Global Hospitality Advisor: Hotel-Enhanced Mixed-Use: Indoor Waterparks Add Value

Indoor Waterparks Add Value

Hotel owners are no longer content to have lodging demand generators nearby. Instead, they are designing and integrating demand generators—lodging, recreation, entertainment, retail, office and residential—into destination projects to act as a strong magnet for the region.

Why are mixed-use hotel projects so popular?

Two years ago, we predicted that resorts would grow faster than other types of lodging, and that lodging and entertainment concepts will continue to merge, with resorts becoming more like theme parks. We predicted that regional drive-to resorts would attract more guests than national resorts that depend upon air travel and that hotels and resorts will increasingly incorporate water into their designs. These predictions continue to come true.

Many reasons support these mixed-use trends. Fear of flying, avoiding airport hassles, terrorism threats, emergence of regional resorts, growth in Indian gaming, the popularity of adventure sports and the success of hotels with indoor waterparks, all encourage consumers to vacation closer to home.

In urban and suburban areas, we now see themed resorts and large-scale attractions being designed into regional shopping complexes (such as the Waterpark of America at Mall of America in Bloomington, MN), mixed-use waterfront developments, downtown convention centers (in Milwaukee and Dubuque) and even in renovated old railroad depots (such as the Marriott Depot Hotel & Waterpark in downtown Minneapolis).

In more rural settings, waterpark resorts are being designed into casinos, medical centers, conference centers, golf courses, ski hills and residential projects as well as in second home, vacation home and retirement communities. (See sidebar).

Are hotel indoor waterparks growing?

Regional resort destinations with a history of attracting families will expand to include hotel waterpark resorts. Destinations such as the White Mountains of New Hampshire, the Berkshires in Massachusetts, the Poconos of Pennsylvania, the Smoky Mountains of Tennessee and the Finger Lakes Region of New York are all target locations for hotel waterpark resort development.

Resort owners and developers will increasingly try to eliminate seasonality and weather factors by designing resorts to capture year round revenues. Future resort designs will incorporate indoor-outdoor combinations using new technology structures, domed enclosures and moveable glass walls. Any recreation or sporting activity you normally do outdoors will have an indoor version.

Hotels with indoor waterparks will grow to a 144 by year-end 2006, up 33% from 108 in 2005. 73 new hotel waterpark expansion projects will be under construction in 2006. 13 have already opened during the first half of the year. A total of 36 hotel indoor waterparks with 6,004 rooms and 1,095,440 square feet of waterpark are expected to open before year-end 2006. Another 37 are under construction and scheduled to open in 2007.

Are hotel indoor waterparks a good investment?

Hotels with indoor waterparks achieve higher occupancy, increased room rates and higher room revenues than hotels without indoor waterparks.

We surveyed a group of upscale hotel waterpark resorts to compare their total project costs with the amount of cash they generated. Due to higher occupancies, waterpark premiums and achieving higher levels of spending for food & beverage compared to properties without indoor waterparks, these properties more than offset the cost of building and operating the waterpark. This group of upscale hotel waterpark resorts generated a cash-on-cost return from 14% to 24%, compared with returns of 10% to 12% for comparable properties without waterparks.

Our research shows that the higher rates, occupancy and revenue—combined with the geometric increase in new construction and development activity each year—makes it is clear to us that waterpark resorts generate higher returns compared to costs. It also establishes that hotel waterparks have become a desirable and viable component of mixed-use developments.

Perhaps a waterpark will be part of your next mixed-use project.

Magnets for Mixed-Use Projects

Boyne Mountain Ski Resort in northwest Michigan has a new 220-unit condo-hotel and 83,000 square feet of indoor waterpark. Opened in May 2005, this is the first project mixing a hotel indoor waterpark with a major ski resort and vacation home community.

Massanutten Resort in McGaheysville, VA opened a 42,000 square foot indoor waterpark as part of its thriving four-season resort and community of over 600 single-family homes, 900 timeshare units and a multi-million dollar ski business. When the waterpark project was announced, timeshare and condo sales increased dramatically.

Grand Lodge & Waterpark of America near the Mall of America in Bloomington, MN, opened by Wirth Companies in May 2006. The project boasts 403 rooms, 70,000 square feet of indoor waterpark and a 10-story waterslide tower.

Great Wolf Lodge in Cincinnati, OH expects to open its 401 suites, 40,000 square foot conference center and 78,000 square foot indoor waterpark in October 2006.

Ron Jon Indoor Surfpark at Festival Bay Shopping Mall in Orlando is an $8.5 million mixed-use project that will include an indoor surf-park—the first of its kind in the world with 6 waves per minute, wave heights from 5 to 8 feet and ride lengths from 60 to 100 yards.

Projects Coming Soon

Grand Sierra Resort & Casino in Reno, NV has started its renovation and expansion of the 1995-room former Reno Hilton. Plans include converting 824 of the 2,000 hotel rooms to condominiums, developing 2,000 residential condos, and remodeling the entire hotel. New additions include a 50,000 square foot outdoor waterpark and a 150,000 square foot indoor waterpark.

Famous Dave Anderson, owner of the nationwide barbeque restaurant chain, announced his 611-room W Hotel, 80,000 square foot indoor waterpark, 3 restaurants, spa and 12,000 square foot conference center to be built just north of Chicago.

Waveyard Resort outside Phoenix, AZ. Waveyard Development LLC recently announced plans to build the world’s largest adventure park and resort destination to include a 320-room resort hotel, 150 resort villas, 30,000 square feet of conference center, spa & wellness center, numerous restaurants, a 55,000 square foot indoor waterpark, 150,000 square feet of sports & entertainment retail, 30,000 square feet of office space, an amphitheater and numerous residential communities.

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Jeff Coy is president of JLC Hospitality Consulting based in Cave Creek, AZ. You can reach him at 480.488.8050 or e-mail him at jeffcoy@jeffcoy.com or go to www.jeffcoy.com.

Bill Haralson is president of William L. Haralson & Associates of Ruidoso, NM. You can contact him at 505.258.1522 or e-mail wharalson@aol.com.