DVC Problems?: Chicago/NYC Sales Office to Close

[GoofGoof]

I'm not sure where that number comes from, but based on the budgets at the two resorts I own, 50% is probably far too high. Bad debt at my two is much much lower. Then again, mine are both pretty aggressive at foreclosing and reselling units to get those fees paid.

I read this article a few months ago, but I found it online. Here it is:
http://finance.yahoo.com/news/timeshare-prices-plummet-to--1.html

The number surprised me too. I'm sure there are lots of timeshare properties that are thriving besides DVC. I know of a few myself that I have stayed at, but the industry in general is in pretty bad shape.

 

[Brian Noble]

the industry in general is in pretty bad shape.

Except that it isn't at all in bad shape. It's in great shape. There is almost no connection between secondary market prices and the prices the developers can obtain---and that goes back to the way timeshare is sold---not bought, but sold. Buyers are buying on impulse, they don't know the market, and human nature is such that even if they do some research during their rescission period, they don't really want to discover they've done something foolish.

There are numerous examples out there. Wyndham is my favorite current example. The system is so large that there are always a non-trivial number of owners looking to sell. But, there aren't enough secondary market buyers, so you can barely give away something that cost low five figures just a few years ago---I bought my deed resale for approximately 1.5 cents on the dollar six years ago. But, Wyndham is still selling at a healthy clip. They have a presentation that reports a VPG (Volume per Guest) north of $2,200 for 2011. That means for *every* couple that tours, they can expect $2,200 in sales revenue, on average. They also report average transaction value at $17,000. That means that they "convert" (close a sale with) approximately 1 out of every 8 couples who tour.

Think about what that means. One out of every eight tours pays $17,000 for a product that has a market value of $1 after the ink on the purchase agreement dries.

I love the Wyndham system. They've got some very nice resorts in a wide variety of locations. And, purchased resale, it's one of the great bargains in all of timesharing. I'm staying in a 2BR condo in Alexandria, VA for Easter week/Cherry Blossom, right next to the King Street Metro Station for about $165 a night, all-in. Even those who purchase from the developer are happy---as long as they are using it for vacations. The instant they try to sell, though...

 

[GoofGoof]

Except that it isn't at all in bad shape. It's in great shape. There is almost no connection between secondary market prices and the prices the developers can obtain---and that goes back to the way timeshare is sold---not bought, but sold. Buyers are buying on impulse, they don't know the market, and human nature is such that even if they do some research during their rescission period, they don't really want to discover they've done something foolish.

There are numerous examples out there. Wyndham is my favorite current example. The system is so large that there are always a non-trivial number of owners looking to sell. But, there aren't enough secondary market buyers, so you can barely give away something that cost low five figures just a few years ago---I bought my deed resale for approximately 1.5 cents on the dollar six years ago. But, Wyndham is still selling at a healthy clip. They have a presentation that reports a VPG (Volume per Guest) north of $2,200 for 2011. That means for *every* couple that tours, they can expect $2,200 in sales revenue, on average. They also report average transaction value at $17,000. That means that they "convert" (close a sale with) approximately 1 out of every 8 couples who tour.

Think about what that means. One out of every eight tours pays $17,000 for a product that has a market value of $1 after the ink on the purchase agreement dries.

I love the Wyndham system. They've got some very nice resorts in a wide variety of locations. And, purchased resale, it's one of the great bargains in all of timesharing. I'm staying in a 2BR condo in Alexandria, VA for Easter week/Cherry Blossom, right next to the King Street Metro Station for about $165 a night, all-in. Even those who purchase from the developer are happy---as long as they are using it for vacations. The instant they try to sell, though...

Good point. I misspoke. It's not really the industry that is in bad shape but the resale market. We are seeing a differential between resale and direct for DVC but nothing like the $1 sales. Compared to the broader timeshare resale market DVC is very healthy. Probably also the reason you don't here about DVC foreclosure sales as much. With ROFR you can never buy in for $1.

