Categories for Diamond Resorts

Stayin’ Alive: High Drama at Two Lake Tahoe Resorts During Timeshare Election Season

Most people know that fall and football go together.  But only a handful know that fall is also election season at timeshare resorts across the country, where very few people vote and, in all likelihood, even fewer care about the outcomes.  All owners generally care about is #1 reservations and #2 maintenance fees.  HOA board member elections probably rank way down there, like #41.

Not this fall.  While thousands of timeshare owners worry about their vacations and resorts in hurricane-ravaged areas of the country, others are paying attention to all the home-grown issues at their own resort.

In fact, from California to Kauai, Idaho to Orlando, RedWeek keeps hearing from timeshare owners who are getting more involved in the governance of their resorts.  At a handful, owners are starting to organize themselves to take greater control of management issues.  At others, owners are simply getting rid of board members who have overstayed their welcome — and failed to fulfill their fiduciary duties to make the best decisions on behalf of all owners.

In this spotlight on legacy resorts, we will focus on two aging but desirable timeshares where owners banded together, in dramatic fashion, to prevent their resort from being taken over, or at least controlled by, major timeshare companies. 

Both happen to occupy prime real estate around Lake Tahoe, which is a hotbed of timeshare resorts, old and new. Marriott, Diamond, Wyndham, Hyatt, and Welk have major presences and appear to be looking for more.  It’s also a smorgasbord of older independent resorts facing major renovations, rising defaults, plus rental and resale issues that not only threaten their economic existence, but make them ripe takeover targets for well-financed timeshare companies or investor groups.  Some of these aging resorts, according to real estate folks in the area, will eventually fall into the hands of new developers who will invest and re-purpose the timeshare into a modern hotel or other business that is more profitable than a struggling timeshare.

The rest of this blog is about two Tahoe resorts caught in the middle of this struggle.  Simply put, they are just trying to stay alive.

PART I: Tahoe Beach and Ski Club Owners Re-elect Board Member Who Cast Key Vote Against Diamond’s Potential Takeover, But Tensions Remain

SOUTH LAKE TAHOE, CA — Sedric Ketchum, the swing vote on a divided board that decided to reject Diamond Resort’s takeover moves three years ago, won re-election to another term in September, but it wasn’t easy.  Recovering from serious surgery, Ketchum barely made it through the obligatory candidate forum, then retired to his room at Tahoe Beach and Ski Club as soon as the votes were cast.

Sedric Ketchum won re-election to Tahoe Beach and Ski Club Board despite a no-confidence vote from Diamond Resorts.

He won re-election handily, despite a defection from one of his fellow board members and a decision by Diamond, which owns 23 percent of all timeshares at the beachfront timeshare, to vote for no one.  Right up until the vote was announced, no one knew what Diamond planned.  The company wanted to dump Ketchum, but couldn’t find a suitable candidate to back, so it sat on its votes.

Tahoe Beach and Ski Board President Al Fong urges owners to stay vigilant against Diamond.

Not exactly a vote of confidence for Ketchum, who was key to the board’s rejection of Diamond’s perceived takeover bid in 2014.  Diamond played cat-and-mouse with the owners in 2017, just as it did in 2016 (when it was also declined to announce its intentions). 

In months leading up to the vote, Diamond asked first-year board member Bill Costa to find a replacement for Ketchum, but his recruitment efforts fell short.  (Most owners had no knowledge of Costa’s activities, and they also seemed to like Ketchum, so why vote against him?)  During the past year, Costa also worked on his own to broker a deal between TBSC and Diamond to settle litigation that Diamond initiated in 2015. So it was not much of a surprise that Costa also worked with Diamond on a possible alternative to Ketchum.

We interviewed Ketchum and Costa about their split.  It seems to be more personal than professional, so we’ll leave it at that.  We also interviewed other owners who were brought into the schism, including one owner who was recruited to oppose Ketchum, but they seemed puzzled about it as well.

Ultimately, the tensions within the board did not matter. With more than 175 owners huddled together under a beachfront revival tent on a cold, blue sky day, Ketchum collected 1,985 votes, including 39 voted by the board (Costa abstained).  Diamond had 1,750 votes, but kept them in the corporation’s pocket for another day.  No Diamond representative even showed up to address the crowd — a far cry from a year ago, when a Diamond VP rankled the audience with a tone-deaf explanation of the benefits of Diamond’s presence and points-and-trust program.

“Never take your ownership for granted,” warned a somber but jubilant Board President Al Fong after the vote. “Diamond is a sleeping giant.  They are waiting for you to fall asleep.”

Diamond started buying foreclosed TBSC units at auction several years ago as part of its bid to increase its presence in South Lake Tahoe, where it already operates several timeshares, including the majestic Lake Tahoe Vacation Resort, which is right next door to Tahoe Beach and Ski Club.  Diamond was well on the way to becoming the dominant majority owner of TBSC when the board, awakening like a slumbering giant , refused to accept Diamond’s purchase of several hundred intervals in December 2014.  That HOA action triggered threatening letters from Diamond, and eventually a lawsuit — which continues to this day.

Since then, the TBSC-Diamond story has devolved into an “us-against-them” fight where owners rallied to elect board members, in three straight years, who are dedicated to keeping Diamond at bay.  The anti-Diamond board members ran annual grassroots campaigns, with beachfront owner-update meetings on Mondays and Thursdays, to energize owners about the perceived threat that Diamond, one of the largest and most acquisitive timeshare companies in the world, posed to their traditional legacy resort.  So far, they’ve succeeded in warding off the giant.

Barring a major change in direction, next year’s HOA election will put two more anti-Diamond board members onto the same hot seat that Ketchum just occupied.  President Fong and Treasurer Jake Bercu, Diamond’s most vocal critics, will face re-election while promoting the dividends of maintaining the independence of Tahoe Beach and Ski Club.  No matter what else happens, they already know that at least 23 percent of the owners — Diamond — will vote against them.

Diamond is not the only major timeshare company seeking a larger footprint in Lake Tahoe.  Wyndham, the largest timeshare company in the world, is also seeking a bigger stake.  But its plans for a smooth transition — takeover or otherwise — just ran into an owner revolt at the Olympic Village Inn.

‘PART II: Gang of Four’ Owners at Olympic Village Inn Fire Longtime HOA Board Members who Hired Wyndham to Run Resort in 2016

  • Rebels promise to review Wyndham’s contract and end foreclosure agreement
SQUAW VALLEY, CA — A ballot box rebellion at Olympic Village Inn (OVI), a bucolic Alpine resort in North Lake Tahoe, triggered a palace revolt in October that resulted in the ouster of four HOA board members who agreed, one year ago, to turn the resort’s management and all defaulted units over to the Wyndham timeshare conglomerate.

Standing Room Only at annual board election for Olympic Village Inn in Squaw Valley. 
Gang of Four rebels routed incumbents who hired Wyndham to manage resort.

In a record turnout on a spectacular fall-colors October Saturday, the so-called “Gang of Four,” led by a hard-nosed and proudly profane prosecutor named Bob Bone, dumped four longtime board members who, despite having their own misgivings about contracting with Wyndham, turned the keys to the resort over to Wyndham’s management company in 2016.  Bone and his co-conspirators, all of whom proudly own the Gang of Four appellation that was hung on them by a hostile board member, immediately fired Board President Alan Traenkner — Wyndham’s primary champion — and board counselor Joan Wright.  They also agreed to dismiss a legal fight, launched by Bone months ago when he was just a fledgling activist, to force the HOA to disclose owner rosters (including emails) to members for campaign purposes.

Elected in a landslide, the new majority at the seven-member HOA is composed of Bone, who replaces Traenkner as president, and fellow activists Julie Feldman, Sandy Farrow and Greg Rankin.  They replace former board members Connie Gast, Ron Spiller, Wayne Hooper and Mike Harper (who also opposed Wyndham’s hiring but ran afoul of Bone months ago).  Holdover board member and CFO Brad Hartman also opposed Wyndham’s contract, so he could be considered a potential “Gang of Five” member in the future. The other holdover, Larry Grace, faces the same fate as Traenkner — obscurity at the end of the HOA bench.  In many ways, the election represents a generational pivot as well as a policy change.  In with the new, out with the older.

