Resort Development

Author

1. Introduction

Resort development is a complex undertaking that encompasses a wide range of property types, recreational amenities, locations, and natural settings, and thus often involves a broad spectrum of development strategies and approaches. Many of the issues involved in developing a ski resort in Colorado, for example, differ markedly from those involved in planning a second-home golf course community in South Carolina or an oceanfront resort hotel in Bali. Because resort development increasingly takes place in exotic places all around the world, further variations arise from geographic diversity and the variability of political and economic systems.

Resorts and second-home communities serve a common market demand created by three fundamental human desires: the desire to take a vacation or holiday and to get away from a familiar environment; the desire to pursue recreational interests and to be stimulated and entertained in the process; and the desire to travel to interesting or attractive places and unusual settings. Different resorts offer different appeals as related to these desires, and the priority that individuals and families attach to these desires is the primary determinant in their choice of a resort experience.

Acqualina Resort and Spa, Sunny Isles Beach, Florida

Thus, while the various projects discussed in this book encompass widely differing resort concepts and products, they are all similar in that they are direct competitors for vacation and leisure time and expenditures. People can choose to ski one week, play golf the next, and visit the ocean on another occasion, and their choice of accommodations might range from a hotel to a condominium rental to a timeshare to a full-ownership second home. Upper-income households may have multiple timeshares or leisure homes in a variety of locations; timeshares are frequently exchanged as well, affording the owners a wide choice of resort and vacation experiences in locations all around the world.

Successful resort development requires an understanding of supply and demand: both the variety of recreational and resort options available to the consumer, and the depth, breadth, and characteristics of the resort consumer markets. Only by understanding the big picture can a resort be effectively positioned to tap the market for specific products and experiences. Planning, building, marketing, programming, and managing the various real estate products, amenities, and services that make a particular resort attractive within an increasingly competitive marketplace must begin with an understanding of the dynamics of the leisure market and how a given resort site can position itself to serve that market.

Phuket is a popular island destination in Thailand that is home to many resort developments, such as Twinpalms, a boutique resort offering 76 rooms and suites in a lush setting.

This book provides an overview of the resort market and a guide for developing and managing successful resorts. It focuses on resort and second-home community development in locations around the world and includes case studies from North America, Europe, and Asia. It deals primarily with resort hotels, second-home developments, the various fractional ownership products, and multiuse resorts that combine more than one type of product. It does not deal with purely recreational projects such as theme parks, amusement parks, and miniature golf courses; campgrounds and recreational vehicle parks; or nonprofit projects.

The book is intended to function as a general introduction and reference source for resort and second-home development. This chapter provides basic definitions, historical background, and an overview of the resort development process. Chapter 2 presents a methodology for resort market analysis and a review of resort real estate market segments. Chapter 3 examines resort programming, feasibility analysis, and financing. Chapter 4 discusses land use planning and resort product design, chapter 5 reviews operations and management issues, and chapter 6 discusses marketing. Chapter 7 presents detailed profiles of 14 illustrative resort and second-home development projects, while chapter 8 concludes the book with a summary of the issues and trends that are likely to affect the development of resort and second-home developments in the near future.

Definitions and Resort Types

The word resort means different things to different people. For some, an entire city—such as Aspen, Colorado; Phuket, Thailand; Cancun, Mexico; or Marseille, France—is a resort. For others, a resort is a second-home golf course community in South Carolina, a hotel on the beach in Hawaii, or a ski village in Switzerland or Utah. The resorts discussed in this book encompass many of these meanings, but a more precise definition is required. Resorts as discussed in this book reflect three primary characteristics, as follows:

They are real estate projects that have been developed and planned by a master developer.

They offer proximity and easy access to significant natural, scenic, and recreational amenities that make them attractive places to visit.

They include lodging accommodations, timeshare ownerships, and/or residences used largely by tourists, vacationers, weekend travelers, seasonal residents, and/or owners or users of second homes.

Resorts can be categorized according to three major criteria: by their proximity to their primary markets, by their setting and primary amenities, and by their mix of residential and lodging products. In general, resorts often do not fall discretely into any one category but, for discussion purposes, this book treats them as relatively discrete. Resorts also can be classified by their quality, pricing structure, and overall appeal to different income groups; according to this system, there are budget resorts, midpriced resorts, and luxury resorts, as well as a host of products in between. These quality and pricing distinctions are not treated separately here but rather are discussed within the schema outlined below.

Are Historic Hotels Worth It?

In a market with increasingly fickle consumers and the risk of industrywide downturns, historic hotels can stand out from the pack, offering a distinguished, one-of-a-kind experience and a connection to the past. It is important, however, to consider the economic and physical complexities of owning and maintaining historic buildings. Because historic hotels require a significant investment of time and money, they require a long-term commitment. Acquiring and renovating historic hotels can be worth it—if the investor takes a long-range view.

There are several ownership scenarios. Some historic hotels are owned by a single entity such as a family or a trust. Four generations of Monteleones have operated the Hotel Monteleone in New Orleans since 1886. The building has been in the family long enough that they probably have little debt service and enough cash reserves to cover expenses. Other properties, however, are owned and operated by a chain or brand. Acquiring historic properties in an inflated real estate market can be risky. It may be difficult to generate profits if the project has a high debt service and requires expensive renovation. Many properties, however, are owned by individuals, while being managed and operated by brands that understand the nature of historic hotels. This scenario works when the property owner has a modest debt service due to long-term ownership or other beneficial transactions. In this case, there can be adequate reserves for thorough repairs and enough revenue potential for a chain to make the hotel profitable. Given the unusual needs of historic hotels, adequate reserves can be critical to their success.

Increasingly, historic hotels are owned by large, branded hotel companies. Aging buildings are expensive to restore and maintain, and large companies can benefit from economies of scale and can spread the expenses across their holdings. Branded historic hotels offer a distinctive building combined with the advantages of a brand, such as loyalty programs for frequent travelers, companywide booking systems, and broad quality control.

Some the world’s largest hotel companies include historic properties in their portfolios. Approximately 35 percent of InterContinental’s hotels are historic in nature and location. About half of the hotels in both Starwood’s St. Regis brand and Fairmont’s brand have historic roots. The Marriott chain has converted numerous historic buildings to hotels.

