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What’s It Going to Cost to Build a Hotel With an Indoor Waterpark? A Guide to Cost Allocations for Developers By Jeff Coy and Bill Haralson May 11, 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 won’t 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. Here’s a construction cost guide for both. First, let’s 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 Type Sample Brands & Independents Economy Hotels AmericInn Best Inns & Suites Days Inns Howard Johnson Ramada Limited Red Roof Inns Rodeway Inn Super 8 Travelodge Mid-Priced Hotels Comfort Suites Holiday Inn Express Hampton Inn Hilton Garden Inn Holiday Inn Best Western Hawthorn Suites Ramada Wingate Inn Four Points Doubletree Club Quality Inns Atlantis Hotel Camelot Hotel Cranberry Lodge Upscale Hotels & Resorts Crowne Plaza Embassy Suites Hilton Hyatt Marriott Omni Radisson Renaissance Westin Great Wolf Lodge Kalahari Resort Wilderness Resort Luxury Hotels & Resorts Ritz Carlton Four Seasons St Regis Preferred Hotels Fairmont Independent Resorts Prepared by JLC Hospitality Consulting. 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. The average allocation of budgeted costs for all type of hotels is: 13% for land 11% for development and soft costs 61% for site improvement and building construction 12% for FF&E 3% for pre-opening and working capital 100% for total project costs We compared the cost allocations for different types of hotels --- from economy to mid- priced to upscale and luxury. Upon close analysis, certain patterns emerge. Most interesting is the consistent allocation of the hotel development budget across the five cost components: (1) Land, (2) Development or soft costs, (3) Site Improvement & Building Construction costs, (4) Furniture, Fixtures & Equipment or FF&E costs, and (5) Pre-Opening & Operating Capital --- for each of the hotel types. The following table shows the lowest, highest and average cost per room for hotel development. HOTEL DEVELOPMENT COSTS Type Land Development Construction FF&E Pre-Opening & Total Costs Costs Costs Costs Working Capital Project Economy Hotels Lowest $4,500 $300 $13,500 $2,900 $800 $30,100 Highest $6,700 $3,300 $44,400 $12,700 $5,300 $64,600 Average $7,200 $1,200 $31,700 $6,400 $2,400 $48,900 Percent 15% 2% 65% 13% 5% 100% Mid-Priced Hotels Lowest $5,600 $1,400 $27,900 $4,600 $1,000 $48,200 Highest $35,000 $41,700 $154,100 $20,700 $12,300 $203,900 Average $13,000 $9,000 $65,400 $10,800 $3,600 $101,800 Percent 13% 9% 64% 11% 4% 100% Upscale Hotels Lowest $8,100 $3,600 $52,500 $11,600 $2,300 $66,400 Highest $89,500 $72,900 $224,400 $40,400 $22,900 $323,500 Average $19,500 $16,100 $110,100 $20,200 $6,200 $172,000 Percent 11% 9% 64% 12% 4% 100% Luxury Hotels & Resorts Lowest $17,900 $26,500 $142,800 $36,400 $5,500 $231,800 Highest $137,500 $144,700 $285,900 $104,600 $28,500 $596,000 Average $48,500 $60,500 $202,100 $52,000 $12,400 $375,500 Percent 13% 16% 54% 14% 3% 100% Prepared by JLC Hospitality Consulting using survey data from HVS International, 2001. Costs are per room. 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 are 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, let’s 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, let’s 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. That’s 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. In the Economy hotel category, the term “waterpark” may be an over-statement, as many of the projects are really indoor pool enhancements --- such as adding a small waterslide, a water spray and some play equipment. Nevertheless, if you have a 60-room Super 8 or Days Inn, your market may be able to support up to a 6,600 sf indoor waterpark. The 51-room AmericInn in Orr, Minnesota has a 2,435 sf indoor pool. The indoor pool has a 30 foot tower in the Is it a waterpark or enhanced pool? 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 don’t 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 Mall’s 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: Hotel A Hotel B Hotel C Rooms 60 85 100 Indoor Waterpark SF 2453 2720 9373 Waterpark Items SqFt Cost SqFt Cost SqFt Cost Building Shell 2453 $269,830 2720 $299,200 9373 $1,031,030 HVAC 2453 $36,795 2720 $40,800 9373 $140,595 Pools & Mechanical 455 $100,100 610 $134,200 3467 $762,740 Spa Pools 89 $15,575 88 $15,400 102 $17,850 Snack Bar 100 $8,500 200 $17,000 300 $25,500 Support Areas 221 $19,890 171 $15,390 600 $54,000 Theming 600 $30,000 1000 $50,000 3000 $150,000 Waterslides, Supports & 1 $100,000 1 $115,000 1 $287,000 Recreational Equipment Construction Costs $580,690 $686,990 $2,468,715 Cost per sf of waterpark $237 $253 $263 Prepared by JLC Hospitality Consulting with data provided by Amusement Leisure Worldwide. 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 Vic Martin, owner, Best Western Sterling Heights MI 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. Upscale hotels that appeal to the individual leisure traveler include brand names such as Crowne Plaza, Embassy Suites, Hilton, Hyatt, Marriott, Radisson, Renaissance and Westin. These same chains also have resorts that cater to higher-income families with children. 