By Jeff Coy and Bill Haralson
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July 2, 2007 --- During 2007, forty-eight (48) new hotel indoor waterparks are expected to open, including new additions and expansion projects that are scheduled to open in the second half of 2007. Ninety-seven (97) hotel waterpark projects are under construction now or will break ground later in 2007. An indoor waterpark is like an outdoor waterpark, except all the fun is packed into a cube which is attached to a hotel that is open 365 days a year, rain or shine. The first hotel indoor waterpark in the USA was accidentally created in 1994 by Stan Anderson, owner of the Polynesian Resort in Wisconsin Dells WI, a businessman who was trying to fill his hotel rooms on weekends. He installed some water gizmo in his indoor pool, and weekend occupancy skyrocketed. From this, Wisconsin Dells has spawned 21 waterpark resorts and has become the waterpark capital of the world. Hotel waterparks are a small but fast-growing sector of the resort industry which is expected to total one hundred and eighty-four (184) by year end. Hotel waterparks merge lodging, recreation and entertainment into one package. They are a big hit with families and hotel owners nationwide because they fill empty rooms at higher room rates.

. Stan Anderson, owner of the Polynesian Resort in Wisconsin Dells and pioneer of the hotel indoor waterpark industry in the USA. .

Nationally, these 184 properties have a total of 28,729 rooms, nearly 4.0 million square feet of indoor waterpark space and 614 meeting rooms covering nearly 1.7 million square feet of meeting space. In 2007, about 46% of hotel waterparks are affiliated with a national franchise brand, up from 40% in 2002.

Hotels and resorts have ups and downs. They are seasonal properties with high periods and low periods from month to month and from weekday to weekends. The indoor waterpark has an amazing ability to fill empty rooms with families and young children on weekends all year long and whenever kids are out of school. Yet a hotel waterpark resort is still just a hotel with a very expensive ($400 psf) attraction, similar to having a golf course or conference center. The indoor waterpark is a perfect component for the hotel owner that wants a balanced mix of customers --- individual business travelers, groups and individual leisure guests.

USA Hotel Industry Performance

The USA hotel industry occupancy is expected to reach 63.1% for 2007, just slightly under the 63.4% recorded for 2006 --- up from a low of 59.0% in 2002 and almost even with benchmark Year 2000.
 

Nationwide, hotel room rates will reach an average of $102.97 in 2007, up from $97.31 in 2006, a low of $83.19 in 2002/2003 and up from $86.04 in benchmark Year 2000.

In 2006, airport, urban and resort hotels ran the highest occupancies. Interstate hotels showed the biggest improvement in occupancy over the previous year. Of course, resort hotel locations showed the highest average room rates at $135.42, which reflects all of the amenities of a resort, compared to other types of lodging.
 

Forecast for 2007

For the first five months of 2007, hotel industry occupancy reached 61.6%, only 3/10^th of one percent behind the same period last year. Hotel room rates averaged $102.86 compared to $97.21, up $5 over the same period last year.

Through May, upscale, upper scale and luxury chain hotels achieved higher occupancies than midpriced and economy properties. The Mountain Region produced the highest occupancy, probably due to the great winter ski season in the Rockies. Nationally, the highest priced hotels achieved the highest occupancies. Regarding location, airport hotels ran the highest occupancy at 70% followed by urban hotels at 67.3% and resort locations at 66.7%.

Hotel room supply, demand, room rates and revpar (revenues per available room) all showed positive growth for the last 12 months and through May 2007. Hotel occupancy showed a slight downward shift for the last 12 months but showed positive for May 2007 as we head into summer.

In the summer of 2007, the USA hotel industry will achieve a new record number of occupied rooms per night of 3.14 million, according to a report by PriceWaterhouseCoopers in June. The summer occupancy in 2007 is forecast to be slightly lower than 2006, 69.6%, the second-highest since the peak of 72.1% in 2001 and about one percentage point below the 70.2% occupancy in 2006.

Occupancy for the five-day weekend of the Fourth of July, which falls on a Wednesday this year, is expected to be spread among the before and after weekends at 69.2%. Labor Day weekend is expected to reach 70.1%.

