midway mall highest & best uses feasibility study

MIDWAY MALL HIGHEST & BEST USES

FEASIBILITY STUDY Prepared for City of Elyria, OH

December 2016

Prepared by Jeff Green Partners & Hoffman Strategy Group

Midway Mall Highest & Best Uses Study, Elyria, OH December 2016

Jeff Green Partners/Hoffman Strategy Group 2

TABLE OF CONTENTS

Introduction .................................................................................................................... 4 About Midway Mall and A Redevelopment Plan ............................................................... 4 Changes in Retail: Implications on Midway Mall ................................................................ 4 Opportunities for Redevelopment ........................................................................................ 4 Next Steps ................................................................................................................................ 5

Executive Summary ...................................................................................................... 6 Context ..................................................................................................................................... 6 Market Feasibility Conclusions and Recommendations .................................................... 8

About the Study ........................................................................................................... 11 Scope of Work Summary ...................................................................................................... 11 Methodology ......................................................................................................................... 12 Assumptions ........................................................................................................................... 13

Retail Feasibility Analysis ............................................................................................ 15 Trade Area ............................................................................................................................. 15 Retail Category Voids ........................................................................................................... 16 Retail Tenant Recommendations ....................................................................................... 17 Supportable Sales Forecasts by Recommended Mix ....................................................... 19 Retail Spending Potential ..................................................................................................... 20 Population, Demographics and Lifestyles .......................................................................... 21

Multi-Family Feasibility Analysis ................................................................................. 31 Trade Area ............................................................................................................................. 31 Market Supply Characteristics ............................................................................................. 32 Market Demand Profile ........................................................................................................ 35 Market Gap ........................................................................................................................... 36 Apartment Development Opportunity .............................................................................. 37

Hotel Feasibility Analysis ............................................................................................. 42 Market Area ........................................................................................................................... 42 Profile of Hotel Inventory ...................................................................................................... 43 Hotel Competitive Set .......................................................................................................... 44 Findings ................................................................................................................................... 49 Recommendation: Brand, Size, and Revenue Estimates ................................................. 49

Office Feasibility Analysis ........................................................................................... 52 Trade Area ............................................................................................................................. 52 Office Market Supply ............................................................................................................ 55 Office Market Demand ........................................................................................................ 56 Office Market Gap ............................................................................................................... 59 Recommendations ............................................................................................................... 61

Best Practices in Public Finance Incentives .............................................................. 62 Ohio Projects ......................................................................................................................... 62 Other States ........................................................................................................................... 63 Summary ................................................................................................................................ 64



Site Plan ........................................................................................................................ 65 Potential Concept Design ................................................................................................... 65 Design Guidelines ................................................................................................................. 66

Appendices ................................................................................................................. 67



INTRODUCTION

ABOUT MIDWAY MALL AND A REDEVELOPMENT PLAN

This highest and best uses feasibility study is about the viability for retail and non-retail uses on the existing Midway Mall property in the Elyria/Lorain County, OH, market. The purpose is to use this report as part of a broader process that is focused on optimizing the value of the Midway Mall to the City of Elyria, OH. Part of this process includes the City of Elyria’s interest to attract a develop that sees the potential to redevelop Midway Mall. That potential development may then use this analysis to create their own redevelopment plan; to determine the costs of that plan; and then, in working with in partnership with the City of Elyria, OH, execute that plan.

CHANGES IN RETAIL: IMPLICATIONS ON MIDWAY MALL

Generational changes in shopping behaviors, consumer tastes and preferences, and e-commerce are underlying the shifts in retail nationally; and in the Cleveland-Elyria MSA. Retailers are either closing or relocating under-performing stores (e.g., Macy’s, Dillard’s, and Sears); slowing down new store expansions; seeking to operate smaller footprint stores; and even using stores as a distribution hub (e.g., Kohl’s, Dick’s Sporting Goods, and Best Buy).

The implications for owners/land-lords all malls in general, and specific to Midway Mall, is to evaluate highest and best uses of the property. Often times, the result is the incorporation of non-retain uses especially for under-performing malls.

OPPORTUNITIES FOR REDEVELOPMENT

The re-development of Midway Mall does not require starting with a clean slate. It does require, however, the “right-sizing” of retail and incorporating non-retail uses to make the property more valuable to the owners, businesses, and the broader community of Elyria, OH.

An opportunity is present to realize nearly $100 million in new sales revenues associated with the re-development of Midway Mall.

• $90 million annually in new retail sales revenue potential • $3 million annually in new gross residential rental revenues • $3 million annually in new professional/medical office rental revenues • $2.5 million annually in new gross hotel receipts

There are, however, costs associated with leaving Midway Mall as-is:



• $892 million in residential retail spending is estimated to be spent outside the Midway Mall/City of Elyria trade area in places such as the Great Northern Mall in North Olmsted, OH, and Crocker Park in Westlake, OH.

• Retail sales leakage from Elyria to surrounding areas will continue to increase.

• Retail sales from existing tenants will likely continue to erode.

As a consequence of a leave-as-is approach to Midway Mall, the property will become blighted and less attractive to future development opportunities as additional retail space sits vacant.

NEXT STEPS These next steps are suggested was to move forward with a Midway Mall redevelopment plan.

• Build collaboration among the separate property owners, the City of Elyria, and other public-private interests.

• Develop an executable plan that includes: o Property ownership arrangements o Possible redevelopment plan(s) o Marketing of the property o Recruitment of a master developer or multiple developers by asset type

• Estimate the financial costs of a settled-upon re-development plan.

• Determine the amount of those costs that may be covered through public

financial incentives (e.g., tax abatements, tax incentives, special tax assessments, etc.).



EXECUTIVE SUMMARY

CONTEXT Midway Mall is a super-regional mall situated between Interstate 90 and Interstate 80 (Ohio Turnpike), along Route 57, in Elyria, OH. This is the largest enclosed mall in Lorain County, OH. The enclosed mall has approximately 1.1 million square feet of gross leasable area; sits on about 100 acres of land; and is bounded by Highway 57 to the west, Midway Blvd. to the north, West River Road North to the east, and Market Drive to the south.

JC Penney (159,334 sf) and Sears (240,808 sf) anchor the mall, in addition to Dunham’s Sports (45,000 sf) and Best Buy (41,479 sf). Macy’s (103,974 sf) closed the Midway Mall store in 2016. The Dillard’s (159,078 sf) store closed in 2007, and has remained vacant since. The former Macy’s is still owned by Macy’s corporate, while the former Dillard’s recently re-sold to Platinum Enterprises out of California. Annual sales for Sears and JC Penney under-perform by national standards. Sears, in particular, is over-stored for the market; and, faces considerable competitive pressures from surrounding discount department stores such as Target and Walmart Supercenter. In fact, it appears that Sears may be consolidating their store to operate completely on the first floor. Consequently, this places stress on many inline tenants’ dependent on

MIDWAY MALLELYRIA, OHIO

March 3, 2014SITE PLAN

NOTE:THIS PLAN IS FOR REFERENCE ONLY, AND IS NOT A REPRESENTATIONAS TO SIZE, DIMENSION, OR LOCATION OF ANY TENANT IN THESHOPPING CENTER. ALL BUILDINGS, IMPROVEMENTS, THEIR OCCUPANTSAND THEIR USES AS SHOWN ON THIS PLAN ARE SUBJECT TO MODIFICATIONAT THE LANDLORD'S DISCRETION.

HONEY BAKEDHAM CO

M D AY D NE

Former Dillard’s

Atlas Cinemas

Former Macy’s



the foot-traffic that is typically generated by the larger retail anchor stores. Inline tenant sales performance is mixed. Some national tenants have closed due either to poor store performance or to national corporate restructuring. These include: Aeropostale, American Eagle Outfitters, Claire’s Boutiques, and New York & Co. Several outparcel businesses on Midway Mall property remain open: Atlas Cinemas, Staples, Firestone Complete Auto Care, Day’s Inn, Red Lobster, Applebee’s, and Burger King. Also on the property but vacant are buildings that were once occupied by the former Lonestar Steakhouse, Bennigan’s, Mezcal Tequila, T.G.I. Friday’s, and Midway Diner. Such retail challenges extend to the retail centers surrounding Midway Mall:

• A Wal-mart Supercenter in Chestnut Commons, six miles to the south of Elyria, opened in 2006, which caused Walmart to close the River Street Square location near Midway Mall in 2010. The former Wal-mart, however, was in a less-than-optimal location.

• River Street Square is located on the northeast corner of Midway Blvd. and West River Road. Of the 122,125 sf of gross leasable area, 65,120 sf is vacant (53 percent). Tenants include PetSmart (19,000 sf), Buffalo Wild Wings (6,500 sf), Dollar Tree (12,000 sf), GameStop (1,400 sf), Buybacks (9,000 sf), and assortment of personal care services.

• Midway Crossing is located along West River Road. Of the 180,000 sf of gross leasable area, approximately 110,000 sf is vacant (60 percent). Tenant’s include Toys “R” Us (32,000 sf), Planet Fitness (21,000 sf), Party Place (11,550 sf), and Sally Beauty Supply (2,200 sf). Outparcels include Olive Garden, Chipotle Mexican Grill, Subway, AT&T, Verizon, and miscellaneous personal care services.

• Northgate Shopping Center is located between Griswold Road and Midway Blvd. This center has 102,800 sf of gross leasable area, of which 37,500 sf is occupied by Marc’s and 11,000 sf by Family Christian Store. Bed Bath & Beyond store closed in 2015, leaving vacant 24,000 sf of space (63 percent).

• Midway Market Square is located to the south of Midway Mall along Market Drive. The Square includes 124,000 sf Target, a 113,000 sf Home Depot, a 100,000 sf Giant Eagle supermarket, a 70,000 sf Dick’s Sporting Goods, and other retailers.

The surrounding shopping centers were once supportable because of Midway Mall’s draw of consumers within the Lorain County, OH, region. As the Great Recession hit in 2008, the mall tenants started to close as was the experience in some of the older shopping malls and centers across the United States. Midway Mall has not regained its destination shopping strength since 2008-09 because of changes in the geographical retail shopping patterns. Midway Mall, and the surrounding retail centers, have experienced a secondary impact to the Great Recession: a structural shift in the economy of Elyria, Lorain County, and the general Cleveland metropolitan area.



Specifically, US Steel and Republic Steel once provided stable jobs that supported middle-class lifestyles for households in Lorain County and the western suburbs of Cleveland; and, indirectly, other businesses in the market. Midway Mall was at the center of this manufacturing-dependent economic cycle. Now that both plants have closed after persistent reductions in labor force for the past 10 years, the underlying consumer market that once supported the retail tenants at Midway Mall, and other retail concentrations in Elyria, has fundamentally changed, too. Consequently, this shift in the regional economy has almost simultaneously compressed the retail sector in Lorain County, OH, and the western suburbs of Cleveland. Dillard’s could no longer support a store at Midway Mall and at Great Northern Mall in North Olmsted, thereby closing the Midway Mall store location; nor could Macy’s, although the store is still open at Great Northern Mall, New York & Company, and Bed Bath & Beyond. How long can JC Penney and Sears maintain stores at both locations? What about Best Buy? How long can the market support the eight-screen Atlas Cinemas at Midway Mall and the 20-screen Regal Cinemas less than five miles away at Cobblestone Square near Sheffield, OH? This compression has altered the shopping patterns of consumers in Elyria and throughout Lorain County, OH. Elyria residents are more likely to shop the department stores at Great Northern Mall in North Olmsted; to see first-release movies at Regal; and the Walmart Supercenter at Chestnut Commons in southeast Elyria. A combination of a regional economic shift away from manufacturing, compression in the retail sector, and altered shopping patterns have significant implications for the long-term viability of Midway Mall as a regional shopping mall. The conclusion is not that retail is no longer supportable in the Lorain County, OH, region. Instead, this raises substantive questions such as: What type of retail is supportable, and how much? What other non-retail uses are supportable? How do those other uses complement each other and the retail? And, is there potential to redevelop Midway Mall from a regional shopping mall to a mixed-use town center for the city of Elyria? In this context, Jeff Green Partners/Hoffman Strategy Group was commissioned by the City of Elyria, OH, to provide a highest-and-best-uses market feasibility analysis specific to the enclosed Midway Mall property. A set of redevelopment plan recommendations for the mall are based on determining the viability, type, and timing for the retail, restaurant, entertainment, multi-family residential, office, and hotel components. The scope of analysis also includes estimates for potential sales revenues generated from new viable asset uses at the Midway Mall site location.