 

[Brian Noble]

Don't be so sure about that. It's very expensive to market "old" properties vs. "new" ones---even at $1 cost basis, it might be more profitable to build and market "new" resorts than to continuously market "old" ones. Go back and look at the transaction cost/profit breakdown in that Wyndham presentation; the "cost of inventory" in Wyndham's system is only 20% of the total purchase price. If Disney has similar cost breakdowns, then "old" properties would have to sell at a price-per-point that is discounted no more than 20% from "new" properties, no matter how cheaply they can ROFR.

And, they are already there: OKW sells for $100pp. AKV is $135. That's a 25% spread. In other words, if the cost bases between the two companies are similar, Disney is losing money on an OKW sale vs. an AKV sale even if they are paying nothing to ROFR. I suspect they are ROFRing OKW only because that allows them to extend acquired 2042 deeds to 2054 and reduces the number of units Disney will suddenly "own" when 2042 rolls around and they still have to operate it as a DVC resort until at least 2054. Note that OKW is the *only* property Disney is ROFRing with any frequency at all these days.

Wyndham solved this problem by creating "Club Wyndham Access", where you have a "blended" home resort (i.e. points from one resort can be sold anywhere), and this is the mechanism older HOAs use to re-sell foreclosed intervals. Disney probably can't do something similar, because the home resort window is written into the DVC condo documents (and therefore conveys with the deed) rather than just being part of an administrative layer as it is in Wyndham.

 

[GoofGoof]

Don't be so sure about that. It's very expensive to market "old" properties vs. "new" ones---even at $1 cost basis, it might be more profitable to build and market "new" resorts than to continuously market "old" ones. Go back and look at the transaction cost/profit breakdown in that Wyndham presentation; the "cost of inventory" in Wyndham's system is only 20% of the total purchase price. If Disney has similar cost breakdowns, then "old" properties would have to sell at a price-per-point that is discounted no more than 20% from "new" properties, no matter how cheaply they can ROFR.

And, they are already there: OKW sells for $100pp. AKV is $135. That's a 25% spread. In other words, if the cost bases between the two companies are similar, Disney is losing money on an OKW sale vs. an AKV sale even if they are paying nothing to ROFR. I suspect they are ROFRing OKW only because that allows them to extend acquired 2042 deeds to 2054 and reduces the number of units Disney will suddenly "own" when 2042 rolls around and they still have to operate it as a DVC resort until at least 2054. Note that OKW is the *only* property Disney is ROFRing with any frequency at all these days.

Wyndham solved this problem by creating "Club Wyndham Access", where you have a "blended" home resort (i.e. points from one resort can be sold anywhere), and this is the mechanism older HOAs use to re-sell foreclosed intervals. Disney probably can't do something similar, because the home resort window is written into the DVC condo documents (and therefore conveys with the deed) rather than just being part of an administrative layer as it is in Wyndham.

The big difference between Wyndham and DVC is that the DVC properties are intertwined within the WDW resort as a whole.

Intersting concept. It is probably pretty close to the Wyndam number. As an example BLT has roughly 5.6 million points to sell. Assuming an average price of $110 (started at $90 with discount and up to $165 now) that means 616 million in revenue from sales. I read somewhere that BLT cost $140 million to build or roughly 23% of the total revenue. That would also mean that if they are selling the points for $165 then they would need to buy through ROFR at $38 to keep their profit margin the same assuming the sales costs are the same. For the older resorts that sell for less the number would be even lower. I never really looked at it that way. You are probably right that this is the reason we are not seeing ROFR buys. The only issues that I see for Disney is that it's hard to sell direct to people for $165 when they can buy resale for $40. They also use the higher resale value and ROFR as a selling point for buyers. If people see that the resale value is really low that could make them nervous to buy in. Disney may at some point accept the lower margin on the DVC resales to keep the overall DVC market propped up.

 

[ParentsOf4]

I read somewhere that BLT cost $140 million to build or roughly 23% of the total revenue.

This link agrees with the $140 million number:
http://www.gsb-inc.com/disneys-bay-lake-tower

 

[kapeman]

I agree. Spur-of-the-moment buyers in the middle of their vacations are the easiest customers for DVC direct sales. Handing them free Fast Passes to use on their current trip, feeding them snacks, and letting them actually see the rooms works wonders in closing the deal. These advantages are lost with remote sales offices. With so many DVC resales now available and with the advent of the Internet, the average consumer (i.e. anyone not at WDW) is going to have a much easier time researching a possible DVC purchase from home rather then sitting down at a store in a mall. The lure of free Fast Passes really does pull people in!

