An Open Letter to the Timeshare Industry

[PerryM]

I’ve predicted a “Timeshare Bubble” for a while now and I believe we are close to its bursting; really close.

We will know when the Timeshare Bubble bursts from this simple test:

When the sales price of ANY Marriott villa falls by 1¢ from the last price update; that signals the bursting of the overinflated Timeshare Industry Bubble.


When this happens here are my suggestions to the Timeshare Industry:

1) Immediately emulate the Disney business plan in EVERY possible way

2) Dump the Free Gifts

3) Exercise the ROFR at 50% of the current sales price

4) Actively get involved with owner resales – become their real estate broker

5) Dump the difference between developer sales and owner resales - the developer and resale owners will swim or sink together

6) Instead of the traditional 4 to 1 sales price to acquisition price lower it to 2 to 1

7) Offer Internet sales at a considerable savings over buying thru the sales gallery (If legal)

8) Offer quantity discounts to loyal owners who buy multiple units over time

9) Add value to the owners’ investment by offering internal exchange systems


By taking these steps you will avoid a total meltdown of the timeshare industry. I’m sure there are more but these will insure your survival.

Failure to do so will be catastrophic – only Disney and a few fast acting developers will be left in great shape. Others will wither away to little more than a footnote in the Real Estate Times.

To timeshare owners; you will be able to use your timeshares, exchange them, and pass them down to your heirs – exactly what the salesreps originally promised. If you need to sell your timeshare you will probably take a pounding – I’m assuming the entire timeshare industry (with the exception of Disney) will settle to the Wyndham resale level – about 15% of current sales prices which will itself be cut in half. (Thus about 7% of current sales prices)

The timeshare industry can’t survive the way it’s now going – its way too bloated with waste; you need to get back to reality.

This is my prediction and a gut feeling. My gut tells me that the timeshare industry is in a lot of trouble and if they don’t change their ways they are doomed. Those of us who bought our timeshares to use for our vacation needs will simply take over our resorts with our HOA and wave bye bye to the developer.

I make this sad prediction not to scare folks but to warn the industry of impending doom.

Will I be right? I’ve made this forecast for 3+ years now and everything seems to be set for that pin prick that bursts the balloon. But this is just one timeshare owner’s observations.

Anyone making a decision from my forecast has NOT done their due diligence – do your own and make your own decisions. I have NO intention of selling our timeshares – we stand pat while this possibly takes place, and pray like hell that I’m wrong.

Can I prove any of this? Hell no and I hope I’m wrong. I’ve been wrong in the past, will be wrong in the future but my gut really really hurts right now and the reason for this plead to the Timeshare Industry. Typically when this happens I do the opposite of my gut – that’s why we are holding on to our timeshares.

Realistically no one will listen to me and I will have this prediction to be embarrassed over – yet I’m still making this forecast with sadness. The timeshare market is 35+ years old and has never had ANY correction – that can’t go on forever and this is the perfect time when this should happen.

 

[ragtop]

6) Instead of the traditional 4 to 1 sales price to acquisition price lower it to 2 to 1

That seems to be the core issue: eliminate the 50% of the current developer price which represents marketing and sales costs.

The first developer who figures out how to do that will win every race.

Will people spend $10,000,000,000 a year on timeshare over the internet? If not, the industry will shrink and stay shrunk.

 

[rickandcindy23]

No other developer has a captive audience that Disney has. The product they sell literally sells itself. It's also not overly expensive, and the fees are reasonable. Plus, they give discounts on annual passes EVERY year, so far, to DVC owners.

 

[Transit]

"When the sales price of ANY Marriott villa falls by 1¢ from the last price update"
Why do you believe Marriott will be the catylist to the down of timeshare civilazation? Much of the downfall your speaking of is not a prediction but has already occured. Chains folding would still leave owners with resorts that are run by independant HOAs. The strong resorts will still survive.I don't think a massive panic would leave DVC immune to price drops.