MARKET FEASIBILITY CONCLUSIONS AND RECOMMENDATIONS Jeff Green Partners/Hoffman Strategy Group concludes that the Elyria, OH, trade area is characterized as having:

• More retail square footage than is supportable; • A retail tenant mix that lacks competitive advantage to nearby retail concentrations;



• A surplus of older inventory Class C multi-family housing that does not appeal to young professionals and empty-nesters;

• Limited office building inventory suitable to new business development; and, • Primarily aging economy-scale hospitality properties that are not market-competitive for

either business or leisure travelers.

We recommend redeveloping the Midway Mall property from an enclosed regional shopping mall to a retail and mixed-use town center-like attraction. These recommendations include:

• Retail, Restaurants & Entertainment: 530,000 sf anchored by retailers such as JC Penney, Gordman’s, and TJ Maxx with entertainment features such as Alamo Drafthouse or Studio Movie Grill, and Round 1 bowling and amusement. This includes the relocation of Marc’s from the Northgate Shopping Center; PetSmart, GameStop and Buffalo Wild wings from River Street Square; and Verizon, Chipotle and Olive Garden from Midway Crossing. The recommendation is to redevelop without a Sears store given what is happening to Sears on a national level. This retail is viable starting in 2017.

• Residential: Up to 240 new Class A, market-rate apartment units. These new apartment units are viable starting in 2017. Consideration should be given to building 120 units in each of two phases over the period 2017 to 2025. Submarket demand is for an apartment product that offers higher-quality finishes than the current inventory on the market; along with the amenities and community features for a multiple-use property that has nearby retail, restaurants, and personal services.

• Hotel: An 80-room Best Western Plus or similar limited-service, upper-midscale brand, is viable in 2020. The timing is associated with a historical annual average occupancy rate of 55 percent for existing hotels; and a new 108-room Courtyard by Marriott that is scheduled to come on the market in 2017.

• Office: Up to 260,000 sf of Class A office building space is viable over the period 2016 to 2026. Focus on development phases of approximately 30,000 sf to 35,000 sf per year. Predominant demand segments include professional and business services; and healthcare, medical and education.

Other uses specific to the Midway Mall property that are not part of this scope of analysis but should receive further consideration include:

• A medical facility such as an urgent care clinic or specialty health center. • Senior housing that encompass both independent living and assisted living. • A conference center that complements the Hampton Inn, Courtyard by Marriott and the

recommended Best Western Plus.

The analysis of highest and best uses for the surrounding retail centers of Midway Crossing, River Street Square, the former Walmart building, and Northridge Shopping Center was also outside the scope of this study. Further consideration should be given to uses such as self-storage, warehousing, distribution, and logistics given the excellent regional access nearby those properties.



These recommendations are supported further by the level of newer commercial real estate investments in the Elyria trade area, and the Cleveland-Elyria metropolitan area. For example, projects that are either under-construction, renovation or have been proposed for construction include:

• 108-room Courtyard by Marriott now under construction adjacent to Midway Mall, Elyria (75 percent, 15-year CRA tax abatement).

• Chestnut Commons, Elyria, new location of Walmart Supercenter; and, a 26,000 sf retail storefront that will be completed in October, 2016.

• New 77,000 sf Cabela’s in Avon, OH (reportedly did not receive any public incentives).

• Proposed new Meijer Supermarket on Nagel Road and I-90 in Avon, OH.

• Two hotels under-construction near Westfield’s Great Northern Mall and I-480 in North Olmsted, OH: a 120-room Hampton Inn; and, a 135-room Aloft by Starwood with 5,000 sf for a restaurant. (Aloft received a 50 percent, 10-year tax abatement.)

• The Shoppes at Parma (formerly Parmatown Mall) is under-going a major redevelopment as an open-air shopping center that is anchored by Walmart, JC Penney, and Dick’s Sporting Goods. The former Macy’s is being redeveloped for a set of new tenants that will include Gordmans. (30-year property tax exemption under tax increment financing.)

• The Promenade Crocker Park, Westlake, OH, continues to have newer property build-out that includes:

o The 318-unit Ovation apartments (December 2015).

o The 110-room Hyatt Place (November 2015). (Cleveland-Cuyahoga County Port

Authority provided bond-financing to cover infrastructure costs for the hotel block.)

o New restaurants -- Yard House, Texas de Brazil, and Bonefish Grill.

o American Greetings relocated its headquarters from Brooklyn, NY, to Crocker Park (2015). (Westlake issued non-tax revenue bonds to pay for public improvements, including parking garages, streets, sidewalks and other projects; provided to American Greetings a 30-year, 100 percent tax exemption under a tax increment financing agreement; and granted a 15-year, municipal income tax credit equal to half of one-percent against income tax generated by American Greetings’ more than 1,300 employees.)

o Market Square, a sports and entertainment theater/concert hall, is under construction with a delivery estimate of October 2016.



Most of these newer investments are encouraged by various public tax incentive arrangements. The options available to the City of Elyria, OH, regarding potential redevelopment of the Midway Mall into a mixed-use town center are:

• Establish the Midway Mall as a Community Reinvestment Area to offer tax abatements to developers.

• Create a TIF district to provide non-tax revenue financing of public infrastructure, streetscape, lighting, etc.

• Approach one or more of the port authorities regarding financial assistance with projects such as parking garages.

• Form a New Community Authority that can collect fees to partially fund parking structures and other public facilities.

• Acquire the Midway Mall property through either eminent domain or acquisition from existing owners; and pursue developer interests.

ABOUT THE STUDY

SCOPE OF WORK SUMMARY Jeff Green Partners/Hoffman Strategy Group was asked by the City of Elyria, OH, to address the following scope of analysis in the context of redevelopment plan recommendations for the Midway Mall.

1. Market feasibility analysis/highest and best use analysis on the viability, type, and timing for the retail, restaurant, entertainment, multi-family residential, office and hotel components for the proposed redevelopment plan for Midway Mall.

2. In partnership with studioINSITE, develop a broad-level conceptual site plan for the redevelopment of Midway Mall based on the highest and best use findings.

3. Review the Reciprocal Easement Agreements in the context of a potential redevelopment plan.

4. Survey other developments for “Best Practices” of public finance incentives in support of a potential redevelopment project.

The scope of work as it relates to the market and feasibility analysis includes:

• Highest and best uses of multiple assets (i.e., retail, multi-family residential, hotel, and office) based on market and feasibility analysis; and,



• Potential sales revenue forecasts generated from new asset uses that are viable at the Midway Mall site location (e.g., recommended retailers, multi-family housing units, hotel, etc.).

This scope of work excludes:

• Estimates of redevelopment costs; capitalization rates; and other redevelopment implications on property valuation;

• Legal advice associated with the existing Reciprocal Easement Agreements, and any revisions to the REA’s to accommodate a redevelopment plan;

• Legal analysis and advice regarding easements, zoning, regulations, property and building alterations, purchase and ownership rights, etc.; and,

• Legal, regulatory, and financial advice regarding public finance incentives.

METHODOLOGY The methodology used to analyze the highest and best uses both quantitatively and qualitatively includes these components.

• Field Evaluation. A property-specific survey evaluation was conducted during the period of August 1 to August 4, 2016. This included visits to existing retail, multi-family housing, office, hotel, and other properties; properties under construction; and proposed developments. Site visits were done in the Midway Mall area; throughout Elyria and Lorain County, OH, from Oberlin to North Ridgeville, Lorain to near Grafton; and in the western Cleveland suburbs of Sheffield, Avon, Westlake, North Olmsted, Strongsville, and Parma.

Specific site locations for property evaluation across asset groups (i.e., retail, accommodations, food and beverage, residential, and office) included:

• Chestnut Commons in Elyria, OH • Cobblestone Square near Sheffield, OH • Avon Commons Shopping Center in Avon, OH • Crocker Park in Westlake, OH • The Shoppes at Parma in Parma, OH • SouthPark Mall in Strongsville, OH • Great Northern Plaza in North Olmsted, OH • North Olmsted Towne Center in North Olmsted, OH

• Trade Area Definition. Trade areas that are optimally served by potential retail and non-

retail uses at the Midway Mall site in Elyria, OH, were defined based on the accessibility characteristics of the site; location, amount and type of retail and non-retail competition; distribution of population; the various demand segments; population and household growth; demographic characteristics; traffic patterns; and other factors that come from our experience in defining trade areas in all market sizes throughout the U.S.



• Population, Demographics and Lifestyles. The most recent population and household

estimates were collected, along with future projections from The Nielsen Company, local planning agencies, and other appropriate sources for the trade areas.

Consumer lifestyle profiles are evaluated using Nielsen’s PRIZM® segmentation system, which is used by retailers in site selection; and, to determine product type and amenities for multi-family housing. The number of daytime workers in the trade area are analyzed in terms of retail spending potential; as a hospitality user group; and for potential residents in new multi-family housing products.

• Void Analysis. Retail void analysis by merchandise category is based on consumer spending and retail sales data as supplied by Nielsen.

Multi-family housing market void analysis is based on demographic and household demand characteristics relative to detailed housing supply data provided by CoStar, Zillow, Trulia, and websites of area apartment properties. Office market void analysis is based on employment growth trends specific to the economic sectors that are predominant office tenants. The growth in these office demand segments are then measured against detailed office supply data provided by CoStar. Hotel market void analysis is based on a competitive analysis of area hotels relative to lodging demand segments that include leisure, business, and corporate.

• Amount, Type, Timing and Sales Forecasts. The supportable amount, type, brand, product, and estimated sales forecasts of retail is based on proprietary models by Jeff Green Partners; and proprietary models by Hoffman Strategy Group are used for the non-retail uses. Recommendations for retail stores, restaurants, and entertainment components, as well as the product type and amount of non-retail assets, are based on this quantitative and qualitative analysis.

• Best Practices in Public Finance Incentives. Jeff Green Partners/Hoffman Strategy Group surveyed key retail and mixed use development projects in Ohio; and in other states. The objective is to identify a “best practices” in how public finance incentives are used to support redevelopment projects. Categories of public incentives include, but are not necessarily limited to: tax abatements, public improvement districts, and tax exempt financing.

ASSUMPTIONS The following assumptions were made as part of this study.

• Population and household growth as projected by national database provider Nielsen/Claritas accurately reflects the greater Elyria and Lorain County, OH, market.

• Expenditure data estimated for the residential population base using consumer expenditure survey data from the Bureau of Labor Statistics accurately reflects expenditure potential available to retailers within the defined trade area.



• Multi-family and office market data and property details as provided by CoStar

accurately reflects the greater Elyria and Lorain County market.

• Hotel market survey data for reporting properties as provided by Smith Travel Research accurately reflects the great Elyria lodging market.

• Economic conditions of the greater Elyria and Lorain County market will remain stable over the next five years.

• The retail and mixed use components of the proposed redevelopment site will have easy ingress/egress, ample parking, and adequate visibility.

• Considered and dismissed:

o Bass Pro. Bass Pro’s new 150,000 sf store opened in Boston Heights, OH, between Cleveland and Akron, June 2016; and, Cabela’s new 77,000 sf store in Avon, OH, that opened in August 2016.

o Outlets. Midway Mall is not an optimal location for an outlet mall. Simon’s Aurora Farms Premium Outlets is within 50 miles. Tanger’s outlet in Columbus is approximately 100 miles near Columbus. Additionally, the outlet mall industry is reaching a saturation point.



RETAIL FEASIBILITY ANALYSIS

TRADE AREA Retail at the Midway Mall site should primarily have a strong community appeal balanced with regionally unique entertainment, food and beverage. The trade area is based on extensive field evaluation; the retail gravitation in the market; competitive concentrations of Crocker Park, Great Northern Mall, and Southpark Mall; traffic patterns; and the experience of Jeff Green Partners/Hoffman Strategy Group in defining trade areas for similar developments throughout the United States. The total trade area is delimited in the map below:

The trade area should capitalize on the broader metropolitan population base that extends into Cleveland along both the Interstate 80/Ohio Turnpike and, especially, Interstate 90. This trade area, defined at the census tract level, include resident households and daytime workers; is characterized as middle household income classifications; and an area with flat population growth.

