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Financing Your Indoor Waterpark Resort in 2010 | By David J. Sangree, MAI, CPA, ISHC and Eric B. Hansen, AIA, ISHC

9 July 2010
Financing Your Indoor Waterpark Resort in 2010
Financing Your Indoor Waterpark Resort in 2010

The big question for 2010 is as follows: After two years of the frozen tundra in lending, are the capital markets beginning to thaw? Amid a plethora of opinions and sentiments, both positive and negative, where does reality come into play? Yes, the capital markets are beginning to thaw. Some financing has become available and transaction volume has increased, but this has been mainly for distressed properties. There has still not been any movement for new construction lending in 2010, just as there was not any significant new lending in 2009. The bottom line is that financing a new construction hotel and indoor waterpark resort remains extremely difficult.

Due to a lack of confidence in a market that has been ravaged by an economic recession, numerous bank foreclosures, and uncertainty regarding future regulations, lenders have pulled way back on financing new construction projects of all types.

When capital starts to flow again, what will characterize the deal, the deal makers, and the development project itself? This article describes the types of financing that are generally available, the characteristics of the developer, the lender, and the typical indoor waterpark resort development. A discussion of the challenges to obtain financing is followed by suggestions to overcome those obstacles.

Financing Indoor Waterpark Resorts

Indoor waterpark resorts have been financed through a variety of methods including the following:

Our interviews with various lenders and developers reveal that high levels of persistence, innovation, capital, and creativity are required in 2010 for pulling together project financing from a variety of sources.

David J. Sangree, MAI, CPA, ISHC, and Eric B. Hansen AIA, ISHC, interviewed various lenders and investors concerning the financing of indoor waterpark resorts in June 2010. Similar to 2009, the overriding message lenders provided to us was that currently there is a lack of financing for new construction hotels with or without indoor waterparks, particularly for larger projects. Although a few hedge funds have started to offer money, their fees are extremely high for the borrower. Most banks are not interested in a hospitality loan unless the borrower is credit worthy.

The following chart summarizes the rates and types of financing commonly used with indoor waterpark resorts for a borrower who is creditworthy and has strong liquidity.

Financing Your Indoor Waterpark Resort in 2010
Financing Your Indoor Waterpark Resort in 2010

The rates quoted for the 2010 survey indicate that lenders remain as cautious as ever. According to our survey, compared to 2009, loan to value ratios remain lower although some lenders are willing to consider the 60% to 70% of market value range. The mezzanine loan market has begun to open up, and some mezzanine lenders are considering investing in hospitality projects. As of June 2010, lenders are considering new construction primarily for smaller developments of $5 to $10 million or less, which typically can have a SBA guarantee, and larger projects are still having great difficulty finding interested lenders. We are aware of three separate larger projects that are working to utilize both tax-exempt and taxable bonds to develop the project.

Developer Characteristics

A developer of an indoor waterpark resort needs many strengths to develop this type of resort destination. The following describes some of the major characteristics which lenders and investors consider.

Developer Expertise

Management Expertise

Sufficient Collateral and Capital

Each of these characteristics carries weight in the decision to lend. Prudent developers will analyze their own strengths and weaknesses and determine how each of these characteristics should be enhanced to provide the lender with the best, most solid development team for the proposed project. The lender is searching for confidence in the ability of the developer to repay the loan.

Lender Characteristics

If a lender is willing to initially consider your project, then there are several attributes that, if present, will help generate a potential positive lending decision.


Understanding that Cash Flow is King

In general, the willingness of the lender to be educated on the project needs to be present from the beginning.

Indoor Waterpark Resort Project Characteristics

Indoor waterpark resort projects are family-oriented leisure properties that have multiple layers of complexity in regards to revenue generation and operations. Broad-based characteristics of these properties are as follows:

Size and Features



Challenges in Financing an Indoor Waterpark Resort

Indoor waterpark resorts have proven to be more difficult to finance than typical hotel properties or other commercial properties. The difficulty in financing an indoor waterpark resort comes, in part, from the fact that it is both a hotel and an amusement attraction. Below are characteristics of these unique properties which make financing them difficult:

Larger Scale and Greater Costs

Higher Risk


Overcoming the Challenges

A developer may counter these difficulties in obtaining financing by preparing a comprehensive package of documentation for a lender. A developer should consider the following items when putting together a comprehensive loan package.

