MILL (Wiley)

Chapter 1
RESORTS: AN INTRODUCTION
INTRODUCTION Setting and Primary Amenities
Roman Empire Residential and Lodging
Europe Properties

AL
North America Mixed-Use Developments
Lessons INDUSTRY TRENDS

RI
TYPES OF RESORTS SUMMARY
ENDNOTES

TE
Proximity to Primary Market

MA
D
TE
GH
RI
PY
CO

S
N
L
 MILL (Wiley)

2 Chaper 1 RESORTS: AN INTRODUCTION

INTRODUCTION
To understand where the resort industry is today, it is important to consider how
resorts have evolved through the ages. A historical perspective leads to a picture
of the modern types of resorts.

HISTORY OF RESORTS1 The sole purpose of a resort, in the

classic sense, is to afford its users a place for escape or
restoration from the world of work and daily care.
—CHUCK Y. GEE
Resort Development and Management

Roman Empire
Prior to the eighteenth century, pleasure travel was not available for the masses.
Lack of time and money combined with poor transportation and a general lack
of facilities to make travel something that one had to do rather than wanted to do.
However, the roots of the resort concept can be traced to the Romans. Ex-
tending from the public baths, resorts were initially built in and around Rome
before being developed for the pleasure of Roman legionnaires and consuls
throughout the empire—from the coast of North Africa to Greece and Turkey, from
southern Germany to St. Moritz in Switzerland, and on through England. In fact,
Bath in England still has relics dating to A.D. 54, when it was known as Aquae
Sulis (Waters of the Sun).
The first baths, introduced in the second century B.C., were small and mod-
estly furnished. Men were separated from women. Later, the baths became inte-
grated, larger, and more ornate. They served both health and social purposes. The
public bath allowed for relaxation, while the sale of food and drink on the prem-
ises encouraged social interaction. A typical structure consisted of an atrium sur-
rounded by recreational and sporting amenities, restaurants, rooms, and shops.
Outside the major centers of population, baths were located by mineral
springs, which were known for their restorative powers. The Greeks had earlier
associated mineral springs with the gods and had built holy wells and altars on
the sites. Roman legions appropriated these sites for the construction of baths.
The Roman Empire began to decline at the beginning of the fifth century A.D.
Social life at the English resorts languished until the seventeenth century, when it
was refueled by improvements in roads and the introduction of the stagecoach.

Europe
In A.D. 1326, Colin le Loup, a Belgian ironmaster, was cured of a long-term illness
by the iron-rich waters of a spring near Liège. As thanks, he developed a shelter
S there to welcome others. The popularity of the area grew so much it was renamed
N Spa, meaning fountain.
L
 MILL (Wiley)

INTRODUCTION 3

A Roman bath in Bath, England. Courtesy Peter Adams / Digital Vision

Back in England, King Charles II restored the monarchy in 1660 after years of
Puritan rule. He spent time at the popular resorts of the day—Bath, Tunbridge
Wells, and Harrogate. Thus began a long history of attractions being popularized
by the rich and famous, a tradition that continues today. In other parts of the
world, royalty continues to be the trendsetters, while in North America, stars of
the popular culture determine the ‘‘in’’ places. There is an old saying in tourism
that mass follows class. Destinations are initially made popular by a small band of
influential people. This puts the place on the map. Seeking to emulate this group,
others are attracted to the location.
A second factor leading to the popularity of the spas was the endorsement of
the medical profession. The waters of Tunbridge Wells, for example, were pro-
moted as an aphrodisiac. Likewise, bathing in and even drinking salt water was
regarded as a cure for numerous diseases and helped promote seaside resorts.
Popular activities at the baths included gambling, dancing, and other forms of
entertainment, including concerts, grand parades, and the pump room, where
health-seekers ‘‘took the waters.’’
The rise in popularity of the spas created a demand on the part of the affluent
S for more private facilities. This led directly to the development of the Swiss resort
N industry. Before railroads were built, guests traveled long distances over poor roads
L
 MILL (Wiley)

4 Chaper 1 RESORTS: AN INTRODUCTION

to arrive at their destination. Having spent so much time and effort in reaching
the spa, they wanted to spend a long time—up to two months—to get their
money’s worth. This led to the development of facilities more extensive than those
offered by a modest inn. In Zurich, the most famous resort was the Hotel Baur au
Lac, opened by Johannes Baur in 1844. After several expansions, the hotel was
completely rebuilt with an innovative design that still is used today. While all other
hotels faced the town, Baur built the new resort facing Lake Lucerne. He became
the first developer to recognize the benefit of a scenic view.
In the early 1800s, Switzerland was known as a summer resort. However, in
1860, several English visitors were convinced to stay on for the winter. Skating was
already a favorite activity. In Switzerland, the guests were introduced to skiing and
tobogganing. While the initial attraction was the promise of health cures, the pop-
ularity of the resorts was due more to the social activities organized by manage-
ment. One example was the Bains de Monaco, renamed Le Mont Charles (Monte
Carlo) in 1863. Operating in the winter months when traditional summer resorts
were closed, it offered guests year-round gambling. While the health spa was the
overt attraction, the real source of the resort’s success was the gambling.