New Board President Bob Bone (top) led a multimedia campaign to oust four longtime board members. 
Bone’s first move was to fire former Board President and Wyndham advocate Alan Traenkner (bottom)

When the results were announced, the 200 OVI members who shoe-horned into an overfull hotel conference room erupted in applause and shouts — as if their favorite football team had just scored a touchdown.   A record 58 percent of all OVI members voted (in the industry, 20 percent would be normal, 30 percent a milestone). Bone got 2,017 votes, followed by Rankin, 1,997, Farrow, 1,992, and Feldman, 1,818.   The incumbents received 139 to 149 votes each, plus 436 votes cast for each incumbent by Wyndham.

Afterwards, the defeated incumbents — all longtime board members — exited muttering while Traenkner took stock, shaken if not stricken by his landslide loss in an election that was a total referendum on his move to hire Wyndham.  Then with a wave, he was gone.

“I’m not the Gang of Four,” Traenkner said, his face flushed. “My job is to make the transition as smooth as possible. We represent the whole association.  That’s important for people to know.”

Several Wyndham executives attended the SRO meeting, wearing casual business outfits and frowns.  They said afterwards that they would work with the new board to resolve all issues of concern.  But their furrowed brows told the story: Wyndham’s experiment with OVI was going south.

Moral of this Election is: Don’t Mess with Bonus Time — or Bob Bone)

Olympic Village Inn, set in an elbow pasture at the base of Squaw Valley’s majestic ski area, is probably one of the last places one would expect to morph into a launching pad for timeshare-owner activism.  The resort came to fame decades ago as the US host of world-class skiers and other Winter Olympians in 1960.  While the Lake Tahoe resort area grew, OVI stayed the same: laid-back and serene, it was a tiny 90-unit timeshare getaway with 3,300 owners and 4,590 intervals that catered to skiing families from the Bay Area. OVI was stable for years; its financials were OK, maintenance fees stayed low ($800)  and default rates (from owners) hovered in the single digits.  But then things changed.

In April 2015, Traenkner and the OVI board hit a wall: the resort’s longtime general manager (who had taken care of everything for 32 years, according to Traenkner) announced he would retire in July 2016.  That triggered a search for replacement that forced the board to look outside its local circle of associates.  Traenkner attended Timeshare Board Members Association meetings to meet and interview management companies.

Traenkner and other board members talked to several companies, then picked Wyndham, which offered a management deal that no other company came close to matching: Wyndham would spend $1.25 million on renovations, pay $10 for 253 HOA-owned units (and pay all of the maintenance fees for those units), launch a rental and resale program, and fold OVI into Wyndham’s global reservation system.  In addition to the management contract, Wyndham, a timeshare giant with worldwide experience managing 200 resorts, offered to take responsibility for all future OVI units that go into default (thereby guaranteeing those maintenance fee payments as well).  No surprise, the board said YES.  As a result, Wyndham took over in August 2016.

Traenkner said recently that he thought he was doing OVI members a great service by hiring Wyndham.  Unfortunately for him and his fellow board members, it all went awry.

Olympic Village Inn on a perfect summer day at base of Squaw Valley ski area.

At first glance, this sweetheart deal appeared to take care of all OVI problems: Wyndham would run all resort operations, pay up all late dues, plus guarantee payment of maintenance fees on all future defaulted units.  In return for its oversight, Wyndham would gradually acquire an increasing share of the intervals at OVI — and, potentially, gain voting control oF the board.  As of this writing, according to Traenkner, Wyndham owns 436 intervals, or approximately 10 percent of OVI. (Wyndham executives say the company has no plans to take over the board or the resort.  At other comparable legacy resorts around the world, Wyndham has used its ownership stake to install corporate execs on the HOA board to protect the company’s investment.)

The deal might have worked out famously, in fact, if Wyndham had delivered a gold-medal performance during the transition period.  Instead, it stumbled, repeatedly.  Wyndham installed a new GM with no timeshare experience who, for various reasons, irritated owners and board members, including Traenkner, Wyndham’s champion.  Over the next year, Wyndham installed three additional GM’s or interim GM’s. The company also fired most of the housekeeping staffers because they were not legal residents.  Wyndham’s reservation team also took over, which surprised owners who knew nothing about the changes. Owners used to calling OVI at Squaw Valley suddenly found themselves talking to Wyndham operators back East.

While Wyndham had some (predictable) hiccups implementing changes, the OVI board overlooked a key issue, and it turned into a fatal mistake: The board failed to tell owners about Wyndham until after the deal was done.  Bone, for example, knew nothing about Wyndham’s presence until November 2016, when he tried to use his “bonus time” privileges to reserve rooms at a discount so he could bring his ski-oriented family to the resort on winter weekends.  Instead of securing an easy last-minute weekend reservation, Bone discovered, from a Wyndham operator, that the bonus time rules had changed.

That innocuous first contact with Wyndham’s presence at OVI started a chain reaction that, over months, led to the revolt that deposed four OVI board members, including three who approved of the Wyndham deal.  Here’s how it all fell apart.  Bone, a very outspoken lawyer from Santa Rosa, complained to Traenkner and other board members about the bonus time changes, then started digging into other things that were shifting at OVI — including the unannounced staffing changes that left the housekeeping team in shambles.  Bone, contentious by nature, also had conflicts with the new GM and other Wyndham corporate executives.  Over time, an exasperated Bone mounted a very public campaign against the board based on what he perceived as the board’s negligence and Wyndham’s negative presence at the resort.  His efforts not only stirred up other owners, but helped persuade the board to abort the HOA-default foreclosure agreement in March.  In June, Bone successfully sued the board in small claims court to secure the membership roster so he could communicate his displeasure about the board and Wyndham with other owners.  Instead of turning over the rosters, the board fought the lawsuit.

The campaign got personal in a hurry.  Bone called out Traenkner on many occasions and offended other board members as well.  He accused the board of election fraud and sent a stream of combative emails demanding documents and explanations of board policy.  At the same time, Bone’s “gang” launched a phone bank to contact owners and created a “SaveOVI.org”website where they posted information about the board’s actions, attacked Wyndham’s motives and generated support from owners.  The outreach campaign was critical, because Traenkner and the incumbent board never responded in kind.  (In fact, after the vote, Traenkner lamented that he never mounted much of a campaign and, worse, conceded having no insight about why owners voted against him.)

“Thanks to this board, the resort is falling apart,” said the hyperbolic Bone, an owner since 2012 who primarily uses his timeshare for bonus time. “Wyndham is trying to run the resort into the ground for the sake of consuming it.  But I don’t really view Wyndham as an evil empire.  I’m more concerned about HOA boards that are filled with individuals who don’t read documents when they are charged with the responsibility of protecting a public trust.”

Greg Rankin, a Gang of Four member and original sales manager at OVI, said he decided to run because “the board made a terrible mistake in selecting Wyndham.  And, despite overwhelming evidence over the past year,…they refuse to admit and acknowledge their mistake.  The board’s unwillingness to provide meaningful oversight of Wyndham…has result in rapid deterioration of the property and a significant decline in both the level of service and overall quality of experience our owners have enjoyed over three decades.”

Traenkner, interviewed several times about the transition over the past year, is understandably defensive about hiring Wyndham. “They put money into the association to help with remodeling, so we were able to reduce dues from $840 to $800,” he said. “And their rental program has been good.”  Still, he admitted having numerous “startup issues” with Wyndham that created consternation on the board and within the membership.

Wyndham Very Experienced Running Resorts, but Stumbled at Olympic Village Inn

We interviewed two senior vice presidents at Wyndham about the controversy.  They conceded making some mistakes during the transition, but otherwise defended their contract and intentions at OVI.  They said Wyndham, which now owns an estimated 10 percent of the intervals OVI (436 intervals) has no plan to take over the board or the resort.  In separate interviews over many months, Traenkner and other board members also voiced dissatisfaction with Wyndham’s first GM and other aspects of Wyndham’s transition, but otherwise defended their decision to bring in a major company that, in their eyes, would ensure the longterm financial stability of OVI.

