Fractional ownership and timeshare players adjust their outlook

The old adage is true: the only constants in life are death and taxes and the certainty of change. Nowadays, few people understand that better than the developers, lenders and operators of vacation ownership properties across the country.

Less than a year ago, industry experts were predicting rapid growth in a burgeoning industry that earned $800 million and had 330,000 owners in Canada, according to Ross Perlmutter, president and CEO of the Canadian Resort Development Association (CRDA). Today, many insiders tell a different tale, and operators are so committed to keeping their businesses afloat that they don’t have the time, money or resources to devote to industry research, instead opting to pare things down and devote any free energy to customer research. “I’ve spoken to a lot of our people [and] sales are relatively flat; they’re consistent but they are flat,” says Perlmutter, summing up sentiments echoed in the industry where timeshare buyers opt in for an average of one to two weeks per year, compared to fractional owners, who pay slightly more for an average of five weeks per year for a maintenance-free vacation home.

The industry is changing and some companies are feeling it more than others. Wyndham Vacation Ownership took a hit when the asset-backed securities market froze, forcing the company’s “lifeblood” to dry up. “At the end of last year, in reaction to some of the financing challenges, we intentionally took our business down and eliminated a lot of our sales offices — a lot of the workforce that was really underperforming in some regards. Our sales went from $2 billion in 2008 [and] this year we’re setting a target between $1.1 and $1.2 billion,” says Alan Litwack, the senior vice-president of Strategic Development & Capital Planning for Wyndham Vacation Ownership, which counts some 800,000 owners in its timeshare system, including owners in Canada and the States. “We intentionally took it down by almost 40 per cent.”


David Gilbert also admits the market has fallen off. “It’s almost like things went off a precipice,” explains the executive vice-president of Resort Sales & Marketing, Americas for Interval International, a vacation exchange company that has a window into 2,400 affiliated resorts in 75 countries. “We had clients that were having their best August on record last year who are now having challenges. It really felt like everybody was riding along in a boat and then we came to Niagara Falls.”


But don’t grab your wooden barrel and head for the falls just yet. Jim Pearson, CEO, Victoria for Aviawest, sees a different picture in the capital of B.C. where, he says, the economy was never terribly bad. “Business is actually pretty good. On the vacation ownership side of things, our sales dropped about 15 to 20 per cent at the darkest times, but now they are back to normal levels,” he adds, speaking of his company that sells timeshare, fractional and full ownership.


Dianne Hounsome at The Cottages at Port Stanton near Muskoka, Ont., may have fewer marketing dollars to spend, but she’s staying positive and “looking forward” to being back in the market after a break from the industry last year. The developer and manager of 22 fractional ownership properties can only think of one owner who sold a five-week share as a result of the recession, and she’s not too worried. She knows how to position herself ahead of the competition. “The fractional market [is] an alternative to buying your own cottage, so it’s a less-costly alternative,” she says of her properties that are just an hour and a half outside Toronto. “Therefore, we might be [attracting buyers] that may have gone out and bought their own cottage in a different time.”


Everyone isn’t on the same page in that regard. Some developers are thinking of introducing smaller fractions to keep the price down for cash-strapped Canucks looking for a cheaper alternative to a vacation home. There’s just one caveat: “[Fractional ownership] branded themselves as ‘real-estate light’, and by doing that they sort of live and die with what’s happening in the real estate market, which is very soft right now,” Perlmutter explains. “Timeshare, on the other hand, has always positioned itself as an experiential product; it’s always been about families and vacations and togetherness and those things are recession-proof.”


But even timeshare agreements are being curtailed as more companies offer biennial packages or short-term products — a three-year test-drive, for example — so buyers don’t need to secure financing. “The hope is that they can upgrade those people into a full interest,” explains Interval’s Gilbert.


Clearly, financing challenges are continuing to impede this once robust sector of the industry. “All of our developers are saying that consumers are still interested in purchasing their product and they’re still making sales,” adds Gilbert. “The thing that’s inhibiting the quantity of their sales is access to capital.”


The stock market crash, tighter restrictions on lending and skyrocketing unemployment rates have affected both buyers and builders alike, especially in the U.S. In fact, evidence of such hardship is apparent in the number of developments that have stalled or been cancelled. This past May, shortly after its construction was completed, a portion of the hotly debated Red Leaves resort in Muskoka went into a court-ordered receivership. Condo-hotel projects in previously red-hot markets like Florida and Nevada have been mothballed and the Ritz-Carlton in Vancouver had its plug pulled, too. But, according to Perlmutter, those that can afford it — like the Trump-condo hotel in Toronto — are still beginning to break ground, and rather than cancel projects, some are being scaled back or opened in phases.


Marketing spend has also been tempered, but the news isn’t necessarily bad. You might think that the introduction of the national ‘do not call list’ late last year precipitated further setbacks for the timeshare industry, which historically secured a great deal of business through telemarketing cold calls, but the change has had positive effects as well. “When we’ve surveyed people, we’ve found their satisfaction of the product [is] extremely high, but if they have a negative opinion it’s about the way it’s marketed. Telemarketing was traditionally the way it was done — people would be called and they’d associate the product with that front-end telephone call,” explains Perlmutter. “So we’ve had to get smarter as an industry in terms of reaching the target market.” That meant introducing more relationship-based and Internet-based marketing.


For example, The Cottages’ Hounsome has been able to use the guest database from her sister resort, Bayview Wildwood, as a jumping-off point for a lot of other initiatives. “It’s just trying to strategize a little bit more,” she explains. “People look [online] for this stuff, so [it’s important to] optimize the [company] site, make sure that our signage is good so…it entices them to come in, instead of going in The Globe and Mail with a
big ad.”


And since financing is not contingent on her development, Hounsome has even been able to offer financing to her clients — which is an attractive bonus for today’s buyers. “I still find that most people try and do it on their own,” she explains. “But even just having that as an option is one less barrier to [consumers] thinking about having a vacation-ownership property as part of their lives. “


Not everyone can offer financing, but there are some valuable buying perks available for those entering the vacation-ownership market.  At Wyndham, buyers accumulate points to use as currency at the company’s many different properties; at The Cottages, there is access to front-desk staff, indoor facilities in the winter, entertainment and kid’s programs at Bayview Wildwood; and the benefits of offering exchange programs to vacation owners opting for a holiday in different cities or countries is an invaluable selling tool, a fact developers are keen to point out time and time again.


No matter how you slice it, things have changed for the long-term. “A lot of people have been caught in a compromising situation, meaning they have a lot of inventory on their hands that’s unsold or they just acquired things that have increased their debt service,” surmises Gilbert. “This is going to change how people do business for quite some time.”


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