North America
The earliest resorts in the United States were developed in the East and, as in
Europe, were established around spas. Resort hotels were opened in Virginia, New
York, and West Virginia in the eighteenth century. At approximately the same time,
the seaside resort became popular. Examples include Long Branch, New Jersey,
and Newport, Rhode Island. The latter was a commercial port where molasses was
distilled into rum, which was then traded for slaves from Africa. When the slave
trade was abolished at the end of the eighteenth century, the town turned to
tourism for its economic future. Wealthy southerners ventured north to escape the
heat and malaria of South Carolina in the summer.

Amenities Early hotels were rather barren in terms of amenities. The forerunner of many
upgraded facilities to be later found in resort hotels was not a resort hotel itself.
The Tremont Hotel in Boston, built in 1829, is credited with introducing a number
of innovations in service, including:

elegant marble
carved walnut furniture in private rooms
a pitcher and bowl and free cake of soap in each guestroom
gaslight instead of candles
French cuisine and silver table service that included forks
bellboys to handle guest luggage
an ‘‘annunciator’’—the forerunner of the room telephone

Civil War The American Civil War changed the nature of many Eastern resorts. Saratoga
S Springs, New York, had long catered to southern gentlemen who brought their
N horses (and their slaves) with them to race while they took the waters. As the
L
 MILL (Wiley)

INTRODUCTION 5

popularity of the springs declined, the resort focused on its social activities. A new
racetrack was built, but ultimately it could not compete with the higher purses at
Newport and Monmouth Park in Long Branch, New Jersey. The resort turned to
gambling and drew some interesting and some notorious characters until the early
twentieth century, when reformists took their toll.
White Sulphur Springs, West Virginia, changed too after the war. A shortage
of eligible men and a surplus of eligible women led the resort to position itself as
a place to find a worthy husband. The addition of a railroad line through the town
in 1868 gave it a leg up on the competition. Not until 1891 a spur was extended
into Hot Springs, enabling The Homestead to compete successfully with the Green-
brier of White Sulphur Springs, as it does to this day.

Resort Cities America’s first resort city was Atlantic City. Developed in the late 1800s, it attracted
the middle as well as the upper classes. It built the first boardwalk to accommodate
those seeking the health benefits of sunshine and fresh air, the first amusement
pier that extended over the Atlantic, and the Observation Roundabout—later

S The Greenbrier in White Sulphur Springs, West Virginia, is a traditional resort.

N Courtesy The Greenbrier
L
 MILL (Wiley)

6 Chaper 1 RESORTS: AN INTRODUCTION

renamed the Ferris wheel. The railroad brought day trippers; other guests stayed
for the season in boardinghouses and resort hotels. Today, buses bring day gam-
blers from New York City and other metropolitan areas.

The Twentieth The typical resort hotel in North America at the beginning of the twentieth century
Century was a summer operation. Improvements in transportation changed the structure
of resorts. The railroads were instrumental in opening up areas of the country that
were previously inaccessible. Both railroads and resorts targeted the relatively few,
very wealthy individuals who, before the enactment of a federal income tax law,
had a great deal of disposable income.
Winter resorts did not become popular until the development of the auto-
mobile, which provided access to areas of the country suitable for winter vaca-
tions. California, in contrast, was the first area to develop as a warm winter resort,
appealing to those looking to escape the winter cold. Florida, as a warm winter
resort, was developed later and more slowly. There, Henry Flagler saw the impor-
tance of transportation in opening up new destinations and was instrumental in
laying railroad tracks to the south of the state. By 1920, Florida had surpassed
California in popularity as a winter retreat for North Americans.
The economy had barely climbed back from the stock market crash of 1929
when the Second World War erupted. Resort development was put on hold. The
end of rationing after the war precipitated a period of economic prosperity. Leisure
travel was available to a much broader segment of the population. The develop-
ment of the interstate highway system in the 1950s gave the average American
great mobility. The development of Disneyland in California in 1955 was followed
by numerous other theme parks in the 1960s and 1970s. Disney World opened in
1971 in Florida and has set the standard for destination family resorts.
In the mid-1950s, the development of jet travel opened up, for North Ameri-
cans, areas of Europe and the Pacific that were previously inaccessible. Air travel
was still costly, however, and relatively few could afford it.
The early 1960s saw the development of the four-season resort. Realizing the
risk involved in relying for business on one season of the year, hotels sought to
develop year-round attractions. The Homestead added skiing in 1959, while resorts
in Colorado extended their season by developing golf and tennis packages and
summer music festivals. Others went after group business by constructing conven-
tion centers. It can be argued that the shift to conference business is the most
significant economic trend in resorts in the past 20 years. In fact, for most large
resorts, between 45 and 70 percent of occupancy come from group business.2
Resorts are attractive to corporate meeting planners because the resort is self-
contained. Attendees do not have to leave the premises and can enjoy various
recreational activities as a break from meetings.
Planned resort communities—large scale communities with a variety of ac-
commodation options, recreational facilities, and infrastructure—like Sea Pines
Plantation on Hilton Head Island in South Carolina and Costa Esmeralda on the
island of Sardinia in the Mediterranean have also emerged in recent years.
S The past decade has seen a new type of resort entering the marketplace—
N mega-resorts or family resorts. These properties are not necessarily the largest of
L
 MILL (Wiley)

