News for the Hospitality Executive
|By Rick Barrett, Milwaukee Journal Sentinel
Knight Ridder/Tribune Business News
Dec. 26, 2002 - Wisconsin Dells, Wis.--The concrete was not even dry in the expansion at Kalahari Resort, and owner Todd Nelson was already plotting his next move.
"I get bored very easily," the 42-year-old entrepreneur said. "After opening day, I would just as soon find something else to work on. . . . Operating this hotel does not excite me; building the next one does."
In a high stakes game of who can build the biggest and most sensational water park resort, the concrete is rarely dry before another project is launched in Wisconsin Dells. The latest splash was last weekend, when Kalahari opened a $12.5 million, 58,000-square-foot addition to its 67,000-square-foot indoor aquatic playground.
Kalahari now has the nation's largest indoor water park, according to those who follow this narrow segment of the tourism industry. Only indoor water parks in Edmonton, Alberta, Canada, and perhaps Miyazaki, Japan, are bigger.
Wisconsin Dells has the highest concentration of indoor water parks in the United States, with 18 parks that start at about 5,000 square feet, said Jeff Coy, president of JLC Hospitality Consulting Inc. in Rochester, Minn.
"The fact that families are willing to travel up to 200 miles for a hotel weekend during the cold of winter speaks volumes about the drawing power of the water park resort concept," Coy said. "The hotel indoor water park has proven so successful at increasing the bottom line, a whole new industry has emerged."
As early as January, Nelson said, he may be ready to discuss a new business partnership that is being formed to build water park resorts in tourism hot spots such as Sandusky, Ohio -- home to Cedar Point amusement park -- and the Great Smoky Mountains.
The partnership is necessary to raise capital for these projects, which can cost $50 million or more each. "You need about 25 percent equity to get banks to finance these places," Nelson said. "That's because banks are skeptical of financing taverns, restaurants and resorts."
The Great Lakes Cos., owner of Great Wolf Lodge in Wisconsin Dells, opened a similar indoor water park resort in Sandusky and now is building resorts in Traverse City, Mich., and Kansas City, Kan.
The Madison company plans to start construction in 2003 of indoor water park resorts in Niagara Falls, Ontario; Williamsburg, Va., and in Pocono Township in eastern Pennsylvania. "We have developed our niche in the Dells, and now we are focused on taking the brand elsewhere," said Eric Lund, senior vice president of sales and marketing for Great Lakes.
In February, Wilderness Hotel & Golf Resort is to open a $10 million, 70,000-square-foot Wild West indoor water park in Wisconsin Dells. The company also is weighing developments in other states and expects to make final decisions on a project in Sandusky in the next six months.
Sandusky is a target for Kalahari, Great Lakes and Wilderness because -- like Wisconsin Dells -- it has an amusement park tradition that draws on large metropolitan areas including Detroit, Chicago, Cincinnati and Cleveland.
There are 20 million people who live within a reasonable driving distance of Kalahari, Nelson said. "We need that kind of area to draw from because these resorts are big, expensive monsters to build and operate."
The first indoor water parks were built in Wisconsin Dells in the early 1990s to capture more dollars outside of the 100-day summer tourism season. Now the Dells has become a land of "haves and have-nots," with resorts that have indoor water parks dominating the marketplace, Coy said.
Indoor water park hotels had an average room rate of $114.24 in 2001, compared with $44.82 for other Wisconsin Dells hotels, according to Coy. The water park hotels captured 84.5 percent of the total room revenue in the market.
"The 'have-nots' in Wisconsin Dells are 44 hotels without indoor water parks, averaging 55 rooms," Coy said. "The question is how much longer they can survive. Some hotels are already for sale. Others will soon face the decision to renovate and expand or become obsolete."
The first hotels in an area to build indoor water parks grab a competitive advantage but have to constantly add to their attractions to keep it, Nelson said.
"This isn't a typical market," he said. "When you put up your building, you better have the next four phases planned or somebody will knock you out of the saddle. It is like Las Vegas. At one time, the Mirage hotel was the greatest thing that anyone had ever imagined; then it was the Bellagio, and that, too, was soon eclipsed" by other growth.
Kalahari has gone through six expansions since it opened in 2000, including the addition of 106 suites, a convention center and a health spa, and nearly doubling the square footage of the indoor water park. The resort had about 600,000 guests in 2002, Nelson said.
A key reason behind the latest water park expansion was the desire to accommodate more people who wanted to use the water park just for the day, rather than spend a night at the hotel. "We should be able to increase our walk-in traffic from the (previous) 200 guests a day to 800," Nelson said.
For now, at least, Nelson and other developers say they are not worried about saturating the Dells with too many hotel rooms. "It is no different than Las Vegas," Nelson said. "They have 3,000-room hotels and keep adding new properties."
Nelson said he is not interested in building water parks elsewhere in Wisconsin because it could siphon business from Kalahari. Great Lakes plans to build a 180-room hotel with an indoor water park in Sheboygan.
The Sheboygan resort is scheduled to open in 2004 and would serve as a catalyst for development of about 42 acres along Lake Michigan and the Sheboygan River, according to Sheboygan city officials. It will strengthen tourism in eastern Wisconsin and won't harm Wisconsin Dells, Mayor James Schramm said.
Nelson said he would like to build about 10 to 15 water park resorts in the next 10 years in popular tourism destinations such as the Great Smoky Mountains. He also has started a water park consulting business that charges $2,500 for an initial two-hour consultation and $1,000 an hour for additional information.
Through the consulting business, Nelson said, he has been able to quickly separate "tire kickers" from those who are serious about building water park resorts.
"Some people don't have any idea what it costs to build and operate these places. You can spend $500,000 on plans alone. The Kalahari's payroll is $7 million a year, including 190,000 labor hours for lifeguards and water park supervisors. A couple of years ago, when natural gas prices soared, we had a $100,000 gas bill."
Nelson has been sharpening his business skills since he was 15 years old, when he became one of the youngest licensed auctioneers in the nation. One of his first ventures was selling Christmas trees in Florida.
At age 19, Nelson bought his own tavern. Three years later. he started a pizza business. He bought an old motel and tore it down to build a shopping mall, and he once owned a ski hill.
In 1997, he built the RainTree resort, which included an indoor water park with a jungle theme. Just over a year later, he sold the RainTree for $12 million and parlayed the money into the Kalahari.
Like other Wisconsin Dells developers, Nelson has snapped up vacant land in prime locations. Kalahari has about 70 acres left on which to build, and Nelson has plenty of plans.
"In this town, if you don't have additional land to expand on, you are finished," he said. "You will just get buried by the competition."
-----To see more of the Milwaukee Journal Sentinel, or to subscribe to the newspaper, go to http://www.jsonline.com.
(c) 2002, Milwaukee Journal Sentinel. Distributed by Knight Ridder/Tribune Business News.
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