STAYING AT THE TOP OF YOUR GAME: An FEC Expansion and Refinance Case Study
Featuring Paradise Park Owner, Jeffrey Wainwright
Theresa and Jeffrey Wainwright, owners of Paradise Park in Novi, Michigan, have been in the FEC business since 2005. Jeffrey brought his business acumen from the corporate world over to the FEC world in search of better work life balance. Theresa had a strong background in Finance and Residential Banking. Talking with both of them, it is obvious they love what they do and that the transition has proved beneficial on many levels.
“We wanted to leave the corporate world. I was a senior executive running operations in North and South America for a large Japanese electronics conglomerate. It was a 24-hour a day, 7-day a week job. We were at a turning point where our kids were getting older, and I felt like I was missing things in their lives. I started looking for opportunities that would make sense,” says Jeffrey.
They spent a few years in research mode visiting parks and attending conferences and classes. They also did an extensive demographic study to find out where to build the park in Michigan. Finally, as they felt prepared and believed they had found the right spot to place their FEC, they acquired the land, started construction in Novi, and opened in late 2005.
Jeffrey likes that it is a very progressive industry and that it offers some insulation from economic cycles.
“Revenues might drop but FEC’s are somewhat safe from economic downturns because parents will never stop providing entertainment for their kids.
This does not necessarily include chains because they don’t have superior staff and services to get them through the hard times,” says Jeffrey. Michigan, which is strongly tied to the automotive industry, was especially hard hit during the recent economic downturn. As a great deal of Michigan suffered, Paradise Park experienced suppressed performance but still maintained their great service standards which kept the customers coming.
In keeping with top-notch customer service standards, they have continually updated Paradise Park over the years with additions like a 2nd junior go-cart track, a major arcade expansion and mini bowling. They also expanded their food services and acquired their liquor license which has helped them penetrate the adult and corporate event market.
EVENTS DRIVEN BUSINESS
In the beginning, Paradise Park focused more on walk-in general business, but as they grew in expertise they recognized that events were also a huge driver of business.
As the events business continued to grow, their current facility began to present challenges. Due to their lack of event space, they were renting and having to put up and tear down tents, chairs and tables for each event, almost weekly. Money was regularly being given to outside vendors. It became obvious that they needed an incredible banquet facility; it was time for substantial expansions.
While the aggregate headcount is probably between 75,000-100,000 guests per year at Paradise Park, event-drive revenue has become the preferred business model. Sixty percent of their events are birthday parties, and forty percent are larger group events such as corporate events, church events and bar mitzvah’s that can range up to 1,500 people. They commented that is takes about the same overhead to host a 50-person corporate outing as it does and 10-person Birthday Party, yet the revenue is 5 to 10 times larger. Jeffrey explained, “Every FEC employee position must be staffed for small events the same as large events except for a few extra hostesses, so we have to be careful where our event emphasis is.” However, while the corporate and large group events are more financially productive than a small birthday party, it is still critical for FEC’s to have a strong share of the birthday party market because birthdays showcase the facility to families and keep the business at the forefront of parent’s thinking.
With a loan for over $2.5 million from Live Oak Bank, Paradise Park restructured their debt, built a beautiful banquet pavilion, improved their game room, and made other modernization improvements in the facility.
“Live Oak’s industry expertise helped us make sure the pavilion would be the best product it could be. That’s very compelling from an owner’s standpoint, says Jeffrey.”
The expansion was completed the end of July 2016. When asked about the success of the new banquet pavilion, Jeffrey states, “Our beautiful new facility allows us to market group events easily. It’s compelling to clients; they want to have events there. It serves as a strong marketing tool to sell these programs, and it allows us to improve our cost of services for events. Money that was going out of house is now in-house revenue!”
When asked about their favorite feature at Paradise Park, they joked that most FEC owners’ favorite feature is the one that drives the most revenue. ““The banquet pavilion is a breathtaking feature. The architect did a phenomenal job,” he says. “We have a really cool go-cart track that drives a lot of revenue too, so that also tends to be a favorite attraction!”
REFINANCING EXISITNG DEBT
While acquiring their FEC expansion loan from Live Oak Bank, it was also decided to refinance their short-term equipment debt. They had equipment loans through an industry equipment lender with somewhat high interest rates and less than ten year terms. “It was expensive money, often double market rates, however it did serve its purpose well” said Jeffrey.
Through a refinance with Live Oak, the business was able to improve its monthly cash flow by about 25%! Yes, they borrowed more money and took on more debt to expand but their new loan through Live Oak wrapped all their previous loans into one and spread the payments out on a 25-year term (Paradise Park was eligible for a 25-year term because their loan included real estate). Theresa and Jeffrey have the option to pay off the loan early without penalty but can take advantage of the financial freedom that comes from a 25% decrease in monthly payments for up to 25 years! Now they can take those monthly savings and reinvest in the growth of the business.
THE RIGHT FINANCIAL PARTNER
When growing your business, it is important to have the right financial partner. Live Oak Bank’s team of dedicated FEC lenders are committed to helping FEC owners grow.
“Live Oak Bank is uniquely different than the other lending institutions in the market,” said Jeff.