Average Household Income< $25,000$25,000 - $40,000$40,000 - $60,000$60,000 - $80,000$80,000 - $100,000$100,000 - $150,000> $150,000

Midway Mall Trade AreaMidway Mall Trade Area



RETAIL CATEGORY VOIDS Total spending by household consumers within the Midway Mall trade area is an estimated $2.847 billion, excluding automotive dealers and gasoline stations (2016). The trade area has estimated retail sales of $1.959 billion, excluding automotive (2016). That difference of $892 million represents the amount of retail spending that is occurring outside the trade area (i.e., leakage). Retail opportunity by category for the Midway Mall trade area is presented in the following table.1

This table supports the finding that the Midway Mall trade area has significant retail sales leakage to other retail concentrations, in spite of being a regional mall.

RETAIL GAP OPPORTUNITY

The categories where trade area retail sales are less than resident consumer spending represent a retail opportunity void. That is, approximately $140.6 million in Clothing and Clothing Accessories retail sales leak out of the Midway Mall trade area; and approximately $26.2 million in clothing and accessories retail sales occur within the trade area. Household consumer have a greater propensity to shop for clothes outside the trade area. For example, Elyria households may shop at Great Northern Mall in North Olmsted; or Sheffield and Avon households may shop at Crocker Park in Westlake.

RETAIL SURPLUS OPPORTUNITY

The categories with more retail sales than resident consumer spending represents a surplus in the market. That is, Discount Department Stores, Warehouse Clubs

1 2016 The Nielsen Company.

Retail Category 2016 Demand (Expenditures)

2016 Supply (Retail Sales) Void/Surplus

Department Stores $194,007,722 $178,341,738 $15,665,984 Discount Department, Clubs, Superstores $258,645,714 $279,541,950 ($20,896,236) Clothing and Clothing Accessories Stores $166,878,611 $26,233,502 $140,645,109 Furniture and Home Furnishings Stores $74,936,353 $36,649,013 $38,287,340 Electronics and Appliance Stores $64,258,583 $28,286,903 $35,971,680 Building Material, Garden & Equip. Stores $409,276,909 $371,622,809 $37,654,100 Supermarkets, Grocery Stores $308,110,128 $126,892,804 $181,217,323 Sporting Goods, Hobby, Book, Music Stores $66,730,122 $33,925,588 $32,804,534 Full-Service Restaurants/Fast Food $406,490,615 $331,401,996 $75,088,619 Pharmacies & Drug Stores $193,466,551 $224,285,708 ($30,819,157) Cosmetics, Beauty Supplies, Perfume $17,013,398 $5,626,626 $11,386,773 Optical Goods $11,214,871 $4,230,725 $6,984,147



and Superstores in the Midway Mall trade area have estimated retail sales of $279.5 million. Of that amount, $258.6 million is associated with spending by trade area residents; and $20.9 from shoppers that live outside the trade area. Only the national discount department stores serve as a regional draw: Walmart Supercenter in Chestnut Commons, Target in Midway Market Square, and Sam’s Club in Sheffield, OH. For example, the Sam’s Club in Sheffield, OH, part of the Midway Mall trade area, may pull shoppers that live outside the trade area in Westlake or Rocky River, OH.

RETAIL TENANT RECOMMENDATIONS Tenant recommendations for a Midway Mall mixed use center are informed by the retail in the Cleveland metropolitan market; and in the Midway Mall trade area and surrounding areas. This is further substantiated by the retail void analysis; and analysis of the trade area demographics and consumer lifestyle segmentation. A redeveloped Midway Mall mixed use center has potential for a market-defining tenant mix that is comprised of existing retail both at the enclosed Midway Mall and the surrounding shopping centers; new retail that is located in other centers within the Cleveland metro market; and new-to-market retail and entertainment brands. The recommended retail should also be developed in such a manner as to complement the proposed residential, office, and hotel at a proposed Midway mall mixed use center. A Midway Mall mixed use center can support a total of 529,150 square feet of retail with a tenant mix that may include the following:

• 205,000 SF of Department and Discount Department Stores

• 60,800 SF of Restaurants and Specialty Food Stores

• 41,850 sf of Apparel, Shoes & Accessories

• 221,500 sf of Other Retail (including film/theater and entertainment)

Department and discount department stores would continue to serve as an anchor to a Midway Mall redevelopment plan. There is approximately 205,000 sf of supportable retail in this category. Restaurants are also considered an anchor category with an estimated 60,800 sf of space. The success of mixed use community’s lies in the capacity to build economies of density in a central place. This builds in daytime, evening, weekday, and weekend consumer demand components. For example, having tenants living in multifamily structures within walking distance to retail and restaurants; hotels that have restaurants either on the ground floor or within a short walk; and street-level restaurants and convenience retail in or near an office building.



In this context, the recommendations reflect a mix of existing restaurants located nearby; and new to market fast casual establishments. Tenants such as a grocer and drugstore, and a fitness club, attract residential consumers, daytime workers, and visitors from both inside and outside the trade area. Entertainment is also a featured category at 85,000 sf of the 221,500 sf of other retail categories. This recommendation is made in consideration of creating a regional draw to a redeveloped Midway Mall mixed use center; and have this draw support the other mixes of retail and restaurants. The recommended tenant mix is informed by a field evaluation that included visits to the following centers and the surrounding areas:

• Chestnut Commons in Elyria, OH • Cobblestone Square near Sheffield, OH • Avon Commons Shopping Center in Avon, OH • Crocker Park in Westlake, OH • The Shoppes at Parma in Parma, OH • SouthPark Mall in Strongsville, OH • Great Northern Plaza in North Olmsted, OH • North Olmsted Towne Center in North Olmsted, OH



SUPPORTABLE SALES FORECASTS BY RECOMMENDED MIX The following table details the forecasted sales by individual recommended tenant for the first year and fifth year of operations.

1st Year 1st Year 5th Year 5th YearRecommended Annual Sales* Annual Sales*

Size Sales* Per Sq Ft Sales* Per Sq FtGeneral Merchandise Stores 205,000 $41,250,000 $201 $47,437,500 $231

Womens Apparel 9,000 $4,125,000 $458 $4,743,750 $527Mens Apparel Unisex ApparelChildrens Apparel 4,000 $1,100,000 $275 $1,265,000 $316Shoes & Accessories 28,850 $9,790,000 $339 $11,258,500 $390Total Apparel, Shoes & Accessories 41,850 $15,015,000 $359 $17,267,250 $413

Grocery Stores 30,000 $13,500,000 $450 $15,525,000 $518Specialty Food Stores 5,300 $3,030,000 $572 $3,484,500 $657Alcoholic BeveragesFast Food/Fast Casual Restaurant 14,000 $7,550,000 $539 $8,682,500 $620Full-Service Restaurant 11,500 $4,712,500 $410 $5,419,375 $471Total Food & Restaurant 60,800 $28,792,500 $474 $33,111,375 $545

Appliances, Computers and Electronics 39,000 $14,975,000 $384 $17,221,250 $442Art, Craft & Sewing StoresAuto Supplies Book Stores Cards & Gift ShopsDrugstore / Pharmaceutical Florists Health & Beauty Store 14,000 $7,000,000 $500 $8,050,000 $575Furniture, Home Decor & Accessories Home Improvement Jewelry Store 5,000 $5,400,000 $1,080 $6,210,000 $1,242Laundry / Dry Cleaning Luggage ShopsOptical / Vision Care 3,500 $1,487,500 $425 $1,711,500 $489Personal Expenses & Services Pet Supplies 20,000 $4,500,000 $225 $5,175,000 $259Photographic Equipment & Supplies Sporting Goods Store 45,000 $4,500,000 $100 $5,175,000 $115Tobacco ShopToy & Hobby Shops Film & Theatre Entertainment 95,000 $16,000,000 $168 $18,400,000 $194Total Other Retail 221,500 $53,862,500 $243 $61,942,750 $280

Total Identified Retail Expenditure 529,150 $138,920,000 $263 $159,758,875 $302

* Sales stated in constant 2016 dollars - No adjustment has been made for potential inflation

Retail Expenditure Potential Table A Redeveloped Midway Mall, Elyria, OH



Forecasts of sales revenue estimates by tenant were derived using Jeff Green Partners’ in-house proprietary models of expenditure potential. The Midway Mall trade area can support 529,150 total square of retail and restaurant tenants. Estimated sales forecasts for these tenants are: $138,920,000, assumed for 2017-2018; and $159,758,875 in the fifth year of operations (2022-2023). Midway Mall has a rolling 12-months revenue of $71,436,305 with 707,299 total square feet; or $101 in sales per square feet.2 Macy’s is included in the rolling 12-months since the store closed in 2016. Excluding Macy’s, the Midway Mall’s rolling 12-months revenue is $62,880,467 with 603,325 total square feet; or $104 in sales per square feet. Compare that to the recommended tenant mix for a redeveloped Midway Mall mixed use center: $159,758,875 in forecasted sales estimates in the fifth year (2022-2023) with 529,150 total square feet; or $302 per square foot. Total estimated revenues for Midway Mall without the department stores is $42,357,599 with 203,183 total square feet; or $208 in sales per square feet. Average sales per square foot performance of malls, excluding department stores nation-wide, is about $325. Compare to a redeveloped Midway Mall mixed use center: $112,321,375 with 324,150 total square feet; or $347 per square feet.

RETAIL SPENDING POTENTIAL Midway Mall’s trade area annual expenditure potential is determined for key retail types using data from the Census of Retail Trade, sales tax information, and resident population levels.

Total expenditure potential of the Midway Mall trade area residents for current year (2016) is estimated at $1.959 billion; and five-year projection (2021) is $2.140 billion.

2 June 2016 mall management report.

Retail Store Type Current Year Estimate 5-Year Projection

Department & Discount Department Stores $307,475,119 $340,613,019 Apparel, Shoes & Accessories $113,086,884 $124,560,633 Food and Restaurant $590,381,189 $626,922,456 Other Retail $947,720,448 $1,048,338,144 Total Identified Expenditures $1,959,663,640 $2,140,434,252 Source: The Nielsen Company 2016



Using Midway Mall as the centroid, estimates of additional retail spending potential from the daytime worker population is provided in the table below.

DaytimePopulationBase

RetailStoreType 1-MileRadius 3-MileRadius 5-MileRadiusDepartment $1,827,083 $12,615,046 $19,536,030DrugStores&PersonalCare $2,815,709 $19,440,993 $30,106,891Supermarkets $4,495,468 $31,038,844 $48,067,664Apparel $914,276 $6,312,598 $9,775,874ElectronicsandAppliance $1,358,303 $9,378,370 $14,523,619OfficeSupplies,Stationery,Gifts $2,081,694 $14,373,004 $22,258,456Full-ServiceRestaurants $3,790,285 $26,169,928 $40,527,518FastFood/Deli/LunchEateries $3,615,674 $24,964,326 $38,660,487

TotalIdentifiedExpenditures $20,898,493 $144,293,109 $223,456,540

Sources:ICSCResearch,NielsenBusinessFacts,BureauofLaborStatistics An additional $223,456,540 in potential retail spending associated with the daytime worker population in a five-mile radius brings the total identified retail expenditure five-year forecast to $2.363 billion.

POPULATION, DEMOGRAPHICS AND LIFESTYLES The following highlights the population, demographics, lifestyle profiles, and other factors that support the recommended retail tenant mix.

MAJOR REGIONAL CORRIDOR Midway Mall is located between Interstate 90 to the north; the Interstate 80/Ohio Turnpike to the south; and along Highway 57 (north-south corridor). This provides strong regional access points that increase the overall trade area size and enhances the residential base from which to draw consumer expenditures. Traffic counts, a measure of commuter traffic volumes, are presented in the table below.



