The Latest Strategy for Hotel Waterpark Resorts
Bill Haralson & Jeff Coy
Over the past three years, we have
written extensively about a significant evolution
in the waterpark industry: the waterpark resort. As
we have described the concept in previous articles,
the waterpark resort involves the pairing of some
type of lodging with an indoor waterpark. Other components
may also be present, but it is the synergism created
by the hotel and the indoor waterpark that has made
the waterpark resort concept so successful.
The good news about waterpark resorts
is that they generate substantially higher income
than ordinary lodging facilities. However, the bad
news is that they are expensive to build and operate.
The success of a waterpark resort
requires a substantial investment - not only in the
hotel, but also in the indoor water park, which can
cost $300 to $400 per square foot. As a consequence,
a 300-room hotel with support facilities and an indoor
waterpark could cost as much as $30 to $40 million
- not including the cost of land. Many developers
are not inclined to spend that much on an income property,
even with favorable financial terms.
For many, an alternative to having
full ownership of a waterpark resort, with the financial
burden involved, is the condominium hotel. This concept
involves the sale of the hotel's guest rooms as condominium
apartments to individual owners. Typically, these
individual owners are motivated to buy their condominiums
for investment purposes.
Although the Securities and Exchange
Commission has strict rules regarding the representation
of condominiums as security investments, the sale
of hotel condominium units is becoming increasingly
common, especially in the current investment climate
in which alternative investment opportunities are
Advantages to Condo-Hotel
The advantages to the developer are
two-fold. First, the developer benefits from the real
estate angle. The developer's profit margin will depend
on the marketability of the condominiums in the local
area; however, a mark-up of 100 percent over development
costs is typical.
Once the condominium hotel is up and
operating, the developer benefits from the income
of the hotel. Typically, the developer will split
room revenue with the condominium owner on a 50-50
basis or using some other formula, depending on local
If a third-party management company
is hired, they will typically take 10 percent of room
revenue off the top before the developer and condominium
owner split the balance.
In any event, the developer receives
some percentage of room rental revenue, while having
zero investment in the guest rooms. In addition to
a split of room revenue, the developer will benefit
from other revenue streams, including food and beverage,
waterpark admissions and revenue from any other resort
amenities, such as golf, skiing, etc.
The owners' agreement will also specify
the responsibility for paying operating expenses.
Typically, the developer will pay some expenses, including
most non-room expenses. On the other hand, the condominium
owner will be required to pay most unit expenses as
well as project-wide expenses, such as snow removal,
lawn and garden maintenance, bus shuttle services,
common area maintenance, repairs and supplies and
Advantages to Condo-Hotel
The advantages to the condominium
buyer are also two-fold. First, while the condominium
buyer is usually only buying a guest unit, he is also
gaining access to the amenities of a traditional hotel,
including food and beverage service and other amenities
typically associated with a resort hotel.
In addition, the condominium owner
is buying an investment, which in the present economic
climate, is favorable compared to the alternatives.
In the short run, the buyer benefits from cash from
room rental, which will generally offset the condominium's
operating expenses and, perhaps make a contribution
to the unit's principal and interest expenses. In
the long run, the condominium will (hopefully) appreciate
In recent years, a number of condominium
hotels have been developed as waterpark hotels. In
the Wisconsin Dells, the cradle of the waterpark resort
industry, most of the major properties have either
developed condominium hotel units or are in the process
of doing so.
- Kalahari Resort has constructed
some 84 units to complement their traditional hotel
rooms. All of these were sold before their completion.
- The Wilderness Resort has constructed
some 240 units to complement their traditional hotel
rooms. All of these have been sold.
- Great Wolf Lodge, which has 309
rooms, has announced plans to build 64 condominium
- Chula Vista Resort has purchased
an adjacent golf course and plans to build condominium
units on both the golf course and along the Wisconsin
In addition to the Dells projects,
we are aware of number other waterpark resorts that
have sold guest rooms as condominiums. These include
Boyne Mountain USA in Michigan, Timber Ridge, in Lake
Geneva, Wisconsin and Silver Mountain Resort in Kellogg,
Idaho. We are also working on similar projects in
the Wisconsin Dells, Harvard, Illinois, Reno, Nevada
and Wasaga Beach, Ontario.
For anyone considering the condominium
hotel route, there are a few caveats to consider.
- Bring in a management company
with a national reputation. Someone with the stature
of Marriott, Wyndham or Hyatt. They will want 10
percent of room revenue, but they are worth it.
- Design the units for the rental
tenants - not the owner. As noted, the condominium
owners are looking at their units as an investment
- not a second home. The owner might not see the
need for more than one keyed entry; however, to
maximize the number of rental nights, the condominium
units should have multiple keyed entries to allow
for maximum flexibility in renting the unit.
Some large groups of tenants may desire
sleeping accommodations for six or eight persons and
will be request a unit with two or three bedrooms.
Other smaller parties may request a single sleeping
room. By providing keyed entries into the bedrooms
as well as the living/dining area allows a two-bed
room unit to be rented as one, two or three units.
- Maintain tight control over unit
furnishings. Not all condominiums need to have the
same furnishings; however, the developer should
provide buyers with a list of approve choices of
furniture, floor and wall coverings and counter
- All units should be designed for
extended stay. They should include at least a small
dining area, with a full array of appliances, including
a range top, sink refrigerator and micro-wave oven.
- Although condominiums that function
as primary residences may have only limited amenities
and services, condominium hotels that function as
waterpark resorts should have a full array of support
facilities and amenities. To do otherwise would
detract from their appeal as rental units, thus,
negating the incentive to buy such units for investment
Hotel Waterpark Resort Research &
Consulting is a collaboration of Bill Haralson &
Jeff Coy. Haralson heads William L. Haralson & Associates
and is a Hall of Fame member of the World Waterpark
Association. Coy heads JLC Hospitality Consulting and
is certified by the International Society of Hospitality
For more info, contact Bill at
972-231-7444 or email firstname.lastname@example.org.
Website is www.wlha-inc.com.
Reach Jeff at 507-289-7404 or email email@example.com.
Website is www.jeffcoy.com.
Want to know more about waterparks? Authors Jeff Coy
and Bill Haralson have written two detailed reports
which can be read at the links below:
Waterpark Resorts Construction Report 2005
Waterpark Resort Industry Report 2005