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Home Sweet Time Share - Vacation retreats go upscale as hotel chains cash in on their growing popularity

By Nisha Ramachandran

Vacation retreats go upscale as hotel chains cash in on their growing popularity - US News and World Report

As Mike and Jackie Bosworth headed into retirement two years ago, they toyed with the idea of buying a vacation home. But the Portland, Ore., couple, who wanted to escape gray winters for sunnier climes, could never decide where to settle down. "We liked everything," says Mike Bosworth, 58. "We liked the oceans; we liked the mountains. We liked to travel." The one thing the Bosworths did not like: the prospect of living out of suitcases and bouncing from hotel to hotel. "We wanted it to feel like: 'Gee, I want to go to my own home in Aspen next month,' " he says.

Their solution? A membership in Tanner & Haley's Private Retreats, a "destination club" consisting of multimillion-dollar properties around the world. So far, the Bosworths have enjoyed extended stays at homes in the Caribbean; Cabo San Lucas, Mexico; and Deer Valley, Utah. "It's a great way to share an experience with family and friends," says Mike Bosworth. Last year, the couple turned Tanner & Haley's 8,000-square-foot Italian-style villa in San Diego into the makeshift headquarters for their daughter's wedding, housing both their family and in-laws under one roof.

Destination clubs, along with the familiar concept of time shares, have become increasingly attractive to those who want it all: the creature comforts of a vacation home without the headaches of traditional ownership. No-hassle ownership is just part of the newfound appeal: Once considered dowdy stepsisters, time shares have gained new respectability under the imprint of well-established hotel companies, expanding to ritzier properties and offering the high-end services of name-brand operators.

" Selling a reality. " Investment in the new, improved time-share market has paid off handsomely. Despite slack demand in the hospitality industry following the terrorist attacks of Sept. 11, 2001, the time-share industry has steadily posted double-digit gains. New sales of U.S. time shares soared 21.4 percent last year, from $6.5 billion in 2003 to $7.9 billion, according to the American Resort Development Association, and construction of new units is projected to increase by nearly 12 percent this year. "It's really a good time in the industry," says Dick Ragatz, president of Ragatz Associates, a market research firm that tracks the industry. High-end options have grown at an even faster rate: Destination-club sales worldwide jumped from $140 million to $450 million during the same period. And"fractionals," a term that refers to the most expensive time shares where owners can bunk for more than the typical time-share week, saw their worldwide sales more than triple from $373 million to $625 million in 2004.

Not so long ago, time shares were more likely to be associated with pushy sales people and predatory marketing tactics than with a restful vacation. That has largely changed. The time-share concept, which dates to the mid-1970s, was devised as a solution to a glut of condos on the market. Starting in the early 1980s, a host of better legislative and regulatory protections, along with the development of trade associations, have helped clean up the time-share industry's tarnished reputation and protect buyers from fraud. "No one can be selling someone a dream," says Howard Nusbaum, president of ARDA. "They have to be selling a reality."

Further cleansing the time-share image has been the participation of marquee hotel chains like Hilton and Marriott. The latter was the first to jump into the game back in 1984. Not only did their presence lend the reputation of established brand names, but it also provided more stable financing for new developments. "The hotel companies have really changed the face of time shares away from the high-pressure sales tactic," says Joseph Greff, a lodging analyst with Bear Stearns. Today, the big three hospitality companies in the time-share industry, Marriott, Hilton, and Starwood, account for a third of all domestic sales.

So far, the hotel chains' foray into time shares and their fractional cousins has proved a reliable source of income. "This is about capturing the customer for a lifetime," says Raymond Gellein, CEO of Starwood Vacation Ownership. "It's a huge brand-extension strategy." Internal surveys at Marriott point to the same conclusion: Those who own a time share with the company are more likely to be repeat customers at its hotels.

Stable flexibility. Perhaps most important, the time-share segment seems to be immune to the roller-coaster ups and downs of the general hospitality industry. While hotel occupancy dropped dramatically after 9/11 and took the next two years to fully recover, time-share occupancy slumped for only two months before hitting previous marks. Last year, occupancy rates at time-share properties hit nearly 85 percent.

