cap-rate-market-survey-memo.docx

1027-00003 · Calderwood & Harkness LLP · Strategy & Analysis

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MEMORANDUM

TO: Francesca Morano, Partner; Simone Laroche, Lead Associate

FROM: Jeffrey Park, Associate

DATE: July 28, 2023

RE: Market Survey of Cap Rates and discount Rates — Gulf Coast Luxury Hotel Transactions; Support for Whitfield Appraisal Methodology and Challenge to Beacon Valuation Assumptions

CLIENT: Pellegrino Capital Group LLC

MATTER: Meridian Shores Hospitality LLC v. Pellegrino Capital Group LLC, JAMS Ref. No. 1440032871

C&H MATTER NO.: 1027-00003

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I. Executive Summary

The purpose of this memorandum is to compile and analyze publicly available and proprietary market data on capitalization rates ("cap rates") and discount rates applicable to luxury full-service hotel properties located on or near Florida's Gulf Coast, as of a valuation date of December 31, 2022. The data and analysis presented herein are intended to support the reasonableness of the appraisal methodology and rate assumptions employed by Whitfield Realty Advisors LLC ("Whitfield") and to challenge the rate assumptions employed by Beacon Valuation Group Inc. ("Beacon") in the pending valuation dispute between Meridian Shores Hospitality LLC ("MSH") and our client, Pellegrino Capital Group LLC ("PCG").

The dispute centers on the fair market value of 100% of the assets of Palmetto Grand Ventures LLC ("PGV"), the entity that owns and operates The Palmetto Grand Resort & Spa (the "Property"), a 312-room luxury beachfront hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. Three appraisals have been prepared or commenced in connection with this matter:

1. Whitfield Realty Advisors LLC (Gerald K. Whitfield, MAI), retained by PCG: Concluded a fair market value of $118.0 million. Mr. Whitfield employed a 9.5% capitalization rate in the direct capitalization method and a 10.75% discount rate in his discounted cash flow ("DCF") analysis, blending the income approach (weighted at 40%) with the sales comparison approach (weighted at 60%) to arrive at his final value conclusion.

2. Beacon Valuation Group Inc. (Dr. Priya Ramanathan, CFA, ASA), retained by MSH: Concluded a fair market value of $151.5 million. Dr. Ramanathan employed an 8.5% discount rate in her DCF analysis and a 7.75% terminal capitalization rate. Beacon relied exclusively on the income approach and did not perform a sales comparison approach.

3. Linden Park Advisory LLC (Thomas Carraway, MAI, FRICS), jointly retained by both parties on June 1, 2023, as a neutral appraiser: Provided a preliminary indication of value of $130.0–$138.0 million. Mr. Carraway's report was never finalized, as the neutral appraisal process was suspended following MSH's objections to the scope of Mr. Carraway's work.

The gap between the Whitfield and Beacon conclusions — $33.5 million — is attributable in large part to their divergent rate assumptions. This memorandum examines whether those rate assumptions are supported by market evidence.

Conclusion. Based on a comprehensive review of published cap rate surveys, comparable transaction data, build-up analysis, and prevailing macroeconomic conditions as of December 31, 2022, the market data strongly supports the reasonableness of Whitfield's 9.5% cap rate and 10.75% discount rate. Beacon's 8.5% discount rate and 7.75% terminal cap rate fall below the prevailing market ranges for comparable Gulf Coast luxury hotel assets as of year-end 2022, resulting in an overstatement of value by an estimated $25–$35 million. The Linden Park preliminary range of $130.0–$138.0 million is consistent with a cap rate of approximately 8.75%–9.25%, which aligns more closely with the Whitfield approach than with Beacon's assumptions. These findings provide the analytical foundation for challenging the Beacon appraisal at the September 18, 2023 deposition of Dr. Ramanathan and, if necessary, at the evidentiary hearing before Hon. Margaret Liu Chen (Ret.).

II. Scope and Methodology of This Survey

A. Data Sources Consulted

To ensure a thorough and defensible analysis, this survey draws upon multiple categories of market data. The following published hotel investment research reports and databases were consulted:

• Harborview Capital Research — Annual U.S. Luxury Hotel Investment Report (2022 edition). Harborview is a nationally recognized hotel investment research firm that publishes annual surveys of capitalization rates and discount rates across major hotel segments and geographies. The 2022 edition includes segment-specific data for luxury full-service hotels on both a national and regional (Southeast/Florida) basis.

• Pinnacle Hospitality Analytics — Gulf Coast & Southeast Hotel Market Cap Rate Survey (Q4 2022). Pinnacle specializes in hospitality-sector analytics for the Southeast United States and publishes quarterly cap rate surveys broken down by property type and submarket. The Q4 2022 survey provides the most granular Gulf Coast-specific data available for our valuation date.

• Caldwell & Marsh Real Estate Capital Markets — National Hotel Transaction Cap Rate Tracker (2022 Year-End). Caldwell & Marsh's year-end tracker aggregates transaction-level data from closed hotel sales across the United States and reports implied cap rates by quality tier and state. The Florida-specific data is particularly useful as a cross-reference against other sources.

• Stonefield Technologies — Hotel Transaction Database, filtered for Florida Gulf Coast, Full-Service/Luxury Segment, 2020–2022. This database was queried for all closed hotel transactions in the Florida Gulf Coast corridor (from Destin through Naples) involving full-service or luxury properties with more than 150 keys, over the three-year period from January 2020 through December 2022. The resulting dataset forms the basis of the comparable transaction analysis in Section III.B.

• Institutional Real Estate Review — Published discount Rate Surveys for Hospitality Assets (2022). This publication provides broad-based survey data on discount rate ranges across the full spectrum of commercial real estate asset classes, including hospitality. While less granular than sector-specific sources, it provides a useful upper and lower bound for discount rate reasonableness.

In addition to these published sources, this survey incorporates the following supplemental data:

• A review of closed comparable transactions involving luxury and upper-upscale full-service hotels on the Gulf Coast and in the broader Florida and Southeast markets, as identified through the databases listed above and through independent research conducted by this office.

• Consultation with Whitfield Realty Advisors LLC regarding their proprietary comparable transaction data and the rationale for their cap rate and discount rate selections. Mr. Whitfield provided access to his work files, which include property-level NOI data for several of the comparable transactions catalogued herein.

• Cross-reference of the Aurelian Hotels & Resorts Inc. franchise fee structure — consisting of a 5% royalty on gross room revenue plus a 2% marketing fund contribution (totaling 7% of gross room revenue) — as it relates to adjustments necessary to derive a net operating income ("NOI") figure appropriate for direct capitalization and DCF analysis. The franchise fee structure is relevant because it reduces the net cash flow available to the property owner and is a cost factor that must be reflected in any market-derived cap rate or discount rate applied to the Property.

B. Property Profile for Benchmarking

To ensure that the comparable data assembled in this survey is appropriately calibrated to the subject property, the following property profile was used as a benchmark:

The Palmetto Grand Resort & Spa is a luxury beachfront resort hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. The Property comprises 312 keys, including 42 suites, and is situated on approximately 8.5 acres of Gulf-front land. The Property was acquired by Palmetto Grand Ventures LLC on August 1, 2017 for a purchase price of $87.5 million. Following acquisition, PGV undertook a comprehensive renovation of the Property at a total cost of $24.3 million, completed over the period from 2017 through 2019. The renovated Property features two full-service restaurants, a rooftop bar, an 18,000-square-foot spa and wellness center, 22,000 square feet of meeting and event space, and a beachfront cabana service.

The Property operates under a franchise agreement with Aurelian Hotels & Resorts Inc. dated July 15, 2017, with a 20-year term expiring July 14, 2037. Aurelian is a luxury hospitality brand with a portfolio of 47 properties in North America and the Caribbean. The franchise fee structure, as noted above, consists of 5% of gross room revenue plus a 2% marketing fund contribution.

Key financial metrics for the year ended December 31, 2022 (the valuation date) are as follows:

• Total Revenue: $62.8 million

• Revenue Per Available Room (RevPAR): $289

• Net Operating Income (NOI): $18.4 million

• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): $19.7 million

• Outstanding Debt (Greater Atlantic National Bank, Loan No. CRE-2017-06284): $48.6 million as of December 31, 2022, bearing interest at SOFR + 2.25%

These metrics position the Property as a high-performing luxury resort asset generating strong revenues relative to its key count. However, the Property is a single asset, subject to operational risk, seasonal demand fluctuations, and Gulf Coast-specific exposure to hurricane and weather-related risk — all factors relevant to appropriate cap rate and discount rate selection.

C. Analytical Framework

This memorandum applies three analytical frameworks to assess the reasonableness of the rate assumptions employed by the Whitfield and Beacon appraisals:

Direct Capitalization. Under the direct capitalization method, value is derived by dividing a single year's stabilized NOI by an appropriate capitalization rate: NOI ÷ Cap Rate = Indicated Value. The cap rate reflects the market's required rate of return on the investment, as implied by observed transactions. This is the approach used by Whitfield as one component of his income approach analysis.

discounted Cash Flow (DCF). Under the DCF method, value is derived by projecting cash flows over a defined hold period (typically 10 years for hotel assets), estimating a reversion (sale) value at the end of the hold period, and discounting all projected cash flows and the reversion value to present value at a risk-adjusted discount rate. The discount rate is the investor's total required rate of return (yield), inclusive of income return and capital appreciation. Both Whitfield and Beacon employed DCF analyses, but with materially different discount rate and terminal cap rate assumptions.

Terminal Capitalization Rate. Within the DCF framework, the terminal (or "exit" or "reversionary") capitalization rate is applied to the projected stabilized NOI in the terminal year of the hold period to derive the reversion value. Industry convention holds that the terminal cap rate should be set at a level equal to or, more commonly, 50–100 basis points above the going-in cap rate, reflecting the aging of improvements, the uncertainty inherent in out-year projections, and potential shifts in market conditions over the hold period.

Market-Extraction Method. Implied cap rates can be derived from known transaction prices and reported NOI of comparable sales. When a hotel sells for a known price and its NOI at or near the time of sale is known or can be reliably estimated, the implied cap rate is simply NOI ÷ Sale Price. This method provides the most direct market evidence of investor return expectations and is employed in Section III.B below.

III. Cap Rate Analysis — Gulf Coast Luxury Hotel Market

A. Published Cap Rate Data (Year-End 2022)

The following table summarizes the published cap rate ranges for luxury and upper-upscale full-service hotel properties reported by the sources identified in Section II.A, as of or near year-end 2022:

Several observations emerge from this data:

First, as the geographic focus narrows from the national level to the Southeast/Florida market and then to the Gulf Coast specifically, the reported cap rate ranges generally shift upward. This is consistent with the expectation that resort-oriented markets carry a higher risk premium than diversified urban hotel markets, reflecting seasonality, weather-related disruption risk, and a more volatile demand base dependent on leisure travel and tourism.

Second, the median reported cap rate for Gulf Coast luxury resort hotels as of Q4 2022 falls in the 8.75%–9.75% range, based on a synthesis of the Pinnacle and Caldwell & Marsh data, which provide the most geographically relevant data points. Whitfield's selection of a 9.5% capitalization rate sits squarely within — and slightly above the midpoint of — this range. This reflects a conservative but well-supported selection, consistent with prudent appraisal practice in a period of rising interest rates and macroeconomic uncertainty.

Third, Beacon's implicit cap rate — derived from the relationship between the Property's 2022 NOI of $18.4 million and Beacon's concluded value of $151.5 million — is approximately 7.5%–7.8% (calculated as $18.4M ÷ $151.5M ≈ 7.6%, with some variation depending on NOI normalization adjustments). This implicit cap rate falls below even the bottom of most published ranges for the Gulf Coast luxury submarket and at the very bottom of the broadest national range (Harborview at 7.5%–9.5%). A cap rate of 7.5%–7.8% is more consistent with trophy-quality, gateway-city hotel assets in markets like Manhattan, San Francisco, or Miami Beach — not a single-asset resort property on the Gulf Coast.

B. Comparable Transaction Analysis

To supplement the published survey data, this memorandum identifies eight comparable transactions involving luxury or upper-upscale full-service hotels on the Florida Gulf Coast or in closely comparable Florida resort markets, all of which closed between September 2020 and October 2022. The following table summarizes the key metrics for each transaction:

Detailed one-page summary sheets for each comparable transaction are included as Appendix A to this memorandum and provide property descriptions, buyer and seller identification, NOI sourcing and calculation methodology, and the derivation of each implied cap rate.

