04 October 2009

Time-Share, Luxury Development Sales Drop At Record Pace


Story from Bloomberg

Sept. 29 (Bloomberg) -- U.S. vacation timeshare sales may fall the most this year since the industry gained popularity in the 1970s as consumers forgo spending to ride out the recession.

Sales may drop 30 percent this year from 2008, said Howard Nusbaum, president and chief executive officer of the American Resort Development Association, a Washington-based trade group. The market “will be a challenge for at least the next 18 months,” Patrick Scholes, senior equity research analyst at FBR Capital Markets & Co. said this month.

“Timeshares are just very, very discretionary items,” said Chris Woronka, an analyst at Deutsche Bank Securities in New York. “It’s the perpetual vacation. I am prepaying for the ability to take a vacation every year. Under the current circumstances, people are more reluctant to pay for that.”

U.S. timeshare sales dropped 8.5 percent last year to $9.7 billion from a peak of $10.6 billion in 2007, excluding the luxury fractional business and private residence clubs, according to an Ernst & Young LLP study prepared for ARDA. The decline was the industry’s first since 1975 and is being driven by tighter credit, a higher personal savings rate and the loss of 6.9 million jobs since the recession started in December 2007.

Marriott’s Charge

Marriott International Inc., the largest U.S. hotel chain, said last week it will take a third-quarter pretax charge of $760 million in its timeshare business. The company will cut prices, halt development at some residential resorts and at some luxury fractional ownership properties, and sell some undeveloped land.

“We have enough inventory to last a few years,” Laura Paugh, senior vice president of investor relations at Marriott, said in a telephone interview. “Prices are not likely to turn around in the near term. Given the development risk, we plan to complete the inventory we have under way, but not develop any more.”

Wyndham Worldwide Corp., the largest seller of timeshare vacation units, in December said it would cut 40 percent of those sales in 2009.

Timeshares give owners the right to use a property for a set period of time each year, typically a week. Fractional ownership plans usually offer longer stays at a property and tend to include more services and amenities, according to ARDA.

For hotel companies, the businesses can build customer loyalty, Marriott’s Paugh said.

‘Buy the Hotel’


Timeshares first emerged in the 1960s, according to Group RCI, Wyndham’s vacation rental and timeshare unit. According to RCI’s Web site, a hotelier in the French Alps marketed the world’s first timeshare development with the slogan, “No need to rent the room, buy the hotel -- it’s cheaper!” The concept moved to the U.S. in the 1970s, initially in Florida, the state with the most timeshare resorts, according to RCI.

“The main obstacle for the industry is that there will be a semi-permanent reduction in demand because developers would sell to people with relatively low credit scores,” said Deutsche Bank’s Woronka. “That won’t be possible anymore. Your pool of buyers will be much smaller from now on.”

Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, may also have to “recognize significant timeshare impairments” since it has more high-end timeshares than Marriott, David Loeb, an analyst at Robert W. Baird & Co., said in a note this month.

Demand Drops


Starwood’s fourth-quarter timeshare sales fell 48 percent, the company said in January. It closed nine sales centers and cut 900 employees from the division since the start of 2008.

K.C. Kavanagh, a Starwood spokesman, declined to comment.

“Our sense is that the timeshare industry is less optimistic about any near-term recovery than is the hotel industry, as the timeshare industry’s hands are tied by the availability -- or lack -- of financing,” Scholes said in a note this month.

On Sellatimeshare.com, a one-bedroom, one-week timeshare at the Marriott Aruba Surf Club is being offered for $25,900.

The Web site includes the testimonial of a client who sold her unit at the Renaissance Aruba Beach Resort and Casino for $5,000.

On Timeshareadventures.com, a two bedroom, two-bath one- week timeshare at Marriott’s Canyon Villas at Desert Ridge in Arizona was for sale for $25,000. The annual maintenance fees and taxes are $900. The property includes a golf course, tennis courts and spa.

Plenty of Ads


A one-week, every-other-year unit at Marriott’s Ko Olina Beach Club timeshare resort in Oahu, Hawaii, is advertised for $15,999. The annual maintenance and taxes on the two bedroom, two bath are $728.

Mark Massarelli, who runs Dynasty Limousine in Boston, has been trying to sell one of two timeshares in Hollywood, Florida, that he and his sister inherited from their mother. He has been advertising a one-bedroom, one-bath unit on Craigslist.org for six months. It’s at a full-service oceanfront property with access to an 18-hole golf course.

Massarelli, 46, hasn’t received any inquiries even after cutting the price twice.

“I am offering it at $3,995 but its value right now is probably around $8,000,” Massarelli said in a telephone interview. “I tried to sell it a couple of times for a higher price but nobody bit. The maintenance and taxes on the unit are getting expensive. So I cut the price to attract more buyers, but nothing so far.”

Hotel Deals

The average sales price for timeshares in the U.S. climbed to $20,152 in 2008 from $15,790 in 2004. Occupancy remained little changed from 2005 to 2008 at about 82 percent, according to Ernst & Young. Average maintenance fees increased to $646 from $471 from 2005 through 2008.

“This year in particular, timeshare sales are down because hotel deals have been so good,” said Woronka. “Owners may think ‘I could have stayed at a luxury hotel for $150 a night and I am paying much more for this timeshare.’”

The luxury timeshare segment, where units can sell from $100,000 to more than $1 million, also is being hit, according FBR’s Scholes.

Demand for such rooms “was soft in 2008 and weakened further in 2009,” Arne Sorenson, Marriott’s president and chief operating officer, said on Sept. 23.

“I don’t think timeshares are out of style,” said Marriott’s Paugh. “Customers really do like it. But the returns we currently receive on our investment are disappointing. For us it’s probably not the place we want to put our money.”

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