News for the Hospitality Executive
Financing Your Indoor Waterpark Resort in 2009
By David J. Sangree, MAI, CPA, ISHC, September 2009
You have your plans and reports in hand and are ready to start your indoor waterpark resort. Where does the money come from? Unfortunately in 2009 financing for new construction hotels and waterparks is extremely difficult due to the ongoing economic recession and a dramatic reduction in lending by various institutions.
Despite the fact that in terms of occupancy levels and average daily rates, many indoor waterpark resorts are doing far better than hotels without indoor waterparks in equivalent markets, financing your new indoor waterpark resort will be more difficult than financing a typical hotel or commercial building. Indoor waterpark resort projects are usually larger in scale and require larger development loans.
Additionally, the risks involved in starting and operating an amusement-oriented resort property are higher than those involved in starting and running other types of properties. Also, if you are planning to start an independent property rather than a franchised property, you will have the additional challenge of overcoming the typical lenderís view that independent properties are less economically stable than franchised properties.
This article characterizes indoor waterpark resorts and the types of financing that are generally available. A discussion of the challenges to obtaining financing is followed by suggestions to overcome those obstacles.
Characteristics of Indoor Waterpark Resorts
Size and Features
The following table summarizes the current supply of indoor waterpark resorts in North America. The chart also indicates average room counts, waterpark size and the percentage of properties which are franchised.
The growth of indoor waterpark resorts has been strong in recent years with 17 properties projected to expand or open by year-end 2009. Many new indoor waterpark projects have been proposed at new resorts and existing hotels throughout the northern United States and Canada. As of September 2009, we are tracking 324 properties in the United States and Canada which are proposing to add indoor waterpark facilities or are developing new construction indoor waterpark resorts. The list includes numerous projects developers have wanted to construct but have been unable to obtain financing for. Because of the challenging financing markets in 2008 and 2009, the number of projected openings expected for 2010 will be smaller as few properties are currently under construction.
Financing Indoor Waterpark Resorts
Indoor waterpark resorts have been financed through a variety of methods including:
David J. Sangree, MAI, CPA, ISHC interviewed various lenders and investors concerning the financing of indoor waterpark resorts in September 2009. The overriding message lenders provided to us was that currently there is a lack of financing for new construction hotels with or without indoor waterparks particularly for larger projects. Although a few hedge funds have started to offer money, their fees are extremely high for the borrower. Most banks are not interested in a hospitality loan unless the borrower is credit worthy. The following chart summarizes the rates and types of financing commonly used with indoor waterpark resorts for a borrower who is creditworthy and has strong liquidity.
Indoor Waterpark Resort Financing Survey:
The rates quoted for the 2009 survey indicate that lenders have become somewhat more cautious as compared to 2008 concerning their loan to value ratio and debt coverage ratio as they are expecting the developer to provide a higher amount of equity for the project. As of September 2009, lenders are considering new construction primarily for smaller developments of $5,000,000 or less, and larger projects are having great difficulty finding interested lenders.
Challenges in Financing an Indoor Waterpark Resort
Indoor waterpark resorts have proven to be more difficult to finance than typical hotel properties or other commercial properties. The difficulty in financing an indoor waterpark resort comes, in part, from the fact that it is both a hotel and an amusement attraction. Below are characteristics of these unique properties which make financing them difficult:
A developer may counter these difficulties in obtaining financing by preparing a comprehensive package of documentation for a lender. A thorough feasibility study will provide projections of revenues and expenses by outlining industry trends and successes. The study also educates lenders about this relatively new area of real estate development. A strong business plan illustrates the developer's expertise and commitment to success. A well-documented appraisal will analyze construction costs and the market feasibility of the resort in determining the market value. Together, these documents provide the lender with solid information on which to base prudent financing decisions.
Typically, lenders require a higher equity contribution for an indoor
waterpark resort loan than for a more traditional hotel loan. Our
interviews with hotel lenders indicate that developers need to be patient
and consider a wide range of potential lenders for their projects. There
are interested lenders who are looking at projects, but finding the right
fit for individual projects is more difficult than in previous years.
There are relatively few lending institutions actively soliciting these
types of projects. However, we anticipate that financing could become somewhat
easier as the credit markets thaw and lending institutions become more
interested in new development hospitality projects.
The financing environment for indoor waterpark resorts is currently
difficult due to lack of lender interest and larger equity contribution
requirements. However, these difficulties can be overcome for a solid
project from a creditworthy developer with a well-documented market feasibility
study and an appraisal report, which fully explain the market dynamics
and income potential for the resort project and serve to educate the lender.
This article appears in the World Waterpark Associationís 2009 Development and Expansion Guide. Mr. Sangree will be speaking at the World Waterpark Association's annual convention and development workshop to be held the week of October 20 Ė 24, 2009. More information about the convention can be found at the association's website, www.waterparks.org.
Author: David J. Sangree, MAI, CPA, ISHC is President of Hotel & Leisure Advisors, a national hospitality consulting firm. He performs appraisals, feasibility studies, impact studies, and other consulting reports for hotels, resorts, waterparks, golf courses, amusement parks, conference centers, and other leisure properties. He has performed more than 1,000 hotel studies and more than 200 indoor waterpark resort market feasibility and/or appraisal studies across the United States and Canada.
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 on Good Morning America and CNBC. He has written numerous articles for, and is frequently quoted in, magazines, television, and newspapers covering the hospitality field.
He can be reached via telephone at 216-228-7000 extension 20 or via e-mail at email@example.com.
Hotel & Leisure Advisors, LLC
|Also See:||Indoor Waterpark Resorts Supply and Demand Mid-Year 2009 Update / David J Sangree / July 2009|