Lender Education

Indoor Waterpark Resort Feasibility Study and Appraisal


A developer should have a well-organized, professional loan documentation package that communicates all performance aspects and physical characteristics of the proposed resort to the lender in order to educate potential lenders about this area of real estate development.

There are interested lenders who are looking at projects, but developers may have more difficulty finding the right fit for their individual projects. There are relatively few lending institutions actively soliciting these types of projects. However, we anticipate that financing could become somewhat easier as the credit markets thaw, lending institutions become more interested in new development hospitality projects, and the waterpark resort market becomes more prevalent as staycations become more popular.

Conclusion: The financing environment for indoor waterpark resorts remains difficult in 2010 due to a lack of lender interest and larger equity contribution requirements. However, these difficulties can be overcome for a solid project from a creditworthy developer with a well-documented market feasibility study and an appraisal report, which fully explain the market dynamics and income potential for the resort project and serve to educate the lender.

Authors: David J. Sangree, MAI, CPA, ISHC is President of Hotel & Leisure Advisors, a national hospitality consulting firm. Mr. Sangree's expertise is in the appraisal and analysis of hotels, resorts, indoor waterpark resorts, waterparks, amusement parks, conference centers, ski resorts, and golf courses. He has performed studies on more than 1,000 existing and proposed hotels in more than 46 states in all price ranges including economy, full-service, extended-stay, and luxury hotels and resorts including indoor waterpark resorts. He has been an active appraiser/consultant since 1987 and also has 10 years of work experience in the hotel/restaurant industry including management positions with four Westin Hotels properties.

Mr. Sangree is a nationally recognized expert on indoor waterpark resorts and has visited most of the open waterpark properties in the United States and Canada. He has performed more than 200 studies of hotels and resorts with indoor waterparks since 1999, and he maintains a database of statistical information concerning indoor waterpark resorts. Mr. Sangree was named one of Aquatics International Magazine’s “Power 25” in 2008. In their profile Aquatics International named Mr. Sangree as one of the first consultants serving the waterpark resort industry and credited him with shaping some of the latest industry trends through his expertise and experience in the waterpark resort market. Mr. Sangree has appeared on Good Morning America and CNBC on special reports concerning resorts and waterparks.

Mr. Sangree will be speaking at the World Waterpark Association's annual convention and development workshop that will be held in San Antonio the week of October 6 – 9. More information about the convention can be found at the association's website, He can be reached via telephone at 216-228-7000 ext. 20 or via e-mail at

Eric B. Hansen, AIA, ISHC, is Director of Development Services for Hotel & Leisure Advisors. Mr. Hansen’s expertise is in performing appraisals, market feasibility studies, property condition assessments, project development analysis, and impact studies for hotels, resorts, waterparks, golf courses, conference centers, and other hospitality properties. Mr. Hansen offers 16 years of hospitality experience and has worked throughout the United States providing consulting and architectural services for the hospitality industry. Along with skills in performing consulting reports and designing hospitality properties, he has expertise in performing site planning and development services, planning and zoning expert witness testimony, jurisdictional due diligence, and PIP analysis. He has worked with various major hotel company corporate offices and has extensive knowledge of brand criteria.

He was formally employed by Cole + Russell Architects, Inc. in Cincinnati. Mr. Hansen received his Bachelor of Architecture from the University of Cincinnati in 1989. He became a licensed architect in 1992 and was invited to membership in the International Society of Hospitality Consultants in 2002. He received a certification in Hotel Financial Management from Cornell University School of Hotel Administration, Executive Education program, in 2007.

The International Society of Hospitality Consultants, ISHC, is a professional society of 200 members in 22 countries who are leading consultants in the hospitality industry. The Society is dedicated to promoting the highest quality of professional consulting standards and practices for the hospitality industry. Membership is by invitation only. ISHC as an organization represents a one of a kind collection of experience and expertise in the hospitality industry. ISHC members have expertise in over 30 different specialty areas in the hospitality industry and collectively have experience with over 50 hotel companies and nearly 100 brands worldwide. Additionally, ISHC members represent numerous prominent independent hotels throughout the world. ISHC members' clients include domestic and international, public and private hotel owners and investors, many leading financial institutions, Fortune 500 companies, food and beverage service firms, airlines, cruise lines, time share and vacation ownership companies, universities, state, national and international convention, hospitality travel and tourism bureaus.


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