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Vacation ownership is Hawaii’s invincible industry

December, 2002

Time share (tim sher) n. a type of vacation-facility ownership that divides the use of a property into weekly intervals. Owners can purchase timeshares as: right-to-use, where the buyer does not have ownership interest but uses the unit for a pre-set amount of time; or fee-simple, where the buyer not only uses the unit but also has title to a portion of that unit. Timeshare intervals can be exchanged at other properties, including hotels, condominiums, cruise ships, airplanes, recreational vehicles or campsites. – adj. vacation ownership, or vacation club.

Sixty-eight resorts. About 4,600 units. And more than $276 million in annual sales. That is the size of Hawaii’s vacation-ownership, or time-share industry, according to the American Resort Development Association and other tourism-research groups. “We’re bringing people to Hawaii in comparable numbers. That’s the untold story,” says Mitchell Imanaka, managing principal of law firm Imanaka Kudo & Fujimoto. Each year, Hawaii hosts more than 400,000 vacation-ownership visitors. The number is expected to grow. In fact, vacation owners often have been compared to the more than approximately 420,000 MCI travelers (meetings, conventions and incentive trips) who come to Hawaii each year.

“Once people buy into vacation ownership, they’ve made an investment into the state,” says Mark Wang, vice president of Hilton Grand Vacations Club. “The right mix of hotel and vacation ownership in a destination like Hawaii can be very beneficial during difficult times.”

He’s right. After the Sept. 11 terrorist attacks in 2001, vacation-ownership properties in Hawaii properties outperformed traditional resorts and hotels, according to a study by PKF Hawaii. The average occupancy at timeshare units in Hawaii that month dropped from 86.52 percent to 79.94 percent. The occupancy rate at resorts and hotels, on the other hand, plunged from 77.9 percent to 58.6 percent.

Ed Kinney, senior director for brand advertising and communications for Marriott Vacation Club International, explains: “A high percentage of timeshare owners continue with their plans (in the event of difficult times). They either use their vacation, or lose it.”

Growth in the vacation-ownership industry is expected to boom over the next decade, according to a study last year by the American Resort Development Association. In about five to 10 years, more than 3,000 new timeshare units will be added to Hawaii’s existing inventory.

The reasons for growth are clear: the quality and reputation of timeshare products have improved since their introduction to the local market in the 1970s; international hotel chains plan to build new timeshare properties on Maui, the Big Island, Oahu and Kauai; more financing options are available; and most important, timeshare programs have become more flexible, allowing owners to reschedule, split and trade weekly intervals at non-Hawaii destinations.

Vacation-ownership programs today no longer require owners to stay at the same property for one week, year after year. That flexibility in itself is an attraction. “You may not want to stay at a condo for the rest of your life, but you may want to go to Paris one year, or go to Cairo to see the pyramids,” says Keith Vieira, senior vice president and president of operations for Starwood Hotels & Resorts. “That’s why timeshares have taken off so well.”

The number of timeshare units in Hawaii has grown by about 1,900 units, from 1995 to 2000. The big growth spurt took place between 1999 and 2000, when more than 800 units were added to the statewide inventory. Today, Maui and Molokai are home to 1,053 units, while the Big Island and Oahu each have 969 and 934 units.

Industry leaders are confident that future growth will take Hawaii’s timeshare industry to the next level, especially on Oahu. “There’s potential to grow on Oahu,” says Wang. “The only thing that makes it difficult here is there is not a lot of availability, not a lot of developable land.”

Kauai, on the other hand, traditionally has been the center of growth, with 1,647 units, or about 36 percent of the state’s overall inventory. Hurricane Iniki’s destruction in 1992, combined with a real estate and tourism slump in the early 1990s, forced the island to rebuild or renovate new resorts. Developers saw the need to replace traditional hotels with timeshare properties. Existing condominiums on Kauai also were converted into timeshare units during the early- to mid-1990s.

Converted condos today represent about 61 percent of the state’s overall timeshare inventory. However, that number is expected to drop, as major hotel brands introduce purpose-built units (properties that are made only for timeshare use).

