Garden Grove’s Big Wet Gamble
Great Wolf Resorts
By THY VO February 19, 2016
The Great Wolf Lodge Waterpark Hotel in Garden Grove opens this week after more than a decade of planning by city officials, who hope the Wisconsin-based chain resort will draw Disneyland Resort visitors out of nearby Anaheim and into Garden Grove.
It is arguably the city’s biggest bet ever, with $100 million in public funds going toward a $250 million resort that includes a 603-room hotel with a 105,000-square foot indoor waterpark, the first of its kind in Southern California.
Thy Vo for Voice of OC
The front of the Great Wolf Lodge Waterpark Hotel in Garden Grove.
If it’s successful, officials say the waterpark hotel will more than pay for itself over the next decade, by bringing in more than $8 million in tax revenue a year and creating 700 new jobs.
And that revenue would be crucial to Garden Grove, which is banking on the success of the resort to help pull the city out of the ongoing budget crisis it has been experiencing since Gov. Jerry Brown ended redevelopment in 2011.
“When the hotel is fully operational it will bring in millions to the general fund to help maintain and expand city services to citizens,” said city councilman Kris Beard. “So, it’s fair to say the anticipated success of this project will be a long term ‘win-win’ for the community and the Great Wolf Lodge.”
Some residents, meanwhile, have questioned whether the benefits of the millions spent subsidizing the hotel will trickle back down to taxpayers for citywide services and improvements.
As part of the city’s deal with Great Wolf Resorts and developer McWhinney Enterprises, the city’s redevelopment agency swallowed the $20.8 million cost of acquiring and preparing 10.3 acres of property for the Waterpark Hotel, then transferring it to the developer at no cost.
They later paid at least $1.9 million to settle the cost of relocating 30 low-income families living in a trailer park on the property into affordable housing, not including the cost of legal fees for the five-year court battle over the relocation payments.
The developer also received a $47 million lump sum from city redevelopment funds, $5 million of which was paid after the completion of the parking structure and the remaining $42 million to be paid 30 days after the resort opens for business.
Interest payments on the 20-year bond financing that lump sum will likely add another $23 million to the total, said city finance director Kingsley Okereke. Annually, the redevelopment agency will pay an average of $3.2 million in debt service payments on those bonds.
The city was also required to make $5.2 million in improvements to the sidewalk and streets around the property as part of their agreement.
The development agreement also includes the possibility of a 200-room expansion to the hotel, which would include a 10-year, 50 percent tax rebate on bed taxes and another 12-year, 50 percent tax rebate on sales and property tax for the expanded portion of the hotel.
A Controversial Topic
The subsidy package in itself is not unusual — cities routinely use generous tax subsidies to build stadiums, convention centers and other tourism magnets. It’s a smaller subsidy compared to a controversial $158-million subsidy the city of Anaheim gave to a luxury hotel developer a few years back.
Great Wolf Lodge
A promotional photo of Great Wolf and McWhinney executives joining Garden Grove city council members at the project’s groundbreaking in 2014.
But there are plenty of critics of subsidy strategies who say that any public money spent on subsidies for private projects could always be going somewhere else, such as road or neighborhood improvements.
And Garden Grove is certainly taking a chance by betting so much on an indoor waterpark in Southern California.
David Sangree, a hotel and waterpark consultant and president of the consulting firm Hotel and Leisure Advisors, said the subsidy from Garden Grove is among the largest public subsidies for a waterpark resort of this type in the country.
A proposed $260 million indoor waterpark hotel and convention center by Kalahari Resorts in Fredericksburg, VA was also on track to receive a generous public subsidy deal; the city of Fredericksburg offered the developer a $61 million subsidy through tax breaks and fee waivers, while the state of Virginia said it would kick in a $25 million cash bond. The project stalled and ultimately never materialized after the developer failed to get financing for construction.
Mayor Bao Nguyen is the only member of the current city council who has criticized the city’s focus on big development projects and hotels along Harbor Boulevard.
