Timeshare Industry Bounces Back
Sales, Profits Up But PR Woes Remain
Like its cousins in the traditional hotel industry, the timeshare business has recovered quite well from the abysmal effects of the 2008 economic downturn. Sales are once again brisk, profit margins are improving and lenders are back with securitization money. Yet despite the good news, the vacation ownership industry is still dealing with some nagging bad press that has potential to injure the industry’s reputation.
First the good news. Timeshare sales in the U.S. topped $6.5 billion last year, up 2.4% from 2010, but still well below its high point of the mid-2000s, when sales volume topped $10 billion a year. Most of the public companies in the vacation ownership showed improved operating results in the second quarter. Marriott Vacations Worldwide posted a 10% increase in sales, while Wyndham Vacation Ownership saw revenues rise 5%. Independents Bluegreen and Diamond Resorts also had stellar quarters. Timeshare sales for Bluegreen were up 21.6%, while sales soared 34.5% for Diamond.
But all is not rosy for the industry. Fraud in the resale of timeshare units has become a significant problem and a PR black eye for the industry. The number of complaints to the Federal Trade Commission regarding timeshare resale fraud rose from 819 in 2009 to more than 5,000 last year. Similarly, the number of complaints to the Florida Attorney General’s office quadrupled during the same time.
The industry, working with the Florida legislature and AG, developed and passed landmark legislation in the state that should provide consumers with protection against fraudulent and deceptive business practices in the resale business.
And adding to the PR soup, although somewhat comically, have been the antics of David Siegel, founder of independent timeshare giant Westgate Resorts. He and his family are the subjects of a documentary about their on-again, off-again attempts to build a 90,000-square-foot mansion in central Florida. Then there have been news reports in which Siegel claims he was responsible for George Bush’s victory in the 2000 presidential election, which turned on the close vote in Florida and the subsequent Supreme Court decision.
To sort through the good news and not-so-good news, we interviewed Howard Nusbaum, the president and CEO of ARDA, the timeshare industry’s trade group.
What is the state of the timeshare industry?
Things are back on track and we have more sustainable fundamentals than we did before the financial meltdown. Before Sept. 2008, because there were easy credit and low interest rates, it was very compelling to sell to anyone who had the slightest interest in owning a timeshare. Even though we had inefficient sales and marketing programs, the robustness of the marketplace and the healthy arbitrage on the loan profit made it a very compelling business.
When financing got tight, we had to get smarter and get rid of some of the inefficiencies. Now we’re FICO scoring, we’re talking to people who are really interested in the product, not accidentally on a tour. They’re putting 20% down, not 10% down; they have more skin in the game. They’re more credit-worthy. The banks and Wall Street are more interested in us.
How do you keep the momentum going?
The $64,000 question is how do we begin to have new growth without falling into the sales and marketing mousetrap we had in the past. As we introduce a new generation of first-time purchasers, how do we keep a lid on the sales and marketing costs and the efficiencies of our present profitability?
Developers learned some important lessons, and consumers are having a better understanding of timeshare. We’re going to take the passion of the 84% satisfaction rate of our timeshare owners and unleash it and show people this is a better way to vacation, both in the discipline to do it, the product with which you can stay, the number of people you can accommodate, the conveniences of home, as well as the plethora of the travel opportunities. We’re going to let the voices of timeshare owners educate non-timeshare owners on why it is a better way to vacation.
How do you account for timeshare prospering in light of the general atmosphere of consumer uncertainty?
The value proposition rings truer in this economy. And the fact we have so many credible companies in this business creates more comfort for consumers. We’re not asking people to spend new dollars. We ask them what they spent on vacation last year and what if they can take those same dollars to own your vacation with better discipline, better quality and more control. Last year I may have taken a vacation and, assuming it was at a nice resort, the cost with taxes and everything was at least $200 a night. And if I’m getting two rooms, that’s $400 a night. That’s $2,800 a week not counting the food and beverage I had to buy. I can show you where for under $3,000 a year you can own this product and have better vacationing.
How has financing changed?
