From its emergence onto the real estate/vacation landscape over four decades ago, the timeshare product has continued to mature through various evolutions–from right-to-use, floating weeks deeded fixed weeks, and today’s point-based vacation clubs. As timesharing flourished in popularity, each modification was dictated by changing consumer preferences.
One thing that has never changed is the fact that the 40-year-use product is still sold by most developers with great success. U.S. timeshare sales continue to increase year after year. But millennial buyers who love to travel have indicated little interest in long-term financial commitments and a new “rental” economy seems to be sneaking into the future. Does this mean the industry will need to pivot once again? We interviewed several respected timeshare industry professionals to find the answer to this perplexing question.
According to leading attorney Robert J. Webb, Partner, with the law firm Baker Hostetler, “From the beginning of the timeshare industry in the late 1970s, an IRS ruling, still respected and in use today dictates that timeshare transactions which provide a purchaser with use rights—and not the benefits and burdens of ownership—must be reported by the seller to the IRS as leases rather than sales, creating an income and expense mismatch that often substantially increases the seller’s federal tax liability. This complex ruling, along with state sales and use taxes and prohibitive state regulation of right-to-use timesharing, played a significant role in launching timeshare in the U.S. as a long-term, deeded product. This regulatory environment has not changed much in 40 years and is not expected to do so any time soon.”
Partially in reaction to millennials’ buying habits, a few years ago several developers started selling short-term products with some success as they offered imaginative products intended to minimize the adverse impact of federal and state tax and Generally Accepted Accounting Principles (GAAP). But the accounting rules provided a more difficult challenge for short-term products, particularly for public company developers.
“I think it’s important to remember that shared use is a very expensive product to market,” added Rob Webb. “And short-term products can be equally as expensive to market as long-term products unless the former is a drop for the latter. Also, a significant portion of the profit from a timeshare sale comes from financing, which can be a much smaller or non-existent piece of a short-term transaction.”
About five years ago, there was a run on short-term sales, and some independent developers are still selling them. Changing the Federal tax code and GAAP is not an easy task, but tax laws and accounting rules will continue to shape how the timeshare product evolves. To remain relevant and modernize, new internal and external exchange programs and travel clubs may offer greater flexibility of use. The obvious goal is to keep people traveling to different locations. Several people interviewed for this story agree that the industry’s biggest challenges today are not the 40-year use but the lack of a secondary market, the invasion of exit companies, and the high cost of tours.
Founded in 1997, Raintree Resorts International has 16 resorts in the U.S., Mexico, and Canada. Their Raintree Vacation Club is affiliated with RCI. After the credit collapse of 2008, Raintree begins to see some changes in the buying behavior of its members and guests. They were asking for shorter-term products. Since Raintree was not a public company, it was easier to develop a more desirable shorter-term product. For the past twelve years, Raintree CEO Doug Bech has been successfully selling what he calls “term” products at their three Club Regina Mexican resorts, located in Cancun, Los Cabos, and Puerto Vallarta. If the buyer desires a perpetual product, Raintree can sell that product as well.
“We launched the sale of point-based term products at these Mexican resorts in 2010 and have been selling them ever since,” shares Doug. “During this time, we have sold multiple term products–7, 10, 12, 15, and 20 years–trying to find the sweet spot relating to term. Ultimately, we determined most buyers have enjoyed a seven-year term product, or its cousin, a fifteen-year product that could be used every other year. With minimal outside marketing, most of our sales have been in-house to members, guests, in-bound exchanges, and renters.”
Buyers at the three resorts mentioned above have said they like the seven-year term because they know that upon a certain date there will be no further obligations or maintenance fees. Raintree’s shorter-term product was never geared toward millennials although it is clearly more attractive to them. Both younger and older buyers recognize the fact that vacation lifestyles generally change every 7-10 years. They respect the fact that they can end their commitment at the expiration of their term with no further obligation. Owners can re-up if they want, but if they don’t, they know it is over. Should they want to purchase again, they usually purchase another term product. “Regardless of the product type, if an owner says, “I quit,” we always let them,” shares Doug. “While we do workouts, we’ve never sued a customer for failure to pay a maintenance fee.”
Future Services. Doug says they are now working on some products which would provide economic benefits of reduced rental rates for longer stays of 2,3 and 4 weeks as well as a lower purchase price and maintenance fees for weeks that are used consecutively.
“Ultimately, our goal is to provide a product our existing and new member base desires without the negative views associated with selling timeshare products,” said Doug. “Frankly, I’d love to be able to sell this at all of our properties in the U.S, but, from a marketing and state registration standpoint, our economies of scale make selling the products in Mexico more attractive.”
Continuing to grow in popularity, today’s travel clubs offer membership at varying time lengths, providing access to a wide network of vacation locations along with discounts on travel and lodging.
Global Connections Travel Club. While not selling a deeded timeshare product, Global Discovery Vacations offers varying levels of club membership, allowing members to float in and out by activating their membership for 12-month timeframes. The ‘active’ members have full access to Global Discovery Vacations’ benefits, from week-long resort condominium vacations to cruises to shorter stays and varying leisure benefits.
“Our members prefer the flexibility of this program,” says Melanie Gring, Chief Strategic Alliances, and Brand Officer, “because there is no long-term obligation. It is basically a one-year program with the option to activate placing GCI in the position of earning our members’ loyalty each year by offering exciting vacation experiences.”
Owner’s Travel Club from Panorama Travel Solutions. In 2021, Panorama Travel Solutions, part of Travel + Leisure Co. (formerly known as Wyndham Destinations) launched Owner’s Travel Club (OTC) to benefit independent timeshare HOAs and their owners. OTC provides free membership to timeshare owners with discounts on a wide range of travel options including lodging, cruises, car rental, and activities. For owners looking to enjoy the deepest discounts, a premium tier, a paid membership is available. OTC premium members enjoy the lowest rates available with up to 60% off published rates on lodging at more than 600,000 accommodations worldwide including branded properties, boutique hotels, vacation homes, and timeshare weeks for rent.
“Panorama solutions for HOAs including OTC, the Viewpoint timeshare management System, and OptiREZ revenue management help enhance the value of ownership, reduce delinquency while increasing resort revenue and reducing costs,” said Matt Brosious, VP of Business Development for Panorama Travel Services.
As the vacation ownership industry continues to evolve, the IRS and accounting rules will provide a difficult challenge for short-term products, particularly for public company developers. It is anticipated, however, that the industry may work to achieve some more business-friendly accounting rules in the future.
“The real sea change in our industry is the dramatic increase in the transferability of timeshare products that is taking place,” added attorney Rob Webb. “Today, many developers are allowing purchasers with no loan balance and fully paid-up assessments to exit their timeshare product more easily when they no longer need it. Timeshare must be a transferable product for many reasons. Ensuring that this happens will enable timesharing to continue to become a sought-after product with an even higher level of customer satisfaction than we now enjoy. I’m bullish about the future!”
William Guthrie, an attorney with Foley & Lardner, believes the preference for a short-term product will continue. “I think it is a developing trend for smaller companies. But more importantly, I believe consumer demand will ultimately drive the evolution of the timeshare product and its preferred length of use.”
Editor’s Note. A sincere thank you is extended to the highly respected industry professionals who provided valuable information for this story. Marge Lennon has been a publicist for the timeshare industry since forever. Contact her at Marge@LennonCommunications.com
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