Location Annual Average Daily

Traffic Counts I-90 Eastbound Exit onto Hwy 57 South 54,564

Hwy 57 South at Midway Blvd. 41,420 Hwy 57 South at JFK Mem Pwy (Eastbound) 16,300

I-80 Eastbound Freeway 44,078

POPULATION

The Midway Mall trade area, as with the other geographic areas, is experiencing flat population growth.

Residential population is projected to grow by 1.5 percent by 2021 for the Midway Mall trade area. For Elyria, Lorain County, and the Cleveland-Elyria MSA, the projected population growth rates are: -0.2 percent, 1.4 percent, and -0.05 percent, respectively.

The population growth is concentrated to the northeast, east, and southeast of Midway Mall, as shown in the following population growth map.

221,653

54,116

305,698

2,061,058

224,922

54,018

310,003

2,059,955

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000

TotalTradeArea

Elyria

LorainCo.

ClevelandMSA

ProjectedPopulationGrowth2021

2016



Specifically, the population growth areas are concentrated in Sheffield and Avon to the northeast; and North Ridgeville to the east-southeast.



HOUSEHOLDS

Household growth rates for the Midway Mall trade area, Elyria, Lorain County, and Cleveland-Elyria MSA for the period 2016 to 2021 are: 2.3 percent, 0.9 percent, 2.3 percent, and 0.7 percent, respectively.

HOUSEHOLD INCOMES

Lessthan$25,000,24%

$25,000- $49,999,25%

$50,000- $74,999,18%

$75,000- $99,999,13%$100,000or

Higher,20%

TotalTradeAreaHouseholdsbyIncome

89,960

22,867

120,097

860,562

92,016

23,068

122,884

866,463

0 200,000 400,000 600,000 800,000 1,000,000

TotalTradeArea

Elyria

LorainCounty

ClevelandMSA

ProjectedHouseholdGrowth2021

2016



The trade area has a strong presence of low to moderate household income, with a median household income of $51,253 (2016 est.). A correlate to the population and household growth concentrated mainly to the east of Midway Mall and Elyria is that higher income households are also located in these areas of Sheffield, Avon, and North Ridgeville (see map below).

The Midway Mall trade area’s average household income is $65,857; relative to $54,854 for Elyria, $71,895 for Lorain County, and $72,448 for the Cleveland-Elyria MSA.

NIELSEN PRIZM® LIFESTYLES

Nielsen’s PRIZM® is a sophisticated consumer lifestyle segmentation system. PRIZM® combines demographics, consumer behavior and geographic data and defines every US household into 66 consumer behavior types or segments. These segments help describe consumer preferences, tastes, lifestyles and purchase behaviors and are used by retailers in their site selection process.



The dominant lifestyle profiles for Midway Mall trade area residents are briefly described in the following table.

Lifestyle Trade Area HH’s Short Description

Sunset City Blues 5,820

Scattered throughout the older neighborhoods of small cities, Sunset City Blues is a segment of lower-middle-class singles and couples who have retired or are getting close to it. These empty-nesters tend to own their homes but have modest educations and incomes. They maintain a low-key lifestyle filled with newspapers and television by day, and family-style restaurants at night.

Middleburg Managers 5,481

Middleburg Managers arose when empty nesters settled in satellite communities, which offered a lower cost of living and more relaxed pace. Today, segment residents tend to be middle class with solid white-collar jobs or comfortable retirements. In their older homes, they enjoy reading, playing musical instruments, indoor gardening, and refinishing furniture.

Domestic Duos 4,694

Domestic Duos represents a middle-class mix of mainly over-65 singles and married couples living in older suburban homes. With their high-school educations and fixed incomes, segment residents maintain an easy-going lifestyle. Residents like to socialize by going bowling, seeing a play, meeting at the local fraternal order, or going out to eat.

Hometown Retired 4,017

These racially diverse seniors tend to live in aging homes--40% were built before 1958--and typically get by on social security and pensions. Because most never made it beyond high school and spent their working lives at blue-collar jobs, their retirements are extremely modest. These second-city dwellers spend their days on crafts and watching daytime TV.

Mobility Blues 3,707

Mobility Blues is a segment of middle-age singles in working-class neighborhoods in America's satellite cities. Ethnically diverse, these transient Americans tend to have modest lifestyles due to their lower income jobs. Surveys show they excel in going to movies, playing basketball, and shooting pool.

Family Thrifts 3,600

The small-city cousins of inner-city districts, Family Thrifts contain young, ethnically diverse parents who have lots of children and work entry-level service jobs. In these apartment-filled neighborhoods, visitors find the streets jam-packed with babies and toddlers, tricycles and basketball hoops, Suzukis and Kias.



American Classics 2,802

They may be older and retired, but the residents of American Classics are still living the American Dream of home ownership. Few segments rank higher in their percentage of home owners, and that fact alone reflects a more comfortable lifestyle for these predominantly white and African-American singles and couples with deep ties to their neighborhoods.

Old Glories 2,790

The residents of Old Glories are the nation's downscale suburban retirees, Americans aging in place in older apartment complexes. Households in this racially-diverse segment often contain widows and widowers living on fixed incomes who tend to lead home-centered lifestyles. They're among the nation's most ardent television fans, watching game shows, soaps, talk shows, and news magazines at high rates.

Traditional Times 2,552

Traditional Times is the kind of lifestyle where small-town couples nearing retirement are beginning to enjoy their first empty-nest years. Typically in their fifties and older, these upper-middle-class Americans pursue a kind of granola-and-grits lifestyle. On their coffee tables are magazines with titles like Country Living and Country Home. But they're big travelers, especially in recreational vehicles and campers.

Suburban Pioneers 2,546

Suburban Pioneers represents one of the nation's eclectic lifestyles, a mix of singles, recent divorcees, and single parents who have moved into older, inner-ring suburbs. They live in aging homes and garden-style apartment buildings, where the jobs are scarce and the money is tight. But what unites these residents--a diverse mix of Whites, Asians, Hispanics, and African-Americans--is a working-class sensibility and an appreciation for their off-the-beaten-track neighborhoods.

Suburban Sprawl 2,503

Suburban Sprawl is an unusual American lifestyle: a collection of midscale, older singles and couples living in the heart of suburbia. Typically members of the Baby Boom generation, they hold decent jobs, own older homes and condos, and pursue conservative versions of the American Dream. Among their favorite activities are jogging on treadmills, and playing trivia games.

Home Sweet Home 2,402

Widely scattered across the nation's suburbs, the residents of Home Sweet Home tend to be upper-middle-class married couples living in mid-sized homes without children. The adults in the segment, mostly under 55, have gone to college and hold professional and white-collar jobs. With their upper-middle-class incomes and small families, these folks have fashioned comfortable lifestyles, filling their homes with exercise equipment, TV sets, and pets.



White Picket Fences 2,210

Midpoint on the socioeconomic ladder, residents in White Picket Fences look a lot like the stereotypical American household of a generation ago: young, upper-middle-class, and married with children. But the current version is characterized by modest homes and ethnic diversity, including a large number of Hispanic and African-American households.

City Startups 2,086

In City Startups, young to middle-aged, multi-ethnic singles have settled in neighborhoods filled with cheap apartments and a commercial base of cafés, bars, laundromats, and clubs that cater to twentysomethings. One of the youngest segments in America--with ten times as many college students as the national average--these neighborhoods feature low incomes and high concentrations of African-American and Hispanic households.

Sub-Total 49,258 or 55% of total households (89,960)

The majority of Midway Mall trade area lifestyles are middle-class couples in their mature years, which comprises 48 percent of households; followed by young singles and couples (27 percent of households) and young families (25 percent of households). Tenant mix recommendations are informed by these lifestyle profiles. For example, retailers such as Gordmans and TJ Maxx appeal broadly to each lifestyle segment but especially to Suburban Pioneers, Suburban Sprawl, White Picket Fences, and City Startups. The entertainment features such as an Alamo Drafthouse or Studio Movie Grill and Round 1 Bowling & Amusement appeal to Domestic Duos, Mobility Blues, City Startups, Middleburg Managers, and Suburban Pioneers. Furthermore, these lifestyle segments will inform the feasibility for other uses in a potential redeveloped Midway Mall mixed use center such as multi-family residential units, hospitality, and office. Although outside the scope of this study, these lifestyle segments indicated potential demand for other uses such as senior housing, health care and medical services.



AREA DEMOGRAPHICS

The following table presents and compares demographic characteristics of the total trade area to that of Elyria and Lorain County.

Data are from the Census Bureau, American Community Survey, and Bureau of Labor Statistics; and made available through The Nielsen Company’s proprietary GIS database system.

DAYTIME EMPLOYMENT BASE

The estimated employment (i.e., daytime worker) base using Midway Mall as the centroid is:

• 1 Mile — 5,620 • 3 Miles — 38,786 • 5 Miles — 60,051

(Note: these counts were used to estimate retail spending from daytime population.)

Characteristics Total Trade Area City of Elyria Lorain County

% Bachelor’s Degree or Higher 20.7% 15.6% 23.5%

Person per HH 2.4 2.3 2.5

Median Age 41 40 41

% Married 48.6% 45.4% 50.2%

% Owner Occupied Housing 69.6% 62.1% 73.2%

% Seasonal/Vacant Housing 10.7% 12.4% 9.5%

% White 81.4% 78.1% 84.2%

% African American 9.7% 14.4% 8.2%

% Hispanic 11.8% 5.7% 9.4%

% Asian/Pacific Is. 1.1% .9% 1.2%

% White Collar 55.3% 51% 57.6%

% Finance, Mgmt, & Professional 15.6% 12.9% 16.9%

% Services 10.6% 11.4% 9.9%

% Sales 10.8% 10.7% 11.1%

% Production 10.5% 12.9% 9.6%

% Office/Admin. Support 13.5% 13.0% 13.3%



The close-in daytime worker population for a 1-mile, 3-miles, and 5-miles radius using the Midway Mall location as the centroid is provided in the following table.3

WorkPlace & Employment Summary 1, 3, 5 Mile Radius Midway Mall Elyria, OH 1 Mile Radius 3 Mile Radius 5 Mile Radius Employment Type #

Employees % Total #

Employees % Total #

Employees % Total

Retail 2,510 44.66% 7,844 20.22% 10,199 16.98% Finance, Insurance, Real Estate 141 2.51% 866 2.23% 1,432 2.38% Services 237 4.22% 1,717 4.43% 2,754 4.59% Public Administration 101 1.80% 6,799 17.53% 8,132 13.54% Agriculture 2 0.04% 23 0.06% 46 0.08% Mining 0 0.00% 0 0.00% 62 0.10% Construction 134 2.38% 1,060 2.73% 2,039 3.40% Manufacturing 136 2.42% 4,513 11.64% 9,529 15.87% Transportation/Communication/Public Utilities

1 0.02% 588 1.52% 1,330 2.21%

Wholesale Trade 91 1.62% 640 1.65% 1,469 2.45% Total 5,620 100.00% 38,786 100.00% 60,051 100.00%

Top employers in Elyria and Lorain County include: • University Hospitals / Elyria Medical Center (1,771) • Lorain County Community College (1,314) • Lorain County (1,294) • Invacare Corp. (756) • Elyria City School District (707) • Ridge Tool (609) • Consun Food Industries (500) • Riddell (500) • Bendix Commercial Vehicle Systems (483) • Elyria Foundry (370) • Nucor Steel (360) • Diamond Products (356) • Walmart Supercenter (315) • Renaissance Health Center (300) • Crane Aerospace & Electronics (250) • Nelson Stud Welding (240) • JC Penney (220) • Ross Environmental Service (200) • Parker Hannifin Corp. (195)

3 There may be slight reporting differences due to rounding.



MULTI-FAMILY FEASIBILITY ANALYSIS

TRADE AREA The multi-family apartment trade area examined in this analysis is drawn from a 5-minute and 10-minute drive time using Midway Mall as the centroid. This trade area relative to the broader trade area used for the retail analysis is provided in the following map.

A drive-time is used to define the multi-family rental housing trade area because of the car-dependent nature of the market. As the map illustrates, owner-occupied housing dominates the trade area. An exception is the area within a five-minute drive time surrounding the Midway Mall; and in and around Elyria south of Lowell Street.



