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Why Did Geauga Lake Fail?

Last month, Cedar Fair, owner of the now-defunct Geauga Lake amusement park in Aurora, Ohio, announced its intent to sell itself to Apollo Management. The news comes a little more than two years after the company unexpectedly announced the closing of Geauga Lake, and it's re-raising questions about exactly what happened at the former hundred-plus year-old historic amusement park.

(from Wikipedia)

There are a few speculative theories about why Geauga Lake failed. I don't find any of them particularly compelling on their own; but it's necessary to know them.
  • Theory One: Cedar Fair purposely closed Geauga Lake to eliminate competition at its flagship Cedar Point property.
  • Theory Two: Despite the company's best effort, Cedar Fair couldn't repair the damage done during the Six Flags years. Additionally, a host of variables outside of Cedar Fair's control (high gasoline prices, consistently bad weather, population loss in Ohio, etc.) are subsequently to blame.
  • Theory Three: Management was incompetent and didn't understand the dynamics of Geauga Lake. They tried to run the place like a corporate mega-park when they should have been running it like a small traditional family park.
I think what really happened at Geauga Lake is the simple case of failed real-estate speculation. It wasn't long ago that people were ruthlessly buying up homes and other properties as "investments". When the housing bubble burst, the party was over. It's reasonable to believe that Cedar Fair bought Geauga Lake as an "investment park" and when the bubble burst, Geauga Lake faced a similar fate as many of the homeowners who never imagined the value of their property could fall.

The story begins sometime at the beginning of the last decade. For most of Geauga Lake's history, the park was surrounded by nature. Geauga Lake was convenient to Cleveland and not too far from Pittsburgh, but it wasn't really in a part of town that many people would otherwise care to visit. It was only a matter of time before sprawl spread outward and engulfed the community around the park. Homes in the Signature of Solon, a dreadful suburban development, started getting snatched up by the "who's who" of Cleveland's elite. The popularity (or at least perceived popularity) of these million-dollar McMansions in a "prestigious gated community" surrounding a private golf-course and country club surely raised the eyebrows of suburban developers. Someone looked at Geauga Lake and saw the land it sat on as an untapped gold mine.

At some point, a company insider who thought they knew everything about suburban real-estate probably knocked on Dick Kinzel's (Cedar Fair's CEO) door and said something to the effect of: Look, Dick, this park is sitting on some hot land that's a prime location for "Signature of Solon Part Two". We can buy the park, sit on it for a few years, and before long the developers will be crawling over and begging to buy us out. There's only upside risk, because even if we lose money operating the park in the meantime, we'll make a killing when we sell the land and we'll walk away with cash in the bank.

Cedar Fair paid $145 million for the park in 2004. At the time, the local real-estate market was still hot. At least home prices in Solon were appreciating rapidly.

In 2007, Cedar Fair closed Geauga Lake and hired Colliers to start shopping the land. Despite a few supposedly interested buyers, the land still sits vacant, many of the rides have been moved to other Cedar Fair properties; others have been scrapped or sold at auction. None of the "sealed bids" have been released, but the fact that the land still remains unsold and undeveloped suggests potential buyers haven't offered a price that Cedar Fair is willing to accept.

If Cedar Fair bought Geauga Lake as an "investment park" the result was a major bust. The area is overdeveloped in the worst ways. There are now two big-box retail centers directly adjacent to the former park and vacancy rates are climbing. The prospect of more suburban strip-mall retail is difficult to imagine and the likelihood that the second generation "Signature of Solon" will ever get built is not looking good. It's not that the land is worthless. But it's also not very liquid and the real value is probably far below what Cedar Fair even hoped to sell it for.

Disclosure: I worked at Geauga Lake seasonally from 2004 until 2007. I never received any privileged information. What's presented here is based simply on my observations.


John Wallace said…
I'm not intimately familiar with the two properties you mention, however your theories #2 and #3 are probably close. As a fairly prolific (lately more than prophetic) developer of strip malls in California, we saw the allure of easy financing and crazy growth too much for the big guys to resist.

One thing I've learned over the years is the corporate players often have the least sense of the market and the timing. Once they get it, we often start selling.

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