I agree with you about the sales being easier in the parks, but I disagree that average consumer has any idea about resale.

Us plugged-in forumites are the exception to the rule.


Also, if it weren't for our DVC points we would not have been able to stay at The Beach Club, Wilderness Lodge or Aulani. I am very happy with my $52/point resale purchase!

 

[ParentsOf4]

I agree with you about the sales being easier in the parks, but I disagree that average consumer has any idea about resale.

Us plugged-in forumites are the exception to the rule.

Also, if it weren't for our DVC points we would not have been able to stay at The Beach Club, Wilderness Lodge or Aulani. I am very happy with my $52/point resale purchase!

The average consumer has a notion that anything can be bought on the Internet, including WDW tickets, vacations, pins, timeshares, etc. I "stumbled" upon DVC resales while researching DVC. I'm sure others have done the same.

However, while the consumer is at WDW, DVC is much more "in their faces". It's easy to understand why this would be the first place most consumers become aware of DVC. Whether they do additional research before their purchase, that's a different matter.

As I've posted elsewhere, a direct purchase is better than a resale in every way except price. But that's a pretty big "just one thing".

 

[GoofGoof]

The average consumer has a notion that anything can be bought on the Internet, including WDW tickets, vacations, pins, timeshares, etc. I "stumbled" upon DVC resales while researching DVC. I'm sure others have done the same.

However, while the consumer is at WDW, DVC is much more "in their faces". It's easy to understand why this would be the first place most consumers become aware of DVC. Whether they do additional research before their purchase, that's a different matter.

As I've posted elsewhere, a direct purchase is better than a resale in every way except price. But that's a pretty big "just one thing".

I pretty much stumbled into the resale market too. Usually if a price is too good to be true for something there is always a catch (especially on the Internet). I am a suspicious person by nature so if it wasn't for places like this board and others like it I may have been too skeptical to try out the resale market. Without resale I probably would not have bought in since i personally would not finance the purchase and the direct price was a little more than i had to spend on DVC. That is why I always try to express my positive experience with resale in case there are others that are "on the fence" or just discovering that an active resale market exists.

 

[TomHendricks]

I walked by the Doorway to Dreams today here at the Roosevelt Mall here on Long Island and it was packed with people. I wanted to stop in and talk to my friend there but he was busy with customers. They were also having some sort of special, only caught the sign quickly as I was passing by and didn't see what it was.

 

[FutureCEO]

My parents have 250 points together from 2 properties. They got them resale and the points for sale usually are sold within the day. The point is DVC is good for staying at resorts like Lay Lake and AK Lodge which we would have never done without the DC. The downside to DVC is that you don't get enough perks or offer for like a free dining plan or something like that.

Disney might change by time you read this. But on their site 160 points at AK lodge is $21,600. I think all 250 points cost my parents that same amount. Granted, we have Old Key West and somewhere else but I forgot. Disney really screws you too if you want to go to other hotels throughout the real world. You need to buy a lot more points for that which is more money. The resale market is there for points but buying directly from Disney might not be there.

 

[Cosmic Commando]

While I'm sure there are plenty of people here that are going to rip into Disney/DVC for this, I think it was a smart idea on their part. They were selling a product that basically had a transferable, non-deteriorating life (from a perspective of year to year value, not expiration of ownership). If I were selling a product that had a thriving resale market, where I captured zero dollars from said resale -- and the product people were reselling held no value difference from what I was selling, I'd do something to protect my business as well. Also, I do not think there's another time share company out there that wouldn't do (or has done) something similar to protect it's original sales potential....

As much as I hate it as someone who will probably buy DVC resale eventually, I totally can't blame them at all for that. The resale points could even be more desirable for someone who wants a shorter term, since all of the "new" points that Disney has last around 50 years. The year-to-year value stays essentially the same... the total number of points at a resort cannot change. The only thing Disney can do is make it, just for example, more points to stay between Christmas and New Year but fewer points to stay last week of January..

