Experts warn: Investors wont invest in “Wild, wild west!”

What turned out to be a hugely captivating and all embracing proceeding, the 14th annual Shared Ownership Investment Conference in Orlando, Florida on September 18-20 attracted hoteliers from across the globe.

Participants used the time between conference sessions for networking opportunities with some of the travel industry’s key players at the Peabody Resort’s Convention Center. The conference presented by Interval International has come quite some way, previously branded as the Timeshare and Resort Investment Conference, then the Vacation Ownership Investment Conference.

The 2012 proceeding ultimately focused on educating prospective developers, hoteliers, government officials and tourism professionals interested in learning more about the viability of shared ownership business models.

Timeshare and shared home ownership essentially equate the very same thing, and in the earlier part of the conference industry experts said the image of timeshare had in earlier days been tainted because people didn’t know how to use it effectively. It was undoubtedly a “good quality product” but some were skeptical because of the history of it all (Timeshare started in the midst of a down economy). Hoteliers and developers had concerns about what timeshare did to the value of their property because there was the misconception that the timeshare owner was not an upscale customer.

“The timeshare owner is very much the same client you’d get at hotels and there are clearly affluent members; the type of market the Caribbean would want to attract,” Interval’s Neil Kolton said in a media interview. “The biggest challenge was initial perception of timeshare or shared home ownership.”

“Distress creates opportunity,” and those three words set the tone for the introductory State of the Industry presentation. Speakers recognized that the market collapse had drastically reduced the pool of qualified buyers; hotel rates dropped, cost for whole ownership dropped thus having two homes was more affordable. Financing resources had evaporated and there were a number of factors that had “changed the playing field”. Industry experts noted, “Now is a great time to make that sort of investment.”

After the State of the Industry presentation it was straight into Shared Ownership Fundamentals where the focus was on why shared home ownership worked and why prepaid vacations continued to be popular among consumers. Speaker Charles Patton led the way in Understanding Fractionals, which were a form of timeshare with key differences. Patton explained that fractionals were in essence timeshares but typically consisted of a higher quality product, higher consumer satisfaction and guaranteed access to high demand seasonal periods. Fractionals offered better brand integrity and were the “bundled” version of timeshare.

“Fractional basically is a timeshare for a full quarter of any given year, the cost is broken up so that makes it more affordable to have a second home,” Patton elaborated, adding that clients would buy specific months and their deal could be from as little as three years to a lifetime.

Usually fractional developers were people who’d developed condos for sale purpose but had issues getting them off their hands for a number of reasons, commonly because people didn’t have the money or the property wouldn’t necessarily work as regular timeshare. On the upside, fractional owners have a vacation home without the hassles of upkeep, the amenities of a hotel in a personalized setting and the entire concept is typically seen as a more rational investment than whole home ownership.

Unlike fractionals, timeshare packages are usually sold a week at a time. Mixed-use resorts were those serving as full service resorts while providing the timeshare option. Condo hotels rented rooms on nightly basis and were now starting to allow external exchanges, competing directly with fractional and even timeshare. During the session participants learnt how to determine which option was ideal for their properties. In a survey highlighted during the presentation economic uncertainty was one of the top reasons listed for persons not buying into the shared home ownership market (84 %), lack of consumer financing (20 %) and thirdly, no sense of consumer urgency (20 %). Some felt prices would continue to drop while others felt maintenance fees were too high.

What would it take to return to glory?

Consumer confidence of course. Facilitators felt there was need for more access to consumer financing, absorption of whole-ownership inventory / re-sales, availability of marketing and to ensure (reset) proper offerings in terms of size of timeshare. Developers and hoteliers needed to listen to consumers and pay attention to critical social trends. How could one sift through all the opinions floating around to determine whether timeshare is suited for their property? For one thing, there is need to ensure it’s not just a matter of finding a ‘quick fix’ solution. One had to be willing to look beyond the beach, golf or skiing aspect. Unused space on properly usually is a key indicator one may consider timeshare. A large in hand owner/ guest contact database and a prime piece of land suited for 25- 50 units are typically ideal. According to speakers, the timeshare option is definitely something developers / hoteliers experienced in professional sales, marketing and hospitality who may or may not be involved in a whole ownership project that has “hit the wall” can take into consideration.

The hotel industry is undoubtedly a profitable one. Challenging in terms of staying ahead of the competition, ever changing like everything else and dependant on a thriving economy. In a case study featured in a particular conference session developers told the story of converting the Ocean Spa Hotel in Cancun, Mexico from an under-performing property into a vibrant shared ownership resort.

