Exam 1 Timeshare Notes PDF

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Principles of Resort Timeshare. Has all notes that belong in quizzes before exam 1 as well as exam 1...

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Chapter One: History of Vacation Ownership

The Beginning of Vacations  Early vacation homes: Summer Palace at Potsdam and Brighton royal pavilion The Growth of Timesharing and an Industry Trad Association  ARDA (American Resort Development Association) : trade association 1969 o ALDA (American Land Development Association) : forerunner of ARDA : address tough regulatory issues ffecting developers within the Interstate Land Sales Full Disclosure Act (ILSDA) o ILSDA: passed by congress in 1968 to correct abuses in the interstate land sales industry  This caused large groups of recreational developers to join ALDA to combat some of the laws tough provisions  ILSDA required developers of subdivisions with more than 50 lots and sold interstate to register with the U.S. Department of Houseing and Urban Development (HUD) and provide buyers with a property report as part of the sales process. o Gary A Terry: ARDA’s founder and organizations first president o ARDA has two political action committees: Political Action Committee and Resort Owners Coalition o Political Action Committee : developers o Resort Owners Coalition: timeshare owners  1970s: Resort Condominiums International (1974) and Interval International (1976) o Exchange companies led to blossoming of the vacation ownership industry  Association of Real Estate License Law Officials (ARELLO) to develop a model timeshare act which was completed in 1983 o Recognizing and permitting timeshare resorts, requirements for delivery of disclosures, provisions to aid in consumer protection (false advertising)  1970: First national land conference o ARDA annual spring timeshare convention and exposition o 1978: launched Developments a newletter  1980: Marriott entered vacation ownership in 1984 o Disney joined in 1992 o Hilton joined in 1994  Vacation ownership now had more credibility by association and with branded lodging heightened level of hospitality standards  Challenges: o Sales practices o Minimum product quality standards o Tax reulings with respect to right-to-use concepts

1984: ARDA shephered through congress a series of federal amendments that protect timeshare and camp resort owners in case the resort developer encounters financial difficulties  1986: ARDA discouraged the U.S. Labor Department from changing it traditional view of outside sales personnel as independent contractors  1986 Tax Reform Act: ARDA succeeded in preserving the second home mortgage interest deduction and obtained language which specifically included timesharing in the definition of property types eligible for deduction o Installment sales treatment (enhances developers cash flow)  1980s: timeshare bills o 1983: one or more bills to regulate the timeshare industry o 1985: some form of timeshare laws and regulations on books  Texas being last major state to fall into place  1986: Code of Standards and Ethics : voluntary commitment by ARDA’s corporate and individual members to conduct their business by the rules of high professional standards and provided for a review process and sanctions for failure to comply with the code.  1988: Educational Institute (AEI) (now part of ARDA International Foundation): enhance knowledge and professionalism o Industry qualification exam and study guides > timeshare industry resource manual  Vacation Clubs (1990s) : Model Vacation Club Act: what sites had to register in each state, how to give consumers useful information and can a resort be substituted or delted  Major Issues o Increased taxation to amendments and revisions of existing timeshare laws o Florida became the first state with comprehensive regulation of vacation clubs Trials and Tribulations of Growth  1974: resort Condominiums International (RCI) o Lenders and state regulators were more comfortable loaning money to developers who sold a traditional and recognizable real estate product o Regulators pushed developers to sell deeded interests  Three federal agencies that influenced evolution of timeshare: o Federal Trade Commission (FTC)  Combating unfair and deceptive practices in interstate commerce  Prohibiting marketing practices o The Securities and Exchange Commission (SEC)  Vacation ownership is not an investment o The Internal Revenue Service (IRS)  Allowed developers to treat deeded interests as installment sales, but did not permit this for right-to-use products  Tax consequences from developers perspective favored deeded interests The Industry Adapts Post-Recession  The great recession (2007) 

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o Credit availability reduced o More stringent loan requirements o “used” timeshares Legacy Resorts (HOA controlled) o Develop and deliver free products o Cease to exist

