Success Keeps Timeshare On Top Of Investors' Minds

"Options create opportunity" will be one theme at a panel at the fifth annual Americas Lodging Investment Summit in Los Angeles, Jan. 23-25. The panel will focus on developing and creating successful timeshare, fractional and vacation club ownership projects, according to several members of the panel.

The very name of the panel demonstrates the diverse and growing number of products in the category, with some companies offering a variety of vacation-ownership options within their own portfolios. "There are a lot of different product types out there now," said John Burlingame, executive vice president of Hyatt Vacation Ownership. "That can make the product complex for a developer. But it also creates opportunities to educate customers. The complexity stems from the flexibility which the product has attained."

"With all the products now available, an investor can hold a sort of mutual fund of resorts, and would be able to turn on or off different faucets of investment to maximize any particular trends in seasonality, markets and other variables," said Howard Nusbaum, president and c.e.o. of the American Resort Development Assn. Matt Avril, president and managing director of operations for Starwood Vacation Ownership, said the company offers a variety of options to consumers.

"We can now offer not only multiple brands under the St. Regis, Westin and Sheraton, but we can now offer both fractional ownership and vacation club products," he said. Another choice for investors, Avril said, is to invest with a branded or unbranded company.

"They have to research and understand what the keys to success are for a new developer," he said. "There will always be a place for independent companies in vacation ownership, but developers now have a rich choice of branded products."

Panelists said that timeshare products meshing with current demographic trends are making the industry appealing to many investors.

"Our industry is benefiting from the confluence of several trends: the affluence of our demographic target, greater understanding of the product, and the customer's desire to have a second home experience without the obligation of a purchase," Burlingame said. Nusbaum agreed.

"The first baby boomers to turn 60 do so in 2006 and that will mean a new level of population for the affluent, retirement community," he said. "But they are an active group who like to play tennis and ski, and are looking for places where they can remain active." Interest is strong among investors, according to panelists. "People are always interested in this business," Burlingame said. "They are eager to know out what new opportunities are available."

A question that is sure to emerge at the panel, Avril said, is what constitutes an attractive geographic market and what markets will be successful in the near future.

Financing does not seem to be an issue when it comes to developing timeshare products, but it is expected to be a subject of discussion during the panel.

According to David Wisen, president of resort finance for Textron Financial, questions will arise concerning: how financing for timeshare and fractional projects differ from a traditional hotel loan; how do you structure timeshare and fractional financing; what should a developer keep in mind when requesting financing- "[Capital markets] have accepted timeshare assets, so there will be more and more capital markets execution which will reduce relative rates for borrowers," Wisen said.

Nusbaum said the industry enjoyed more than $8 billion in sales in 2004, and has crossed the bridge from being a niche market. He said Bear Stearns published a report earlier this year showing that the industry now stands as a solid investment in both publicly traded hotel companies and publicly traded companies that are not affiliated with hotel brands.

"Developers are in a position, as in the hotel industry, to enjoy economies of scale by investing in a variety of products," Nusbaum said.

Burlingame cautioned investors to be careful. "Developers are enamored of selling a $20,000 item 50 different times," he said. "That sounds good, but there are so many things that need to be done right."

Wisen said that new products add to the complexity of timeshare. "The introduction of new products such as nonequity destination clubs and condo-hotels will attract the interest of regulators," he said. "Watch for significant developments in the next couple of years."

All responding panelists see their companies and the industry as being in a growth mode. "Timeshare growth will continue for several years as demographic trends indicate," Wisen said.

"Even if you come to this conference as a hotel investor or an institution who wants to learn about the hotel industry and do not consider yourself interested in time share, you will want to understand this product because it has become a part of the mix," Nusbaum said.