Consultants familiar with the timeshare industry say there are many ailing legacy resorts in the US that probably need a Wyndham or similarly equipped timeshare-and-management company to advise boards and run resorts.  But OVI, they said, did not need Wyndham, because its financials were in generally good shape (thanks to the work of the former GM, who appeared to handle everything.)  What OVI needed, these consultants said, was a robust rental and resales program to monetize units that were going into default due to the resort’s aging owner base.

In a post-election moment of calm, Bone said: “We ran on a simple pledge of transparency and openness.  We also pledged that we would immediately engage in oversight of the new General Manager Wyndham Resort Development Corporation.  We promised our fellow members that we  would not do what the prior Board did by entering contracts in secret Board meetings where there are no meeting minutes in violation of the resort governing documents and the law.”

Bone, who contended all along that OVI didn’t need Wyndham, plans to make Wyndham’s management team prove their value — or pack their bags.  The company’s management contract comes up for renewal in 2019, unless Bone and company take moves to shred it in the meantime.  The 2019 year is also when Bone and the Gang of Four will stand for re-election — and face the same kind of referendum that ended Traenkner’s reign as president in October.
                                                                            ——-

NB: this is not an unusual story; most if not all major developers are collecting deeded-week inventory from legacy resorts, frequently at zero-dollar prices, to replenish inventory for their trust associations, which then re-sell the legacy inventory as points, instead of weeks, for a retail price average of $20,000 or more per week.  For the major developers, this is smart business, and it also relieves the financial pressure on legacy resorts, such as OVI, that are losing 100 or more owners per year, every year.  Wyndham’s timeshare business, which will be spun off into a stand-alone public company in 2018, reported $2 billion in sales for 2016.  It has 900,000 owners and owns or operates 221 timeshare resorts in the US, Canada and the Caribbean.  OVI, while extremely important to owners, is just a twinkle in the constellation of Wyndham’s timeshare universe.

What IS unusual about this story is the unprecedented activism of owners at Olympic Village Inn, rank and file timeshare owners who banded together to initiate changes at their resort.  We’ll report on the outcomes of their efforts in future installments of  ‘Staying’ Alive.’

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The Diamond Chronicles, Part 2: Controversial Sales Tactics Raise Their Head, Again

By Jeff Weir, RedWeek’s Chief Correspondent

Just when you might have thought things were finally settling down at Diamond Resorts, all hell broke loose all over again as 2016 morphed into the New Year. Here’s an update on what’s been happening with Diamond since our first installment of the Diamond Chronicles last September.  There are three major developments, and they’re all related, so we’ll present them in chronological order.  They cover a span of 37 days.

 

#1:ARIZONA AG ACCEPTS $800,000 FINE FROM DIAMOND TO SETTLE INVESTIGATION OF ALLEGED CONSUMER FRAUD VIOLATIONS

Two days before Christmas, Arizona Attorney General Mark Brnovich announced the settlement of a long-running investigation into Diamond’s business practices.  Without admitting wrongdoing (a common phrase in legal settlements), Diamond agreed to pay an $800,000 fine to settle the case, including $650,000 that will be made available as restitution to eligible Diamond owners, and $150,000 in court costs to cover the AG’s expenses.  Diamond also agreed to offer a “relinquishment” program that allows qualifying owners to return their timeshares to Diamond with no further financial obligations.

But that’s just the beginning of the story.  As with all things Diamond, the devil is in the details of the AG’s case.  Here are the highpoints, or lowpoints, as publicly announced by the Arizona AG.
The investigation was prompted by hundreds of consumer complaints about deceptive sales practices, oral misrepresentations, and false statements made during sales presentations.  The complaints covered Diamond employees’ statements about annual increases in maintenance fees, the availability of resale and buy-back programs, the timeshare resale market, owners’ ability to rent their intervals, and member discounts on other travel options (including using points to pay maintenance fees).
Here are key snippets (among dozens) from the settlement agreement:
  • “The Arizona Attorney General’s Office alleged that Diamond employees’ actions and statements violated the Arizona Consumer Fraud Act.”
  • “Diamond denies that it has violated the ACFA and enters into this [settlement] solely for the purposes of efficient resolution of the matter.”
  • “At times, certain vacation counselors told some consumers that increases to maintenance fees are minimal, when the DRUSC (Diamond’s U.S. Collection) Association is permitted to increase maintenance fees up to 25 percent per year.”
  • “Some consumers alleged that Diamond failed to honor their requests to cancel the purchase and security agreement within seven calendar days following its execution.”
  • “Some consumers claimed they felt rushed to sign the purchase documents before carefully reviewing them, and that they signed purchase documents with Diamond because they felt it was the only way to extricate themselves from what they perceived as a high-pressure sales situation.”
  • “Certain vacation counselors represented to some consumers, directly or indirectly, that consumers could sell their membership if, at any time, they decided that they no longer wanted their membership.  However, some consumers have been unable to sell their membership on the secondary market.  Certain other consumers have been unable to give their membership away…”
  • “At times, certain vacation counselors represented to some consumers that Diamond would buy back their membership within the first two years after purchase if the consumer became dissatisfied, but the purchase documents disclosed that Diamond does not offer a buy-back program.”
  • “The state believes that some of the actions and statements by certain Diamond employees, including vacation counselors, sales managers, and quality assurance officers, constitute deception, deceptive or unfair business practices, fraud, false pretenses, false promises, misrepresentations, or concealment, suppression or omission of material facts in violation of the ACFA.”
You get the idea.  Many of these types of allegations have dogged Diamond since its inception in 2007, when it bought Sunterra’s bankrupt timeshare business. Now under new ownership and new management (by former Starwood executives), Diamond has been trying to put as much distance between itself and the former regime as possible, but leftover issues, such as the Arizona case, keep undermining Diamond’s bid to rebrand the company as a kinder, gentler version of its old self.

If you’re interested in reading more, go here for the full account of the AG’s case.

As part of the Arizona settlement, Diamond agreed to change or enhance its sales, training, and other business practices to ensure compliance with the ACFA.  It also agreed to adopt a host of measures to improve disclosures to potential buyers during sales presentations.  In essence, most of the measures amount to assurances that Diamond sales personnel will not make oral promises to buyers that deviate from the language of the purchase contracts.  Diamond also promised to have quality assurance officers interview potential buyers prior to signing any contracts to make sure they are aware of the details. Finally, Diamond promised to investigate any complaints of future misconduct within 30 days while launching a Secret Shopper program to monitor its employees’ performance.
The restitution-and-relinquishment programs are a new wrinkle in timeshare conflict regulation that will be closely watched nationwide.  The Arizona relinquishment program will be available to Diamond buyers who purchased timeshares after 2011 and before Jan. 22, 2017.  To be eligible, buyers will also have to file a complaint with the Arizona AG’s office within 120 days AFTER an Arizona court formally approves the settlement (this will happen in late April or early May).  The relinquishment remedy process is very detailed, so potential participants are advised to consult the Arizona AG for complete filing details.  The restitution program, meanwhile, will be administered by the AG’s office for owners who have filed complaints with the agency.  There is no information, at this early stage, about the amount or volume of restitution payments the state will distribute.
FYI, Diamond plans to roll out a national relinquishment (deed-back) program, called Transitions, later this year.  It has been in the works for months and is already being quietly tested, according to Diamond’s public relations firm.

