Trading Places - time-share resorts - Industry Overview

Kiplinger's Personal Finance Magazine,  July, 2000  by Elizabeth Razzi

Tags: Branding, Disney Corp., Hilton Hotels Corp., MARKETING, Marriott

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TRAVEL | Once known as rip-offs, TIME SHARES have gone upscale and allow more options to mix and match destinations.

TO UNDERSTAND what's going on with time shares these days, consider a filet mignon. It's just a small bit of beef (and a pricey one at that), but it's the best bit--and quite enough to satisfy your appetite. Similarly, vacationers are snapping up prime bits of property through time shares. They're buying just a week or two at top resorts--and paying premium prices.

If you still think of time shares as swampland hotels peddled by high-pressure salesmen, you missed the legitimization of the industry over the past decade. Among the catalysts was Marriott's entry into the market in the mid 1980s, followed by Disney in 1991, creating time-share resorts worthy of their brand names. What's new is that the really posh hotel brands--such as the Four Seasons and Ritz-Carlton chains--are moving into the market with time shares marketed as if they were country-club memberships. And buyers are snapping up these filets as if they were hors d'oeuvres.

Bill and Barbara Hardy are riding the wave from upscale to posh. In 1993 they bought three weeks of a Marriott time share in Palm Desert, Cal., after having passed on a number of lesser resorts. At the time the retired couple, who live in Laguna Woods, Cal., purchased a "lockout" unit at the Marriott resort--a large apartment that can be used as a two-bedroom suite or split into two separate living units--they could visit as many as six weeks a year if they used the smaller lodgings.

When they started looking for another time share closer to the coast, they found that Four Seasons was building its first time-share resort, the Four Seasons Resort Club Aviara, a 1,000-acre golf and tennis resort in Carlsbad, Cal., north of San Diego. It hadn't even been built yet, but based on Four Seasons' reputation for pampering guests--and an impressive model displayed in a warehouse--they plunked down $36,000 for two weeks in a two-bedroom, three-bath suite, which could be split into two smaller units. That way, they could stretch their visiting rights to as many as four weeks a year.

Why didn't the Hardys just buy a nice vacation home outright? Because they, like many time-share buyers, just don't want one. "We don't like to maintain a second home," says Barbara. "We don't want to be bogged down keeping up a property when we want to go somewhere else."

Prices have gone up since the Hardys got their preconstruction deal at Aviara. The lowest price for a two-week share is now $50,800.

Swelling ranks

IN 1998 ALONE, about 300,000 Americans joined the ranks of time-share owners. All together, more than two million Americans own a time share--ranging from dingy motel-makeover units bought back in the 1970s (that you couldn't give away now) to pieces of sumptuous resorts now coming to market.

And this country leads the world in the number of resorts carved up into one-week ownerships. The U.S. has more than a third of the world's supply, with sales of more than $3 billion in 1998. Orlando, Fla., is time sharing's worldwide epicenter--and that's where Marriott and Disney are building their newest time-share resorts.

Yet even as the business thrives, no one likes to use the words "time share." The business of hard-selling shabby resorts developed such a lousy reputation in the 1970s and early '80s that an entirely new list of monikers was necessary. Today you can buy into "vacation ownership," "vacation clubs" or "fractional interests." Only in the government-required fine print will you see the dreaded words "time share."

Why we buy so many

THE APPEAL TO buyers is that they are able to buy--if only for one week a year--a second home by the seaside or along the ski slopes that would be prohibitively expensive to own outright. Time shares offer a more comfortable setup than you can expect to find in a hotel: one or two bedrooms, a living room with a TV and stereo, a fully outfitted kitchen, and a balcony or patio. "To a large extent, this is a poor man's second home," says Alan Ziobrowski, an associate professor in the department of real estate at Georgia State University. "Most of middle-class America could technically afford one of these properties--for a week or two."

Most time-share owners eventually tire of visiting the same resort every year and arrange to swap their vacation rights for those at another resort. Before you consider buying a time share, evaluate how easy it will be to trade. For example, because the Hardys bought into a couple of blue-chip resorts, they can easily trade for the right to use other time shares in the U.S. and abroad, even in peak season. "If you buy a really good piece of property in a time share, you're not locked into a thing," Bill notes. Conversely, an older, one-bedroom time share in Orlando, where there are loads of similar apartments, wouldn't be nearly as easy to swap.

Any resort worthy of your money belongs to one or both of the two major exchange companies: Interval International and Resort Condominiums Inc. Only time-share owners can join. For an annual membership fee of $74 to $123--and a per-trade fee of $109 to $162--you can swap vacation destinations with other owners around the world. You still own your time share; all you trade is the right to use it in a given period.