Adaptive use of historic buildings can be a suitable option when erecting new hotels is not possible, or when the only land available is occupied by a structure that cannot be torn down because of historic status.

Location is a crucial element in identifying historic hotels to add to a portfolio. We pursue heritage-style hotels that enjoy the premier location in the city they serve, explains Jeff Senior, vice president for brand management at Intercontinental. Our guests expect to stay at a hotel centrally located to anything important taking place in that destination. The historic hotels in gateway cities—cities that serve as the social, political, and economic hubs for a region — have an advantage, because these cities attract a higher number of travelers who appreciate historic hotels. Much depends on the nature of a property and how well it matches a company’s philosophy and portfolio. It is important to define the desired client demographics and look for historic properties that fit the criteria.

After potential investors decide whether a historic property fits their brand, they need to determine whether it can be restored economically. There are two fundamental considerations. The first involves the restoration of visible elements: lobbies, public spaces, and interior finishes. These are often less expensive to address than infrastructure, and they are the improvements most likely to attract visitors. The second is the renovation of the infrastructure: structural, mechanical, electrical, plumbing, waterproofing, and exterior improvements. It can be tempting to skimp on these aspects, since they are not as obvious to travelers. However, systems renovations are essential for the long-term viability of a property, and they support the visual improvements.

Depending on its condition, a building may need to close during renovation. If renovations are phased to minimize disruption (for example, by wings or floors), a hotel can stay open and continue to generate revenue. To manage this successfully, it is important for the hotel to communicate openly about its work to the neighborhood, civic leaders, and the customers. Restoring a landmark property can engender goodwill from all these parties. conversely, attempting to hide a renovation effort from guests usually results in ill will. Loyal brand clients are often willing to endure minor inconveniences because they believe in the importance of maintaining historic landmarks.

Closing for restoration can greatly shorten the length of the construction period and may reduce project costs, since contractors then have complete control of the facilities and will not be delayed by hotel operations. A well-organized and well-publicized reopening of a historic hotel can heighten patrons’ interest and may compensate for lost revenue.

Historic properties may experience building assembly failure and material failure. Water intrusion can be a problem. Roof membranes, flashings, mortar, and grout all have a defined service life—they wear out and require replacing. Damaged or missing ornamentation can require remedial work. An existing-conditions survey provides the road map for a restoration, so it is important not to skimp on this stage. Exploratory investigations should include probes and materials analysis to determine whether damages may have been caused by unexpected factors.

While modern mechanical systems are highly desirable for a hotel, balancing guests’ comfort with respect for the building can be tricky. It is difficult to insert modern mechanical systems into a historic building that was not designed for them, and without careful planning from the start, a structure can be compromised by the attempt.

Most regulation of historic restoration occurs at the local level. It is important to understand and comply with city landmark ordinances, as well as state and federal regulations. In certain cases, tax credits may tip the scales in favor of acquiring and restoring a historic property. The Federal Historic Preservation Tax Incentives Program provides a tax credit for the certified, substantial rehabilitation of certified historic structures. A certified building either is listed in the National Register of Historic Places or is located in a registered historic district and certified as contributing to the district’s historic significance. To qualify for federal credits, projects must follow the U.S. Secretary of the Interior’s standards for rehabilitation, which comprise ten basic principles. Because of these restrictions, not all owners choose to take advantage of the tax credit.

The New Markets Credit is another federal program that grants tax incentives for commercial projects in low-income census tracts. Municipal government bonds also provide funds, and can be easier to obtain than bank loans. Cities and historic preservation societies can also help with qualifying a structure for tax credits, low mortgage interest rates, donations of property, or grants. In return, restored historic hotels can improve a city’s tax revenues, enhance civic reputation, and increase tourism.

Historic buildings often have high-quality finishes and ornamentation that cannot be easily duplicated, given modern construction costs and the decline of craftsmanship. With tax credits and other financial incentives, however, these elements can be cost effectively preserved in existing buildings. As a result, historic hotels can offer travelers luxury finishes and amenities at rates that are competitive with or even lower than those offered by modern luxury hotels. The connection to the legacy of a particular place and time can be an invaluable asset, since historic hotels can provide travelers with a compelling cultural experience.

Source: Campbell W. Black and David P. Wessel, Are Historic Hotels Worth It? Urban Land, August 2003.

Resort Types by Market

Some resorts are described as destination resorts. While nearly all resorts are located at a destination some distance from the primary residence of the resort user, five significant characteristics distinguish destination from nondestination resorts: the proximity of the resort to its primary market; the means by which the user reaches the resort; the frequency with which a user patronizes the resort; the typical length of stay; and the quality of the resort setting.

In short, destination resorts tend to draw users from a broad area, usually either national or international in scope. Moreover, users tend to travel to destination resorts by air rather than by car and tend to visit infrequently, usually not more than once a year or less and often only once in a lifetime. Users tend to book stays of one or two weeks. Destinations tend to be located in dramatic or particularly attractive world-class destinations—places that can lure the resort users to make an extra effort to get there. Many resorts in Hawaii, Mexico, the Caribbean, the mountains and coasts of Europe, and Asia are typically referred to as destination resorts.

Nondestination or regional resorts, on the other hand, are often located within a two- to three-hour drive of their primary market and are not generally positioned or marketed to attract visitors from farther away. Users generally travel to these resorts by car, although some may rely on trains (especially in Europe) or planes. Users often visit the same resort frequently, as many as 15 to 20 times per year. Nondestination resorts frequently book short stays for weekend users and the four-day vacation market. Regional resorts can be found near major metropolitan areas around the globe, notably in the Northeast and Midwest of the United States, near Hong Kong in Asia, and near London, Paris, Milan, and many other cities in Europe.

The byproduct of these distinctions is that destination resorts generally tend to have a higher ratio of hotel rooms to second homes, whereas the reverse is true for regional resorts. Destination resorts also tend to be more upscale and expensive than regional resorts.