INTRODUCTION 7

resorts. Rather they are properties that have upscale amenities on-site such as a
spa, fitness center, shopping, recreational activities, and a fun nightlife. Examples
include the Hyatt Regency Waikaloa in Hawaii and the Disney and Hyatt Grand
Cypress hotels in Orlando, Florida. Because of the high cost of amenities provided
and the often fantasy themes that are part of the resort experience, the properties
require high room rates and occupancies to be financially viable.
In contrast to the large resort hotel is the small boutique resort hotel. Targeting
the high-end market and emphasizing service, quality, and privacy, these proper-
ties—such as the Ventana Inn in Big Sur, California—have a strong focus on lodg-
ing and related amenities and offer limited shopping and residential development.
In Eastern Europe, Japan, and some parts of Western Europe, social tourism
contributed to resort development. Social tourism involves offering employees va-
cations that are wholly or partially subsidized. While government and unions sub-
sidize much of the social tourism in Eastern Europe, the equivalent in Japan is the
corporate resort that is owned and operated by a major company to provide va-

Quick Getaway 1.1

Resolving Resort Parking Problems
Resorts have legendary traffic and parking Limiting the number of vehicles allowed in
problems. Managing vehicle traffic can be a the resort area (either by metering vehicles
very tricky business, because although the re- or by letting congestion become self-
sorts often rely on motor vehicles to bring vis- limiting).
itors and supplies, too much traffic can destroy Using road pricing. A charge may be levied
the elements that made the resort so attractive for driving on certain roads or into an
in the first place. area, which discourages automobile travel.
Fortunately, there are a few steps that can Implementing traffic calming strategies,
be taken to prevent a resort from becoming a which limit traffic speeds and volumes,
vehicular disaster: particularly around pedestrian areas.

Source: Litman, Todd. ‘‘First Resort: Resort Community

Implementing total or partial prohibitions
Transportation Demand Management.’’ Victoria Trans-
on driving in certain areas. Visitors will eas- port Policy Institute, November 1999. http: / / www.
ily understand, especially if it is made clear vtpi.org / resort.pdf
that too much traffic threatens their enjoy-
ment of the resort.
Creating restrictions on times when certain DISCUSSION QUESTION:
types of vehicles may use certain road- Do you think that resort visitors would ac-
ways. cept a severely restricted traffic management
Limiting certain lanes or roads to high oc- strategy better if they were told that it was
cupancy vehicles to ensure that buses and designed with their interests in mind? Do
other group transport vehicles don’t get you think it’s necessary for the resort manag-
S caught in bad traffic. ers to explain themselves to the visitors?
N
L
 MILL (Wiley)

8 Chaper 1 RESORTS: AN INTRODUCTION

cations for white-collar workers. A common alternative in Western Europe is the

holiday fund. Equal contributions are made by the employee, the company, and
the government to provide funds that employees use for vacation travel.

Lessons
Four things can be learned from a brief review of the history of resorts:

1. The history of transportation has, to a large extent, determined where,

when, and what types of resorts have evolved.
2. The desire for pleasure travel is deep-rooted.
3. Resorts began as seasonal operations. To minimize the risk of relying on
one season of the year, resorts developed year-round attractions and
appealed to the group market.
4. Resorts develop through life cycles. To be successful, resorts have had to
adapt to changes in transportation, consumer tastes, demographics, and
competition.

TYPES OF RESORTS
Resort communities work best when they are not 100 percent
resort but have a mix of full- and part-time residents. Full-time
residents provide customers for the doctors, the lawyers, and
the restaurants year round. [This] enables the community to
provide a myriad of services that would not be possible with
just seasonal residents.
—CHARLES E. FRASER
Founder and Chair, Sea Pines Company

Resorts can be characterized in terms of:

proximity to primary market

setting and primary amenities
mix of residential and lodging properties (2)

Proximity to Primary Market

Resorts are either destination resorts or nondestination resorts. The difference de-
pends on how far the resort is from its primary market; how visitors reach the
resort; and the patterns of stay—how many times a guest visits, how long the stay
is, and the quality of the setting. Destination resorts tend to be at least several
S hundred miles from the market. Visitors tend to fly rather than drive there and visit
N once a year for one to two weeks. Further, the resorts are located at places attrac-
L tive enough to entice people to travel large distances to get there.
 MILL (Wiley)

TYPES OF RESORTS 9

Nondestination resorts tend to be within a two- to three-hour drive of the

primary market. Guests arrive by car, visit more frequently, and stay three to four
days each time. As a result, destination resorts have a higher ratio of hotel rooms
to second homes than do regional resorts. Within these generalities, it should be
mentioned that a resort may fit into both categories. Colorado resorts, for example,
draw visitors from Denver several times over the season while also attracting peo-
ple from Europe for a once-a-season experience.

Setting and Primary Amenities

Visitors categorize resorts by their location and amenities. Defined thus, resorts
can be either ocean resorts, lake / river resorts, mountain / ski resorts, or golf re-
sorts.3 Ocean resorts depend on the quality and extent of their beaches, views,
climate, and water sports activities. Lake / river resorts obviously rely on water but
rely even more on the recreational activities that are water-oriented than do ocean
resorts. They are more likely to be located several hours by auto from the resident’s
home and marketed as second-home communities. Mountain / ski resorts have, in
recent years, moved away from their traditional reliance on the winter season to
become four-season resorts. Capitalizing on their spa heritage, many are using
health as their theme. Mountain resorts in the West tend to be destination resorts,
while those in the Midwest and Northeast, because of their proximity to large
population bases, tend to be regional in scope.
The increased popularity of golf has helped spawn an increase in the number
of resort properties themed around this activity. Growth is also a function of supply.
As the number of waterfront locations expanded, fewer sites associated with water
were available. As a result, golf course resort developments have sprung up in
Florida, North Carolina, and southern California. They are also popular in desert
settings, which, lacking water, rely on scenery, climate, and golf to attract visitors.
Other resorts rely on specialized amenities, including tennis, equestrian facilities,
ranches, health, natural attractions, sporting expeditions, and entertainment.