Here is a look at Hawaii’s high-end hotel brands, with plans for newly opened and proposed vacation-ownership properties in the state:

Hilton Grand Vacations Club – Hilton opened its first Hawaii timeshare operation in January 2001 at the Hilton Hawaiian Village’s Lagoon Tower, a converted apartment that underwent a $36 million renovation two years ago. The tower has 264 units, including penthouses and condominiums with full kitchens and living rooms. Approximately 55 percent of the timeshare blocks, or intervals, (priced between $25,000 and $90,000) have been sold, says Wang. “Clearly, there’s a demand for high-end vacation ownership products here in Waikiki,” Wang says. “Our new tower, when it is completed in 2006, will give us that edge.”

Hilton also announced plans this year to build a second timeshare condominium on a 1.9-acre lot adjacent to the Hawaiian Village. The proposed 38-story building will house 350 units. As this story went to press, the Hotel Employees and Restaurant Employees Union (Local 5) had filed a suit in circuit court to stop Hilton’s construction plans. The Honolulu City Council earlier had voted to make exceptions to density requirements that typically would not have allowed construction of the proposed highrise. Meanwhile, Hilton is continuing its design plans. Groundbreaking is scheduled for 2004.

Marriott Vacation Club International – Marriott’s vacation ownership division earlier this year announced plans to build new timeshare properties on Kauai and Oahu. Meanwhile, it continues to manage the 232-unit Kauai Beach Club and the 154-unit Maui Ocean Club, a 154-unit resort. “Kauai has allowed us to do our first mix-use property, and it’s been tremendously successful. We’re also doing that in Maui,” says Kinney.

The company broke ground on May 24, 2001, for the 750-villa Ko Olina Beach Club in West Oahu. It is located in the same neighborhood as the JW Marriott Ihilani Resort and the Ko Olina Golf Club. Once the first phase of the $450 million resort is completed in January 2003, it will be Marriott’s fourth timeshare property in Hawaii.

Also scheduled to open in 2003 on Poipu Beach, Kauai, is the Waiohai Beach Club. In October 1999, Marriott Vacation Club purchased the 227-villa beach club, which previously was the Stouffer Waiohai Resort. The Marriott Vacation Club International, established in 1984, manages 51 resorts in 29 locations.

Starwood Vacation Ownership Inc. – When Starwood Hotels & Resorts purchased Florida-based timeshare developer Vistana Inc. in 1999, it allowed the hotel chain to explore brand-new properties, including the Westin Kaanapali Ocean Resort Villa on Maui. Starwood began selling units at the Kaanapali resort in late 2001; sales so far have been 80 percent above the company’s projection. In fact, sales are expected to exceed $75 million, says Vieira. “We’re only selling out of one location (the Kaanapali site) and plan to open up four (sales offices) in other resorts,” he says. “We anticipate sales increasing even further.”

Construction of the Kaanapali resort – the first Westin vacation-ownership property in Hawaii and the third for Starwood – is expected to finish in 2003. Each unit is a purpose-built villa, designed for buyers who can afford luxury vacations but who do not wish to pay millions of dollars for a beachfront home.

Starwood this year purchased 18.5 acres in Princeville, Kauai, with plans to operate a 370-unit time-share property, scheduled to begin construction in 2003. The two-bedroom units will sell from $40,000 to $50,000 each. Vieira says there are tentative plans to open a second timeshare property in Kauai but nothing is definite.

International hotel brands – such as these – boost Hawaii’s reputation as a high-end, vacation-ownership destination. “The credibility of the industry and the product has reached its highest levels,” Kinney says. “In the past, the way the products were developed was inconsistent. Developers didn’t have the resources like an adjacent hotel brand that helps out the business.”

According to the American Resort Development Association, there are three reasons why buyers might hesitate to buy a timeshare unit in Hawaii: The expenses required to fly to Hawaii; high annual maintenance fees; and the possibility that the buyer may not have time for an annual vacation.

Quality, customer service and marketing are important. “Timeshare would have to be the kind of property that people would want to buy, want to have,” Vieira says. “For a lot of people, this is a dream come true. They can’t afford a $2 million condo, but they can afford to pay that $30,000 for one week.”

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