Despite these distinctions, numerous resorts cater somewhat equally to both destination and regional markets. Ski resorts in the Alps or near Denver and Salt Lake City in the United States, for example, draw heavily on drive-in visitors from nearby metropolitan areas, as well as on visitors who travel greater distances to use the resorts. The better golf resorts in northern California also cater to both local markets and destination resort markets. Moreover, many destination resort areas, such as southeast Florida, Palm Springs, California, or the south of France, also claim a substantial in-place retirement population that distinguishes them from other more purely destination resorts, such as those in the Caribbean or in Indonesia’s Bali.

Resort Types by Setting/Amenity Mixes

Patrons tend to think of resorts in terms of their setting and the primary recreational amenities they provide. In the setting and amenity mix, there are four primary resort categories—ocean resorts, lake/river resorts, mountain/ski resorts, and golf resorts—and several secondary categories, all of which are outlined below. Since vacationers and second-home buyers are typically motivated by a desire for rest, relaxation, recreation, and social interaction, the character and quality of the natural environment and the recreational amenities offered by the facility are among the key factors for a resort’s success in the marketplace.

Ocean Resorts. The nature of an ocean resort can vary considerably depending on the nature of the oceanfront location and the variety of other amenities provided. To varying degrees, ocean resorts rely on the quality and extent of their beaches, the quality of the views, the climate, and the available water sports activities. These are all affected by the nature of the ocean/land interface, which can be characterized as a bay, barrier island, gulf, isolated ocean island, inland waterway fed by the ocean, and so on. Ocean resorts in areas such as Florida and Hawaii, the Caribbean, the Mexican coasts, and Asian locales like Bali and Phuket are frequently positioned as destination resorts that are reached by air; they appeal to seasonal visitors who may be located some distance from the ocean, often in colder climates. Ocean resorts in the northeastern United States cater more to weekend users and the second-home market.

Lake and River Resorts. Lake and river resorts often rely more on the recreational activities associated with water, especially boating and fishing, and less on beaches and views. They are frequently positioned as second-home communities, often within a three-hour drive of a major city, rather than as destination resorts that draw from national or international markets. They are usually more modest in scale and quality than ocean resorts.

Mountain/Ski Resorts. While skiing is the primary draw, mountain resorts have increasingly been capitalizing on their settings and are now at the forefront in pioneering the four-season resort concept, diversifying their amenity packages to attract visitors throughout the year. Historically, many mountain resorts were founded as spas, drawing on their healthful air and natural springs to establish themselves as places to foster good health or help cure illness. St. Moritz, Switzerland, for example, has been known since the Middle Ages for its mineral springs and healthy climate and today remains a world-class ski resort. Mountain resorts in the western United States and Canada and parts of Europe tend to be destination resorts, while those in the northeastern and Midwestern United States are generally more regional in orientation.

Golf Resorts. While golf is an important component of many resort types, including those already mentioned, some resorts rely on golf as the primary attraction. Golf-focused resorts and second-home golf communities have become a major force in states such as Florida, North Carolina, and South Carolina, which have largely exhausted their supply of suitable oceanfront property for new resort development and therefore have moved on to inland areas for continued growth. Golf resorts are also popular in desert settings in Arizona, Las Vegas, and the Palm Springs area of California, which all rely on scenery, climate, and golf to draw resort users.

Some resorts are primarily golf resorts even though they occupy waterfront locations. In California, Pebble Beach and the adjacent Spanish Bay Resort are both top international destinations for golfers, yet they are ocean resorts as well. In these examples, beaches are not the primary draw because of rocky coastlines and frigid waters. Instead, golf courses have been sited along the coastline to create dramatic settings for the golf experience.

Kananaskis Village includes four hotels, a conference center, commercial space, and many recreational amenities that showcase the resort’s location in the foothills of the Canadian Rockies near Calgary.

Other Setting/Amenity Mixes. Other popular mixes of settings/amenities and themes are numerous, including those with active recreation and health orientations and those with entertainment, cultural, and amusement orientations. Spas have gained considerable prominence in recent years as the public has focused increased attention on health and well-being. Spa components offering health-related services and programs to help visitors lose weight, build strength, relieve ailments, develop healthful habits, or simply pamper themselves have become major segments of many resorts and even the primary draws for some. Spa-focused resorts have been successful in a wide range of settings, including beaches, mountains, deserts, and even urban areas.

Tennis resorts typically offer extensive instruction programs and may host tournaments. Most tennis facilities in resorts are combined with other amenities, but some cater primarily to tennis players. They tend to be located in climates where year-round play is possible.

Equestrian communities attract primary- and second-home owners who wish to board horses or enjoy horseback riding. Ranch resorts provide vacation experiences with an Old West flavor as a backdrop for horseback riding.

Natural-attraction resorts capitalize on attractions such as national parks, waterfalls, appealing landscapes, and so on. Sporting expedition lodges—specializing in activities such as fishing, hunting, diving, and climbing—provide accommodations and outfitter/guide services for a variety of specialized, nature-based recreational activities. Fishing in particular is gaining in popularity. Fly-fishing draws vacationers to such destination resorts as Roaring Fork Club in Colorado (see case study, chapter 7) and Bighorn River Resort in Montana, where guided fishing expeditions are a primary draw, but guests also enjoy comfortable surroundings and fine cuisine based on local ingredients. Water parks have matured into large and sophisticated attractions, and now they may include various dining and entertainment options as well as expansive networks of water slides, pools, and other water-based amusements.

Resort hotels provide a relaxed setting, usually removed from commercial activities. The Grove Isle Hotel & Spa occupies its own island near Miami Beach.

Entertainment, cultural, and amusement-oriented resorts come in several varieties. Cultural and music-oriented resorts include the resort products around Branson, Missouri’s country music venues, where demand has spurred tremendous growth in resort development. Historic attraction and heritage resorts focus on sites or towns with a distinctive heritage; examples include resorts surrounding the Williamsburg and Jamestown areas of Virginia, where colonial history and culture are the attractions; around Santa Fe, New Mexico, where Spanish, western, and Native American history and culture lure visitors; and in the Napa Valley of California, where wineries and agriculture hold the spotlight. Theme park resorts include the various resort products around Disney World and similar resorts at other major theme parks. Casino resorts provide not only gambling for enthusiasts but also live music and other amusement opportunities. Urban resorts provide vacation accommodations for those pursuing the cultural, entertainment, and shopping experiences found in cities.