Residential and Lodging Properties

Real estate people like to categorize resorts based on the type and mix of residen-
tial lodging facilities. There are four specific parts to what is being called the hybrid
lodging or alternative lodging sector:4

traditional lodging
timeshare or vacation ownership
condominium hotels
destination clubs

Traditional The resort hotel is the most common form of resort development. It requires a
Lodging relatively modest financial investment. The guest at a traditional hotel selects the
S property on the basis of convenience. For the business traveler, convenience might
N mean the hotel is close to the highway or to the businesses to be visited. For the
L leisure traveler, convenience translates into proximity to the beach or other tourist
 MILL (Wiley)

10 Chaper 1 RESORTS: AN INTRODUCTION

attractions. The resort hotel guest, on the other hand, visits the development simply
for relaxation. A growing number of resort hotels, however, are seeking to attract
the businessperson, usually as part of a conference or meeting. The company
holding a business meeting in a self-contained resort setting keeps the outside
distractions of a city to a minimum while utilizing the recuperative effects of rec-
reation to improve business productivity.
Resort hotels differ from their commercial counterparts in other ways. They
are located in areas that take advantage of attractive natural features, and they
offer more amenities, either on-site or with easy access to off-site facilities. They
can range from as few as five rooms to as many as 1,500 or more. Facilities under
25 rooms are independently owned and managed guesthouses, bed-and-breakfasts,
inns, cabins, or motel-type properties. They tend to be located in rural areas and
cater to short-stay guests.
Facilities in the 25- to 125-room range can include properties from the above
group as well as small specialty resorts. Many are called lodges and cater to hikers,
hunters, and skiers. Part of this category is the growing number of boutique resort
hotels that cater to a small, upscale segment of the market. These are often located
in beautiful and delicate settings that are not appropriate for larger-scale devel-
opment.

S Fine dining is just one attraction of many

N traditional resorts. Courtesy The Greenbrier
L
 MILL (Wiley)

TYPES OF RESORTS 11

Resort hotels ranging in size from 125 to 400 rooms tend to be affiliated with
a chain and located in major resort areas. They can be either low-rise or high-rise,
though they are usually more horizontal than vertical in design. They have large
balconies and larger rooms than comparable commercial hotels, and offer more
amenities as well. Hotels with more than 400 rooms are located in prime resort
locations offering major attractions such as beach frontage (Florida, the Caribbean,
and Hawaii), ski facilities (Colorado, Utah), large theme parks (Orlando), gaming
(Las Vegas), and golf (Arizona, Palm Springs).

Timeshare and Timesharing began in France in the late 1960s and was first seen in the United
Vacation States in the 1970s.5 Over 4,300 timeshare resorts owned by almost 10 million
Ownership households are located in more than 80 countries. The U.S. and Europe account
Resorts for a combined 40 percent of the total.6 The term vacation ownership is also used
to mean timeshare. Timesharing is defined as ‘‘the right to accommodations at a
vacation development for a specified period each year, for a specified number of
years or for perpetuity.’’7 Each condominium or unit is divided into intervals by
the week or as points and sold separately. Owners pay a lump sum up front (a
fraction of the total ownership costs), either in full or financed over a seven- to
ten-year period, in addition to an annual maintenance, management, and opera-
tions fee. Units are priced differently based on unit size, resort amenities, location,
and season of the year. The purchaser owns the accommodation for the amount
of time it is used. This is usually one or two weeks out of the year. Fractionals
allow the purchaser to buy longer intervals—usually 4 to 12 weeks a year. They
can cost as much as $600,000.
Five types are available:8

The luxury product, in the $20,000 per interval range, is found in tourist
destinations and is often a penthouse with 1,500 square feet.
The up-market, priced between $15,000 and $25,000 per week, is also
found at destination resorts and offers anywhere from 1,100 (one bed-
room) to 1,800 (two bedroom) square feet.
The quality unit goes for $9,000 to $17,000 and offers 800 square feet for a
one bedroom unit.
Value units are found at regional resorts and are priced from $7,000 to
$10,000 for 800 to 1,000 square feet.
Economy units, also found in regional markets, offer 600 square feet
(studio) to 900 square feet (one bedroom) for $5,000 to $8,000.