During his last election against former mayor Bruce Broadwater, who spearheaded the Waterpark deal, Nguyen described the strategy as “riding Mickey Mouse’s coattails” and catering to tourists, at the expense of potential improvements that would more directly affect residents.
A view of the Waterpark Hotel from the quiet residential neighborhood directly across the street. Some residents have complained about the aesthetics of park’s large yellow slide and protruding tubes.
He also criticized the low-wage economy produced by hotel and theme parks, and argued the city should invest in sectors like technology in order to attract recent college graduates.
Nguyen, who is running for the U.S. House seat being vacated by Loretta Sanchez, didn’t return requests for comment.
City officials generally dispute that criticism, pointing to the fact that the subsidies will be financed entirely by a trust fund of the former redevelopment agency. And because the subsidies will be paid back out of the redevelopment trust fund and not the city’s general fund, there’s zero risk for the city, argued senior project manager Greg Blodgett.
Okereke says that, even though the state has since eliminated redevelopment agencies as a tool for local governments, he would still consider offering subsidies to hotel projects out of the city’s general fund.
“Frankly, if we get a good deal on the city side, I would still recommend the city do these kinds of deals,” Okereke said. “At the end of the day, it expands the revenue base of the city, and then we can do more roads and cops and those kind of stuff.”
Sunny Southern California: A New Market
If this deal pans out, it will be a first for a Southern California locale.
Although there were 858 waterparks in the U.S. as of March 2015, the majority of waterparks are concentrated in the Midwest and Southern United States, according to a 2015 industry report by the consulting firm Hotel and Leisure Advisors.
Of the 192 indoor waterparks, just 29 were located in the Western United States and 24 in the South. Most of the existing indoor waterpark market is located in the Midwest and Northeast, where cold climates encourage visitors year-round.
“Most indoor resorts are clustered in the northern states. The only [one] comparable to it is the Great Wolf Lodge in Grapevine, Texas. It gets colder in Dallas than in California. So this will be a test case for the concept,” Sangree said. “There is one in Albuquerque that has not done so well – but the climate is similar.”
The resort in Garden Grove will be the largest ever constructed by Great Wolf and among one of the most expensive indoor parks so far. The two largest indoor waterpark resorts in the country — the Camelback Lodge at 125,000 square feet and Kalahari Resort at 106,000 square feet — opened last year in Pennsylvania.
Furthermore, there are a number of outdoor waterparks in the region, including Knott’s Soak City, Six Flags Hurricane Harbor and Raging Waters San Dimas, are outdoors and operate seasonally.
Nonetheless, Sangree, who has done consulting work for Great Wolf projects in the past, said the resort’s concept is a good one, especially for families.
“If you have children, a hotel like this is so much fun. You don’t have to drive to the beach and deal with parking. The Great Wolf Lodge concept allows for entertainment venues and themed characters and different types of games that’s really fun for kids,” Sangree said.
Still, the room rates may be expensive for many families who might want to split their time between the waterpark and Disneyland.
Rooms at Great Wolf range from $250 to $600 a night, compared to an average price of $168 a night for Anaheim-Garden Grove hotels.
On the high end of the price scale, Disneyland’s Grand Californian Hotel, a 948-room, lodge-style hotel that includes three pools and a full service spa, ranges from $475 to $980 a night depending on the season.
“From a parent’s point of view, they are really expensive, and that will be the challenge,” Sangree said. “The room rates at this hotel are higher than the rates at other hotels…but there are also a lot of affluent families in Orange County for which it might not be so expensive.”
Another barrier may be that, unlike some resorts, the waterpark will be restricted to hotel patrons only, although hotel guests can buy a $40 day pass for a limited number of guests.
Although Great Wolf spokeswoman Susie Storey declined comment on what percent of the hotel’s rooms are currently booked, Okereke said the resort has reported high demand and plans to operate 80 percent of the hotel.
Sangree says maintaining that level of occupancy will require a strong marketing plan.
“It’s 603 rooms, that’s a big hotel to fill every day. The biggest challenge is marketing and informing the public you’re there,” Sangree said.
Contact Thy Vo at tvo@voiceofoc.org or follow her on Twitter @thyanhvo.