The current global financial crisis has created a worrying situation for timeshare owners. As most sectors of the economy are feeling the pressure, the nation’s timeshare industry is taking a hit from both sides as banks cut loans and consumers cut spending.
As a result, at the same time that people have to deal with stagnant or falling income, deterioration of retirement funds and a higher cost of living, timeshare companies that are feeling the pressure are going through its financial burdens on the consumer.
Consumer spending
Today, individuals, families and businesses are slashing spending on travel and entertainment faster than anticipated, reports Bloomberg.com. The article of October 23 states “forecasts [show] that the decline in business and leisure travel is accelerating as corporations and consumers grapple with rising food prices, declining home values, job losses and credit shortage “.
Lisa Ann Schreier, author and timeshare industry expert, says that people just don’t have disposable income right now. “People are scared,” Scheirer says. “And with the credit crunch, it’s going to get harder and harder for people to finance timeshare. I think the timeshare industry has been considered recession-proof for too long, and I don’t.”
The frozen credit market
If the timeshare industry once considered itself recession-proof, that’s certainly no longer the case. The timeshare industry is strained not only because consumers spend less, but also because of the fact that this industry has relied heavily on mortgage-backed securities.
David Siegel, president of Westgate Resorts, the world’s largest private timeshare company, attributes the “financial pressure” on his company to the fact that securities are no longer being bought.
In a September article in the Orlando Sentinel, Siegel explains that timeshare companies “[keep] money flowing through lines of credit that are then paid back when [these companies] bundle and sell your mortgages as securities, “says Siegel.” Suddenly, no one is buying those securities. “
Siegel’s Westgate Resorts employs more than 10,000 people nationwide and recently had to shut down much of its sales and lay off hundreds of workers.
Two other major players in the timeshare industry worth mentioning here, Starwood Hotels & Resorts Worldwide Inc. and Wyndham Worldwide, have seen their profits and sales drop, and Starwood timeshare sales fell 11 percent in the third trimester. Starwood, America’s third-largest lodging company, has cut employees, closed sales centers and cut expenses at Starwood’s Sheraton and Westin hotels.
Wyndham Worldwide has laid off hundreds of employees, from marketing directors to managers and financial analysts.
All of this has prompted the timeshare industry to ask the government to intervene.
As reported in an October 29 Orlando Sentinel article titled “Timeshare Industry Seeks Relief,” the American Tourism Development Association (ARDA), a timeshare trade group, is calling on the federal government to step in and ensure timeshare mortgages in exchange for an insurance fee.
Howard Nusbaum, CEO of ARDA, warned that the timeshare industry was “selling out of business.” “If our business model is disrupted, that costs jobs,” Nausbam said.
“It is not good … for timeshares if there is no liquidity in the market.”
Like any business these days, it is difficult for timeshare companies to make money. And now it is increasingly difficult for these companies to use their customers’ mortgages to raise cash.
In the recent past, timeshare companies were able to leverage their current income to build more timeshare units at different locations in order to magnify profits. This strategy worked well in good economic times, but sadly multiplies the drain effect when credit is tight and when incomes decline.
What does this mean for timeshare owners
With consumers spending less on travel and the credit markets freezing, lodging and timeshare companies, including Westgate, Starwood and Wyndham, are turning to the only place where they can recoup some of their losses: timeshare owners.
It is understood that at any time and for any reason, timeshare companies may require timeshare owners to pay for special assessments. It is also understood that maintenance fees are not limited and are subject to increases at the discretion of the timeshare resorts. In recent months, there have been reports of timeshare owners receiving special appraisal fees of $ 1,000 to $ 3,000.
Chad Newbold, president of VI Network, Inc., one of the nation’s largest vacation property facilitators, reports that current economic conditions, increased rates for the 2009 usage year, coupled with unprecedented special appraisal billing and a diluted resale market has created the perfect storm for the timeshare industry. This storm has caused a record number of homeowners to simply want to get out, which it predicts will undoubtedly result in another steep increase in maintenance fees for the 2010 use year.
For many, it seemed safe to assume that the initial cost to purchase a timeshare, averaging over $ 19,000 in 2007, plus annual maintenance fees, would have been enough to fund the operation and management of any timeshare resort. . But as more and more timeshare owners are affected by these special assessments, this assumption has been turned upside down. Timeshare owners feel rewarded as they have to pay even more for “leisure and travel” expenses at a time when they can least afford it.
It is not known with certainty how much the special rates and other fees will increase. But one thing that is for sure is that there is no better time than the present to weigh the pros and cons of timeshare ownership and consider some options. There are viable solutions for anyone considering whether or not to keep their timeshare. One company, Timeshare Relief Inc., has been in the business of getting people out of their timeshare contracts since 2001 and guarantees that its clients will never have to pay another timeshare fee. Other options available to timeshare owners, such as reselling a timeshare listed online or through a resale broker, require money up front and do not provide a guarantee that the timeshare will be sold. In tough economic times, a guarantee can go a long way.
