Proposed internal exchange program and restrictions on resale weeks

[Dave M]

Internal Exchanges
As detailed in several lengthy threads here, Marriott is developing an internal exchange system. Marriott believes it can handle internal (Marriott-to-Marriott) exchanges better and more profitably for Marriott than through the existing II Marriott internal exchange program. We would still use II for Marriott-to-nonMarriott exchanges.

How that will affect all of us is anyone's guess. My guess is that there won't be a significant adverse impact overall. Perhaps a small fee increase for exchanges. And with any system change will come some changes to procedures that some of us will love and others will hate. I have no knowledge or guess as to what those changes might be. However, it’s likely that overall the changes will be neutral.

Theoretically, it's also possible that Marriott will eventually decide that it can't profitably implement the new system and will junk it before implementation. However, junking it is extremely unlikely because it appears that Marriott's new internal exchange system will utilize II's existing software.

My latest information indicates that the new system will be implemented by January 1, 2009.

* * * * *

Restrictions on Resale Weeks

Note: See my January 1, 2009 post in this thread for an update - suggesting that resale weeks not grandfathered might be restricted to making reservations only six months on advance.

I have now had it confirmed that Marriott does plans to implement something that would make resale purchases less attractive. The only current significant restriction is that a Marriott week purchased from a third party cannot be traded for Marriott Rewards points.

What will that new restriction be? I'm sure there will be much speculation on that until it's implemented. If I had to guess, based solely on the information I have obtained, I would say that those buying from Marriott will be able to reserve their weeks earlier that those who buy resale. (Please note that the last statement is an opinion, not fact.)

For now, anything we hear from salespeople about what the restrictions might be (e.g., restrictions on locking off or restrictions on exchanging) is pure conjecture. Marriott hasn't finalized what the rules will be.

When? The implementation date is uncertain, but probably within 18 months or so.

Grandfathering? Yes, Marriott plans to grandfather all owners, presumably as of the date the change is announced or implemented. Thus, if you buy a Marriott timeshare on the resale market now, you will - as currently planned - be exempt from the proposed restrictions on resale weeks, whatever they might be. That makes sense because it would be a public relations nightmare if Marriott implemented such a drastic change that impacted existing owners – whether resale or not.

 

[littlestar]

Thanks for the update, Dave.

 

[gores95]

Yes thanks Dave. I agree about the grandfathering for existing resale owners. Only downside is if we decide to sell our resale after the implementations that would probably adversely affect selling prices. Perhaps there will be a "run" on resales just prior to the conversion when new owners will look to get their hands on grandfathered resales.

I wonder how this would affect Marriott ROFR after the planned changes...

 

[Lawlar]

Is Marriott That Greedy?

There is nothing in my deed or contract that says that a person buying my TS will be penalized for buying it resale. Marriott obviously isn’t thinking about the best interests of its customers or their legal rights.

Marriott should focus its efforts on finding ways to enhance the value of the TSs it sells. By reducing the reservation rights of a TS after it is sold on the resale market two things will happen: (1) Fewer people will want to buy a Marriott TS on the resale market and (2) Marriott owners will have to reduce their asking prices dramatically if they want to sell their TSs. A Marriott TS will have little value after it is purchased from Marriott.

TS ownership has some appeal. But the biggest downside is that the value of a TS declines dramatically after it is purchased (and it is very difficult to find a willing buyer). If Marriott wants to promote TS ownership it should focus its efforts on making TS ownership appealing economically.

If Marriott implements this restriction on resales then Marriott is going to damage the value of its TSs over the long term in order to make a few more bucks in the short term.

I’m really surprised that TS groups aren’t more active in advocating for the protection of their rights.

 

[timeos2]

A developer killing resale? How can that be?

Internal Exchanges
As detailed in several lengthy threads here, Marriott is developing an internal exchange system. Marriott believes it can handle internal (Marriott-to-Marriott) exchanges better and more profitably for Marriott than through the existing II Marriott internal exchange program. We would still use II for Marriott-to-nonMarriott exchanges.

How that will affect all of us is anyone's guess. My guess is that there won't be a significant adverse impact overall. Perhaps a small fee increase for exchanges. And with any system change will come some changes to procedures that some of us will love and others will hate. I have no knowledge or guess as to what those changes might be. However, it’s likely that overall the changes will be neutral.

Theoretically, it's also possible that Marriott will eventually decide that it can't profitably implement the new system and will junk it before implementation. However, junking it is extremely unlikely because it appears that Marriott's new internal exchange system will utilize II's existing software.