The following analysis of the comparable set supports the reasonableness of Whitfield's cap rate selection and undermines Beacon's:

Range of implied cap rates: 8.8% to 9.7%. The range is relatively tight, reflecting the fact that all eight transactions involve properties in the same general asset class (luxury/upper-upscale full-service), in the same general geography (Florida Gulf Coast and closely comparable Florida resort markets), and within a relatively compressed time frame (approximately 25 months from the earliest to the latest sale).

Mean: Approximately 9.2%. The arithmetic mean of the eight implied cap rates is 9.21%, reflecting a central tendency toward the low-to-mid 9% range.

Median: Approximately 9.2%–9.3%. The median falls between the fourth- and fifth-ranked observations (9.2% and 9.2%), confirming the central tendency identified by the mean.

Whitfield's 9.5% cap rate falls within the observed range, slightly above the mean and median. This positioning reflects a conservative posture that is appropriate under the circumstances: the valuation date of December 31, 2022 occurred at the tail end of a period of aggressive Federal Reserve tightening, during which interest rates rose dramatically, exerting direct upward pressure on cap rates across all commercial real estate asset classes. A cap rate slightly above the mean of the comparable set is a defensible selection that accounts for the trajectory of interest rates and the uncertainties surrounding the post-COVID recovery path for leisure hospitality.

Beacon's implied cap rate of approximately 7.5%–7.8% is well below every comparable transaction identified in this survey. Not a single one of the eight transactions implies a cap rate below 8.8%. Beacon's implied rate is approximately 100–140 basis points below the lowest comparable, and approximately 140–170 basis points below the mean and median. This represents a material departure from observed market pricing for assets of this type and in this geography.

It bears noting that several of the comparable properties — notably the Coral Ridge Luxury Collection in Fort Lauderdale (410 keys, $205.0 million sale price) and The Seaside Monarch Resort in Naples (285 keys, $142.0 million sale price) — are arguably higher-quality or better-located assets than The Palmetto Grand. Even these premier properties transacted at implied cap rates of 9.2% and 9.5%, respectively. There is no market evidence to support the proposition that The Palmetto Grand should be valued at an implied cap rate more than 140 basis points below the most favorably priced comparable transaction in the dataset.

C. Factors Affecting Cap Rate Selection for The Palmetto Grand

The selection of an appropriate cap rate for any specific property requires consideration of property-specific, market, and macroeconomic factors that may support a rate at the higher or lower end of the observed range. The following analysis assesses the relevant factors for The Palmetto Grand as of December 31, 2022.

Factors Supporting a Higher Cap Rate (Closer to Whitfield's 9.5%)

Rising interest rate environment. The Federal Reserve increased the target federal funds rate from 0.25% to 4.50% during calendar year 2022, representing the most aggressive monetary tightening cycle in over four decades. The 10-year U.S. Treasury yield rose from approximately 1.52% at year-end 2021 to 3.88% at year-end 2022 — an increase of 236 basis points. This dramatic rise in risk-free rates exerted direct upward pressure on cap rates across all commercial real estate sectors. The hotel sector, which is perceived as carrying higher operational risk than core property types such as office and multifamily, was particularly affected, as investors demanded higher yield spreads over the rising risk-free rate.

Elevated borrowing costs. The outstanding debt on the Property (Greater Atlantic National Bank, Loan No. CRE-2017-06284) bears interest at SOFR + 2.25%. As of December 31, 2022, the one-month SOFR rate stood at approximately 4.31%, resulting in an all-in borrowing cost of approximately 6.56%. Higher debt costs reduce leveraged equity returns and, all else being equal, exert upward pressure on required going-in yields (i.e., cap rates). A prospective buyer underwriting the Property as of the valuation date would have faced materially higher financing costs than a buyer underwriting the same property twelve months earlier, and would have demanded a correspondingly higher cap rate.

Gulf Coast resort market seasonality and hurricane risk premium. The Florida Gulf Coast hospitality market is characterized by pronounced seasonality, with the high season running from approximately November through April and a substantial demand decline during the summer and early fall months. This demand pattern introduces volatility into cash flows and increases the risk of shortfalls relative to annualized projections. In addition, Gulf Coast properties are exposed to hurricane and tropical storm risk, which can result in physical damage, business interruption, and insurance cost increases. These factors warrant a risk premium reflected in a higher cap rate relative to hotel assets in less weather-exposed markets.

Franchise-dependent operation. The Property operates under a franchise agreement with Aurelian Hotels & Resorts Inc., which requires the payment of franchise fees totaling 7% of gross room revenue (5% royalty + 2% marketing fund contribution). While the Aurelian brand provides marketing and distribution benefits, the franchise fee structure reduces the net cash flow available to the property owner. Moreover, the franchise-dependent operating model introduces a degree of brand risk: the Property's revenue performance is tied in part to the continued strength and market positioning of the Aurelian brand, over which the property owner has limited control.

Age of renovation capital. The $24.3 million renovation undertaken from 2017 to 2019 is now three to five years old as of the valuation date. While the Property is generally in good condition, the aging of the renovation capital necessitates an assumption of ongoing capital expenditure reserves. Industry-standard capital reserve assumptions for luxury hotel properties range from 4% to 5% of total revenue, representing a material annual outflow that reduces distributable cash flow and supports a higher cap rate than might be applicable to a property with newly completed improvements.

Deferred maintenance claim. Beacon's own appraisal identifies $8.2 million in alleged deferred maintenance (referencing Operating Agreement Section 8.3), which — even if only partially valid — suggests that the Property may not command the premium cap rate that would be applicable to a property in pristine physical condition. The existence of a colorable deferred maintenance claim is inconsistent with a below-market cap rate.

Factors Supporting a Lower Cap Rate (Closer to Beacon's Implicit ~7.5%)

Premier location. Clearwater Beach is consistently ranked among the top beach destinations in the United States and benefits from high barriers to entry for new luxury hotel development, including limited beachfront land availability, stringent zoning and permitting requirements, and strong community resistance to large-scale new construction. These supply constraints provide a degree of protection for existing assets and, all else being equal, support a tighter cap rate than might apply in markets with more readily expandable supply.

Strong revenue performance. The Property's 2022 RevPAR of $289 and total revenue of $62.8 million demonstrate robust demand and premium pricing power. Properties with demonstrated high-RevPAR performance typically trade at tighter cap rates than lower-performing assets, reflecting the market's expectation that the revenue premium is sustainable.

Long-term franchise agreement. The 20-year Aurelian franchise agreement, with 14.5 years remaining as of the valuation date (expiring July 14, 2037), provides brand stability and access to the Aurelian reservation system and loyalty program for a substantial remaining term. This contractual brand affiliation reduces re-branding risk and provides a degree of cash flow predictability.

Post-renovation condition. The 2017–2019 renovation brought the Property to a modern luxury standard, which should command premium pricing from both guests and prospective acquirers relative to unrenovated comparable assets.

Assessment. While the Property possesses undeniable premium attributes — a premier location, strong revenue metrics, a long-term franchise agreement, and post-renovation condition — the weight of market evidence compels the conclusion that an appropriate going-in capitalization rate for The Palmetto Grand as of December 31, 2022 falls in the 8.75%–9.75% range. The factors supporting a higher cap rate — particularly the dramatic rise in interest rates during 2022 and the elevated borrowing costs reflected in the Property's own debt structure — are powerful market-wide forces that affect all hotel assets in this submarket and cannot be dismissed or ignored.

Whitfield's selection of a 9.5% cap rate is reasonable and well-supported. It falls within the published survey ranges, within the observed range of comparable transactions, and reflects a conservative but defensible positioning slightly above the mean and median of the comparable set — an appropriate selection given the macroeconomic environment as of the valuation date.

Beacon's implicit cap rate of approximately 7.5%–7.8% is an outlier unsupported by market evidence. It falls below every comparable transaction identified in this survey, below the low end of most published survey ranges for the Gulf Coast luxury submarket, and can be justified only by assigning outsized weight to the Property's locational and operational strengths while ignoring or severely underweighting the macroeconomic and risk factors that dominated market pricing as of year-end 2022.

IV. Discount Rate Analysis — DCF Methodology

A. Published discount Rate Data (Year-End 2022)

The following table summarizes the published discount rate ranges for luxury and upper-upscale full-service hotel properties as of or near year-end 2022:

Several observations follow from this data:

Whitfield's discount rate of 10.75% falls near the center of the published ranges for luxury Gulf Coast hotel assets. It is well within the Pinnacle range of 9.5%–12.5%, within the Caldwell & Marsh range of 9.25%–11.5%, and within the Harborview national range of 9.0%–12.0%. At 10.75%, the Whitfield discount rate reflects a moderate positioning that accounts for the Property's premium attributes (justifying a rate below the upper end of the range) while also reflecting the operational, seasonal, and macroeconomic risks that preclude a rate at the very bottom of the range.

Beacon's discount rate of 8.5% is at or below the very bottom of every published range. It falls at the absolute floor of the broadest range (Institutional Real Estate Review, 8.5%–13.0%), which encompasses all hospitality segments nationwide — including stabilized, multi-property portfolio transactions that inherently carry lower risk profiles than single-asset resort hotels. It falls 100 basis points below the bottom of the Pinnacle Gulf Coast range (9.5%), 75 basis points below the bottom of the Caldwell & Marsh Florida range (9.25%), and 50 basis points below the bottom of the Harborview national range (9.0%).

An 8.5% discount rate is more consistent with the return expectations for stabilized, core urban office or multifamily assets — property types characterized by diversified tenant bases, long-term contractual income streams, and lower operational complexity — than for a single-asset luxury resort hotel subject to operational volatility, weather and tourism-cycle risk, and franchise dependence. The application of an 8.5% discount rate to a Gulf Coast luxury hotel as of December 31, 2022, when the risk-free rate alone stood at 3.88%, implies a total risk premium over the risk-free rate of only 462 basis points. As demonstrated by the build-up analysis below, this risk premium is insufficient to compensate for the multiple layers of risk inherent in the subject asset.

B. Build-Up / Band-of-Investment Analysis

The build-up method provides an independent framework for deriving an appropriate discount rate by aggregating the risk-free rate with incremental risk premiums that reflect the specific risk characteristics of the subject asset. The following illustrative build-up analysis derives an indicated discount rate range for a luxury Gulf Coast hotel asset as of December 31, 2022:

The derivation of each component is detailed in the work papers included as Appendix C. The key inputs are summarized as follows:

Risk-free rate. The 10-year U.S. Treasury yield as of December 31, 2022 was 3.88%, as reported by the Federal Reserve Board's H.15 statistical release. This is the standard benchmark for the risk-free rate in real estate discount rate analysis, reflecting the time value of money over a medium-term investment horizon roughly comparable to the typical hotel hold period.

Equity risk premium (hospitality sector). The equity risk premium reflects the additional return demanded by investors for accepting the systematic risk of investing in the hospitality sector rather than in risk-free government securities. Based on a review of historical hospitality sector returns, published investor surveys, and academic research on real estate risk premiums, an appropriate range for the hospitality-sector equity risk premium as of year-end 2022 is 3.50%–4.50%. The upper end of this range reflects the heightened uncertainty in the hospitality sector attributable to the lingering effects of the COVID-19 pandemic on travel patterns, the labor market tightness affecting hotel operating costs, and the rising interest rate environment that increased the cost of capital across the sector.

Property-specific risk premium. This component reflects the incremental risk associated with the specific characteristics of The Palmetto Grand that distinguish it from a diversified hospitality investment portfolio. Relevant risk factors include: (i) single-asset concentration risk (loss of a single revenue-generating asset cannot be offset by other properties in a portfolio); (ii) seasonal demand volatility inherent in the Gulf Coast resort market; (iii) hurricane and severe weather exposure, including direct physical risk, business interruption risk, and escalating insurance costs; and (iv) franchise dependence on the Aurelian brand. An appropriate range for the property-specific risk premium is 1.50%–2.50%.

Illiquidity premium. Luxury resort hotel assets are relatively illiquid compared to publicly traded securities and even compared to certain other real estate asset classes (e.g., stabilized multifamily properties in major metropolitan markets). The marketing period for a large-format luxury resort hotel can range from six to eighteen months, and the buyer pool is limited to a relatively small number of institutional investors and hotel operating companies. An appropriate illiquidity premium for the subject asset is 0.75%–1.25%.

The sum of these components yields an indicated discount rate range of 9.63% to 12.13%. Whitfield's 10.75% discount rate fits comfortably within this range, positioned slightly above the midpoint — a conservative but well-supported selection.

