Summary:  The latest biannual survey of indoor waterpark resorts in the U.S. and Canada by Hotel & Leisure Advisors, LLC (H&LA) indicates that the number of new indoor waterpark resort projects is expected to decline in 2009 after steady growth from 2004 through 2008. However, despite the economic recession in both the United States and Canada, a number of exciting new projects will be opening in 2009 which will create leisure opportunities for family travelers.

Our research indicates there are 132 open indoor waterpark resort properties in the United States and Canada. Of the total, 46 are considered �indoor waterpark destination resorts� offering more than 30,000 square feet of indoor waterpark space. Additionally, our survey found that in 2009 the growth in indoor waterparks in terms of square footage will be the smallest since 2004. There will be 13 openings of indoor waterparks and five expansions of existing indoor waterpark resorts projected for 2009. The 2009 openings include only two indoor waterpark destination resorts. There is still significant interest by developers to construct new indoor waterparks but, due to the current challenges of finding financing and investors for these entertainment-related projects, most projects are in a holding pattern.

Definition:  An indoor waterpark resort is defined by H&LA as a lodging establishment containing an aquatic facility with a minimum of 10,000 square feet of indoor waterpark space and inclusive of amenities such as slides, tubes, and a variety of indoor water play features. Although numerous hotels bill their indoor pools as waterparks, those with less than 10,000 square feet should be categorized as properties with water features rather than as waterparks. H&LA has divided indoor waterpark resorts into two categories: hotel with indoor waterpark and indoor waterpark destination resort. A hotel with indoor waterpark is a hotel with an attached indoor waterpark with 10,000 to 30,000 square feet of indoor waterpark space where the indoor waterpark serves as an amenity of the hotel versus a true destination. An indoor waterpark destination resort is a resort with more than 30,000 square feet of indoor waterpark space and is considered a true destination resort, which families visit on a year round basis primarily to visit the waterpark and secondarily to visit other attractions or events in the area. An indoor waterpark destination resort will typically have a number of slides and pools and high quality theming. A hotel with a smaller indoor waterpark may offer only a few slides and pools and little or no theming.

Existing Supply: We have conducted a survey to determine the number of indoor waterpark resorts which were open as of year-end 2008 and those which are projected to open in 2009. The following maps indicate the number of open indoor waterpark resorts in the United States and Canada by state.

The table indicates the existing supply of indoor waterpark resorts. Of the 132 existing properties in the United States and Canada, 46 of the properties are considered indoor waterpark destination resorts, offering more than 30,000 square feet of indoor waterpark space. Of these 46 properties, 11 are Great Wolf Resorts which is the largest chain of indoor waterpark destination resorts in North America.

The second largest chain of indoor waterpark resorts are the Coco Key Resorts which have 10 properties that are connected to a variety of hotel franchise properties. Of the remaining properties, all are individual owners with one or two existing properties. Since 2006, 32 additional indoor waterpark resort properties have opened in the United States and Canada of which 14 are considered indoor waterpark destination resorts.

The vast majority of indoor waterpark resorts are independent properties not affiliated with a national hotel franchise. Of the existing properties, 59 are currently affiliated with a national hotel franchise while the remainder (including the Great Wolf Lodge brand) are independent properties.

The following table indicates trends in the growth of supply of indoor waterpark square footage, the number of indoor waterpark resort guest rooms, and the number of indoor waterpark resorts which opened between 2004 and 2008 and our projections for 2009.
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In spite of the economic slowdown, the performance of many indoor waterparks continues to be positive. For example, the Great Wolf Lodge chain reported higher occupancy and average daily rate through the third quarter of 2008 as compared to 2007. Through year-to-date September 2008, the chain reported an overall occupancy percentage of 68.6% with an average daily rate of $256.37. Other properties which we have reviewed in 2008 have exhibited higher levels of performance due to the trend by travelers to vacation closer to home.

Although performance of many indoor waterpark resorts continues to be positive, a few properties have struggled or gone bankrupt in 2008. These properties include the Maui Sands Resort in Sandusky, Ohio; Double JJ Resort in Rothbury, Michigan; and Three Bears Lodge in Warrens, Wisconsin. All three properties are currently working through bankruptcy proceedings and hope to reopen in 2009. The challenges faced by these properties and others indicate the need for strong management and marketing for an indoor waterpark resort. Properties need to plan well for financing and other financial issues. These properties were unable to achieve strong enough levels of performance to pay outstanding balances on loans and other expenses.

2008 Openings: We have tracked the openings of indoor waterpark resorts in 2008. The following table indicates those properties that opened in 2008.
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The chart indicates that 21 hotel properties with indoor waterparks opened or expanded in 2008. Of the properties which opened in 2008, eight properties were entirely new construction facilities while the remaining 13 represent additions to existing hotels or additions to existing indoor waterpark resorts. The total includes eight new indoor waterparks considered as destination resorts (over 30,000 square feet).

The Great Wolf Lodge in Grand Mound, Washington, and the Key Lime Cove Resort in Gurnee, Illinois, represent the two largest properties to open in 2008. Both properties feature multiple restaurants, gift shops, spas, larger indoor waterpark areas, and themed guest rooms.

2009 Projected Openings: We have analyzed the potential openings for indoor waterpark resorts in 2009. Based upon our research, we project 18 indoor waterpark projects to open or expand in the United States and Canada as shown in the following table.
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In addition to the 18 resorts listed above, we are also tracking 300 proposals for new indoor waterpark resorts or indoor waterpark additions to existing properties. Developers have a high level of interest in constructing these entertainment related projects but due to the current challenges of finding financing and investors, most projects are currently on hold. The financing challenges of the overall United States economy have had a major limiting impact on the new development of hotels in general as well as indoor waterpark resorts.

