New Marriott Vacation Club Ownership levels announced

[WBP]

This piqued my interest so I read the 14-year old attachment. The filing discusses then pending lawsuits by full-time residence owners at RCC SF regarding purported inadequate disclosures by Marriott (not MVW). It’s not obvious what the final outcome was of the lawsuits. While my interest was piqued, it wasn’t enough to motivate me to read the decade old 10-Q filings to find out.

In any case, I do believe MVW learned the hard lessons that came out of the RCC and St Regis sales times by the predecessor companies. They don’t sell those products anymore. They don’t seem to want to try to develop additional ones, either. There are other entities out there doing similar products, though. IMHO, the current effort does leverage some assets MVW holds as benefits for sales incentives. I am not sure I understand the problem with that, though. It strikes me as a more rational use of corporate assets than speculative alternatives I could dream up. My view of the bottom line here is that MVW is motivated by its bottom line - as long as the outcomes align with what I want from them I will applaud the resulting actions. I just don’t really understand what some would have them do instead - I would like better IT infrastructure but don’t want them to set aside great availability for folks that can’t plan beyond 90 days.

I believe there is value in this 14 year history. I guess, I’m one to believe that history is often a bellwether for the future, be the same behaviors that created the history, or changed behaviors.

If my memory is right, the settlement between the members of The Ritz-Carlton Club and Residences, San Francisco, and MVW, was the result of a failure to disclose the Mello-Roos Tax, in the the sales process, and, that once MVW became aware of the position of the members, a series of actions by MVW, to hold strong on their position about the disclosures, or, lack, thereof, ensued. At the end, MVW lost.

For me, the compensation to the RCC SF members was significant, as was the hit to the MVW Balance Sheet.

 

[Eric B]

I believe there is value in this 14 year history. I guess, I’m one to believe that history is often a bellwether for the future, be the same behaviors that created the history, or changed behaviors.

If my memory is right, the settlement between the members of The Ritz-Carlton Club and Residences, San Francisco, and MVW, was the result of a failure to disclose the Mello-Roos Tax, in the the sales process, and, that once MVW became aware of the position of the members, a series of actions by MVW, to hold strong on their position about the disclosures, or, lack, thereof, ensued. At the end, MVW lost.

For me, the compensation to the RCC SF members was significant, as was the hit to the MVW Balance Sheet.

Is there any tie between the nondisclosure of the Mello-Roos taxes by the predecessor companies to MVW and the newly announced Reserve and Pinnacle tiers in Abound? I do understand there were a lot of issues with the RCC product at all of the sites that are in RCC and some that have left, but am having difficulty connecting those issues with the perceived issues with current events. They don’t seem to be trying to resurrect sales of the RCC or St Regis products. I’m still curious about how they will treat resale purchases of RCC fractions as it’s not a market they are competing in and the Lion & Crown process for enrolling is quite different than a run-of-the-mill resale MVW or Vistana purchase, but that doesn’t seem to be a concern of yours. Just trying to understand the issues in case there is something I should be concerned about.

 

[Wanderlustgrl]

The week I purchased as part of a bundle is indeed shown as internal.

Same

 

[Mroze]

Noticed a # just above the grid and a fly-out explaining the #. Will that be the # Marriott uses for the new levels?
BTW: Both our bundle purchases show up as "Internal".

 

[WBP]

Is there any tie between the nondisclosure of the Mello-Roos taxes by the predecessor companies to MVW and the newly announced Reserve and Pinnacle tiers in Abound? I do understand there were a lot of issues with the RCC product at all of the sites that are in RCC and some that have left, but am having difficulty connecting those issues with the perceived issues with current events. They don’t seem to be trying to resurrect sales of the RCC or St Regis products. I’m still curious about how they will treat resale purchases of RCC fractions as it’s not a market they are competing in and the Lion & Crown process for enrolling is quite different than a run-of-the-mill resale MVW or Vistana purchase, but that doesn’t seem to be a concern of yours. Just trying to understand the issues in case there is something I should be concerned about.

