Back to menu SPA RESORT FACILITY PLANNING AND DEVELOPMENT  Michael C. McCaffrey is president of MCM International Spa Strategists Planners, Inc. and MCM Hospitality, Inc. with offices in Ft. Lauderdale, Florida. MCM consults clients in the development and operational management of spa and fitness facilities. In addition to consultation services, MCM owns and operates Spa LXVI at the Hyatt Regency Pier 66 Resort & Marina in Ft. Lauderdale, Florida and The Spa at the Melia Cancun Beach & Spa Resort in Cancun, Mexico.MCM's most recent projects include the design and operational development for The Solace Spa at Banff Springs Hotel, Banff, Alberta, The Buena Vista Palace Resort & Spa and The Spa at The Grand Floridian, both located at Disney World in Orlando, Florida, Saddlebrook Resort, Wesley Chapel, Florida, and Addison Reserve, Delray Beach, Florida, both planned residential country club resorts. MCM is available to provide full service consultation and management services. For more information on MCM: 2190 S.E. 17th Street Causeway, Suite 308 Ft. Lauderdale, Florida 33316 PHONE: 1-800-771-6266 or (954) 525-3922 or FAX: (954) 525-3515.  Benefits of Spa Resort Planning and Development We have outlined some of the most basic issues involved in spa development. All of the actions which accompany or result from the decision-making process of development will have various impacts on costs and benefits from economic, environment and social standpoints. It is important to remember that spa resort development is, above all other considerations, an economic process. Social and environmental issues become irrelevant if the spa project does not prove to be economically viable, for few spas are built as philanthropic entities. Development is not a one-time process for new resorts only. In order to remain viable in an intensely competitive market environment, spa operators must continually upgrade guest facilities and periodically add new amenities that will appeal to future markets. The overriding corporate goals of the development team are to earn a profit. Given this orientation, it is natural for the developer to focus on economic issues. It should be kept in mind that economic decisions (such as those which determine the number and kinds of visitors to be sought, the size of the development, the speed of its construction, the amounts of money to be invested in which amenities, and land use) will have social and environmental impacts on the destination area, which will in turn affect the resort's ability to attract visitors. Demand for the product must be strong enough to induce the consumer to travel to the point of the spa destination to purchase the product. The spa development process logically begins with a consideration of multiple factors and market focus. Without market orientation, development would assume an irresponsible level of risk with investor's money. Developers and managers should find out what the market wants and design the spa to appeal to those wants. A market feasibility study is the first step in the process. The market study attempts to define potential markets and estimate their size. The key for management is to interpret and adapt such data to the needs of its own operation. The market study should also analyze the competition of other operators and other spa destinations. Management must carefully interpret the information to gauge whether the potential market segment is already saturated by the competition. Market forecasts should help management decide what rate of development can be profitably sustained. Governments, especially in developing nations, may finance spa resorts in an attempt to obtain urgently needed foreign exchange or to stimulate internal industries such as construction and services. The Process of Planning and Development Spa resort planning and development is basically an economic process, and all other goals - social and environmental - must be subordinated to the economic objective, all other goals become moot. It is important to understand that the developer is not a contractor, an architect, a financier, or hotel manager. The developer is a specialist who finds and coordinates a team of experts in specific areas, such as construction, designing, and financing, to create a new project. The developer conceives of the spa resort only secondarily in terms of management; primarily it is a real estate project comprised of many profit-generating elements which may include golf courses, shops, a marina, ski slopes, vacation homes, casinos, and condominiums, as well as one or more resort hotels. In some instances, the spa may not even be considered the primary element in the overall project plan. The development company initiates the spa project, provides the venture capital, and takes the first risk. The risk is high because front-end money, or working capital which gets the project through the initial planning stages, cannot be borrowed from conventional financing sources. Because of the high degree of risk, developers usually require a high rate of return on their investment, often in the neighborhood of 25% or more. Development funds also have a distinct time limitation for recapture, usually three years or less. Capital Requirements Spas require higher investment for renovation to keep them attractive over the years. One of the most pressing development problems facing spa management today and in the foreseeable future is that capital to finance further spa development is becoming increasingly difficult to obtain. Lenders are generally not willing to put up mortgages for more than eight to ten years, forcing investors to seek refinancing midway through the expected life of the project or to accelerate the payback period. Domestic mortgage lenders are becoming more anxious to protect their loan investments. Interest rates are that are renegotiable after a set number of years or rates that float with the prime rate are becoming more common for long-term loans. With keener competition for loan money, resort owners are sometimes being required to sweeten loan negotiations by throwing a small share of ownership for lenders so they can participate in profits and exert more control over the project. Developers have gradually realized that conventional financing for the later development stages is easier to secure if the overall level of project risk has been reduced by including operational management experts. In addition, the presence of a well-known spa management company usually helps to make the spa resort product more marketable. And the more profitable resorts tend to be those in which experienced spa management input has been present from the beginning. Spa resort development investments commonly have the following characteristics: * Heavy costs in fixed assets for land, buildings, and visitor amenities * Generally, low returns on investment in early years (often far below prevailing money interest rates * A long payback period with low cash flows during the early years These characteristics make spa resort investment most attractive to investors with large sums of investment capital who are seeking real estate tax advantages, long-range economic gains in terms of potential equity buildup, or an investment which can act as a hedge against inflation. Because of the front loaded development costs the primary objective is to maximize profits on operations as quickly as possible. Conceptualizing the Master Plan During the preliminary planning, management consultants help in defining several basics:
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