My latest information indicates that the new system will be implemented by January 1, 2009.

No surprise there. It has been painfully obvious for a long time that using II is an unnecessary step that cost the owners $$ and pays Marriott nothing. It will hurt II more than Marriott owners but II is due to be decimated by the top end brands leaving the fold soon as they all want points and internal trades not some third party making all the cash. The recent DVC changes announced and the buyout and downplaying of II at Sunterra (now Diamond) are just the beginning. II will be left with the Wastegates and others that are too sales focused to care about trades but even they will wake up at some point. The "quality" that II loves to use as a slogan, even though most of it is unavailable and the majority of actual deposits are not top shelf, will soon be history. Leaving the same smaller, older resorts that RCI and II have really been awash in since day one. Can you say point system to regain any hope pf of II's long term survival?

Restrictions on Resale Weeks
I have now had it confirmed that Marriott does plans to implement something that would make resale purchases less attractive. The only current significant restriction is that a Marriott week purchased from a third party cannot be traded for Marriott Rewards points.

What will that new restriction be? I'm sure there will be much speculation on that until it's implemented. If I had to guess, based solely on the information I have obtained, I would say that those buying from Marriott will be able to reserve their weeks earlier that those who buy resale. (Please note that the last statement is an opinion, not fact.)

For now, anything we hear from salespeople about what the restrictions might be (e.g., restrictions on locking off or restrictions on exchanging) is pure conjecture. Marriott hasn't finalized what the rules will be.

When? The implementation date is uncertain, but probably within 18 months or so.

Grandfathering? Yes, Marriott plans to grandfather all owners, presumably as of the date the change is announced or implemented. Thus, if you buy a Marriott timeshare on the resale market now, you will - as currently planned - be exempt from the proposed restrictions on resale weeks, whatever they might be. That makes sense because it would be a public relations nightmare if Marriott implemented such a drastic change that impacted existing owners – whether resale or not.

Holy Wyndham! So Marriott is looking to devalue resales - who would have thought? If they try pulling things like extended reservation periods depending on how you bought the owners had better get their documents out and start reading where it is allowed. 99% sure it isn't as that is part of the basic ownership rights spelled out in the offering - no mere rules can alter those rights. All in all makes me happy I never did buy into Marriott despite the great resorts. Too easy to get them without owning and now it sounds like the resale values, something they have had second only to DVC so far, are going to tank as well if the ROFR hasn't done the job already.

A great example of why buying any timeshare at a premium for the name or current operational model is a big mistake. Everything changes over time but n inexpensive purchase price is forever and can almost always be resold for at least the same amount. Makes Wyndham points look great while the Marriotts, DVC's, etc that carry a premium are all likely losers in the long term.

 

[BocaBum99]

Thanks for the info Dave. It will be interesting to see what Marriott implements for internal exchange rules. I wonder if they will simply use a season to season, size to size trading power formula. My guess is they will use something like that since it is the easiest thing to explain to new customers. That will obviously result in severe stock out situations for high demand weeks. But, the real purpose of Marriott having an exchange system is probably to have a sales tool. It certainly isn't meant to help owners. Of course, a point based system would be better, but that would take a lot of guts by Marriott to create. Not sure they would do it without some experience running an exchange company.

I would be surprised if Marriott offered a reservation window advantage to owners who purchase directly from Marriott over those who don't. The reason I say that is that for resorts like the Maui Marriott, such an advantage would pretty much shut them out from every booking a summer week. That would result in a class action law suit, in my opinion.

Most developers who want to create a differentiated product, create add on benefits that only transfer if purchased from the developer. Hotel points is an example. So are VIP benefits. My guess is that Marriott will create a VIP program that you only get if you purchase from Marriott. And, there may be some advantages in the internal exchange system if you purchase from Marriott. For instance, a 3-day early access to inventory available for exchange for each unit deposited that was purchased from Marriott.

If Marriott offered such a feature, it would not interfere with the basic rights of owners to reserve their weeks. The internal exchange program is optional, so owners can't claim to be losing rights. They can pretty much do anything they want with it.

This sounds very good to owners who purchase directly from Marriott and Marriott itself.

This is very bad for resale owners. I think I will sell all of my Marriott's now.

 

[Docklander]

Restrictions on Resale Weeks
I have now had it confirmed that Marriott does plans to implement something that would make resale purchases less attractive. The only current significant restriction is that a Marriott week purchased from a third party cannot be traded for Marriott Rewards points.