#2: DIAMOND ANNOUNCES A NATIONAL ‘CONSUMER SERVICE’ PROGRAM PROMOTING ETHICAL SALES PRACTICES, TRANSPARENCY, ACCOUNTABILITY

On Jan. 23rd — exactly 30 days after the Arizona settlement was announced —Diamond publicly introduced a brand new nationwide ethics program, called Clarity, that would govern future sales practices and provide protections for new and existing Diamond customers.  The Diamond press release announcing Clarity included self-serving statements about Diamond’s commitment to customers (“we already excel in customer satisfaction, but we are constantly looking for ways to do even better”) and promised future sales experiences that would provide transparency, accountability, and quality assurances for customers.
While not triggered by the Arizona legal settlement, the Clarity program is a natural follow on, since it covers much of the same issues — but from the company’s point of view.  It also represents an industry first, since no other company has publicly issued anything close to the ethical promises included in Clarity.
“Diamond’s Clarity consists of a series of operational procedures and enhancements, new training and compliance procedures and protocols, and other consumer-friendly changes to the sales process,” Diamond said.  These enhancements will be memorialized in a single document that will be given to potential buyers at the beginning of every sales presentation.

The changes are part of what Diamond calls its new “Promise” to customers.  Promise includes four operational programs that may be noticeable at sales presentations.

Diamond will increase training of all sales personnel, including quarterly training exercises, to ensure compliance with sales procedures. Finally, the company will place Consumer Engagement Observers at sales presentations to monitor interactions and provide feedback “to achieve constant improvement.”
Michael Flaskey, Diamond’s chief operating officer, said Clarity was “revolutionary in its simplicity” and further proof that Diamond is “doubling down on our promise to put our members first.  With the launch of Diamond Clarity, we are continuing to improve industry best practices.”
The American Resort Development Association (ARDA), the industry’s lobbying arm and promoter of industry best practices, praised Diamond for evaluating its sales practices and attempting to enhance the customer experience for members and potential buyers.
Diamond hired a Los Angeles-based public relations firm to promote Clarity’s commitment to ethical practices. But, in one of its first actions, the firm rejected RedWeek’s request to interview Flaskey.  (The mere fact that Diamond is now using an outside PR firm to deal with the news media, however, is a remarkable change for a company that, during the past two years, has been highly inaccessible and defensive when contacted by RedWeek representatives.)
In addition to the press release, Diamond emailed information about Clarity to existing owners (including this reporter).  The email reads, in part, “As part of this initiative we will strengthen our existing sales policies and procedures and challenge our competitors to adopt similar policies in an effort to raise industry sales standards across the board.”
Here’s an example of Diamond’s promise to members who attend future sales presentations: “We will provide clear, concise and consistent information at our presentations so that you can easily decide whether committing to vacation is the right decision for you and your family.  You will receive a summary of maintenance fees charged to members of the Collection associations for each loyalty level over the past five years.”
On its website, Diamond also promised to fully inform buyers about resale restrictions, using points to pay for travel or maintenance fees, and banking or borrowing points.
As with any major corporate change, Diamond’s Clarity program proceed will succeed or fail based upon its execution and, most importantly, its acceptance by Diamond’s sales teams.  Given Diamond’s reputation as one of the most aggressive timeshare sales companies in the business — and its recent legal issues in Arizona — the internal adoption issues may prove very challenging.

#3: $1 BILLION CLASS-ACTION LAWSUIT FILED AGAINST DIAMOND ALLEGING ELDERLY ABUSE, FRAUD AND FALSE PROMISES TO BUYERS.

On Jan. 29, a mere six days after Diamond rolled out Clarity, an Arizona couple did what a lot of Diamond owners on RedWeek’s forums have long advocated.  Ilona and Lester Thomas Harding, on behalf of themselves and other Diamond owners, filed a $1 billion class-action lawsuit in Nevada’s U.S. District Court, alleging elder abuse among a raft of deceptive sales practices.
The 55-page complaint outlines a litany of supposed malpractices committed by Diamond’s sales people when they upsold the Hardings — not once, not twice, but five times over three years — to buy points they could never use.
Their tale starts on Jan. 29, 2013, in Scottsdale, when the Hardings agreed to attend a Diamond dinner that was advertised as a 90-minute update session for people who owned Monarch timeshares.  According to the lawsuit, “at or around midnight, after six grueling hours, Diamond was finally able to wear down the Hardings and convince them that they needed to purchase a DRI membership — Vacations for Life — to a couple in their 70s.”
Diamond sales reps told the Hardings that “their Monarch membership would eventually become useless.” They trusted the agents, then agreed to buy 10,500 Club points in Diamond’s U.S. Collection.  They received a credit of $22,812 for surrendering their Monarch membership, but still paid $7,895 out of pocket, plus $319 in closing costs.  Their first-year maintenance fees were $1,700.
Shortly after becoming full-fledged members of Diamond’s Club, the Hardings discovered what many other timeshare owners (at any club) have also encountered: they could not get reservations at resorts they wanted in California and Washington.
Despite that disappointment, the Hardings agreed seven months later to attend a second Diamond sales presentation while traveling on DRI points in Orlando.   At the August 2013 presentation, Diamond sales reps encouraged them to buy a “Silver Sampler Package” that included some free nights in Hawaii.  “Even though the Hardings repeatedly told the DRI sales agents that they were not interested in upgrading, DRI’s sales agents were relentless,” the complaint says.
Several hour later, “the Hardings succumbed to the cumulative sales pressure.”  They paid $15,905 to upgrade their membership and get those free Hawaii nights.
In May 2014, the Hardings flew to Hawaii to take advantage of their free lodgings.  Upon arrival, they learned that, in order to use the rooms, they would have to attend another mandatory sales update or pay full price for the rooms.
The Hawaii sales agents encouraged the Hardings to get out of the U.S. Collection and upgrade their membership to the Hawaii Collection so they could become “Silver-level” members of Diamond’s travel club.  After many hours, “the Hardings broke down” and capitulated.  They traded in their U.S. membership and”“paid DRI an additional $10,222 for the purported privilege of joining the Hawaii Collection.”  As a result of the upgrade, their maintenance fees rose to $2,257.
After heading home, the Hardings discovered, again, that they could not book rooms at their favored resorts in California and Washington.  The upgrade did not translate into reservations.
A mere three months later, in August 2014, while traveling in Palm Springs, the Hardings attended another supposedly mandatory owner update because they were not Diamond “Gold-level” members.  There, DRI sales agents “convinced the Hardings that they had made a big mistake by joining the Hawaii Collection” because the Hawaii properties had much higher maintenance fees than the U.S. Collection and “was notorious for making special assessments on its members.” According to the lawsuit, “DRI then offered the Hardings an opportunity to get out of the Hawaii Collection by once again upgrading their membership and rejoining the U.S. Collection at an even higher and more expensive level than they were at previously.”
Despite their prior experiences, the Hardings trusted the sales agents, who represented themselves as licensed real estate brokers “who had a duty to tell the truth and disclose all material facts that a consumer would deem important.”
The outcome?  The Hardings paid $13,905 to upgrade back to the U.S. Collection.
More than a year later, in December 2015, the Hardings agreed to attend one final sales presentation while staying at Diamond’s Polo Towers in Las Vegas. Nevada.  Sales agents offered them a 15,000-point bonus if they upgraded to a full Gold status membership.  One benefit of becoming a Gold member, they were told, is that they would never have to attend another sales presentation.  After seven hours of allegedly intense pressure, the Hardings agreed to buy the upgrade — even though they didn’t have the cash to buy it.  Diamond offered to finance the purchase.  Diamond gave them a $36,120 mortgage (at 12.27 percent interest) and a Barclay credit card to charge the down payment of $5,970.  In addition to agreeing to pay $524 per month, over 10 years, for the mortgage, the Hardings saw their maintenance fees increase one more time — to $5,173.
All told, the Hardings paid Diamond $75,000 for upgrades at five presentations over three years and also surrendered their Monarch membership to Diamond (valued by Diamond at $22,812).  But they still couldn’t get their preferred reservations.
In January 2016, the Hardings, who live off social security payments and modest savings, ran into a financial wall.  They paid their 2016 maintenance fees, but then tried to sell their timeshare points.  They contacted “surrender” companies that wanted to charge them thousands of additional dollars.  Over time, they discovered that there was no viable resale market for their DRI membership.  They also found out, after corresponding with Diamond, that they couldn’t even give it away.
“The Hardings finally realized that they had been scammed by DRI,” the lawsuit says.
Months later, after contacting an attorney, the Hardings sent a formal demand letter to DRI on Oct. 11, 2016 to opt-out of the otherwise automatic arbitration provision in their contract.  They also demanded a 100 percent refund of all their payments to DRI.  Diamond never responded to the demand letter.
The class-action lawsuit claims that Diamond used similar coercive sales tactics to pressure thousands of vulnerable older customers (defined as over 60) to buy Diamond memberships without fully disclosing the risks of ownership, such as the potential inability to make reservations.  The Harding’s decision to “opt-out” of arbitration is crucial to their legal case, because the arbitration clause bans class-actions and private attorney general actions to resolve contract disputes with Diamond.
Predictably, because of the newness of the lawsuit, Diamond offered no substantive comments about it.  The company’s PR representative said, “Diamond Resorts is still looking into the facts surrounding the lawsuit.  Therefore, it has no comment at this time.”
Robert Tarics, one of the Harding’s attorneys, was equally circumspect.
“We are very proud to represent the Hardings and look forward to having our day in court,” Tarics said.  “We’ll answer any questions once the case is over.  However, in general, we hope this case will reform and clean up some of the abuses that exist generally in the timeshare industry.”
The Hardings, meanwhile, are trying to make ends meet in Arizona while their potentially landmark case heads to some preliminary hearings on the arbitration clause and the certification of the class.  As a result of their experience with Diamond, Tom Harding, 74, has had to forsake retirement and go back to work part-time as an electrical inspector.  Mrs. Harding, 76, remains retired from her former work as a licensed substance abuse counselor.
The Harding case, like other class-actions filed before it, faces many legal obstacles, including Diamond’s proven penchant for litigation (see our stories on Tahoe Beach and Ski Club for one example of Diamond’s legal muscle).
However, most timeshare cases like this never get near a courtroom.  Confidential out-of-court timeshare settlements are much more commonplace.  The last timeshare case to go to court, in November 2016, ended with a California jury awarding $20 million in punitive damages to a former Wyndham sales rep who got fired after she blew the whistle on sales tactics she found objectionable.  Less than two weeks later, and one-day after the New York Times ran a long story on the case, Wyndham’s longtime CEO was fired.

