Timeshare market sees spurt of activity, but some worry surge will spur downturn

Although largely overshadowed by the fortunes of the Strip, timeshares have shown renewed life after absorbing heavy body blows during the recession.

Several deals in the past year have added or will bring more than 1,000 units to the market, pocket change by Las Vegas lodging standards, but the biggest spurt of activity for the relatively small timeshare sector since 2008. While developers cite healthier financial markets and improving consumer demand as propelling the increased activity, some in the industry worry that growth is picking up too fast.

“We are seeing a continued pattern of increased travel,” said Ed Kinney, a spokesman for Marriott Vacations Worldwide. “There is a tremendous interest and Las Vegas has always been a popular destination.

Many developers tap Wall Street to bundle their sales contracts into securities that are sold to investors, similar to what happens with home mortgages. When buyers ran from the securities five years ago as if they were coated with asbestos, part of the general panic that gripped the financial system, developers had to pull in the reins on marketing.

“We reduced our sales volumes not because of a lack of buyers but because we could not sell the paper,” said Mark Waltrip, the chief operating officer of Westgate Resorts. “The lending market has come full circle and found that timeshare paper is one of the best investments you can make.”

Still, some worry the latest expansion might set the stage for fresh stumbles in the coming years. “It is troubling because an awful lot of timeshares are coming on line all at once instead of sticking a toe in the water to see if it will fly or not,” said Lisa Ann Schrier, the executive director of the National Timeshare Owners Association. “But the major players seem to think there is still a lot of life in the old warhorse.”

Nationwide, she added, an uncomfortably high number of people have quit paying their maintenance fees, a critical source of revenue for operators, after they decided the burden was too heavy. This raises financial pressure on other timeshare owners as well as aging properties that may need more work than newer ones.

But Kinney said the overbuilding worries have cropped up numerous times in the timeshare hotbed of Orlando, only to be proven repeatedly wrong.

“Certainly there is a risk, but it hasn’t happened yet,” he said. “The market continues to grow and grow and grow.”

The pace has slowed considerably from the prior decade, when the value of timeshare unit sales more than doubled from $4.1 billion in 2000 to the peak of $10.6 billion in 2007 for the entire country, according to the trade group American Resort Development Association. Las Vegas-based transactions are not separately compiled.

After a sharp tumble to $6.3 billion in 2009, the total crept back up to $6.9 billion last year. With the number of transactions rising at a faster clip, the average price has slipped.

Still, the overall environment has strengthened enough that the number of timeshares planned in the next few years has soared from eight in 2011 to 68 last year.

According to the Las Vegas Convention and Visitor Authority’s most recent census of valley lodging, the amount of timeshare properties, 24, has remained static since 2009 and grown by only four during the past decade.

The number of units has risen by half to 9,655 in the past decade due in part to the expansion of existing properties. In addition, the survey counts some properties in both the timeshare and hotel categories depending on how many rooms are rented by the night.

The generally rising market has translated into a spurt of activity over the past year, including:

■ Construction of a new tower at Grandview at Las Vegas, near South Point, taking it from 1,556 units to 1,856, according to the LVCVA survey. Completion is projected for early next year;

■ The Hilton Grand Vacations unit of Hilton Hotels &Resorts purchased 300 units at the Trump International Hotel to add to its luxury timeshare portfolio;

■ Marriott Vacations Worldwide last month topped the third 37-floor tower of its off-Strip Grand Chateau. This will add 223 units to the property;

■ Construction has resumed on the Desert Blue timeshare, planned at 281 units, after a four-year hiatus. Wyndham Worldwide sold the project to another developer in June for $117 million, including only $3 million for the unfinished building itself and $114 million of the timeshare units available to sell. As part of the transaction, Wyndham has committed to repurchasing the project for $309 million at an unspecified date unless a different buyer steps in, according to Wyndham regulatory filings.

This marked a turnaround from the pit of the recession, when Wyndham halted work on Desert Blue; Consolidated Resorts, which owned the Tahiti Village Resort &Spa among other properties, collapsed into a Chapter 7 bankruptcy liquidation; and Westgate ceded control of Planet Hollywood Towers by Westgate as part of a debt restructuring settlement. The 1,201 units, now called Elara, a Hilton Grand Vacations Hotel, are now counted as overnight lodging by the LVCVA survey, due to the number of nightly rentals. Timeshare owners still use it, however.

The survey also lists several other properties that have units rented out like hotels.

Waltrip said Westgate, which has retained the residential-like Westgate Flamingo Bay Resort on West Flamingo Road, recorded its best year ever in 2012. Most of its other timeshares are in the eastern half of the U.S.

This has meant tightening operations after the heady growth surge during the previous decade, plus tightening the creditworthiness requirements for timeshare buyers, he said.

Qualifying to finance a timeshare is still easier than a typical home mortgage, he said, but the risk typically is covered by an average 18 percent interest rate.

Contact reporter Tim O’Reiley at 702-387-5290 or toreiley@reviewjournal.com.