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As a growing number of investors look to get into wellness, Spa Business asks what they’re looking for in a deal and what can operators do to secure that all-important funding?
By Katie Barnes | Published in Spa Business 2016 issue 1
With an increasing awareness of, and movement towards, all things wellness, more equity firms are scoping out potential projects in the wellbeing and spa arena. But what is it about wellness that’s really piqued their interest?
This was the question that kicked off discussions between a panel of investors at this year’s Global Wellness Summit (see p68). Sue Harmsworth of spa brand ESPA, who moderated the session, noted: “What’s interesting to me is that when I asked a panel [of investors] last year whether they’d heard of many deals in wellness or if it was something they were thinking about, it actually wasn’t. The difference this year is that everyone on the panel is now looking at [wellness] projects.”
Harmsworth wanted to know what return on investment (ROI) or internal rate of return (IRR) would make a deal appealing and over what time frame.
Having a wellness or spa element as part of a hotel is much different from a standalone wellness or spa destination, but is this nuance something that investors understand? And if so, how do they quantify the difference to work out which model is the most viable?
Harmsworth, whose company supplies and runs many spas globally, also tackled the subject of overdevelopment in our industry. Does the cost of building enormous, expensive facilities really stack up against ROI? Can they be justified?
In this article, Harmsworth and the GWS panel give their views on investment in spa and wellness and also tell us what they think the most exciting opportunities for wellness investments in the future are.
Matthew GaghenPortfolio managerKSL Capital Partners
Matthew Gaghen
KSL is increasing its investment around wellness for macro reasons – the growth of the mass affluent, for social reasons and because people are living longer and want to stay active longer. That all points to demand in wellness and we’re really excited about the growth potential.
We want a 20 per cent-plus ROI and to double our money. Our time horizon for investing on behalf of organisations such as pension funds is pretty different from an individual owner. We look to make money in the first four to five years and would help a business to realise that return.
We’re investing in hotels with a spa, or wellness aspect, as well as true wellness destinations [such as Miraval in the US]. The wellness destination is harder to execute as there’s no one solution to take it beyond one location and scale it up.
When it comes to wellness, you have to be clear what you’re dealing with as it’s a very broad term. But I don’t get hung up on defining wellness, it’s just a starting point for putting it in a space. It’s not ski, it’s not clubs, it could be fitness, but it’s not core hotels. It’s something more, so I then have to ask a couple of questions to figure out the angle and the depth.
The main point is that if you’re looking for investment, you need to position it for people like me to understand. Your offering can be experiential and very qualitative but you need to measure the customer experience – are they getting results, are they coming back? It’s hard for investors to go through all of the content and work out what is the most meaningful, so help us do that. If the demand is there and you can prove it, we will invest.
I’m bullish about the future of the wellness sector. There are a lot of interesting concepts and you’ll see much more specialisation and different models for wellness resorts. Some of them will grow and there’s already professionalisation in the industry. So in 12 months, two years, five years, KSL will be investing in wellness more as we’ll see more demand.
KSL has investments in Miraval, ESPA International and Elements Massage. Gaghen has been with the firm since 2012.
"It’s hard for investors to go through all of the content and work out what is the most meaningful, so help us to do that. If the demand is there and you can prove it, we will invest"
Omer IsvanPresidentServotel
Omer Isvan
Wellness has been an ever-increasing component in hotel, resort and real-estate developments. Everybody – investors included – sees that there’s a huge trend towards wellness, healthy lifestyles and therefore the marriage of that with travel.
As far as I can see, wellness destinations are not necessarily conducive to very short turnarounds. And we wouldn’t advise anyone to go into projects below a return profile of 12-13 per cent IRR depending on the economy of the destination. If the project is in a stable country with a strong economy, we might look at a discount, but if it’s in a volatile region we’d obviously want a much higher rate of return.