Yes, I believe, big picture, MVW has a long history of unethical business practices, dysfunction, a paucity of business integrity, an air of arrogance and a total, related, lack of recognition by MVW, of how ill-suited they were to be selling, marketing, or servicing The Ritz-Carlton Club brand , or, representing themselves as The Ritz-Carlton, which MVW was not (that was a flagrant failure by The Ritz-Carlton Hotel Company, LLC to affiliate with MVW (the MVW timeshare jockeys knew about as much about luxury as the Man in the Moon)). I know with certainty, that, in the beginning of The Ritz-Carlton Club, RCC purchasers “smelled” MVW in the mix, and when they did, those customers asked, “Who is this?” The Ritz-Carlton that we’ve come to know or love, or THAT timeshare outfit, Marriott Vacation Club. The response to that/those questions, was a litany of lies and deception.

Hence, my opinion is that MVW is ill-suited to do many things. I believe the fall of MVW is tied to the introduction of the Destination Club, and the concurrent introduction of The Ritz-Carlton Destination Club (when MVC introduced a point-based product, The Ritz-Carlton Club, did the same thing), in my opinion a failure, and a very calculated maneuver by MVW to do precisely what they have (successfully) done; they have reduced the weeks-based product to rubble.

In my opinion, MVC was on much firmer footing, when they had a product that worked, and an infrastructure that could support that product. I’d say, for the past 15 years, almost all of our consecutive week, or concurrent week reservations, have been accompanied by a high margin of error, as has MVW Owner Services.

We are Disney Vacation Club members, as well, and in my opinion, DVC does circles around Marriott Vacation Club.

I’m not 100% sure what it will take to restore MVC to its once preeminence, I know for sure that those answers do not lie with Diamond Resorts former leaders, now at MVW, nor, do I believe that the MVW Board of Directors has acted as a responsible fiduciary. Remember, it was not long ago that John Geller did a song and dance in front of Wall Street Investors, and attributed MVW’s failures to a very small subset of commercial renters. Wall Street saw right threw that deception, and Geller was gone within two weeks. Like London Bridge, the most senior ranking MVW executives, were gone a few weeks after that.

We can only hope that the buffoons at MVW’s Corporate Headquarters do not interfere with resort operations, and the work of several, very skilled (resort) General Managers and Regional Vice Presidents. At present, the former Diamond Resorts leaders, now at MVW, are poised to do precisely what their predecessors did, to have an Executive Committee compromised of career, timeshare thugs, not an Executive Committee comprised of executive leaders with Marriott pedigrees in lodging and hospitality. As for The Ritz-Carlton Club, I say, forget it, until The Ritz-Carlton Hotel Company has 100% management and administration of The Ritz-Carlton Club properties, and Member Services, and not MVW, pretending to represent themselves as The Ritz-Carlton.

 

[craigd]

https://www.investor.gov/introduction-investing/investing-basics/glossary/ponzi-schemes

The difficulty with calling it a Ponzi scheme is that the apparent desire is to call the retail TS purchasers investors in the scheme with their desired returns being supported by proceeds from future sales. It’s never really been set up that way. There have been representations that a TS ownership is real estate that will appreciate in value over time rather than experience the rapid depreciation on the resale market. That can be a completely different issue.

TS developers have never to my knowledge taken the proceeds from sales to distribute to early customers. Those proceeds go to commissions, marketing expenses , and corporate profits instead. Some customers do benefit from the use of some proceeds as marketing expenses in the form of benefits to regular customers, but it would be a stretch to characterize this state as making it a Ponzi, particularly since those regular customers pay higher annual dues.