Resort Types by Residential/Lodging Types

Resorts are often categorized in terms of the type, extent, and mix of the residential and lodging facilities they offer. From a developer’s perspective, the extent and mix of the housing and lodging on a property are critical for three reasons. First, housing and lodging accommodations are the major sources of revenue for the property. Second, planning for the development of accommodations consumes most of the developer’s time. Third, housing and lodging are essential to defining the nature and positioning of the resort.

Based on this approach, three major real estate product types are marketed in resort properties. Generally, the products can be distinguished by the level of financial commitment required from the guest or user. Hotels require only a relatively modest financial commitment, usually a nightly rate of a few hundred dollars. Time-shares and other partial ownership products require a moderate, usually one-time cash investment, plus annual maintenance fees. The initial fee for a timeshare averages about $15,000 for a week per year. The cost for a fractional ownership averages about $150,000 for a mid-range property but can run much higher, depending on the value of the property and the use rights assigned to the share. Full-ownership second homes require a major financial investment similar to a primary home, anywhere from $50,000 for a modest cottage or cabin to several million dollars for a luxury home.

Golf Traditions and New Amenities Draw Guests to St. Andrews

An ancient city on the east coast of Scotland, St. Andrews was long known for its university and as the ecclesiastical capital of Scotland. In modern times, however, both reputations have been eclipsed by its fame for golf. Visitors from all over the world flock to St. Andrews to witness the game’s greats compete on one of the city’s renowned courses. The most famous, the Old Course, occupies the same ruggedly beautiful site where golf was first played some six centuries ago.

Overlooking the Old Course’s famed 17th hole, the Old Course Hotel offers spectacular views, four restaurants, and deluxe, five-star service to St. Andrews visitors. Opened in 1969, the hotel has evolved into its present form through a series of owners.

The hotel was constructed by British Transport. In 1982, it was sold to European Ferries as part of the British government’s privatization program. The resort was upgraded and opened by HRH The Princess Royal to accommodate the 1984 British Open. It was then purchased by an international consortium called the Old Course Limited and was again refurbished. Kosaido Company, Ltd., became the majority shareholder and owned the property until 2004, adding the £5 million Millennium Wing in 2000.

When the Kohler Company bought the hotel in 2004, it had been nearly 15 years since a major overhaul. A family-owned, diversified business based in Kohler, Wisconsin, the company also owns Destination Kohler, a luxury resort based around the AAA five-diamond resort hotel the American Club. In preparation for the 2005 British Open, the company refurbished rooms, expanded the spa, and recruited French designer Jacques Garcia to orchestrate the updating of the hotel’s interiors.

Today the hotel offers 146 rooms, including 37 suites, a state-of-the-art Kohler Waters Spa, and fully wired conference facilities for meetings and other events. The newly expanded spa offers a hydrotherapy pool, a Japanese salt steam room, a light therapy sauna, exercise facilities, and a range of treatments.

Old Course Hotel at St Andrews in Scotland.

St. Andrews remains the most extensive golf destination in Europe, with ten championship golf courses in the immediate vicinity. The resort’s own Duke’s Course is the only inland golf course in St. Andrews. Designed by five-time British Open champion Peter Thomson, the 7,271-yard (6,650-m), par-72 course was opened in 1995. It enjoys impressive views, an extensive pro shop, and newly upgraded clubhouse facilities and cart paths to ensure year-round convenience and comfort.

Robert Goodspeed, Urban Land Institute

Each of these three resort product types can be combined in some fashion to create a fourth type of resort: a multiuse resort community. Much of this book focuses on the development of multiuse resort communities, as they encompass all the issues involved in the development of the various resort components, as well as a variety of larger issues that make multiuse resorts an exceedingly complex development type.

Resort Hotels. Resort hotels are by far the most common type of resort property. The accommodations in these facilities range from rustic basics such as tent cabins to luxury suites with every amenity imaginable. The differences between a resort hotel and a traditional commercial hotel can be described in terms of the guests’ purpose in staying at the facility. The guest at a resort hotel typically visits for relaxation or recreation, whereas the guest at the commercial hotel typically is driven by convenience. Increasingly, however, resort hotels are catering to commercial guests, (especially conference attendees) during low seasons, while traditional hotels are catering to leisure travelers, particularly during weekends and holiday periods.

Resort hotels and lodging facilities generally differ dramatically from most commercial hotels in terms of their setting and level of amenities. Whereas a typical commercial hotel occupies a compact site in a downtown or along a highway, a resort hotel or lodge is usually located on a large site oriented toward its natural surroundings and recreational facilities but removed from unrelated commercial activity and highways. Guest room accommodations in resort hotels are often carefully positioned within attractive settings, frequently offering exceptional views of and access to the natural surroundings.

Traditional hotel amenities are typically limited to an exercise room, possibly a small swimming pool, and the concierge’s ability to arrange off-site activities. Resort hotels often feature extensive on-site amenities, including large swimming pool complexes, tennis courts, golf courses, equestrian facilities, gardens and landscaped courtyards, and a wide range of other amenities such as the hotel’s own beaches, marinas, or ski slopes. Golf, in particular, accounts for the success of resort hotels in attracting business meetings, an increasingly important source of revenue. Resort hotels are often set within larger resort communities, enabling them to offer a further range of amenities included in the community, such as beaches, parks, amusement facilities, retail services, and so on.

Like commercial hotels, resort hotel facilities can be classified as economy, midpriced, or luxury properties and by their overall quality—which is assessed by travel services such as Michelin, the Mobil Travel Guides, and the American Automobile Association (AAA) that assign star or diamond ratings. Many travel Web sites such as Expedia and Orbitz also rate hotels by quality. In addition, facilities can be classified as conference- and nonconference-oriented hotels.

