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New England ARDA Conference June 2011

New England ARDA Conference June 2011. HOA Challenges and Solutions: Postcard and Rescue Companies, Resales, and Rentals. Sponsored By. New England ARDA Conference June 2011 W. John Funk. Introduction of Panelists W. John Funk – Gallagher, Callahan & Gartrell, P.C.

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New England ARDA Conference June 2011

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  1. New England ARDA Conference June 2011 HOA Challenges and Solutions: Postcard and Rescue Companies, Resales, and Rentals Sponsored By

  2. New England ARDA Conference June 2011 W. John Funk Introduction of Panelists W. John Funk – Gallagher, Callahan & Gartrell, P.C. Rich Muller – Vacation Resorts International Scott MacGregor – InnSeason Resorts Jason Tremblay – Sellmytimesharenow.com

  3. New England ARDA Conference June 2011 W. John Funk Scope of Panel Discussion • Timeshare resorts are under economic pressures from increasing maintenance fee delinquencies and insufficient cash flows. • Compounding the problem of a rising number of people who are unable or unwilling to pay their assessments, timeshare “relief” or “rescue” companies (TRC) are victimizing timeshare owners and associations by encouraging maintenance fee defaults. • The panel will discuss the causes the current situation, the impact on owners and resorts and potential solutions

  4. New England ARDA Conference June 2011 Rich Muller What are TRCs? • How are TRCs different from resale companies? • NOT timeshare resales • Buyer pays Seller • Ownership transferred to entity.

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  9. New England ARDA Conference June 2011 Rich Muller How big is the problem and how did it develop? • 98 VRI Resorts Audited • 88 Companies on watch list • 2,885 Intervals • One name appears on 64 rosters 200 Intervals • 86 Intervals in one person’s name

  10. New England ARDA Conference June 2011 Rich Muller How did it get so big? • No Consumer Complaints • No immediate impact on Association • Appearance of Legitimacy • Counterintuitive • Heads in the Sand • Failure to respond to owner needs

  11. New England ARDA Conference June 2011 Rich Muller How do these transactions with TRCs occur? • Who is selling and why? • Excessive Maintenance fees • Loss of value • Inability to exchange, use or rent • Industry in state of collapse • Trapped by Associate • Burden on children and grandchildren

  12. New England ARDA Conference June 2011 Rich Muller • Who is “buying” the timeshare and why? • National rescue companies • Former TS sales reps • Some respected developers • How to tell the “good” guys from the “bad” guys? • Seller paid buyer • Buyer owns multiple intervals/multiple resorts • Buyer is individual vs entity • Buyer lists intervals for resale • Fails to pay maintenance fees

  13. New England ARDA Conference June 2011 Rich Muller What is the impact at the association level and nationwide? • Every association • Timeshare owners • Fellow owners • Sales companies • Resale companies • The industry as a whole

  14. New England ARDA Conference June 2011 Scott MacGregor What associations need to do about it? • The root causes of maintenance fee delinquencies include: • Owners have limited options for exiting the product • Resorts are aging and some are “functionally obsolete” - for most, the cost of maintaining, improving and operating the properties exceed their revenues, creating a downward spiral • Boards of Directors lack the resources to identify the nature and sources of their resort’s problems, and the ability to formulate and execute a sustainable strategy to fix them

  15. New England ARDA Conference June 2011 Scott MacGregor

  16. New England ARDA Conference June 2011 Scott MacGregor • There are solutions for virtually every resort and situation. • Each requires an informed and objective analysis of the resort’s status and future potential. • The spectrum of solutions range from rejuvenation to liquidation, with options in between.

  17. New England ARDA Conference June 2011 Scott MacGregor • Rejuvenation: Position the resort for long-term success • Goal: 100% of intervals owned by satisfied, dues-paying owners • No operating deficits, funded reserves, best possible operation and physical condition • Maintain and enhance the value of ownership!

  18. New England ARDA Conference June 2011 Scott MacGregor • Create a 5-year plan including budget, inventory recovery & sale, property management & upgrades • Focus on getting all owners actively using and enjoying the product • Provide optimum flexibility of use options • Implement options for owners who want or need to exit, and for re-selling the intervals that need to be resold

  19. New England ARDA Conference June 2011 Scott MacGregor • Implement internal “relief” programs; give paid-in-full owners option to deed back to HOA, and pay ___x maintenance fees plus admin fee; limit based on inventory absorption levels in 5-year plan • Consider trust products with limited term or opt-out provisions • Explore full or partial closure of resort during lowest occupancy periods

  20. New England ARDA Conference June 2011 Scott MacGregor • The new model: The resort is always in sales • Developer remains in active sales or finds a “surrogate” developer • Critical to maintain interval value – no giveaways • HOA gets value from assessment income stream, not sales participation • Keep the product salable

  21. New England ARDA Conference June 2011 Scott MacGregor • Partner with the right surrogate developer • Financing is essential to support retail pricing • Vacation Clubs: do your homework, but flexibility and single-payer are benefits • Does the board use the “control” card to put self-preservation above the long-term interests of the HOA?

