Shared Growth: Vacation Ownership is on the RisePosted On: 08/14/2019 2:15 PM

Shared Growth: Vacation Ownership is on the Rise

Kostich Media, July 5, 2019
The term “timeshare” used to conjure images of over-eager salespeople pouncing on unsuspecting tourists at airports and street corners. These fast-talking, high-pressure, often unscrupulous peddlers promised a free breakfast and other perks in exchange for sitting through an endless hard pitch on the benefits of owning your own piece of paradise. They were so relentless, they gave timeshare a bad name. 

That’s mostly a distant memory now, in large part due to the formation of organizations such as the Canadian Vacation Ownership Association (CVOA) and the American Resort Development Association (ARDA), which have regulated the industry and buffed its tarnished image. The entry of bigger hotel brands — including Marriott, Disney, Hilton and Wyndham — also lent legitimacy and credibility to the segment. 

“As the industry grew, so too, did the need for a strong advocacy organization with a code of ethics and best-practice guidelines for all integrated components of the industry,” says Ingrid Jarrett, president and CEO of the CVOA. “We work hand-in-hand with our international counterparts to ensure the investors, consumers and supporting industries meet the highest ethical standards. We have very strict protocols around sales-and-marketing practices,” she adds, including ensuring there’s a grace period to rescind the contract and upgrading consumer disclosures — and easing off on the high-pressure sales tactics. 

In fact, timeshares — and sub-categories including whole ownership, fractional ownership, vacation clubs and independent resorts — are reputable and on the rise. According to Kathy Conroy, senior managing director of hotel-valuation firm HVS, the average occupancy for a timeshare property in the U.S. was 81 per cent in 2017, compared to the average hotel occupancy rate of 65 per cent. 

“The sales volume has increased every year for the last eight-consecutive years. In 2017, sales were $9.6 billion and there were 1,570 timeshare resorts. That’s a four-per-cent increase over 2016,” Conroy says of the U.S. market. 

THE APPEAL 
It’s easy to see the appeal of vacation ownership from the buyer’s perspective: a beachfront condo or lakeside cottage is affordable; you have all the conveniences of home, maintained and upgraded regularly; you have the familiarity of a favourite destination you can return to each year, guaranteed; or you can trade off your time for a stay in another locale. “People love flexibility and choice,” says Jarrett. “And we have a different way of travelling when we’re with family, as healthy active adults and when we’re seniors. Having exchange programs, travel services and vacation clubs and being affiliated with different organizations provides real value.” 

That value, however, does not translate financially if you ever want to sell, you’re not buying a property, you’re buying a lifestyle. “It should never be bought as an investment,” says Conroy. “It’s a use product. You’re not going to make money on it. But the satisfaction rate of timeshare owners is high — up to 90 per cent.” 

The appeal to developers is primarily financial. They make a profit on the initial sale, then, because in the timeshare industry developers finance the buyers, they earn money from the interest on the loans to their buyers. The developers borrow at five- to six-per-cent interest, take 20-per-cent down payment from the timeshare buyer, then earn money from the 12- to 18-per-cent interest the buyer pays. 

“Owners pay annual maintenance fees, their proportionate share of taxes and insurance, so there’s a lot of benefit to the developer,” says Conroy. “He may not own his real estate anymore, but he’s still enjoying benefits from his other profit centres. Even post sell-out, it provides a steady customer base and income stream.” 

From the operators’ perspective, people who own their vacation property use it, says Conroy, and that directly benefits the operator. “The occupancy rate of timeshare resorts always outpaces the occupancy rate of the hotels in that resort destination, wherever it is. And, if you have restaurants, bars or side excursions, the high and consistent occupancy feeds all the other areas of your resort.” 

While real-estate development in B.C. and Ontario continue to flourish and Alberta continues to struggle, Jarrett says that’s not necessarily the case with vacation ownership. “The Rocky Mountains is very much an international destination and it’s thriving. It’s a cyclical economy and not wholly dependent on domestic travel.” 

Ian Thorley, vice-president, Sales and Marketing for Calgary-based Bellstar Hotels & Resorts, which manages independent resorts across B.C. and Alberta, including Kicking Horse Lodging and the Royal Kelowna, acknowledges that while real estate in Calgary is dropping, resorts are doing well. “The values are increasing, so there is a lot more interest in these types of properties — and maybe it’s because people are seeing strong returns.” 

Nevertheless, timeshares are a difficult niche to make money in, he says. “We’ve created a model that’s very efficient. We have centralized sales and marketing, accounting, [so] head office looks after all these resorts and taken a lot of the labour and resources that would normally be found on property and tried to make it as efficient as possible so it can run in a sustainable way and still be profitable.” 

Blue Water Acres in Muskoka, Ont., which began as rental cottages in the 1970s, converted to fractional ownership in 2007, due mainly to the advent of the Internet, which corresponded with the rise of timeshare properties and the decline of traditional cottage rentals. 

“The owners of [our] intervals own all the land, buildings, everything,” says proprietor Yvonne Stephenson. They also get memberships with Interval International, allowing for the option to exchange their time for anywhere in the world. “A lot of timeshares are owned for 50 years and then they go back to the developer and they resell them. We’re in perpetuity, so [owners] can sell the intervals or will them to their kids or grandkids.” 

THE COMPETITION 
Stephenson says she’s unconcerned about the proliferation of competition from online-lodging companies such as Airbnb, which lists similar properties in her area. 

“They’re a competitor, but they also help, because people find us when they’re searching for rentals [overall],” says Jarrett, “We’re aligned with and support the Hotel Association of Canada’s position on Airbnb. We’re not opposed to them as a competitor — they do a great job of marketing destinations and sometimes that helps us and sometimes it hinders. Everything about hotels and the travel industry is competition and that’s a good thing. It’s just about a level playing field. Airbnb operates wholly on the internet and does not participate in any of the taxes and fees that hotels and resorts have to comply with.” 

RISE AND ENERGIZE 
As Conroy notes, growth for this sector has been on the rise and satisfaction rates among buyers are high. To keep those buyers happy, the larger companies continue to innovate, offering partnerships with cruise lines and hotels for more exciting exchange opportunities in not just the usual beach, golf or ski resort, but for urban vacations in cities such as New York, New Orleans or Washington, D.C. 

“Given the cost of these urban areas — New York, for example — you’re not going to get a two-bed, two-bath, 1,300-sq.-ft. condominium,” she says. “That would be [too expensive], but the owners understand that.” 

She says another trend is for shorter durations, so rather than purchase a timeshare in perpetuity or for 50 years, buyers can get timeframes of as little as 10 years, which cost much less. 

The segment’s target demographic is typically those in the 40 and 50 year-old age bracket, married with kids, with an average household income of $75,000 to $150,000. Stephenson says those unit owners are increasingly interested in immersive vacation experiences, so Blue Water Acres offers amenities such as kayaks, a pool, games room, et cetera. 

Thorley agrees experience is king. “Having a spa for a massage or offering yoga is important, especially if the weather isn’t good.” 

Written by Robin Roberts


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