 

[PerryM]

"When the sales price of ANY Marriott villa falls by 1¢ from the last price update"
Why do you believe Marriott will be the catylist to the down of timeshare civilazation? Much of the downfall your speaking of is not a prediction but has already occured. Chains folding would still leave owners with resorts that are run by independant HOAs. The strong resorts will still survive.I don't think a massive panic would leave DVC immune to price drops.

I am a Marriott owner, know the Marriott system fairly well and thus use it as a benchmark - that's the only reason.

Folks can pick their own benchmark - pick WorldMark, Wyndham, Starwood - when you see the first sign of the developer acknowledging that their crazy pricing model of having a price increase every Friday is wrong the bubble has burst in their corporation. Think of that - 35 years of Friday price increases coming to an end - that will send shock waves in the company.

Resales are acknowledging the fact that folks have better things to do with their money than buy a timeshare with a lifetime of MFs. When the developers finally acknowledge this the bubble has burst and usually violent downdrafts follow.

Disney is not immune and its a great marketer of dreams - the stuff that timeshare salesreps spout all day long. I don't think they will panic but simply hold prices at current levels and do a lot of promotional mixing of timeshare ownership and Disney theme parks.

 

[Bill4728]

As an example of a developer who just doesn't get it. Club Intrawest (which I owe & love) is raising their prices again next month from $190 to $200/pt. With the average sale of 150 pts that works out to $30,000/sale. This as resale continue to fall ( from $90 last year to <$80 this year.) What in the world are they thinking. They aren't currently building any more resorts, they just selling current inventory. They could be in for a big fall.

Last year, you could buy direct for $180/pt ( average sale of $26,000) or resale for $90 ( 50% discount off developer). Next year, it will be a choice of paying CI direct $200/pt ( average sale of $30,000) or buying resale for $75 ( 66% off developer prices or a savings of amost $20K)

 

[Transit]

As an example of a developer who just doesn't get it. Club Intrawest (which I owe & love) is raising their prices again next month from $190 to $200/pt. This as resale continue to fall ( from $90 last year to <$80 this year.) What in the world are they thinking. They aren't currently building any more resorts, they just selling current inventory. They could be in for a big fall.

Last year, you could buy direct for $180 or resale for $90 ( 50% discount off developer). Next year, it will be a choice of paying CI direct $200/pt or buying resale for $75 ( 66% off developer prices)

I think the developers will always seek the "I'm on vacation impulse buyer" as their bread and butter.The people who are paying full boat for TS float the operation.Developers won't take true intrest in resales untill they find it profitable.

 

[DeniseM]

Folks can pick their own benchmark - pick WorldMark, Wyndham, Starwood - when you see the first sign of the developer acknowledging that their crazy pricing model of having a price increase every Friday is wrong the bubble has burst in their corporation. Think of that - 35 years of Friday price increases coming to an end - that will send shock waves in the company.

Starwood's newest resort is Westin Lagunamar in Cancun - it opened Aug. 15th. Recently Starwood sent out a special mailing to NY owners offering Lagunamar at the ORIGINAL 2005, pre-construction price.

2 br L/O Plat $37,950 (-$4,950)

1 br Premium $25,495 (-$4,405)

Studio $18,100 (-$4,800)

 

[GeNioS]

Perry...as with ROFR, I completely agree with you.

I know people will disagree with my analogy as before, but I see the timeshare industry the same as the diamond business. The developers must take an active role, especially in supply and demand, to maintain the industry.

As I wrote before, I know that the value of my wife's diamond is artificial. They are abundant in nature. But some smart guys who I'd like to beat up got in and managed to limit supply and demand to prop up the value of these rocks. When I got married, I saw the value of getting my wife a diamond (most days...hehe) and bought one. Although I'd like to take DeBeer's out back and pound them into oblivion, now that she has that rock I'd like to hope that they continue to limit the supply. I don't want them to flood the market with diamonds and have my "investment" turn worthless in seconds.
If I ever want or need to sell that diamond for whatever reason, I'd like to know that I can get something for it.....how are timeshares any different?