 

[GoofGoof]

Sorry I doubt most DVC's are bought with cash and if they aren't I wonder if Disney is financing themselves??.

Disney does offer the financing. They will periodically bundle the loans together and sell them to a financial institution. In other words they don't carry all of those loans on their balance sheet. I read an article some time ago about how Disney would switch out "delinquent loans" for new ones so that they could handle foreclosures directly. They didn't want a bank possessing large blocks of foreclosed points that could potentially be dumped on the open market and they also wanted to avoid a third party aggressively pursuing payment from their most loyal customers.

 

[GoofGoof]

Again just wondering the DVC fan boys don't need to go on the attack to defend their beloved DVC. No I'm not saying DVC is going under and everyone's points will be worth a $1, I can even do better than that we had a club around here on the next island over that when it crashed people were selling they're memberships for $1 and club fees paid up for a year. Those were people who actually bought with cash and it wasn't a time share.

Not sure what this means. What kind of club are you talking about?

 

[Cosmic Commando]

And, they are already there: OKW sells for $100pp. AKV is $135. That's a 25% spread. In other words, if the cost bases between the two companies are similar, Disney is losing money on an OKW sale vs. an AKV sale even if they are paying nothing to ROFR. I suspect they are ROFRing OKW only because that allows them to extend acquired 2042 deeds to 2054 and reduces the number of units Disney will suddenly "own" when 2042 rolls around and they still have to operate it as a DVC resort until at least 2054. Note that OKW is the *only* property Disney is ROFRing with any frequency at all these days.

Yeah, I never thought about it before, but that could be a really sticky situation for Disney. The contracts were just an option offered (I think), why did Disney do that?

 

[Brian Noble]

I'm not sure I've heard a great explanation. My best guess: If I remember correctly, the OKW extension happened during a "bubble" in the supply of DVC inventory---the extension was late '07 or early '08. AKV-Jambo was just coming on line, and Kidani was still a ways away. SSR hadn't opened THV yet, and I think was running low around then too. But, DVD contributes a good chunk to the Parks & Resorts bottom line, so this was an easy way to get a revenue infusion. And, I vaguely recall either a quarterly or annual report mentioning this as a contributor to good P&R performance. But, I have to believe they regret it now---if only because they've never extended the offer on any of the others.

 

[Longhairbear]

I'm not sure I've heard a great explanation. My best guess: If I remember correctly, the OKW extension happened during a "bubble" in the supply of DVC inventory---the extension was late '07 or early '08. AKV-Jambo was just coming on line, and Kidani was still a ways away. SSR hadn't opened THV yet, and I think was running low around then too. But, DVD contributes a good chunk to the Parks & Resorts bottom line, so this was an easy way to get a revenue infusion. And, I vaguely recall either a quarterly or annual report mentioning this as a contributor to good P&R performance. But, I have to believe they regret it now---if only because they've never extended the offer on any of the others.

I am a DVC member, and can say the OKW extension was not all that popular according to the forums I was reading at the time. Rabid fans snapped up the extra years while most realized they'd be dead before the extra years even started, and they would be saddling their kids, and grandkids with a possible financial burden.
The general thought on those forums was that the then president of DVC was furious at the low price original owners paid for points, and wanted to squeeze more cash out of them.
When I bought my points direct from Disney, I paid half of what the price is now. I wish we would have bought sooner than we did.

 

[GoofGoof]

It was like a time share on Daufuskie island SC. It was a hotel and cottages where you bought in and owned a equity stake in the resort, "club" and the members were billed dues every year for up keep and operations. When you bought in you got X amount of hotel or cottage days per year and I think they were specific times of year. Place has gone BK several times and the latest owner said he was going to dump a bunch of cash into it. Only accessible by boat, golf carts to get you around the island, very quite laid back place for some, boring for others. Here this will give you the idea about the place. http://www.tripadvisor.com/Hotel_Re...sort_Spa-Daufuskie_Island_South_Carolina.html

Sweet place for weddings BTW. Occasionally the rich and famous show up and throw a big party. If you are familiar with the Hilton Head SC Daufuskie Isl is what you you are looking at from HHarborTown.