Beacon's 8.5% discount rate, by contrast, is approximately 113 basis points below the bottom of the indicated build-up range (9.63%). This shortfall implies that Dr. Ramanathan either: (i) applied a risk-free rate lower than the actual 10-year Treasury yield as of the valuation date; (ii) applied an unusually low equity risk premium insufficient to compensate for hospitality-sector risk; (iii) assigned little or no property-specific risk premium for single-asset concentration, seasonality, hurricane exposure, and franchise dependence; or (iv) assigned no meaningful illiquidity premium. The Beacon appraisal report does not contain a build-up analysis or otherwise explain the derivation of the 8.5% discount rate in a manner that would permit identification of which component(s) were underweighted or omitted. This lack of transparency in rate derivation is itself a significant methodological weakness.

C. Terminal Capitalization Rate

The terminal capitalization rate (also referred to as the "exit" or "reversionary" cap rate) is a critical input in any DCF analysis, as it determines the reversion value that typically accounts for 50%–70% of total present value in a hotel DCF model. The selection of the terminal cap rate therefore has a profound impact on the DCF-derived value conclusion.

Beacon applied a terminal capitalization rate of 7.75% in its DCF analysis. This selection is problematic for several reasons:

Industry convention. It is a well-established convention in real estate appraisal that the terminal capitalization rate should be set at a level equal to or, more commonly, 50 to 100 basis points above the going-in capitalization rate. This convention reflects the reality that improvements age and deteriorate over the hold period, that long-range projections of NOI carry greater uncertainty than near-term forecasts, and that market conditions at the end of a 10-year hold period are inherently unpredictable. The terminal cap rate premium over the going-in cap rate compensates a hypothetical buyer at the reversion date for acquiring an older, more uncertain asset.

Application to the subject property. If the appropriate going-in cap rate for The Palmetto Grand is in the range of 9.0%–9.5% (as supported by the market evidence compiled in Section III above), then the terminal cap rate should be approximately 9.5%–10.5% under standard appraisal convention. Beacon's 7.75% terminal cap rate is not only below the conventional range but is approximately 125–275 basis points below where it should be set.

Counterintuitive implied assumption. A terminal cap rate of 7.75% — which is lower than even Beacon's own implicit going-in cap rate of approximately 7.5%–7.8% — implies that the Property will be more valuable per dollar of NOI at the end of the hold period than at the beginning. In other words, Beacon's terminal cap rate assumes that a hypothetical buyer in 2032 or 2033 will demand a lower yield on the Property than a buyer today, despite the fact that the improvements will be older, the franchise agreement will have fewer remaining years, and the macroeconomic environment is inherently uncertain. This is a counterintuitive assumption that requires extraordinary justification — such as a planned major redevelopment, a pending rezoning that would unlock additional density, or a fundamental repositioning of the asset — none of which is applicable to The Palmetto Grand.

Quantified impact. Even accepting Beacon's own DCF framework and projected cash flows without modification, adjusting the terminal cap rate from 7.75% to 9.0% — a rate that is still at the low end of the market-supported range — would reduce the Beacon appraised value by an estimated $18–$22 million, bringing the concluded value from $151.5 million to approximately $129.5–$133.5 million. This adjusted range is substantially closer to both the Whitfield conclusion ($118.0 million) and the Linden Park preliminary range ($130.0–$138.0 million), demonstrating that Beacon's terminal cap rate selection alone accounts for a significant portion of the valuation gap.

V. Sensitivity Analysis — Impact of Rate Assumptions on Indicated Value

The following sensitivity analyses illustrate the magnitude of the valuation impact attributable to differences in cap rate and discount rate assumptions. These analyses demonstrate that the $33.5 million gap between the Whitfield and Beacon conclusions is driven primarily by rate selection, not by material differences in underlying property economics or projected cash flows.

A. Direct Capitalization Sensitivity

Using the Property's 2022 NOI of $18.4 million as the income metric, the following table shows the indicated value under the direct capitalization method at varying cap rates:

This table illustrates the extreme sensitivity of value to cap rate selection in the direct capitalization framework. A 100-basis-point change in cap rate produces a swing of approximately $18–$25 million in indicated value, depending on where in the range the change occurs (the sensitivity is greater at lower cap rates due to the inverse and non-linear relationship between cap rate and value).

An important clarification is warranted: Whitfield did not rely solely on direct capitalization. His final value conclusion of $118.0 million reflects a blended analysis in which the income approach (including both direct capitalization and DCF) was weighted at 40% and the sales comparison approach was weighted at 60%. The direct capitalization figure of $193.7 million at a 9.5% cap rate represents the income-approach component before blending; the sales comparison approach produced a lower indicated value, which pulled the blended conclusion downward. This blending methodology is consistent with USPAP and standard appraisal practice for hotel properties where sufficient comparable sales data exists.

By contrast, Beacon relied exclusively on the income approach (DCF) and did not perform a sales comparison approach. This methodological choice amplifies the impact of rate selection on Beacon's final value conclusion, because there is no independent market-data-derived value indication to serve as a check or counterweight to the DCF output. In Beacon's framework, the rate assumptions are essentially dispositive of value.

B. DCF Sensitivity

The following matrix illustrates how changes in both the discount rate and the terminal capitalization rate affect the DCF-derived value of the Property, holding Beacon's own projected cash flows constant. All values are expressed in millions of dollars:

Several key observations emerge from this matrix:

First, Beacon's concluded value of $151.5 million is achievable only at or near the simultaneous floor of both rate assumptions — an 8.5% discount rate and a 7.75% terminal cap rate. Moving either rate toward the market-supported range produces a substantial reduction in indicated value. This demonstrates that the Beacon conclusion is not robust to reasonable variation in rate inputs; it is, in effect, a best-case-scenario valuation that requires every rate assumption to be set at the most optimistic end of the range.

Second, at a discount rate of 9.5% (the low end of the Pinnacle Gulf Coast published range) and a terminal cap rate of 8.50% (which is still below the conventional terminal premium over a 9.0%–9.5% going-in cap rate), the DCF yields approximately $130.0 million — the low end of Linden Park Advisory's preliminary range. This convergence provides independent confirmation that the Linden Park preliminary range is consistent with moderate, market-supported rate assumptions.

Third, at Whitfield's 10.75% discount rate and a terminal cap rate of approximately 8.50%, the DCF yields approximately $118.5 million, aligning closely with Whitfield's $118.0 million overall value conclusion. This demonstrates internal consistency in the Whitfield approach: the DCF output at Whitfield's selected discount rate, combined with a reasonable terminal cap rate, produces a result that is consistent with the income-approach component of Whitfield's blended analysis.

Fourth, the full sensitivity analysis spreadsheet included as Appendix D extends this matrix to additional scenarios and demonstrates that the market-supported valuation range for the Property — i.e., the range of values produced by discount rates of 9.5%–11.0% and terminal cap rates of 8.5%–10.0% — is approximately $109.5–$130.0 million. The Whitfield conclusion of $118.0 million falls near the center of this range. The Beacon conclusion of $151.5 million falls $21.5 million above the top of this range.

VI. Implications for the Linden Park Preliminary Indication

Although the Linden Park neutral appraisal was never finalized, Mr. Carraway's preliminary indication of value of $130.0–$138.0 million provides a useful data point for assessing the relative reasonableness of the Whitfield and Beacon conclusions.

Reverse-engineering the Linden Park range to derive implied rate assumptions yields the following:

• A value of $130.0 million for a property with $18.4 million in NOI implies a going-in cap rate of approximately 9.1% under the direct capitalization framework ($18.4M ÷ $130.0M ≈ 9.08% ÷ rounding).

• A value of $138.0 million for the same NOI implies a going-in cap rate of approximately 8.6% ($18.4M ÷ $138.0M ≈ 8.55% ÷ rounding).

• The implied blended going-in cap rate for the Linden Park range is therefore approximately 8.6%–9.1%, which falls squarely within the market-supported range identified in Section III and is far more consistent with Whitfield's 9.5% cap rate than with Beacon's implicit cap rate of approximately 7.5%–7.8%.

• Similarly, the Linden Park range is consistent with a discount rate in the approximate range of 9.5%–10.25%, based on reverse-engineering the DCF framework with reasonable terminal cap rate assumptions. Again, this aligns much more closely with the Whitfield discount rate of 10.75% than with Beacon's 8.5%.

From a settlement-framing perspective, the midpoint of the Linden Park range — $134.0 million — provides a useful reference point. At that enterprise value, and deducting the outstanding debt of $48.6 million, the implied JV net equity is approximately $85.4 million. MSH's 35% interest in JV net equity, plus the $17.01 million accrued preferred return due to MSH under the Operating Agreement, equals approximately $46.9 million. This figure represents the baseline around which any settlement negotiation is likely to be framed and is substantially below the equity value implied by the Beacon appraisal.

VII. Critique of Beacon Appraisal Rate Selections

The market evidence compiled in this memorandum supports a comprehensive critique of the Beacon appraisal's rate assumptions. The following subsections summarize the principal grounds for challenge.

A. Below-Market discount Rate (8.5%)

Beacon's selection of an 8.5% discount rate for its DCF analysis of The Palmetto Grand is not supported by market evidence for the following reasons:

1. The 8.5% rate falls below every published survey range for Gulf Coast luxury hotel discount rates identified in this survey. It is at the absolute floor of the broadest national range (Institutional Real Estate Review, 8.5%–13.0%) and 100 basis points below the low end of the most geographically relevant range (Pinnacle Gulf Coast, 9.5%–12.5%).

2. The rate fails the build-up analysis by approximately 112 or more basis points. The build-up analysis in Section IV.B yields a minimum indicated discount rate of 9.63%, even under the most favorable assumptions for each risk component. Beacon's 8.5% rate implies a total risk premium over the risk-free rate of only 462 basis points, which is insufficient to compensate for the cumulative risk profile of a single-asset luxury resort hotel on the Gulf Coast.

3. No comparable transaction identified in this survey supports an implied yield as low as 8.5% for a single-asset resort hotel in this submarket. The lowest implied cap rate in the comparable transaction set is 8.8% (Pelican Bay Club Resort, September 2020), and cap rates and discount rates have generally moved upward since that date due to rising interest rates.

4. An 8.5% discount rate appears to reflect the return expectations applicable to a stabilized, institutional-grade, diversified real estate portfolio — not a single-property rate appropriate for a luxury resort hotel. Dr. Ramanathan's rate selection is more consistent with the discount rates observed in large-scale portfolio transactions involving diversified hotel REITs or core-quality commercial real estate funds, where diversification benefits, access to institutional capital markets, and professional portfolio management justify tighter return requirements. The Palmetto Grand is a single property with a single revenue stream, and its discount rate should reflect the higher risk inherent in that concentrated exposure.

B. Below-Market Terminal Cap Rate (7.75%)

Beacon's selection of a 7.75% terminal capitalization rate is similarly unsupported by market evidence and standard appraisal methodology:

1. The 7.75% terminal cap rate violates the general appraisal convention that the terminal cap rate should be set at a level equal to or, more commonly, 50–100 basis points above the going-in cap rate. Beacon's terminal cap rate is not only below the market-supported going-in cap rate range of 8.75%–9.75% but is also at or below even Beacon's own implicit going-in cap rate of approximately 7.5%–7.8%. This implies that the terminal cap rate premium is zero or negative — an assumption that is inappropriate absent extraordinary circumstances.

2. The 7.75% terminal cap rate implies that the Property will appreciate in value per dollar of NOI over the hold period, meaning that a hypothetical buyer at the reversion date will accept a lower yield than a buyer at the valuation date. This is counterintuitive for a property whose improvements will be approximately 13–15 years post-renovation at the end of a 10-year hold period (assuming the 2017–2019 renovation as baseline), whose franchise agreement will have fewer remaining years, and whose future market conditions are inherently uncertain.

3. The extraordinary circumstances that might justify a negative terminal cap rate premium — such as a planned major redevelopment, a pending rezoning or entitlement that would unlock additional development density, or a fundamental repositioning of the asset into a higher-value use — are not present in this case. The Palmetto Grand is and will remain a luxury beachfront resort hotel; there is no basis for assuming that it will be worth more per dollar of NOI at the end of the hold period than at the beginning.

4. Adjusting the terminal cap rate from 7.75% to the market-supported 9.0% — while leaving all other Beacon assumptions unchanged — would reduce the Beacon appraised value by an estimated $16.5–$22 million. This single adjustment alone would close a substantial portion of the $33.5 million gap between the Whitfield and Beacon conclusions.

C. Absence of Sales Comparison Approach

In addition to the rate-specific critiques above, the Beacon appraisal is vulnerable to challenge on methodological grounds for its failure to employ a sales comparison approach:

1. Beacon relied exclusively on the income approach (DCF) and did not perform a sales comparison approach. This is a significant omission, particularly in light of the availability of comparable sales data. As catalogued in Section III.B of this memorandum, eight comparable luxury/upper-upscale hotel transactions on the Florida Gulf Coast closed between September 2020 and October 2022 — a robust comparable set by hotel-appraisal standards.