Annual fees cover the cost of management and maintenance of the resort.
Timeshare owners can exchange weeks through membership in exchange com-
panies like Interval International and Resort Condominium International.
Entry into the field by such companies as Marriott, Hyatt, Hilton, Thomas
Cook, and Disney has helped improve the image of the industry while blurring the
S distinction between timeshare and hotel. Expansion by these established compa-
N nies also has an effect on the popularity of the concept. Forty percent of those
L
 MILL (Wiley)

12 Chaper 1 RESORTS: AN INTRODUCTION

interested in purchasing a timeshare prefer a branded product, while 21 percent

rate it as very or extremely unimportant in their decision making.9

Timeshare Options. Several timeshare options are possible.10 The fixed week
option allows consumers to buy a specific week—for example, the first week in
August. Under the floating week option, consumers buy a week within a given
period. For example, consumers may buy one week within weeks 6 through 12. A
combination option allows weeks in high-demand periods to be fixed and those in
low-demand periods to float. School holidays, for example, might be fixed at a
specific week, while, for the rest of the year, people buy the right to use the resort
for a nonspecific week during the off-season. Four Season Resort Club operates by
selling a fee-simple deed for both floating and fixed weeks.
Recently, resorts have introduced points-based memberships, which give mem-
bers points that can be used to ‘‘buy’’ resort stays. Marriott Vacation Club Inter-
national and Hilton Grand Vacations are both point-based programs. Times of high
demand require more points than times of low demand. Guests can bank, borrow,
or split up how and when they use their points. Many properties are finding that
they can cut back on marketing expenses because they sell the points program to
a captive audience. It is, however, initially confusing for the guest and, as such,
more complex for the operating company to run.
Points programs make particular sense for a company with multiple sites. To
work effectively, choices must be available for the customer, and multiple sites
allow for this. The keys to successful implementation of a points system are:

setting the dollar-per-point ratio and sending the corresponding message

to the community
having a staff sophisticated enough to track point values and inventory
effective communication between the marketing staff and the operator
implementing the technology and a central reservation system with suffi-
cient capital to back it up11

Finally, the club concept does not involve any ownership of real estate. Instead,
consumers buy shares or points in the club; these are exchanged for accommo-
dation or travel. Hyatt’s Hyatt Vacation Club and the Sunterra Corporation brand
(Embassy Vacation Resorts, Westin Vacation Club Resorts, and Sunterra Resorts)
are examples of the club-based concept.
Timeshare options have evolved in recent years. They started with traditional
fixed units in a set week, then added a floating week option and, most recently,
the flexible points option.12 Segments tend to be region focused—based on a
specific geographic region—or theme-focused such as golf, fishing, skiing.

‘‘The baby boom generation is at an age when building a

custom vacation home is very complex, time-consuming and
frustrating, especially if it’s in a remote location. They’d rather
S buy a turnkey unit, and let someone else take care of it.’’
N —ROB LOWE, PRESIDENT OF DESTINATION DEVELOPMENT
L Wall Street Journal, February 1, 2006, D8
 MILL (Wiley)

TYPES OF RESORTS 13

Condominium In a condominium hotel, or condotel, guests buy fee-simple equity in the unit—
Hotels buying a hotel guestroom. They can be used as permanent or second (sometimes
third) homes. They are especially popular in hot real estate markets such as Miami,
Hawaii, and Las Vegas. They have developed to meet the needs of individuals,
especially baby boomers, interested in ownership of vacation real estate (approx-
imately 1,000 baby boomers turn 60 every day in the U.S.).
Owners can earn income (depending on the policy of the hotel) by renting
out their units independently or through the rental program of the management
company. Condo hotel salespeople cannot promise the units will generate income.
To do so might mean that the Securities and Exchange Commission would classify
condo hotels as securities. This would subject them to more stringent regulations.
Thus, buyers can only be told that they may have the opportunity to place their
units into a rental arrangement. While most developers prefer to avoid registration
due to the time and paperwork involved, it means that they are unable to require
that owners participate in a rental pool. This makes it difficult to project realistic
income forecasts for those owners who do participate in the pool. There are also
potential problems as owners react to the realities of the hotel business—
seasonality, Average Daily Rates (ADR) versus rack rates, frequent renovation (and
its attendant costs), etc. For the project to have the best chance for success, it
must make sense from a market and economic point of view as a hotel before
being considered as a condotel.
Some developers feel that the capital markets will no longer finance traditional
high-end hotels anymore. Rather than spending several years looking for financing,
they produce a brochure, a model room and are often able to get 80 to 85 percent
financing of the project by pre-selling all of the rooms as condominium residences.
Individuals cannot get mortgages for hotel rooms but they can for condo apart-
ments that have kitchens and dining areas. Owners are responsible for mainte-
nance and operating expenses. Chicago’s Trump International Hotel and Tower
pre-sold over 70 percent of its 286 units two years before it opened. Prices range
from $815,000 for a studio with a small kitchen and bathroom to $3 million for a
two-bedroom with a large living room, dining room, and two and a half bathrooms.
In addition, if owners want their unit rented out, they must pay for upscale furni-
ture, plasma televisions, linens, and china that cost from $45,000 to $90,000.13
Condo hotels can be:14

Ownership structure where rooms are sold to individuals as an invest-

ment. Owners stay for the minimum time required by law.
Mixed-use project with a hotel and a primary residence piece. Owners
live in residences similar to those sold by companies such as The Ritz-
Carlton and Four Seasons.
Mixed-use in a resort area with a hotel where the condo can be used as
a second home. When the owner is not using it the unit is placed into a
rental program to generate income for the owner.

S Typically, the first type is not a good investment while the latter two can be.
N There is no guarantee that resale prices will be greater than the initial cost of the
L condo. The latter two options offer owners the opportunity to generate income
 MILL (Wiley)

14 Chaper 1 RESORTS: AN INTRODUCTION

throughout the life of the project. Condo hotel unit owners can receive anywhere
from 30 to 60 percent of the revenue when their unit is rented.