  22. New England ARDA Conference June 2011 Scott MacGregor How to find ways to help functionally obsolete resorts “fail gracefully”? • Rightsizing the industry, bring demand & supply back into equilibrium • Downsize resorts • Merge resorts • Liquidate resorts • Vacation Clubs: excellent vehicle to give owners new options; points flexibility as solution to rigidity of fixed week/fixed unit inventory

  23. New England ARDA Conference June 2011 Jason Tremblay Where are we and how did we get here? • Resale issue actively suppressed by many developers and HOA’s for 3+ decades • Estimated $30B overhang of supply in secondary market, compounded by fragmented resale options, lack of liquidity and a resale market wrought with fraud • “Tour” marketing model increasingly inefficient (most developers now spending over 50% on marketing) • Internet bringing increasing access to the secondary market, disrupting the primary market

  24. New England ARDA Conference June 2011 Jason Tremblay Are there other symptoms of the problem? • Increased media coverage highlighting the difficulty in re-selling a timeshare and the rampant fraud taking place • TRCs:  Many owners willing to pay thousands to get out of their timeshare.  Some TRCs defrauding consumers and HOA’s • Largely NOT a consumer problem (if the transfer takes place) • There is robust demand for TRC services – denial is dangerous • Most HOA’s and developers not offering owners a resale solution • Owners becoming increasingly frustrated – not offering an owner a solution only forces them to navigate the secondary market on their own making them ripe for the TRC “pitch”

  25. New England ARDA Conference June 2011 Jason Tremblay What kind of thinking that got us into this mess? Consider the following quotations from industry executives: • “Why would someone want to sell their timeshare?  We all need vacations….”  • “If someone wants to sell it just means they don’t have enough… sell them more.”  • “If we can get people to see the value in our product they’ll never want to sell.”  • “Let’s try to outlaw resale.  Resale is our competition.” • “With all the fraud out there it’s too dangerous to recommend a resale company.”  • “If we do resale we need to control the pricing.…” 

  26. New England ARDA Conference June 2011 Jason Tremblay What’s the solution? • A healthy secondary market fostered and facilitated by both the developers, management companies and the HOA’s is vital • ARDA must seek to identify and continue to provide a platform for legitimate resale companies and brokers • Developers must get over their fear of strengthening the secondary market and offer their owners a resale solution  • HOA’s and resorts that are still healthy need to be proactive NOW about having an owner and HOA resale plan

  27. New England ARDA Conference June 2011 Jason Tremblay • A robust owner rental program will reduce delinquencies.  Many external partners available to assist HOA’s with rental • An internal “relief” program makes total sense and can be an effective way to combat the TRC’s • The only way to counter the “TRC” messaging is for the industry to sing in unison that there is a secondary market and then support by all means possible its evolution

  28. New England ARDA Conference June 2011 Jason Tremblay What are the advantages/disadvantage of on-site resale vs. external resale partner?  • On-Site Advantages - Can bring in new owners at much faster pace and higher sales prices and diminishing supply keep values elevated • On-Site Disadvantages - May not be viable in all situations, may perpetuate the cycle of insanity, may not be sustainable long-term • External Advantages - If a resort is healthy, partner can provide new and “willing” maintenance fee paying owners, viable resale programs exist for both HOA inventory and owners needing to sell • External Disadvantages - Resale buyers are informed and will only pay market value and not “price,” HOA should only look to get new paying owner and not expect much “new sales revenue”

  29. New England ARDA Conference June 2011 Discussion • What metrics should a board use to determine whether a resort is viable – close, shrink, merge or survive? • How does a resort determine who are the good guys and bad guys?  What is the appropriate amount of due diligence and restrictions? • What liability exists for a resort or its managers by having a proactive screening program? • What is the “right” fee to charge for a take back?  What are the risks for a resort in running a take back program?

  30. New England ARDA Conference June 2011 How can ARDA help? • ARDA International Foundation: research underway on scope and nature of challenges to independent resorts • ARDA ROC – Resale Guidelines (www.ardaroc.org) • ARDA HOA Outreach – articles, toolbox • ARDA regional committees: here to serve you; tell us how! • Owner networks & social media

  31. New England ARDA Conference June 2011 Thank You! Please fill out the evaluation form and return to the registration desk.

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