2. The Uniform Standards of Professional Appraisal Practice ("USPAP"), which govern the professional practice of real estate appraisers, encourage the use of multiple valuation approaches when sufficient data is available. USPAP Standards Rule 1-4 requires appraisers to "collect, verify, and analyze all information necessary for credible assignment results" and to develop each approach to value for which sufficient reliable data is available. The availability of multiple comparable sales in the Gulf Coast luxury hotel market as of year-end 2022 makes the omission of a sales comparison approach difficult to justify.

3. Whitfield's use of both the income approach (weighted at 40%) and the sales comparison approach (weighted at 60%) is methodologically sound and provides an important market-data check on the DCF conclusions. By incorporating actual transaction evidence — prices paid by real buyers and accepted by real sellers in arm's-length transactions — the sales comparison approach anchors the valuation in observed market behavior and prevents the distortions that can result from reliance on a single analytical framework with subjective inputs.

4. The absence of a sales comparison approach in the Beacon appraisal has the effect of amplifying the impact of Dr. Ramanathan's discount rate and terminal cap rate selections. Because the entire Beacon value conclusion is derived from a single DCF model, the rate assumptions are essentially dispositive. If Beacon had performed a sales comparison approach, the implied cap rates from comparable transactions — which, as demonstrated in Section III.B, cluster in the 8.8%–9.7% range — would have served as a counterweight to the aggressive DCF-derived value and likely would have resulted in a lower blended conclusion.

D. Deferred Maintenance Adjustment ($8.2 Million)

A final note on the Beacon appraisal concerns the $8.2 million deferred-maintenance adjustment that Beacon included in its valuation analysis. Beacon argues that PCG, as Manager of PGV, failed to fund certain maintenance obligations under Section 8.3 of the Operating Agreement, and that this failure resulted in $8.2 million of deferred maintenance that should be added back to the Property's value (on the theory that the Property would be worth more if the maintenance had been properly performed).

While the deferred-maintenance claim is analyzed in detail in a separate memorandum being prepared by Laroche (expected October 2023), it is noted here for two reasons. First, the $8.2 million adjustment further inflates the gap between the Beacon appraised value and the market-supported value range, compounding the overvaluation attributable to the below-market rate assumptions. Second, there is an internal tension within the Beacon appraisal: on one hand, Dr. Ramanathan applies below-market cap and discount rates that imply the Property is a premium, low-risk asset deserving of the most favorable valuation treatment; on the other hand, she identifies $8.2 million of deferred maintenance, suggesting that the Property has not been properly maintained. These two positions are difficult to reconcile, and the tension between them provides an additional avenue for challenge in deposition and at the hearing.

VIII. Conclusions and Recommendations

A. Summary of Findings

Based on the comprehensive market survey and analysis presented in this memorandum, the following conclusions are supported:

1. Whitfield's rate assumptions are market-supported. Gerald K. Whitfield's selection of a 9.5% capitalization rate and a 10.75% discount rate for the valuation of The Palmetto Grand Resort & Spa as of December 31, 2022 is supported by published survey data, comparable transaction evidence, and build-up analysis. The 9.5% cap rate falls within the observed range of 8.8%–9.7% from comparable transactions and within the published survey ranges of 8.0%–10.5% for Gulf Coast and Southeast luxury hotels. The 10.75% discount rate falls near the center of published survey ranges of 9.0%–12.5% and within the build-up-derived range of 9.63%–12.13%.

2. Beacon's rate assumptions are below-market outliers. Dr. Priya Ramanathan's selection of an 8.5% discount rate and a 7.75% terminal capitalization rate is not supported by any identified comparable transaction or published survey for Gulf Coast luxury hotel assets as of year-end 2022. The 8.5% discount rate falls at or below the bottom of every published range, fails the build-up analysis by approximately 112+ basis points, and is more consistent with the return expectations for a stabilized, diversified institutional real estate portfolio than for a single-asset luxury resort hotel. The 7.75% terminal cap rate violates standard appraisal convention and implies counterintuitive appreciation in per-NOI-dollar value over the hold period.

3. Quantified overvaluation. The combined effect of Beacon's below-market rate assumptions results in an overstatement of the fair market value of The Palmetto Grand Resort & Spa by an estimated $25–$35 million relative to the market-supported value range. This overvaluation is further compounded by the $8.2 million deferred-maintenance adjustment and the absence of a sales comparison approach that would have provided a market-data-based check on the DCF output.

4. Linden Park's preliminary range confirms market-supported rates. The Linden Park Advisory preliminary indication of $130.0–$138.0 million is consistent with cap rates of approximately 8.6%–9.1% and discount rates of approximately 9.5%–10.25%, both of which fall within the market-supported range and align far more closely with Whitfield's assumptions than with Beacon's.

B. Strategic Recommendations

Based on the findings of this memorandum, the following strategic recommendations are offered for the team's consideration:

1. Incorporation into Comparative Appraisal Analysis. This research memorandum should be incorporated into the Comparative Appraisal Analysis Memorandum currently being prepared by Laroche and Park (targeted completion: August 2023). The market data and analysis presented herein will provide the empirical grounding for the section of that memorandum addressing the critique of Beacon's rate assumptions and the defense of Whitfield's methodology.

2. Deposition preparation for Dr. Priya Ramanathan (September 18, 2023). The deposition of Beacon's lead appraiser is scheduled for September 18, 2023 and represents the most important opportunity to challenge the Beacon rate assumptions on the record. Deposition questioning should specifically probe the following topics:

(a) Dr. Ramanathan's justification for selecting an 8.5% discount rate, including whether she performed a build-up analysis, what risk-free rate she used, what equity risk premium she applied, and how she accounted for single-asset concentration risk, seasonality, hurricane exposure, and franchise dependence;

(b) Dr. Ramanathan's justification for selecting a 7.75% terminal cap rate that is below both the market-supported going-in cap rate range and her own implicit going-in cap rate, and whether she can identify any comparable transaction or published survey that supports a terminal cap rate this low for a Gulf Coast luxury hotel;

(c) Dr. Ramanathan's decision to omit a sales comparison approach despite the availability of multiple comparable transactions in the Gulf Coast luxury hotel market, and whether she considered and rejected such transactions or failed to identify them; and

(d) The internal tension between applying premium (low-risk) rate assumptions while simultaneously identifying $8.2 million in deferred maintenance.

3. Coordination with Whitfield Realty Advisors. The comparable transaction data compiled in this memorandum should be provided to Gerald K. Whitfield of Whitfield Realty Advisors to confirm alignment between his proprietary comparable data and the transactions identified herein, and to enable Mr. Whitfield to prepare any rebuttal analysis that may be needed in response to the Beacon appraisal or to any supplemental materials produced by Dr. Ramanathan in advance of or following her deposition.

4. Hearing preparation. If this matter proceeds to an evidentiary hearing before the Hon. Margaret Liu Chen (Ret.), the analysis presented in this memorandum provides the evidentiary foundation for challenging Beacon's rate assumptions as unsupported by market data. The published survey data, comparable transaction evidence, build-up analysis, and sensitivity matrices should be prepared as demonstrative exhibits for use at the hearing, and Mr. Whitfield should be prepared to testify regarding the market support for his rate selections and the deficiencies in Beacon's assumptions.

IX. Appendices (Referenced)

The following appendices are referenced in this memorandum and are being compiled concurrently with this document. They will be circulated separately upon completion.

Appendix A: Comparable Transaction Detail Sheets

Appendix A contains a one-page summary sheet for each of the eight comparable transactions identified in Section III.B of this memorandum. Each summary sheet includes: (i) a brief description of the property, including location, key count, amenities, brand affiliation, and year of last renovation; (ii) the sale date, sale price, and identification of buyer and seller; (iii) the reported or estimated NOI at or near the time of sale, including the source and methodology used to derive or verify the NOI figure; and (iv) the calculation of the implied capitalization rate. The eight transactions covered are:

1. The Seaside Monarch Resort — Naples, FL (October 2022)

2. Gulf Breeze Grand Hotel — Sarasota, FL (June 2022)

3. Isla Bonita Beach Club & Spa — Marco Island, FL (March 2022)

4. The Harborlight Resort — St. Pete Beach, FL (August 2021)

5. Coral Ridge Luxury Collection — Fort Lauderdale, FL (November 2021)

6. Suncoast Pinnacle Hotel — Clearwater Beach, FL (January 2021)

7. Marisol Grand Resort — Destin, FL (December 2020)

8. Pelican Bay Club Resort — Sanibel Island, FL (September 2020)

Appendix B: Published Survey Excerpts

Appendix B contains the relevant pages from the following published research reports, reproduced for reference purposes:

• Harborview Capital Research — Annual U.S. Luxury Hotel Investment Report (2022 edition), including the national and regional cap rate and discount rate summary tables

• Pinnacle Hospitality Analytics — Gulf Coast & Southeast Hotel Market Cap Rate Survey (Q4 2022), including the Gulf Coast luxury resort cap rate and discount rate tables

• Caldwell & Marsh Real Estate Capital Markets — National Hotel Transaction Cap Rate Tracker (2022 Year-End), including the Florida-specific upper-upscale/luxury segment data

• Institutional Real Estate Review — 2022 discount Rate Survey for Hospitality Assets, including the national hospitality cap rate and discount rate summary tables

Appendix C: Build-Up Analysis Work Papers

Appendix C contains the detailed calculations supporting the discount rate build-up analysis presented in Section IV.B of this memorandum. The work papers include: (i) documentation of the risk-free rate source (10-year U.S. Treasury yield as of December 31, 2022 = 3.88%, per Federal Reserve Board H.15 statistical release); (ii) the derivation of the equity risk premium range, including supporting references to historical hospitality-sector returns and published investor surveys; and (iii) the property-specific risk factor analysis, documenting the rationale for the assigned ranges for single-asset concentration risk, seasonality risk, hurricane/weather exposure, franchise dependence risk, and illiquidity.

Appendix D: Sensitivity Analysis Spreadsheet

Appendix D contains the full DCF sensitivity analysis grid referenced in Section V.B, extended to include additional discount rate scenarios (8.0%, 8.5%, 9.0%, 9.5%, 10.0%, 10.5%, 10.75%, 11.0%, 11.5%, and 12.0%) and additional terminal cap rate scenarios (7.50%, 7.75%, 8.00%, 8.25%, 8.50%, 8.75%, 9.00%, 9.25%, 9.50%, 9.75%, 10.00%, and 10.50%). The spreadsheet uses Beacon's own projected cash flows as the base case to isolate the impact of rate assumptions on indicated value. A separate tab presents the same analysis using Whitfield's projected cash flows for comparison purposes.

This memorandum is a confidential attorney work product prepared in anticipation of litigation. It is not intended to provide, and should not be relied upon as, an independent appraisal or valuation opinion. All market data, comparable transactions, and analytical conclusions presented herein are subject to verification and may be supplemented or revised as additional information becomes available. Distribution is restricted to authorized members of the C&H engagement team and representatives of Pellegrino Capital Group LLC.