Numerous niche products exist within the broad category of resort hotels, such as resort motels, guesthouses, bed-and-breakfasts (B&Bs), lodges, boutique resort hotels, and megaresort hotels. One way to classify and think about lodging facilities is by their size, which can range from a handful of rooms to over 5,000 rooms. The small end of the spectrum—hospitality facilities under 25 rooms—accounts for lodging types such as guesthouses, B&Bs, country inns, guest ranches, fishing and hunting cabin rentals, and small motels. Resort motels are usually small, low-amenity facilities that cater to low-budget automobile travelers. Guesthouses, B&Bs, and country inns are usually located in rural or historic areas and cater to weekend travelers and short-stay guests. They are often older facilities, sometimes converted mansions or farmhouses.

These small lodging facilities are usually independently owned and operated, often by families, and are not a major concern of large resort developers and operators. In some cases, however, these types of facilities can be a part of a larger resort property. For example, the Win-tergreen Resort in Virginia includes a bed-and-breakfast lodging facility for those who prefer this type of accommodation. Some second-home communities also provide a small, sometimes temporary lodging facility on site to accommodate prospective buyers.

Hospitality facilities in the 25- to 125-room range can include some of the previously mentioned types, but may also include small specialty hotels. Resort lodges, for example, often fall into this size range; lodges are typically located in mountain or rural settings, are often rustic in design, and usually include restaurant services as well as an extensive lobby with comfortable sitting areas where guests can congregate. Lodges often cater to skiers, hunters, and hikers. While the term lodge is often used loosely to name hotels that do not necessarily fit this description, the concept remains useful.

The emergence of boutique resort hotels is a relatively recent phenomenon. This is a special category of small resort hotel that focuses on service, quality, and privacy for highly discriminating guests, typically individual travelers and attendees of small business meetings. Spa resorts may also be in this size range. Examples discussed in the case study section of this book (see chapter 7) include Banyan Tree Lijiang in the Yunnan Province of China; the Carneros Inn in Napa, California; Taj Green Cove in Kerala, India; and the WaterColor Inn, which is part of the WaterColor resort community in Santa Rosa Beach, Florida. This type of resort hotel usually has between 50 and 100 rooms, provides limited dining and other facilities, does not usually provide access to a golf course, and is generally not part of a multiuse resort community, although it certainly can be accommodated within such a community, like the WaterColor Inn. Boutique resort hotels do not try to provide something for everyone but rather target travelers seeking a distinctive ambience and character. The facilities are often located in extraordinary but sensitive settings that are not suitable for larger hotels.

Entrance to the Banyan Tree Lijiang in China. This boutique resort takes advantage of its natural setting and cultural attractions.

Resort hotels in the 125- to 400-room range are usually chain-affiliated hotels located in major resort areas. They can follow low-, mid-, or high-rise configurations, with restaurant services, conference facilities, and their own recreational amenities. While these facilities are sometimes similar in construction to commercial hotels, their design is usually markedly different. For example, most guest rooms feature outdoor balconies, and rooms are often larger and incorporate more amenities, reflecting the facts that guests in these hotels represent a higher percentage of couples and families, that their stays are longer, and that guests spend more time in their rooms than guests in commercial hotels. Resort hotels, even when they use concrete or steel-frame construction, are often designed to be more horizontal than vertical because they aim to fit within their natural surroundings. They might be made up of several buildings, including low-rise structures with walkout units. This allows the hotel to offer a variety of room options appealing to a range of guests seeking different experiences. A honeymooning couple, a conference attendee, and a family each require different room types and settings, which a large resort hotel tries to provide. Montage Laguna Beach, with 262 rooms, is an example of a luxury hotel that fits within this category (see case study, chapter 7).

Resort hotels with more than 400 rooms are generally found in the most popular resort locations that offer major attractions such as prime beach frontage (as in Florida, the Caribbean, and Hawaii), prime ski facilities (as in Colorado, Western Canada, or Utah), a notable theme park or parks (such as those around Orlando, Florida), major gaming facilities (such as those in Las Vegas or Macau, China), or a prime golf course (as in Arizona or Palm Springs). Early examples of large resort hotels include the Fontainebleau in Miami Beach, built in 1954, with over 1,600 rooms, and the Hilton Hawaiian Village, which began as thatched guest cottages in 1955 and today encompasses 3,386 rooms in a series of high-rise towers. Today, many of the largest hotels are being constructed in Las Vegas, Macau, and Dubai, United Arab Emirates—all resort destinations appealing to worldwide markets. The MGM Grand Hotel in Las Vegas is currently the world’s largest hotel, with nearly 5,700 rooms. It will soon be surpassed by Asia Asia Hotel in Dubai, which is expected to be completed by 2010 and will have 6,500 rooms. Among the case studies in this book, the JW Marriott Starr Pass Resort and Spa in Tucson, with 575 rooms, provides a useful example of a large resort hotel (see case study, chapter 7).

Megaresorts or fantasy hotels, which became popular in the mid-1980s, generally include more than 1,000 guest rooms combined with meeting facilities and an extensive array of amenities and activities, many with fantasy themes. Examples include the Hyatt Regency Waikoloa in Hawaii, a luxury version of a Polynesian village with waterfalls, lagoons, and dolphin pools where guests can interact with wildlife; the Walt Disney Grand Cypress Hotel in Orlando, Florida, which imitates a Victorian beach resort; Atlantis Paradise Island, featuring a 63-acre (25-ha) themed water park and underwater ruins of the mythical Atlantis; and the numerous Las Vegas megahotels whose themes are carried out in scaled-down replicas of icons such as the Eiffel Tower, the Statue of Liberty, and the Roman Forum.

Vacation Ownership Products. To understand the multitude of ownership products in resort development today, some background is useful. The early emergence of the condominium form of ownership in the 1960s was first associated with resort locations. These early condominiums often were developed by entrepreneurs independent from the developers of the recreational areas. Eventually, resort developers jumped on the bandwagon, and condominium clusters soon were growing in the midst of these destination resort properties. The second movement was associated with the advent of the master-planned community, whose principal products were lots and homes. The enactment by Congress of the Interstate Land Sales Full Disclosure Act of 1969 brought respectability to the efforts of legitimate developers of resort communities.