Chapter One Videos History of the Timeshare Industry  70 billion dollar industry  Supported by largest brands  23 million income annually  Time share: 1960s condominium developers o More profit to sell 1 condominium several times at lower price o Single buyer will not use for entire year o More buyers to buy at lower price o Own vacation o Timeshare concept born  Vacation ownership: owner purchase time (1 week) at resort o Upkeep and maintence o Mortgage and deed o Titlement to the realestate, resort improvement, fit and finishing, portion of amenities, period of time to use o Occupancy is high compared to traditional hotel o Even in low or off season> usually owned or occupied o Efficiency is up  When they are not using the timeshare> they can opt for a different type  When they are not using still make revenue by selling the rooms  87% of timeshare owners are satisfied  Reputation: unforgettable vacations  Mass marketing effort: not a lot of strategy  Look for: subsets in groups that allow to expand and increase customer satisfaction  Back then: older family type places o Now: going after younger demographics o Flexibility: exchange points within system o Great recession (2008-2009): forced to go back and rethink o Booking windows shrunk o Next future event: co branding (jimmy buffet margarita grill themed resort)  Vip fan club: first opportunity o The Big Players in Timeshare  Developers/management companies o 95% of industry sales o 75% of property management  Wyndham Vaction Ownership o Largest timeshare company : sales, volume, location, owners  Marriott Vacation Club o “pure play” timeshare : only in the timeshare business

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Hilton Grand Vacations o Leverage Hilton brand affinity as primary target Holiday Inn Club Vacations o Orlando’s Orlange Lake Resort o Largest timeshare in their system Disney Vacation Club Vistanna Signature Experience o Known as starwood vacation ownership acquired by interval leisure group

Timeshare Company Rankings 1. Wyndam Vacation Ownership 2. Marriott Vacation Worldwide 3. Hilton Grand Vacation Club 4. Starwood Vacation Ownership 5. Holiday Inn Club Vacations  highest annual sales volume

Chapter Two: Resort Products, Amenities and Services Land Planning  combined engineering, architectural and sociological insights  before land planning: o developers were forced to design their own developments  tasks: maximum use and value of property o locating residential units and amenities that best fit  developer, executives: marketing, sales, and operations should all be involved  Focal Point: Clubhouse o Pool, tennis courts, restaurant, spa o Check in or registration desk o Create a positive welcoming first impression  Gold course: primary amenity o 18 hole course centerpiece o Access to enough irrigation o Some irrigate with treated effluent from a nearby water treatment plant  Architectural, engineering, legal, financial considerations > all conform to the land plan Physical Design of Purpose-Built Units  1980s: two bedroom two bath (6-8 people) o Urban resorts: one bedroom (4-6 people) o Studio: (2-4 people)  Lock Off: units of two or more bedrooms and at least two bathrooms o Up to four bed/four bath o Larger units designed to function as two discrete units o one party may occupy the living room and one or two bedrooms, while other uses remaining space  allows owners to spend two separate weeks in a year at their home resort, one in the main portion, other in the lock off  All purpose units: luxury o Full kitchens o Washer/dryer o Interior design:  Bright/bold primary colors, vivid color contrast, lavish furnishing, fabrics, wall covering, lush arrangements Physical Design of Conversion Units  Mixed Use Property: hotelier continues to cater to traditional resort guests while also designating specified resort units for timeshare purchase  Conversion project: shell of existing structure must remain intact o Standard: long rectangle o Conversion:  One bay for a studio unit  Two bays for a one bedroom unit

 Three bays for a two bedroom lock off Physical Design and Utilization of Public Spaces  Public Spaces: hospitality areas (lobby, owners lounge, library, game rooms, restaurant/bar, convenience shops, internet access center)  Condominiums: “common elements”  Outdoor landscape: water features, sculpture, lighting Resort Amenities  Indoor/outdoor swimming pools, spas, private beaches, golf course, tennis/racquetball courts, ski lifts, bicycles, equestrian, boats, marina, fishing, shopping, gourmet dining, theaters,, nightclubs, shuttles to attractions Reception Area Design  Warm welcoming friendly  Large , not so large guests feel lost  Consistency is important Sales Area Design  Key Elements: o Tables o Chairs o Lighting  Large windows, glass doors  Indirect ambient lighting incandescent lighting o Wall décor  “wall tour” : explain vacation ownership o Climate control o Ventilation  Smoking limited to designated areas o Acoustics  Enhance person-to-person communication  Tiles, carpeting, draperies, wall hanging, upholstered furniture to soften sound  Background music should be soft and unobtrusive Stratifying the Vacation Ownership Product  Geographical types: beaches, historical landmarks, waterways, mountains, theme parks, attractions, urban areas, downtown centers  Product types and tiers: type of amenities and services o AAA rates o Exchange companies have own ratings (II) and (RCI)  Developer must comply with the exchange company inspection process  Receive a quality rating o Two different rating systems  RCI Rating: high standards: quality, hospitality, housekeeping, property management, check in/check out, processes, resort amenities, unit amenities, guest services o Amenities: unit amenities, unit interiors, kitchen amenities