Presently islands with the highest percentage of the market include Aruba, St Maarten, Puerto Rico and the Bahamas. Although some islands found themselves on top of the list of those taking advantage of the shared home ownership market, others were lagging behind, perhaps not quite convinced of the potential. In the Caribbean region (St Lucia included) there were a number of languishing projects and during the Mexico and Caribbean session panelists noted that seeing the ones that failed scared investors. Other factors that hindered growth in Caribbean markets were the rising cost of living, increased hotel tax (islands like Cayman 10-15 percent) and VAT to be implemented in islands like St Lucia.

Those factors according to industry experts, left potential buyers wondering whether they’d truly enjoy their lifestyle if they purchased a second home in the region.

“We call it fear factor,” one panelist related. “As long as global conditions continue local governments will continue increasing prices and that’s one of the biggest issues.”

Clive Booker, principal, Spectrum Purchasing and DSI Hospitality highlighted the need for Caribbean hoteliers / developers to make their product more flexible, adapt, use technology in sales, reduce cost and recognize that certain things may work on one product and not on others.

“The days of throwing money at a problem are gone; get more in tune with feedback from guests,” Clive shared. “Reinvigorate areas achievable in budget, not solely aesthetic. There’s a lot of missed opportunity over the years, focus on your outdoor areas; people go to the Caribbean for just that. People want the authentic Caribbean experience.”

“People want to fall in love with the country,” Joel Santos, executive vice president of development, Columbia Sussex Corporation added.

There were a number of failed projects that could be acquired at a low cost, one of the many advantages of investing in the region at this time. Panelists agreed things more or less balanced out when the advantages and disadvantages were taken into consideration.

With all the ‘luxury’ properties facilitators felt everything was starting to blur. In that respect there was need for developers interested in the shared home ownership market to cater specifically to new targets, have specialty products and study behavioral groups (people who traveled primarily to attend festivals, foodies and that sort).

“Don’t assume when people are 80 or 90 they’re going to behave in a certain way,” warned one panelist, speaking directly to those who relied heavily on the potential of the ‘Caribbean paradise’ fantasy of retirees.

Several challenges were highlighted during the Caribbean session and airlift was one of the most problematic areas. Panelists noted there was need to invest in infrastructure as timeshare owners didn’t just want to purchase property to spend the entire time cooped up indoors. Getting past the language barrier in order to make sales and have a further reach was vital. Panelists spoke of training sales people in various languages, something that could be truly beneficial in sales and marketing aspects. There is much work to be done in terms of legislation in the region. Participants spoke of legislative agreements that would help make it as easy as possible to hire local people and to have off shore expertise where necessary. Panelists felt there was restraining bureaucracy in the region and every transaction required tremendous patience. They warned against over regulating the market as investment potential in the islands could be turned away.

Most importantly, on the issue of legislation one panelist noted: “Most investors are not going to invest millions into the ‘wild, wild west’, a market with no legislation. They don’t necessarily want to risk their brand in that way.”

Interval’s Neil Kolton director for Interval International’s Florida and Caribbean resort sales and service in a side bar interview said the Caribbean was a high demand destination for Interval’s members—46 percent of members indicated desire to visit the islands. Recent trends showed that once one developer found success in an island, usually there was one after the other following suit in terms of placing more focus or attempting shared home ownership management.

Kolton revealed that when it came to the destinations his company could provide to owners as part of their shared home ownership packages, inventory did not meet demand, specifically in terms of the product Interval wished to have in order to get clients into particular markets or destinations. As a result owners had to settle for alternate locations. Islands that didn’t necessarily have the biggest slice of the timeshare market were losing out big time on the demand for their destinations.

Properties were “sitting there and languishing” as a result of the economic downturn and panelists noted that prior to the downturn some of those very same companies hadn’t been interested in learning about timeshare at all. There’d been lots of concerns and objections, now an increasing number found themselves embracing the model. In the words of one panelist, when it came to second homes “the whole ownership model is pretty much dead.”

In the different islands, granted, experiences aren’t always identical. When it came to St Lucia Kolton described the island as “a growing market with a lot of properties.” He pinpointed the Bay Gardens Beach, St Lucia as one such resort that had dived into the shared home ownership model, accompanied with regular resort services (Theirs is very much a mixed-use model). The Shared Ownership Investment conference concluded on Thursday, September 20.

More on St Lucia’s position in the timeshare market in Saturday’s STAR!