If you look at the propensity to pay a mortgage, vacation ownership performs better than credit card debt, student loans and auto loans. Our average purchaser is 50 years old, owns a home, has a couple of kids, is college-educated and makes north of $80,000 a year. That’s a very stable purchaser, and that’s why the lending institutions, as well as Wall Street, like us again.
How can the timeshare industry combat the issue of fraud in timeshare resales?
We must care about the customer. If we’re selling perpetuity, we must make sure a secondary market is healthy and works because people’s lifestyles change.
Part of the reason fraud has been able to perpetuate is because some products have a modest economic life in the secondary market. We have to work to buoy up that product to show sold-out HOAs [home owner associations] how they can capitalize their product or partner with other clubs. We also need to educate attorneys general and consumers on how to avoid being ripped off.
I’m proud of the bill we passed in Florida. It’s is a first good step to fixing the problem.
Will other states follow suit?
I hope so. We’ll continue to work with those states that have an appetite to pass a resale fraud law. Florida is a bellwether state for us. Twenty-five percent of our product is there, and when it comes to timeshare law other states look to Florida. We’ve already been talking to Colorado, Utah and a couple of other states.
Any other legislative issues of concern?
On a federal level, we’re interested in the implementation of the new consumer finance bureau. Often, laws and rules written about real estate are geared toward residential real estate. We want to make sure we don’t become an unintended consequence of a well-intentioned law. We’re not traditional real estate, yet we do offer financing for a dwelling.
The other area is cyber security. We have a lot of financial data and information about timeshare consumers. We have a responsibility and, as we know, cyber security is becoming a big issue for all industries.
A third one is the implementation of the new rules with ADA and accessibility of pool lifts. We worked hard with AH&LA and others to get that postponed until January 2013, but that doesn’t make the problem go away. There is a misunderstanding about being accessible but not having every body of water have a pool lift. Some resorts may have 10 or more pools and Jacuzzis. There is no need to have permanent lifts in every one of those environments, as there is a safety and security issue, as well as a manufacturing issue.
On the state level, we’re always concerned about being misunderstood as being transient lodging [and forced to pay transients sales taxes] when actually owners are staying in resorts they own. Same thing with property taxes. Especially when states and counties are feeling pain, they look at a timeshare resort and see 100 units, and each unit was sold 50 times at $20,000. They do the math and think that should be the cost basis for the real estate tax. In reality, it should be a fair market value of a like-kind condominium.
During the downturn, some timeshare developers and companies looked at the fee-for-service model. Do you see that continuing?
Absolutely. You see companies like Wyndham, Bluegreen, Diamond, Hilton doing big projects. Timeshare was born in a time like this when there were a lot of overbuilt condominiums. There is a lot of great product that we can add value to our clubs as well as monetize that product as it waits for its ultimate home, which may be whole ownership or condo hotel.
Timeshare has always been a workout for other types of real estate. And not to belittle my brethren in the hotel business, but when it comes to managing leisure-oriented resorts, nobody does it better than timeshare developers. It’s a shared purpose. When I stay in a hotel, the room next door may have a guy on business, the people down the hall are there for a meeting, I might be there on vacation. The pool is closed for a private party. There’s noise in the hall. That’s frustrating. When you go to a timeshare resort, everybody’s there for the same reason. That shared purpose creates harmony in a resort and allows for a level of customer service that is second to none.
David Siegel has been in the news lately. What kind of effect does that kind attention have on the industry?
The Queen of Versailles [documentary] is not about a timeshare developer. It’s about a very wealthy man building a house and how the downturn impacts that decision and what it does to its life. It’s not about timeshare. He could have owned car dealerships or hotels or whatever. I would hate to think that would be the only thing anyone would know about timeshare.
Any other major challenges facing the industry?
The next big challenge and opportunity is how we introduce a new generation of consumers to timeshare. We’ve done a great job with the eight million families who own this product and love it and continue to buy more.
A final question: timeshare, vacation ownership or shared ownership? Or does it matter what you call it?
As my good friend Shakespeare said, “A rose by any other name smells just as sweet.” Call me whatever you want, just promise me you’ll take a tour.
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