What will that new restriction be? I'm sure there will be much speculation on that until it's implemented. If I had to guess, based solely on the information I have obtained, I would say that those buying from Marriott will be able to reserve their weeks earlier that those who buy resale. (Please note that the last statement is an opinion, not fact.)

For now, anything we hear from salespeople about what the restrictions might be (e.g., restrictions on locking off or restrictions on exchanging) is pure conjecture. Marriott hasn't finalized what the rules will be.

IMHO Marriott really isn't thinking clearly if/when they go ahead with this. As everyone seems to agree the resale value of units will collapse (with or without ROFR) if the penalties for buying resale get worse, so, how does Marriott plan on explaining to owners buying TSs at $100k+ (Marco Island) that their considerable outlay will be hugely devalued infront of their very eyes as soon as they sign on the dotted line. Sure, at first owners may or may not think beyond enjoying their vacations and selling won't enter their minds, but after a while the TS community at large will work it out and people (no matter how dumb) will not part with their hard earned $$$ just to see it disappear within seconds (not even a car devalues like that!). Marriott's prices will have to come down to far lower levels if they are to continue enticing owners into their system and that just doesn't make financial sense. A story involving a goose and a golden egg springs to mind!

 

[CMF]

I knew a bounty on new info would amount to something!

A good chunk of information here. Dave your major award is on it's way

Thanks!
Charles

 

[sdtugger]

Very Interesting

Thanks Dave!

It will be very interesting to see what is implemented, if anything. Of the things thrown out so far, the only thing that would significantly devalue resale weeks is any restriction on making reservations. Given the current mad rush to make reservations for the most popular weeks exactly at 9 a.m. the day they open, any restriction on that right (even a matter of hours) would effectively eliminate the most popular weeks as a reservation option. Obviously, that would make a resale week much less valuable.

Let's use Maui as an example. When I called to make a reservation for Thanksgiving 2008, all saturday checkins were gone 14 seconds after 9 a.m. and all checkins were gone within a few hours of 9 a.m. If you said that resales couldn't make reservations until even noon the day the reservations window opened, then you'd eliminate any chance these folks would have of ever reserving a popular week. If you made it 6 months, resale owners would be left with just a few very low demand weeks to reserve.

With the amount of money spent even on resales, I suspect that this sort of move by Marriott would be challenged in court.

As a resale owner who would apparently be grandfathered, the only impact to me appears to be that when I decide to sell that my week would be worth dramatically less. Far from making me want to quickly gobble up additional wouldbe grandfathered weeks, this potential move makes me question whether I want to own the weeks I have for fear of not being able to sell them should the need arise. It certainly doesn't make me want to run out and buy additional weeks from Marriott that would be worth even less than the current almost 50% immediate devaluation as soon as you sign the papers. Still, I doubt many direct from Marriott purchasers are sophisticated enough to even consider worth of resale at the time of purchase.

Wouldn't Marriott be buying back all of these weeks for a song using ROFR? If they can pull this off, this would be very profitable for Marriott. But, I have to believe that a court fight will take place and I suspect that Marriott would have a tough time in court (even if the contracts allow them to do this).

 

[BocaBum99]

Marriott wouldn't dare interfere with basic ownership rights. As soon as they do that, they will be in severe doo-doo with the Real Estate Commissions of the states in which they do business. Those commissions are there to protect the consumers. If you own a floating week, there has to be a reservation system in place to allocate weeks. Impairing that right would certainly be scrutinized significantly by real estate commissioners.
I agree with the notion of a class action law suit should that happen. I don't think Marriott is that dumb.

But, monkeying around with the exchange features and making them optional could work.

As for dropping resale prices, consumers will be oblivious to a significant drop in resale price. Look at Wyndham and Westgate. Huge drops in resale value and people keep buying from the developer. The same will be true for Marriott with the biggest difference being that they will be able to buy back inventory for a lower price than they do today thereby increasing their profit for having a rule that allows them to devalue a product to the point that owners must give them away for next to nothing so that they can sell it again for full value.

I have always wondered why ROFR has never been challenged in court. I think it's because most people even on this board believe that ROFR is a good thing. It isn't, but that is a subject for another thread.

 

[sdtugger]

Not Much Impact if not Reservations

I don't see much impact on resale prices if the changes aren't limits to resale reservations. And, I think Marriott can get away with changes to the exchange system much easier than the reservation system. I suppose I can picture some kind of draconian exchange limitation (or as they would phrase it--benefit to Marriott direct purchasers). But, for a place like Maui, the value would still be there if you can still reserve and use or rent the place. And, you always have other trading services that you can try.

Now, the big question for me??? Can I get a refund on the 5 year II membership I purchased when the change happens????