Destination This newest niche targets affluent travelers. Initiation fees can be as high as
Clubs $500,000 in addition to annual fees of $25,000. Customers stay for weeks at a time
in luxury residences and villas in both urban and resort locations. Exclusive Re-
sorts, formed in 2002, has 200 homes to offer their 1,500 members. Customers join
as they would a country club by paying initiation fees that range from $200,000 to
$400,000 with yearly fees of between $10,000 and $25,000. Eighty percent of the
initiation fee is refundable. Members stay between 15 and 25 days a year at these
$3 million homes.

Quick Getaway 1.2

The Condo Revolution
Condo ‘‘villages’’ and hotels have long been the day there shouldn’t be much of a difference
popular in mountainous ski areas. This success at all, aside from who the owners are. . . The
has inspired many Florida chains to experi- bricks and mortar had better operate as a hotel
ment with hotel-condo combinations, which to be successful.’’
have proved very popular so far. ‘‘In South Florida, I think one of the con-
Some planners have been nervous that cerns is that everyone is going to a condomin-
shifting to condos will reduce the number of ium hotel,’’ says Tom Ireland, principal partner
available rooms at the hotel, or that the condo at The Ireland Companies. In the span of only
owners will bump groups from room blocks. In a few years, ‘‘We went from 1,000 condo-hotel
reality, neither problem is likely to be a signif- units proposed down here to 50,000.’’
icant issue. The disruptions would last only dur- John Heiser, vice president for Intrawest
ing the construction process, and owners are Placemaking says that Intrawest’s future
made to understand when they buy the condo projects will be condo-hotel based. ‘‘We’re
that they can’t disrupt the reservations process. seeing more and more of the convention /
If their condo has been rented, then they have meeting / condo-hotel resort development,’’
to stay in another condo or wait for their condo says Heiser. ‘‘Our operators are screaming for
to free up. more of that.’’
‘‘From a consumer’s perspective they re- Source: ‘‘The resort marketing changing—here’s a look
ally shouldn’t know the difference. It should at what’s happening now and what’s happening next.’’
look like a hotel, act like a hotel, and serve like Successful Meetings (January 2006).
a hotel,’’ says Scott Berman, U.S. leader for
the hospitality and leisure advisory group at DISCUSSION QUESTION:
PricewaterhouseCoopers in New York City. ‘‘I Would you buy a condo at a condo hotel if
think too much is probably made of the condo you knew that it would not always be at
S hotel versus a traditional hotel. At the end of your disposal?
N
L
 MILL (Wiley)

TYPES OF RESORTS 15

Mixed-Use Developments
The majority of high-end hotel and resort properties in the U.S. now incorporate
some type of residential component. According to the Lodging Industry Investment
Council—an independent industry think-tank with 70 high-profile members from
the lodging-investment community—this trend will increase dramatically with
condo hotels and timeshare units becoming commonplace in parts of the luxury
hotel market.15 Increased numbers of resorts are utilizing mixed-use developments,
which feature a timeshare component.16 In the past, developers built a property,
then created demand for it. Nowadays, the demand for timeshare products dictates
production. Preferred configurations are:

two-bedroom suite (55 percent)

one-bedroom suite (27 percent)
three-bedroom suite (16 percent)
studio (2 percent)17

A major reason for mixed-use developments is the high cost of amenities.

Because high-quality amenities cost a great deal of money, being able to spread
out the use and cost of these facilities makes it cheaper for everyone. In addition
to the cross-utilization of amenities, hotel guests are exposed to timeshare products
and may well be induced to buy. In this way, timeshare operators can reduce their
marketing costs. The timeshare component brings a steady stream of revenue into
the resort; everyone benefits. It does, however, take an experienced staff to meet
the differing needs of timeshare owners and hotel guests.
Because of the unique nature of timeshare financing, specialized timeshare
lenders have emerged. The financing of a timeshare property is different from that
of a traditional hotel. Most hotel mortgages are long-term deals wherein the pay-
back comes from the hotel’s cash flow, which is generated from daily operations.
Timeshare loans, on the other hand, are shorter-term loans based on the devel-
oper’s ability to market and sell interest in the timeshare.18 In addition, the lending
process is more complex because of the regulatory issues involved in timeshare.
However, in many respects, timeshare financing is simpler and more predict-
able than hotel financing. Both revenue and expenses are more foreseeable for
timeshares. Once the timeshare unit is sold, revenue is accounted for. The hotel
room has to be resold each and every night, with no guarantee that it will produce
revenue. Hotels incur many costs whether they are full or empty, while timeshare
costs are easier to predict. High customer satisfaction with and solid growth of
timeshares, together with the financial characteristics noted above, means fewer
timeshare defaults compared to hotels.

