With an Indoor Waterpark?
A Guide to Cost Allocations for Developers
|By Jeff Coy and Bill Haralson / May 2003
While the hotel industry has been fighting the perfect storm (9/11, War in Iraq and SARs) and its impact on occupancy, people still want to eat, love, work and play. Many still wonít board an airplane for a family vacation, but they will get in their cars and drive up to 200 miles to a regional resort --- especially a hotel waterpark resort.
The waterpark resort concept is so hot that hotel developers are moving ahead. Although hotel construction had slowed, the hotel development pipeline is filled with projects ready to break ground. Waterpark owners are asking what it takes to build a hotel. And hotel owners are asking how much it costs to build an indoor waterpark. Hereís a construction cost guide for both.
First, letís talk about the hotel.
Four types of hotel properties generally appeal to leisure travelers: (1) economy, (2) mid-priced, (3) upscale and (4) luxury hotels & resorts. These categories are based on physical attributes, amenities, pricing and chain ranking. Examples are shown in the following table.
HOTEL DEVELOPMENT COSTS
Hospitality consultants HVS gathered data from developers, lenders,
designers, engineers, assessors and other real estate experts regarding
hotel development and construction costs. They reviewed the estimated development
costs provided by the Uniform Franchise Offering Circulars from numerous
hotel franchising companies.
HOTEL DEVELOPMENT COSTS
The low to high development costs per room for each component (land, development, construction, ff&e, operating capital and pre-opening) vary widely among the different types of hotels. However, the average cost percentage for each component is highly similar for all hotels. For example, land costs for all types of hotels runs 11% to 15% of the total project cost.
The biggest variance from low to high costs falls in the luxury and resort category due to the extra time it takes for site acquisition, regulatory approvals, mitigation and higher quality construction. Development costs for four and five-star properties reflect the higher barriers to entry and higher quality improvements.
The wide variation from low to high costs per room for all hotels is also due to differences in site characteristics, density, building & zoning codes, local labor and other construction costs. For example, limited-service hotels may be more expensive to build in urban areas than full-service hotels in suburban areas.
No uniform system of hotel development cost allocation exists. Hotel development costs are accounted for different ways depending upon tax implications, underwriting requirements and investment structures. For example, FF&E and construction finish work can overlap and differ from one project to another. Overall, there is a give & take among the cost components --- a project with a high land cost may have a lower construction cost.
Hotel developers should use the above per room category costs only as a general guide while they sharpen their pencils on their own projects.
Ten years ago, after the Persian Gulf War, we emerged out a struggling economy and entered a hotel construction boom with several years of record hotel profits. Looking at the number of hotels in the development pipeline as of May 2003, it looks like that could happen again. Currently, construction costs are stabilizing and even declining in some cases. But when hotel construction surges ahead in the next two years, the demand for labor and materials will increase for all real estate development.
Second, letís talk about the indoor waterpark.
Whether you are constructing an all-new hotel indoor waterpark or you are adding an indoor waterpark to an existing hotel, it is helpful to estimate the waterpark costs separately and then later blend the hotel costs into the total project costs.
What size is your hotel? How many rooms do you have or plan to build?
A direct relationship exists between the number of hotel rooms and the size of your indoor waterpark. Your feasibility report should explain in detail things such as customer segment mix, occupants per room and waterpark participation rates among different types of hotel customers. Waterpark attendance and peak day design factors will determine the proper size of your waterpark. In addition, your policy regarding hotel guests and non-guests using the waterpark will affect the sizing of your waterpark. But for now, letís just use a rule of thumb for sizing indoor waterparks for different types of hotels.
Hotel Waterpark Resort Research & Consulting surveyed hotels with indoor waterparks in North America and gathered data relating to hotel rooms, waterpark sizes and features, construction costs and operating expenses. HWRRC is a collaborative effort of JLC Hospitality Consulting of Rochester MN (Jeff Coy) and William L. Haralson & Associates of Richardson TX (Bill Haralson). Here is what they discovered:
Economy Hotels with Waterparks
Economy hotels are typically brand names like Days Inn, Howard Johnson, Microtel, Red Roof Inns, Rodeway Inns, Super 8 and Travelodge. In the USA, average room rates are $56. Having an indoor waterpark can increase the average room rate up to $96 for an economy hotel.
Coy and Haralson surveyed economy hotels with less than 100 rooms and
indoor waterparks. The average hotel had 74 rooms and 8,196 sf of indoor
waterpark. Thatís a ratio of 110 sf per room for the indoor waterpark.
All economy hotels in the USA have an average of 115 rooms. Coy and Haralson
determined that hotels in this category can generally support an indoor
waterpark up to 12,500 square feet in size using the number of rooms times
110 sf rule of thumb, assuming demand is present.
