What Does 2015 (and Beyond) Hold?

Resort Trades asked a handful of influential leaders to gaze into the crystal ball and predict what’s coming this year for the shared ownership industry. Looking at historical patterns and present conditions, these experts were able to highlight ongoing challenges in order to forecast what’s ahead. And while there was an abundance of optimism, participants noted a few critical challenges awaiting us in the near future.

Many of the challenges are interrelated – an aging timeshare owner base with a rising number of owners looking to exit their ownership has fueled the rise of unscrupulous operators of illegitimate resale companies and travel clubs and, of course, transfer companies. This, in turn, has led to increased regulations and legislation.

So while we’ll address these topics individually, keep in mind that they are interwoven – and, in some ways, inseparable.

Legacy Resorts

While the timeshare owner base has definitely matured, this shouldn’t be confused with the industry being mature, says Scott MacGregor, principal of the Asset & Property Management Group (AAPMG), which was formed in 2012 to provide advisory services to stakeholders in resort and mixed-use projects. “A lot of people refer to timesharing as a mature industry because it’s characterized by consolidation, but the other markers of a mature industry – such as shrinking profit margins – aren’t present,” he explains. “These components define the industry’s entrepreneurial mom-and-pop origins, but timesharing continues to reinvent itself.”

MacGregor points out that some independent properties are stronger than others – “and there is a segment of resorts that need to be repurposed to the real estate’s highest and best use to unlock the value for those owners.” Unfortunately a commoditization of points in some cases has led to resorts trying to offer the most points with the lowest maintenance fee, even to the point of degrading the property.

MacGregor’s prediction: “What we’re going to see in 2015 is a higher awareness of the true nature of the challenges and opportunities that face independent resorts. Some resorts are going to make it and some aren’t. Every business goes through this cycle. That’s a healthy thing.”

Shep Altshuler, publisher of TimeSharing Today and president of the Timeshare Board Members Association, says that many legacy resorts increasingly will be looking at other options –such as to move the HOA inventory from a deeded property into a trust. “That would enable the resorts to market a more appealing limited-right-to-use product,” Altshuler says. “That’s a solution that’s evolving and will continue to grow, as resorts seek to appeal to younger buyers.” Other options he foresees for financially challenged resorts :

• Seasonal shutdowns when it’s not economically feasible to sustain a property over the off season.

• Reacquiring 52 weeks of a unit and offering it for sale as whole ownership. (“It’s kind of counter-intuitive to what timeshare is about, but makes sense for some resorts,” says Altshuler.)

• Closing down permanently, selling or repurposing the property.

Of course, major changes can be complicated. They require strategic planning, working with qualified industry professionals and competent legal counsel to ensure they’re in compliance with the resort’s governing documents and all state regulations, Altshuler says.

Altshuler’s prediction: “Scams and fraudulent transfers of timeshares will remain prevalent and very costly to owners, HOAs and industry providers, but there’s going to be a lot more legal action taken against some of these companies. It’s just not going to go away in the short term. The more consumer awareness that’s out there, the better off the whole industry is going to be. At TimeSharing Today, we have seen that an ongoing consumer awareness effort does help prevent fraud. ”

Transfer Companies

Transfer companies have largely been focused on older, deeded resorts, which have been vulnerable for a number of reasons. You have an aging owner base, and some of those older timeshare owners no longer desire to use their timeshare interests and therefore want to dispose of them. “They’re frustrated when they try to sell, and that’s when the transfer companies step in – they get paid to take title to the timeshares, but then intentionally don’t pay assessments to the associations,” says attorney W. John Funk of Gallagher, Callaghan & Gartrell. Funk has been practicing law for over 35 years, with specialties in financial services law and timeshare law. He says that education and new laws in some states have made it more difficult for transfer companies to operate. But, Funk notes, “The most important thing resorts can do is rejuvenate sales programs and connect with legitimate third-party sellers so that their owners can sell.”

Funk says all of this has at least allowed legacy resorts to fight back and stem the tide, but he adds that optimism in this area would be very misplaced. “Anecdotally, the tide has shifted a bit, perhaps simply because the low-hanging fruit has been gathered. But transfer companies will still be a problem until these operators are fully shut down. The industry believes their conduct is fraudulent. The victims are the owners who unnecessarily pay to transfer title to their timeshares and the associations which can’t collect assessments from transfer companies and must foreclose as the only remedy.” He says the fight has been difficult because prosecutors have been slow to recognize the deceptive nature of the scheme, particularly because owners willingly pay money to the transfer companies to take the timeshares off their hands. “However, viewed in totality, the scheme results in loss to both the owners and associations and the transfer companies pocket the money.”

Funk’s prediction: “The industry needs to remain very vigilant regarding transfer companies. If a resort does not take the issue seriously and come up with a solution for its owners, it will be continually plagued by it.”

Gregory Crist, CEO of the National Timeshare Owners Association (NTOA), agrees that unscrupulous operators are a key challenge for the near term. “What we’ve seen over the past three years has really set a new course,” he states. “The days of the Jennifer Kirks and the large-scale fraudulent telemarketing rooms are over. These operators have seen that the federal timeshare resale task force has put a real dent in this market due to well coordinated law enforcement efforts.”

But in response, Crist says these rogue players have gone underground – using offshore websites, disposable cell phones and collecting untraceable green dot gift cards for payment – making it even tougher for law enforcement to curtail their activities.

Crist’s prediction: “It will get worse before it gets better. The solutions are beyond 2015, but we’re headed in the right direction. We have a tremendous amount of cooperation building between the NTOA, the American Resort Development Association (ARDA), regulatory agencies and elected officials.”

Travel Clubs

Another area for discussion is the travel club sector. “There are definitely going to be major changes for travel clubs,” notes Jeanette Bunn, founder and president of Travel To Go, a California-based membership vacation services company. “Unless you are an up-and-coming travel club, you’re probably not going to survive long with all of the restrictions, and if you don’t have an ethical business structure in place you’re going to face adversity at a level that will be impossible to overcome.” Bunn says Millennials are set to become the major demographic and she sees further product, as well as consumer, diversification on the horizon. “The biggest change is going to be tremendous requirements for technology support and infrastructure. In order to be able to attract millennials you have to have the technology and back-end support so that they can book whatever your travel club is offering through a web-based platform that is supported by mobile devices.”

Bunn’s prediction: “I envision that the next two years will be the best of the past 10.”

The Big Picture

Stepping back and considering all these hot buttons, Howard C. Nusbaum, president and CEO of the Washington, D.C.-based ARDA, remains positive. “The economy is getting better, unemployment is lower and consumer confidence is up,” he points out. “What’s more, buyers are becoming more diverse, distribution channels are getting more sophisticated and we’re seeing smarter alliances of marketing partners.”

Nusbaum’s prediction: “I truly believe that the best, golden days are ahead of us and not behind us. The next generation of timeshare owners sees vacation as a birthright and really understands the concept of shared usage.”