MARKET SUPPLY CHARACTERISTICS The city of Elyria has an estimated existing inventory of 3,082 apartment units.

Inventory Class A Class B Class C Total Elyria 0 1,306 1,776 3,082 Under Construction 0 0 0 0 Proposed 0 0 0 0 Projected Inventory 2016-2021 0 1,306 1,776 3,082 CoStar 2016

No new apartments are under construction as of August 2016; nor are any proposed for the period 2016 to 2021.

Elyria, OH, apartment market fundamentals are provided in the following table:4

Apartment Market Performance (YTD 2016) Class A Class B Class C Total Elyria Vacancy NA 4.50% 4.40% 4.40% Asking Rent/Unit NA $807 $580 $683 Asking Rent/SF NA $0.80 $0.80 $0.80 Concessions NA 2.10% 3.80% 2.90% Yr. over Yr. Rent Growth NA 7.00% 0.40% 2.90% CoStar 2016

The Elyria apartment market is in a relative state of equilibrium with a vacancy rate of 4.4 percent.5 Inventory has been tightening since 2008 when vacancy rates were 7.1 percent. Generally, the Elyria apartment market is a mix of aging Class B/C inventory: average year built for Class B inventory is 1983; and 1969 for Class C inventory. The average monthly rents reflect the aging properties; the modest-to-lower quality inventory; and the prevailing socio-economic status of the renter household segment in Elyria (i.e., a mix of young, lower-income singles, and fixed income retirees). This market may have pent up demand for better quality Class A apartment inventory, which is non-existent in the market, as is suggested by a year-over-year effective rent growth of seven percent among Class B apartments versus 0.4 percent for Class C; and by the 3.8 percent in concessions to push renters into the Class C inventory.

4 Costar 2016

5 Apartment market equilibrium is generally represented by vacancy rates of five percent.



DELIVERIES, ABSORPTION AND VACANCY RATE6

Elyria, OH, has had 613 apartment units delivered over the period 2000 to 2015; and 696 units were absorbed. Hidden Acres by Redwood, a Class B apartment property, was the most recent inventory delivered with 141 units in 2004. Nearly 100 percent of those units were absorbed within 24 months. That property has a vacancy rate of 2.8 percent, as of August 2016. The chart below shows relatively flat inventory absorption levels associated with below five-percent vacancy rates for the period 2010 to August 2016. In part, this illustrates the limited apartment inventory in the Elyria, OH, market.

A vacancy rate under five percent is an indicator that the Elyria, OH, apartment market is either stagnant or in near equilibrium. The example of Hidden Acres in this broader market context suggests that there is pent-up demand for newer and better quality apartment properties. This is further evidenced by two additional Class B properties:

• Hunter Crossing on Chestnut Ridge Road (232 units) opened in 2001. In 24 months, 226 units were absorbed in the market. The property has a current vacancy rate of 1.3 percent.

• Waterford Luxury Apartment near Lorain County Community College (240 units) opened in 2002. By the end of 2003, 200 units were absorbed; 238 were absorbed by 2004. The property has a current vacancy of one percent.

6 CoStar 2016

0 0 0 0 0 0 042 10 2

-1

4 22

-17

5.1% 4.8% 4.7% 4.7% 4.6% 3.8%

4.4%

0%

1%

2%

3%

4%

5%

6%

-20

-10

0

10

20

30

40

50

2010 2011 2012 2013 2014 2015 YTD2016

Num

ber o

f Uni

ts

City of Elryia, OH — Deliveries, Absorption and VacancyDeliveries Absorption Vacancy Rate



ASKING RENTS

A consequence of Elyria’s apartment market vacancy rate showing stability at 4.4 percenter is a modest growth in asking rents.

• Class B apartment asking rents have increased by 24 percent or an annualized rate of 1.5 percent for the period 2010 to YTD 2016.7

• Class C asking rents have increased by 20 percent or an annualized rate of 1.2 percent.

Rent growth in the broader Elyria market is attributed to deliveries of newer Class B apartment inventory that is pulling up asking rents for Class C properties.

For the Elyria market, the annualized asking rent growth and the average rent per square foot based on unit mix is provided in the following table. 8

ANNUALIZED ASKING RENTS RENT/SF 1 Year 3 Year 5 Year YTD 2016 STUDIO/EFFICIENCY 23.5% 2.3% 6.9% $1.33 1 BR 8.5% 3.3% 3.2% $0.87 2 BR 0.9% 0.9% 1.6% $0.78 3 BR 6.3% 2.7% 2.7% $0.70 AVE. FOR PERIOD ENDING: 12/31/15 12/31/15 12/31/15 08/31/16

The annualized growth in asking rents is strongest for Studio and 1-bedroom units; followed by 3-bedroom units.

7 CoStar 2016. 8 Ibid.

$653 $674 $747

$807

$485 $490 $573 $580

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900

2005 2010 2015 YTD 2016

Asking Rent Per Unit

Class B Class C



MARKET DEMAND PROFILE The following table provides key demographic and economic characteristics of the apartment rental market relative to the Midway Mall in Elyria, OH (refer to trade area map on Page 28).9

Market Drivers 0-5 min

Drive Time % 0-10 min

Drive Time % Lorain

County % Households 2016 3,592 34,449 120,097 Households 2021 3,600 34,792 122,884 Household Change 0.2% 1.0% 2.3% 2016 % Renters 42.7% 36.2% 26.8% 2016 Renter Avg. Residence 8.5 8.2 8.0 2016 % Owners 57.3% 63.8% 73.2% Persons/HH 2.2 2.4 2.5 2016 Median Age 40.7 40.1 41.1 HH Size 2.19 2.38 2.47 1 Person 1,328 10,554 32,672 2 Person 1,156 11,380 40,980 3 Person 553 5,756 19,931 HH w/No Persons < 18 2,603 23,569 80,883 2016 Ave. HH Income $ 44,758 $ 56,205 $ 71,895 2021 Ave. HH Income $ 48,111 $ 62,556 $ 80,730 % Chg. In HH Income 7.5% 11.3% 11.3% 12.3% Affordable Monthly Rent $ 1,492 $ 1,874 $ 2,397 2016 Est. Avg. Commute 21.81 23.34 25.93

RENTERS

The five-year household renters’ projection is a method to estimate apartment demand; and the opportunity for introducing new apartment units and product type in the market.10

5 Min

Drive Time 10 min

Drive Time Households Renters Renters

2021 Projection 1,536 12,605 2016 Estimate 1,533 12,481 2010 Census 1,528 12,335 2000 Census 1,586 12,527

Growth 2016-2021 3 124 Growth 2010-2016 5 146 Growth 2000-2010 -58 (192)

9 Copyright 2016 Nielsen.

10 Nielsen 2016 projections.



The Midway Mall 10-minute drive time trade area, which generally covers the city of Elyria, is forecasted to add approximately 124 new household renters through 2021. This is about on par with the previous five year introduction of 146 new renters for 2010-2015. This 10-year trend in renter demand, while slow, underscores the current apartment market conditions.

INCOME LEVELS AND AFFORDABILITY

The projected average household income of $62,556 for 2021 suggests that an affordable range for apartment rents is between $1,563 and $1,874. That is, a range that assumes housing expense are between one-third to 40 percent of average household income.

TARGET TENANT LIFESTYLE SEGMENTATION SURVEY

Lifestyle segmentation profiles are an important tool to determine multi-family apartment product type, unit mix and composition, amenities to offer, and viable market-based asking rent ranges. In addition, PRIZM® household profiles are available at the block group, census tract, and zip-code level. This permits target marketing of new multi-family residential properties to help achieve estimated net absorption of units. Using the PRIZM® household segments data from Pages 23 through 25, the segments that have the highest probability to become potential tenants for multi-family housing at a Midway Mall mixed use center include (in order of probability):

• Suburban Pioneers • Suburban Sprawl • Traditional Times • Middleburg Managers

MARKET GAP A set of multi-family housing recommendations specific to the Midway Mall property is based on estimated apartment unit inventory gap/surplus. This supply and demand analysis uses: (1) current number of vacant units; (2) number of new apartment units under construction and proposed; and (3) projected new household renters and owners to enter the trade area by 2021.

Elyria, OH, Market Potential

10 Min. Drive Time Est. Renters Estimated # Apartment Units in Structure w/20 Units 2,950 Annualized Vacancy 4.4% Estimated No. of Vacant Units 129



Under Construction - Planned and/or Proposed - Estimated Available Units 2016-2021 129 2016 to 2021 New Household Renters 124 Estimated Surplus/(Shortage) 5

There are an estimated 124 new household renters entering the Midway Mall total trade area (10-minute drive time) between 2016 and 2021. This new household formation increases demand levels for rental housing inventory. An estimated 129 multi-family housing units are available to rent based on a vacancy rate of 4.4 percent. No apartment units are either currently under construction or proposed for construction in the Elyria trade area. For the Midway Mall, Elyria, OH, trade area, there is an estimated apartment inventory of five (5) units is projected for the period 2016 to 2021. While this reflects a continuation of a relatively flat apartment market, the recommendation is to segment the Elyria market with up to 240 new Class A apartment units at a redeveloped Midway Mall mixed use center.

APARTMENT DEVELOPMENT OPPORTUNITY Approximately 240 new Class A multi-family apartment units are viable in the Midway Mall trade area for the period 2016 to 2025. Class A units in a low-rise (2 to 3 levels) to mid-rise (4 to 5 levels) building is recommended for a redeveloped Midway Mall given the existing apartment inventory; and indications of pent-up demand for higher quality apartment product. Consideration should be given to a construction time table that starts as early as 2017; or, into 2018, depending on duration of the entitlement process. Construction should occur in two phases of 120 units per phase to permit sufficient market absorption; and to allow for any market-adjusted implications for the second phase.

UNIT MIX AND COMPOSITION

The table below provides an approximate unit mix for a multi-family apartment project.

Phase I Phase II 2016-2021 2021-2025 Total Floors Studio 8 8 16 5 1 BR 73 73 146 5 2 BR 39 39 77 5 3 BR - - - 5 Total 120 120 240



The above unit mix should be used as a guide only; not a fixed recommendation. This mix is based on the performance characteristics of properties in the Elyria trade area (e.g., vacancy levels by unit mix, rents per square feet, absorption, etc.). This unit mix is consistent with the resident household profile for the 10-minute drive time trade area wherein 64 percent of households are one-person to two-persons.

PRODUCT TYPE

Product types, features, asking rents by unit, and estimated total annual rent revenues for a proposed multi-family residential project on a redeveloped Midway Mall mixed use center are suggested in the tables below.

The Midway Mall trade area can support a Class A multi-family residential product. Unit amenities are not high-end luxury; but, rather, amenities that appeal to tenants seeking both value and better quality finishes. Waterford Luxury Apartments, a 240-unit Class B property near Lorain County Community College, provides an example for unit amenities: balcony, cable-ready, granite countertops, vaulted ceiling, walk-in closets, in-unit washer and dryer, and wifi. Of the 240-units, there was only one available as of August 31, 2016.

Apartment buildings should be integrated within a retail and mixed-use community on the Midway Mall property. This is intended to create a sense of place atmosphere attractive to potential tenants seeking a place to live that has easy access to shopping, restaurants, entertainment, a fitness club, and other community amenities not found in the Elyria market.

ESTIMATED REVENUE FORECASTS

Asking rents by unit, suggested size of each unit by type, and estimated gross rent revenues for a proposed multi-family apartment development on a redeveloped Midway Mall property are presented in the table below.

Product Type Class A

Levels 2 to 5

Unit Amenities

AC; cable and wifi; vaulted ceilings; hardwood, carpet, tile flooring; dishwasher, disposal, microwave, stainless steel appliances; tub/shower; walk-in closets; in-unit washer/dryer; window coverings.