Standalone wellness destinations are an interesting proposition and we’re keeping our eyes out for the right product in that market space. Our problem is that it’s very difficult to do a feasibility study on them. Hotels and resorts have benchmarks and we can use those metrics in most locations to get a reasonable forecast. We can talk about numbers with a wellness destination, but it’s contingent on getting the right talent, aura and spirit to generate transformational results and to create a strong following: and that’s not something you can easily measure or predict in the absence of institutionalised benchmarks.
Wellness destinations aren’t something you can easily roll out either. Canyon Ranch has now started to make some moves internationally, but that’s after many years of just being in the US. If you’re going to do it right – a product that people are going to continue to pay for – you need to get the formula, talent, processes, spirit and aura right first through experience and client/patient feedback and monitoring results. Even then, the formula is still married to that one property and not tested cross-culturally.
Some hotel companies are starting to germinate wellness elements and concepts, but I’m not sure that’s the long-term answer. We’ve been stripping spas and restaurants out of hotels and giving them to third-party operators and I think that’s what we need to do with wellness. Hotels typically benefit from specialist wellness operators who are focused on that part of the business.
I also see the wellness industry becoming a key player in the destination resort business, whether people travel to a resort purely for wellness or as part of a lifestyle choice when they go on holiday. There aren’t too many thematic alternatives for a destination resort to create a meaningful and lifestyle-relevant differentiator or added value.
Isvan’s experience in hospitality and investment spans 30 years, with projects in over 40 countries.
Consumers are now looking for alternative holidays and wellness is a part of that. As investors, we’re actually in the process of rethinking a big project in Cabo San Lucas and turning a luxury five-star resort into a wellness destination because that’s where we think the demand is.
In most cases, we’re the majority shareholders in a deal and we look for a minimum ROI of 15 per cent, but typically we want 18-20 per cent. Our views on investment differ according to location, how you get in or out of a fund differs in Mexico compared to certain parts of the US for example. Our views also differ when it comes to determining the right size of a spa. Sometimes the economics are wrong: the size of a spa will be too big for a club, hotel and development so it won’t make ROI as a standalone element. But you know it will help the hotel – people will choose to stay there because of the spa and these people usually stay longer and book a suite or more expansive room. The difficulty is that you can’t quantify that and that’s where we struggle in terms of deciding whether a spa should be bigger or smaller.
Typically, if something is a good investment we’ll stay with it longer. We think of wellness [and a good investment] as being a total wellbeing resort – somewhere that makes a difference to your soul and heart and really change the way you live. Not somewhere that you dip in and out of for the odd detox. But I don’t think this can work as a chain. Any facility like this needs to be immersed in the local culture, that’s what will make it a success. Copy-pasting the same model that they’re doing in Thailand wouldn’t be right for Mexico, or the US or Europe.
In the past 12 months, the wellness industry has grown enormously and we’re now able to get data on projections thanks to research such as SRI’s Global Spa & Wellness Tourism Eocnomy Monitor. If someone has a great business proposal, you need the numbers to prove it. And now we have the data. That’s a big advantage for future investment in wellness compared to last year.
Diez Barosso set up Grupo Diarq, a real estate development and design firm in 1990. Most of its projects are in Latin America.
"If someone has a great business proposal, you need the numbers to prove it. And now we have the data. That’s a big advantage for future investment in wellness compared to last year"
Susan HarmsworthFounderESPA International
Susan Harmsworth
I think everyone wants more out of life, a purpose. Wellness dovetails into that. Whether people take it seriously, or it’s a conscious lifestyle choice about taking your family on holiday to somewhere that has clean air and water. And that’s why investors are getting more interested in wellness projects.
Both consumers and owners can see this, but they’re ahead of hotel operators who haven’t been able to change their structured approach when it comes to wellness. Integrating elements of wellness into food, hospitality, rooms and the whole offering is a completely different mindset and discipline. They need to define a different operating model, a wellbeing model for luxury hotels, to make it work.
However, I’m not convinced that even investors or owners understand what wellness really is or the extent of it. ESPA designs and runs spa and wellness facilities on a third-party basis and one of my biggest hurdles is getting to the bottom of what clients want. I’ll spend three days with them trying to define their take on wellness, but as soon as I begin asking how they’re going to deliver it – the practicalities of licensing or insurances for example – they start backing off. So I don’t think some of them know what they want.