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. There is a hotel waterpark resort arms race in Wisconsin Dells being conducted by individual entrepreneurs. These waterpark owners in the Dells will tell new developers, “Bigger is better, and you don’t need a franchise brand!” 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 Center’s Paradise Landing in Milwaukee and Marriott’s 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 Tipping Water Bucket, Great Bear Lodge, Sandusky OH 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. Name Location Rooms Indoor IWP Sg Ft Waterpark Per Sq Ft Guest Room Great Wolf Lodge Wisconsin Dells OH 309 44,000 142 Great Bear Lodge Sandusky OH 271 33,000 122 Great Wolf Lodge Traverse City MI 281 38,000 135 Great Wolf Lodge Kansas City KS 281 38,000 135 Hotel Waterpark Resort Research & Consulting: Jeff Coy and Bill Haralson. 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: Category Per Room Amount % of Total Land $14,400 $4,320,000 7.9 Design 3,500 1,050,000 1.9 Development 10,800 3,240,000 6.0 Construction 119,000 35,700,000 65.6 FF&E 14,600 4,380,000 8.0 Construction management 1,600 480,000 0.9 Pre-opening 4,800 1,440,000 2.6 Working capital 2,000 600,000 1.1 Financing 8,300 2,490,000 4.6 Contingency 2,500 750,000 1.4 Total Project $166,700 $54,450,000 100.0 Hotel Waterpark Resort Research & Consulting: Jeff Coy and Bill Haralson. 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, let’s 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 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. Hotels With An Avg # Avg Indoor Indoor Waterpark Rooms Per 000 Sq Ft Indoor Waterpark Rooms Waterpark Sq Ft Sq Ft Per Room of Indoor Waterpark Over 50,000 sf 328 89,500 273 3.7 40,000 to 49,000 sf 230 42,000 183 5.5 30,000 to 39,000 sf 257 33,375 130 7.7 20,000 to 29,000 sf 221 21,554 98 10.2 10,000 to 19,999 sf 119 11,944 100 10.0 5,000 to 9,999 sf 103 6955 68 14.8 Under 5,000 sf 90 2,589 29 34.9 Hotel Waterpark Resort Research & Consulting: Jeff Coy and Bill Haralson. 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. Mark Innes spent $1.5 million in 2000 on his 11,000 sf indoor waterpark located at his 64-room Comfort Suites in Baxter MN. Bob Pace spent $2.5 million in 2000 on his 14,000 sf Great Serengeti indoor waterpark at the 130-room Holiday Inn & Suites in Owatonna MN. Great Lakes Companies spent $40 million on its Great Bear Lodge in Sandusky OH, which opened in 2001 with 271 rooms and 33,000 sf indoor waterpark. Marcus Corporation spent $4 million in 2001 on its 20,000 sf Paradise Landing indoor waterpark at the Hilton City Center in Milwaukee. Robert Leslie spent $3 million on his 15,000 sf indoor waterpark at the 155-room Ramada Plaza in Green Bay WI, which reopened in 2002 after extensive renovations. Jim Rix spent $28 million on his Grand Harbor Resort in Dubuque IA, which opened December 2002 with 194-rooms and 25,000 sf indoor waterpark. Great Lakes spent $32 million on its 281-room Great Wolf Lodge in Traverse City MI which opened with a 38,000 sf indoor waterpark in March 2003. Nick Scott spent $16 million to construct a 77,000 sf Splash Lagoon, an indoor waterpark connected with two hotels totaling 159 rooms in Erie PA, which opened in April 2003. Tom Lucke and Peter Helland will spend $37 million on their 108-unit condominium project with its own 30,000 sf indoor waterpark --- called Wilderness on the Lake --- scheduled to open in June 2003. Great Lakes Companies plans to spend $54 million on a 247-unit Grand Victorian Resort, 20,000 sf convention center and 40,000 sf indoor waterpark in Sheboygan WI --- scheduled to start construction in 2003. The Great Wolf Lodge with 297 rooms and 38,000 sf indoor waterpark planned near Williamsburg VA is slated to cost $30 million. Wirth Companies of Minneapolis plan to spend $6.5 to $8.7 million in 2003 on a 20,000 sf indoor waterpark to be attached to its renovated and reflagged 225-room Northwest Inn in Brooklyn Park, a suburb of Minneapolis. Keith Garrett will spend about $19.1 million in 2003 on his 160-room Tundra Lodge and 20,000 sf indoor waterpark under construction in Green Bay WI. 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, lazy rivers, activity pools, kiddie pools, adult spas, treehouses, water spraythings 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. On May 5, 2003, Smith Travel Research reported more than 320,000 guest rooms in the pipeline --- under construction, in development or in the final planning stages. Mike Kaminsky, center, owner of the Chula Vista Resort in Wisconsin Dells, The hotel development pipeline is full. Many of these with Jeff Coy and Bill Haralson. 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. For more info, contact Jeff at 507-289-7404 or email email@example.com. Website is www.jeffcoy.com. Reach Bill at 972-231-7444 or email firstname.lastname@example.org.
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