Source	Segment	Geography	Reported Cap Rate Range (2022)
Harborview Capital Research	Luxury Full-Service	U.S. National	7.5% – 9.5%
Harborview Capital Research	Luxury Full-Service	Southeast / Florida	8.0% – 10.0%
Pinnacle Hospitality Analytics	Luxury Resort	Gulf Coast (FL)	8.5% – 10.5%
Caldwell & Marsh	Upper upscale / Luxury	Florida	8.25% – 9.75%
Institutional Real Estate Review	Hospitality (all segments)	National	7.0% – 10.5%
Transaction	Location	Keys	Sale Price ($M)	Reported NOI ($M)	Implied Cap Rate	Sale Date
The Seaside Monarch Resort	Naples, FL	285	$142.0	$13.5	9.5%	Oct 2022
Gulf Breeze Grand Hotel	Sarasota, FL	340	$108.0	$10.5	9.7%	Jun 2022
Isla Bonita Beach Club & Spa	Marco Island, FL	220	$96.0	$8.6	9.0%	Mar 2022
The Harborlight Resort	St. Pete Beach, FL	275	$118.5	$11.1	9.4%	Aug 2021
Coral Ridge Luxury Collection	Fort Lauderdale, FL	410	$205.0	$18.9	9.2%	Nov 2021
Suncoast Pinnacle Hotel	Clearwater Beach, FL	198	$72.5	$6.7	9.2%	Jan 2021

