more accessible and interest rates are 4 relatively stable. The long term forecast for the overall hotel US hotel performance concludes that hotel 0 profitability-will continue to reach record levels in.all segments. Some markets will see the strain of too many hotel rooms being added before the demand has had a • chance to increase occupancies. The extended stay segment is the segment to I , watch as demand is increasing more rapidly than the supply. Even if the hotel industry sees another decline or should another recession occur, the Nindustry itself is not expected to have much negative impact. This is due to operators understanding how to run their facilities more efficiently. At the same time, the number of hotels that are now owned by major corporations and REITs (Real Estate NoInvestment Trusts) isso significant that capital will be available to maintain both the product quality.and debt service demands. 4 Finally, over the years operators have learned how to improve profitability. In 1997, the. industry profits were 6x higher than the last combined years! 1998 is expected to Ishow a similar trend. Unfortunately, should the industry slow down in the next few years, smaller under- 4 capitalized properties may be hurt. Like any business, customer expectations need to be met or exceeded --- hotels that can not continue to do so will suffer. 11 What does this mean? In the shortest terms, the hotel industry is doing very well. "II. .. While there are more rooms to fill in most markets, room revenues areincreasing along with profits. Money for new construction is available and the industry has 1 become a very solid investment tool. In 1997 the mergers of hotels companies and acquisitions of individual hotel portfolios.exceeded $50 billion. Wallstreet, investors and banks have become very fond of the industry with returns being ashigh as 30% in 4 the first year a newhotel is built. Even with a strong industry we are seeing mistakes being made. We have seen our 0 fair share of small companies or individuals propose tobuild hotels, motels and - resorts in markets that simply can not support the new supply. 0 . Is this the case in Mounds.View? No it is not. In the towns where new construction isn't warranted, there is typically one vital ingredient missing --- the demand for ,t . lodging. The Mounds View market area has adequate demand for a new hotel. 17