 

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RedWeek.com will keep owners posted on all developments in future installments of the Diamond Chronicles.

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Tahoe Beach and Ski Club Owners Solidify Control of Board Opposed to Diamond’s Potential Takeover of Resort

SOUTH LAKE TAHOE, CA — Legacy week owners at Tahoe Beach and Ski Club strengthened their grip on the HOA board in September by electing two longtime owners to succeed directors who had perceived ties to Diamond Resorts, the giant timeshare chain that owns 22 percent of the resort’s intervals.
The showdown vote on Sept. 24 drew more than 300 owners, a turn-away crowd for an annual
The crowd gathered for the annual meeting

membership meeting, with many owners expecting an election-day charge from Diamond representatives to place one or two of their own preferred write-in candidates on the ballot.  Instead, Diamond stayed on the sidelines, casting its 1,700-plus voting bloc for legacy owners Bill Costa and Kathleen Montgomery, both of whom promised to keep the resort independent and responsive to the vacation needs of longtime deeded-week owners.  Their election creates a 5-0 Board majority opposed to Diamond’s bid to gain a voting majority (by gobbling up as many TBSC timeshares as possible).

Last year, when Diamond ran one of its own corporate representatives for the board, senior vice president Frank Goeckel, the resort erected a big white tent to house the proceedings and overflow crowd of 200 owners.  This year, they brought in an even bigger tent based upon RSVPs that indicated 350 owners would attend.
Goeckel showed up, as expected, but sat just outside the tent, giving himself a few feet of space from the overwhelmingly anti-Diamond owners in attendance (as well as an easy exit path, if needed). 
The proceedings were anxious but generally dignified compared to the rancorous name-calling meeting in 2015. Board President Al Fong and Treasurer Jake Bercu gave impassioned speeches about the need to vote and maintain the independence of the resort (from any corporate buyer). They also bashed Diamond, repeatedly, for past attempts to gain control of the HOA by buying up TBSC intervals. Fong called Diamond a “Trojan Horse” waiting to take over the TBSC beach. Fong and Bercu described Goeckel as a “bully” who tries to intimidate the TBSC board and owners.  
“He (Goeckel) is trying to lull you owners to sleep,” Fong told the faithful owners in the tent.  “Diamond is the Trojan Horse because they have 1,700 votes to use against you.”
Goeckel made no move to participate in any of it, until, after the vote affirming Costa’s and Montgomery’s election to three-year terms, Board President Fong handed him a microphone to answer a simple question: what are Diamond’s intentions for Tahoe Beach and Ski Club?
Goeckel delivered a 10-minute tutorial about Diamond’s point-based trust system of vacation ownership, then, in response to impatient groans from the audience, conceded that Diamond intends to keep collecting TBSC inventory.  In so many words, he said, it’s good business, because Diamond needs to add real inventory to its timeshare trusts in order to sell more points in Diamond’s travel club.
“Our interest here is no different than it’s always been,” Goeckel said.  “If we don’t contribute more weeks to the trust, we will eventually sell ourselves out at some time.”
While sitting out this year’s election contest, Goeckel made no promises about his participation next year.  Regardless, he’s expected to remain a fixture at the resort because he is Diamond’s designated watchdog to keep an eye on the TBSC Board and other Diamond-related timeshares in the area.
Makes sense.  Diamond’s ownership stake at TBSC represents $1 million in annual maintenance fees, monies that are contributing to the resort’s current positive financial health.

Putting the TBSC vote into Perspective

Three years ago, Diamond owned 10 percent of TBSC’s timeshares.  Then it bought another 10 percent from Vacation Internationale, a travel-resort company.  It also acquired intervals at local foreclosure tax auctions, gradually upping its stake to 22 percent. Those purchases were a red-flag to the TBSC board, which had been warned by financial advisers to avoid an “over-concentration of risk” in having one owner responsible for so much of the HOA’s maintenance fees.  That risk now resides with Diamond.
Board President, Al Fong

Rank-and-file TBSC owners, according to what Fong said at the annual meeting, have opposed Diamond’s bid to gain majority voting control of the HOA board for very personal reasons: they don’t want to lose their reservation rights at their home resort and, more importantly, they don’t want to be dictated to, or managed, by Diamond.  Thirdly, they don’t want to be pressured by Diamond to relinquish their weeks or buy into Diamond’s very aggressive sales machine.

FYI, Diamond owns a very nice, and much larger, resort right next door. Diamond’s Lake Tahoe Vacation Resort is one of the best in its network, but it has no private beachfront.  The Tahoe Beach and Ski Club, in contrast, has a spectacular, private 400-foot Lake Tahoe beachfront that is the envy of many Tahoe resorts.  TBSC also has many longtime deeded-week owners who have bought multiple weeks to maintain their ability to enjoy the resort during the primetime summer weeks.  They fear those privileges will all go away if Diamond somehow gains control of their board.

Diamond’s Lawsuit Against Board goes to Mediation Oct. 20th

Another relevant detail: Diamond is currently suing three members of the TBSC board for refusing to recognize Diamond’s purchase of 245.5 Association-owned timeshare intervals in December 2014.  Diamond is NOT suing the other two members of the then-board because they supported Diamond’s purchase.  Those two board members, FYI, Shannon Krutz and Steve Williams, were replaced by Costa and Montgomery at the Sept. 24 election.
The TBSC board rejected Diamond’s bloc purchase because it was not authorized, in advance, by the board.  The board majority learned later, after the fact, that the purchase purportedly had been validated by Krutz, who had an affiliation with the club’s former management company, VRI, that brokered the sale.
VRI’s contract renewal with TBSC was terminated prior to the disputed transaction.  Krutz has not appeared onsite at TBSC for months (in all likelihood, because she is a key part of the Diamond vs. TBSC litigation).  A judge presiding over that lawsuit has already opined that the transaction will not be upheld, and that Diamond would lose at trial.
The case goes to mediation on Oct. 20.  Mediation works if both parties agree to abide by the outcome.  It’s a precursor to a trial on the merits.
So it continues to be a tangled web at TBSC, which represents, in the bigger picture, a legacy resort’s attempt to stave off a threatened takeover by a giant timeshare company.  Diamond has never said, publicly, that it intends to acquire a controlling interest in TBSC.  But it is an acquisitive company that continues to add inventory to its network.  In the past year, for example, Diamond bought Gold Key Resorts (with six resorts) and Intrawest Resort Club (nine resorts).  That’s the business model.

