The current global financial crisis has created a worrying situation for timeshare owners. While most sectors of the economy are feeling the pinch, the nation’s timeshare industry is being hit from both sides, as banks cut lending and consumers cut spending.
As a result, at the same time that people are dealing with stagnant or falling incomes, deteriorating retirement funds, and a higher cost of living, timeshare resort companies that are feeling the pinch they are passing their financial burdens on to the consumer.
consumer spending
Today, individuals, families and businesses are slashing travel and leisure spending faster than anticipated, reports Bloomberg.com. The October 23 article states “forecasts [show] that the decline in business and leisure travel is accelerating as corporations and consumers grapple with higher food prices, declining home values, job losses and shortages of credit”.
Lisa Ann Schreier, author and timeshare industry expert, says people just don’t have the disposable income right now. “People are afraid,” says Scheirer. “And with the credit crunch, it’s going to be more and more difficult for people to finance timeshares. I think the timeshare industry has been considered recession-proof for too long, and I don’t.”
The frozen credit market
If the timeshare industry ever considered the recession itself a test, then that is no longer the case. The timeshare industry is under pressure not only because consumers are spending less, but also because the industry has relied heavily on mortgage-backed securities.
David Siegel, president of Westgate Resorts, the world’s largest private timeshare company, attributes his company’s “financial squeeze” to the fact that securities are no longer bought.
In a September article in the Orlando Sentinel, Siegel explains that timeshare companies “[keep] money that flows through lines of credit that are then paid back when [these companies] pool and sell their mortgages like securities,” says Siegel. “Suddenly, no one is buying those securities.”
Siegel’s Westgate Resorts employs more than 10,000 people nationwide and recently had to close much of its sales and lay off hundreds of workers.
Two other major players in the timeshare industry worth mentioning here, Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide, have seen their profits and sales fall, with Starwood timeshare sales down 11 percent in the third trimester. Starwood, the third-largest hotel company in the US, has cut employees, closed sales centers and cut spending at Starwood’s Sheraton and Westin hotels.
Wyndham Worldwide has laid off hundreds of employees, from marketing directors to managers and financial analysts.
All this has led the timeshare industry to ask the government to intervene.
As reported in an October 29 Orlando Sentinel article titled “Timeshare Industry Seeks Relief,” the American Resort Development Association (ARDA), a timeshare trade group, is calling on the federal government to step in and guarantee mortgages. timeshare in exchange for an insurance fee.
Howard Nusbaum, ARDA’s chief executive, warned that the timeshare industry was “selling itself out of business.” “If our business model is disrupted, that costs jobs,” Nausbam said.
“It’s not good… for timeshares if there’s no liquidity in the market.”
Like any business these days, it’s hard for timeshare companies to make money. And now it’s getting harder and harder for these companies to use their customers’ mortgages to get cash.
In the recent past, timeshare companies were able to leverage their current income to build more timeshare units in different locations to increase profits. This strategy worked well in good economic times, but unfortunately it multiplies the drain effect when credit is tight and incomes decline.
What this means for timeshare owners
With consumers spending less on travel and credit markets freezing, lodging and timeshare companies including Westgate, Starwood and Wyndham are turning to the only place they can recoup some of their losses: timeshare owners.
It is understood that at any time and for any given reason, timeshare resort companies may require timeshare owners to pay special assessments. It is also understood that maintenance fees are not capped and are subject to increases at the discretion of the timeshare resorts. In recent months there have been reports of timeshare owners receiving special appraisal fees of $1,000 to $3,000.
Chad Newbold, President of VI Network, Inc., one of the nation’s largest vacation ownership brokers, reports that current economic conditions, increased rates for the 2009 use year, along with unprecedented special assessment billings and a diluted resale market, has created the perfect storm for the timeshare industry. This storm has caused a record number of homeowners to simply want to get out, which he predicts will no doubt result in another sharp increase in maintenance fees for the 2010 use year.
To many, it seemed safe to assume that the initial cost to purchase a timeshare, averaging over $19,000 in 2007, plus annual maintenance fees would have been enough to fund the operation and management of any timeshare resort. But as more and more timeshare owners are affected by these special assessments, this assumption has been reversed. Timeshare owners feel taken advantage of, having to pay even more “travel and entertainment” expenses at a time when they can least afford it.
It is not known how much special assessments and other fees will increase. But one thing that is certain is that there is no better time than the present to weigh the pros and cons of owning a timeshare and consider some options. There are viable solutions for anyone considering whether or not to keep their timeshare. One company, Timeshare Relief Inc., has been in the business of getting people out of their timeshare contracts since 2001 and guarantees that their clients will never have to pay another timeshare fee. Other options available to timeshare owners, such as reselling a timeshare by listing it online or through a resale broker, require money up front and provide no guarantee that the timeshare will sell. In tough economic times, a warranty can go a long way.