Pick Your Plan
Don’t let association-owned inventory drag your resort down!
It’s admittedly a situation no resort manager wants to face: an excess of association-owned inventory with no one paying the maintenance fees. Unfortunately, older resorts with an aging owner base are increasingly facing this dilemma.
Left to fester too long, the income shortfall will mean the association can’t fund reserves, do renovations or possibly even pay staff. So, what’s a manager to do?
Everyone seems to agree that the best long-term plan is to find new owners for the inventory, which means investing in a sales plan. However, it probably took years to get into this situation, so it will take years to correct it.
In the meantime, industry experts Michelle DuChamp, head of partner services at Vacatia, and Joe Takacs, president and CEO of TheMVPService LLC, discuss the advantages and disadvantage of various strategies that can buy your association time while the preferred plan comes to fruition.
Bulk Lease or Sale
Some resorts have entered into contracts to either lease or sell a large group of intervals to one owner, usually a vacation club or travel company. Each approach, selling or leasing, has advantages and pitfalls.
When it comes to leasing the inventory, “the advantage to an association is that the association usually retains the voting rights for those intervals,” Takacs says. “The disadvantage is that when the lease contract ends, the lessee may not renew, meaning the association is once again responsible for the maintenance fees on those units.
Another issue is that the lessors may ask for reduced maintenance fees on those leased intervals, which means other resort owners must pick up that difference.
Takacs has leased inventory blocks from several resorts for a short-term travel product he created. “I match the lease term to the club membership, which is generally three years. Members have the opportunity to renew for a set fee, or they can walk away.”
The same can be said however of the vacation club or travel company that leases inventory; they can simply walk away, too.
“Even if that lease does come to an end, there is still an advantage to a resort in that they have had those maintenance fees paid over the lease term,” Takacs says. “You have kicked the can down the road, and hopefully start a sales program for the rest of the association-owned inventory, so they have bought themselves some time.”
Another option is to sell rather than lease the inventory, a process Takacs has also enabled with several bulk buyers. “I’ve done about 25 of these deals over the past 10 to 15 years,” he says. “The obvious advantage is that you can sell a lot of units at the same time and those bulk buyers are usually financially able to step up and start paying fees right away.”
For Blanch Morrison, general manager of Ocean Landings Condominium Association in Cocoa Beach, Florida where MVP has been onsite selling since 2008, the opportunity to sell 924 association-owned weeks in a single transaction was appealing. “Due to foreclosures, we had built up a growing inventory of weeks, and it was a burden on the other owners,” she explains. “We definitely liked the idea of the buyer being responsible for those maintenance fees.”
Takacs assisted with the bulk sale, but Morrison says the association also did its own due diligence. “It’s a relief knowing that those maintenance fees will be paid,” she says. “It’s one more thing off your to-do list, and everyone appreciates that.”
Proper and thorough due diligence is important for any association before taking on a partner that will control a large portion of resort ownership. “The new owners, just like all owners, have the voting rights to those units,” Takacs says. “If one owner has a chunk of inventory and has their own agenda, they might want to steer a resort in the direction they prefer. They can push for higher maintenance fees to fund improvements or resist them to save money. While usually not the case, you have the potential for conflict; but with proper communication working with a large block of ownership is more often a good thing in the big picture.”
Of course, if the vacation club or travel company fails and defaults on the inventory or even a portion of what they bought, your resort will get a large group of intervals back all at once, but again, the resort has had the maintenance fees paid up to that time.
Rentals
Instead of a bulk sale or lease, accelerating rental efforts can help sustain association budgets until individual sales reduce association-owned inventory. “Our goal is always to have a fully subscribed resort with an active owner base,” DuChamp says. “But often when we come in as the management company, that’s not the case, and resorts struggle with covering the cost of operations with just owners of the subscribed weeks. Our initial solution is to leverage Vacatia’s expertise to maximize rental income to replace unfunded maintenance fees. This provides immediate relief to bridge the operational gap until additional sales happen.”
She advises that resorts focus on accessing multiple distribution channels with an engaging presentation so that consumers know you exist and appreciate the true value of what you have to offer. “Research suggests that one-third of legacy resorts don’t distribute their unused inventory to online rental websites, and among those who do, many fall short when it comes to the staffing and maximizing usage of technology to make the most of their rental potential. Many properties are 30 to 40% defaulted when we assume management and not nearly offsetting the loss of fees with rental income.”
Begin by ensuring inventory is visible on all the major online booking sites, dynamically pricing inventory, and investing in technology to ensure stays aren’t double-booked. Vacatia distributes through hotel-centric OTAs such as Expedia and Booking.com, as well as vacation rental platforms like VRBO. Their proprietary site is Vacatia.com, which the company built to extol the virtues of timeshare rentals. “At Vacatia.com, we can properly merchandise the advantages of renting at a timeshare resort and control the consumer experience from start to finish, which leads to greater consumer satisfaction,” DuChamp says.
Professional resort photographs and stimulating resort descriptions help motivate browsers to book. Once guests are onsite, create a truly welcoming experience combined with spotlessly clean units and common spaces to generate positive online reviews.
Some resorts that thought they were doing a good job with rentals have seen big increases in rental income since bringing Vacatia on board – Scottsdale Camelback Resort reports that rentals are up 44% year over year in the first four months of 2023. “Resorts that had neglected rentals have seen increases of upwards of 200%, which can help assure their long-term survival,” DuChamp says.
Even sold-out resorts can benefit from a rental program because owners who can’t use their interval in a given year will have a way to cover their maintenance fees. Such programs have the added benefit of providing exposure to potential future buyers. “The best prospects for timeshare sales are previous guests who enjoyed their stay and want to return,” DuChamp says. “That’s definitely a winning strategy.
Judy Kenninger is principal of Kenninger Communications and has covered the vacation real estate industry for two decades.