By the 1970s, with rising mortgage interest rates and the Arab oil embargo in full swing, developers first adopted the timesharing ownership concept, often as an exit strategy for already built condominiums whose sales were lagging. Unfortunately, timesharing also became a way to dump unattractive motel properties, a practice that ended when purpose-built timeshare properties came on line later in the decade. Because timeshare ownership, like condominiums, required enabling legislation from states, many of the early time-shares used a variety of legal techniques to be able to deed real estate interests that had time limitations on ownership. Among the products coming out of this developmental stage of timesharing were partnership interests, undivided interests in whole units, and leases. Most timeshares were originally fixed week, fixed unit, but later on more flexibility was offered by floating use and floating unit concepts, as well as by the emergence of exchange companies.

As the dust began settling on the industry in the 1980s, a variety of products emerged. During this period, most timeshares and similar ownership concepts were located in projects specifically designed to serve the buyers’ needs. Many units featured a lock-off room or rooms that could be rented, exchanged, or otherwise used by the owner. The two-bedroom, two-bath unit with lock-off became a popular vacation unit type, usually featuring expanded kitchen facilities and upscale furnishing packages. This period also saw the entry into the timeshare industry of major hotel companies seeking to use this product to fill seasonal gaps in use at destination resorts.

Megaresorts like Atlantis Paradise Island, in the Caribbean, generally include more than 1,000 guest rooms and an extensive range of amenities.

Staying with the Past at Villa d’Este

With a history stretching back more than four centuries and a tradition as a luxury hotel for over 130 years, Villa d’Este, which overlooks Lake Como in northern Italy’s lake district, stands unique in the world of resorts. Approximately 28 miles (45 km) long and never more than two miles (3 km) wide, the lake is traveled by boats and ferries that provide views of historic villas and access to the towns and villages along its shores.

The villa was built in 1568 as a princely summer residence for Cardinal Tolomeo Gallio. Its history as a hotel began in 1873, when it was purchased by a small group of investors from nearby Milan. The villa’s 154 rooms are each unique in size and decor, and a staff outnumbering the guests provides world-class service. Villa Malakoff and Villa Cima, two 19th-century villas located within the gates of the 25-acre (10-ha) complex, offer visitors both the privacy of a home and the luxuries of a five-star hotel.

In the past decade, Villa d’Este has undergone a substantial transformation in order to provide modern comforts and facilities, including an indoor swimming pool, sauna, beauty center and spa, and modern conference facilities. Seven miles (11 km) from the hotel, the Peter Gannon-designed Villa d’Este golf course winds over slopes and valleys along the Lake of Montorfano, and seven more courses can be found in the surrounding area.

The historic design and rich collection of plants, sculpture, and fountains in the villa’s gardens draw visitors from around the world. In a 2004 addition, executive chef Luciano Parolari created a chef’s garden to produce a variety of fresh vegetables, berries, and herbs to enhance his dishes. Food is prepared for a diversity of settings ranging from the formal dining room to the grill, which operates in the garden under a 500-year-old plane tree.

Villa d’Este, on the shore of Italy’s Lake Como, is a historic luxury resort that has kept up with the times.

Lauren Good, Urban Land Institute

Meanwhile, state regulators had caught up with the industry, and most timesharing sales were regulated under statutory variations based on preexisting land sales acts. Federal legislation did not follow, because under the Reagan administration the federal government was less inclined to regulate local real estate activity. But most state laws reached any property marketed in a state, regardless of whether it was physically located in that state. Additional legislation made developers toe the line, including sellers of travel laws, telemarketing and direct mail statutes, and state licensing of salespersons not already covered under existing real estate broker regulations. Most states now dictate a rescission right or cooling-off period of varying lengths—usually between 72 hours and one week—during which a buyer may cancel without cause and receive a full refund of all monies paid to a developer or sales agent.

The resort development industry has substantially expanded its vacation ownership product lines in recent years. What was once a simple field of lots, condominiums, and timesharing now includes a diverse and varied product mix, with more new products likely to come in the future. All such products require an annual maintenance fee to discharge the costs of operation. These can range as high as $600 a year for a one-week interest to many thousands for fractional and destination club products. These products undoubtedly will further evolve in the future, but what follows includes definitions of key terms currently in use and descriptions of the range of resort ownership products in today’s marketplace.

A continuing issue is that of the ability of the initial purchaser to resell a vacation ownership interest. The larger developers often offer resale programs to their owners, and many resale companies have emerged in response to this need. Nevertheless, resale prices often reflect a deep discount owing to the original seller’s marketing and financing costs. If the purchaser is not aware of this issue at time of purchase, they may be disappointed upon resale. Unfortunately, some companies have preyed on unsuspecting consumers, and both state regulators and ARDA (American Resort Development Association) have attempted to identify and curtail the activities of the field’s bad actors. Special attention has been directed to those who require an upfront fee for reselling interests because of the frequent misuse of this concept by unscrupulous companies.

Timeshare or Vacation Ownership. In its simplest form, timesharing involves selling deeded real estate or a nondeeded equivalent interest that entitles its owner to use one week in a resort accommodation together with its amenities (while in residence). This product is often referred to as vacation ownership, an industry response to early negative public perceptions of timesharing. In deeded projects, purchasers usually acquire either title to a specific time period or a 1/52nd undivided interest in a condominium unit, with occupancy and use provisions in their project documents. This product is not typically an asset that will appreciate significantly.

Buyers pay an initial purchase price, typically financed by the developer, and then annual maintenance fees. Some timeshares are fixed in time (e.g., the owner has the 34th week of each year in perpetuity), but many are floating time programs that require the owner to make an annual reservation. Purchasers can buy into their preferred season, with prime season weeks selling for more than off-season weeks. Some vacation ownership interests have priority rights based on purchase price or on a rotating high- to low-demand selection process. In many cases, purchasers can opt for a timeshare that skips every other year of ownership—known as biennial ownership—for a lower price. These are also referred to as even-odd ownerships, based on whether ownership or use rights occur in even- or odd-numbered years.

