Why doesn't Marriott Exercise their ROFR?

[CMF]

I don't have a head for business. But if I could buy a week from an owner and sell it at three or four times the price, I would. Is it not less expensive to buy a week from an owner than to continue to build new units at the same resort?

Charles

 

[PerryM]

The gypsy caravan just left

CMF,

You bring up a really great point – why don’t developers buy back their great weeks and resell them and make a fortune.

There is a very simple reason – once a developer (except Disney) sells you their bloated weeks they lose all interest in you – you’re old news; you’re yesterdays lunch – you’re stale.

My theory has to do with how the plan/construct/sell cycle works for the developers:

When a new timeshare project is planned out the most critical resource they have – those loveable real estate timeshare agents – can’t be spread too thin. Marriott has a gypsy caravan of professional timeshare salesreps that make $100,000 - $600,000 each year selling timeshares. These are the developers “super stars” and they are in scarce supply. 90% of the timeshare salesreps I’ve met seem to be lucky that the alarm clock got them out of bed that morning.

The Marriott super star salesreps move every 3 – 4 years. They move from one new Marriott development to the next. They need to plan ahead and decide when to uproot their families and move to the next Marriott new project. There are exceptions to this – Maui is one – project goes on and on and who doesn’t want to live in Maui where the real estate prices are astronomical and that 6% ( 15% for timeshares) commission is based on some of the most expensive real estate on the planet.

Well after a Marriott project sells out (is a mature resort) the gypsy caravan of super stars move on to the next new project. The sales offices are converted to villas and a tiny sales office is opened manned by a sole real estate agent from the nearby town. The selling mentality moves on to the next project too. What’s left is the local real estate agent waiting for calls from II exchange guests to take a tour and at that point if a sale is immenant Marriott will dig into the list of owners who have put their week up for sale with Marriott and many have been waiting years for this chance.

The correct answer is that Marriott needs a new resales group, who knows just how much money can be made with resales, and convince Marriott to release resources to make the Marriott stock holders even more money.


Don’t hold your breath waiting for this to happen.

Of course Disney knows how to do this while the rest of the developers seem to view this resales area with disdain.

 

[Dave M]

There is another practical reason. It would be a rare situation where Marriott could sell a week for "three or four times" the resale ROFR price.

Most Marriotts sell on the resale market for well over 50% of Marriott's current selling prices. Thus, in the typical low-priced resale ROFR situation, Marriott might be purchasing a week for about 50% of its current selling price. Since that's a little more than Marriott's typical costs for a week that it builds, it's not economically feasible for Marriott to make a market for those weeks, versus concentrating its efforts on new developments.

As for salespeople moving on to another development, that doesn't close out additional sales of weeks at the old resort. Marriott's telesales people in Florida sell weeks for virtually all Marriott resorts, whether new or completely sold out.

Bottom line: Marriott's general policy on exercising ROFRs seems to be related to how much it needs inventory at a particular resort in a particular season.

 

[JimC]

Yes, but Disney has an advantage. They can "home base" their sales operations as they have done at WDW. No gypsy caravan required.

Disney ROFR is geared to demand for the resorts from current owners. If they need points for a certain use year at a certain resort they are aggressive, otherwise they are much less so.

Marriott could do it with the corporate group in Orlando. I agree that it would be a smart move on their part.

 

[CMF]

Still seems like a good deal to buy and sell for almost 2xs as much, no?

Most Marriotts sell on the resale market for well over 50% of Marriott's current selling prices. Thus, in the typical low-priced resale ROFR situation, Marriott might be purchasing a week for about 50% of its current selling price. Since that's a little more than Marriott's typical costs for a week that it builds, it's not economically feasible for Marriott to make a market for those weeks, versus concentrating its efforts on new developments.

I would think that Marriott has the resources to do both; build new units and buy and sell existing units. Like I admitted in my opening post, I don't have a head for business, but buying something and selling for almost twice as much as you paid for it still seems like a good deal. Maybe they are making so much money building new units that they are not interested in this secondary market.

I started to think about this topic during my courtesy tour at Grande Vista. The salesman said something like Marriott paid $1M an acre to expand Grande Vista, and the new units will not have lock-outs because they would have to dedicate two parking spaces for lock-out units and the land was too expensive. So I thought, why did they waive their ROFR for the unit I'm buying? I think the salesman told me that the Marriott price for a three bedroom gold week is close to three times of what I paid. I thought it would make sense for Marriott to buy it and resell it.

Charles

 

[JimC]

I suspect they don't want to add to their inventory at a resort where they are selling. Remember if they buy it back they pay the maintenance fees on it.

 

[Gadabout]

Most Marriotts sell on the resale market for well over 50% of Marriott's current selling prices. Thus, in the typical low-priced resale ROFR situation, Marriott might be purchasing a week for about 50% of its current selling price. Since that's a little more than Marriott's typical costs for a week that it builds, it's not economically feasible for Marriott to make a market for those weeks, versus concentrating its efforts on new developments.

But I wonder how much of that is driven by the "fear of ROFR". In other words, if there weren't one, how much would they *really* sell for?