How Much Does it Cost to Build a Hotel by CrisLapuz

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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

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-

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

                                                  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

   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 Website is
Reach Bill at 972-231-7444 or email

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