Marisol G

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum was prepared by counsel for Pellegrino Capital Group LLC in anticipation of litigation and is protected by the attorney-client privilege and the work-product doctrine. Do not distribute or disclose without the express written authorization of Drummond & Fenwick LLP.
MEMORANDUM
TO: Francesca Morano, Partner; Simone Laroche, Lead Associate
FROM: Jeffrey Park, Associate
DATE: July 28, 2023
RE: Market Survey of Cap Rates and discount Rates — Gulf Coast Luxury Hotel Transactions; Support for Whitfield Appraisal Methodology and Challenge to Beacon Valuation Assumptions
CLIENT: Pellegrino Capital Group LLC
MATTER: Meridian Shores Hospitality LLC v. Pellegrino Capital Group LLC, JAMS Ref. No. 1440032871
C&H MATTER NO.: 1027-00003
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I. Executive Summary
The purpose of this memorandum is to compile and analyze publicly available and proprietary market data on capitalization rates ("cap rates") and discount rates applicable to luxury full-service hotel properties located on or near Florida's Gulf Coast, as of a valuation date of December 31, 2022. The data and analysis presented herein are intended to support the reasonableness of the appraisal methodology and rate assumptions employed by Whitfield Realty Advisors LLC ("Whitfield") and to challenge the rate assumptions employed by Beacon Valuation Group Inc. ("Beacon") in the pending valuation dispute between Meridian Shores Hospitality LLC ("MSH") and our client, Pellegrino Capital Group LLC ("PCG").
The dispute centers on the fair market value of 100% of the assets of Palmetto Grand Ventures LLC ("PGV"), the entity that owns and operates The Palmetto Grand Resort & Spa (the "Property"), a 312-room luxury beachfront hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. Three appraisals have been prepared or commenced in connection with this matter:
1. Whitfield Realty Advisors LLC (Gerald K. Whitfield, MAI), retained by PCG: Concluded a fair market value of $118.0 million. Mr. Whitfield employed a 9.5% capitalization rate in the direct capitalization method and a 10.75% discount rate in his discounted cash flow ("DCF") analysis, blending the income approach (weighted at 40%) with the sales comparison approach (weighted at 60%) to arrive at his final value conclusion.
2. Beacon Valuation Group Inc. (Dr. Priya Ramanathan, CFA, ASA), retained by MSH: Concluded a fair market value of $151.5 million. Dr. Ramanathan employed an 8.5% discount rate in her DCF analysis and a 7.75% terminal capitalization rate. Beacon relied exclusively on the income approach and did not perform a sales comparison approach.
3. Linden Park Advisory LLC (Thomas Carraway, MAI, FRICS), jointly retained by both parties on June 1, 2023, as a neutral appraiser: Provided a preliminary indication of value of $130.0–$138.0 million. Mr. Carraway's report was never finalized, as the neutral appraisal process was suspended following MSH's objections to the scope of Mr. Carraway's work.
The gap between the Whitfield and Beacon conclusions — $33.5 million — is attributable in large part to their divergent rate assumptions. This memorandum examines whether those rate assumptions are supported by market evidence.
Conclusion. Based on a comprehensive review of published cap rate surveys, comparable transaction data, build-up analysis, and prevailing macroeconomic conditions as of December 31, 2022, the market data strongly supports the reasonableness of Whitfield's 9.5% cap rate and 10.75% discount rate. Beacon's 8.5% discount rate and 7.75% terminal cap rate fall below the prevailing market ranges for comparable Gulf Coast luxury hotel assets as of year-end 2022, resulting in an overstatement of value by an estimated $25–$35 million. The Linden Park preliminary range of $130.0–$138.0 million is consistent with a cap rate of approximately 8.75%–9.25%, which aligns more closely with the Whitfield approach than with Beacon's assumptions. These findings provide the analytical foundation for challenging the Beacon appraisal at the September 18, 2023 deposition of Dr. Ramanathan and, if necessary, at the evidentiary hearing before Hon. Margaret Liu Chen (Ret.).
II. Scope and Methodology of This Survey
A. Data Sources Consulted
To ensure a thorough and defensible analysis, this survey draws upon multiple categories of market data. The following published hotel investment research reports and databases were consulted:
• Harborview Capital Research — Annual U.S. Luxury Hotel Investment Report (2022 edition). Harborview is a nationally recognized hotel investment research firm that publishes annual surveys of capitalization rates and discount rates across major hotel segments and geographies. The 2022 edition includes segment-specific data for luxury full-service hotels on both a national and regional (Southeast/Florida) basis.
• Pinnacle Hospitality Analytics — Gulf Coast & Southeast Hotel Market Cap Rate Survey (Q4 2022). Pinnacle specializes in hospitality-sector analytics for the Southeast United States and publishes quarterly cap rate surveys broken down by property type and submarket. The Q4 2022 survey provides the most granular Gulf Coast-specific data available for our valuation date.
• Caldwell & Marsh Real Estate Capital Markets — National Hotel Transaction Cap Rate Tracker (2022 Year-End). Caldwell & Marsh's year-end tracker aggregates transaction-level data from closed hotel sales across the United States and reports implied cap rates by quality tier and state. The Florida-specific data is particularly useful as a cross-reference against other sources.
• Stonefield Technologies — Hotel Transaction Database, filtered for Florida Gulf Coast, Full-Service/Luxury Segment, 2020–2022. This database was queried for all closed hotel transactions in the Florida Gulf Coast corridor (from Destin through Naples) involving full-service or luxury properties with more than 150 keys, over the three-year period from January 2020 through December 2022. The resulting dataset forms the basis of the comparable transaction analysis in Section III.B.
• Institutional Real Estate Review — Published discount Rate Surveys for Hospitality Assets (2022). This publication provides broad-based survey data on discount rate ranges across the full spectrum of commercial real estate asset classes, including hospitality. While less granular than sector-specific sources, it provides a useful upper and lower bound for discount rate reasonableness.
In addition to these published sources, this survey incorporates the following supplemental data:
• A review of closed comparable transactions involving luxury and upper-upscale full-service hotels on the Gulf Coast and in the broader Florida and Southeast markets, as identified through the databases listed above and through independent research conducted by this office.
• Consultation with Whitfield Realty Advisors LLC regarding their proprietary comparable transaction data and the rationale for their cap rate and discount rate selections. Mr. Whitfield provided access to his work files, which include property-level NOI data for several of the comparable transactions catalogued herein.
• Cross-reference of the Aurelian Hotels & Resorts Inc. franchise fee structure — consisting of a 5% royalty on gross room revenue plus a 2% marketing fund contribution (totaling 7% of gross room revenue) — as it relates to adjustments necessary to derive a net operating income ("NOI") figure appropriate for direct capitalization and DCF analysis. The franchise fee structure is relevant because it reduces the net cash flow available to the property owner and is a cost factor that must be reflected in any market-derived cap rate or discount rate applied to the Property.
B. Property Profile for Benchmarking
To ensure that the comparable data assembled in this survey is appropriately calibrated to the subject property, the following property profile was used as a benchmark:
The Palmetto Grand Resort & Spa is a luxury beachfront resort hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. The Property comprises 312 keys, including 42 suites, and is situated on approximately 8.5 acres of Gulf-front land. The Property was acquired by Palmetto Grand Ventures LLC on August 1, 2017 for a purchase price of $87.5 million. Following acquisition, PGV undertook a comprehensive renovation of the Property at a total cost of $24.3 million, completed over the period from 2017 through 2019. The renovated Property features two full-service restaurants, a rooftop bar, an 18,000-square-foot spa and wellness center, 22,000 square feet of meeting and event space, and a beachfront cabana service.
The Property operates under a franchise agreement with Aurelian Hotels & Resorts Inc. dated July 15, 2017, with a 20-year term expiring July 14, 2037. Aurelian is a luxury hospitality brand with a portfolio of 47 properties in North America and the Caribbean. The franchise fee structure, as noted above, consists of 5% of gross room revenue plus a 2% marketing fund contribution.
Key financial metrics for the year ended December 31, 2022 (the valuation date) are as follows:
• Total Revenue: $62.8 million
• Revenue Per Available Room (RevPAR): $289
• Net Operating Income (NOI): $18.4 million
• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): $19.7 million
• Outstanding Debt (Greater Atlantic National Bank, Loan No. CRE-2017-06284): $48.6 million as of December 31, 2022, bearing interest at SOFR + 2.25%
These metrics position the Property as a high-performing luxury resort asset generating strong revenues relative to its key count. However, the Property is a single asset, subject to operational risk, seasonal demand fluctuations, and Gulf Coast-specific exposure to hurricane and weather-related risk — all factors relevant to appropriate cap rate and discount rate selection.
C. Analytical Framework
This memorandum applies three analytical frameworks to assess the reasonableness of the rate assumptions employed by the Whitfield and Beacon appraisals:
Direct Capitalization. Under the direct capitalization method, value is derived by dividing a single year's stabilized NOI by an appropriate capitalization rate: NOI ÷ Cap Rate = Indicated Value. The cap rate reflects the market's required rate of return on the investment, as implied by observed transactions. This is the approach used by Whitfield as one component of his income approach analysis.
discounted Cash Flow (DCF). Under the DCF method, value is derived by projecting cash flows over a defined hold period (typically 10 years for hotel assets), estimating a reversion (sale) value at the end of the hold period, and discounting all projected cash flows and the reversion value to present value at a risk-adjusted discount rate. The discount rate is the investor's total required rate of return (yield), inclusive of income return and capital appreciation. Both Whitfield and Beacon employed DCF analyses, but with materially different discount rate and terminal cap rate assumptions.
Terminal Capitalization Rate. Within the DCF framework, the terminal (or "exit" or "reversionary") capitalization rate is applied to the projected stabilized NOI in the terminal year of the hold period to derive the reversion value. Industry convention holds that the terminal cap rate should be set at a level equal to or, more commonly, 50–100 basis points above the going-in cap rate, reflecting the aging of improvements, the uncertainty inherent in out-year projections, and potential shifts in market conditions over the hold period.
Market-Extraction Method. Implied cap rates can be derived from known transaction prices and reported NOI of comparable sales. When a hotel sells for a known price and its NOI at or near the time of sale is known or can be reliably estimated, the implied cap rate is simply NOI ÷ Sale Price. This method provides the most direct market evidence of investor return expectations and is employed in Section III.B below.
III. Cap Rate Analysis — Gulf Coast Luxury Hotel Market
A. Published Cap Rate Data (Year-End 2022)
The following table summarizes the published cap rate ranges for luxury and upper-upscale full-service hotel properties reported by the sources identified in Section II.A, as of or near year-end 2022:
Several observations emerge from this data:
First, as the geographic focus narrows from the national level to the Southeast/Florida market and then to the Gulf Coast specifically, the reported cap rate ranges generally shift upward. This is consistent with the expectation that resort-oriented markets carry a higher risk premium than diversified urban hotel markets, reflecting seasonality, weather-related disruption risk, and a more volatile demand base dependent on leisure travel and tourism.
Second, the median reported cap rate for Gulf Coast luxury resort hotels as of Q4 2022 falls in the 8.75%–9.75% range, based on a synthesis of the Pinnacle and Caldwell & Marsh data, which provide the most geographically relevant data points. Whitfield's selection of a 9.5% capitalization rate sits squarely within — and slightly above the midpoint of — this range. This reflects a conservative but well-supported selection, consistent with prudent appraisal practice in a period of rising interest rates and macroeconomic uncertainty.
Third, Beacon's implicit cap rate — derived from the relationship between the Property's 2022 NOI of $18.4 million and Beacon's concluded value of $151.5 million — is approximately 7.5%–7.8% (calculated as $18.4M ÷ $151.5M ≈ 7.6%, with some variation depending on NOI normalization adjustments). This implicit cap rate falls below even the bottom of most published ranges for the Gulf Coast luxury submarket and at the very bottom of the broadest national range (Harborview at 7.5%–9.5%). A cap rate of 7.5%–7.8% is more consistent with trophy-quality, gateway-city hotel assets in markets like Manhattan, San Francisco, or Miami Beach — not a single-asset resort property on the Gulf Coast.
B. Comparable Transaction Analysis
To supplement the published survey data, this memorandum identifies eight comparable transactions involving luxury or upper-upscale full-service hotels on the Florida Gulf Coast or in closely comparable Florida resort markets, all of which closed between September 2020 and October 2022. The following table summarizes the key metrics for each transaction:
Detailed one-page summary sheets for each comparable transaction are included as Appendix A to this memorandum and provide property descriptions, buyer and seller identification, NOI sourcing and calculation methodology, and the derivation of each implied cap rate.
The following analysis of the comparable set supports the reasonableness of Whitfield's cap rate selection and undermines Beacon's:
Range of implied cap rates: 8.8% to 9.7%. The range is relatively tight, reflecting the fact that all eight transactions involve properties in the same general asset class (luxury/upper-upscale full-service), in the same general geography (Florida Gulf Coast and closely comparable Florida resort markets), and within a relatively compressed time frame (approximately 25 months from the earliest to the latest sale).
Mean: Approximately 9.2%. The arithmetic mean of the eight implied cap rates is 9.21%, reflecting a central tendency toward the low-to-mid 9% range.
Median: Approximately 9.2%–9.3%. The median falls between the fourth- and fifth-ranked observations (9.2% and 9.2%), confirming the central tendency identified by the mean.
Whitfield's 9.5% cap rate falls within the observed range, slightly above the mean and median. This positioning reflects a conservative posture that is appropriate under the circumstances: the valuation date of December 31, 2022 occurred at the tail end of a period of aggressive Federal Reserve tightening, during which interest rates rose dramatically, exerting direct upward pressure on cap rates across all commercial real estate asset classes. A cap rate slightly above the mean of the comparable set is a defensible selection that accounts for the trajectory of interest rates and the uncertainties surrounding the post-COVID recovery path for leisure hospitality.
Beacon's implied cap rate of approximately 7.5%–7.8% is well below every comparable transaction identified in this survey. Not a single one of the eight transactions implies a cap rate below 8.8%. Beacon's implied rate is approximately 100–140 basis points below the lowest comparable, and approximately 140–170 basis points below the mean and median. This represents a material departure from observed market pricing for assets of this type and in this geography.
It bears noting that several of the comparable properties — notably the Coral Ridge Luxury Collection in Fort Lauderdale (410 keys, $205.0 million sale price) and The Seaside Monarch Resort in Naples (285 keys, $142.0 million sale price) — are arguably higher-quality or better-located assets than The Palmetto Grand. Even these premier properties transacted at implied cap rates of 9.2% and 9.5%, respectively. There is no market evidence to support the proposition that The Palmetto Grand should be valued at an implied cap rate more than 140 basis points below the most favorably priced comparable transaction in the dataset.
C. Factors Affecting Cap Rate Selection for The Palmetto Grand
The selection of an appropriate cap rate for any specific property requires consideration of property-specific, market, and macroeconomic factors that may support a rate at the higher or lower end of the observed range. The following analysis assesses the relevant factors for The Palmetto Grand as of December 31, 2022.
Factors Supporting a Higher Cap Rate (Closer to Whitfield's 9.5%)
Rising interest rate environment. The Federal Reserve increased the target federal funds rate from 0.25% to 4.50% during calendar year 2022, representing the most aggressive monetary tightening cycle in over four decades. The 10-year U.S. Treasury yield rose from approximately 1.52% at year-end 2021 to 3.88% at year-end 2022 — an increase of 236 basis points. This dramatic rise in risk-free rates exerted direct upward pressure on cap rates across all commercial real estate sectors. The hotel sector, which is perceived as carrying higher operational risk than core property types such as office and multifamily, was particularly affected, as investors demanded higher yield spreads over the rising risk-free rate.
Elevated borrowing costs. The outstanding debt on the Property (Greater Atlantic National Bank, Loan No. CRE-2017-06284) bears interest at SOFR + 2.25%. As of December 31, 2022, the one-month SOFR rate stood at approximately 4.31%, resulting in an all-in borrowing cost of approximately 6.56%. Higher debt costs reduce leveraged equity returns and, all else being equal, exert upward pressure on required going-in yields (i.e., cap rates). A prospective buyer underwriting the Property as of the valuation date would have faced materially higher financing costs than a buyer underwriting the same property twelve months earlier, and would have demanded a correspondingly higher cap rate.
Gulf Coast resort market seasonality and hurricane risk premium. The Florida Gulf Coast hospitality market is characterized by pronounced seasonality, with the high season running from approximately November through April and a substantial demand decline during the summer and early fall months. This demand pattern introduces volatility into cash flows and increases the risk of shortfalls relative to annualized projections. In addition, Gulf Coast properties are exposed to hurricane and tropical storm risk, which can result in physical damage, business interruption, and insurance cost increases. These factors warrant a risk premium reflected in a higher cap rate relative to hotel assets in less weather-exposed markets.