Timeshare programs often feature an internal trading program that enables owners to trade their week for another within the same project. Virtually all vacation ownership properties are affiliated with a major exchange company that offers trading ability. Initial membership in the exchange company is offered at point of sale, and the first year’s dues and membership fees are usually paid by the developer. Purchasers have to elect to continue participation in the exchange after the one-year trial membership. With the international exchange companies, a week of use in the buyer’s home resort is deposited with the exchange company (a procedure often referred to as space banking) prior to its date of use, and the member can then select from other resorts in the system for a comparable week on a single-use basis. This arrangement permits more flexibility as to time and location for one’s yearly vacation, addressing an aspect of early timesharing that garnered resistance as prospective purchasers worried about having to return annually to the same property. One’s trading power is based on a number of criteria, including size of the unit, home resort quality, demand for the resort area among other exchange members, availability of suitable accommodations at the area where one wants to go (in turn reflecting the willingness of other members of the exchange to deposit their weeks of use), and so on.

Many forms of ownership have evolved. The Carneros Inn cottages are fractional ownership, at intervals of one-tenth year.

Roaring Fork Club cabins can be purchased by club members as whole or one-quarter year ownership.

Fractional Ownership. Fractional developers sell an alternative second-home product that provides expanded use rights together with more extensive amenities and services than traditional timeshares. A key difference is that fractional ownership conveys a proportionate fee interest in the property, whereas timeshares convey only a right to use the property.

Fractions range typically between one-eighth and one-quarter ownership, giving the fractional owner between six and 13 weeks of use per year. As contrasted with timesharing, this product has a real estate feel and is not simply a bundle of weeks aggregated for sales purposes. Fractional owners anticipate appreciation, like other second-home owners. The fractional product appeals to those who can vacation more frequently and intend to return to a single location season after season. Many fractional projects use a rotating calendar or priority system to allocate use rights. Acquisition costs and annual fees are significantly higher than with timeshares.

The exchange component of the fractional product has become crucial for high-end exchange companies, providing an attractive service for this category of user. Established timeshare exchange companies have rushed into the market with their own versions of a high-end fractional exchange program. In his 2006 Fractional Interest: Leisure Real Estate Market Report (hereinafter cited as the Ragatz report), well-known industry analyst Richard Ragatz divided fractionals into traditional and high-end segments. He defined traditional fractional interests as those whose accommodations and amenities are of three star quality in their units, furnishings and amenities, and selling for less than $500 per square foot. High-end fractional interests were defined as four star in quality and selling from $500 to $999 per square foot.

Although developers of fractional ownership projects have tried to separate themselves from other forms of timesharing, state regulators have taken the position that fractional ownership is timesharing for regulatory and licensing purposes.

Private Residence Clubs. The private residence club (PRC) is the highest-end fractional product, catering to those accustomed to a superior level of service and luxury. Intervals are usually shorter for private residence clubs than for traditional and high-end fractionals, ranging between one-seventh and one-seventeenth of the undivided interests in the units. Subject to availability, PRC owners have unlimited use of facilities and lodging, a privilege they usually pay for through higher annual maintenance fees or dues and, in some cases, a daily use fee. The Ragatz report identified PRC products as selling for $1,000 or more per square foot, representing the pinnacle of five star quality in both accommodations and amenities. These programs are treated as timesharing by state regulators as well.

Destination Clubs. Destination clubs are membership-based clubs structured similar to golf country clubs and featuring a deposit refund mechanism. Purchasers pay a membership fee or deposit in return for access to the club’s amenities and lodging. A destination club developer typically owns or has use rights in a collection of five-star PRC-level accommodations (single-family homes, condominiums, or other luxury housing types) in beach, mountain, urban, or other highly desirable locations worldwide. Members have the right to vacation in the various accommodations owned by the club, subject to its reservation procedures. Members typically do not own any real estate and can resign at any time to receive a partial refund of the membership cost, a refund that typically equals 80 percent of the original fee or deposit. Annual maintenance fees are higher than for timeshare, traditional and high-end fractionals, or PRCs. This product tends to be more expensive than any other timeshare product. Like the private residence club, it differentiates itself in terms of service, amenities, and luxury.

Initial acquisition costs are often in the high six figures, and annual dues run in the thousands of dollars. Most of these products are nonequity: one is really buying a contractual right to occupy, and buyers trust the developer to run the facilities at a break-even level to ensure continued use. A small number of destination clubs have an equity structure, which varies from club to club but gives members an ownership interest in the real estate held by the club. Memberships typically cannot be resold, and the club controls resales. Destination clubs retain the flexibility—at the developer’s discretion—to add or subtract residences in the club inventory based on member demand and opportunities to acquire suitable residences.

The regulatory treatment of these clubs is still very much up in the air, although some states have attempted to regulate the sale of memberships in destination clubs like timeshares. The developers of destination clubs have vigorously opposed such efforts, and they persuasively argue that they should not be regulated any more than golf membership clubs are regulated.

Points and Points Conversion Programs. In recent years, new programs calculated to offer owners more flexibility in their use of vacation ownership interests have emerged. Some timeshare projects have been structured from the outset as points programs, assigning to the interest sold a number of points that reflects the developer’s best estimate of the value of the timeshare, taking into account the unit size and decor, season of ownership, available amenities, and general demand. In some cases, purchasers are sold points rather than a specific week. This has been especially common for those resort companies that have multiple locations to offer purchasers. These owners must plan ahead and schedule their use within the developer’s system of resorts, with each use period having a points value. Owners hope that their acquired points will permit them to schedule vacations when they want them. An owner of limited points still has a chance to schedule a vacation, but perhaps not a full week in high-demand resorts. Points programs have proved so popular that both the exchange companies as well as developers have offered a points conversion program allowing timeshare owners to trade their interests for points, and even to upgrade their ownership through purchase of additional points.

A Victorian Classic Sees New Life in California

Hotel del Coronado’s founders, Elisha Babcock and H.L. Story, dreamed of building a seaside resort that would be the talk of the western world. The Del was built on Coronado Island in San Diego, after the two Midwestern businessmen bought the undeveloped peninsula in 1885.

