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Add Water and Stir: Wave Development and Sage Hospitality
 Collaborating to Buy Hotels and Then Add Indoor Water Parks
By Tom Daykin, Milwaukee Journal SentinelMcClatchy-Tribune Business News

Jan. 22, 2007 - To boost business at lagging hotels throughout the country, a Milwaukee development firm and a Denver hotel operator have concocted a simple formula: Add water and stir.

Wave Development and Denver-based Sage Hospitality are collaborating to buy hotels and then add indoor water parks, making them more attractive to families looking for weekend getaways and vacations. Wave and Sage have opened three water parks at hotels in northern Illinois and Ohio since December, with three more openings planned for later this year.

The two companies could eventually own 17 to 20 hotels with water parks, with each development costing an average of around $55 million, said Brad Robinette, Sage's senior vice president for growth.

The companies are buying hotels that mainly cater to business travelers, who typically need rooms from Monday through Thursday nights. By adding the water parks, Wave and Sage are drawing more leisure travelers, which boosts the weekend business at the hotels, Robinette said. "It's a perfect match of putting business in your hotel at the slowest times," he said.

Wave Development first took that approach when it added a water park to the former Country Inn Hotel in Waukesha, now known as Country Springs. The water park at Country Springs, which opened in March 2005, led to higher room rates, and it has boosted the hotel's occupancy, said Ed Carow, a Wave Development principal. "It's been a tremendous asset," Carow said. "Revenues have been dramatically increased."

Local ties

Carow and his Wave co-owners, fellow developer Mark Flaherty and Chuck Heath, who owns Madison-based Horizon Construction, figured they could take the Country Springs model and apply it to other hotels that do well with business travelers, but suffer from a sparse weekend trade. Wave hooked up with Sage, which operates around 50 hotels, through Hexagon Investments, a private equity firm with offices in both Milwaukee and Denver, Robinette said.

Hexagon's president is Scott Reiman, a Denver-area resident and son of Roy Reiman, the founder of Greendale-based magazine publisher Reiman Publications. Roy Reiman and other members of his family are investors in Hexagon. Hexagon is an investor in Sage's only Wisconsin hotel, the Residence Inn by Marriott-Downtown Milwaukee, and in a Pittsburgh hotel that Sage operates.

Hexagon also is an investor in Wave's Country Springs project. Under the partnership, which includes investment capital from Hexagon, Sage and Wave have so far bought eight hotels. Since December, the partnership has opened water parks at three locations: Cherry Valley Lodge, in Newark, Ohio, near Columbus; Sheraton Chicago Northwest, in Arlington Heights, Ill., and Best Western Clock Tower Resort, in Rockford, Ill.

Three more water parks are to open in 2007, in Danvers, Mass., near Boston; Omaha and Cincinnati. The other two will open in 2008, in Mount Laurel, N.J., near Philadelphia, and Kansas City. Sage and Wave are looking for other hotels to buy, Robinette and Carow said.

Looking for value

The targeted hotels must come with enough land to add a water park, Carow said. Sage and Wave also want hotels with lagging occupancy numbers that would benefit from a major investment, Robinette said. That helps lower the hotel's sale price. "We're looking for value buys," Robinette said.

Along with the new water parks, which typically cost around $22 million to $25 million, the hotels are receiving room upgrades and other improvements, ranging from $4 million to $14 million. The other component is the acquisition costs, which vary widely.

The water parks carry the name of CoCo Key Water Resort and range from around 40,000 square feet to 80,000 square feet. Each water park includes slides, pools, a floating movie theater and other features. They also have a Key West theme, with cabanas and palm trees among the decor. At CoCo Key in Rockford, where the resort's live parrot mascot perches at the water park's entrance, Beth Baulsen brought her 11-year-old daughter Aspen and a family friend to splash around on Friday. Baulsen, of Sycamore, Ill., said her family often goes to water parks in Wisconsin Dells, which is about a two-hour drive from their home. She decided to check out CoCo Key, which just opened and is about a 40-minute drive. "It's a little smaller" than Kalahari Waterpark and other large resorts in the Dells, Baulsen said, but CoCo Key has many of the same features of the mega-water park resorts, she said. Aspen particularly likes the whirlpool that has both an indoor and an outdoor section, where swimmers can sit in the hot water while their heads are enjoying the frigid temperatures of January in northern Illinois.

Business vs. pleasure

While the water parks are livening up the hotels, Sage and Wave are taking steps to ensure that business travelers -- their core customers -- aren't put off by the sight of soggy vacationers strolling through the corridors.

The water parks are being built in areas of the hotels that are not close to the conference rooms and other features used mainly by business travelers, Robinette said. Also, guests using the water parks and business travelers are being placed in rooms that are in separate portions of the hotels, he said. Still, there are situations where business travelers also are water park users, Carow said.

Companies that book the hotels for conferences are sometimes adding an extra day heading into the weekend so those attending the conferences can bring their families to enjoy the water parks, he said.

Good business

Sage and Wave are taking a smart approach, said Jeff Coy, who operates JLC Hospitality Consulting Inc., in Cave Creek, Ariz.

For hotels that cater mainly to business travelers, the addition of a water park means "you can sell out Friday and Saturday nights, including cold, snowy weekends," said Coy, who's worked extensively on hotel water park projects. Sage and Wave also are taking steps to protect their properties from competing hotels that might eventually add water parks.

There will be 181 hotel water parks operating nationwide by the end of 2007, compared with 50 at the end of 2002, according to a study by Coy and fellow consultant Bill Haralson.

Sage and Wave are opening the CoCo Key developments in locations that are not traditional tourism destinations. That helps reduce competition, as does the high costs of adding a water park, Robinette and Carow said. Also, Sage and Wave and mainly targeting locations with large populations, such as the Chicago and Philadelphia metro areas, Carow said. That broadens the customer base.

Finally, the partners plan to make changes and upgrades throughout the life of the water parks in order to keep their appeal fresh. "There's no way you can ever stop competition," Robinette said. "But you can be prepared to deal with it the best you can." 

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Copyright (c) 2007, Milwaukee Journal Sentinel

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