If you want to call it fraud, call it fraud. That’s a more apt characterization, though the developers do quite a bit to insulate themselves from actual fraud in written disclosures that often go unread. You could say it operates similar to a Ponzi for some aspects, but it strikes me as needing to exaggerate those similarities beyond reasonable limits to get a likeness. Bottom line for me is that on the sales side, the developers go a fair way to say they are selling vacations rather than investments. On the investment side, they distribute proceeds of vacation sales as dividends and other than the initial IPO or additional capital raising stock issuances they don’t really take money from investors. I don’t see how anyone skilled in the art of investment would call it a Ponzi.

Study the financing activities and give me your opinion on those. They "sell" VOI's and provide the financing for those sales. They then sell off those loans and use the proceeds to finance new sales. What happens as defaults increase and they can no longer sell off the loans they make because last buyers of their loans didn't get paid? Very hard to get data on default rates, but if the market for their securitized loans softens, their whole business collapses. That is the ponzi angle. If I sell something for $10 to someone who can't afford it and facilitate such sales by lending the money to the buyer, how sustainable is that?

 

[daviator]

Study the financing activities and give me your opinion on those. They "sell" VOI's and provide the financing for those sales. They then sell off those loans and use the proceeds to finance new sales. What happens as defaults increase and they can no longer sell off the loans they make because last buyers of their loans didn't get paid? Very hard to get data on default rates, but if the market for their securitized loans softens, their whole business collapses. That is the ponzi angle. If I sell something for $10 to someone who can't afford it and facilitate such sales by lending the money to the buyer, how sustainable is that?

I didn't reaiize that they packaged those loans and sold them off. The interest rates are so high that I'd think it would be good business to keep the loans, but if they don't, that tells me that they either are desperate for cash (MVCI may have their own debt to service, plus all the MFs from unsold inventory) or that they're worried about the quality of the loans and want to pawn them off on someone else. The latter is perhaps not a sustainable strategy, as you point out, since buyers of the securitized loans are not likely to clamor for more if they prove to be uncollectable.

It does start to feel a bit like they're building a house of cards.

 

[igopogo]

I didn't reaiize that they packaged those loans and sold them off. The interest rates are so high that I'd think it would be good business to keep the loans,

If the interest rates are high and the loans are high quality, they may receive ve a premium when they sell the loan.

 

[Eric B]

Study the financing activities and give me your opinion on those. They "sell" VOI's and provide the financing for those sales. They then sell off those loans and use the proceeds to finance new sales. What happens as defaults increase and they can no longer sell off the loans they make because last buyers of their loans didn't get paid? Very hard to get data on default rates, but if the market for their securitized loans softens, their whole business collapses. That is the ponzi angle. If I sell something for $10 to someone who can't afford it and facilitate such sales by lending the money to the buyer, how sustainable is that?

Not every business that collapses is a Ponzi scheme. Though I see your line of thinking.

 

[craigd]

If the interest rates are high and the loans are high quality, they may receive ve a premium when they sell the loan.

They have sustained it to date by building a default rate into the sales, plus they appear to securitize and sell the loans in tranches priced according to creditworthiness. The question to which I don't have an answer is whether they can keep the quality of the product at a level that continues to entice creditworthy individuals to go into debt to purchase these things. I also have not dug in to determine (and the data may not be available when I do) what percentage of sales are financed.

 

[WBP]

MVW has traveled a long and questionable road when it comes to its financing practices. While it is true that MVC and MVW have historically sold these notes as part of their business model, the level of gamesmanship surrounding the financing process is remarkable.

At the corporate level, MVW appears to have developed strategies designed to increase revenue — along with the sales and performance bonuses tied to financing production. One of the primary methods has been steering, and at times cornering, new buyers into accepting MVW financing. Over the years, MVW has used a variety of tactics to accomplish this.

At its most aggressive, MVW reportedly required that every new purchase be financed through MVW. Sales leadership and frontline sales staff were trained to insist that customers use MVW financing. The standard pitch was often that the purchaser only needed to maintain the financing through the close of escrow, after which they could refinance or pay it off however they wished. This structure allowed MVW to originate the loan, creating an additional opportunity to sell the note and generate even more revenue.