Community Features Business center, lounge, courtyard; pool with deck and grilling area; storage space; 1 parking stall per unit; property manager on-site; controlled access;



Potential Gross Rent Revenues Phase I Unit Type # Units Average

Rents Average

SF Rent/SF Potential

Revenues Potential Revs/SF

Studio/1 Bath 8 $595 500 $1.19 $58,418 $14 1 BR/1 Bath 74 $895 825 $1.08 $794,760 $13 2 BR/2 Bath 38 $1,195 1,110 $1.08 $544,920 $13

Total 120 107,321 $1,398,098 $13 Potential Gross Rent Revenues Phase II

Unit Type # Units Average Rents

Average SF

Rent/SF Potential Revenues

Potential Revs/SF

Studio/1 Bath 8 $595 500 $1.19 $58,418 $14 1 BR/1 Bath 74 $895 825 $1.08 $794,760 $13 2 BR/2 Bath 38 $1,195 1,110 $1.08 $544,920 $13

Total 120 107,321 $1,398,098 $13 Total 240 214,642 $2,796,196 $13

Rents per square foot are weighted to existing market-rate rents for comparable apartment properties in the Elyria market (e.g., Waterford and Hunters Crossing). Premium adjustments in rent per square foot are applied to reflect the amenities of a redeveloped Midway Mall mixed use center; are weighted toward Studio and 1-bedroom based on inventory gaps and occupancy levels; and the general conditions of the Elyria apartment market. At complete build-out, annual gross rent revenues are estimated at $2,796,196 or $13 per square foot for the proposed 240-unit property.11 Rent ranges are affordable given the average household income profile of residents within the Midway Mall 10-minute trade area. For example, the average household income for residents in the 10-minute drive time is $56,205 for 2016; and projected to $62,556 by 2021. A household resident that spends approximately 40 percent on housing is able to afford current average monthly rent (or mortgage payment) of approximately $1,874; and $2,085 in 2021.

CAPTURE RATE, MONTHS TO ABSORB, AND NET ABSORPTION A proposed Class A 240-unit multi-family apartment project has an estimated capture rate of 4.3 times an estimated Class A/B vacant inventory of 56 units over the next five years.12

11 CoStar data show that five-year average NNN rent per square foot of retail is $4.92 in the Elyria, OH, market.

12 CoStar 2016.



Estimated Net Absorption of Current and Projected Inventory Rental Supply Rentals Estimated Total Class A/B Apartment Units (20+) 1,275 Three Year Annualized Vacancy Rate 4.4% Vacant Units 56 Under Construction - Planned and/or Proposed - Total Inventory 56 Demand Renters Estimated 5-Year Demand Forecast 124 Number of Units in Demand Per Month 2 Net Absorption Rate in Months 27

Build Out Time (Months) 18 Approximate Vacant Inventory 56 Midway Mall Proposed New Inventory 240 New Capture Rate 432% Absorption of New Inventory (Months) 27 Total Estimate Time (Years) 3.74

Capture rates are a measure of an apartment property’s competitive position in the market (i.e., market share). In the long-run, an apartment project will capture its pro rata share of total existing supply. For the Midway Mall total trade area, there are an estimated 1,275 existing rental units in Class A/B structures with 20 units and more. Of that, an estimated 56 units are vacant based on a vacancy rate of 4.4 percent (YTD 2016).13 The Midway Mall total trade area is projected to grow by 124 new household renters by 2021. In relation to market share of existing inventory (i.e., capture rate):

• A 240-unit apartment project is estimated to capture 432 percent of potential Class A/B household renter demand for the period 2016 to 2021. This means the proposed apartment units will be absorbed by new renters entering the Elyria market; and pull renters from existing properties.

• Consequently, this yields an estimated absorption rate for the 240-units of approximately 27 months from market delivery.

IN SUMMARY

If the Midway Mall multi-family apartment project was scheduled for construction on August 1, 2017, then an estimated construction time line of 18 months would provide an approximate inventory delivery date of February 1, 2019.

13 CoStar 2016.



Absorption of approximately 97 percent of the proposed 240-units is estimated by May 1, 2021.

An aggressive marketing campaign and pre-leasing of the multi-family apartment units should occur at least six (6) months prior to a scheduled opening date.



HOTEL FEASIBILITY ANALYSIS

MARKET AREA

The hotel market area for Midway Mall is principally bounded by the western intersection of I-90 and the I-80 Ohio Turnpike; the I-90 corridor to the north; the I-80 turnpike to the south; and Highway 301 to the east.

For Elyria, OH, this market has over 2,800 business establishments predominantly in the sectors of health care; professional, scientific, and technical services; and public administration. Over 42,008 persons are employed by these businesses. The area businesses represent an important segment of the hotel room demand in terms of contract rooms and general transient rooms.

Lorain County Community College has a student enrollment of 15,126, and is one of the largest area employers with approximately 1,350 full- and part-time staff.14 Midway Mall is less 15-minutes by car to the college. The activities associated with the college are a significant segment of hotel room demand, which is one reason for the location of Homewood Suites along I-90 in Sheffield, OH.

14 National Center for Education Statistics



Leisure is another prominent hotel room demand segment, especially for Lorain County, OH. Tourists are attracted to the Back Roads and Beaches Geo Trail in Amherst; Common Ground Canopy Tours in Oberlin; Klingshirn Winery, Veterans Memorial Park and Miller Road Park in Avon Lake; Stocker Arts Center in Elyria; Lakewood Beach Park in Sheffield; Main Street Beach in Vermillion; among other attractions on and near Lake Erie. Also, in the summer months those traveling west to Cedar Point represent another potential tourist base for the Elyria market.

PROFILE OF HOTEL INVENTORY There are 16 hotels that supply 1,549 hotel rooms in the Elyria, OH, market area.15

• 71 percent are limited / select-service hotels such as Hampton Inn, Country Inn, Best Western Inn, Red Roof, and Quality Inn in Elyria; and Fairfield Inn and Cambria Inn in Avon.

• 15 percent is one full-service hotel, which is the 240-room Days Inn with 10,277 sf of event space and Mr. D’s restaurant.

• 14 percent are two Extended Stay hotels: the 116-room Residence Inn (2016) and 97-room Homewood Suites in Avon.

Smith Travel Research definitions of limited-, select- and full-service hotels are:

• Limited-Service: no food and beverage service. • Select-Service: limited food and beverage service; no restaurant. • Full-Service: restaurant, lounge, and meeting space; bell service and room service.

Another way to view hotel properties is by chain scales.16 The chart on the following page presents hotel inventory for the Elyria, OH, market area.

15 Hotels that have 50 rooms and more are examined for this hotel market analysis. Data sources are CoStar and Smith Travel Research. Independent hotels are not included in the analysis due to lack of information reported by operators. 16 Smith Travel Research defines a brand chain scale based on the previous year’s annual system wide average daily rate. Copyright 2016 STR.

Hotel Service Type # Rooms % Newest Oldest Limited / Select 13 1,096 71% 2014 1965 Full 1 240 15% 1964 Extended Stay 2 213 14% 2016 2015 16 1,549



• 55 percent are economy hotels such as Quality Inn, Days Inn, and Red Roof. • 21 percent are upscale hotels such as the Homewood Suites in Avon. • 16 percent are upper midscale such as Hampton Inn and Country Inn. • 8 percent are midscale such as the Best Western Inn and Super 8.

The 108-room Courtyard by Marriott is a limited/select service, upscale brand hotel that is under construction adjacent to Midway Mall.

HOTEL COMPETITIVE SET The market trend of a six-property hotel competitive set is examined in this section.17 The competitive set properties have 31 percent of the Elyria, OH, hotel room market share (excluding independently-operated hotels and motels).

Name City Class Service Open Rooms Homewood Suites Sheffield Upscale Limited/Select 2015 97

Country Inn & Suites Elyria Upper Midscale Limited/Select 2003 72 Hampton Inn & Suites Elyria Upper Midscale Limited/Select 2013 97

Best Western Inn Elyria Midscale Limited/Select 1997 57 Quality Inn Elyria Midscale Limited/Select 1990 64

Red Roof Inn & Suites Elyria Economy Limited/Select 1983 97 Subtotal 484

Elyria Market 1,549 Market Share 31%

An estimate of revenues and revenues per available room for each competitive set property are provided in the table below. The average daily rate reflects bookings for

17 Each hotel property in the competitive set was selected based on participation in the Smith Travel Research monthly and weekly performance reporting system. These properties provide performance data for a minimum four consecutive months.

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Hotel Rooms by Brand Scale



Monday, September 19, 2016 through Wednesday, September 21, 2016.18 Revenue estimates are based on an average annual occupancy rate of 75 percent across the competitive set.

Name of Establishment Rooms ADR Est.

Revenues RevPAR

Room Market Share

Revenue Market Share

Homewood Suites 97 $135 $2,700,000 $75 20% 28% Country Inn & Suites 72 $97 $1,400,000 $54 15% 15%

Hampton Inn & Suites 97 $140 $2,800,000 $78 20% 29% Best Western Inn 57 $80 $930,000 $45 12% 10%

Quality Inn 64 $55 $715,000 $31 13% 8% Red Roof Inn 97 $53 $1,050,000 $30 20% 11%

Competitive Set 484 $93 $52 The estimates provide a general performance snapshot of each hotel property. This will serve as a baseline for estimating revenues for the recommended hotel when measured relative to the competitive set market trends. Aggregate performance for this comp set of hotels is provided in the following charts.19

HOTEL SUPPLY20 Hotel room supply among the six-property competitive set remained constant for the period 2011 to 2013; then, new supply was delivered in 2013, 2014, and 2015.

18 Average daily rates were obtained from a combination of Hotels.com, Travelocity, Experian, and the hotel property website. 19 Smith Travel Research, YTD June 2016 20 Ibid. 12-month moving average is used to highlight the hotel market trend; and to use that trend to gauge projected market momentum.

105,547 105,485

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WHAT IS THE SUPPLY TREND FOR AREA HOTELS?12-MONTH MOVING AVERAGE

(ROOMS AVAILABLE)



The 108-room Courtyard by Marriott is the only new hotel under construction in the Elyria, OH, market area as of the date of this study. Market delivery is anticipated for 2017.

HOTEL DEMAND

Demand for room nights shows an upward trend among the competitive set hotels. The annualized percentage gain in demand is 14 percent or 68 percent increase from 54,704 rooms sold to 92,037 rooms sold for June 2011 and June 2016, respectively.

OCCUPANCY RATES In spite of rising hotel demand relative to the new supply, occupancy rates remain flat among the six-property competitive set.

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(NUMBER OF ROOMS SOLD)

50.5 55.4 58.4 61.2 57.1

020406080

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16WHAT IS HAPPENING WITH HOTEL OCCUPANCY?

12-MONTH MOVING AVERAGE(PERCENT)



However, when taken as a whole, the increase in hotel room demand is correlated with the new hotels of Hampton Inn and Homewood Suites. These properties are pushing up the occupancy rates from an annual average of 50 percent in 2010 to 60 percent in 2015. For that to happen, the Hampton Inn and Homewood Suites each are likely to have annual average occupancy rates in the upper 60-percent to mid-70 percent range; as the older properties such as Red Roof and Quality Inn have occupancy rates on average below 50 percent. The Courtyard by Marriott is likely to yield similar influence on the Elyria hotel market: increase demand that is concentrated mostly among the Hampton Inn, Homewood Suites, and the Courtyard; and the older properties lose market advantage. A concentration of upscale and upper midscale brands in the Midway Mall area will contribute to increases in room demand and occupancy rates for the market overall.

HOTEL REVENUES

The delivery of new hotel room inventory associated with the Hampton Inn and Homewood Suites improves the overall financial performance of the six-property competitive set.

Overall hotel revenues of $8.7 million as of June 2016 is 124 percent greater than the revenues of $3.9 million in June 2011; and six-percent higher than one year ago in June 2015. This is an annual average growth of 25 percent.

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HOW ARE HOTEL REVENUES IN ELYRIA, OH?12-MONTH MOVING AVERAGE



REVENUES PER AVAILABLE ROOM

Revenue per available room (RevPAR) increased by 46.4 percent for the period June 2011 to June 2016 from $36.75 to $53.80, respectively; that is, an annual growth rate of approximately 9.3 percent.

AVERAGE DAILY RATES Average daily rates increased by 33 percent for the period June 2011 to June 2016 from $70.91 to $94.23, respectively; that is 6.6 percent annually.

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WHAT IS THE REVENUE PER AVAILABLE ROOM FOR AREA HOTELS?