The issue is that there are so many variables. It’s almost as if you need to take a philosophy and run with it. I ran a health farm in the UK 30 years ago and we had a wellness philosophy, a philosophy which might not have been for everyone but customers came for a certain period of time and got results and felt better. We had a 60-70 per cent guest return rate.
In terms of investment, I think there’s also a discussion to be had about over-spending too. In the spa industry people question whether hugely expensive, big spas will ever see an ROI. If you have a hotel in the middle of the city that has 80 per cent occupancy from the corporate market, then I would argue that you’re better off not doing a spa than doing it too small or not effectively. On the other end of the scale though, we do still occasionally have trophy owners at ESPA who want the biggest and the best and, contrary to popular belief, such spas can sometimes perform well.
At Corinthia London, the owner wanted to put the hotel on the map as the brand wasn’t known in the UK. He used ESPA to put in a 3,500sq m (35,000sq ft) ESPA Life wellness, lifestyle spa in 2011 (see SB11/3 p50). Everyone said it would never make money, but it is and we had 500 journalists visiting in the first six months.
GWS board member Susan Harmsworth has a portfolio of more than 350 spas worldwide.
Discover how to prepare your spa or wellness facility for the influx of international guests
and meet global standards as tourism in Saudi Arabia surges. [more...]
As a growing number of investors look to get into wellness, Spa Business asks what they’re looking for in a deal and what can operators do to secure that all-important funding?
By Katie Barnes | Published in Spa Business 2016 issue 1
With an increasing awareness of, and movement towards, all things wellness, more equity firms are scoping out potential projects in the wellbeing and spa arena. But what is it about wellness that’s really piqued their interest?
This was the question that kicked off discussions between a panel of investors at this year’s Global Wellness Summit (see p68). Sue Harmsworth of spa brand ESPA, who moderated the session, noted: “What’s interesting to me is that when I asked a panel [of investors] last year whether they’d heard of many deals in wellness or if it was something they were thinking about, it actually wasn’t. The difference this year is that everyone on the panel is now looking at [wellness] projects.”
Harmsworth wanted to know what return on investment (ROI) or internal rate of return (IRR) would make a deal appealing and over what time frame.
Having a wellness or spa element as part of a hotel is much different from a standalone wellness or spa destination, but is this nuance something that investors understand? And if so, how do they quantify the difference to work out which model is the most viable?
Harmsworth, whose company supplies and runs many spas globally, also tackled the subject of overdevelopment in our industry. Does the cost of building enormous, expensive facilities really stack up against ROI? Can they be justified?
In this article, Harmsworth and the GWS panel give their views on investment in spa and wellness and also tell us what they think the most exciting opportunities for wellness investments in the future are.
Matthew GaghenPortfolio managerKSL Capital Partners
Matthew Gaghen
KSL is increasing its investment around wellness for macro reasons – the growth of the mass affluent, for social reasons and because people are living longer and want to stay active longer. That all points to demand in wellness and we’re really excited about the growth potential.
We want a 20 per cent-plus ROI and to double our money. Our time horizon for investing on behalf of organisations such as pension funds is pretty different from an individual owner. We look to make money in the first four to five years and would help a business to realise that return.
We’re investing in hotels with a spa, or wellness aspect, as well as true wellness destinations [such as Miraval in the US]. The wellness destination is harder to execute as there’s no one solution to take it beyond one location and scale it up.
When it comes to wellness, you have to be clear what you’re dealing with as it’s a very broad term. But I don’t get hung up on defining wellness, it’s just a starting point for putting it in a space. It’s not ski, it’s not clubs, it could be fitness, but it’s not core hotels. It’s something more, so I then have to ask a couple of questions to figure out the angle and the depth.
The main point is that if you’re looking for investment, you need to position it for people like me to understand. Your offering can be experiential and very qualitative but you need to measure the customer experience – are they getting results, are they coming back? It’s hard for investors to go through all of the content and work out what is the most meaningful, so help us do that. If the demand is there and you can prove it, we will invest.
