August 2010 Developments - 40

2010:

the state of developer financing
by Ronald M. Goldberg

ith the 2010 ARDA Convention now clearly in the rear-view mirror, we find that our expectations remain in check with reality. We found this year’s convention to be one of our best experiences in memory—in part because the general mood was so dramatically improved from the past year, and in part because our one-on-one meetings with a number of prospective clients showed us that there are many solid, high quality developers that have weathered the recent economic turmoil and are poised for further success.

opportunities continue for developers to improve in these areas, as well as to pick up experienced employees, bring in well-qualified tours, and enhance their inventory in key markets. Unfortunately, the ability to realize on these opportunities is limited by the availability of capital and/or credit, which continues to be very tight. That brings us to the “State of Developer Financing.” Liberty Bank’s long-term commitment to the vacation ownership industry—as well as its strong financial foundation—is public

Until we see more liquidity, cash is king, and we will see more developers finance sales internally—whether through higher cash down payments at the sales table, early cashout incentives, diversification into third-party arrangements (contracting with resorts that have liquidity to provide sales, marketing, management, and/or development services), and other creative endeavors.
The post-convention challenge for Wellington, in its role as Liberty Bank’s exclusive resort finance correspondent, has been to continue to focus first on meeting the needs of our existing customer base, while at the same time pursuing a select number of high-quality lending relationships. With 2010 nearing the halfway point, we have been fortunate to renew some key relationships, increase others, and add a number of new developers to our client list. In general, we find that our developers have concentrated on the transition to more efficient sales and marketing practices, while at the same time working to improve portfolio credit quality at the point of sale (if not at the initial point of marketing contact). The best developers have also made cash management a priority. We see that 40 knowledge, and we continue to announce new deals. That’s the good news. However, as we all know, many other industry lenders have left the market never to return, while a very few others have remained. A couple of others edge the periphery, trying to decide if now is the time to enter. ARDA and others have worked diligently to drive further liquidity to our market, but those efforts are up against a world-wide credit crunch that will not improve any time soon. So, I expect that in our narrow community, as well as the world at large, in the best case scenario, growth will be constrained and at worst there will be more fallout. Until we see more liquidity, cash is king, and we will see more developers finance sales internally—whether through higher cash down payments at the sales table, early

cash-out incentives, diversification into third-party arrangements (contracting with resorts that have liquidity to provide sales, marketing, management, and/or development services), and other creative endeavors. Fortunately for those of us involved in this sector, the vacation ownership product is still a worthwhile lifestyle investment for many satisfied consumers. If you doubt that, look no further than the 2009 industry results: still over $6 billion in domestic sales, coupled with occupancy percentages that far surpassed the hotel industry. My comments from a year ago still hold forth—anecdotally, we hear that consumers aren’t buying and those who have bought find it hard to pay their bills, while in reality, we still see strong sales and strong portfolio performance. Not to mention that creativity and resourcefulness have been a hallmark of the timeshare developer from its earliest nascence. As long as developers continue providing superior accommodations, maintaining viable price points, and courting those consumers with a demonstrable ability to afford and enjoy the product, there will be lenders to provide them with the means to continue. D Ron Goldberg is president of Wellington Financial, the exclusive correspondent for a leading timeshare industry lender, Liberty Bank. Goldberg serves on ARDA’s Board of Directors and is a Trustee member. His e-mail is rgoldberg@wellingtonfinancial.com.

Developments • August 2010

August 2010 Developments

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