At the same time, MVW corporate leadership incentivized resort-level sales managers to aggressively push financing. In prior years, some MVW sales leaders reportedly accumulated hundreds of thousands of airline miles and other perks as “spiffs” tied directly to financing production. Salespeople themselves were also incentivized to close financed transactions, sometimes receiving bonuses for financed deals while being penalized for cash purchases.

When customers resisted financing, MVW’s next strategy often involved modifying purchase incentives so that financed transactions received substantially better terms or benefits than cash transactions. In effect, the system was designed to heavily favor financing at every stage of the sales process.

The overall gamesmanship is striking. Some may dismiss it as simply “the American way” or the ordinary conduct of a for-profit business. Regardless of how it is characterized, these business practices appear, in my opinion, to be driven less by customer benefit and more by maximizing investor returns and creating lucrative incentives for sales leadership.

To me, this reflects a broader and highly questionable business strategy at MVW — one that may only intensify under the company’s newer leadership with roots in Diamond Resorts. Many of these same tactics were commonplace at Diamond Resorts, and some may very well have originated there. At the current pace, I would not be surprised if MVW comes to closely resemble Diamond Resorts within the next year.

 

[craigd]

I suspect that if there is any SEC violation with respect to last Fall's stock drop, it lies in the disclosures surrounding the multiple VIE's. The performance of those VIE's is where the rubber meets the road, and they are opaque to say the least.

 

[sjlola]

MVW has traveled a long and questionable road when it comes to its financing practices. While it is true that MVC and MVW have historically sold these notes as part of their business model, the level of gamesmanship surrounding the financing process is remarkable.

At the corporate level, MVW appears to have developed strategies designed to increase revenue — along with the sales and performance bonuses tied to financing production. One of the primary methods has been steering, and at times cornering, new buyers into accepting MVW financing. Over the years, MVW has used a variety of tactics to accomplish this.

At its most aggressive, MVW reportedly required that every new purchase be financed through MVW. Sales leadership and frontline sales staff were trained to insist that customers use MVW financing. The standard pitch was often that the purchaser only needed to maintain the financing through the close of escrow, after which they could refinance or pay it off however they wished. This structure allowed MVW to originate the loan, creating an additional opportunity to sell the note and generate even more revenue.

At the same time, MVW corporate leadership incentivized resort-level sales managers to aggressively push financing. In prior years, some MVW sales leaders reportedly accumulated hundreds of thousands of airline miles and other perks as “spiffs” tied directly to financing production. Salespeople themselves were also incentivized to close financed transactions, sometimes receiving bonuses for financed deals while being penalized for cash purchases.

When customers resisted financing, MVW’s next strategy often involved modifying purchase incentives so that financed transactions received substantially better terms or benefits than cash transactions. In effect, the system was designed to heavily favor financing at every stage of the sales process.

The overall gamesmanship is striking. Some may dismiss it as simply “the American way” or the ordinary conduct of a for-profit business. Regardless of how it is characterized, these business practices appear, in my opinion, to be driven less by customer benefit and more by maximizing investor returns and creating lucrative incentives for sales leadership.

To me, this reflects a broader and highly questionable business strategy at MVW — one that may only intensify under the company’s newer leadership with roots in Diamond Resorts. Many of these same tactics were commonplace at Diamond Resorts, and some may very well have originated there. At the current pace, I would not be surprised if MVW comes to closely resemble Diamond Resorts within the next year.

Sounds a lot like what car dealerships are doing lately.

 

[RookWDW]

A significant number of lending companies sell their loan packages as routine business. Many mortgage companies, student loans, business loans, etc. are packaged and sold. That of itself does not suggest anything ponzi scheme about MVW.

 

[craigd]

A significant number of lending companies sell their loan packages as routine business. Many mortgage companies, student loans, business loans, etc. are packaged and sold. That of itself does not suggest anything ponzi scheme about MVW.