When you buy a timeshare and they sell you on the fact that it's deeded for life, wouldn't it be nice to know that it might be worth something for life?

Personally, of all those points, I see the developer getting more involved in resales and excercising ROFR on anything less than 60% of retail (what a Marriott resale gets a customer currently) as the biggest keys to success.

 

[dioxide45]

3) Exercise the ROFR at 50% of the current sales price

Personally, of all those points, I see the developer getting more involved in resales and excercising ROFR on anything less than 60% of retail (what a Marriott resale gets a customer currently) as the biggest keys to success.

If the bubble bursts, I don't see where developers will find the liquidity to exercise ROFR. Buying units requires capital, something the industry is having a hard time getting these days. It may be smart to get more active in owner resales because they don't need to hold those units in inventory and pay MF on them until they sell. There isn't many buyers out there so if they can't sell current inventory what makes you think they can resell owner weeks too?

 

[timeos2]

It's not ROFR if they actually offer to buy.

If the bubble bursts, I don't see where developers will find the liquidity to exercise ROFR. Buying units requires capital, something the industry is having a hard time getting these days. It may be smart to get more active in owner resales because they don't need to hold those units in inventory and pay MF on them until they sell. There isn't many buyers out there so if they can't sell current inventory what makes you think they can resell owner weeks too?

And in any case it wouldn't BE ROFR (unless the documents in effect at the time of original sale provided for it - the majority of timeshares do not have that and ROFR cannot be retroactively or unilaterally added to a deeded sale) it would be a standing buy back offer with a floor price. That is NOT ROFR in any way, shape or form as it represents an actual commitment to a floor price and a willingness to buy. It would actually protect owners resale price. ROFR does neither and in fact has been shown to reduce the chance of a successful resale. But it would take money to operate so the chances of that becoming reality are even slimmer than those of ROFR benefiting an owner.

 

[JMAESD84]

Bursting for Developer Sales Maybe

Didn't I read recently that Westgate disbanded their active sales staffs at several resorts because of a liquidity issue. I say that's very significant on the developer sales side.

On the resale market the risk is that the brand name resorts will continue to decline at a much faster rate than the non brand name resorts, in part because they have further to fall, but also because their operational costs are often higher.

The the timeshare industry could use a down cycle on the development side to help reduce inventory levels.

 

[PerryM]

Leveraging works both ways....

75% of all new timeshare sales are financed by the developers. The developers go to lending institutions and pledge some assets to get this money. With the mortgage industry nationalized, like a third world takeover, that money is drying up fast. We all know the banks are much smarter than a room full of publicity hogging politicians - those clowns don't stand a chance.

The underlying condos are highly leveraged in the first place – every $1 of real estate value is leveraged 4 times into $4 of sales. If real estate keeps falling that means the asking prices for timeshares are so over bloated that you got to believe lending institutions will hesitate to lend money and the prices must tumble – that’s a leveraged tumble 4 times what is happening to real estate.

There is a lot the timeshare industry can do initially – they are oozing with cash leaking from a corps of the resort they are selling. The $250,000 salaries, the 1 in 7 sales and the average of $400 per sales tour for the gifts must be improved.

I know of a life guard in Hawaii that now lives in Mexico selling timeshares and making over $100k a year. This is ample proof that the timeshare market is bloated with inefficiencies that can be cut first.

But eventually the 35 year old timeshare model is going to have to become more efficient and rely less on bribes to Ma and Pa as they vacation. Knowing these sales organizations they won’t touch a thing but watch their organization shrivel up and blow away.

Then the mind set that the owners are their fieriest competition has got to change. That's going to be very hard to beat into the heads of the sales force - they need a villain to blame when they can't make their quota.