Second-Home A second-home development consists of a project that consists primarily of second

Developments homes and does not include a resort hotel. A second home is ‘‘a home that is
owned fee simple by an individual or family that also owns or rents another home
S as a primary residence.’’19 In other words, the family owns both a primary and a
N second home. While second homes are not necessarily found in resort areas,
L
 MILL (Wiley)

16 Chaper 1 RESORTS: AN INTRODUCTION

Quick Getaway 1.3

Mixing Resort Options:
Good or Bad Plan?
Mixing up condos with rented hotel rooms can Cons
have great results, if it’s the best option for the
situation. But how do you know if a mixed-use Planning and executing the project takes
project is the right choice? more time, patience—and money.
Pros If one component fails, it can taint the
whole project.
There’s a greater need for capital—both
Every aspect in the project supports the
equity and debt.
others.
Planning and governmental approval of
The customers’ money remains in your
larger, multiple-use projects are more com-
own development.
plicated.
Timeshare sales provide capital for the
There’s a need for higher levels of exper-
continued expansion of the entire resort.
tise in many areas.
There’s opportunity for an ongoing revenue
Large projects require more management
stream through management fees after the
and control of product consistency.
resort is sold out.
Customers attracted by retail, hotel, and Source: ‘‘To Mix or Not to Mix.’’ Timeshare Business
other features are potential leads for a (January / February 2003): 22.
timeshare operation.
A bigger project may mean bigger profits. DISCUSSION QUESTION:
More amenities and entertainment options Is it advisable to mix condos with rented ho-
allow guests a richer experience. tel rooms?

second-home developments are. They consist of a variety of types of properties—

detached, attached, multifamily—and can be combined with other uses. The
Miami region of Florida, the Phoenix region of Arizona, and the Palm Springs
region of California are examples of combination retirement, primary-, and second-
home developments.
Developments are one of four types:

1. Resort condominiums are usually high-rises located on oceanfronts.

2. Small, low-density residential communities are typically located close to a
beach or lake.
3. Single-family developments incorporate a golf course or clubhouse.
4. Large planned communities include a variety of housing types as well as
S a number of amenities.20
N
L
 MILL (Wiley)

TYPES OF RESORTS 17

Compared to primary homes, second homes place more emphasis on outdoor

areas, they are developed at lower densities, and their design is less formal. They
are managed under a long-term arrangement by a community association rather
than by a developer or resort operator. However, the latter may be involved in the
management of a principal amenity, such as a golf course.

Multiuse Resort A multiuse resort community combines two or more of the above categories of
Communities facilities. As such, they tend to be larger than the other types. By offering more
than one type of ownership and use pattern, they can appeal to a larger variety
of markets. Their amenity package is more extensive and usually consists of at
least two major amenities, such as a beach and a golf course, or ski slopes and a

Quick Getaway 1.4

Which Is the Real All-Inclusive Deal?
A seven-day stay at an all-inclusive resort or a nightly entertainment, use of all non-motorized
seven-day all-inclusive cruise? At first glance, water-sports equipment (things like snorkeling
the only factor that seems to matter in the de- gear, sailboats, and windsurfing boards) and
cision is whether you get seasick. But buyer be- gratuity. That’s a lot more than the cruise offers
ware! Not every all-inclusive package includes . . . land resorts just seem to include
everything, and the difference between the more.
cruise and the land stay could be more than It appears that the decision between an all-
you think. inclusive cruise and an all-inclusive resort va-
Cruises and resorts tend to include dif- cation involves more than simply asking
ferent amenities in their base prices. On a yourself ‘‘do I like boats?’’ However, it’s impor-
mainstream cruise, you’ll generally receive tant to remember that if what you really want
accommodations, onboard activities and enter- is a cruise, no amount of amenities at a land
tainment, all meals and snacks, certain bever- resort will make up for missing out on a vaca-
ages during meal times, the use of the ship’s tion at sea.
facilities (such as the pool, kids’ club, and fit-
Source: ‘‘Are you a cruise or resort vacationer?’’
ness center), and transportation between ports-
www.usatoday.com / travel / deals / inside / 2004-12-22-
of-call. However, you’ll have to fork over some column x.htm
extra cash for soft drinks and alcoholic bever-
ages, gratuity, spa visits, onshore excursions,
airfare, and airport transfers. Keep in mind that DISCUSSION QUESTION:
luxury lines sometimes include gratuity and al- Do you think that labeling a vacation as ‘‘all-
cohol in the base price. inclusive’’ is deliberately misleading advertis-
Of course, all-inclusive resort packages ing, when it’s more than likely that the
usually include accommodations, all meals consumer will have to pay additional
and beverages, access to the resort’s facilities, amounts after arriving?
S
N
L
 MILL (Wiley)

18 Chaper 1 RESORTS: AN INTRODUCTION

golf course in a four-season format. As the needs of the resort user change, the
development offers appropriate units for rent or purchase. A resort guest may end
up buying a second home for eventual retirement. The diversity of property types
requires more sophisticated management.

