Available Money Pumps Up Industry's Timeshare Growth

Despite a sluggish economy, timeshare growth continues to accelerate at a healthy pace. Specialized lenders, along with a new breed of financial institutions, continue to secure deals without missing a beat.

"Good deals are still getting done, but it's getting harder," said Jim Butler, chairman of Jeffer, Mangels, Butler & Marmaro's Global Hospitality Group, in Century City, Calif. "Clearly, timeshare growth is continuing. You are seeing every hotel brand get into it, even the upscale resorts."

And as long as consumer demand is strong, financing shouldn't be an obstacle for sustained growth in the fastest growing segment of the lodging industry.

"With more than three-fourths of timeshare sales financed, there is a significant amount of financing that needs to take place," said Jack Westergom, managing director of Manhattan Hospitality Advisors, in Manhattan Beach, Calif.

While Heller Financial and Textron Financial remain major influences, the recent bankruptcy of powerhouse timeshare lender Finova created a void. The financing landscape shifted, opening its doors to other financial institutions traditionally not focused on timeshare lending.

"It's somewhat in a state of flux because Finova is out," Westergom said. "There are a number of other financial institutions exposed to timeshare."

Bob Dennis, executive vice president of vacation ownership finance for Chicago-based Heller Financial, said the conditions are ripe for growing business.

"We're absolutely very active," Dennis said. "It's a very attractive market. Timeshare lenders continue to be bullish and active because of the comfort level of the quality of the collateral."

Dennis said that while Heller works with branded and non-branded developers, he agreed that brands have a competitive advantage over independents.

"It's fair to say that non-branded is a little choppy right now," he said. "Brands are a part of a larger company. They have the access and cost of capital is a competitive advantage for brands today."

Because of the geographical dispersion of timeshare development outside Florida, regional and local banks are stepping up and seeking potential deals.

"There is a broader, deeper demand for financing," Butler said. "It's in their [own] backyard."

Dennis said they work in tandem with smaller banks on many timeshare deals.

"Some smaller institutions are interested in participating because they see a nice return," Dennis said. "They are more inclined to make the real-estate loan [with] a larger specialized lender for receivables."

A better productWestergom said timeshare projects are attractive because of high yields and good rates and said the spread between lending and borrowing percentages is appealing.

During a recent project in Palm Springs, Calif., where lenders were attracted to the project primarily because of the mixed-use timeshare component, the lender recognized the vast incremental income it would bring to the bottom line.

"It probably wouldn't be financed if there wasn't a timeshare element," Westergom said. "Timeshare income is almost securing the financing for the hotel."

The industry's improved reputation and performance has made financing deals easier. Also, lenders are pleased to see mature businesses growing profits as well as sales.

"It's a better product," Dennis said. "Despite concerns and slowdowns with the economy, the numbers we see show that development continues. That's really been an important transition from revenue growth to margins and profitability."

Mixed-use projects typically are more favorable to lenders because of the multiple revenue streams, Butler said.

Brand power will continue to influence and legitimize the industry. In many cases, brands enjoy a competitive edge over smaller independents when it comes to financing.

"Lenders, consumers and investors see going with a brand as risk mitigation. Maybe it shouldn't be," Butler said. "Unfortunately, the industry still suffers from a 'fly-by-night, go bankrupt' syndrome. There is great comfort seeing brands, and there is a confidence critical to consumers and lenders."

Butler said brands that are contemplating entering the timeshare arena see big dollars.

"Brands are taking a long, hard look at timeshare financing and using it as another weapon in their financing arsenal," he said.