One Final Threat Before the Vote

Two hours before the Sept. 24 board election, Goeckel informed the HOA board that Diamond would
Mary Ann Gutierrez, owner activist

dispute the election results if the Board did not retract votes attributed to association-owned inventory (not including the 245.5 that relate to Diamond’s 2015 lawsuit).  The board declined to retract the votes.

Final tally: Costa and Montgomery, the board’s preferred candidates, won unanimous seats on the board with more than 3,900 votes apiece. If you deduct Diamond’s 1,700-plus voting bloc from the total, the approximate tally was: 
  • Costa 2200
  • Montgomery 2200
  • Diamond 1700
Next year, board member Sedric Ketchum is up for re-election.  When he won his first term, his margin of victory was 23 votes, with Diamond throwing all of its voting power against him.  Stay tuned.
After the vote, RedWeek asked Goeckel if he had any comments about the proceedings.
“I have absolutely nothing to say to you.  You are not authorized….”
Not sure what the “authorized” comment meant, but if we find out, we’ll inform you.
Goeckel and Diamond’s public relations department did not respond to email requests for additional comment after the election.  That is their standard operating procedure.
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This post was written by Jeff Weir, RedWeek’s chief correspondent.  He is also a Diamond timeshare owner.

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The Diamond Chronicles: Life in the Fast Lane, Timeshare Version

By Jeff Weir
Chief Correspondent for RedWeek.com
This is the first of what may be several columns on the changes afoot at Diamond Resorts International, which was just bought out by a huge Wall Street investment firm, Apollo Global Management, for $2.2 billion.  The merger’s effect on owners is to-be-determined, which is why we are going to report on the Diamond Chronicles.

Here is the Back Story

Throughout 2016, Diamond has made a lot of headlines, including a very damaging one on Jan. 22, when the New York Times (following articles published by RedWeek.com, TimeSharing Today and other organizations) published a critical news story about Diamond’s alleged use of high-pressure sales tactics to sign up new or repeat buyers.  Predictably, Diamond executives denounced the article.  Diamond investors didn’t like it either, as reflected by a large dip in stock price.  To stop the bleeding on Wall Street, Diamond issued a letter to investors Jan. 25 that said, in part, that the New York Times article “does not accurately reflect who we are as a company nor how we operate our business.”  Diamond did not challenge any specifics in the article or demand a correction or retraction. 
The second big thing that made Diamond newsworthy, all year long, was its overall stock performance, which had floated far below its timeshare competitors for many months.   So on Feb. 24, while under public pressure from major investors for stronger returns, Diamond’s board of directors announced that it had created a board-level committee to explore all “strategic alternatives” to maximize shareholder value.  That announcement, in effect, meant that Diamond was putting itself up for sale — and Wall Street loved it, pushing Diamond’s stock up from $19.11 per share on Feb. 24 to $23.21 per share on Feb. 25.  Four months later, on June 29, Apollo announced that it would buy Diamond for $30.25 per share.  That offer amounted to a 26% premium over Diamond’s then-current share price.  The merger was consummated Sept. 2.  That’s the day that Diamond went dark, transformed from a public company that files quarterly results to investors, to one that is under no obligation to report anything publicly about its business.
But this is not a story about Wall Street.  It’s about Diamond.

How Do Timeshare Owners Fit into the Apollo-Diamond Merger?

After months of hearing nothing from Diamond about the merger, Diamond timeshare owners got two very friendly Labor Day Weekend emails from the “stay vacationed” company, on Friday, Sept. 2.
The first came from David F. Palmer, Diamond’s president and CEO.
Thirty minutes later, the second arrived from Stephen J. Cloobeck, Diamond’s founder, chairman and former CEO (until Palmer succeeded him in January 2013).
The dual messages announced that “an affiliate of funds managed by affiliates of Apollo Global Management, LLC” had completed its acquisition of Diamond Resorts International for $2.2 billion.  That’s right, they said it: “affiliates of… affiliates” bought Diamond.
Cloobeck, the man who peddled “the Meaning of Yes” as a timeshare theme in all of his corporate messaging, said he was “thrilled” by the buyout.  Palmer was a bit more restrained, saying he was “pleased.”
No surprise.  In reality, they should be ecstatic, because Cloobeck and Palmer are the two biggest beneficiaries of Apollo’s purchase of Diamond’s stock.
According to an Aug. 5 New York Times story that was based on public Securities Exchange Commission stock filings, the Apollo buyout was worth $384 million for Cloobeck’s shares and $173 million for Palmer’s.  Not bad for one day at the timeshare office.
They weren’t the only big winners.  Thirteen other Diamond executives and directors (all major shareholders) stood to share $67 million, according to the SEC filing and the Times story.

So if you’re a Diamond timeshare owner, what does all this seemingly obscene profiteering by corporate executives mean to you?  Maybe not much.  In his email, Palmer assured all Diamond owners that “this transaction will not impact your membership or ownership and you will continue to enjoy all of the benefits you have come to expect.”
Cloobeck, as is his wont, was much more exuberant.  He celebrated Diamond’s sale as a personal victory.
“I am confident that the new owners will be excellent stewards of my legacy,” Cloobeck wrote in an email to owners.  “I am also pleased to announce that Apollo offered me a special position to assist them as an advisor, leveraging my expertise in the hospitality sector.”
So, while he counts his millions, Cloobeck also plans to hang around, advising the company on how to make even more money.  In an odd way, it’s fitting, because Cloobeck’s over-the-top personality has set the tone for Diamond since it bought out Sunterra’s timeshare assets in 2007.

Whenever I Think of Diamond, I See Cloobeck

Back in 2012, Cloobeck participated in a couple episodes of Undercover Boss, the semi-popular CBS-TV show about executives who masquerade as regular employees in order to find out what is “really going on” at their companies. 

Cloobeck’s appearance on the semi-reality show was notable because he managed to turn his episodes into an unintended comedy, disguising himself in an ill-fitting wig, baseball hat and glasses while posing as a not-too-smart handyman.  Since a camera man and sound person followed him around various resorts while the episodes were filmed, it’s unlikely that Diamond employees had much doubt about who the guy-in-the-wig was.  Still, when the episodes ended, he graciously thanked the employees who put up with his phony handyman and gave them hugs and lots of money.  (See what RedWeek members have to say about the episode here)

