BAD TIMING
Local time share industry facing most sluggish climate ever
BY JOHN G. EDWARDS
LAS VEGAS REVIEW-JOURNAL
Last year -- the first since records of time share sales started being kept in the U.S. 30 years ago -- sales declined.
Time share sales dropped 8 percent to $9.7 billion last year from $10.5 billion in the previous year, reports the ARDA International Foundation, which is affiliated with the American Resort Development Association.
Sales were up for the first three quarters of last year but plunged in the final three months when the financial industry collapsed and credit markets froze, association CEO Howard Nusbaum said.
BILL HUGHES | BUSINESS PRESS
The 1,228-unit Planet Hollywood Towers by Westgate is one of just two time share projects opening this year in Southern Nevada.
BILL HUGHES | BUSINESS PRESS
The Marriott Grand Chateau on East Harmon Avenue is seen in August. The time share industry has struggled as sales have dropped, lenders have tightened credit and the economy has soured.
Nusbaum expects $6 billion to $7 billion in sales this year.
"Right now, we are victims of the credit crunch," Nusbaum said. "Our industry has shrunk temporarily. It's been very humbling."
The weakness of the economy makes consumers less likely to make big, discretionary purchases like time shares, JMP Securities analyst Will Marks said.
Nusbaum added: "There are fewer people traveling because they are worried about losing their job."
Las Vegas relies largely on tourists from California, and the recession has hit California particularly hard, he said.
The time share industry plays a significant role in Las Vegas' tourism sector.
The industry made $1.6 billion of purchases in Las Vegas during 2007, according to a study prepared by accounting firm PricewaterhouseCoopers for the ARDA International Foundation. It created jobs for 12,320 workers with $552 million in annual income.
The number of active time share agents and representatives in Nevada fell 20 percent to 3,424 in June from 4,278 a year ago, according to the Real Estate Division. Representatives are the workers who induce people to attend sales presentations.
Real Estate Division Administrator Gail Anderson attributed the decline of representatives to developers closing project site offices because of the economic slump.
In 2008, the industry opened time share properties costing $6.6 billion and added 1,268 time share units, the Las Vegas Convention and Visitors Authority reports.
So far in 2009, the 400-unit Grandview at Las Vegas opened in May. The 1,228-unit Planet Hollywood Towers by Westgate, the only other new project this year, is expected to open within a few weeks.
The U.S. time share industry proved resilient during earlier economic downturns, ranging from the energy crisis of the late 1970s, the Gulf War and the terrorist attacks of 2001, according to the resort development association.
"We create our own demand," Nusbaum said. "We go out everywhere and offer people incentives to come to our properties. Many that don't buy come back and buy another day."
In better times, customers could buy with only 10 percent down on a typical $20,000 time share and the developer would ignore credit scores as long as the buyer was employed, he said.
Now, resorts are requiring 15 percent to 20 percent down payments and requiring good credit scores, Nusbaum said.
Time share resort developers are cutting back on sales expenses, Nusbaum said, because they cannot obtain enough financing to pursue as many prospective time share buyers as they did when credit was flowing.
As a result, he said, developers are approaching only the most likely candidates for purchases and those with strong credit and the ability to make large down payments.
"A developer has to be very selective on what they sell," Nusbaum said.
Many large time share developers have securitized time share loans to buyers in the past, but securitization has "dried up" although not completely disappeared from Wall Street, Marks said.
Other developers have used time share loans as collateral for credit lines, said attorney William Noall, a partner at Gordon Silver who has represented time share companies.
A developer typically would make a loan to the time share buyer and provide its own financing, Noall said.
When the time share note becomes seasoned through regular payments, the developer then would pledge the secured note to a lender in return for a credit line. The developer would pledge numerous time share loans and their collateral to the developer's lender.
If the time share owner defaulted on a note, the developer's lender would insist that the developer substitute a performing time share loan for the bad loan. During boom times, developers typically have a large volume of new loans that can be substituted for loans in default. With sales decreasing, however, the developer does not have many loans to use as substitutes. So the developers' lender may curtail the credit line.