The hotel opened its doors in 1888. One of the leading luxurious railroad resorts in the West, the Grand Lady by the Sea became a watering hole for the rich and famous. There was even a spur track on the property to accommodate private rail cars. Although originally promoted as a fishing and hunting resort, the hotel offered many more refined amenities, including billiards, bowling, croquet, swimming, boating, bicycling, archery, golf, and fine dining.

A tent city with modest tent and bungalow accommodations at reasonable rates was added in the early 1900s for the emerging middle class. The times continued changing, and the Hotel del Coronado faced many changes as well. During World War II, the U.S. Navy used part of the facility for housing. The part that was still a hotel became an attraction for military men and their sweethearts.

During the 1950s and 1960s, many older hotels throughout the nation failed. Thanks to a series of owners who wanted to keep the hotel alive, however, the Del prevailed. The hotel even became home to resident guests, people who lived on the property full-time. In the 1970s, Americans once again became interested in history, and the Del was brought back to its former glory. In 1977, the Hotel del Coronado was named a National Historic Landmark.

In August 2001, the hotel completed an extensive restoration project that included design and decor enhancements as well as structural reinforcement. These efforts included refurbishing the original Victorian Building’s foundations, preserving a historic smokestack and the rib-vaulted pine ceiling of the Crown Room, and restoring the oceanfront Windsor Lawn. The Victorian Building’s 381 rooms were restored with traditional architectural details and furnishings. The original Otis #61 lobby elevator, one of the first fully functioning electric elevators manufactured in the United States, was also rehabilitated as the final element in the restoration.

Hotel del Coronado has added fractional ownership cottages and villas to the historic property.

In the fall of 2005, implementation of the Hotel del Coronado’s 15-year new master plan began. The first phase includes a new restaurant, oceanfront walkway, world-class spa, garden park entrance, fitness center, and luxury for-sale beachfront cottages and villas. The 11 beachfront cottages and villas at Beach Village are expected to include 78 condo hotel units, a private enclave with pools and hot tubs, front desk and concierge service, and access to all the resort’s amenities. Prices for these units will range from $780,000 for a one-bedroom studio to $2.5 million for an 1,800-square-foot (167-sq-m) suite. When not owner-occupied, units will rent on a nightly basis.

Lauren Good, Urban Land Institute

Condominium Hotels or Hotel Condominiums. Beginning in the late 1960s, condominium hotels have enjoyed market acceptance as a product enabling resort developers to add lodging facilities at little or no capital cost. The condominium buyers pay for the lodging and accept limitations on their occupancy in return for a share in the rental income stream from their units. The earliest such offerings were for small lodging facilities in the Pacific Northwest. One of the first major condominium hotels registered with the Securities and Exchange Commission in 1972 is still in operation today as a condominium in Arizona.

In the early days, purchasers of condominium hotels received a prospectus for the offering that was filed with the SEC, which described the risks of purchasing. Buyers were required to contract for management with the developer for a multiyear term. The offering of the real estate along with the mandatory rental management agreement resulted in the SEC’s position that these sales constituted the sale of an investment contract under their rules. Owners could only stay in their units for a limited time each year, often as little as fifteen days, a limitation that stemmed from certain IRS rules on hobby losses. The fifteen-day occupancy limit was adopted as a safe harbor for owners under the tax rules.

Kapalua Resort on Hawaii’s Maui includes a range of ownership products: condominium villas, luxury estate homes, and fractionals.

Condominium hotels have received renewed interest following an SEC no-action letter in 2003 that permitted the signing of a rental management agreement prior to closing and without having to register the product as a security under federal law. (A developer must also comply with state securities laws, which may not be as liberal as the SEC’s 2003 position.)

Today’s condominium hotels usually involve the sale of luxury condominiums as real estate coupled with the right to participate in a purely voluntary rental management program with the developer or its affiliated management company. These projects resemble high-end condominium projects more than hotels and give owners the opportunity to acquire the entire unit or residence and reduce carrying costs by participating in the rental program. Owners have personal use rights but are often encouraged to limit the use of their condominiums so that the rental program manager may book advance overnight rentals and group meetings.

The condominium hotel product may be differentiated from hotel condominiums, which look and operate more like a traditional hotel, with all the regular hotel guest services and amenities. Here the unit sold is not a spacious condominium unit but a typically sized hotel room. Hotel condominiums are often a financing tool for developer/operators who cannot obtain conventional financing yet who prefer a more standard hotel product.

Recreational Vehicle (RV) Club Membership Plans. An increasingly important component of resort development today is the RV membership club. Although the concept has been around almost as long as second-home lot sales, the industry experienced an extended period of decline that seems to have ended. Like its timeshare cousins, it often features flexible use but with guaranteed annual space (with limitations on the number of consecutive nights one can use a particular site) for a trailer or other RV—sometimes even a tent— and common amenities for use while in residence. There are organizations offering trading of RV spaces much like the timeshare exchange companies. Acquisition costs are relatively low, depending on amenities and amount of time purchased, and annual dues for maintenance are usually much lower than timeshares, since the property maintenance responsibilities don’t include a lodging component.

Second-Home Developments. A second-home development is a community substantially composed of second homes, which are defined as a home that is owned fee simple by a household that also owns or rents another home as its primary residence. A second home may in fact be a third or fourth home, one of many homes that a household may own. Second homes are sometimes also referred to as seasonal homes, weekend homes, or vacation homes, depending on how they are used by the owner.

Some people—especially retirees, independent executives, and those with independent means—often use two or more homes equally; they may reside in several homes, none of which is necessarily primary. Thus, another way to define a second home more broadly is a home in which the owner also resides for substantial parts of the year, but not as the primary residence.

Second-home developments may consist of detached single-family houses, attached units, multifamily properties, or a combination. Attached and multifamily resort units are more likely to be marketed and sold as second homes with income potential, and thus they tend to be placed in a rental pool or program operation. Single-family detached homes are more likely to be sold to users who do not expect to rent them extensively, although many detached-home communities include homes available for rent through real estate agents or rental agencies.

Primary and retirement homes may be incorporated into second-home developments as well, and some projects are hybrids that include primary homes, second homes, and retirement homes.