 

[PerryM]

If the bubble bursts, I don't see where developers will find the liquidity to exercise ROFR. Buying units requires capital, something the industry is having a hard time getting these days. It may be smart to get more active in owner resales because they don't need to hold those units in inventory and pay MF on them until they sell. There isn't many buyers out there so if they can't sell current inventory what makes you think they can resell owner weeks too?

When the bubble bursts, and it will at some point, there are a lot of things that dumb companies won't do and smart companies will do.

The smart companies will ally with their owners and get involved with resales - why borrow hundreds of millions of dollars when they can selectively exercise the ROFR and recycle firesale sales. The ROFR doesn't require 100% enforcement - just enough to keep the rumor alive and folks who want to sell their units at any price to get out of the MFs will find the developer snapping them up.

A developer can get involved with resales much easier if the ROFR forces each and every sale past them. Without the ROFR they have no control over private sales like the $1 sales on eBay you see all the time. But I don't want to turn this into the 1,000th fist fight over the ROFR.

If the developers watch both their sales crumble and the resale market crumble they are watching their own demise in slow motion. Let's see what developers all of a sudden take an interest in resales.

The USA is in uncharted waters with the nationalization of the mortgage industry - I'm guessing our government will leave it in worse shape than when it took it over. This has huge implications to the timeshare industry.

 

[davidvel]

But eventually the 35 year old timeshare model is going to have to become more efficient and rely less on bribes to Ma and Pa as they vacation.

I don't think the TS industry could sell many timeshares without all of its special techinques such as gifts, promises, pressure, free vacations, etc. The core model of the TS industry works because people are brought into a state of suspended reality, and are "sucked in" to a sales situation they would normally walk away from but for the "freebies." More importantly, many even feel guilty saying no after being given perks, free rooms etc. (there are plenty of posts here describing exactly this psychology). Its all about getting people to the resort to make the sale, which costs money.

These expensive marketing tricks clearly work. How many stories of people who make modest incomes purchase a week's vacation for $40,000 (at 18% interest), then get home and say "what have I done"?

I think doing away with these marketing expenses would be like Las Vegas not giving free drinks to save money and expecting the same results.

 

[PerryM]

I don't think the TS industry could sell many timeshares without all of its special techinques such as gifts, promises, pressure, free vacations, etc. The core model of the TS industry works because people are brought into a state of suspended reality, and are "sucked in" to a sales situation they would normally walk away from but for the "freebies." More importantly, many even feel guilty saying no after being given perks, free rooms etc. (there are plenty of posts here describing exactly this psychology). Its all about getting people to the resort to make the sale, which costs money.

These expensive marketing tricks clearly work. How many stories of people who make modest incomes purchase a week's vacation for $40,000 (at 18% interest), then get home and say "what have I done"?

I think doing away with these marketing expenses would be like Las Vegas not giving free drinks to save money and expecting the same results.

True, the opium of the timeshare industry is the expensive free gift. They will fight tooth and nail over that one.

Disney shows that it isn't needed if you actually sell something that folks really want. Again, the timeshare industry has never been in this situation in its existence - some developers will screw this up and some will profit from innovation.

That's what makes capitalism so great - everyone wins when a deal is struck; assuming the government doesn't get involved and screws things up which in this case they are the new partner of the timeshare developer; Uncle Sam now controls who gets mortgage monies and what hoops need to be jumped.

 

[Carolinian]

6) Instead of the traditional 4 to 1 sales price to acquisition price lower it to 2 to 1

That seems to be the core issue: eliminate the 50% of the current developer price which represents marketing and sales costs.

The first developer who figures out how to do that will win every race.

Will people spend $10,000,000,000 a year on timeshare over the internet? If not, the industry will shrink and stay shrunk.

There are a handful who already do this. Residences at The Crane in Barbados is one. There is an II resort in Hawaii that also does this.

 

[AwayWeGo]

New Timeshare Biz Model Needed.

Like WalMart for "new" timeshares.

Like CarMax for resales.

