Thursday, November 03, 2005

Timeshares Are Weak Link In Real Estate

An under-examined foreclosure opportunity will be in timeshares. Here is some information on a prominent resort operation. "Sunterra Corporation announced today that it sold a $35 million portfolio of consumer receivables to Merrill Lynch Mortgage Lending, Inc."

"Steve West, Sunterra's CFO, said, 'We've been looking for a more efficient way to monetize our mortgage portfolio and this transaction underscores the increasing liquidity and value of our receivables. It's also a validation of the strength of Sunterra's underwriting process and servicing capability.'"

Talk about delinquent! "The pool of 5,250 receivables has a weighted-average seasoning of approximately 4 years and a weighted-average interest rate of 14.6 percent. Approximately 4,200 receivables representing $24 million of the receivables sold, were either originated by Epic Resort Group and subsequently purchased by Sunterra, or were included in Sunterra's former off-balance sheet pools repurchased by the company in fiscal 2005."

To be charging 14%, the 5,000 timeshares must be in penalty mode. And the 'validation of..the underwriting process' means the buyers are firmly on a hook. It's noteworthy as well that Sunterra is losing money.

"Sunterra is one of the world's largest vacation ownership companies with more than 300,000 owner families and nearly 100 branded or affiliated vacation ownership resorts throughout the continental United States and Hawaii, Canada, Europe, the Caribbean and Mexico."


At 9:36 AM, Blogger Ben Jones said...

I once knew a man who made a small fortune buying and reselling timeshares in one building on a coastal Texas island, when RE went bust. I currently live in a town with several of these operations. I expect that as overall property markets settle down, many thousands of TS buyers will default. Some projects will fall apart, but they do sit on some of the choicest property in N AZ. Stay tuned as I'll keep looking into this aspect of foreclosures.

At 2:27 PM, Blogger Chip said...

Ben -- great idea. You reminded me of a good buddy of mine who bought two great repos at Disney for about $500-1,000 apiece during the 1970s oil crisis. They are in the Christmas weeks and he has been able to trade them for the finest places in the world ever since.

I'd love to be able to do the same.

At 2:33 PM, Blogger Chip said...

I never delved into it enough to be an authority, but when I calculated the per-unit selling price of timeshare units, and then looked at the annual fees for holding them, I became convinced that these were the greatest real estate money makers for developers I'd ever seen.

I looked at a new TS in Cape Town in 1987 and each unit would cost $2.2 million when all 52 weeks were sold. But when I calculated their revenue from 52 times the maintenance fees, it looked as if the selling price was almost 100% profit -- that the maint. fees would just about pay for the building plus the maintenance.

At 7:35 PM, Blogger Pointlines said...

Question is how did he do it? Just like how do you really get a good list of foreclosures and buy one? Seems like alot of people have the answer, but which sites can you trust?

At 7:39 PM, Blogger Pointlines said...

By the way, Ben:

Do you have a list of sites or maybe do you even know the best way to buy foreclosures (timeshare or homes). There are so many websites that advertise, but want you to signup at $40 a month, or $250 (after they say they are free). Pointing us foreclosure novices in the right direction would be appreciated.


At 4:01 PM, Blogger Ben Jones said...

OC Vic,

I am in the process of looking in to that very matter now. Check back and see what I found out.

BTW, an interesting angle dawned upon me the other day. The story on Tom Barrack, who made a fortune on the S&L/real estate debaucle and the Sunterra sale to Merrill Lynch had one thing in common. Neither bought the asset itself, but rather bought the note. In Barracks case he paid a low enough amount to be able to take 70 cents on the dollar from the defaultees who wanted to keep their homes and still made hundreds of millions. What is smart about that angle is Tom didn't have to evict, pay property taxes or upkeep on the houses he wasn't forced to foreclose. That holds down on cash outflow big-time.

At 12:01 AM, Blogger Pointlines said...


Who do you go to in order to get a deal like that? How much do you need to buy in? Is there a liquid market for these notes?

THanks again.



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