The 51-room AmericInn in Orr, Minnesota has a 2,435 sf indoor pool. The indoor pool has a 30 foot tower in the corner of the pool building to accommodate a 20 foot high slide tower. This extra height gives owner Jim Langer the competitive advantage of having two waterslides, two pools and a spa inside his pool building. Is it an indoor waterpark by definition? Probably not, but donít tell Jim. His hotel is the first choice among families, anyway. You can reach Jim Langer at 218-757-3434.
In Canada, the rule of thumb is different. Coy and Haralson surveyed economy hotels with less than 100 rooms and indoor waterparks in Canada --- resulting in an average hotel with 69 rooms and a 2,918 sf indoor waterpark. That is a ratio of 42 sf of indoor waterpark per guest room.
The largest concentration of Economy Hotels with indoor waterparks is in Canada, particularly in Alberta, home of West Edmonton Mallís giant indoor waterpark and home of Amusement Leisure Worldwide of Calgary. David Orr, president of ALW, says his company has installed waterslides and play structures in dozens of Super 8s, Days Inns, Comfort Inns, HoJos, Travelodges and Imperial 400s throughout Canada. In some projects, slides and play equipment were simply installed inside indoor pools while other projects required the construction of a shell building to house the addition of an indoor waterpark.
Construction costs for an indoor waterpark attached to an Economy Hotel will vary between $237 and $263 per square foot. Here is a typical development budget for an indoor waterpark:
COST TO BUILD INDOOR WATERPARK FOR ECONOMY HOTEL
Amusement Leisure Worldwide is a major player in the waterpark resort industry. Their flagship is the installation of a 41,000 outdoor wave pool at Mandalay Bay Resort in Las Vegas. However, they also work with small economy hotel owners that want to enhance their indoor pools or add a waterpark. You can reach David Orr at 403-244-2202.
Mid-Priced Hotels with Waterparks
Mid-priced hotels in the USA average 202 rooms and room rates of $85. Having an indoor waterpark can increase the average room rate up to $145 for a mid-priced hotel. Mid-priced hotels come in two types: (1) Without Food & Beverage and (2) With Food & Beverage.
Only a few mid-priced hotels Without F&B have expanded their indoor pools or added indoor waterparks. These include brand names such as Comfort Inns, Holiday Inn Express and Hampton Inns. Food is important when attracting the family market. There is usually a restaurant next door.
More often, it is the mid-priced hotels With F&B that are adding indoor waterparks --- as they are more attractive to waterpark families with kids up to age 14. Leisure travelers using an indoor waterpark want to be able to get deli-style snack food inside the waterpark and enjoy an evening meal in the hotel restaurant. These full service hotels with restaurants and bars include brand names like Best Western, Holiday Inn, Ramada, Comfort Suites and Quality Inn.
Obviously, the decision to build a hotel indoor waterpark depends upon many factors, such as site selection, lodging-recreation supply & demand, population, household incomes and the number of families with kids up to age 14 within 200 miles. Two other important factors are proximity to major markets and access to interstate highways. However, if market demand is present, a Mid-Priced Hotel with 200 rooms will likely support a 30,000 sf indoor waterpark. Construction costs of the indoor waterpark will vary between $263 and $300 per square foot. One waterslide can cost $100,000. In addition to square footage, the major cost variables are the number of waterslides and theming.
Upscale Hotels & Resorts with Waterparks
Upscale hotels in the USA average 239 rooms and room rates of $110 while
resorts average 395 rooms and room rates of $169. Having an indoor waterpark
can increase the average room rate up to $190 for an upscale hotel and
up to $293 for a resort.
Not all upscale hotels and resort are branded. Many with indoor waterparks are independently owned and operated. The hotel indoor waterpark concept started in Wisconsin Dells WI in 1994 when Stan Anderson, owner of the Polynesian Resort, went to a trade show and bought some waterplay equipment. Fortunately, he installed the play equipment in his indoor pool. When his weekend hotel occupancy skyrocketed, the waterpark resort concept was born.
When Tom Lucke and Peter Helland saw what was happening at the Polynesian Resort, they built a 9,000 sf indoor waterpark at their Wildness Resort, followed by another 60,000 sf indoor waterpark. Jack and Turk Waterman built an 18,000 sf indoor waterpark as part of what is now known as Great Wolf Lodge. Not to be outdone, Treasure Island owner Jim Mattei built the Bay of Dreams, a 65,000 sf indoor waterpark.
Todd Nelson opened the 272-room Kalahari Resort with 67,500 sf indoor
waterpark in 2000 and then expanded to 378 rooms and 125,000 sf of indoor
waterpark in 2002.
However, almost all of the hotel waterpark development outside of Wisconsin Dells involves a franchise brand. Of 32 hotel indoor waterparks outside Wisconsin Dells, 19 are affiliated with a national hotel brand name.
For example, upscale franchise brands include the Hilton City Centerís Paradise Landing in Milwaukee and Marriottís Depot Hotel & Waterpark in renovated railroad depot in downtown Minneapolis.
The Great Lakes Companies of Madison WI broke the entrepreneurial mold when they purchased the Great Wolf Lodge from the Waterman family.
Great Wolf Lodge is a good example of an Upscale Resort. The company polished their northwoods lodge prototype, tightened their operation and is in the process of reproducing it in 14 other markets by 2005.
The Great Wolf Lodge concept is fast becoming its own brand. By 2005,
Great Lakes will be a major hotel company with its own brand firmly established
in the hotel waterpark resort industry. The company likes to build indoor
waterparks that are 122 sf to 142 sf per guest room.
Their Niagara Falls Ontario property, scheduled to start construction in December 2003, will have 398 rooms and a 50,000 sf indoor waterpark. That is a ratio of 126 sf per guest room to determine the size of the indoor waterpark.
Construction costs for an indoor waterpark will run $300 per sf or higher. For the developer that wants to build a 300-room Upscale Resort with a 40,000 sf Indoor Waterpark, here is a typical development budget:
TYPICAL COST FOR UPSCALE HOTEL WATERPARK RESORT
Luxury Hotels & Resorts with Waterparks
Luxury hotels and resorts in the USA average 395 rooms and room rates of $148 to $169. Having an indoor waterpark can increase the average room rate up to $293 for a resort. Some of the luxury resort brands include Ritz Carlton, Peninsula, Four Seasons, St Regis and Preferred Hotels as well as many independent luxury resorts. One 5-star resort brand has begun to research the merits of attracting families with an indoor waterpark; however most luxury brands are not targeting families with kids --- probably due to the fact that many young families have not yet reached the higher income levels.
By comparison, letís look at two luxury giants in the hotel waterpark resort industry. The $70 million Kalahari Resort completed an expansion to 378 rooms and 125,000 sf of indoor waterpark space --- a ratio of 330 sf per guest room to size its indoor waterpark.
The Wilderness Resort just completed an expansion to 439 rooms and 109,000 sf of indoor waterparks --- a ratio of 248 sf per guest room to size its indoor waterpark.
Hotel Waterpark Sizing & Development Costs
How many hotel rooms should you build? How big should your indoor waterpark be? How much will the total project cost?
Here is a guide to help answer those questions. A direct relationship exists between the number of hotel rooms and the size of your indoor waterpark. For example, hotels with waterparks over 50,000 sf average 328 rooms and 89,500 sf of indoor waterpark --- a ratio of 273 sf of waterpark per guest room. That ratio decelerates as waterparks get smaller.
To illustrate, hotels with waterparks 40,000 sf to 49,000 sf average
230 rooms and 42,000 sf of indoor waterpark --- a ratio of 183 sf of waterpark
per guest room. Use the chart below to help size your project.
How much should you spend on your hotel waterpark project?
Generally, you can expect to spend from $237 to over $300 per sf on just the indoor waterpark itself --- depending on the number of pools, water rides, slides, play structures and theming. In a recent roundup with owners, consultants Jeff Coy and Bill Haralson determined the total project costs for hotel-waterparks recently opened, under construction and in the planning stages.
Hotel waterpark developers are focusing on new markets for new construction, while owners of existing hotels are thinking about enclosing their pools, raising their ceilings to make room for waterslide towers and installing splash down pools, activity pools, kiddie pools, adult spas, lazy rivers, treehouses, water sprays and geyser guns.
Indoor waterparks have a dramatic positive impact on hotel occupancy, room rates and room revenues. Any resort destination with a seasonality or weather problem is an ideal candidate for an indoor waterpark. Any hotel with a big difference in occupancy from month to month or from weekday to weekend can improve their performance with an indoor waterpark.
As of today, hotel developers have 320,000 guest rooms in the development pipeline --- either under construction or in the final planning stages.
Some of these developers are planning to be the first in their markets with a hotel indoor waterpark. Are you ready? To find out what to do, contact an expert about your situation and ask for a proposal.
Hotel Waterpark Resort Research & Consulting is a collaboration
of Jeff Coy and Bill Haralson. Coy is certified by the International Society
of Hospitality Consultants. Haralson is a Hall of Fame member of World
Waterpark Association. For more info, contact Jeff at 507-289-7404 or email
Website is www.jeffcoy.com. Reach
Bill at 972-231-7444 or email [email protected].
|Also See:||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|