Schedule Design and Use  Fixed, floating time, or points  Fixed Time: purchaser owns the same timeshare week in the same unit each year o 50-51 weeks per year o Reserving remaining for refurbishments, repairs, maintenance, deep cleaning o Roatate their unit maintence through the year o Smaller resorts shut down each year for maintence o Some invite owners to help  Floating Time: owners are not assigned particular unit and week, but own a type of unit o Must reserve each years vacation time on a first come first serve o Owners week may float within particular season o Others let owners come any time of the year o Some can split their week (New Orleans, San Francisco)  Points: ultimate flexibility o Buy points based upon their estimated vacation needs o Use them any time of the year o Resort accommodations are assigned a point value  Based on unit size, length of stay, location, season o Issue: whether developer may increase points required for a destination or property o Rules :  Full complete disclosure  Total number of points per unit may not be changed for the term of owners membership  Max number of points may not be increased during term  Point system must be legally protected in case of failure  Be able to reserve far in advance  System blance supply and demand  Staggered reservation periods in plan years  Relative pricing (usuage holes > slow times, deals)  Carryover use rights (banking/borrowing points from year to year) disclosed  Members should be able to see for themselves and reserve accomodations Fractional Time  intervals longer than traditional timeshare week  Twelfths (four weeks a year): week in each four seasons  Tenths (five weeks a year)  Quarter (12 weeks in some years, 13 weeks in others)  May or may not be consecutive  Amenities: restaurants, business center, beauty salons, gymnasium, swimming pools, spa, laundry, supermarket, banking service, car retnal  More like purchase of luxury home

 Divide their time by their own personal use, exchange, use by friends or business History of Legal Design  Historically: deeded ownership product/right-to-use produce  Now: more complex to meet consumers desires for flexibility and regulatory requirements for protection  90% : sold inventory on a deeded ownership bases o Condominium: each owner of a unit week receives a deed of ownership  Title insurance  Owners can keep their unit forever, rent them, sell them, or convey them in a will  Points-Based Offerings and Trust Structures  Undivided Deeded Interest Product: purchaser receives real property interest not only in the timeshare unit but also in the entire project itself o Undivided interest o Receive a percentage interest in the entire timeshare property  Right-To-Use: providing owners with a contractual right to access property for a specified amount of time o No ownership of the underlying real estate to the purchaser o Developer retains title to property o Buyer receives use rights The Trust Structure  Todays Timeshare: Convey the title of timeshare property to a trustee: holds the title in trust for the benefit of timeshare purchasers o More favorable for tax and accounting  Timeshare buyer: “interest owner or holder” and receives “beneficial interest in the trust” and NOT in property itself o Beneficial interest entitles: use rights in developers properties held in the trust o Interest owner: special use and priority reservation rights in a “home resort” in a multi-site timeshare plan or may have rights in all resorts with no priority reservation rights  Must make reservation to use timeshare (Florida)  Beneficial interest: considered to be an interest in real property and treated like deeded ownership interest  real estate is owned by independent trust, serves to protect consumer purchasers from bankruptcy or misconduct by developer  Owners Association or Cooperative Corporation: buyers use rights are part of the membership o Less common than trust st  21 century: trust structure popular  Legal standpoint: multi-site plans are: o Specific: buyer has home resort with a priority reservation right o Non-specific: buyer can use any resort in the plan without priority  Points overlay to provide access to all of plans resorts and services

Ancillary Product Offerings  Exit Programs (1980s): recapture part of developers marketing cost by selling a package of discounts on travel related products and services to prospects that did not buy a tieshare 1. Short term products 2. Resembling original exit program offering with addition to experience developers main vacation ownership product (timeframe 6 months-2 years) 3. Now called: ED SAMPLER PROGRAMS 4. Short term: one week of use at timeshare resort > opportunity to apply the short term product to the purchase of a timeshare interest (even if purchaser does not buy timeshare interest)