 

[gores95]

Does anyone know if Marriott agents actually view this site or am I just being naive????

 

[littlestar]

I wonder if it's a good idea to get rid of all Marriott weeks now? I don't want to own something that has no resale value in the future. Ugh. If I had paid big bucks for a Marrriott week, I would be very, very worried about this.

At least so far, DVC has made no difference for resale purchases. My DVC keeps looking better and better to me, and my little EOY VRI managed resort in the mountains. Maybe I should have just stuck to my plan of buying Interval cash Getaways at Horizons Orlando and Cypress Harbour (since we travel off season) and not even bought another Marriott week. Why bother with owning and having risk - just rent a Marriott from an owner that's taking all the risk!

 

[m61376]

Does anyone know if Marriott agents actually view this site or am I just being naive????

I strongly suspect that at least some representatives do. Last year, when there were some heated discussions regarding the Surf Club and palapa policies, which provoked some rather nasty SC bashing, for lack of a better description, I did have one of the powers-that-be thank me for my positive comments which I had posted about the resort. I son't remember if it was a Board member ir Marriott employee, but I remember being surprised that the comments were read.

Dave- thanks for being on top of this, as usual. What you've posted confirms my suspicions and makes sense for Marriott, to some degree. I think grandfathering existing owners will be an essential component of any program instituted.

It will be a delicate balancing act for Marriott to institute policies that will tip the scales in favor of developer purchases without too severely undermining the resale market. I think they face a huge challenge trying to sell to retirees especially if the resale values plummet because of reservation or trading restrictions, since buying to use for the next 10-20 years will be less attractive if people don't feel they have much equity. If new resale buyers aren't allowed to make reservations at the same time as developer buyers, then I would expect the resale prices to plummet. If they change the exchange system, penalizing future resale buyers, I think it would have less of an impact on the resale value, but would undermine Marriott's internal trading system, because more units would be deposited into II and, with fewer Marriotts in II, would likely be fabulous traders.

For those of us sitting on the fence about making another purchase (like me), I think the handwriting is on the wall.

Thanks again for your expert input!

 

[Stefa]

I wonder if it's a good idea to get rid of all Marriott weeks now? I don't want to own something that has no resale value in the future. Ugh. If I had paid big bucks for a Marrriott week, I would be very, very worried about this.

At least so far, DVC has made no difference for resale purchases. My DVC keeps looking better and better to me.

We are struggling with the decision whether or not to buy. We own with Starwood and they have an unequal system where some resale owners have access to their internal trading system while others don't.

Although it would be illegal for Marriott to restrict owners' use of their home resort, they could do what Starwood does and deny and/or restrict some owners' access to the new system.

 

[LAX Mom]

Thanks for the info Dave!

Do you have any thoughts about a "Flexchange" type of system with the new Marriott exchange program? It seems to me that they would have to relax trading requirements at some point. You can't expect to fill a popular week at a place like Maui at the last minute with a "like to like" exchange. Lots of great Marriott weeks would remain empty if it took a comparable exchange to book Maui, even at the last minute. Perhaps Marriott won't include "Flexchange" in their program, but in my opinion that would be a huge mistake.

 

[CMF]

Perhaps the resale restrictions would apply to weeks sold by Marriott after the new rules are in place, i.e., only new Marriott developer sales will be subject to the resale restrictions.

I can't see Marriott changing the rules midstream, but I don't have a problem with attaching restrictions to new developer sales. If this is the case, resales of weeks that were originally sold by Marriott before the rule change date will be more valuable than resales of weeks sold by Marriott after the rule change.

Charles

 

[m61376]

Charles- that makes a lot of sense, because then not only would current resale owners be grandfathered, but current developer owners would be protected from a likely drop in resale value. Moreover, the purchase provisions and understandings that went along with the initial sale would remain intact; no one could accuse Marriott of changing the rules that they purchased under.

 

[suenmike32]

Between yesterday's news on the steroid scandal and today's news of the possibility that Marriott would implement a policy that could prove devastating for re-sale owners, (when they choose to sell), it brings to mind the tearful plea a young fan made to Shoeless Joe Jackson 88 years ago….
"Say it ain't so Joe"

I for one sure hope it ain't

 

[Dave M]

To respond to a number of issues/questions raised here:

Flexchange
No, I have no information on how Flexchange or any other aspect of Marriott's internal exchange system would work. My understanding is Marriott is still working on the development of the program.