I’m bullish about the future of the wellness sector. There are a lot of interesting concepts and you’ll see much more specialisation and different models for wellness resorts. Some of them will grow and there’s already professionalisation in the industry. So in 12 months, two years, five years, KSL will be investing in wellness more as we’ll see more demand.
KSL has investments in Miraval, ESPA International and Elements Massage. Gaghen has been with the firm since 2012.
"It’s hard for investors to go through all of the content and work out what is the most meaningful, so help us to do that. If the demand is there and you can prove it, we will invest"
Omer IsvanPresidentServotel
Omer Isvan
Wellness has been an ever-increasing component in hotel, resort and real-estate developments. Everybody – investors included – sees that there’s a huge trend towards wellness, healthy lifestyles and therefore the marriage of that with travel.
As far as I can see, wellness destinations are not necessarily conducive to very short turnarounds. And we wouldn’t advise anyone to go into projects below a return profile of 12-13 per cent IRR depending on the economy of the destination. If the project is in a stable country with a strong economy, we might look at a discount, but if it’s in a volatile region we’d obviously want a much higher rate of return.
Standalone wellness destinations are an interesting proposition and we’re keeping our eyes out for the right product in that market space. Our problem is that it’s very difficult to do a feasibility study on them. Hotels and resorts have benchmarks and we can use those metrics in most locations to get a reasonable forecast. We can talk about numbers with a wellness destination, but it’s contingent on getting the right talent, aura and spirit to generate transformational results and to create a strong following: and that’s not something you can easily measure or predict in the absence of institutionalised benchmarks.
Wellness destinations aren’t something you can easily roll out either. Canyon Ranch has now started to make some moves internationally, but that’s after many years of just being in the US. If you’re going to do it right – a product that people are going to continue to pay for – you need to get the formula, talent, processes, spirit and aura right first through experience and client/patient feedback and monitoring results. Even then, the formula is still married to that one property and not tested cross-culturally.
Some hotel companies are starting to germinate wellness elements and concepts, but I’m not sure that’s the long-term answer. We’ve been stripping spas and restaurants out of hotels and giving them to third-party operators and I think that’s what we need to do with wellness. Hotels typically benefit from specialist wellness operators who are focused on that part of the business.
I also see the wellness industry becoming a key player in the destination resort business, whether people travel to a resort purely for wellness or as part of a lifestyle choice when they go on holiday. There aren’t too many thematic alternatives for a destination resort to create a meaningful and lifestyle-relevant differentiator or added value.
Isvan’s experience in hospitality and investment spans 30 years, with projects in over 40 countries.
Consumers are now looking for alternative holidays and wellness is a part of that. As investors, we’re actually in the process of rethinking a big project in Cabo San Lucas and turning a luxury five-star resort into a wellness destination because that’s where we think the demand is.
In most cases, we’re the majority shareholders in a deal and we look for a minimum ROI of 15 per cent, but typically we want 18-20 per cent. Our views on investment differ according to location, how you get in or out of a fund differs in Mexico compared to certain parts of the US for example. Our views also differ when it comes to determining the right size of a spa. Sometimes the economics are wrong: the size of a spa will be too big for a club, hotel and development so it won’t make ROI as a standalone element. But you know it will help the hotel – people will choose to stay there because of the spa and these people usually stay longer and book a suite or more expansive room. The difficulty is that you can’t quantify that and that’s where we struggle in terms of deciding whether a spa should be bigger or smaller.
Typically, if something is a good investment we’ll stay with it longer. We think of wellness [and a good investment] as being a total wellbeing resort – somewhere that makes a difference to your soul and heart and really change the way you live. Not somewhere that you dip in and out of for the odd detox. But I don’t think this can work as a chain. Any facility like this needs to be immersed in the local culture, that’s what will make it a success. Copy-pasting the same model that they’re doing in Thailand wouldn’t be right for Mexico, or the US or Europe.
