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The Timeshare Sector Reporting Revenue Growth for
 10 Years Straight; Moving from Dogs to Darlings
 in the Tourism Industry
By Kyle Stock, The Post and Courier, Charleston, S.C.
Knight Ridder/Tribune Business News

July 19, 2004 - Timeshares, long reputed to be the province of unctuous and manipulative salesmen, have slowly but surely moved from dogs to darlings in the tourism industry.

The sector has posted sizable revenue growth for more than 10 years straight, often while hotel companies suffered losses.

South Carolina, which is second only to Florida in number of timeshare units, has cashed in on that trend. And with demand still surging, more and more of the Palmetto State coast is expected to be sold off one week at a time.

Charlotte residents John and Cindy Lindsay are happy owners of a week at three different South Carolina timeshares, two in Myrtle Beach and one in Hilton Head. They traded days at one of their Grand Strand units to stay at the Lodge Alley Inn timeshare on East Bay Street last week. And, as is their custom, they went to the property's 90-minute pitch to potential buyers.

"We ended up answering more questions than the salesperson did," John Lindsay said. "Before we left, she said she owed us a thank-you."

The Lindsays represent a growing number of people who believe and are willing to buy into the timeshare concept.

Timesharing, the idea of buying a portion of a property and the right to stay there for a corresponding number of days every year, was born in the 1970s at ski lodges in the French Alps. People who were interested in a vacation house but didn't want to fork out a huge amount of capital went in on the transaction with friends and family and divvied up weeks on a calendar.

But when the concept came to America and turned commercial, a lot of people got swindled by development companies that jumped into the business for a quick and dirty profit. They would build some shoddy units, sell out all the time slots, then take the money and run. A second generation of scam artists latched onto the concept of reselling, or at least promising to resell, lodgings that turned out to be lemons.

For a while in the 1980s and early 1990s, the idea of timeshares became synonymous with scam.

A little-understood certainty at the time was that timeshares, unlike most real estate, didn't appreciate. In fact, they still don't, because much of the initial price goes to marketing the property.

But the concept itself has always been a good one, and some reputable companies saw it as a means to long-term profit rather than a quick buck.

Marriott International Inc., one of the world's biggest hotel companies, dipped its toe into timeshare waters in 1983, and thus began the slow and steady cleansing of the industry's reputation, a spiffing-up that has helped timeshare companies realize record earnings in recent years.

Marriott, for one, drew 14 percent of its revenue from timeshare sales in 2003.

Other big lodging companies, including Hilton Hotels Corp., Hyatt Corp., Four Seasons Hotels Inc. and Starwood Hotels and Resorts Worldwide Inc., started buying and building vacation-ownership properties. Walt Disney Co. signed on, too.

The hotel heavyweights got some help along the way. A number of ownership groups and consumer rights agencies popped up in the 1990s and helped wash out unscrupulous salesmen. And a lot of states passed laws to crack down on deceptive sales tactics.

South Carolina's Legislature tightened timeshare restrictions on a number of fronts in a bill signed by Gov. Mark Sanford about a year ago. The law mandates transparency in the sales materials and contracts of timeshare companies. It lets timeshare investors back out of a purchase without penalty within five days after signing, and it requires contracts to warn would-be buyers that the ownership is probably not a smart investment in terms of capital appreciation.

Sen. Luke Rankin, a Horry County Republican who sponsored the bill, said he didn't receive any objection from the state's timeshare holdings when he pushed the legislation through.

"They want to be seen in a professional light, rather than a shady one," Rankin said. "I think this (law) is an acknowledgment that the industry has advanced."

Thanks in part to the efforts of Rankin and likeminded lawmakers nationwide, timeshares have become a $66.7 billion industry, according to a study by PricewaterhouseCoopers in April. There are now about 1,600 timeshare resorts employing about 222,500 people who sell and service 132,000 units. About 7 percent of households with six-figure incomes now own timeshares.

In 2002, when hotels across the nation were slumping, timeshare sales were up 14.6 percent, according to Ragatz Associates, an Oregon-based research unit of Cendant Corp.

Part of the recent success of timeshares is attributed to the fact that they are run more like hotels. Almost half of the properties now are sold on a point system, as opposed to blocks of time. For example, instead of buying a week of property ownership, an investor can now buy 300 "points" from a timeshare company.

The owner can use all of the points for a full week's stay, or they can stay for only a few days and "spend" the remainder of the points at the property's restaurants and shops, or on rental cars and airline tickets. Timeshare companies are also renting out open units on a night-by-night basis.

This sort of flexibility has won market share from traditional hotels.

Timeshares sales have outpaced traditional room rental at Marriott. From 2001 to 2003, the company's timeshare properties recorded 26.8 percent revenue growth compared with an 11.7 percent jump in full-service room sales.

The Lindsays, a middle-aged couple who earn a combined six figures and describe themselves as upper-middle class, see timeshares as a smart investment.

"The average person can't afford to go out and buy a house down at the beach, and secondly you're not going to be able to use it that much if you can," said Cindy Lindsay.

"Now, we can vacation four or five times a year and know that where we're going is going to be kept up."

The Lindsays spent $24,000 for their three weeks of vacation home ownership each year. Each property requires an additional $400 in taxes and fees annually. When they bought their first unit in the mid-1980s, they were skeptical and had heard plenty of horror stories. But the thought of buying weeks of hotel rooms for the next few decades wasn't appealing, either.

"We didn't look at is as a real estate investment," John Lindsay said. "But as far as an investment in the future, it's definitely that."

The couple plans eventually to turn the three deeds over to their daughter, who is now a senior in high school. Until then, they are going to keep using their weeks, banking the time if they can't get the days off or trading it for space at comparable resorts in the Southeast.

"You just have to be able to work the system," said John Lindsay.

South Carolina, a timeshare hotbed since the 1970s, has cashed in on the timeshare trend as much as anyplace else. There are about 120 timeshare resorts in the state, according to the American Resort Development Association, an industry group. About 30 percent of all lodging units in Hilton Head and 11 percent of Grand Strand rooms are timeshares, noted Tom Sponseller, president and chief executive officer of the Hospitality Association of South Carolina.

Just last week Marriott started selling slots in the first of 374 two-bedroom villas going up in Myrtle Beach. The buildings are going for an average of $24,000 per week of deeded ownership.

Bluegreen Corp., a company that sells and manages two Myrtle Beach properties and the Lodge Alley Inn in Charleston, reported a 52.3 percent increase in revenue last year and net income more than double its 2002 results.

The company, which is one of the 10 biggest in the industry, has sold 97 percent of available occupancy at the Lodge Alley Inn since it bought the 90-unit complex in 1998.

It's had similar success with Shore Crest Vacation Villas, a 240-home spread in North Myrtle Beach acquired in 1997.

Timeshares in the Charleston area are relatively scarce. Aside from the Lodge Alley Inn, there are 31 two-bedroom townhouses in the Church Street Inn, three bigger complexes on Edisto Island and some fractional-ownership units on Kiawah Island and Isle of Palms.

Part of what has kept vacation-ownership houses out of the Charleston area has been relatively expensive beachfront land, said Perrin Lawson, deputy director of the Charleston Area Convention and Visitors Bureau.

But the area should expect to see more timeshares.

"I think most of the hotel industry regards (timeshares) as part of the business," said Tripp Hays, director of sales and marketing at the Mills House Hotel and president of the Greater Charleston Hotel/Motel Association. "I would not be surprised to see some more come in, if they can find a location that's a draw."

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