The recent credit crisis forced the timeshare industry to downsize and retrench. It has also served to highlight flaws in the basic timeshare business model which are represented by a dysfunctional resale market and the effect of maintenance fee delinquencies on sold-out resorts.

The timeshare business model has evolved over the decades, but still essentially reflects this simplified chain of events:

• Developer selects a development site
• Project is constructed and sold
• Management and financial liability is passed on to a homeowners association (HOA)
• Developer may or may not retain control or financial responsibility of common areas or amenities.

It is not uncommon for HOAs to struggle to keep pace with the natural attrition of dues-paying owners due to death, divorce, disinterest, relocation, or unemployment. Resorts in less desirable vacation destinations and resorts that have been subjected to deferred maintenance add a whole new dimension to the problems associated with natural attrition. The result? In the course of researching these issues, Trident Business Management spoke with GMs at self-managed resorts and leaders of large property management companies, and discovered maintenance fee default rates in the 25 to 35 percent range. Literally one in every three interval owners is not paying their fair share of the resort’s upkeep and operations.

Many sold-out resort HOA boards are comprised of owners with little or no professional experience in resort management. Often, these board members have been elected by demonstrating a passion for the well-being of the property and/or touting some level of semi-related professional experience (attorney, accountant, engineer, business leader). It is not surprising to see resorts respond to increasing delinquencies by increasing maintenance fees, levying special assessments, and using more abrasive collection tactics – all with counterproductive results.

A by-product of this dilemma is an increase in the number of intervals available for sale on the open market. Basic economic theory holds that a commodity’s price will decline as the supply increases, unless the number of willing and able buyers increases proportionately. When you factor in a period of exceptional economic stress, and recognize that timeshare is not yet a sought-after product, it is easy to understand that demand for excess inventory from older, improperly managed sold-out resorts in second-tier destinations would be more seriously impacted than inventory from newer resorts in higher demand locations. The problems associated with this phenomenon fall squarely into the laps of HOA boards and management companies, not the developers who built and sold the projects.

Most early resorts conveyed a deeded interest to purchasers. At the time, this seemed to be a great sales tool – touting the safety and security of “deeded real estate.” This has now become a serious problem since the cost and time of recovering inventory from non-paying owners exacerbates the delinquency phenomenon and inhibits resales. The math is simple. If it costs $700 to $1,500 to foreclose on a deeded interval and the resale value ranges from zero to $3,000, it may seem impractical for an HOA to pursue title to the week, especially after factoring in the costs to re-sell the week and the interim carry cost associated with the week’s maintenance fee.

Technology is another threat to the developer’s enjoyment of a previously insulated sales and marketing process. Through the Internet, a consumer can access a developer’s resale inventory during a sales presentation and logically question why they should pay $20,000 when the same product appears to be available for $8,000!

Trident Business Management – an Arizona-based business solutions firm serving the lodging and timeshare sectors of the leisure industry – has developed a unique service program for sold-out resorts which will help mitigate an HOA’s financial stress, support the re-vitalization of the resort, and help offset pricing deterioration. Their comprehensive bundle of services – known as a Solution Set – is designed to abate the impact of budget shortfalls.

“Trident will work with resort management to devise the best product enhancement to support a two-pronged sales campaign,” said Trident Managing Partner Jim Danz. “By targeting existing owners and new prospects, we will generate revenue from the ‘conversion’ of owners to a new product configuration such as an exchange company points-based system, or if the resort qualifies, the owners may elect to ‘affiliate’ with a vacation club where the developer may still be in active sales. Trident is also prepared to commit to a sales plan, which would re-distribute the resort’s non-performing intervals.”

Trident’s sales component is especially valuable to a sold-out resort because it provides all startup costs and campaign expenses to ensure no financial risk to the resort. Trident provides consumer financing and bears all recourse liability to the lender, helping to support higher pricing values for the resort’s interval sales. The company also offers a lucrative revenue-share to the HOA and/or property management company, which can replenish reserves or subsidize much needed revitalization projects while turning a non-performing asset into a performing one.

“To facilitate these objectives, we have partnered with Vibes Interactive, an industry-leading technology-based marketing company which has introduced VacationStorebuilder to assist resorts with a brandable, Web-based rental presence that is easy to manage,” Danz continued. “Resorts that use the Trident solution can have the VacationStorebuilder performance-based rental platform installed on a complimentary basis by Trident.”

Trident has also bundled an advanced survey communications tool into its arsenal. CustomerCount by Mobius Vendor Partners can be used by small and large resorts to stay in touch with their customers and track important revenue-producing preferences. Without knowing what your customers want and need, it can be difficult to create and deliver revenue programs to support a resort’s budgetary needs. Trident assumes the cost of installing CustomerCount for its Solution Set clients.

“Trident understands the need for resorts to not only maximize their revenue potential, but also to operate as efficiently as possible. Many sold-out resorts conduct their own maintenance fee and special assessment billing. For the most scaled operations, it may seem like this function is being performed on a cost-neutral or slightly profitable basis. But should a resort really be in the financial servicing business? Especially if it can be done more efficiently and procure improved results that fall directly to the bottom line? Trident has partnered with Equiant Financial Services for its service program clients. Equiant will perform a no-cost billing assessment and present a customized plan to the resort. If the resort decides to transition to Equiant, Trident will assume the costs of the transition and setup.”

Trident Managing Partner Bill Tsao points out that the Trident service has started to garner attention because of the compelling benefits. “Logically, when you tell someone you can generate substantial net revenue, at no risk, to offset a 35 percent assessment delinquency, it seems like a no-brainer. But when the resort’s operating executives tell you the delinquency is only 25percent because they don’t actually ‘own’ some of the non-performing weeks, it’s a bit perplexing. More concerning is whether the paying owner base understands who is in charge of their vacation investment.”

Trident has the ability to generate positive impact for their clients. After successfully positioning the company as an operationally experienced advisory firm to large private equity firms, they’ve gone back to their sales and marketing strengths and have produced a sensible and compelling HOA service program.

www.TridentBusinessManagement.com
www.VacationStorebuilder.com
www.CustomerCount.info
www.Equiant.com