Hotel-Enhanced Mixed-Use: Indoor Waterparks Add Value| By Jeff Coy and Bill Haralson

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...

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 [email protected] or go to .

Bill Haralson is president of William L. Haralson & Associates of Ruidoso, NM. You can contact him at 505.258.1522 or e-mail [email protected] or go to .