Nusbaum said nine out of 10 time share owners are current on their loans.
The bankruptcy filing of Consolidated Resorts in July underlines the importance of credit to time share developers.
The developer of the Tahiti Village Resort on Las Vegas Boulevard and 12 affiliated companies closed in June, laying off 1,221 employees and contract workers.
Consolidated was relying solely on GMAC Commercial Finance for a $250 million credit line backed by receivable accounts, bankruptcy attorney Lenard Schwartzer of Schwartzer & McPherson told a bankruptcy judge. The time share developer also owed GMAC Commercial Finance $200 million for an acquisition and development loan.
Time share companies typically finance all but the 10 percent down payment, Schwartzer said. About half of the time share prices represent marketing, overhead and related expenses. Without financing, Consolidated could no longer afford to market and sell time shares, the lawyer said.
Consolidated filed for Chapter 7 liquidation, but its resort management company continues to operate outside of bankruptcy and time share owners continue to vacation at Consolidated properties, he said.
Even in good times, Southern Nevada time share companies have occasionally hit the wall.
For example, Nick Benson took over as chief executive officer at Sunterra Corp. of North Las Vegas after Sunterra emerged from an earlier bankruptcy.
Benson was educated at the Royal Military Academy Standhurst, the British equivalent of West Point, and spent 10 years as an infantry officer. He then earned a law degree before joining Sunterra.
The board fired Benson for cause when a review "identified misconduct at the very top of Sunterra management," Sunterra Chairman John Ziegelman told analysts in a conference call in December 2006.
The company had underpaid withholding taxes in Spain to employees of Sunterra Europe.
The Securities and Exchange Commission investigated Sunterra but did not sue the company as the SEC often does in cases of wrongdoing.
The story ended well for investors. Diamond Resorts LLC, which has Stephen Cloobeck as its manager, acquired Sunterra for $700 million including $375 million in Sunterra debt. Shareholders received $16 a share.
Cloobeck declined to say how big his company was at the time but said his company was not having any financial difficulties now.
Leisure Industries Corporation of America, another Southern Nevada time share company, also had a colorful background. It was formerly known as Mego Financial Corp. and started in the 1950s as the toy maker for action figures, such as Batman and Robin and characters from "The Dukes of Hazzard" but ended up in bankruptcy, according to a court document.
Years later, the Mego estate was acquired by some Las Vegas investors who made it the parent company for Preferred Equities Corp., which helped develop Pahrump and entered "the fledgling vacation ownership industry."
A group of investors bought the company in 2002 and established offices in Henderson.
A couple of problems blindsided the company.
"First an enormous amount of consumer paper, originated by the previous management, began to go delinquent," a bankruptcy attorney explained in a report to the court.
Secondly, the manager discovered "massive title problems" in its land sales divisions and that delayed funding. That led to a second bankruptcy in 2003 and to a liquidation of its assets.
Southern Nevada's time share industry now needs to recover from the economic collapse and credit crunch.
The local industry includes some of the biggest names in lodging: Hilton, Marriott, Hyatt, Wyndham Vacation Resorts and Starwood Vacation Ownership.
The Hilton brand is on three properties. The first opened its 200 units in 1994 at 3575 Las Vegas Blvd. South. It was followed by a 232-unit sister property at 455 Karen Ave. and the 714-unit Hilton Grand Vacations Club at 2650 Las Vegas Blvd. South.
Hilton said it has development plans for time share projects in Las Vegas, Orlando, Fla., and Hawaii. Hilton has received approval for a third phase at its Hilton Grand property on the Strip.
Hilton said its time share sales "have remained steady" despite economic challenges.
"We will be back in a big way," Nusbaum said.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
Economic impact of time share industry in Las Vegas, 2007
Direct output impacts -- $1.6 billion of purchases
Jobs -- 7,380
Salaries and wages -- $328 million
SOURCE: ARDA International Foundation
Time share performance, 2008
Sales volume -- $9.7 billion
Number of time share intervals sold -- 482,549
Average price per interval -- $20,152
Occupancy -- 81.6 percent
Average maintenance fee per interval -- $646
Local time share industry facing most sluggish climate ever
BY JOHN G. EDWARDS
LAS VEGAS REVIEW-JOURNAL
Last year -- the first since records of time share sales started being kept in the U.S. 30 years ago -- sales declined.