Franchise-dependent operation. The Property operates under a franchise agreement with Aurelian Hotels & Resorts Inc., which requires the payment of franchise fees totaling 7% of gross room revenue (5% royalty + 2% marketing fund contribution). While the Aurelian brand provides marketing and distribution benefits, the franchise fee structure reduces the net cash flow available to the property owner. Moreover, the franchise-dependent operating model introduces a degree of brand risk: the Property's revenue performance is tied in part to the continued strength and market positioning of the Aurelian brand, over which the property owner has limited control.
Age of renovation capital. The $24.3 million renovation undertaken from 2017 to 2019 is now three to five years old as of the valuation date. While the Property is generally in good condition, the aging of the renovation capital necessitates an assumption of ongoing capital expenditure reserves. Industry-standard capital reserve assumptions for luxury hotel properties range from 4% to 5% of total revenue, representing a material annual outflow that reduces distributable cash flow and supports a higher cap rate than might be applicable to a property with newly completed improvements.
Deferred maintenance claim. Beacon's own appraisal identifies $8.2 million in alleged deferred maintenance (referencing Operating Agreement Section 8.3), which — even if only partially valid — suggests that the Property may not command the premium cap rate that would be applicable to a property in pristine physical condition. The existence of a colorable deferred maintenance claim is inconsistent with a below-market cap rate.
Factors Supporting a Lower Cap Rate (Closer to Beacon's Implicit ~7.5%)
Premier location. Clearwater Beach is consistently ranked among the top beach destinations in the United States and benefits from high barriers to entry for new luxury hotel development, including limited beachfront land availability, stringent zoning and permitting requirements, and strong community resistance to large-scale new construction. These supply constraints provide a degree of protection for existing assets and, all else being equal, support a tighter cap rate than might apply in markets with more readily expandable supply.
Strong revenue performance. The Property's 2022 RevPAR of $289 and total revenue of $62.8 million demonstrate robust demand and premium pricing power. Properties with demonstrated high-RevPAR performance typically trade at tighter cap rates than lower-performing assets, reflecting the market's expectation that the revenue premium is sustainable.
Long-term franchise agreement. The 20-year Aurelian franchise agreement, with 14.5 years remaining as of the valuation date (expiring July 14, 2037), provides brand stability and access to the Aurelian reservation system and loyalty program for a substantial remaining term. This contractual brand affiliation reduces re-branding risk and provides a degree of cash flow predictability.
Post-renovation condition. The 2017–2019 renovation brought the Property to a modern luxury standard, which should command premium pricing from both guests and prospective acquirers relative to unrenovated comparable assets.
Assessment. While the Property possesses undeniable premium attributes — a premier location, strong revenue metrics, a long-term franchise agreement, and post-renovation condition — the weight of market evidence compels the conclusion that an appropriate going-in capitalization rate for The Palmetto Grand as of December 31, 2022 falls in the 8.75%–9.75% range. The factors supporting a higher cap rate — particularly the dramatic rise in interest rates during 2022 and the elevated borrowing costs reflected in the Property's own debt structure — are powerful market-wide forces that affect all hotel assets in this submarket and cannot be dismissed or ignored.
Whitfield's selection of a 9.5% cap rate is reasonable and well-supported. It falls within the published survey ranges, within the observed range of comparable transactions, and reflects a conservative but defensible positioning slightly above the mean and median of the comparable set — an appropriate selection given the macroeconomic environment as of the valuation date.
Beacon's implicit cap rate of approximately 7.5%–7.8% is an outlier unsupported by market evidence. It falls below every comparable transaction identified in this survey, below the low end of most published survey ranges for the Gulf Coast luxury submarket, and can be justified only by assigning outsized weight to the Property's locational and operational strengths while ignoring or severely underweighting the macroeconomic and risk factors that dominated market pricing as of year-end 2022.
IV. Discount Rate Analysis — DCF Methodology
A. Published discount Rate Data (Year-End 2022)
The following table summarizes the published discount rate ranges for luxury and upper-upscale full-service hotel properties as of or near year-end 2022:
Several observations follow from this data:
Whitfield's discount rate of 10.75% falls near the center of the published ranges for luxury Gulf Coast hotel assets. It is well within the Pinnacle range of 9.5%–12.5%, within the Caldwell & Marsh range of 9.25%–11.5%, and within the Harborview national range of 9.0%–12.0%. At 10.75%, the Whitfield discount rate reflects a moderate positioning that accounts for the Property's premium attributes (justifying a rate below the upper end of the range) while also reflecting the operational, seasonal, and macroeconomic risks that preclude a rate at the very bottom of the range.
Beacon's discount rate of 8.5% is at or below the very bottom of every published range. It falls at the absolute floor of the broadest range (Institutional Real Estate Review, 8.5%–13.0%), which encompasses all hospitality segments nationwide — including stabilized, multi-property portfolio transactions that inherently carry lower risk profiles than single-asset resort hotels. It falls 100 basis points below the bottom of the Pinnacle Gulf Coast range (9.5%), 75 basis points below the bottom of the Caldwell & Marsh Florida range (9.25%), and 50 basis points below the bottom of the Harborview national range (9.0%).
An 8.5% discount rate is more consistent with the return expectations for stabilized, core urban office or multifamily assets — property types characterized by diversified tenant bases, long-term contractual income streams, and lower operational complexity — than for a single-asset luxury resort hotel subject to operational volatility, weather and tourism-cycle risk, and franchise dependence. The application of an 8.5% discount rate to a Gulf Coast luxury hotel as of December 31, 2022, when the risk-free rate alone stood at 3.88%, implies a total risk premium over the risk-free rate of only 462 basis points. As demonstrated by the build-up analysis below, this risk premium is insufficient to compensate for the multiple layers of risk inherent in the subject asset.
B. Build-Up / Band-of-Investment Analysis
The build-up method provides an independent framework for deriving an appropriate discount rate by aggregating the risk-free rate with incremental risk premiums that reflect the specific risk characteristics of the subject asset. The following illustrative build-up analysis derives an indicated discount rate range for a luxury Gulf Coast hotel asset as of December 31, 2022:
The derivation of each component is detailed in the work papers included as Appendix C. The key inputs are summarized as follows:
Risk-free rate. The 10-year U.S. Treasury yield as of December 31, 2022 was 3.88%, as reported by the Federal Reserve Board's H.15 statistical release. This is the standard benchmark for the risk-free rate in real estate discount rate analysis, reflecting the time value of money over a medium-term investment horizon roughly comparable to the typical hotel hold period.
Equity risk premium (hospitality sector). The equity risk premium reflects the additional return demanded by investors for accepting the systematic risk of investing in the hospitality sector rather than in risk-free government securities. Based on a review of historical hospitality sector returns, published investor surveys, and academic research on real estate risk premiums, an appropriate range for the hospitality-sector equity risk premium as of year-end 2022 is 3.50%–4.50%. The upper end of this range reflects the heightened uncertainty in the hospitality sector attributable to the lingering effects of the COVID-19 pandemic on travel patterns, the labor market tightness affecting hotel operating costs, and the rising interest rate environment that increased the cost of capital across the sector.
Property-specific risk premium. This component reflects the incremental risk associated with the specific characteristics of The Palmetto Grand that distinguish it from a diversified hospitality investment portfolio. Relevant risk factors include: (i) single-asset concentration risk (loss of a single revenue-generating asset cannot be offset by other properties in a portfolio); (ii) seasonal demand volatility inherent in the Gulf Coast resort market; (iii) hurricane and severe weather exposure, including direct physical risk, business interruption risk, and escalating insurance costs; and (iv) franchise dependence on the Aurelian brand. An appropriate range for the property-specific risk premium is 1.50%–2.50%.
Illiquidity premium. Luxury resort hotel assets are relatively illiquid compared to publicly traded securities and even compared to certain other real estate asset classes (e.g., stabilized multifamily properties in major metropolitan markets). The marketing period for a large-format luxury resort hotel can range from six to eighteen months, and the buyer pool is limited to a relatively small number of institutional investors and hotel operating companies. An appropriate illiquidity premium for the subject asset is 0.75%–1.25%.
The sum of these components yields an indicated discount rate range of 9.63% to 12.13%. Whitfield's 10.75% discount rate fits comfortably within this range, positioned slightly above the midpoint — a conservative but well-supported selection.
Beacon's 8.5% discount rate, by contrast, is approximately 113 basis points below the bottom of the indicated build-up range (9.63%). This shortfall implies that Dr. Ramanathan either: (i) applied a risk-free rate lower than the actual 10-year Treasury yield as of the valuation date; (ii) applied an unusually low equity risk premium insufficient to compensate for hospitality-sector risk; (iii) assigned little or no property-specific risk premium for single-asset concentration, seasonality, hurricane exposure, and franchise dependence; or (iv) assigned no meaningful illiquidity premium. The Beacon appraisal report does not contain a build-up analysis or otherwise explain the derivation of the 8.5% discount rate in a manner that would permit identification of which component(s) were underweighted or omitted. This lack of transparency in rate derivation is itself a significant methodological weakness.
C. Terminal Capitalization Rate
The terminal capitalization rate (also referred to as the "exit" or "reversionary" cap rate) is a critical input in any DCF analysis, as it determines the reversion value that typically accounts for 50%–70% of total present value in a hotel DCF model. The selection of the terminal cap rate therefore has a profound impact on the DCF-derived value conclusion.
Beacon applied a terminal capitalization rate of 7.75% in its DCF analysis. This selection is problematic for several reasons:
Industry convention. It is a well-established convention in real estate appraisal that the terminal capitalization rate should be set at a level equal to or, more commonly, 50 to 100 basis points above the going-in capitalization rate. This convention reflects the reality that improvements age and deteriorate over the hold period, that long-range projections of NOI carry greater uncertainty than near-term forecasts, and that market conditions at the end of a 10-year hold period are inherently unpredictable. The terminal cap rate premium over the going-in cap rate compensates a hypothetical buyer at the reversion date for acquiring an older, more uncertain asset.
Application to the subject property. If the appropriate going-in cap rate for The Palmetto Grand is in the range of 9.0%–9.5% (as supported by the market evidence compiled in Section III above), then the terminal cap rate should be approximately 9.5%–10.5% under standard appraisal convention. Beacon's 7.75% terminal cap rate is not only below the conventional range but is approximately 125–275 basis points below where it should be set.
Counterintuitive implied assumption. A terminal cap rate of 7.75% — which is lower than even Beacon's own implicit going-in cap rate of approximately 7.5%–7.8% — implies that the Property will be more valuable per dollar of NOI at the end of the hold period than at the beginning. In other words, Beacon's terminal cap rate assumes that a hypothetical buyer in 2032 or 2033 will demand a lower yield on the Property than a buyer today, despite the fact that the improvements will be older, the franchise agreement will have fewer remaining years, and the macroeconomic environment is inherently uncertain. This is a counterintuitive assumption that requires extraordinary justification — such as a planned major redevelopment, a pending rezoning that would unlock additional density, or a fundamental repositioning of the asset — none of which is applicable to The Palmetto Grand.
Quantified impact. Even accepting Beacon's own DCF framework and projected cash flows without modification, adjusting the terminal cap rate from 7.75% to 9.0% — a rate that is still at the low end of the market-supported range — would reduce the Beacon appraised value by an estimated $18–$22 million, bringing the concluded value from $151.5 million to approximately $129.5–$133.5 million. This adjusted range is substantially closer to both the Whitfield conclusion ($118.0 million) and the Linden Park preliminary range ($130.0–$138.0 million), demonstrating that Beacon's terminal cap rate selection alone accounts for a significant portion of the valuation gap.
V. Sensitivity Analysis — Impact of Rate Assumptions on Indicated Value
The following sensitivity analyses illustrate the magnitude of the valuation impact attributable to differences in cap rate and discount rate assumptions. These analyses demonstrate that the $33.5 million gap between the Whitfield and Beacon conclusions is driven primarily by rate selection, not by material differences in underlying property economics or projected cash flows.
A. Direct Capitalization Sensitivity
Using the Property's 2022 NOI of $18.4 million as the income metric, the following table shows the indicated value under the direct capitalization method at varying cap rates:
This table illustrates the extreme sensitivity of value to cap rate selection in the direct capitalization framework. A 100-basis-point change in cap rate produces a swing of approximately $18–$25 million in indicated value, depending on where in the range the change occurs (the sensitivity is greater at lower cap rates due to the inverse and non-linear relationship between cap rate and value).
An important clarification is warranted: Whitfield did not rely solely on direct capitalization. His final value conclusion of $118.0 million reflects a blended analysis in which the income approach (including both direct capitalization and DCF) was weighted at 40% and the sales comparison approach was weighted at 60%. The direct capitalization figure of $193.7 million at a 9.5% cap rate represents the income-approach component before blending; the sales comparison approach produced a lower indicated value, which pulled the blended conclusion downward. This blending methodology is consistent with USPAP and standard appraisal practice for hotel properties where sufficient comparable sales data exists.
By contrast, Beacon relied exclusively on the income approach (DCF) and did not perform a sales comparison approach. This methodological choice amplifies the impact of rate selection on Beacon's final value conclusion, because there is no independent market-data-derived value indication to serve as a check or counterweight to the DCF output. In Beacon's framework, the rate assumptions are essentially dispositive of value.
B. DCF Sensitivity
The following matrix illustrates how changes in both the discount rate and the terminal capitalization rate affect the DCF-derived value of the Property, holding Beacon's own projected cash flows constant. All values are expressed in millions of dollars:
Several key observations emerge from this matrix:
First, Beacon's concluded value of $151.5 million is achievable only at or near the simultaneous floor of both rate assumptions — an 8.5% discount rate and a 7.75% terminal cap rate. Moving either rate toward the market-supported range produces a substantial reduction in indicated value. This demonstrates that the Beacon conclusion is not robust to reasonable variation in rate inputs; it is, in effect, a best-case-scenario valuation that requires every rate assumption to be set at the most optimistic end of the range.
Second, at a discount rate of 9.5% (the low end of the Pinnacle Gulf Coast published range) and a terminal cap rate of 8.50% (which is still below the conventional terminal premium over a 9.0%–9.5% going-in cap rate), the DCF yields approximately $130.0 million — the low end of Linden Park Advisory's preliminary range. This convergence provides independent confirmation that the Linden Park preliminary range is consistent with moderate, market-supported rate assumptions.
Third, at Whitfield's 10.75% discount rate and a terminal cap rate of approximately 8.50%, the DCF yields approximately $118.5 million, aligning closely with Whitfield's $118.0 million overall value conclusion. This demonstrates internal consistency in the Whitfield approach: the DCF output at Whitfield's selected discount rate, combined with a reasonable terminal cap rate, produces a result that is consistent with the income-approach component of Whitfield's blended analysis.
Fourth, the full sensitivity analysis spreadsheet included as Appendix D extends this matrix to additional scenarios and demonstrates that the market-supported valuation range for the Property — i.e., the range of values produced by discount rates of 9.5%–11.0% and terminal cap rates of 8.5%–10.0% — is approximately $109.5–$130.0 million. The Whitfield conclusion of $118.0 million falls near the center of this range. The Beacon conclusion of $151.5 million falls $21.5 million above the top of this range.
VI. Implications for the Linden Park Preliminary Indication
Although the Linden Park neutral appraisal was never finalized, Mr. Carraway's preliminary indication of value of $130.0–$138.0 million provides a useful data point for assessing the relative reasonableness of the Whitfield and Beacon conclusions.
Reverse-engineering the Linden Park range to derive implied rate assumptions yields the following:
• A value of $130.0 million for a property with $18.4 million in NOI implies a going-in cap rate of approximately 9.1% under the direct capitalization framework ($18.4M ÷ $130.0M ≈ 9.08% ÷ rounding).
• A value of $138.0 million for the same NOI implies a going-in cap rate of approximately 8.6% ($18.4M ÷ $138.0M ≈ 8.55% ÷ rounding).
• The implied blended going-in cap rate for the Linden Park range is therefore approximately 8.6%–9.1%, which falls squarely within the market-supported range identified in Section III and is far more consistent with Whitfield's 9.5% cap rate than with Beacon's implicit cap rate of approximately 7.5%–7.8%.