Agreed, but with those companies, lending is their core business. When the lending operations are ancillary to the core business, effectively propping up the core business, is where there is a potential house of cards. Remember that with the GFC, all the securitized loans were great, until they weren't, and the primary issue was the inability of the rating agencies to understand how truly risky many of them were.

 

[craigd]

*ancillary, yet essential.
Also, contrast those industries that employ captive financing charging above-market rates with those that subsidize below-market rates.

IN SHORT: All the ducks are lined up for short-sighted executives to profit from prioritizing origination volume over credit quality, and indeed, the recently departed execs may have done just that. Also, if WBP's musings about the new team of executives are correct, the future of VAC is not something I would invest in.

However, that will not diminish the present day enjoyment I or anyone else might derive from staying at any given property.

 

[Eric B]

... so, the bottom line is that MVW is an evil corporation that provides financing to people and sells the loans to third parties in a manner that is questionable and will result in a financial collapse of the sales side of the house some day. This might be a particularly salient issue currently with rising inflation. Some might even liken it to a Ponzi scheme due to various interpretations of what that means. Quite interesting background thoughts for the adjustments that are being made to the Owner Benefit Levels, I suppose. Might be grounds for someone to hire a bunch of industry experts and analysts to put together a class action based on something. Not really sure what that something is at this point, but okay.

 

[craigd]

I would never characterize a corporation as good or evil. My only focus is doing all I can to ascertain the value of this inorganic legal entity, and I am finding it quite challenging as I encounter transparency obstacles with each inquiry.

 

[kozykritter]

It would be great to get this thread back on the topic reflected in the title. Perhaps take the Ponzi discussion somewhere else?

 

[craigd]

I would argue the Ponzi discussion is directly related, but I got what I was looking for from this discussion, so I am happy to oblige.

 

[Mroze]

Looks like the new levels are being actively promoted on the Abound site now.

 

[BigDawgTUG]

We are at the Maui Ocean Club this week. A similar visual shows up on the Abound TV programming, with a note to see the concierge for more information.

 

[dioxide45]

I didn't reaiize that they packaged those loans and sold them off. The interest rates are so high that I'd think it would be good business to keep the loans, but if they don't, that tells me that they either are desperate for cash (MVCI may have their own debt to service, plus all the MFs from unsold inventory) or that they're worried about the quality of the loans and want to pawn them off on someone else. The latter is perhaps not a sustainable strategy, as you point out, since buyers of the securitized loans are not likely to clamor for more if they prove to be uncollectable.

It does start to feel a bit like they're building a house of cards.

They write the loans at 13%+ and then sell them in packages of around 5-8%. They drop the default rust but earn the spread and can then use the capital from the loan sales to market and sell more points.

 

[dioxide45]

Is there any tie between the nondisclosure of the Mello-Roos taxes by the predecessor companies to MVW and the newly announced Reserve and Pinnacle tiers in Abound? I do understand there were a lot of issues with the RCC product at all of the sites that are in RCC and some that have left, but am having difficulty connecting those issues with the perceived issues with current events. They don’t seem to be trying to resurrect sales of the RCC or St Regis products. I’m still curious about how they will treat resale purchases of RCC fractions as it’s not a market they are competing in and the Lion & Crown process for enrolling is quite different than a run-of-the-mill resale MVW or Vistana purchase, but that doesn’t seem to be a concern of yours. Just trying to understand the issues in case there is something I should be concerned about.

Not sure if this matters, but Marriott has placed a large number of Ritz Carlton fractionals into the Abound Trust to sell as Trust Points. I don’t know what the MF to point ratio is, is it quite high on what you own?

 

[Eric B]

Not sure if this matters, but Marriott has placed a large number of Ritz Carlton fractionals into the Abound Trust to sell as Trust Points. I don’t know what the MF to point ratio is, is it quite high on what you own?

It’s high ~1.30 or so.