Chapter Two: Video The Timeshare Business Model  Individual consumer owners own real estate, responsible for maintance, upkeep  Four Legged Stool : multiple revenue streams 1. Real Estate Development Marketing and Sales  20% sales price> developer  Average: 125 units, 52 one week intervals, $20,000 per interval = $1,040,000 2. Operations and Management  Owners pay annual maintence fee  Services: billing and reservations, front office, activities, engineering, housekeeping, property management, refurbishment  Collective management fees > hire property management  Oversee all services, revenue, management  Fee (10%-20% timeshare maintence fee)  Average $850  Revenue $85-$170/ owner week unit  Annual: $750 K 3. Loan Financing  Cant get enough loan for timeshares  High interest rates 4. Mortgage Bank  Internal mortgage by selling future loan receivables  Handle and sell loans  Investors buys payments at reduced rates  Low default rates, high interest rates  High household income  Pull documents together, finding investors, presentations, watching the market The Timeshare Resort Products  New products and programs  Trends in what customers are looking for  Survey owners > focus groups > sales and marketing leaders  Product management and relationship driven  Works in a lot of departments ARDA Spaces Infograph  1 bedroom: 700 sqft  2 bedroom 1,160 sqft  3 bedroom: 1,590 sqft  61% of all timeshare units are 2 bedrooms  9% have 3+ bedrooms

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350 sqft the average size of hotel rooms 91% of vacationers said kitchen improved experience (saved costs)

ARDA World of Options Infograph  Vacation Where you want: o Beach, mountains, urban, country, desert  Vacation How you want: o Experience new cultures o Explore new places o Visit new desinations each year o Reconnect with loved ones in a familiar place  Vacation When you want: o Use points for resort stays, exchange them for discounts on a cruise, airfare, hotel rooms  Variety is the Spice of Life: o 1,2,3+ room units o Health/spa o Eat in kitchens o Fitness programs o Laundry o Adventure style packages  Better Way to vacation: o Hardest part is choosing where to go o Space for privacy o Variety of ownership options easy to customize vacations the way you like

Chapter Three: Regulatory Environment Introduction the Regulatory Environment  Federal trade commission (FTC) : most active regulatory role in the industry through Federal Trade Commission Act o Relating to the sales and marketing practices  Other federal laws: o Securities Act of 1933 o Truth-in-Lending Act o Regulation Z o Equal Credit Opportunity Act o Regulation B o Interstate Land Sales Full Disclosure Act o Civil Rights Acts of 1964 and 1968 o American with Disabilities Act  FTC 2 Main Concerns: o long term maintenance and management duties of the resort developer, as they affect the purchasers abilities to use the product as represented o marketing and sales offerings describing the availability of services and facilities  “little FCT Acts” : all US states have similar laws o Can impose different/higher standards/prohibitions o No lower standards than federal statues o Administered by states Attorney General Office What Are Unfair and Deceptive Practices?  Deceptive: an affirmative misstatement of fact (statement that is untrue or leads a person to false conclusions) o Exaggerating quality of units o Inaccurate statements about timeshare exchanges o Misleading consumer about titles and ownership o Misrepresenting availability of recreational facilities and services o Offering premiums, prizes, lodging, arrangements that are not delivered o Implying that a disclosure document w/a government agency indicates agency approves company/products  Unfair: commission has clear mandate to challenge practices on the basis that they are unfair, even if no deception is involved o Causes consumers to lose substantial sums of money even though they acted reasonably o Offends public policy o Immoral, unethical, oppressive, unscrupulous o Causes injury  Consent Orders (company does not admit wrong-doing but agrees to follow requirements): These are noted as “Unfair” o Failing to tell purchaser true nature of promotional events

o Failing to inform consumers they are entering a legally binding obligation o Using “relay selling” or “repeat attacks” o Discouraging purchasers from seeking independent legal or real estate advice o Filling out sales contracts in advance of consumers decisions o Failing to disclose all materials o “staging” activities at promotional events > false impression  Up to $10,000 for each violation Prospect Acquisition/Lead Generation  1988: FTC: investigation of “vacation certificate promotion industry” : companies that offer consumers free or low cost vacations/gi...