January 5th, 2011
Las Vegas based Diamond Resorts International® has been quietly expanding its timeshare holdings; continuing a trend of buying assets of bankrupt developers. Having established itself as a leader in the timeshare industry, with several successful Las Vegas timeshares including the popular Polo Towers, Diamond Resorts made headlines in 2007 with their purchase of the Sunterra Corporation, a developer with a long history of financial woes. By most accounts, the Sunterra acquisition was a successful one – providing stability for Sunterra’s 326,000 timeshare owners. In recent months, Diamond Resorts has set its sights on two more troubled developers: ILX Resorts and Tempus Resorts.
ILX Resorts is the Arizona based developer of ten resorts, including the Premiere Vacation Club at Los Abrigados Resort & Spa in Sedona. Tempus Resorts, headquartered in Orlando, Florida, is the developer of the Mystic Dunes Resort & Golf Club, located just 3 miles from the Walt Disney World® complex. Diamond Resorts’ plans have owners at both resorts wondering what to expect from the new management. If the Sunterra acquisition is to serve as an example, then Tempus and ILX owners should find themselves in good hands, but there will be changes…
Ownerships sold by both Tempus and ILX are “deeded” weeks, while Diamond Resorts’ vacation ownership product is a Club/Trust arrangement. Deeded owners will, or course, be able to retain their deeded weeks – but there will be enticements for Tempus/ILX owners to upgrade to the Club/Trust, and over time many likely will. This scenario highlights one of the paradigm shifts occurring throughout the timeshare industry: the move from deeded owner-managed resorts to Club/Trust developer-managed resorts. We’ve seen this trend with Blugreen, Festiva, Welk Resorts, and others, but what are the implications for the individual owner?
Real Estate Investment vs. Use Product
We’ve touched on this issue in previous posts: how should timeshare be perceived, as an investment or a use product. In the case of a deeded timeshare, owners are wise to acknowledge they have made a real estate investment. Once developer sales have ceased, the owners (through the HOA/POA) will be largely responsible for decisions regarding upkeep and amenities at their resort. This can be a double-edged sword, as resorts with an active owner base have been able to keep maintenance fees low and timeshare resale values stable, but resorts with unengaged owners often suffer from soaring costs and abysmal resale values. Ultimately, owning a deeded timeshare is a responsibility – one that few developers explain fully at the time of sale.
The Timeshare Club/Trust Concept
With a Club/Trust timeshare product, owners receive a true “use product.” While specifics vary from brand to brand, in a Club/Trust arrangement the timeshare is deeded to either the developer, or more often to a non-profit Trust created by the developer. Decisions about upkeep and maintenance at the resort are made by the developer or trustee. Since individual ownerships are not directly tied to real property, maintenance fees are calculated as a fraction of the aggregate upkeep costs of all resorts in the Club/Trust. In theory, this arrangement puts the entity with the most knowledge of resort operations (the developer) in complete control, and as long as the developer continues selling Club/Trust timeshares they have an incentive to manage costs carefully in order to attract new buyers. In practice, the results have been mixed; with some owners happy to have less responsibility, and others complaining of excessive maintenance fees.
Choosing The Right Form of Ownership for You
Owning timeshare, in any of its variants, is a smart choice for regular travelers – a means to save money, and a hedge against inflation (During the height of the recession timeshares remained over 80% occupied.) Both deeded and Club/Trust ownerships have advantages and drawbacks, and each family is different. If you’re considering buying timeshare, consider the level of involvement you want to have with your resort. A Club/Trust ownership represents a sharp departure from the ideal of timeshare – owning a fraction of the vacation home that would otherwise be unaffordable – but delivers on the promise of timeshare as a use product. For those ready to make the departure from deeded property, Diamond Resorts timeshare stands out as the clear choice!