12-MONTH MOVING AVERAGE(DOLLARS)

$70.91 $77.33$93.38 $93.07 $94.23

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WHAT IS THE AVERAGE DAILY RATE CHARGED BY AREA HOTELS?

12-MONTH MOVING AVERAGE(DOLLARS)



FINDINGS The six-property competitive hotel set trends reveal an underlying pent-up demand for higher quality hotel brands in the Midway Mall area. That the properties of Hampton Inn, Homewood Suites in Sheffield, and the soon-to-open Courtyard by Marriott are forming a competitive advantage over the lower brand scale economy hotels such as the Red Roof Inn, Quality Inn, and Best Western Inn. Consequently, the upper midscale and upscale brands have potential to push overnight visitor demand from business travelers, leisure guests, and area corporate accounts. These trends present the opportunity to introduce new hotel inventory specifically on a redeveloped Midway Mall mixed use center. The viability for this new hotel is estimated for 2019 to 2020, which permits time for the Courtyard by Marriott to reach market stabilization given the assumption that it opens in 2017. For these reasons, Jeff Green Partners/Hoffman Strategy Group recommends an 80-room Best Western Plus (new limited serve brand) for a redeveloped Midway Mall mixed use center. A Best Western Plus is being recommended to complement the existing Hampton Inn, Homewood Suites, and forthcoming Courtyard by Marriott properties.

RECOMMENDATION: BRAND, SIZE, AND REVENUE ESTIMATES

BEST WESTERN PLUS Best Western Plus is an upper midscale, limited-service, hotel that is targeted to both business and leisure travelers.

Photo: Best Western Hotels, Best Western Plus in Saskatoon, Saskatchewan



Competitors include Hampton Inn, Holiday Inn Express, Comfort Inn, and Fairfield Inn. The Best Western Plus nearest to Midway Mall is 30 miles in Sandusky, and 40 miles south in Akron.

The Best Western Plus prototype is adaptable to any specific size and location preferences.21 In terms of development cost considerations:

• Total development costs per room for a midscale hotel without food and beverage are estimated at $117,800 (includes land); $155,300 per room with food and beverage.22 This is a national estimate only and will vary by location and other construction variables such as labor availability.

• Annual membership fee is five (5) percent of total revenues.23

• Total building area for an 80-room Best Western Plus is approximately 51,200 square feet (approximately 640 square feet per room).

Revenue forecasts for the recommended 80-room Best Western Plus are based on reported average daily rates and average occupancy rates reported in development materials from Best Western International.

Best Western Plus: 80-Room, Limited Service

No. of Rooms 80 Days Open 365

Total Room Nights 29,200 Average Daily Rate $105

Year 1 Estimates

Occupancy Rate 70% Revenues $2,146,200

RevPAR $ 73.50

Year 3 Estimates Occupancy Rate 75%

Revenues $2,299,500 RevPAR $ 78.75

SUMMARY

In summary:

• Average annual occupancy for a Best Western Plus hotel is estimated to stabilize at 75 percent in the third year of operation (2023).

21 Copyright 2016 Best Western International, Inc. 22 Hotel Development Cost Survey. Copyright 2015 HVS. 23 Copyright 2016 Best Western International, Inc.



• Each upper midscale and upscale hotel brand in the Midway Mall area, such as

Hampton Inn and the forthcoming Courtyard by Marriott, and the Elyria area hotels such as Homewood Suites in Sheffield, should enjoy a stronger market presence and competitive advantage.

• The scope of this hotel market study does not include financial feasibility analysis (i.e., net operating income, return on investment, etc.). However, the above data can be used to test for financial feasibility. Hoffman Strategy Group/Jeff Green Partners recommend that as a potential next step.



OFFICE FEASIBILITY ANALYSIS

TRADE AREA The Midway Mall office market area for purposes of this study coincides with Lorain County, OH, and is depicted in the following map.

Lorain County, OH, serves as the general market for office-based employment. Each marker on the map represents an office property. The green dots represent daytime population density. Office-based employment is mostly concentrated in Elyria: downtown along Broad Street, surrounding the University Hospital-Elyria Medical Center, and along Bridge Street; around Amherst to the northwest of Midway Mall, and eastward toward North Olmsted, Avon, and Westlake.

BUSINESS AND EMPLOYMENT PROFILE

The Lorain County office trade area has an estimated total of 2,212 private sector business establishments that represent a major portion of office tenants: finance, banking, insurance, and real estate; professional and business services;



education; and healthcare (1Q: 2016). This is a growth in the number of establishments from 2,017 in 2006 to 2,212 in the first quarter of 2016. These establishments are the base for 27,589 employees (2015); a growth of 10.5 percent or one percent annually from 24,958 employees in 2005.24

Top business establishments by industry group include:

• Ambulatory Health Care Services

• Professional, Scientific and Technical Services

• Specialty Trade Contractors

• Insurance Carriers and Related

• Credit Intermediation and Related

WORKER COMMUTER FLOW

The map below shows the inflow and outflow of all private jobs for the Lorain County area.25

24 Quarterly Census of Employment and Wages, US Bureau of Labor 25 U.S. Census Bureau, OnTheMap, Employment Statistics (2nd Quarter of 2002 to 2014)



Of the 80,407 persons employed in the Lorain County area in 2014: 47,367 or 60 percent are residents in the trade area; and 33,040 live elsewhere. Of the 118,806 residents in Lorain County, 71,439 or 60 percent worked elsewhere (Census 2014).

The map below reveals the commuting pattern of Lorain County residents; that is, their workplace destination.

Lorain County residents travel on average 25 minutes to work; and it’s mostly to the east of Elyria.

Jobs by Distance - Home Census Block toWork Census Block

2014

Count Share

Total Primary Jobs 128,604 100.0%

Less than 10 miles 55,504 43.2%

10 to 24 miles 38,920 30.3%

25 to 50 miles 18,964 14.7%

Greater than 50 miles 15,216 11.8%



OFFICE MARKET SUPPLY

Office market inventory characteristics for the Lorain County area are provided in the following table.26

Year Inventory

Bldgs Inventory

SF Vacant SF

Total Vacant

Percent Total

Net Absorption SF

Total Deliveries

SF

Under Construction

SF Office Gross Rent Overall

YTD 611 5,456,033 431,924 7.90% 44,633 10,519 0 $12.62

2015 608 5,442,755 466,038 8.60% 82,694 5,000 10,519 $12.54

2014 607 5,437,755 543,732 10.00% 27,303 0 5,000 $12.87

2013 607 5,437,755 571,035 10.50% 23,359 0 0 $12.65

2012 607 5,437,755 594,394 10.90% -138,321 0 0 $12.70

2011 607 5,437,755 456,073 8.40% 24,909 0 0 $13.31

2010 607 5,437,755 480,982 8.80% -1,749 23,990 0 $14.18

2009 604 5,413,765 455,243 8.40% -65,344 10,556 6,768 $14.27

2008 603 5,403,209 379,343 7.00% 148,139 40,880 10,556 $17.59

2007 601 5,362,329 486,602 9.10% 234,057 77,481 880 $13.30

Overall, the Lorain County area has a vacancy rate of 7.9 percent. This is a decrease from a high of 10.9 percent vacancy rate in 2012 associated with the release of over 138,000 square feet of office space onto the market. The trend, however, indicates a slight tightening of the office market with vacancy rates at and below 10 percent for the period 2007 to YTD 2016.

CoStar reports that 10,519 square feet of new office space was delivered in 2016, for a current total inventory estimated at 5,456,755.

There is no office building currently under construction.

CoStar reports that the current gross rent per square foot is $12.62.

The following table organizes the Lorain County office inventory by asset class (YTD 2016).

26 CoStar 2016. All asset classes.



Year Inventory

Bldgs Inventory

SF Vacant SF Total

Vacant Percent

Total

Net Absorption

SF Total Deliveries

SF

Under Construction

SF

Office Gross

Rent /SF A 3 124,984 0 0% 0 0 0 $16.00 B 136 2,097,681 182,677 8.7% 23,303 10,519 0 $12.60 C 472 3,233,368 249,247 7.7% 21,330 0 0 $12.66 YTD 611 5,456,033 431,924 7.9% 44,633 10,519 0 $12.62

The Class A properties (3) include: Premium Health Center in Sheffield (40,780 sf); two buildings that are part of the Waterford Office Park (35,886 sf) in Sheffield; and the Entrepreneurship & Innovation Center (48,316 sf), adjacent to Lorain County Community College in Elyria.

• Premium Health Center tenants include Premium Diagnostics Center, NOMS Premium Imaging Services, and Neurospinecare, Inc.

• Waterford Office park buildings are build-to-suit. The Ohio Business College occupies 25,000 sf.

• The Innovation Center is fully leased with rents at $18.50/sf. Tenants include Ross Environmental Services, Mentor Radio, Next Step Logistics, Innovation Fund America, Recognition Robotics, Red Bird Technologies, among others.

There is a gap for Class A office buildings in the Lorain County market. A combination of below-equilibrium vacancy rates, steady lease rates, and no new inventory deliveries since 2007 (i.e., the Innovation Center) are indications that the supply-side of this market is viable for new Class A office building construction at a redeveloped Midway Mall mixed use center.

OFFICE MARKET DEMAND

Lorain County private sector employment has lost approximately five percent of its base since 2005. Professional and Business Services, and Education and Health Services, are the only employment sectors that show a net growth rate for the period 2005 to 2015, shown in the table below.

NAICS Sector 2005 2010 2015 Financial 3,056 2,832 3,057 Professional & Business Services 7,332 7,912 9,255 Education & Health Services 14,570 15,305 15,277 Total All Industries 85,678 75,950 81,621



• Professional and Business Services include firms such as management and organizational consultants, legal services, accounting and bookkeeping, computer systems design, and architectural and engineering companies. This industry had the fastest growth at 2.6 percent annually over the period 2005 to 2015; or 26 percent overall.

• Education and Health Services grew by five percent or one-half percent annually for the period 2005 to 2015.

• Financial Services, which includes banking, financial advisors, insurance agents and agencies, and real estate agencies, is flat.

These three industries – Professional and Business services, Education and Health Services, and Financial Services – are a significant market segment that drives demand for office space. Therefore, office supply characteristics such vacancy rate, lease rates, and net absorption relative to growth in office users provide a set of data and information to form reasonable economic estimates about market viability for the development of new office buildings.

The next sub-section provides employment projections as a means to estimate new office demand by users over the next ten-year period, 2016 to 2026.

OFFICE-BASED EMPLOYMENT PROJECTIONS

Multi-tenant office buildings in Lorain County are most likely to come from business establishments that provide support to the industries that are a regional employment draw. For example, occupations in the industries of Office and Administrative Support, Management; Education and Training; Healthcare Practitioners and Technicians; Personal Care and Service; Business and Financial Operations; and, Offices of Healthcare Providers (e.g., general practice, dentistry, vision, chiropractors, etc.).

Trend analysis for the industries predominantly driving total employment growth and, therefore, demand for office space is provided in the chart below. 27

27 Forecasts are made using least squares fitting linear regression techniques based on 10-year historic employment trends. Source: US Bureau of Labor Statistics.



For the period 2016 to 2026:

• Professional and Business Services sector has a projected annual growth rate of 2.7 percent for the period 2016-2026.

• Education and Health Services has a projected annual growth rate of nearly one percent for the period 2016 to 2026. This is slightly higher than the one-half percent annualized growth over the period 2005-2015. The direct and indirect impact of University Hospital’s location in downtown Elyria, and Cleveland Clinic’s presence in Elyria and Avon will continue to influence the location of allied health professionals.

• Financial Services has a projected annual growth rate of one percent for the period 2016 to 2026.

These three industries, which are heavy office users, have a projected employment growth of 4,110 new workers for the period 2016 to 2026; that is, approximately 1.5 percent projected annual growth.

OFFICE SPACE DEMAND

This analysis estimates total office demand in Lorain County, OH. The following table presents the data used to forecast office demand for the next 10-year period 2016 to 2026.