Rank-and-file Diamond employees already knew who he was, of course, because during his reign as CEO Cloobeck made himself a ubiquitous presence at Diamond resorts.  According to staff, he had a habit of popping in, unannounced, at various resorts to see what employees were doing.  For several years, he and his marketing team also liked to feature videos of Cloobeck, talking about how wonderful “the Meaning of Yes” was to Diamond owners, on continuous-loop, large-screen TVs mounted on the lobby walls at Diamond resorts.   At check in, you could not escape him.  In the TV video, he looked every part the timeshare salesman that he is: expensive coat, pressed jeans, white open collar shirt, gold chains, big watch, vivid tan, brilliant white teeth, perfect pompadour, all topped by a tone of self-satisfaction as Cloobeck held forth from a spectacular beach resort (fancier than anything Diamond owns, FYI).  Those videos disappeared, overnight, when Cloobeck was replaced as CEO by Palmer, his longtime executive running mate at Diamond resorts.
From a branding standpoint, the marketing video wasn’t a bad idea. But just like the Undercover Boss episodes, the video seemed to reveal more about Cloobeck than the average timeshare guest might want to know about him (which is, that he’s proud of being rich and happy to share his wonderful life with mere humble timeshare owners).  As one might imagine, Diamond’s front-desk people purportedly hated the video, because they could not get away from it.  
The last time I stayed at a Diamond resort, I asked the front desk folks, “where’s the Cloobeck video.”  They laughed out loud, then confessed, “locked in the general manager’s safe.” Never to air again.
In a semi-recent YouTube interview about his Undercover Boss appearances, Cloobeck told an interviewer that he initially balked at doing the show “because I was afraid of tarnishing the brand.”  Still, he was obviously proud of the whole adventure.  Later, when asked about Diamond’s philanthropic programs for charitable causes, Cloobeck beamed, “I’ve always been a great philanthropist.”
After the second Undercover Boss episode aired, Cloobeck decided to put his money where his mouth was.  “I wanted to do something special for our team worldwide.  I donated $1 million, matched by the company, for a $2 million fund for team members that need help,” Cloobeck told the interviewer.
Diamond timeshare owners should like that bit of philanthropy, since they paid for it with their purchases, mortgages and maintenance fees.
I only met Cloobeck once, but it was a total goof and probably did not even register with him.  I was attending an industry conference in Las Vegas, hanging outside the media room while CEOs attended a private session next door to talk about high-level (i.e., secret) timeshare issues.  Suddenly, there was a flurry of movement.  It was the unmistakable Stephen Cloobeck, larger than life, decked out in golf shirt and shorts, swaggering through the lobby with a cigar in hand and accompanied by a big, beefy, bald-headed bodyguard (a very big version of Kojak, for those who remember Telly Savalas) who cut a swath for Cloobeck through the curious folks in the lobby.  Compared to the other CEOs who were dressed like bankers, it was a classic Cloobeck entrance.  Arrive late, act like you just left the golf course (which he had), then leave early.  I tried to introduce myself to Cloobeck, without slowing him down, but desisted when the bodyguard started twitching at me while his gold earring bobbed like a fish hook.  The pockets of his business suit bulged, too.  Regardless, it was a great moment: short, sweet, unforgettable Cloobeck.
Inspired by what I’d seen, the next day I called Diamond’s corporate office in Las Vegas to see if I could arrange an interview with Cloobeck while I was in town.  Seemed like a pretty automatic thing to do.  He seemed much more interesting than many CEOs I’ve met and was obviously living life as a self-styled timeshare celebrity, so why not? Good idea to see him in his lair for a feature story just like this.

That was three years ago.  I’m still waiting for the call back.

Out with the Public Company, In with the Private Company

So now it’s time for all timeshare owners to say goodbye to the Old Diamond, and hello to the New Diamond.  While both Cloobeck and Palmer promised in their emails that nothing would change as a result of the merger, that is not realistic.  Business people outside Diamond’s inner circle say there are always big changes when one company takes over another.  There are many winners and losers, including the people who get hired or fired as a result of Apollo’s integration of Diamond into its many-affiliate universe of companies.  After all, Apollo did not buy Diamond to keep everything the same.  Apollo bought Diamond, which has been hugely profitable for 12 quarters in a row, to make even more money.  More importantly, now that it will operate as a private company, Diamond has no legal obligation to file quarterly reports about earnings or annual reports.  Here’s what that means: barring voluntary announcements or web postings from Diamond, timeshare owners will have no easy to way to find out what’s going on with their timeshare company.  You’ll only learn what they want you to know.
Will reservations get easier?  Will owners ever be able to sell their Diamond Club points on the resale market?  Will Diamond take them back?  Stay tuned.
FYI, we asked Diamond’s PR team to arrange an interview with Palmer to talk about these issues, but they have not responded.  We will keep you posted if they do!


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Full Disclosure: In addition to being a reporter who covers timeshare issues, I am a longtime Sunterra/Diamond owner who has had generally positive experiences using my legacy weeks.  Even though I have stubbornly refused to convert them to points, Diamond still comes after me, every six months, to become a full-fledged member, rather than an orphan, of The Club.  I don’t mind.  Diamond has pretty likeable employees.  Their solicitations are always challenging.

I have also covered Diamond’s showdown with Lake Tahoe Beach & Ski Club extensively.  
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For more info on Diamond’s financial performance, see Diamond’s last quarterly earnings announcement, published Aug. 6, 2016. 

Let us know what you think!  Leave your comments below to continue this conversation.



NOTE: The views expressed here are the author’s own, and do not necessarily reflect or represent the opinions of RedWeek.com or its affiliates.

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Owners at Legacy Timeshare Resort in Lake Tahoe Deny Diamond’s Bid to Gain a Majority Seat on the HOA Board

By Jeff Weir

In a stunning setback for Diamond Resorts, timeshare owners at Tahoe Beach and Ski Club defiantly denied Diamond Resort International’s bid to place a senior vice president on the HOA’s board of directors. Instead, they reelected two board members who constitute a 3-2 majority opposed to Diamond’s unannounced plans for the resort.

Frank Goeckel’s defeat was a first on many fronts. He is Diamond’s liaison and board relations consultant to 31 resorts and currently serves on four timeshare HOAs, including the nearby Tahoe Seasons resort. All he wanted to do, he told owners repeatedly, was serve on the board to protect Diamond’s investment in Tahoe Beach and Ski Club and create a richer vacation experience for all owners. Diamond’s investment is substantial: it has aggressively bought Tahoe Beach and Ski Club units at tax sales during the past two years and now owns 25% of all Tahoe Beach and Ski Club timeshares. To many outsiders, Diamond’s ownership (including $1 million in maintenance fees this year alone), is viewed as a very positive key to the legacy resort’s long-term financial survival.

But the 200 owners who assembled on the Tahoe Beach and Ski Club beach for the HOA election on Sept. 26 did not embrace Goeckel’s pitch, or his sometimes combative personality. He finished a distant third out of four candidates, collecting 1,719 votes, including 1,604 he cast for himself as Diamond’s proxy holder. In their rejection of Goeckel, Tahoe Beach and Ski Club owners voted to maintain their resort’s independence in the face of a company with very acquisitive designs on older but valuable resorts across the country.

Jake Bercu and Alfred Fong after their reelection

Bad as the results were personally for Goeckel, the HOA vote was a triumphant victory for President Alfred Fong and Treasurer Jake Bercu, who were reelected to new terms on the strength of their campaign pitch that Goeckel, and co-challenger Cathy Ryan were bad for the board and bad for the resort. In effect, they portrayed Goeckel as a Trojan Horse whose ascension to the board would enable Diamond, over time, to take over the resort at the expense of longtime deeded week owners. Citing Diamond’s and Goeckel’s record at other Diamond resorts, Bercu-and-Fong supporters at the HOA meeting predicted that Diamond would increase maintenance fees, open up the resort’s coveted private beach to non-owners, and pressure longtime owners to convert their deeded weeks into Diamond’s point-based travel club.

Many owners also distrust Diamond’s motives because of Diamond’s decision, last February, to sue the current board for its refusal to recognize Diamond’s purchase of 241.5 vacation units last December. As one irate owner pointed out at the HOA meeting, “Did you know you’re being sued by this man? He [Goeckel] wants your vote!”

The candidate’s forum at the HOA meeting was rancorous. The candidates aggressively challenged each other while members of the audience heckled Goeckel and complained about Diamond’s corporate behavior at other resorts. Bercu and Fong beseeched owners to protect their vacation experiences and preserve the spirit of the resort by rejecting Goeckel and Ryan. Goeckel vowed that he would never open up Tahoe Beach and Ski Club’s private beach to Diamond owners at the Lake Tahoe Vacation Resort, located right next door, but with no beach of its own. Ryan, a bit player in the drama, said she just wanted to work with all owners and improve the financial stability of the 140-unit resort.

