for Hotel Waterpark Resorts
|By Jeff Coy and Bill Haralson, October 1, 2004
Over the past three years, we have written extensively about a significant evolution in the waterpark industry: the waterpark resort. As we have described the concept in previous articles, the waterpark resort involves the pairing of some type of lodging with an indoor waterpark. Other components may also be present, but it is the synergism created by the hotel and the indoor waterpark that has made the waterpark resort concept so successful.
The good news about waterpark resorts is that they generate substantially higher income than ordinary lodging facilities. However, the bad news is that they are expensive to build and operate. The success of a waterpark resort requires a substantial investment – not only in the hotel, but also in the indoor water park, which can cost $300 to $400 per square foot. As a consequence, a 300-room hotel with support facilities and an indoor waterpark could cost as much as $30 to $40 million – not including the cost of land. Many developers are not inclined to spend that much on an income property, even with favorable financial terms.
For many, an alternative to having full ownership of a waterpark resort, with the financial burden involved, is the condominium hotel. This concept involves the sale of the hotel’s guest rooms as condominium apartments to individual owners. Typically, these individual owners are motivated to buy their condominiums for investment purposes. Although the Securities and Exchange Commission has strict rules regarding the representation of condominiums as security investments, the sale of hotel condominium units is becoming increasingly common, especially in the current investment climate in which alternative investment opportunities are scarce.
Advantages to Condo Developer
The advantages to the developer are two-fold. First, the developer benefits from the real estate angle. The developer’s profit margin will depend on the marketability of the condominiums in the local area; however, a mark-up of 100 percent over development costs is typical.
Once the condominium hotel is up and operating, the developer benefits from the income of the hotel. Typically, the developer will split room revenue with the condominium owner on a 50-50 basis or using some other formula, depending on local market conditions. If a third-party management company is hired, they will typically take 10 percent of room revenue off the top before the developer and condominium owner split the balance. In any event, the developer receives some percentage of room rental revenue, while having zero investment in the guest rooms. In addition to a split of room revenue, the developer will benefit from other revenue streams, including food and beverage, waterpark admissions and revenue from any other resort amenities, such as golf, skiing, etc.
The owners’ agreement will also specify the responsibility for paying operating expenses. Typically, the developer will pay some expenses, including most non-room expenses. On the other hand, the condominium owner will be required to pay most unit expenses as well as project-wide expenses, such as snow removal, lawn and garden maintenance, bus shuttle services, common area maintenance, repairs and supplies and management fees.
Advantages to Condo Buyer
The advantages to the condominium buyer are also two-fold. First, while the condominium buyer is usually only buying a guest unit, he is also gaining access to the amenities of a traditional hotel, including food and beverage service and other amenities typically associated with a resort hotel. In addition, the condominium owner is buying an investment, which in the present economic climate, is favorable compared to the alternatives. In the short run, the buyer benefits from cash from room rental, which will generally offset the condominium’s operating expenses and, perhaps make a contribution to the unit’s principal and interest expenses. In the long run, the condominium will (hopefully) appreciate in value.
In recent years, a number of condominium hotels have been developed as waterpark hotels. In the Wisconsin Dells, the cradle of the waterpark resort industry, most of the major properties have either developed condominium hotel units or are in the process of doing so.
511 East Adams Street
Wisconsin Dells, Wisconsin
In addition to the Dells projects, we are aware of number other waterpark resorts that have sold guest rooms as condominiums. These include Boyne Mountain USA in Michigan, Timber Ridge, in Lake Geneva, Wisconsin and Silver Mountain Resort in Kellogg, Idaho. We are also working on similar projects in the Wisconsin Dells, Harvard, Illinois, Reno, Nevada and Wasaga Beach, Ontario.
For anyone considering the condominium hotel route, there are a few caveats to consider.
|Also See:||What Is a Waterpark --- Really? Blending Swimming Pools, Amusement/Theme Parks, Hotels & Resorts Calls for New Definitions / October 2004|
|Hotel Waterpark Resort Industry Report 2004; 14 New Hotel Waterparks Open, 32 Under Construction / October 2004|
|Hotel Waterpark Resorts - Construction Report 2004; 32 Are Under Construction or Breaking Ground in 2004 / Aug 2004|
|Ski Resorts Expand Year Round Revenues, Add Outdoor & Indoor Waterparks / Jeff Coy & Bill Haralson / May 2004|
|Jeff Coy and Bill Haralson Find a Way to Get Waterparks Flowing at Hotels and Resorts / April 2004|
|Hotel Waterpark Resort Industry Report - 2003 14 New Hotel Waterpark Resorts Open / October 2003|
|What’s It Going to Cost to Build a Hotel With an Indoor Waterpark? A Guide to Cost Allocations for Developers / Jeff Coy and Bill Haralson / May 2003|
|Hotel Waterpark Resort Industry Report - 2002 / Jeff Coy and Bill Haralson / Nov 2002|
|So You Want to Build a Hotel Indoor Waterpark / Jeff Coy and Bill Haralson / Sept 2002|
|Hotel Waterparks Grow Throughout Midwest, Product Ready for National Expansion / Bill Haralson and Jeff Coy / April 2002|
|Hotel Indoor Waterparks Boost Revenues, Extend Peak Season to Year Round / Jeff Coy, ISHC / January 2002|
|Wisconsin Dells Becoming a Land of Haves and Have-Nots; Waterpark Hotels Achieved 26 Points Higher Occupancy Than Regular Hotels in 2001 / April 2002|