2005 2010 2015 2020 2026Financial 3,056 2,832 3,057 3,357 3,484 Prof. & Bus. Svcs. 7,332 7,912 9,255 10,316 12,027 Educ. & Health Care 14,570 15,305 15,277 15,661 16,563

3,056 2,832 3,057 3,357 3,484

7,332 7,912 9,255 10,316

12,027

14,570 15,305 15,277 15,661 16,563

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

Employment Projections by Office User

Financial Prof. & Bus. Svcs. Educ. & Health Care



Demand Forecasts, 2016 to 2026 Lorain County, OH

SF/Employee

Change in Employment, 2016 to 2026

Office Demand (SF)

Finance, Insurance, & Real Estate 200 314 62,864 Professional & Business Services 200 2,576 515,290 Education & Health Services 200 1,219 243,855 Total Private 200 4,110 822,009

The Lorain County, OH, office space requirement associated with growth in the office-based employment industries listed in the above table is estimated at 822,009 total square feet by 2026. That is derived by the following calculations:

• Multiply 200 square feet of office space per employee by employment change for the period 2016 to 2026. For example, Financial Services sector employment base is estimated to grow by 314 workers for Lorain County by 2026. Office space demand is approximately 62,864 square feet (314 workers times 200 square feet per worker).28

• Sum of the Office Demand (SF) column: 822,009 total square feet.

OFFICE MARKET GAP This next step provides a way to estimate the development opportunity for new office space in the Lorain County area; and, in particular, the Midway Mall property location.

28 There may be slight rounding differences.

Office Supply,

2016 (CoStar)

Vacant Office, 2016

(CoStar) Vacancy Rate 2016

Under Construction Proposed

Total Est. Office

Available

Est. Office

Demand SF (2016-

2026) Est. Gap Office

Net Annual Absorption Projections

(2016-2026)*

Class A

124,984 0 0.0% 17,000 0 17,000 274,003 (257,003) 33,015

Class B

2,097,681 182,677 8.7% 0 52,000 234,677 274,003 (39,326) 6,603

Class C

3,233,368 249,247 7.7% 0 0 249,247 274,003 (24,756) 4,402

Total 5,456,033 431,924 7.9% 17,000 52,000 500,924 822,009 (321,085) 44,020

Under Construction:

Avon Point Professional

17,000 Sep-16



For this analysis, the market is assumed to remain in a near-equilibrium condition which holds for the period 2016 to 2021:

• An eight percent vacancy rate;

• Average annual net absorption of 44,000 square feet; and,

• Completion of approximately 52,000 square feet.

In summary:

• There are approximately 432,000 square feet in vacant office space in Lorain County as of August, 2016.

• An additional 70,000 square feet are either under construction or proposed: 17,000 sf Avon Point Professional Campus in Avon; 32,000 sf in Amherst; and 20,000 sf Millstone Office Center in Amherst.

• Projected office space available is approximately 500,000 total square feet, with estimated allocations across asset class from 17,000 square feet for Class A; 235,000 square feet for Class B; and 250,000 square feet for Class C.

• Subtracting estimated supply of 500,924 square feet from forecasted demand of 822,009 square feet yields a total office market opportunity gap of approximately 321,085 for the period 2016 to 2026.

• An estimated 260,000 square feet of new Class A office space gap is based on forecasted employment growth in Lorain County for the period 2016 to 2026, relative to existing available inventory. The allocation of office space by asset classes assumes that both developers and office users will prefer new Class A/B office buildings.

• Net annual absorption is estimated at 33,000 sf for Class A office. This is based on net absorption of 46,000 sf for the Innovation Center in 2007-2008; 40,000 for the Premium Healthcare Center in Sheffield; and approximately 44,000 sf for Class A/B office properties throughout Lorain County.

Campus (Avon, OH)

Proposed: 47160 Hollstein Dr., Amherst, OH

32,000 2017

Proposed: Millstone Office

Center, Amherst, OH

20,000 No Schedule

* CoStar



RECOMMENDATIONS

This office market analysis for the Lorain County area presents an office supply push strategy that is driven by long-term projections of office user demand. For example, the market supportability of new Class A office space over the period 2016 to 2026 pushes new office users to higher quality space than the existing inventory.

Jeff Green Partners/Hoffman Strategy Group, therefore, recommends to the following:

• Develop a master plan that includes up to an estimated 260,000 sf of new Class A office building space for the period 2016 to 2026.

• Focus on development phases of approximately 30,000 sf to 35,000 sf of new Class A office space, which represents net absorption rates for Class A office space.

• Consider three broad segments for office development and tenants:

o Healthcare / Life Sciences

o Education

o Professional and Business Services



BEST PRACTICES IN PUBLIC FINANCE INCENTIVES

Jeff Green Partners/Hoffman Strategy Group conducted a survey of key retail and mixed use development projects in Ohio, and other states. The objective is to prepare a “best practice” in public finance incentives relative to shopping center and mixed use redevelopment projects.

OHIO PROJECTS The following shopping center and mixed use redevelopment projects serve as an analog for the redevelopment of Midway Mall in Elyria, OH.

• Courtyard by Marriott (Elyria): This $6.6 million project received a 15-year, 75 percent tax abatement under the Community Reinvestment Area (CRA) designation.

• Crocker Park (Westlake): Cleveland-Cuyahoga County Port Authority issued up to $7 million in bonds to finance public infrastructure improvements including underground utilities, driveways, surface parking areas, sidewalks and streetscape improvements. This provided support to the 110-room Hyatt Place, five new restaurants, 235,000 sf of additional retail space, multi-family residential units, a 386-space private parking garage. These bonds are tax increment financing bonds. The City of Westlake issued the same type of non-tax revenue bonds up to $55 million to finance public improvements at the southern end of Crocker Park. That enticed American Greetings to relocate their headquarters at Crocker Park. Westlake granted a 30-year, 100 percent tax exemption to American Greetings; and a 15-year, municipal income tax credit.

• The Shoppes at Parma: Cleveland-Cuyahoga County Port Authority provided up to $10 million in tax increment financing bonds to fund the redevelopment of the former Parmatown Mall. The City of Parma approved a tax increment financing agreement between the city, Parma City School District and Phillips Edison & Co. (mall owner) to help finance the renovations of the Shoppes at Parma (The Plain Dealer). Phillips Edison & Co. provided to the school district an upfront payment of $2.35 million to offset the loss in property tax revenue. Phillip Edison’s tax break is for a period of 30-years.

• Bridge Street District, Dublin, OH: The City of Dublin, OH, is using four types of incentives to assist Crawford Hoying (developer) with approximately $43 million of the estimated $333 million development of the Bridge Street District. These include:



◦ Bonds: The city will issue bonds in the amount of $43 million to build two parking garages and roadways for Phase I. The debt will be paid off from service payments in lieu of property taxes under a TIF district for 30 years; and a guarantee from Crawford Hoying.

◦ Tax Increment Financing: Two TIF districts established to help Crawford Hoying build several blocks of mixed-use development, which include apartments, retail and office space, a hotel, restaurants, and a grocery store. The TIF revenues will fund the public infrastructure improvements.

◦ New Community Authority (NCA): A entity for the proposed Bridge Park development that is separate from the city. NCA will collect development fees to partially fund the parking structures and other public facilities.

◦ Community Reinvestment Area (CRA): The city has established a Bridge Street District Community Reinvestment Area (CRA). This permits the city to provide a property owner up to a 100 percent real property tax exemption for up to 15 years for new construction of multiple unit residential structures (e.g., apartments) and commercial facilities (e.g., retail, hotel, and office).

OTHER STATES Two examples from out-of-state include the Northland Center Mall redevelopment in Southfield, MI; and the former Westminster Mall in Westminster, CO.

• Northland Center (Southfield, MI): The City of Southfield, MI, purchased the 114-acre former Northland Center for $2.4 million in October, 2015. An additional $8 million to $10 million will be spent to demolish the mall and clear the land. The purchased the land protect property values, and plans to sell it to a developer to build a mixed-use development with office, retail, and residential. No developer has been identified at the time of this study. For more information, contact Frederick Zorn, Southfield’s city administrator, at (248) 796-5110.

• Downtown Westminster, CO (Website): The City of Westminster, CO, purchased the 100-acre former Westminster Mall, a regional mall similar in size to Midway Mall for the purpose of developing a downtown. Westminster Economic Development Authority (WEDA) and the City of Westminster are jointly releasing to the market fully-serviced parcels that include water, sewer, streets, sidewalks, bike paths, street lights, telecommunication ducts, on-street and structured parking, and public parks and open spaces including a central plaza. WEDA is managing an active RFP process from qualified mixed-use developers interested



in purchasing and developing one or more of the select parcels and developing them on a block-by-block basis. For more information, contact Sarah Nurmela, Real Estate and Development Manager, at (303) 658-2136; or John Burke, Construction and Development Manager, at (303) 658-2021.

SUMMARY

In summary, the options available to the City of Elyria, OH, regarding potential redevelopment of the Midway Mall into a mixed-use “town center” are:

• Establish the Midway Mall as a Community Reinvestment Area to offer tax abatements for developers.

• Create a TIF district to provide non-tax revenue financing of public infrastructure, streetscape, lighting, etc.

• Approach one or more of the port authority’s regarding assistance in public projects such as parking garages.

• Form an entity separate from the City of Elyria to collect development fees to partially fund the parking structures and other public facilities.

• Acquire the Midway Mall either through eminent domain or purchase properties from existing owners (e.g., Macy’s, Sears, former Dillard’s, etc.).



SITE PLAN

POTENTIAL CONCEPT DESIGN A potential site plan that could be used as part of the redevelopment of Midway Mall is directly based on the findings of the highest-and-best use analysis. This is a broad-level concept site plan.

Retail and restaurant uses and the site location requirements of retailers drive the overall potential site plan. Careful consideration was given to physical configuration, accessibility, ingress-egress, signage, line of site visibility, and optimal cross-shopping characteristics. Green space is used as a buffer between the retail and non-retail uses. For example, to separate the retail center from the residential (26, 27, and 29); office (23 and 24); and the new hotel (30). Moreover, green space is provided to soften the retail parking space and to introduce outdoor seating arrangements for the casual dining restaurants. Overall, the design focuses on maximizing the consumer interaction between retail stores, restaurants, the movie theater, the family amusement center, along with the hotel visitors, daytime population, and evening and weekend patrons.



DESIGN GUIDELINES The chart below provides general design guidelines for the redevelopment of Midway Mall.

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Lake Erie7 miles

DowntownElyria

2 miles

1/3 mile

0 200’ 400’ 800’

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Midway Boulevard

Lora

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MIDWAY MALLREDEVELOPMENT

DESIGN GUIDELINES

The goal of the Midway Mall redevelopment is the creation of a unique outdoor retail experience unlike any other retail option in Elyria. The redevelopment should become a profitable retail venue as well as a vibrant community amenity. To achieve this goal, any redevelopment should incorporate the following design guidelines.

Public Space Amenities - The creation of community oriented outdoor park and plaza spaces encourages socializing and allows for special events programming. The public space should establish a distinctive character for the shopping center and feature a significant fountain, pavilion, art installation, or other landmark attraction. Active use of the park should be encouraged with outdoor seating areas for adjacent restaurants as well as casual seating – benches or movable chairs for picnic or take-out style dining.

Pedestrian Environment - Safe, comfortable, and interesting pedestrian environments, especially along store frontages, encourage shoppers to spend more time and promote cross-shopping. Building façades adjacent to pedestrian walkways should have a high level of transparency and include landscape features and site furnishings. Long frontages should be articulated to differentiate individual stores or create the appearance of multiple storefronts. Pedestrian pathways and crosswalks should be clearly marked with distinctive paving or painting. All access roads should include sidewalks.

Landscaping and Site Furnishings - Landscaping and site furnishings establish a distinctive character for the public space and shopping center. Significant landscaping along access roads and in parking lots breaks up large expanses of roadway and parking lot concrete. Shade trees can provides relief from parking lot heat islands. Planters, benches, pedestrian scale lighting, and seating create outdoor interest and activate plaza and sidewalk spaces. Landscape buffers are greenspace amenities for apartment and townhome developments and screen roadways, loading docks, and other services areas from view.

MIDWAYMALL



APPENDICES

midway mall highest & best uses feasibility study

Documents