After two years of drastic industry decline, the timeshare
industry appears to be rebounding. The credit crunch of 2008-2009, in construction financing and especially in receivables funding, forced most large timeshare
developers to contract significantly. Most developers refocused their attention on cost cutting and more efficient selling. During this period, the timeshare
receivables held up and funding is now becoming available. The outlook is for 12-15% growth for the next 12 months.
After a couple of bankruptcies (Celebrity and Island One), the industry has demonstrated its vitality by cutting costs and increasing sales efficiencies. The cost cutting included becoming more responsible in marketing programs and in trimming the less efficient sales staff. Also, they refocused their efforts on selling more to existing timeshare
owners, who have demonstrated an 84% satisfaction rate with their ownership. These improvements have resulted in most timeshare
developers continuing to sell and remain in business.
The declining property values and lack of construction lending has created a new opportunity and new focus for those timeshare
developers who have available investment funds or who are very creative. The highly discounted vacation condominium real estate creates the opportunity for timeshare
developers to work with the developers of the "failed condominium projects" to convert them to timeshare
. So, timeshare
developers are finding a lot of available inventory to sell that can be acquired or sold under contract at very favorable prices.
industry continues in business because the product is sold face-to-face and as long as customers can be attracted to the timeshare
sales offices, there are sales people there who can sell them.
The only real limitation, which is now showing signs of loosening, is Receivables Funding. Because the timeshare
business model is based on building or buying inventory and marketing and selling it and then lending money to the buyer, the cash flow is necessarily negative. Without receivables funding, timeshare
developers cannot continue to sell (to existing owners) indefinitely. They need new customers and new customers mean the developer needs receivables funding. In the recent past, some developers were very aggressive in selling to anyone and did not require a minimum credit scores. These developers loan portfolios (for their receivables lenders) took a beating during 2008-2009. However, many developers used credit standards and their portfolios have continued to perform acceptably. Further, the Midwest developers did not have the delinquency problems that east and southeast coast developers had. As a result, some developers portfolios have continued to perform very well during the crisis (less than 2% delinquency). As a result of developers getting more efficient in selling, the institution of tighter credit standards, and some changes in advance rates, the availability of receivables funding is increasing. Advance rates were 90% of the face amount but recently, rates in the area of 75% to 85% have been the norm. However, rates below 85%, in my opinion, are foolish for the lender because it puts the developer at an unnecessarily high risk of negative cash flow -- which could hurt both the developer and the lender, eventually.
So, the outlook is improving. Construction lending is beginning to trickle. Receivables funding is becoming more and more available (where else can an investor get 7% to 9% net with very low risk). Developers are projecting 12-15% growth for the next year. The industry is showing signs of expansion again. As consumer optimism increases, so will the interest in owning their vacations. One interesting point about this two year dip in the economy, while many people postponed or shortened vacations, for the most part, they didn't stop taking vacations. Those who owned their timeshare
already, were able to use their previous purchase to minimize their vacation costs in this poor economy. Owning timeshare
in this economy has been an advantage for many people.