Can new owners revitalize resorts?

Two resorts in southeastern Wisconsin are being sold at rock bottom prices. The minimal upfront investments could make it easier for the new ownership groups to operate the resorts at a profit.

In Delavan, a group of investors led by Jim Drescher, the former owner of Glendale-based JDTV Inc., has reached an agreement to purchase the 281-room Lake Lawn Resort from a consortium of banks led by Madison-based AnchorBank for $8.6 million.

In Sheboygan, Wheeling, Ill.-based New Frontiers Capital and Bridgewater, Mass.-based Claremont Companies recently acquired the 182-room Blue Harbor Resort from Madison-based Great Wolf Resorts Inc. for $4.2 million.

Blue Harbor Resort, which includes an indoor waterpark, a conference center with 16,800 square feet of meeting space, three full-service restaurants, a wine and tapas bar, a confectionery cafe and a spa, was built in 2004 along the Lake Michigan shore for $54 million.

“We think Blue Harbor is an amazing property with unlimited potential,” said Elias Patoucheas, president of Claremont Companies. “We’re excited to take the property to the next level.”

Lake Lawn Resort, which opened in 1878, is located on a 250-acre property south of Highway 50 on the shores of Delavan Lake. The resort has indoor and outdoor swimming pools, a spa, a restaurant, an 18-hole golf course, 32,000 square feet of meeting space and a runway for small aircraft on the north side of Highway 50. In 2006 the resort completed a $30 million upgrade to its guest rooms.

Lake Lawn Resort closed in December, eliminating 300 full- and part-time jobs. The resort was in default on a $51.9 million loan.

Blue Harbor struggled to attract guests in a city with few major tourist attractions. Great Wolf recorded a $24 million write-down of the property in 2009.

Needless to say, the new owners of Lake Lawn Resort and Blue Harbor Resort come in with a much lower investment in the properties than the previous owners. That could be the key to making the resorts successful moving forward.

“It does help,” said Patoucheas. “We do plan on investing more in the property.”

“They’re buying these things for pennies on the dollar,” said Greg Hanis, president of New Berlin-based Hospitality Marketers International Inc., a hotel industry consulting firm. “They obviously don’t have as large of a debt service.”

The new owners of Lake Lawn Resort have a $3.6 million cash reserve, including $1.2 million for needed repairs to the facility and $2.4 million to absorb operating losses as the business gets started back up, Drescher said.

Drescher, who runs a Walworth County food pantry, said the biggest reason he wanted to purchase the resort is to put people back to work.

“It’s about the jobs for me,” he said.

The new owners of Blue Harbor have significant experience in the hotel industry. Claremont Companies and its affiliates own and operate three hotels and have invested in, developed and/or operated nine hotels during the last 20 years. New Frontiers Capital co-owns and operates the Mountain Grand Lodge and Spa and Avalance Bay Indoor Waterpark at Boyne Mountain in Boyne Falls, Mich. and owns the Garland Lodge & Resort in Lewiston, Mich.

Hanis thinks the new owners of Lake Lawn Resort have a better chance of succeeding than the new owners of Blue Harbor. Lake Lawn is located between Milwaukee, Chicago, Madison and Rockford and appeals to a broader customer base, he said.

Blue Harbor is located farther away from those population centers and as a waterpark resort it primarily appeals

to families.

But most Wisconsin and Chicago area residents who want to take their families to a waterpark hotel choose one of the resorts in Wisconsin Dells, Hanis said. Wisconsin Dells markets itself as the waterpark capital of the world and for many families that is the first place that comes to mind when they decide to go to a waterpark resort. Waterpark resorts in other cities, including Green Bay and Wausau, provide additional competition for Blue Harbor. Outside of The Dells, waterpark resorts often do well at first but lack staying power, Hanis said. The exception is in markets with little competition, but there is a lot of competition in Wisconsin.

“A lot of the hotel waterparks, outside of The Dells, really struggle,” Hanis said. “They have had a hard time making it work.”

One problem for waterpark resorts like Blue Harbor, which has a conference center, is that business groups tend to avoid them for meetings, Hanis said. That limits the market for those resorts to families with children.

“Professional people don’t want to meet in a place where you have 14-year-old wet kids running around in swimsuits,” Hanis said. “A lot of meeting planners say, ‘I don’t want to walk in and smell chlorine.'”

However, Blue Harbor’s new ownership group says it plans to “refresh” the interior design of the resort to create “a more sophisticated lakefront resort experience,” which will help the resort attract business groups and couples, in addition to families. The lobby will be redesigned. Improvements will also be made to the rooms and the linens will be upgraded, Patoucheas said.

“We plan to improve the lobby and make it more sophisticated,” he said. “The elegance of the building that you see when you drive up, we really want to bring that inside. With the improvements we want to do, we can provide a wonderful experience for families and business groups as well.”

In addition to families, Blue Harbor Resort can be an attractive destination for business meetings, couples retreats and weddings, Patoucheas said.

“I think it all depends on how you market the property,” he said.

The lack of attractions in Sheboygan for visitors to Blue Harbor has also been a challenge for the resort, Great Wolf executives have said. The South Pier District, the peninsula where the resort has located, has been slow to develop. The Sheboygan area’s best known attractions could be the Whistling Straits and Blackwolf Run golf courses. But families that stay at a waterpark resort usually do not play golf, Hanis said.

“Golf is not going to bring in a waterpark market,” he said.

However, Blue Harbor will establish golf packages with area courses and the new owners will work to inform guests about activities in the Sheboygan area that many visitors are unaware of, Patoucheas said.

Another challenge in the Sheboygan area is that The American Club in Kohler overshadows Blue Harbor Resort, Hanis said. The American Club is the only AAA Five Diamond Resort in the Midwest.

“When you think of that area, you think of The American Club,” Hanis said.

Lake Lawn Resort has a more balanced appeal for families, business groups and meetings, he said.

In addition, the Lake Geneva area is a major visitor’s destination, especially for Chicago area residents. However, Lake Lawn Resort’s location on Lake Delavan lacks the cachet of Geneva Lake, which most of the area’s attractions are centered around.

“But Lake Delavan I understand is very good for fishing and recreational boating,” Hanis said.

Marketing will be crucial for the future success for Lake Lawn Resort and Blue Harbor Resort, Hanis said.

“If I was a betting man, I’d put my money on Lake Lawn rather than Blue Harbor,” he said. “(Blue Harbor) is going to struggle a bit more. I’m not sure we’re at the last owner. There might be a third owner that finally makes it work.”

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Andrew is the editor of BizTimes Milwaukee. He joined BizTimes in 2003, serving as managing editor and real estate reporter for 11 years. A University of Wisconsin-Madison graduate, he is a lifelong resident of the state. He lives in Muskego with his wife, Seng, their son, Zach, and their dog, Hokey. He is an avid sports fan and is a member of the Muskego Athletic Association board of directors.

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