All this is good news for potential time-share owners, too. Hotel brands have helped introduce new options. "In the early days, it was commonplace to sell a fixed week in a fixed unit," says Stephen Weisz, president of Marriott Vacation Club International. "An owner would buy the third week in June at unit No. 7." Now, prospective buyers can choose from an array of choices, depending on where they want to vacation, how long they'd like to stay, and how much they have to spend. Those with six-figure incomes and up can opt for the superluxurious fractional model, which typically allows owners longer stays at exclusive properties. Run by operators like the Four Seasons and Ritz-Carlton, which started offering fractionals in 1999, these properties tout features like heated marble floors, plasma TV s, and concierge services. Many fractionals will even stock up on groceries or take the skis out of storage, all before an owner arrives for vacation.

Even the basic time share has diversified, offering owners more-creative ways to get the most out of their reserved weeks. Many time-share operators now allow owners to split weeklong stays among more than one property, make use of a smaller property for a longer period of time, or trade their time shares for use of properties across the world.

Robert Osborne and his wife bought their first time share from Marriott 15 years ago in Palm Springs, Calif. The couple typically stuck with the unit they purchased, finding it difficult to trade for weeks in other locations. Today, using improved trading systems, the Osbornes frequently head off to other destinations. The couple, who have since bought additional time shares with Starwood and Marriott, have found that the increased availability of time shares has broadened their horizons. "As soon as a new property opens up, we're thinking: Should we go there?" says Robert Osborne, 65, a retired naval officer. They have traveled through Europe and Mexico, all by using their time-share weeks.

Chasing the big dollars are the destination clubs, which are aimed at individuals who can afford membership prices starting at $100,000 and going much higher.

While still a fledgling industry, destination clubs have recently piqued the interest of heavy hitters like Steve Case, former AOL Time Warner chairman. Case is now chairman of Exclusive Resorts, founded in 2002. Exclusive Resorts and Tanner & Haley Resorts control about 75 percent of the marketplace.

Resale rights. These clubs, modeled after the exclusive country or golf club, offer access to multimillion-dollar properties across the world rather than a deed to a unit like time-share and fractional properties. "Members are buying a right to use," says Rob McGrath, who is credited with creating the concept in 1998 and now runs Tanner & Haley. "They are not buying an interest in a specific asset." Members may be able to resell their interest, depending on club policy. Exclusive Resorts offers a flat 80 percent back of the original membership fee while Tanner & Haley will refund the full fee at the going market price.

The upward march of home prices in many desirable vacation spots has raised the cost of time shares and destination clubs alike. Still, compared with the price of a second home, a time share may seem approachable. "Real-estate prices are astronomical," says Bill Logan, 58, a pilot with Alaska Airlines. "The benefit of a time share was, for less money upfront, I'm able to go to Maui or Barbados. I could go to the south of France." Logan, who frequently vacations in Hawaii, considered purchasing a second home there before turning to the less expensive time-share option. "It bought me more power for travel and vacation than a home did," he says.

But unlike in the red-hot housing market, experts see few speed bumps ahead for growth in the time-share industry. Relatively few Americans own a time share or fractional or have joined a destination club. As of 2003, only 2.7 percent of all U.S. households owned at least one time-share interval--and just 6.7 percent of those earning over $75,000 a year. Industry analysts believe this leaves ample room for growth. "There is a lot of money out there in the marketplace for these properties," says Ragatz. He thinks time shares and their cousins may take business away from second homes among the 17.8 million upper-income, middle-aged American households that are the industry's target market. Time-share ownership in this group could hit 15 percent, experts say. That creates a revenue potential of $42 billion, according to a recent report by Bear Stearns.

Beyond demographics, analysts see a promising trend of "togetherness" among families that like to vacation as a group and find traditional hotel stays awkward. "This is a way for them to orchestrate the fun family reunion," says Weisz. "It's not uncommon for couples or large groups to tour our properties and all decide to buy."

Typical of this new breed is Marla Yessenow, 49, and her husband, Jeffrey, who often take their three teenage children and one or both sets of parents on vacation. "When you try to make hotel reservations over the holidays, you maybe end up with three different rooms," says Marla Yessenow, who owns a fractional with the Ritz-Carlton Club in St. Thomas, Virgin Islands, that the couple bought for $95,000 (and could probably sell for $250,000 today, she says). "This is so nice because you all end up in the same place." As for that second home, Yessenow says she's not in the market yet. "We're too young," she says. "Maybe in four or five years. But for now, this is perfect."

That attitude is what time-share and destination-club operators are counting on for the future. Just perfect.

This story appears in the October 10, 2005 print edition of U.S. News & World Report.