Time share sales dropped 8 percent to $9.7 billion last year from $10.5 billion in the previous year, reports the ARDA International Foundation, which is affiliated with the American Resort Development Association.
Sales were up for the first three quarters of last year but plunged in the final three months when the financial industry collapsed and credit markets froze, association CEO Howard Nusbaum said.
BILL HUGHES | BUSINESS PRESS
The 1,228-unit Planet Hollywood Towers by Westgate is one of just two time share projects opening this year in Southern Nevada.
BILL HUGHES | BUSINESS PRESS
The Marriott Grand Chateau on East Harmon Avenue is seen in August. The time share industry has struggled as sales have dropped, lenders have tightened credit and the economy has soured.
Nusbaum expects $6 billion to $7 billion in sales this year.
"Right now, we are victims of the credit crunch," Nusbaum said. "Our industry has shrunk temporarily. It's been very humbling."
The weakness of the economy makes consumers less likely to make big, discretionary purchases like time shares, JMP Securities analyst Will Marks said.
Nusbaum added: "There are fewer people traveling because they are worried about losing their job."
Las Vegas relies largely on tourists from California, and the recession has hit California particularly hard, he said.
The time share industry plays a significant role in Las Vegas' tourism sector.
The industry made $1.6 billion of purchases in Las Vegas during 2007, according to a study prepared by accounting firm PricewaterhouseCoopers for the ARDA International Foundation. It created jobs for 12,320 workers with $552 million in annual income.
The number of active time share agents and representatives in Nevada fell 20 percent to 3,424 in June from 4,278 a year ago, according to the Real Estate Division. Representatives are the workers who induce people to attend sales presentations.
Real Estate Division Administrator Gail Anderson attributed the decline of representatives to developers closing project site offices because of the economic slump.
In 2008, the industry opened time share properties costing $6.6 billion and added 1,268 time share units, the Las Vegas Convention and Visitors Authority reports.
So far in 2009, the 400-unit Grandview at Las Vegas opened in May. The 1,228-unit Planet Hollywood Towers by Westgate, the only other new project this year, is expected to open within a few weeks.
The U.S. time share industry proved resilient during earlier economic downturns, ranging from the energy crisis of the late 1970s, the Gulf War and the terrorist attacks of 2001, according to the resort development association.
"We create our own demand," Nusbaum said. "We go out everywhere and offer people incentives to come to our properties. Many that don't buy come back and buy another day."
In better times, customers could buy with only 10 percent down on a typical $20,000 time share and the developer would ignore credit scores as long as the buyer was employed, he said.
Now, resorts are requiring 15 percent to 20 percent down payments and requiring good credit scores, Nusbaum said.
Time share resort developers are cutting back on sales expenses, Nusbaum said, because they cannot obtain enough financing to pursue as many prospective time share buyers as they did when credit was flowing.
As a result, he said, developers are approaching only the most likely candidates for purchases and those with strong credit and the ability to make large down payments.
"A developer has to be very selective on what they sell," Nusbaum said.
Many large time share developers have securitized time share loans to buyers in the past, but securitization has "dried up" although not completely disappeared from Wall Street, Marks said.
Other developers have used time share loans as collateral for credit lines, said attorney William Noall, a partner at Gordon Silver who has represented time share companies.
A developer typically would make a loan to the time share buyer and provide its own financing, Noall said.
When the time share note becomes seasoned through regular payments, the developer then would pledge the secured note to a lender in return for a credit line. The developer would pledge numerous time share loans and their collateral to the developer's lender.
If the time share owner defaulted on a note, the developer's lender would insist that the developer substitute a performing time share loan for the bad loan. During boom times, developers typically have a large volume of new loans that can be substituted for loans in default. With sales decreasing, however, the developer does not have many loans to use as substitutes. So the developers' lender may curtail the credit line.