INDUSTRY TRENDS
The most significant trends in the resort industry are:

Health Spas and Fitness Facilities

Because more people are concerned with health, fitness facilities are

Quick Getaway 1.5

Hotels, Resorts, and Condos
Due to the current success of many condo- Calculate the costs of needed property up-
hotel properties, many hotel and resort owners grades, remodeling, and furnishings
are considering the ‘‘condo conversion.’’ How- Select a quality management company,
ever, owners should keep in mind that pulling preferably one with a name-brand fran-
off a successful and profitable condo hotel con- chise
version can be a real challenge. Hire a savvy sales and marketing company
Luckily, there exist suggestions that a hotel with a proven track record
owner can use as a guideline to ensure the best Price units to sell at a good pace, but not
result. To convert a resort or hotel property into so low as to leave money on the table
a condo hotel, you should: Estimate potential profits as a condo hotel
versus continuing the existing operation
Determine your target prospect without conversion
Measure the demand for a product like
yours Source: ‘‘Condo Hotel Conversions.’’ Condo Hotel
Center: Condo Hotels and Fractionals. http: / /
Consider whether your location is one that
www.condohotelcenter.com / for-developers /
will attract hotel guests and will also have conversions.html
appeal as a second or vacation home
Evaluate the competition which includes
other hotels and also straight condos DISCUSSION QUESTION:
Determine the unit mix (studios, one bed- Given your knowledge of hotels, resorts, and
rooms, two bedrooms, etc.) resort hotels, do you think a resort owner or
Put together an amenity package that will a hotel owner faces a greater challenge if
S appeal to your target market they both decide to convert to condos?
N
L
 MILL (Wiley)

INDUSTRY TRENDS 19

now a basic amenity for resort properties. Many resorts have on-site spas
as a complement to existing fitness facilities. They offer a mixture of pam-
pering, education, and medical programs. They require a high capital
cost and highly skilled personnel that can result in high payroll costs.
Soft Adventure Programs
Offering a combination of adventure and fantasy, ‘‘soft’’ adventures such
as white-water rafting, multiple day hikes, and wild-game hunting, need
guides to provide safety to guests seeking a thrill as part of their vacation
experience.
Gaming
Increasing numbers of states are looking to the legalization of gaming as
a way to raise revenue through taxes. More than 12 states allow casino
gaming on land or water. The increase in the number of resorts offering
gaming may reduce its uniqueness as a draw.
Ecotourism
Ecotourism is increasing as a subset of the environmental movement. Ex-
amples include trips to the rain forests of the Amazon and to study the
Galapagos tortoises. Because these trips involve visits to fragile environ-
ments they are best handled by smaller ‘‘boutique’’ resorts.21

SUMMARY
A brief history of resorts demonstrates that transportation has, to a large extent,
determined where, when, and the type of resorts that have evolved; that the desire
for pleasure travel is deep-rooted; that resorts developed year-round operations to
minimize the risk of relying on one season of the year; and that resorts move
through life cycles. Today, resorts can be characterized in terms of their proximity
to primary markets, the setting and primary amenities, and the mix of residential
and lodging properties. Industry trends are identified and will be explored in detail
in the remaining chapters.

ENDNOTES
1. Gee, Chuck Y. Resort Development and Management, 2nd ed. East Lansing, MI: Educational
Institute of the American Hotel and Motel Association, 1988, 26–50.
2. Schwanke, Dean, et al. Urban Land Institute, Resort Development Handbook. Washington, D.C.:
Urban Land Institute, 1997, 4.
3. Ibid., 5.
4. Ibid., 7.
5. The United States Timeshare Industry: Overview and Economic Impact Analysis. Washington,
D.C.: American Resort Development Association, 1997, 5.
S 6. The Nevada Timeshare Industry: An Industry Overview and Economic Impact Analysis. Washing-
N ton, D.C.: American Resort Development Association, 1997, 1; Upchurch, Randall, and Conrad
L
 MILL (Wiley)

20 Chaper 1 RESORTS: AN INTRODUCTION

Lashley. Timeshare Resort Operations: A Guide to Management Practice. Oxford, England, 2006, 10,
22.
7. The United States Timeshare Industry, 5.
8. Timeshare Resort Operations: A Guide to Management Practice, 20–21.
9. Baumann, M.A. ‘‘Study Indicates Timeshare Buyers Have Carolinas on Their Minds.’’ Hotel and
Motel Management (July 5, 1999): 31.
10. Sparks, Beverly, and Jo Anne Smith. ‘‘Development of Timeshare Resort Management: Edu-
cational Opportunities.’’ Journal of Hospitality and Tourism Education 11, no. 2 / 3 (1999): 54–59.
11. Baumann, M.A. ‘‘New Points System Points Industry in Right Direction.’’ Hotel and Motel Man-
agement (May 17, 1999): 22.
12. Ibid.
13. Bennett, Julie. ‘‘The Ritzy Route to Condo Ownership.’’ Wall Street Journal (February 1, 2006):
D8.
14. Hayward, Philip. ‘‘Lodging’s Fourth Dimension.’’ Lodging Magazine (September 2005): 30.
15. Ibid., 27; ‘‘Survey Reveals Top 10 Trends in Hotel Industry.’’ CYN Business Journal (June 25,
2004).
16. Baumann, M.A. ‘‘Mixed-Use Projects Possess Right Ingredients.’’ Hotel and Motel Management
(September 20, 1999): 10.
17. Baumann, M.A. ‘‘Exchange Companies Provide Flexibility and Expertise.’’ Hotel and Motel
Management (July 19, 1999): 22.
18. Baumann, M.A. ‘‘Specialized Lenders Cater to Timeshares.’’ Hotel and Motel Management (June
3, 1999): 20.
19. Schwanke et al. Resort Development Handbook, 11.
20. Ibid., 12.
21. McElyea, J. Richard, and Gregory L. Cory. ERA Issue Paper. Resort Investment and Development.
An Overview of an Evolving Market. Economics Research Associates, undated, accessed January
11, 2006, 5. http: / / www.econres.com / documents / ip.html#

S
N
L