• Similarly, the Linden Park range is consistent with a discount rate in the approximate range of 9.5%–10.25%, based on reverse-engineering the DCF framework with reasonable terminal cap rate assumptions. Again, this aligns much more closely with the Whitfield discount rate of 10.75% than with Beacon's 8.5%.
From a settlement-framing perspective, the midpoint of the Linden Park range — $134.0 million — provides a useful reference point. At that enterprise value, and deducting the outstanding debt of $48.6 million, the implied JV net equity is approximately $85.4 million. MSH's 35% interest in JV net equity, plus the $17.01 million accrued preferred return due to MSH under the Operating Agreement, equals approximately $46.9 million. This figure represents the baseline around which any settlement negotiation is likely to be framed and is substantially below the equity value implied by the Beacon appraisal.
VII. Critique of Beacon Appraisal Rate Selections
The market evidence compiled in this memorandum supports a comprehensive critique of the Beacon appraisal's rate assumptions. The following subsections summarize the principal grounds for challenge.
A. Below-Market discount Rate (8.5%)
Beacon's selection of an 8.5% discount rate for its DCF analysis of The Palmetto Grand is not supported by market evidence for the following reasons:
1. The 8.5% rate falls below every published survey range for Gulf Coast luxury hotel discount rates identified in this survey. It is at the absolute floor of the broadest national range (Institutional Real Estate Review, 8.5%–13.0%) and 100 basis points below the low end of the most geographically relevant range (Pinnacle Gulf Coast, 9.5%–12.5%).
2. The rate fails the build-up analysis by approximately 112 or more basis points. The build-up analysis in Section IV.B yields a minimum indicated discount rate of 9.63%, even under the most favorable assumptions for each risk component. Beacon's 8.5% rate implies a total risk premium over the risk-free rate of only 462 basis points, which is insufficient to compensate for the cumulative risk profile of a single-asset luxury resort hotel on the Gulf Coast.
3. No comparable transaction identified in this survey supports an implied yield as low as 8.5% for a single-asset resort hotel in this submarket. The lowest implied cap rate in the comparable transaction set is 8.8% (Pelican Bay Club Resort, September 2020), and cap rates and discount rates have generally moved upward since that date due to rising interest rates.
4. An 8.5% discount rate appears to reflect the return expectations applicable to a stabilized, institutional-grade, diversified real estate portfolio — not a single-property rate appropriate for a luxury resort hotel. Dr. Ramanathan's rate selection is more consistent with the discount rates observed in large-scale portfolio transactions involving diversified hotel REITs or core-quality commercial real estate funds, where diversification benefits, access to institutional capital markets, and professional portfolio management justify tighter return requirements. The Palmetto Grand is a single property with a single revenue stream, and its discount rate should reflect the higher risk inherent in that concentrated exposure.
B. Below-Market Terminal Cap Rate (7.75%)
Beacon's selection of a 7.75% terminal capitalization rate is similarly unsupported by market evidence and standard appraisal methodology:
1. The 7.75% terminal cap rate violates the general appraisal convention that the terminal cap rate should be set at a level equal to or, more commonly, 50–100 basis points above the going-in cap rate. Beacon's terminal cap rate is not only below the market-supported going-in cap rate range of 8.75%–9.75% but is also at or below even Beacon's own implicit going-in cap rate of approximately 7.5%–7.8%. This implies that the terminal cap rate premium is zero or negative — an assumption that is inappropriate absent extraordinary circumstances.
2. The 7.75% terminal cap rate implies that the Property will appreciate in value per dollar of NOI over the hold period, meaning that a hypothetical buyer at the reversion date will accept a lower yield than a buyer at the valuation date. This is counterintuitive for a property whose improvements will be approximately 13–15 years post-renovation at the end of a 10-year hold period (assuming the 2017–2019 renovation as baseline), whose franchise agreement will have fewer remaining years, and whose future market conditions are inherently uncertain.
3. The extraordinary circumstances that might justify a negative terminal cap rate premium — such as a planned major redevelopment, a pending rezoning or entitlement that would unlock additional development density, or a fundamental repositioning of the asset into a higher-value use — are not present in this case. The Palmetto Grand is and will remain a luxury beachfront resort hotel; there is no basis for assuming that it will be worth more per dollar of NOI at the end of the hold period than at the beginning.
4. Adjusting the terminal cap rate from 7.75% to the market-supported 9.0% — while leaving all other Beacon assumptions unchanged — would reduce the Beacon appraised value by an estimated $16.5–$22 million. This single adjustment alone would close a substantial portion of the $33.5 million gap between the Whitfield and Beacon conclusions.
C. Absence of Sales Comparison Approach
In addition to the rate-specific critiques above, the Beacon appraisal is vulnerable to challenge on methodological grounds for its failure to employ a sales comparison approach:
1. Beacon relied exclusively on the income approach (DCF) and did not perform a sales comparison approach. This is a significant omission, particularly in light of the availability of comparable sales data. As catalogued in Section III.B of this memorandum, eight comparable luxury/upper-upscale hotel transactions on the Florida Gulf Coast closed between September 2020 and October 2022 — a robust comparable set by hotel-appraisal standards.
2. The Uniform Standards of Professional Appraisal Practice ("USPAP"), which govern the professional practice of real estate appraisers, encourage the use of multiple valuation approaches when sufficient data is available. USPAP Standards Rule 1-4 requires appraisers to "collect, verify, and analyze all information necessary for credible assignment results" and to develop each approach to value for which sufficient reliable data is available. The availability of multiple comparable sales in the Gulf Coast luxury hotel market as of year-end 2022 makes the omission of a sales comparison approach difficult to justify.
3. Whitfield's use of both the income approach (weighted at 40%) and the sales comparison approach (weighted at 60%) is methodologically sound and provides an important market-data check on the DCF conclusions. By incorporating actual transaction evidence — prices paid by real buyers and accepted by real sellers in arm's-length transactions — the sales comparison approach anchors the valuation in observed market behavior and prevents the distortions that can result from reliance on a single analytical framework with subjective inputs.
4. The absence of a sales comparison approach in the Beacon appraisal has the effect of amplifying the impact of Dr. Ramanathan's discount rate and terminal cap rate selections. Because the entire Beacon value conclusion is derived from a single DCF model, the rate assumptions are essentially dispositive. If Beacon had performed a sales comparison approach, the implied cap rates from comparable transactions — which, as demonstrated in Section III.B, cluster in the 8.8%–9.7% range — would have served as a counterweight to the aggressive DCF-derived value and likely would have resulted in a lower blended conclusion.
D. Deferred Maintenance Adjustment ($8.2 Million)
A final note on the Beacon appraisal concerns the $8.2 million deferred-maintenance adjustment that Beacon included in its valuation analysis. Beacon argues that PCG, as Manager of PGV, failed to fund certain maintenance obligations under Section 8.3 of the Operating Agreement, and that this failure resulted in $8.2 million of deferred maintenance that should be added back to the Property's value (on the theory that the Property would be worth more if the maintenance had been properly performed).
While the deferred-maintenance claim is analyzed in detail in a separate memorandum being prepared by Laroche (expected October 2023), it is noted here for two reasons. First, the $8.2 million adjustment further inflates the gap between the Beacon appraised value and the market-supported value range, compounding the overvaluation attributable to the below-market rate assumptions. Second, there is an internal tension within the Beacon appraisal: on one hand, Dr. Ramanathan applies below-market cap and discount rates that imply the Property is a premium, low-risk asset deserving of the most favorable valuation treatment; on the other hand, she identifies $8.2 million of deferred maintenance, suggesting that the Property has not been properly maintained. These two positions are difficult to reconcile, and the tension between them provides an additional avenue for challenge in deposition and at the hearing.
VIII. Conclusions and Recommendations
A. Summary of Findings
Based on the comprehensive market survey and analysis presented in this memorandum, the following conclusions are supported:
1. Whitfield's rate assumptions are market-supported. Gerald K. Whitfield's selection of a 9.5% capitalization rate and a 10.75% discount rate for the valuation of The Palmetto Grand Resort & Spa as of December 31, 2022 is supported by published survey data, comparable transaction evidence, and build-up analysis. The 9.5% cap rate falls within the observed range of 8.8%–9.7% from comparable transactions and within the published survey ranges of 8.0%–10.5% for Gulf Coast and Southeast luxury hotels. The 10.75% discount rate falls near the center of published survey ranges of 9.0%–12.5% and within the build-up-derived range of 9.63%–12.13%.
2. Beacon's rate assumptions are below-market outliers. Dr. Priya Ramanathan's selection of an 8.5% discount rate and a 7.75% terminal capitalization rate is not supported by any identified comparable transaction or published survey for Gulf Coast luxury hotel assets as of year-end 2022. The 8.5% discount rate falls at or below the bottom of every published range, fails the build-up analysis by approximately 112+ basis points, and is more consistent with the return expectations for a stabilized, diversified institutional real estate portfolio than for a single-asset luxury resort hotel. The 7.75% terminal cap rate violates standard appraisal convention and implies counterintuitive appreciation in per-NOI-dollar value over the hold period.
3. Quantified overvaluation. The combined effect of Beacon's below-market rate assumptions results in an overstatement of the fair market value of The Palmetto Grand Resort & Spa by an estimated $25–$35 million relative to the market-supported value range. This overvaluation is further compounded by the $8.2 million deferred-maintenance adjustment and the absence of a sales comparison approach that would have provided a market-data-based check on the DCF output.
4. Linden Park's preliminary range confirms market-supported rates. The Linden Park Advisory preliminary indication of $130.0–$138.0 million is consistent with cap rates of approximately 8.6%–9.1% and discount rates of approximately 9.5%–10.25%, both of which fall within the market-supported range and align far more closely with Whitfield's assumptions than with Beacon's.
B. Strategic Recommendations
Based on the findings of this memorandum, the following strategic recommendations are offered for the team's consideration:
1. Incorporation into Comparative Appraisal Analysis. This research memorandum should be incorporated into the Comparative Appraisal Analysis Memorandum currently being prepared by Laroche and Park (targeted completion: August 2023). The market data and analysis presented herein will provide the empirical grounding for the section of that memorandum addressing the critique of Beacon's rate assumptions and the defense of Whitfield's methodology.
2. Deposition preparation for Dr. Priya Ramanathan (September 18, 2023). The deposition of Beacon's lead appraiser is scheduled for September 18, 2023 and represents the most important opportunity to challenge the Beacon rate assumptions on the record. Deposition questioning should specifically probe the following topics:
(a) Dr. Ramanathan's justification for selecting an 8.5% discount rate, including whether she performed a build-up analysis, what risk-free rate she used, what equity risk premium she applied, and how she accounted for single-asset concentration risk, seasonality, hurricane exposure, and franchise dependence;
(b) Dr. Ramanathan's justification for selecting a 7.75% terminal cap rate that is below both the market-supported going-in cap rate range and her own implicit going-in cap rate, and whether she can identify any comparable transaction or published survey that supports a terminal cap rate this low for a Gulf Coast luxury hotel;
(c) Dr. Ramanathan's decision to omit a sales comparison approach despite the availability of multiple comparable transactions in the Gulf Coast luxury hotel market, and whether she considered and rejected such transactions or failed to identify them; and
(d) The internal tension between applying premium (low-risk) rate assumptions while simultaneously identifying $8.2 million in deferred maintenance.
3. Coordination with Whitfield Realty Advisors. The comparable transaction data compiled in this memorandum should be provided to Gerald K. Whitfield of Whitfield Realty Advisors to confirm alignment between his proprietary comparable data and the transactions identified herein, and to enable Mr. Whitfield to prepare any rebuttal analysis that may be needed in response to the Beacon appraisal or to any supplemental materials produced by Dr. Ramanathan in advance of or following her deposition.
4. Hearing preparation. If this matter proceeds to an evidentiary hearing before the Hon. Margaret Liu Chen (Ret.), the analysis presented in this memorandum provides the evidentiary foundation for challenging Beacon's rate assumptions as unsupported by market data. The published survey data, comparable transaction evidence, build-up analysis, and sensitivity matrices should be prepared as demonstrative exhibits for use at the hearing, and Mr. Whitfield should be prepared to testify regarding the market support for his rate selections and the deficiencies in Beacon's assumptions.
IX. Appendices (Referenced)
The following appendices are referenced in this memorandum and are being compiled concurrently with this document. They will be circulated separately upon completion.
Appendix A: Comparable Transaction Detail Sheets
Appendix A contains a one-page summary sheet for each of the eight comparable transactions identified in Section III.B of this memorandum. Each summary sheet includes: (i) a brief description of the property, including location, key count, amenities, brand affiliation, and year of last renovation; (ii) the sale date, sale price, and identification of buyer and seller; (iii) the reported or estimated NOI at or near the time of sale, including the source and methodology used to derive or verify the NOI figure; and (iv) the calculation of the implied capitalization rate. The eight transactions covered are:
1. The Seaside Monarch Resort — Naples, FL (October 2022)
2. Gulf Breeze Grand Hotel — Sarasota, FL (June 2022)
3. Isla Bonita Beach Club & Spa — Marco Island, FL (March 2022)
4. The Harborlight Resort — St. Pete Beach, FL (August 2021)
5. Coral Ridge Luxury Collection — Fort Lauderdale, FL (November 2021)
6. Suncoast Pinnacle Hotel — Clearwater Beach, FL (January 2021)
7. Marisol Grand Resort — Destin, FL (December 2020)
8. Pelican Bay Club Resort — Sanibel Island, FL (September 2020)
Appendix B: Published Survey Excerpts
Appendix B contains the relevant pages from the following published research reports, reproduced for reference purposes:
• Harborview Capital Research — Annual U.S. Luxury Hotel Investment Report (2022 edition), including the national and regional cap rate and discount rate summary tables
• Pinnacle Hospitality Analytics — Gulf Coast & Southeast Hotel Market Cap Rate Survey (Q4 2022), including the Gulf Coast luxury resort cap rate and discount rate tables
• Caldwell & Marsh Real Estate Capital Markets — National Hotel Transaction Cap Rate Tracker (2022 Year-End), including the Florida-specific upper-upscale/luxury segment data
• Institutional Real Estate Review — 2022 discount Rate Survey for Hospitality Assets, including the national hospitality cap rate and discount rate summary tables
Appendix C: Build-Up Analysis Work Papers
Appendix C contains the detailed calculations supporting the discount rate build-up analysis presented in Section IV.B of this memorandum. The work papers include: (i) documentation of the risk-free rate source (10-year U.S. Treasury yield as of December 31, 2022 = 3.88%, per Federal Reserve Board H.15 statistical release); (ii) the derivation of the equity risk premium range, including supporting references to historical hospitality-sector returns and published investor surveys; and (iii) the property-specific risk factor analysis, documenting the rationale for the assigned ranges for single-asset concentration risk, seasonality risk, hurricane/weather exposure, franchise dependence risk, and illiquidity.
Appendix D: Sensitivity Analysis Spreadsheet
Appendix D contains the full DCF sensitivity analysis grid referenced in Section V.B, extended to include additional discount rate scenarios (8.0%, 8.5%, 9.0%, 9.5%, 10.0%, 10.5%, 10.75%, 11.0%, 11.5%, and 12.0%) and additional terminal cap rate scenarios (7.50%, 7.75%, 8.00%, 8.25%, 8.50%, 8.75%, 9.00%, 9.25%, 9.50%, 9.75%, 10.00%, and 10.50%). The spreadsheet uses Beacon's own projected cash flows as the base case to isolate the impact of rate assumptions on indicated value. A separate tab presents the same analysis using Whitfield's projected cash flows for comparison purposes.
This memorandum is a confidential attorney work product prepared in anticipation of litigation. It is not intended to provide, and should not be relied upon as, an independent appraisal or valuation opinion. All market data, comparable transactions, and analytical conclusions presented herein are subject to verification and may be supplemented or revised as additional information becomes available. Distribution is restricted to authorized members of the C&H engagement team and representatives of Pellegrino Capital Group LLC.
Source | Segment | Geography | Reported Cap Rate Range (2022)
Harborview Capital Research | Luxury Full-Service | U.S. National | 7.5% – 9.5%
Harborview Capital Research | Luxury Full-Service | Southeast / Florida | 8.0% – 10.0%
Pinnacle Hospitality Analytics | Luxury Resort | Gulf Coast (FL) | 8.5% – 10.5%
Caldwell & Marsh | Upper upscale / Luxury | Florida | 8.25% – 9.75%
Institutional Real Estate Review | Hospitality (all segments) | National | 7.0% – 10.5%
Transaction | Location | Keys | Sale Price ($M) | Reported NOI ($M) | Implied Cap Rate | Sale Date
The Seaside Monarch Resort | Naples, FL | 285 | $142.0 | $13.5 | 9.5% | Oct 2022
Gulf Breeze Grand Hotel | Sarasota, FL | 340 | $108.0 | $10.5 | 9.7% | Jun 2022
Isla Bonita Beach Club & Spa | Marco Island, FL | 220 | $96.0 | $8.6 | 9.0% | Mar 2022
The Harborlight Resort | St. Pete Beach, FL | 275 | $118.5 | $11.1 | 9.4% | Aug 2021
Coral Ridge Luxury Collection | Fort Lauderdale, FL | 410 | $205.0 | $18.9 | 9.2% | Nov 2021
Suncoast Pinnacle Hotel | Clearwater Beach, FL | 198 | $72.5 | $6.7 | 9.2% | Jan 2021
Marisol G

MEMORANDUM

C&H MATTER NO.: 1027-00003

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