Sleep With The Fishes
Coming soon to the Caribbean: the first underwater hotel for the scuba-shy.
By Amanda Gengler

(FORTUNE Small Business) – POSEIDON UNDERSEA RESORTS Founded by Bruce Jones

At age 9, Bruce Jones learned to scuba dive. In high school, he wrote to explorer Jacques Cousteau about designing underwater habitats. "Of course I really didn't know what I was doing, and he never wrote me back," says Jones, who was undeterred. Now, after 17 years in the submarine business Jones, 48, knows what he is doing. He is building a new hotel in which half the rooms will be underwater.

Poseidon Undersea Resort, expected to open in early 2006 off Eleuthera Island in the Bahamas, will give non-scuba divers the chance to experience life underwater without air tanks or wet suits. The $40 million project will be submerged 50 feet below the surface, depressurized to sea level, and connected with an onshore reception area via a tunnel. Guests will sleep in 22 underwater rooms made of transparent acrylic, providing panoramic views of the ocean (with dividers for privacy). Each 550-square-foot room will offer a view of a coral garden, a device to feed the fish outside, and underwater lights. Back onshore will be a dive shop, swimming pool, tennis courts, café, and 22 more rooms.

Sleeping with the fishes won't be cheap—rooms will cost about $1,500 a night. Yet Jones and others familiar with the industry expect brisk demand. In 1972 an underwater research habitat for scientists opened off Puerto Rico; it was later moved to Key Largo and converted to the tourist-friendly Jules' Undersea Lodge. You have to scuba dive down to the lodge, however, and it has only two rooms, which are occupied about 75% of the time (at roughly $300 a night), according to Ian Koblick, president of Marine Resources Development Foundation and founder of the lodge.

"I think there is a very limited number of people willing to take their clothes off and hold their breath to get to their room," says Koblick. "But Poseidon's clientele will be bigger because you don't have to be a diver."

Jones says he expects a 70% occupancy rate and $9 million in net profit in Poseidon's first year, 80% occupancy and $10 million in profit in its second year. Some travel experts aren't quite as optimistic, though they are still favorable about the idea. "I can pretty safely say they will not make $10 million, but they will turn a profit," says Fred Johnson, chief accounting officer for HVS Hotel Management, a hospitality consulting company in Boulder.

Poseidon obtained half of its $40 million in construction costs through equity investments from 17 individuals (none with hotel experience), and the other half from bank loans and private debt. That is better than average for the industry—most new resorts get built with 70% to 80% debt financing, according to Johnson. Jones says finding investors was the hardest part, but adds that his engineering experience helped convince some skeptics. For nearly two decades he has designed undersea vessels, and in 1993 he founded U.S. Submarines, which designs and builds submarines for resorts and wealthy individuals. They range from 12 feet to more than 200 feet and cost anywhere from $1 million to $80 million. (His tourist subs are used in vacation spots around the world, including the Dominican Republic and the Galapagos Islands.)

He has some competition in the hotel business, though. Developers in the Mideast are raising money for an undersea hotel off the coast of Dubai, scheduled to open in December 2006. However, that is a much larger project—$500 million in construction costs—with potential delays of corresponding size. Koblick, founder of the lodge in Key Largo, says many of these projects spend years on the drawing board. In 1996 he helped plan Aqua Resort Panama 2000, a 120-room underwater hotel with a theme park, but construction never began.

Jones says his resort is technically less complex to build than the submarines he usually works on, but it faces its own problems. Most of the subs are 80% steel and 20% acrylic, but the ratio for the hotel is almost exactly the opposite (for better visibility). It took his engineers a year to figure out the precise curvature and thickness of the walls, and Poseidon is now developing the capability to produce its own acrylic. (A double door isolates each module in case of leaks.) The company reduced construction costs from $3,700 a square foot to $1,800 mostly by changing the design from one large structure to a cluster of smaller, individual chambers. The chambers will be built in Fort Pierce, Fla., and transported via barge to the coast of Eleuthera, an hour's plane ride from Miami, where the final construction will take place.

Jones is surprised that he's a pioneer in this field. Cousteau was convinced that small underwater facilities and villages would be developed by the mid-1970s. "The idea that 40 years later I am building the first real underwater hotel amazes me," Jones says.