200 Tahoe Beach and Ski Club owners gather for the vote

Goeckel answered every accusatory charge (and boos) from owners with as much reasonableness as he could muster. But he was also obviously upset at the hostility he absorbed from Tahoe Beach and Ski Club owners at the candidates’ forum. He even told a story about how his wife and children, at home in Florida, got hateful and threatening phone calls from owners at The Point in Poipu, a Diamond resort on Kauai that went through an owner class-action lawsuit several years ago (over a $6,000 one-time assessment to repair ocean-water damages). The case was eventually settled — with Goeckel calling the experience one of his proudest achievements as a board member at Poipu — but still left a bad aftertaste among many Poipu owners. To this day, they complain loudly, and bitterly, on online forums (including this one on RedWeek.com) about their alleged mistreatment from Diamond.

Unlike Poipu, the HOA election at Tahoe Beach and Ski Club ended peacefully, with all candidates retreating to the best wishes of their supporters while owners milled around, excited and nervous, about whatever history they were about to make. An hour later, they found out.
With two seats open on the board, the referendum on Diamond’s investment in Tahoe Beach and Ski Club was:

  • Bercu, 2,217 votes
  • Fong, 2,207.5
  • Goeckel, 1,719 (including Diamond’s 1,604)
  • Ryan, 1,624.5 (including Diamond’s 1,604)

Saturday Night Pizza Party Puts the Vote into Perspective

The night before the election, Goeckel probably knew what was coming. He had dinner, by himself, at the end of a long bar at the Pizza Hut located right next door to the Tahoe Beach and Ski Club. His only visitor was a reporter who stopped by to say hello and engage in small talk. Goeckel was not in the mood for pleasantries. In response to several questions, he just stared back, stone-faced, like he was looking through a mirror.

While Goeckel munched on his lonely pepperoni, 50 or so Tahoe Beach and Ski Club owners held a pre-election party in a dining room just 20 yards away. With college football game TVs blaring overhead, they didn’t know Goeckel was in the same room, and they didn’t care. They were celebrating an owner-movement in its infancy: people taking charge of their timeshare destinies by getting involved in mundane things like HOA elections. For these folks, getting involved felt good — very, very good.

Diamond Resorts’ Goeckel takes the mic

Compared to the newby activist owners, Goeckel’s been deeply involved in timeshare issues for 25 years. He has more board member experience than all of the Tahoe Beach and Ski Club members, combined. He also serves on the board for the American Resort Development Association and its owner-affiliate, ARDA’s Resort Owners Coalition. But Goeckel, despite a resume that spans six pages, hit a rocky speedbump at Tahoe Beach and Ski Club. Owners, including other board members, routinely refer to him as a ‘bully.’ Goeckel claims to be baffled by all the hostility he’s received from owners at Tahoe Beach and Ski Club, but he knows the truth of the situation. Bottom line: the owners that know him don’t like him or his company.

The enmity is understandable. At an owners’ meeting on the beach a month ago, Goeckel matter-of-factly told owners that if he did not get elected to the board this year, he’d get elected NEXT year. Diamond, he said, “is not going anywhere.”

Owner Activism in Tahoe Starts a Movement?

The showdown on the beach at Lake Tahoe beach illustrates, in one isolated case, what can happen when legacy resort owners communicate and get organized to defend their perceived interests. It also opens a window into how major companies view the future of timeshare — where big companies gobble up units at smaller resorts in high-value destinations like Lake Tahoe. It seems to be a natural part of the ongoing consolidation of the industry where big companies survive and smaller independent timeshares teeter on the brink of insolvency as owners age-out and go delinquent on their maintenance fees.

Across the country, a similar owners’ rebellion sparked a civil and criminal investigation of The Manhattan Club timeshare resort by New York Attorney General Eric Schneiderman. As part of that investigation, Schneiderman obtained a court order in 2014 that terminated all sales at the club and froze the company’s assets.

But those kinds of moments are few and far between. Most timeshare owners are concerned about their reservations and vacations, not the people who run their resorts.

In the aftermath of the vote, as the calm waters of Lake Tahoe lapped quietly at Tahoe Beach and Ski Club’s private beach, Bercu and Fong were proudly optimistic about the challenges that still must be addressed — Diamond’s lawsuit, dealing with delinquencies and launching a new resale program to put foreclosed units back into circulation — and creating revenues.

They also have to prepare for another election, next September, when two other board members, Steve Williams and Shannon Krutz, who back Goeckel, stand for reelection. The board has already asked Krutz to resign because of her role in approving Diamond’s purchase of Tahoe Beach and Ski Club timeshares last December (without board approval), but she has not responded. Other owners, full of energy from their victory in reelecting Fong and Bercu, are openly debating whether to launch a recall election, immediately, to unseat Krutz. So the situation remains fluid, despite the election.
Bercu says that Goeckel, communicating with other board members through back channels, has already agreed to engineer Krutz’s resignation — in return for his getting an appointment to serve out her term.

Diamond’s Lake Tahoe Vacation Resort behind TBSC

It’s a risky proposition, since owners have already spoken about their position about Goeckel.
“Diamond is still trying to buy our inventory, so we don’t want Goeckel on the board,” Bercu said. Krutz declined to comment.

Goeckel also sidestepped comment after the HOA vote. In an email, he said, “I am unable to comment on issues relating to the pending litigation at Tahoe Beach & Ski Club in South Lake Tahoe, California.”

Like all litigation, Diamond’s lawsuit against Tahoe Beach and Ski Club will have a life of its own. The next status conference before a local judge is tentatively set for mid-November. That judge has already opined that Diamond will lose the case because Krutz had no authority to authorize the sale on behalf of the board. The Tahoe Beach and Ski Club board is actively fighting the case and, in a recent maneuver, filed a countersuit against Diamond and VRI, the club’s former management company, over the December sale.

So what will happen next?

“The owners want more blood,” Bercu said. “They are feeling empowered. We want to keep them engaged but channel the energy into something positive.”

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New Listings for Kaanapali Beach Club Maui

The Kaanapali Beach Club in Lahaina on Maui is one of the resorts on this year’s just released “Top 25 Timeshare Rental Resorts,” a list compiled by RedWeek members. Offered by Diamond Resorts, this spectacular resort complex is located on the world famous Ka’anapali Beach on Maui’s North Shore, where you can sunbathe during the day and are bathed in stunning sunsets every evening.

The landscaping offers tropical garden atriums and relaxing waterfalls where you can enjoy outdoor café seating. Swim in the heated, acre-wide, lagoon-style pool that also boasts a 2-story water slide. Miniature golf and a children’s program are also offered.

Other activities include many water sports such as swimming, fishing, scuba diving and snorkeling. With your timeshare kitchen you can take advantage of the resort’s barbecue and picnic areas. You can work out at the state-of-the-art fitness center that includes yoga, or indulge yourself at the spa.

This resort is also a prime whale-watching location. The humpback is the star of the annual whale-watching season in Hawaii, which usually begins in December or January and lasts until April.

RedWeek reviewers have this to say about the Kaanapali Beach Club:

“The Ka’anapali Beach Club is my escape from every day life. I love the location and the relaxing atmosphere. The beach is very nice: clean and not busy from foot traffic. This is my primary reason to stay at Ka’anapali Beach Club – for a very relaxing vacation.”

“I am an owner and my unit is Very beautiful. I love keeping my balcony doors open during the night and listen to the waves. During the day, I can watch the whales (during whale season) from my balcony – very entertaining. There is a walkway along the beach so I enjoy my morning walks for about 3 miles each day. There is a grocery store within short walking distance and also a farmer’s market (which is perfect for the timeshare kitchen).”

“A fantastic location with a great, attentive staff. Extremely family-friendly, but not overrun with kids. The view is amazing, especially during whale season. The nicest resort on Maui that is not “stuffy.” Virtually anything you want to do is within close reach from this resort. You Won’t be disappointed.”

Current RedWeek.com listings for Kaanapali Beach Resort on Maui include 73 timeshare rentals, starting at just $107/night, and 13 resales that start at $1800.

(Photo credit – diamondresorts.com)

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