-- Alan Cole,McLean (Fairfax County),Virginia, USA.​

 

[x3 skier]

As an example of a developer who just doesn't get it. Club Intrawest (which I owe & love) is raising their prices again next month from $190 to $200/pt. With the average sale of 150 pts that works out to $30,000/sale. This as resale continue to fall ( from $90 last year to <$80 this year.) What in the world are they thinking. They aren't currently building any more resorts, they just selling current inventory. They could be in for a big fall.

Last year, you could buy direct for $180/pt ( average sale of $26,000) or resale for $90 ( 50% discount off developer). Next year, it will be a choice of paying CI direct $200/pt ( average sale of $30,000) or buying resale for $75 ( 66% off developer prices or a savings of amost $20K)

Fortress (owners of Intrawest) is under some extreme financial pressure. I guess they feel they can squeeze more out of what they perceive are less sophisticated timeshare buyers to help meet the financial demands.

This could be a reason for the Timeshare industry in general not lowering prices. They can sell to those who do not understand or know about resale and help cover other losses.

And to think there was happiness and glee in Steamboat when Intrawest bought Steamboat Ski Corp. I hope it does not revert to being a cash cow again as opposed to improving the Mountain.

Cheers

 

[e.bram]

I believe the bubble has already burts. All that's left is the screaming and the shouting. People of modest means(TS who buy from developers) can not get car and house financing, who will lend them money for a highly overpriced illiquid TS.

 

[dioxide45]

I know of a life guard in Hawaii that now lives in Mexico selling timeshares and making over $100k a year. This is ample proof that the timeshare market is bloated with inefficiencies that can be cut first.

I see no problem with paying top sales performers a six figure salary for what they do. If one can sell they will always be in demand. You have to have a competitive compensation package in order to retain good sales staff. If you don't they will go elsewhere.

 

[Big Matt]

10) add volume discounts or something like buy two weeks and get a free week (maybe a lesser season).

 

[PerryM]

I see no problem with paying top sales performers a six figure salary for what they do. If one can sell they will always be in demand. You have to have a competitive compensation package in order to retain good sales staff. If you don't they will go elsewhere.

I don’t begrudge folks making big bucks; I love them.

However, this kid had zero experience selling anything and then to make 6 figures in a few months is indicative of an inefficient industry oozing with cash to throw at warm bodies to sell overpriced products. That model has worked 35+ years – will it be the only industry in the world immune from the tsunami real estate debacle overtaking the world? I think not.

At some point lifeguards who used to make $10 an hour in Maui are worth $10 an hour selling timeshares and not $50 an hour like he is making now. That fairytale is going to come crashing to a halt.

That's why the timeshare bubble is going to burst and it will result in a much more efficient and cheaper product for the consumer to buy.

 

[PerryM]

10) add volume discounts or something like buy two weeks and get a free week (maybe a lesser season).

Yes, that would be the sign of a tight profit margin product for sale - lots of competition and deals.

That's not what the timeshare industry is now doing - they seem to ignore the competition and rope in Ma and Pa and ensnare them with 14% loans on a product that could easily force them into bankruptcy at a later point.

Just about everything in the timeshare market points to oozing profits that have the developers ignoring efficiency and worrying about competition - a totally phony market that can't go on forever.

 

[dioxide45]

Just about everything in the timeshare market points to oozing profits that have the developers ignoring efficiency and worrying about competition - a totally phony market that can't go on forever.

The same things happened in the glory days of mortgage. Money was flowing, bonuses being paid, incentives galore, business lunches and all that other fun stuff. All of this to just to keep up with the volume and get units through the system. Efficiency was the last thing on peoples mind, you didn't have time to improve the process as you barely had time to keep up with what work you had to do.

Those days are long gone and the belt tightening has happened long ago. The same thing happens in any industry in crisis. The same will happen in the TS industry, but I bet when those glory days return the same cycle will happen all over again. The mortgage industry may have learned a lesson, but lessons are soon forgotten and if huge volumes and great times once again fall upon the mortgage industry it would likely happen there again too.