“Traditional bankers struggle in niche markets like FECs. Being able to work with a bank that understands our business as much as or more than we do is someone that anyone in the industry should be interested in as a partner.
Having a lending institution that isn’t just interested in your market to get revenue, but also genuinely involved in the industry, a lender that attends major industry events, is truly remarkable. What other lending institutions are at trade shows to invest in and learn the market? There is only one on their scale, Live Oak Bank.
“We make a point of recommending Live Oak. It’s also self-serving because the more we can help Live Oak grow the more they can offer to the industry. If you are part of the family you want to do what is best for the family,” Jeffrey points out.
Regarding the future of Paradise Park, they have no plans to slow down. They have already been back to Mike Cairns, Senior FEC Loan Officer at Live Oak Bank, about making more facility improvements for 2017. They were approved for an SBA 7a express loan which they used to add a four-sided euro bungee dome, renovate their laser tag facility, make improvements to the arcade and switch over to a swipe card system. Now the game room is at it’s all time best, they have new attractions, and the business has an amazing top of market laser tag feature. Additionally, the swipe card machines have eliminated the expense of tickets and tokens, including the labor costs involved in servicing them. The headache of token jams and ticket supply issues are also gone!
They could have easily written this loan with a short-term industry equipment lender but they said the terms with the equipment lenders are not as financially favorable. “The proposal that Mike Cairns came up with was so much better that it would have been foolish to consider other alternatives,” Jeffrey said.
Live Oak Bank’s express loans can fund in under 10 days – and while their loan took a little bit more time, they say the process was done expeditiously.
“We were trying to meet a deadline. Everyone accepted it as a goal, and Live Oak hit deadline – they did it!
The closing process is arduous no matter what, but Live Oak has some amazing people. They are very skilled and knowledgeable and patient with ignorance,” says Jeffrey.
SUCCESS IN THE FEC INDUSTRY
The mark of a wise and humble team, they were slow to offer definitive advice to other FEC owners, always qualifying their responses with “every FEC has a unique situation,” but we were able to get a few of their thoughts on what it takes to have a successful FEC.
For starters, they state that some locations are in a non-competitive situation, the things they must do are different than those in a highly competitive situation. For example: an FEC surrounded by competitors must do things very different.
A large chain recently moved into their market over a year ago. “The answer for us,” says Jeffrey, “is being willing to make the investments to keep ourselves at the top of the market and to make sure that every part of our business is approaching best in class, and we must do that EVERY DAY. Chains can’t do that, and that is where we can be ‘10x better!’ – to borrow a quote from Live Oak’s Ben Jones. The chains are going to take market share, so you have to make sure that when you are in fair weather months you go above and beyond – we are going to have to advertise, so if we are going to do it, let’s do it right and punish those guys!”
Chains also have advertising power and resources that smaller, individually owned FEC’s can’t touch, and they can use that to bury you …but the “near best in class” superior servicing aspect of the individually owned FEC can win out over time. He points out that he uses “near best in class” because it is always a goal they are working towards achieving every day. You can’t get to a point where you feel like you’ve made it and then stop improving. “You have to outperform them in every category – you can’t slack anywhere,” he says. “A key ingredient is recognizing you are only as good as what you do today. So many businesses try to live off their successes from yesterday, and they die because of it.”
“The people you hire have to be truly remarkable people or have the ability to be trained to be remarkable. The sights, sounds and smells all have to be impeccable, the food has to be remarkable, you have to offer things to increase “time in facility” such as comfy places for parents to sit.”
USING FINANCING TO GROW YOUR BUSINESS
“You also have to be willing to take financial risks and have someone on the financial side that can help you,” says Jeffrey.
For FEC’s that lease a facility capital expenditures are very low because they don’t pay for land and a building. They can focus their financial investments on having really cool feature content in the facility. This often means taking out smaller loans each year that can result in a myriad of rates and lenders. In this case, it is often a good idea to investigate your refinancing options. “If an FEC is simply doing refinancing they would be remiss to not look at doing asset improvements at the same time,” shares Jeffrey. “It’s a borrower’s market and interest rates are low, they can still end up in a good cash flow position with a far better product.”
FEC’s that own their facilities have to do consistent facility improvements as well as feature content upgrades. Don’t be timid about making facility and feature improvements consistently. That means not being afraid of debt! “FEC owners have to be willing to take on debt,” says Jeffrey, “If owners are going to sleep on improvements, they will lose market share.”
As we wrap up the interview, both Theresa and Jeffrey conclude, “We highly recommend Live Oak Bank. We couldn’t even imagine making another choice!”
As the owner of a family entertainment center, you have the satisfaction of seeing customers connect and have fun with friends and family. You also face unique issues and financing needs. Live Oak Bank understands. With a team of FEC experts and lending specialists, we are well positioned to help you reach new growth. From cinemas to roller rinks, arcades to bowling centers, laser tag to waterparks—Live Oak provides family entertainment center loans up to $5 million for expansion, remodeling, construction, acquisition, equipment and refinancing.
For more information on financing from Live Oak Bank, connect with one of our loan specialists here.
For more information on Paradise Park visit: