Timeshares are a-changin'

16 October 2003 by
Timeshares are a-changin'

A joint income of between £35,000 and £40,000, mid-30s upwards, and maybe with young kids - does this sound like a typical timeshare owner? Most people would think not. But Marriott Vacation Club International (MVCI), part of Marriott International, thinks otherwise. This profile is precisely the type of person that Marriott is lining up to buy timeshare - or, as it prefers to call it, "vacation ownership" - at its recently opened Village d'Ile-de-France at Disneyland Resort Paris.

Along with other hotel companies such as De Vere, Hyatt, Macdonald, Accor, Four Seasons and Starwood, Marriott has seen the value of utilising space for timeshare ownership. In fact, timeshare is now the second-largest revenue stream under the Marriott umbrella after Marriott Hotels, and the company operates 52 timeshare resorts in 29 locations in seven countries, with 5,200 apartments and more than 210,000 holiday owners worldwide.

But we're not talking just all-singing, all-dancing US resorts with several swimming pools and championship golf courses. The Village d'Ile-de-France is a relatively low-key operation with tasteful townhouses, each inspired by the rural residence of a different French Impressionist painter. When complete in 2005, the resort will have 190 two-bedroom, two-bathroom townhouses, each providing 105sq m of living area that will accommodate up to six guests.

Hooking people in and overcoming the well-documented tarnished image of timeshare is obviously the key to success. And there's a desire to get away from the hard sell so traditionally associated with timeshare.

"We spend time with people and take them through it step by step," says Tom Groeninger, MVCI's regional vice-president marketing operations Europe, Middle East and Asia. "If we went in on the hard sell, we would be lost. We explain all the benefits and don't go into costs until towards the end of the presentation."

So how do you persuade people to part with that sort of money and commit themselves to - in the case of the Village d'Ile-de-France - 80 years of ownership?

Deep sofa
Welcome to the sales pitch. We'll sit down on a deep sofa to discuss it, one that's difficult to get out of. That's because Marriott wants you to be in a comfortable and non-threatening environment.

Let's start with current holiday patterns. How much do you spend on vacations each year? Do you have children and, if so, how old are they? If you traditionally go to a hotel, will you soon need two hotel rooms to accommodate them because they are outgrowing the concept of rollaway beds in the parents' room? That might soon prove rather expensive. With timeshare, you pay for tomorrow's holidays in today's currency.

We'll move on to consistency now. With timeshare, you know what you are getting, as opposed to taking a chance by choosing different accommodation each year that may not be of the standard you require. And because you pay an annual maintenance fee, you can be sure that the company you are buying from will reinvest the money in the property over the years.

Vacation exchange
Not yet convinced? Not keen to spend one week of every year in the same place? You don't have to. You don't have to commit yourself to the same week each year, only the same season for which you have paid. And if you really don't want to do that, you can swap your week - at a price, of course - through a third party such as Interval International or RCI, which specialise in vacation exchanges. You can even exchange your week for hotel stays, cruises or other benefits, depending on how the timeshare is set up.

Now to the emotional part: as the tenure in this case is for 80 years, you can bequeath it to someone else, perhaps to your children or grandchildren. Finally, cost. Prices at the Village d'Ile-de-France range from £9,300 to £18,900 per week of ownership, and Marriott will arrange financing. Purchasers typically take out a 10-year loan when buying one week, or a 15-year loan for two weeks. There's also an annual maintenance fee to pay: in the case of Disney, a fairly hefty £600. You get the picture.

Of course, not everyone buys. Even so, Groeninger estimates a surprisingly high immediate take-up of 15-20%. "If visitors say they'll go away and think about it, then they generally don't come back. If you don't get them on the day, then you're lost." But even those who say no are contacted after the event and asked what impression they left with, another move to buoy up timeshare's tarnished image.

Having got this far, operators are rubbing their hands with glee and gazing at the bank balance. So how do they make their money? Some benefits are obvious, some less obvious. The two parties involved are usually the developer and the operator, although in the case of the Village d'Ile-de-France they were one and the same, as Marriott, although usually only a management company, puts up money for timeshare development because it is so profitable.

For the developer, who typically takes a 20% development profit, cash-flow is boosted and debts can be quickly cleared and turned to equity. A separate management company or operator may then come in to run the property on behalf of the owners, taking a cut of 10-15% of the annual maintenance fee. Once all the units are sold, that operator gets guaranteed high occupancy rates and does not have to prepare for the peaks and troughs of normal trading. Units are usually sold for only 51 weeks of the year to allow for essential maintenance. And there's a further profit to be had on arranging the financing. In the USA, for example, Marriott underwrites and services the loans.

Higher spend Less obvious benefits include higher spend from timeshare guests, who tend to spend more as they have paid up front. They also visit more often than hotel guests: owning two or more weeks is not uncommon in Marriott's experience.

Operationally, timeshare complexes are more cost-effective than their hotel counterparts, too. Whereas a hotel room typically takes 30 minutes to clean, villas in the Village d'Ile-de-France receive a daily tidy of about 15 minutes and a full clean once a week of about two-and-a-half hours per two-bedroom unit - and that means fewer members of staff.

So what happens at the end of it all? In the case of Marriott, the resort asset is held by a trustee. At the end of the usage life - 2082 - the trustee will dispose of the asset on behalf of the holiday owners rather than Marriott. Proceeds are then distributed, net of discharge costs, among the holiday owners.

Why timeshare isn't just for the big boys

If you're not part of a large hotel chain, you might understandably think that timeshare is not for you. You could be wrong. Earlier this year Gleneagles sent shock waves through the industry by entering the timeshare market with a £25m development on its 850-acre Perthshire estate. Managing director Peter Lederer concedes that timeshare is still a dirty word to some people, but he points out that its image is changing dramatically as more quality operators enter the market. Lederer predicts that there will be increasing demand for timeshare-style developments as people change the way they use their leisure time. "Rather than buy one or two holiday homes, people will have different real estate products in different locations."

According to David Clifton, managing director Europe, Middle East and Africa for Interval International, which manages timeshare exchanges, the principles are the same whether you are part of a 150-strong chain or just a single unit. "You need some basic facilities; and timeshare is not a panacea for a failing hotel, but it can work for most types of hotels, either in the city or in the country," he says.

Clifton could be described as a timeshare junkie - he used to own six weeks of timeshare; he's now down to two. A former builder and marketer of timeshare in the USA, Clifton recalls that he ran a mile when an acquaintance first tried to get him interested in the timeshare market. "I nearly just walked away, as the image was so bad then. But the more I looked into it, the more I realised it all made sense." As a consumer of timeshare, Clifton says that one of the most attractive elements is paying up front. "It's a huge advantage when you haven't got a bill to pay at the end of the week. A typical timeshare guest spends 15-20% more per day than a hotel one."

Of course, you don't have to give your entire hotel inventory over to timeshare. In many places it can happily coexist alongside a traditional hotel structure. A 100-bedroom unit could, for example, take 20 suites out if its inventory and render them suitable for timeshare, creating a separate timeshare division.

Depending on how the structure is set up, at the end of the timeshare "right to use" period operators regain the asset and can either resell it for hotel use or enter a further period of timeshare.

Clifton is convincing, knows his stuff and can talk for hours on the subject. But, tellingly, the statistics may reveal an audience that has yet to believe. In the USA, timeshare has been sold to only 5% of income-eligible households; in Europe that figure is more like 2.5%.

Timeshare trivia

  • "Don't rent the room, buy the hotel" was the slogan used to sell the first timeshare scheme in 1964 at Superdevolvy in the French Alps. From its start in hotels, timeshare moved to the USA, and especially Florida, where it was used to sell condominiums during an economic downturn.
  • There are more than 5,000 timeshare resorts worldwide, accommodating more than four million timeshare-owning families.
  • Year-round timeshare occupancy is estimated at more than 83%, compared with about 60% in the hotel industry generally.
  • The average number of weeks owned per holiday owner is 1.6.
  • There are some 1,400 timeshare resorts in Europe, 40% of which are in Spain, followed by Italy and France.
  • The USA has 32% of all timeshare resorts.
  • For more information on the law surrounding timeshare contact the Organisation for Timeshare in Europe, timeshare's official trade body, at www.ote-info.com.
  • For more information on exchange programmes and how to get into timeshare contact Interval International at www.resortdeveloper.com.

What to tell your customers

  • Buy tomorrow's holiday in today's currency.
  • Know what you are buying/consistency.
  • A legacy that you can leave to children or grandchildren.
  • Flexibility to exchange weeks for a small fee through a company such as Interval International.
  • Peace of mind that the operator will upgrade the facilities over the years through the annual maintenance fee.

Hospitality company and developer motivations

  • Highly profitable business.
  • Reduced debt and equity requirements.
  • Speeds up cash-flow.
  • Mixed-use developments become more feasible.
  • Many synergies with conventional hotels and other businesses.
  • Higher year-round occupancies than most hotels.
  • More resilient during economic downturns.
  • Brand building (customer loyalty).
  • Potential exit strategy for overbuilding.
  • Competitive pressure.
  • Significant sales and marketing advantage.
  • You "own the customer for life".
  • Asset retention at end of use period.

Timeshare profit centres

  • Development profit plus 20%.
  • Finance profit.
  • Resort management profit - 10-15% of maintenance fees.
  • Inventory rental program profit.
  • Higher occupancies.
  • Timeshare owners come back more often, stay longer and spend 20-30% more than hotel guests.
  • Brand loyalty - sell them other things.
  • Regain use of the asset at end of right-to-use programme.

Source: Interval International

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