In the past 12 months, the wellness industry has grown enormously and we’re now able to get data on projections thanks to research such as SRI’s Global Spa & Wellness Tourism Eocnomy Monitor. If someone has a great business proposal, you need the numbers to prove it. And now we have the data. That’s a big advantage for future investment in wellness compared to last year.
Diez Barosso set up Grupo Diarq, a real estate development and design firm in 1990. Most of its projects are in Latin America.
"If someone has a great business proposal, you need the numbers to prove it. And now we have the data. That’s a big advantage for future investment in wellness compared to last year"
Susan HarmsworthFounderESPA International
Susan Harmsworth
I think everyone wants more out of life, a purpose. Wellness dovetails into that. Whether people take it seriously, or it’s a conscious lifestyle choice about taking your family on holiday to somewhere that has clean air and water. And that’s why investors are getting more interested in wellness projects.
Both consumers and owners can see this, but they’re ahead of hotel operators who haven’t been able to change their structured approach when it comes to wellness. Integrating elements of wellness into food, hospitality, rooms and the whole offering is a completely different mindset and discipline. They need to define a different operating model, a wellbeing model for luxury hotels, to make it work.
However, I’m not convinced that even investors or owners understand what wellness really is or the extent of it. ESPA designs and runs spa and wellness facilities on a third-party basis and one of my biggest hurdles is getting to the bottom of what clients want. I’ll spend three days with them trying to define their take on wellness, but as soon as I begin asking how they’re going to deliver it – the practicalities of licensing or insurances for example – they start backing off. So I don’t think some of them know what they want.
The issue is that there are so many variables. It’s almost as if you need to take a philosophy and run with it. I ran a health farm in the UK 30 years ago and we had a wellness philosophy, a philosophy which might not have been for everyone but customers came for a certain period of time and got results and felt better. We had a 60-70 per cent guest return rate.
In terms of investment, I think there’s also a discussion to be had about over-spending too. In the spa industry people question whether hugely expensive, big spas will ever see an ROI. If you have a hotel in the middle of the city that has 80 per cent occupancy from the corporate market, then I would argue that you’re better off not doing a spa than doing it too small or not effectively. On the other end of the scale though, we do still occasionally have trophy owners at ESPA who want the biggest and the best and, contrary to popular belief, such spas can sometimes perform well.
At Corinthia London, the owner wanted to put the hotel on the map as the brand wasn’t known in the UK. He used ESPA to put in a 3,500sq m (35,000sq ft) ESPA Life wellness, lifestyle spa in 2011 (see SB11/3 p50). Everyone said it would never make money, but it is and we had 500 journalists visiting in the first six months.
GWS board member Susan Harmsworth has a portfolio of more than 350 spas worldwide.
Kerzner International has signed deals to operate two new Siro recovery hotels in Mexico and
Saudi Arabia, following the launch of the inaugural Siro property in Dubai this February.
Nuffield Health’s fourth annual survey, the Healthier Nation Index, has found people moved
slightly more in 2023 than 2022, but almost 75 per cent are still not meeting WHO guidelines.
The US spa industry is continuing its upward trajectory, achieving an unprecedented milestone
with a record-breaking revenue of US$21.3 billion in 2023, surpassing the previous high of
US$20.1 billion in 2022.
Short-term incentives for exercise, such as using daily reminders, rewards or games, can lead
to sustained increases in activity according to new research.
The Sacred River Spa at Four Seasons Resort Bali at Sayan will reopen later this year with an
all-new design plus enhanced treatments and experiences inspired by its river valley home.
Operator Circadian Trust has launched a five-year growth drive designed to
support health and wellbeing across South Gloucestershire, UK. The initiative
will see a £2.4m investment in its five Active Lifestyle Centres.
Remedy Place, a US-based social wellness club brand, is poised for steady expansion in the
coming years, with plans to open two new clubs annually moving forward.
Discover how to prepare your spa or wellness facility for the influx of international guests
and meet global standards as tourism in Saudi Arabia surges. [more...]