Nusbaum said nine out of 10 time share owners are current on their loans.
The bankruptcy filing of Consolidated Resorts in July underlines the importance of credit to time share developers.
The developer of the Tahiti Village Resort on Las Vegas Boulevard and 12 affiliated companies closed in June, laying off 1,221 employees and contract workers.
Consolidated was relying solely on GMAC Commercial Finance for a $250 million credit line backed by receivable accounts, bankruptcy attorney Lenard Schwartzer of Schwartzer & McPherson told a bankruptcy judge. The time share developer also owed GMAC Commercial Finance $200 million for an acquisition and development loan.
Time share companies typically finance all but the 10 percent down payment, Schwartzer said. About half of the time share prices represent marketing, overhead and related expenses. Without financing, Consolidated could no longer afford to market and sell time shares, the lawyer said.
Consolidated filed for Chapter 7 liquidation, but its resort management company continues to operate outside of bankruptcy and time share owners continue to vacation at Consolidated properties, he said.
Even in good times, Southern Nevada time share companies have occasionally hit the wall.
For example, Nick Benson took over as chief executive officer at Sunterra Corp. of North Las Vegas after Sunterra emerged from an earlier bankruptcy.
Benson was educated at the Royal Military Academy Standhurst, the British equivalent of West Point, and spent 10 years as an infantry officer. He then earned a law degree before joining Sunterra.
The board fired Benson for cause when a review "identified misconduct at the very top of Sunterra management," Sunterra Chairman John Ziegelman told analysts in a conference call in December 2006.
The company had underpaid withholding taxes in Spain to employees of Sunterra Europe.
The Securities and Exchange Commission investigated Sunterra but did not sue the company as the SEC often does in cases of wrongdoing.
The story ended well for investors. Diamond Resorts LLC, which has Stephen Cloobeck as its manager, acquired Sunterra for $700 million including $375 million in Sunterra debt. Shareholders received $16 a share.
Cloobeck declined to say how big his company was at the time but said his company was not having any financial difficulties now.
Leisure Industries Corporation of America, another Southern Nevada time share company, also had a colorful background. It was formerly known as Mego Financial Corp. and started in the 1950s as the toy maker for action figures, such as Batman and Robin and characters from "The Dukes of Hazzard" but ended up in bankruptcy, according to a court document.
Years later, the Mego estate was acquired by some Las Vegas investors who made it the parent company for Preferred Equities Corp., which helped develop Pahrump and entered "the fledgling vacation ownership industry."
A group of investors bought the company in 2002 and established offices in Henderson.
A couple of problems blindsided the company.
"First an enormous amount of consumer paper, originated by the previous management, began to go delinquent," a bankruptcy attorney explained in a report to the court.
Secondly, the manager discovered "massive title problems" in its land sales divisions and that delayed funding. That led to a second bankruptcy in 2003 and to a liquidation of its assets.
Southern Nevada's time share industry now needs to recover from the economic collapse and credit crunch.
The local industry includes some of the biggest names in lodging: Hilton, Marriott, Hyatt, Wyndham Vacation Resorts and Starwood Vacation Ownership.
The Hilton brand is on three properties. The first opened its 200 units in 1994 at 3575 Las Vegas Blvd. South. It was followed by a 232-unit sister property at 455 Karen Ave. and the 714-unit Hilton Grand Vacations Club at 2650 Las Vegas Blvd. South.
Hilton said it has development plans for time share projects in Las Vegas, Orlando, Fla., and Hawaii. Hilton has received approval for a third phase at its Hilton Grand property on the Strip.
Hilton said its time share sales "have remained steady" despite economic challenges.
"We will be back in a big way," Nusbaum said.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
Economic impact of time share industry in Las Vegas, 2007
Direct output impacts -- $1.6 billion of purchases
Jobs -- 7,380
Salaries and wages -- $328 million
SOURCE: ARDA International Foundation
Time share performance, 2008
Sales volume -- $9.7 billion
Number of time share intervals sold -- 482,549
Average price per interval -- $20,152
Occupancy -- 81.6 percent
Average maintenance fee per interval -- $646
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