That actually looks pretty cool. Too bad it didn't succeed. I think the biggest difference is there will always be a demand for WDW so there will always be a demand for the DVC resorts. Disney still rents a portion of the DVC resorts for cash so they cannot allow them to rot away.

 

[GoofGoof]

I am a DVC member, and can say the OKW extension was not all that popular according to the forums I was reading at the time. Rabid fans snapped up the extra years while most realized they'd be dead before the extra years even started, and they would be saddling their kids, and grandkids with a possible financial burden.
The general thought on those forums was that the then president of DVC was furious at the low price original owners paid for points, and wanted to squeeze more cash out of them.
When I bought my points direct from Disney, I paid half of what the price is now. I wish we would have bought sooner than we did.

I heard the same thing about the extension not being at all popular. I think Disney took a shot and if it was successful they would have offered extensions at the other 2042 resorts. I still think when they get closer to 2042 they may retry this. If not what they will probably do is when the 2042 contracts expire they will rotate closing some portion of the resort for renovation until all units have been renovated and when that is complete resell the points as 50 year contracts. When the 2057 contracts expire they will probably resell them too.

 

[WDW1974]

Debated wading in here because as much as I'm known as a Disney hater, I'm known even more as a DVC hater (and that's with family and good friends being 'owners').

I have been to four presentations over the years and a few other special events, like touring BW and BLT before they opened (got a buffet of some sort for BW, a dessert type thing with characters for BLT!)

Now, I have issues with what they do to the quality of a deluxe resort when added (sorry, folks bringing in bags of Walmart groceries doesn't say 'class' to me) but I'll place that aside.

I'd rather focus on the value aspect because I certainly think it is a value for some folks (vastly fewer than likely think so, though).

It all comes down to what I've gone through every time I've had a DVC sales pitch. Do I vacation a lot? Check. Do I go to WDW frequently? Check. Do I enjoy staying on property? Check. Would I like to lock in a rate for 43 years? Sorta check? Would I like to stay in deluxe resorts? Check.

All sounds good, right?

Except Disney bases its value on what they charge for rack rate for the same DVC accomodations during said periods of the year. I'd never pay rack rate to stay at WDW ever, anyway. And I'd certainly not pay say $700 a night for a villa there (don't care that I can have friends and family with me, I don't even like them!) DVC stops becoming a value as soon as you realize you are being 'upsold' into a product you wouldn't normally stay at. Sure, if that villa at $700 a night would be your normal accomodation, then maybe Disney has you. But what if you're perfectly happy staying at a value motel? Oh ... well, Disney's line is prices increase every year, which they do ... but discounts are constant. I can book a room at the All Stars next week for $66 a night (I paid $79 to stay there a dozen summers ago, so how is that a price increase?) ... DVC's sales pitch pretends that there are no such things as discounts and that you have to stay in a 'luxury DVC villa' versus a regular resort room. It certainly doesn't take into account that you can also stay off-property for far less and at other timeshares for far less (some that offer far more).

I think the Pixie Dust factor plays a big factor in some folks thinking. I have a relative who was touting 'owning' a place at WDW as soon as she bought into OKW (she later added points at Vero and BC and dropped her husband for another woman, but that's a whole different story!) She didn't like when I pointed out that she in essence owned nothing at all. She had simply bought into a pre-paid vacation plan and one that makes the points far less valuable the further you travel from your home resort (leave O-Town and they really drop!)

I think it's emotional for many. There's no way it would ever come close to being a value for me (except maybe picking up one of those $35 per point resales for a short time), but I also travel to places beyond Orlando. And I'm a pretty savvy traveler because while I like being a one percenter, I much prefer that I don't spend money at all.

There's no doubt that DVC is doing better than others in the business, but it's also safe to say that the market isn't what it once was (see those 70% discounts at Aulani now for CMs) and will likely continue to be diluted. If there isn't an endless number of rubes waiting to experience WDW, there certainly isn't an endless number of rubes who wish to purchase MAGICal timeshare.

(flame suit on!)