Looks Good for Summer 2007 Leisure Travel

The USA travel industry is expected to have a good summer travel season in 2007, with leisure travel increasing 1.4% over last summer, according to the Travel Industry Association. Americans will take 330 million person-trips in June, July and August, a record high number. Americans are expecting higher gas prices this summer but seem to be taking it in stride. Gas prices of around $3.00 will cause 11% of Americans to modify their summer travel plans, according to a TIA-AAA survey. The real tipping point seems to be $3.50 a gallon gas, with nearly one-third of travelers saying they would cancel their trip.

According to PWC, higher gas prices will result in 8,000 fewer occupied rooms per night between Memorial Day and Labor Day.

There is also emerging price resistance to increases in hotel average room rates. USA hotel average room rate (ADR) increases will decelerate through the remainder of 2007, as new construction accelerates and demand lessens. Nevertheless, analysts predict that hotel room rates will increase in 2007 by the second-highest percent in 10 years.

Most families in the USA will bite the bullet on higher gasoline prices and refuse to abandon their vacation plans.

Many will vacation closer to home, eat fewer meals in restaurants and escape for weekends at nearby regional resorts --- a growing number of which now offer indoor waterparks and family entertainment centers.

Most Lucrative States for Hotel Investment

Currently, the most lucrative states for hotel investment are Hawaii, New York and Massachusetts where hotel revenues are the highest in the nation.

Alaska, Illinois, Arizona and Massachusetts had the biggest gains in revenues per available room.

Hotel revenue per available room (RevPAR) is the key indicator that takes into account supply, demand, occupancy, scarcity and pricing.
 

RevPAR is a measure of asset productivity that often points developers to the most attractive locations for new construction, although many of these desirable locations also have high barriers to entry.

Most Desirable Hotel Markets

In 2006, the most desirable hotel markets, in terms of their ability to generate the highest revenues per available room are New York City, Oahu, Miami and San Francisco.

The biggest gains were made by Chicago, San Francisco, Boston and Los Angeles, which recorded double-digit hotel revenue growth.
 

USA Resort Performance

Hawaii is the leading resort destination with 79.8% occupancy (down 1.6% from last year) and $184 average room rate (up 11.2% over last year). This compares to occupancy of 66.6% and average room rate of $135 for all resorts in the USA.
 

Nevada, Florida, California and Arizona trail closely behind with occupancies of 71.9%, 65.8%, 69.5% and 67.0%, respectively. Colorado recorded the biggest gain in occupancy at 3.7% while Hawaii recorded the biggest decline in occupancy versus last year.

The highest resort room prices were found in Hawaii at $184, California at $111, Florida at $109 and Nevada at $104. Hawaii recorded a price jump of more than 11% in 2006 compared to last year.

Colorado, Minnesota and Wisconsin achieved statewide occupancy under the national average for all USA Resorts in both occupancy and average room rates. However, trends are shifting. Wisconsin and Minnesota have the highest number of hotel indoor waterpark resorts in the country, and a growing number of ski resorts are considering indoor waterpark projects to achieve year round revenues. Many of the top hotel waterpark resort properties record occupancies and room rates far above the national averages and equal to many of the Sunbelt resort destination states.

USA Hotel Waterpark Resort Performance

On January 1, 2007, there were 136 hotels in the USA with indoor waterparks --- from the smallest water features to the largest waterpark resorts.

During 2007, forty-eight (48) new additions and expansion projects are expected to open by year end, bringing the total to 184 hotel waterpark resorts open and operating in the USA.

Another forty-nine (49) projects are under construction now or will break ground during 2007 which are scheduled to open in 2008 and beyond.
 

Clearly, hotel waterpark resorts are not a fad but here to stay. About 166 projects are in the development pipeline compared to 108 in 2006, 121 in 2005, 69 in 2004, 46 in 2003 and 19 in 2002. The waterpark sector of the resort industry has experienced annual growth of more than 30% over the last several years.

