The future of timeshare, fractional ownership and residences aligning with hotels is promising despite setbacks in recent years, according to industry experts.
The buoyancy of mixed-use development dominated the discussion at a panel on timeshare at the Meet the Money conference held in Los Angeles in early May. Panelists discussed the feasibility of financing and operating hotel properties that choose to convert some space into fractional ownership or timeshare.
“It’s a very healthy environment to monetize hotel rooms into fractional ownership at the high end, or into timeshare at the lower end,” said Jamie Klein, president of The Lore Institute of Shared Ownership. “From a hotel perspective, it’s an outstanding way to monetize your hotel rooms. It’s also a great way to take a whole-ownership project and use it as an exit strategy.”
Mixed-use with timeshare can be a win-win if developers take advantage of the inherent strengths of the hotel.
“If you have another expression of your hotel in an ownership form, your marketing is taken care of,” Klein said. “You’re not taking business away from your hotel; you’re adding to it.”
Guest-to-owner marketing
Tapping into the guest-as-a-potential-customer mindset is critical, said Howard Nusbaum, president and CEO of the American Resort Development Association.
Hotel guests become repeat guests when they love the hotel experience, he said. After that, they are more inclined to buy an ownership product. “By the third or fourth visit, [the guest] wants to feel some affinity,” he said. “It’s very compatible to your marketing mix.”
The key is to maximize the marketing overlap, not fight it.
“Just don’t try to convert [the ownership part] to a different consumer than what the hotel goes for,” warned Richard Ragatz, founder of Ragatz Associates. “Make sure you’re compatible with what you’re converting to.”
Even given the marketing advantages, panelists cautioned against over-aggressive growth in the mixed-use space.
Klein pointed out that generally speaking, mixed-use has more success when high-end properties convert space into fractional ownership rather than timeshare, which tends to do better in non-luxury properties.
Ragatz said the key to fractional ownership conversion is control. “Don’t even think about converting 50 to 100 units,” he said. “Go for fewer.” He said developers interested in turning high-end hotel space into fractional ownership must consider zoning regulations (Will laws permit two- or three-bedroom units?) and utility availability (Does existing infrastructure allow for kitchen plumbing and wiring?).
Financing
“We think there’s great opportunity in the resort sector, condo-hotels, fractional ownership and timeshare,” said Bob Waun, CEO of Vacation Finance. “From a lender’s viewpoint, I can tell you that over a 10-year period, we’ve had about 15-percent return on our hard investment in the timeshare space.”
Despite the optimism of some lenders, however, financing development remains a hurdle in the timeshare space. And it’s not just because of the common lack-of-liquidity problems. Mixed-use timeshare developers have another hurdle to overcome—education.
Mixed-use “kind of blows the lenders’ minds a little bit,” Waun said. “The minute you start introducing some other form of shared ownership, lenders just don’t get it. They don’t understand the timeshare or shared-ownership model. There has to be a lot of education at the lender level before you introduce shared ownership.”