We have highlighted recent openings of and changes to destination resorts in the bullet points below.

• The Kalahari Resort in Wisconsin Dells, Wisconsin, opened a $15 million, 108,000 square foot indoor family entertainment center in December of 2008. The new indoor theme park addition is located between the main hotel and Damon's Restaurant. It includes: a six-story Ferris wheel, 24 bowling lanes, go-karts for kids and adults, a carousel, laser tag, three play areas including two inflatable play areas, an arcade, a ropes course, indoor mini golf, two golf simulators, a sports bar, and a dance floor. The indoor theme park offers an all-day adult admission for $19.95 or attractions can be purchased individually.

• The Wilderness at the Smokies Resort is the second phase of an extensive development in Sevierville, Tennessee. The first phase involved the development of a 234-room hotel attached to the Sevierville Event Center which included an outdoor waterpark. The second phase is located across the street from the Event Center hotel and includes 470 condominium hotel units and a 52,000 square foot indoor waterpark. The Wilderness opened the indoor waterpark in December 2008 and all the hotel rooms will come online in 2009. The resort plans to restrict the usage of the indoor waterpark to the resort guests, the guests of the
• Wilderness Event Center Hotel located across the street, and the adjoining Wyndham timeshare owners when completed.

• CoCo Key Waterparks are now opened at 10 locations, with the latest opening in Fitchburg, Massachusetts. Other locations include indoor waterpark additions at: Cherry Valley Lodge, Newark, Ohio; Sheraton, Arlington Heights, Illinois; Best Western Clocktower, Rockford, Illinois; the Sheraton Ferncroft, Danvers, Massachusetts; Holiday Inn, Omaha, Nebraska; Sheraton and Fairfield Inn, Sharonville, Ohio; Holiday Inn, Waterbury, Connecticut; Marriott Hotel, Mount Laurel, New Jersey; and the Sheraton Hotel, Kansas City, Missouri.

• Great Wolf Lodge will open its newest property in Concord, North Carolina, outside of Charlotte in the spring of 2009. The property will offer 402 rooms and an 81,000 square foot indoor waterpark. The indoor waterpark will be the largest resort, by square footage of indoor waterpark area, in the Southeastern United States. This will be the 12th property managed by Great Wolf Resorts.

• The Split Rock Resort in Lake Harmony, Pennsylvania opened a 53,000 square foot indoor waterpark called H20ooohh! The resort is located in the Poconos region of Pennsylvania and offers the second-largest indoor waterpark in this region after the Great Wolf Lodge. The resort offers a mixture of timeshare and traditional hotel rooms along with 60,000 square feet of meeting and exhibit space. It offers a wide range of amenities including 27 holes of golf.

An important trend is occurring in the indoor waterpark resort development field. Larger resorts such as the new generation Great Wolf Lodge properties are achieving stronger levels of performance than the smaller indoor waterpark additions to existing hotels or new construction properties. Because the larger properties (offering waterparks over 60,000 square feet) offer a greater number of amenities, families return to the resort more often. These properties are able to achieve higher levels of occupancy and average daily rate despite their higher room counts.

We project continued interest in development of indoor waterpark resorts in the northern United States because they offer an attractive year-round leisure opportunity for families and attractive investment returns for developers. We also project growth in outdoor waterparks at hotels in the southern United States as these represent a lower cost of construction and can boost a hotel�s summertime performance.

With the current challenges in the financing market, we project a slowdown in growth in 2010 but potential for increased growth in 2011 and beyond as lending opportunities increase. The advantage to the current lack of lending is that current owners of indoor waterpark resorts are less likely to face new competition. However, in certain Midwestern states such as Michigan, Minnesota, Ohio, and Wisconsin, the competition for family travelers among the many existing indoor waterpark resorts combined with the economic recession has limited the performance levels of the existing properties. Before a new project is developed, we recommend a thorough feasibility analysis be performed to ensure that the project's return on investment is adequate for the development. For existing projects, we recommend a creative management team be hired in order to generate a higher level of demand for the property.

David J. Sangree, MAI, CPA, ISHC is President of Hotel & Leisure Advisors, a national hospitality consulting firm. He performs appraisals, feasibility studies, economic impact studies, impact studies, and other consulting reports for hotels, resorts, waterparks, golf courses, amusement parks, conference centers, ski resorts and other leisure properties.

He has performed over 1,000 hotel studies and over 200 indoor waterpark resort market feasibility and/or appraisal studies across the United States and Canada. H&LA maintains the industry's largest database of financial performance figures for indoor waterpark resorts. He also provides operational reviews and acts as an asset manager to existing hotels and indoor waterpark resort properties.

He was formerly employed by US Realty Consultants in Cleveland and Columbus, Pannell Kerr Forster in Chicago, and Westin Hotels in Chicago, New York, Fort Lauderdale, and Cincinnati. Mr. Sangree received his Bachelor of Science degree from Cornell University School of Hotel Administration in 1984. He became a certified public accountant in 1989.

He became an MAI member of the Appraisal Institute in 1995 and a member of the International Society of Hospitality Consultants in 1996.

Since 1987, Mr. Sangree has provided consulting services to banks, hotel companies, developers, management companies, and other parties involved in the lodging sector throughout the United States, Canada, and the Caribbean. He has spoken on various hospitality matters at seminars throughout the United States, and has written numerous articles for, and is frequently quoted in, magazines and newspapers covering the hospitality field.

He can be reached via telephone at 216-228-7000 or via e-mail at [email protected].

Hotel & Leisure Advisors, LLC
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Phone: 216-228-7000
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Web Site: www.hladvisors.com