But it is difficult to know how well hotel waterpark resorts perform financially as a group. Many of the larger independent properties do not report statistics to Smith Travel Research. Even the Wisconsin Dells Convention & Visitors Bureau collects little in the way of way of hotel waterpark resort performance data. The hotel owners keep their operating data fairly close to the vest. Great Wolf Resorts Inc is a public company and their operating data is available for all to see online in various SEC filings. Yet, two years ago, Great Wolf Resorts stopped reporting individual property data in favor of reporting same store comparisons, which effectively makes it more difficult for shareholders and other observers to determine how well individual hotels are performing. Regardless, Great Wolf Resorts performance is not necessarily the industry benchmark because they are being out-performed in several markets --- although they lead the industry in terms of multiple locations.

As a result, the best operating performance data is in proprietary databases of a few consultants, appraisers and emerging management companies with multiple locations. In 2001 Hotel Waterpark Resort Research & Consulting was formed for the purpose of collecting, analyzing and publishing data regarding this growing segment of the resort industry. HWRRC is a collaborative effort of Jeff Coy of JLC Hospitality Consulting of Cave Creek AZ and Bill Haralson of William L. Haralson & Associates of Alto NM. Together the two consultants produce an Annual Industry Report, a Construction Report and several developer workshops, where they present their latest research and a variety of expert speakers.

Wisconsin Dells Hotel Performance

In 1990, before indoor waterparks, Wisconsin Dells ran a 40% annually hotel occupancy and had a 100-day peak season. Today, it has 18 hotels with indoor waterparks and has a 365-day peak season. The largest hotel waterpark resorts are running occupancies in the high 70s and low 80s --- 15 to 20 points above the national hotel average.

In 2002, hotels WITH indoor waterparks achieved 26 points higher occupancy and $69 higher average room rates than hotels WITHOUT indoor waterparks in Wisconsin Dells.

In 2004, we updated that research survey to determine the impact of 9/11, the economic recovery and what happened to the haves and have-nots in Wisconsin Dells over the last three years.

Eighteen (18) hotels WITH indoor waterparks captured 85% of the total market hotel revenue in Wisconsin Dells while forty-four (44) hotels WITHOUT indoor waterparks were left with only 15% of the total market hotel revenue. As a result, we referred to Wisconsin Dells as "the land of haves and have-nots."

In 2007, the top two hotel waterpark resorts achieved average room rates above $200. Hotels WITH indoor waterparks recorded average room rates that are 2X that of hotels WITHOUT indoor waterparks. And the average room rate trend over the last three years is getting higher for the haves and lower for the have-nots! The biggest properties are gaining market share while the smaller properties continue to lose market share.

USA Competitive Supply of Hotel Waterparks

One hundred and eighty-four (184) hotel indoor waterparks are open and operating in the USA, including projects scheduled to open in the final months of 2007. Here is a list of hotel waterpark resorts that opened in the following states since 2001:
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Here is a list of the hotel waterpark resorts added to the supply in 2006:
 

Top 25 Largest Hotel Waterpark Resorts in the USA

Hotels with the largest indoor waterparks are concentrated in Wisconsin Dells WI but the trend is moving nationwide.
 

Profile of USA Hotel Waterpark Resorts by Number of Rooms

Among the Top 5 largest resorts by room count, the average number of hotel rooms is 896 with an indoor waterpark of 99,200 sf or 110 sf per guest room. Among the Top 5, this sizing ratio varies from 30 sf per guest room for the Massanutten Resort to 280 sf per guest room for the Wilderness Resort. The Top 5 resorts have an average of 7.2 waterslides, 2.0 pools and 1.8 hot tubs. All of them have one or more lazy rivers, 80% have a wave pool and 40% have a water coaster. The Top 5 resorts average 75,766 sf of meeting space and 42 meeting rooms. The Top 5 hotel waterpark resorts in 2007 have more rooms, bigger waterparks, more water features and more meeting space than the Top 5 resorts in 2006. Several of the Top 5 have condos pre-sold to individuals that are part of the hotel rental pool.