Who from Marriott looks at this forum?
Yes, we know that a variety of Marriott people look at what's posted here - from corporate people to sales people to individual resort general managers. A few (such as, about two months ago, a corporate person in connection with an alleged problem at a particular resort) even post on this forum (rarely) when a particular need arises.

Will the resale market collapse?
I doubt that the resale market will "collapse" when Marriott introduces the new resale restrictions. I don’t think that any changes that are made will “prove devastating for re-sale owners”. Currently, there is a restriction (exchange for points) that some people view as significant, yet Marriott is one of the very few chains where you can buy from the developer and - for most resorts- expect to get your money back on a resale after 5-7 years or so. Marriott isn't a dummy. Whatever they introduce will be calculated to maintain a reasonable resale market while, at the same time, encouraging people to buy from Marriott. It's a delicate balancing act and you can be sure Marriott is acutely aware of the need for that balance.

I see no reason to sell a Marriott week now if like your resort, the exchanges you get with a Marriott week and the overall Marriott program. As I stated, I don't think the resale market will collapse. There might be a slight downward burp in resale prices, but who knows.

Legal Issues
As for legal issues with whatever Marriott introduces, I agree that "Marriott wouldn't dare interfere with basic ownership rights", especially those that are protected by the legal documents (the CC&Rs) for our individual resorts. I think there is a lot of premature speculation here. You can bet that Marriott has its best internal and external lawyers reviewing every detail of what it might implement and that it is also carefully considering the public relations aspects of what it might implement. That wouldn't necessarily stop a lawsuit from those who might be unhappy at the changes, but why get riled now when we don't know exactly what the changes will be?

II - refunds and effect of these changes
As for II refunds, my understanding is that II will give refunds for a prorated period of unused membership, if you terminate your membership. However, I don't have any idea whether Marriott's internal exchange system (which will utilize II's current system) will be tied in some way to II membership. Let's wait and see.

As for whether Marriott's new internal exchange system will hurt II, I'm not sure of that, at least not significantly. Marriott will still be paying fees to II for the use of their software. Also, non-Marriott owners who want to exchange into Marriotts will still be able to do so through II, just as they do now. That's because Marriott owners will still exchange through II for exchanges to non-Marriott resorts, thus providing II with those deposits. Also, it's not certain what Marriott will do with weeks we deposit for internal exchanges that are never confirmed, but it's possible that some of those weeks might wind up in II's inventory.

* * * * *

I will try to talk to some of my other contacts and find out more info, but these are topics where there just isn’t much firm info yet.

 

[CMF]

Please explain when you have a chance.

That's because Marriott owners will still exchange through II for exchanges to Marriott.

Dave, can you explain this. Isn't this what the internal system is supposed to replace?

Charles "The Dense"

 

[Dave M]

Oops!

Thanks for the catch, Charles. Although I normally don't like to go back and materially change my posts after someone has responded, I will in this case - for accurate reporting.

I should have said, "That's because Marriott owners will still exchange through II for exchanges to non-Marriott resorts, thus providing II with those deposits."

 

[BocaBum99]

Actually, how would Marriott prevent other Marriott owners from exchanging through II?

Let's say that a Marriott owner exchanges out for a Four Seasons week. A deposit needs to be made into II.

Then later, another Marriott owner who made a deposit with II sees a Marriott exchange and makes it.

Isn't that a Marriott to Marriott exchange? There is no way for Marriott to stop this from happening.

 

[timeos2]

It might help those that still use II

Actually, how would Marriott prevent other Marriott owners from exchanging through II?

Let's say that a Marriott owner exchanges out for a Four Seasons week. A deposit needs to be made into II.

Then later, another Marriott owner who made a deposit with II sees a Marriott exchange and makes it.

Isn't that a Marriott to Marriott exchange? There is no way for Marriott to stop this from happening.

Unless they keep a heavy hand in it trades with II might actually improve if Marriott had an internal system for the majority of trades. Since the inventory would be reduced value should rise (it happened noticeably with Wastegate in RCI when the majority of units shifted to II) and it may give the owners the right to reserve a week and then deposit that exact week - not the one Marriott chooses - to II. Again a potential for better trade power.

 

[Dave M]

Actually, how would Marriott prevent other Marriott owners from exchanging through II?

The easiest for Marriott to stop it would be for Marriott to terminate its relationship with II, something it doesn't plan to do.

However, it’s possible that Marriott could put a block in its agreement with II that would prevent a Marriott owner from exchanging his/her Marriott into another Marriott through II. That would merely be an extension of a variety of blocking agreements that II currently has with numerous resort chains. I have no idea whether Marriott contemplates doing that.