The hospitality industry continually reinvents itself in order to attract new customers and keep former ones coming back. In recent years, “spa” has become the new buzzword that creates excitement among inns and resorts as a demand generator, a differentiator and an additional amenity. Countless New England properties have built spas and added spa services – successfully adapting to their evolving clientele. Associated costs vary according to the size of the accommodation as well as to the extent of the project. As a result, many experienced commercial lenders have adapted to more efficiently support spa additions by catering to the unique needs of their own customers.
Today’s Traveler
Inns and resorts nationwide have noticed a difference in today’s traveler. According to Paul Nunes and Brian Johnson’s 2004 book, Mass Affluence: 7 New Rules of Marketing to Today’s Consumer, “Consumers, en masse, are far more affluent in terms of wealth and income (and, critically, discretionary income) than their predecessors.” They “now want more options for spending their growing affluence beyond traditional luxury offerings.” In the hospitality industry, “more options” are taking the form of luxury spa offerings.
Inns and resorts are finding that their average customers are more affluent, harder working, better traveled and more Internet-savvy than ever before – and they are actively looking for lodging experiences that pamper their well-merited lifestyles and enable them to relax. Spa offerings have become more popular to both women and men due to these desires for pampering, relaxation and overall wellness. As a result, many more guests are seeking out properties that offer luxury spa services and they are willing to spend top dollar for a relaxation experience they will remember.
In New England, larger properties have been expanding their physical structures in order to accommodate the needs of today’s traveler. The expansions, often coupled with formalized spa additions, allow travelers to experience massages, manicures, pedicures, facials, body wraps and a soak in the sauna or Jacuzzi in an environment dedicated to all things spa. Though costs for construction, concrete and steel are considerable, the sheer volume of customer traffic at larger properties helps to ensure a return on investment.
Smaller properties, meanwhile, may not have the customer volume to support a formalized spa addition. Because of this, they are enhancing their offerings with spa services and products. In this instance, smaller inns call upon the expertise of third-party vendors who usually come to guests’ rooms and perform many of the same treatments a guest would find in a traditional spa.
Financial Tools
To help finance luxury spas, spa offerings and other enhancements, some banks have tailored their financial products to the needs of the lodging industry. For example, they may allow seasonal payments so that inns and resorts only have principal payments during their highest cash-flow periods, such as the summer months or the winter ski season. For properties that experience high customer volume at a specific time – such as the Fourth of July – banks may allow one annual principal payment, as opposed to 12 monthly payments.
Meanwhile, although interest rates remain at historic lows, they have been on the rise. As they rise, banks are offering loans with sophisticated floating-rate options that help reduce risk. Caps and collars, for example, are individually negotiated transactions that set limits on a borrower’s interest rate on floating rate loans. The advantage is that borrowers can minimize the impact of a rate increase while also being able to benefit from a rate decrease.
Caps set an upper limit – or ceiling – on the interest rate a borrower would pay. With an interest rate cap, a borrowing inn would set a pre-specified ceiling price. In doing so, the inn is able to protect itself against increasing interest rates, while retaining the right to benefit from decreasing interest rates.
Collars, on the other hand, set an upper limit and a lower limit on the interest rate the property would pay. In exchange for setting a lower limit (and minimizing the amount to be gained from a decrease in rates), the property would pay less for the interest rate protection. Some properties have chosen collars over fixed-rate loans because collars still enable them to take some advantage of a rate decrease, while having some control over the cost of the interest rate protection.
Finally, inns and resorts have been utilizing increasingly sophisticated property management systems to track guest preferences, inventory and seasonal trends. This quantitative analysis helps the property decide which loan and payment schedule best fits its needs.
All in all, banks are looking to better equip those in the ever-evolving tourism industry to financially thrive. As Nunes and Johnson stress, “The companies that are meeting with success have altered their strategies to serve today’s mass market.” By catering to the needs of the lodging industry, banks, in turn, are enabling inns and resorts to cater to the needs of their customers.
