Distressed Resorts & The Time-Share Solution: Who Let Them In Here?

It makes sense. If you’re the developer of busted resort condo or hotel projects and you can’t sell the stuff in whole pieces, bring somebody in who knows how to sell the stuff in much smaller pieces. In other words, maybe now’s the time to bring in the time share guys!

 

This posting from Hotels Magazine reports that Wyndham (NYSE: WYN) CEO Stephen Holmes is looking to be an inventory-mover for stressed resort developers or the work-out firms who’ve taken over from busted resort developers.  

 

He doesn’t go as far as Marriott may go, potentially buying up distressed resort projects as a way of adding low-cost time-share inventory to their portfolio. Holmes seems to be saying Wyndham would rather play the role of time share sales agent and property manager instead of wholesale buyer of the property.

 

In either case, Marriott and Wyndham, as the “A” players in time-share marketing and selling, could indeed provide a good liquidity outcome for distressed resort product that meets their time-share criteria. (Let’s leave aside the fact that the commercial paper market for time-share financing is just about completely morbid at this moment; ostensibly the big players are working on a solution to that.)

 

Wyndham, Marriott and Starwood likely won't grossly offend any incumbent investors in a given resort, whether those investors are self-use condo owners, hotel owners, restaurateurs, retailers, amenity owner/operators.

 

But—and at the risk of grossly over-generalizing about the time-share trade—any developer or work-out firm who by choice or necessity turns to a Grade B, C or D time-share marketer / operator to blow out the inventory could be blowing a big hole in the integrity of their resort. The social integrity.

 

A resort is a society as well as a business. Non-commercial buyers of resort property (whether a condo, townhome or free-standing home) are buying dreams. A resort home is an investment, for most, that is as much emotional as financial. Their resort homes are proof of prosperity and social ascension. Their primary home may also be such proof of prosperity, but a resort home is usually a more telling statement of who they believe they are and, moreover, whom they feel they now belong among.

 

Most resort real estate buyers want to be, at the very least, among their equals and if they perceive that their neighbors are in fact slightly more than their equals, that can be all the better. 

 

Accordingly, no resort real estate owner wants to see the neighborhood decline and that’s why bringing in down-market timeshare marketers and timeshare buyers could lead to much misery and suffering if a distressed resort has a base of emotionally- and financially-invested real estate owners. If these incumbent owners take immediate umbrage at the newly-arrived time-share neighbors, it’s a toss-up as to whether they first call their real-estate agent or their lawyer.

 

That may sound silly, but bet on it happening. And if the social integrity of a resort is sullied, the financial integrity of the resort won’t be far behind in suffering as well. You could be looking at declining resale values, less paid use of amenities that rely on bringing together people who don’t’ want to be together and, most critically for resort owner / developers, less value in the resort’s land bank  and undeveloped density. 

 

The resort owner / developers dedicated to long-term market strength and value will take care during this downturn to uphold the social, operational and brand integrity of their resorts.

 

Those who won’t or can’t preserve this social, operational and brand integrity will do damage that will take many years—and much incremental capital—to repair.