I just got a notice that my timeshare resort in Reno, Nevada, is going out of business at the end of the year, too broke to continue. They want me to sign a deed-back where I just give up my timeshare, for no money. I have enjoyed vacationing at the Plaza Resort Club for a long time. Should I just sign over the deed or get a lawyer?
To answer this owner's question — which may be shared by thousands of owners at other legacy resorts — we went right to the source to find out what is happening at the Plaza Resort Club. RedWeek also consulted timeshare industry professionals and lawyers who have witnessed shutdowns at other legacy resorts. Here is our report.
When timeshares die — or just come to the end of their supernatural life — everyone suffers, from the employees and managers to the family owners who called it home for many memorable vacations. There are not very many happy endings where owners get their money back or swap their intervals for memberships in a travel club. When a resort's economics go bad, there's not even much that a team of lawyers can do about it — unless there is a suspicion of fraud involved. Most of the time, when legacy resorts run out of money — from self-inflicted wounds, including mismanagement, or from double-digit delinquencies caused by owners who die off or drop out — they just quietly fold.
But every now and then, the closure of a timeshare resort can become a positive, particularly if the resort can be put to a better use as a hotel, a condominium project, or even an assisted living facility for the elderly.
Take the Plaza Resort Club, for example. When it shuts down on Dec. 31st, about 25 percent of its 5,253 owners will exchange their intervals for timeshares at four other resorts. The other 75 percent will just sign over their deeds and walk away, saying "thanks for the memories." The high-rise timeshare building will then be converted by new owners into Reno's newest (but older) downtown hotel or condominium. According to experts contacted by RedWeek, the Plaza's exchange program is a creative wind-down for a legacy resort that could become an industry-wide model for other timeshares that are losing their ownership base to age, infirmity, apathy or insolvency.
36 Years Later, Time to Start Over at the Plaza
Dick Drechsler has been the president of the Plaza Resort Club HOA since its inception 36 years ago. He has literally seen it all, from the heady timeshare sales days in the early 1980s when the resort was packed with active owner-gamblers to now, when it's still breathing but perceptibly empty of life. There are a lot of gold mining-era ghost towns in Nevada. This resort is becoming a timeshare ghost town.
The Plaza, also known as "The Plaza on the River" on travel websites, is a 103-unit, concrete tower overlooking Reno's downtown Truckee Riverwalk area and numerous restaurants. It is well reviewed by visitors who use it as a hotel — primarily because of its location, oversized rooms (486 sq. ft.) and its extremely unusual amenity of free valet parking. But "Reno's Favorite Small Hotel" no longer has a gourmet French restaurant or popular bar, and it never had full kitchens. There are newer properties nearby, appealing to younger travelers, with better wifi, Starbucks-like lounges, and modern furnishings.
Two years ago, Drechsler and the rest of the HOA board saw the handwriting on the wall. The timeshare was going to run out of money, thanks to the inevitable aging-out of its original owner base and other factors tied to a local economy that was still recovering from the market and mortgage crash of 2008. With 5,000-plus deeds outstanding, the HOA owned 1,000 intervals it could not monetize. Two thousand owners were behind in payments, while the remaining 2,000 were still paying dues. Worst of all, the association didn't have enough cash to pursue foreclosures.
"When we started this process, we had four goals," Drechsler said in our interview. "Keep the Plaza out of bankruptcy. Keep the doors open to the end of the year. Clean up all the titles. And allow owners to exit with dignity."
In an apologetic letter to members in June of this year, Drechsler bared the bad news. "Your board has worked long and hard to find solutions to protect your ongoing interest, but at this time we regret to say that our only viable option is to terminate the timeshare program and dispose of the property." The letter said owners in good standing could sign over their deeds — for nothing — or exchange their intervals for similar (and maybe better) units at one of four resorts: Tahoe Beach and Ski Club in South Lake Tahoe; Indian Palms Vacation Club in Indio, CA; Red Wolf Lodge at Squaw Valley (lake Tahoe area); or the Channel Island Shores resort in Oxnard, CA. The letter also advised owners that the board would commence foreclosure proceedings against all delinquent owners.
Drechsler also laid out, in excruciating detail, the factors that led to the Plaza's demise: soaring deficits caused by unpaid maintenance fees; the termination of a long-running resales program; the rise of transfer companies that exploited owners anxious to sell; and passage of a new Nevada law in 2012 that, while intended to crack down on illegal timeshare transfers, effectively killed the legal resale market for Plaza intervals. Why? No licensed brokers wanted to sell $1,000 timeshares if they could sell $100,000 houses, instead.
Awash in six-figure debt, the Plaza board contacted other timeshare companies and vacation clubs, hoping to find a buyer or a partner that would take over some inventory and, most importantly, start paying maintenance fees for 1,000 owners who were already in default. They came up empty. "What we found was that the complexity of dealing with 5,253 separate deeds of ownership was simply an overwhelming and prohibitive task to every broker and prospective buyer we approached," the board letter said.
White Knights Come to the Rescue
The situation was bleak — until Drechsler found what he described as a few "white knights" who came to the rescue of the Plaza Resort Club. First, an (un-named) Reno investment group agreed to pay the HOA's $1 million operating deficit through the end of the year. The investment group also agreed to pay $600,000 to clean up all of the legal titles on the Plaza's timeshares. In return, the investment group got the option to take possession of the Plaza building once all of the deed-title issues are cleaned up. That's expected to happen in early 2017.
"The actual sales price for the Plaza property will be equal to the total funds advanced to obtain consolidated title and pay the Association's operating deficit through year-end. As a result, there will be no sale proceeds to distribute to the membership," Drechsler informed owners.
While that message didn't please many owners, it made economic sense, because the investor group was fronting all the money for the shutdown.
Drechsler also found two other allies who played key roles in formulating the exchange option for Plaza owners: Jake Bercu, treasurer of the HOA board at Tahoe Beach and Ski Club in South Lake Tahoe, and Dave Brown, co-owner of Grand Pacific Resorts, the Carlsbad, CA timeshare development company that manages Tahoe Beach and Ski Club. After a series of talks, Grand Pacific agreed to allocate inventory at four of its resorts (including Bercu's) to accommodate potential exchanges from Plaza owners.
"This is a win-win situation all around," Bercu said. "Dick wanted to make sure there was an avenue for their owners to continue being owners, and we were willing to give up some of our inventory for the exchange so we could get some new paying owners."
Nigel Lobo, chief operating officer at Grand Pacific Resorts, praised the plan as a grand experiment, perhaps, that other legacy resorts could explore. "This is the first time we've embarked on an exchange plan. If it works, it could be an amazing model for a lot of other legacy resorts that are falling off the cliff," Lobo said. "When you have an owner that is already vacationing, instead of retiring and walking away, they can continue using their ownership at another resort. This is one of the coolest solutions I've seen to sustain the good part of timesharing."
The exchange program, which will cost Plaza owners $325 to execute, appears to benefit all participants. Owners who opt for an exchange will get to continue getting a vacation value out of their timeshare. The four participating resorts, meanwhile, will gain new owners who pay maintenance fees for HOA-owned units that, now, are not generating revenue. "It's all about getting new dues-paying members," Lobo said. "That is the heartbeat of a timeshare resort."
To date, most Plaza owners are just surrendering their deeds to avoid any future financial liability to the resort (on maintenance fees of $641 per week). But a healthy 25 percent are choosing to exchange (and many of those owners are already touring the exchange-resorts.)
"Two years ago, we could not have done this," Drechsler said. "But last year, the growth in non-gaming hotel development in Reno was 60 percent. That's where the city is going. So the timing is everything on making this work."
As Tesla and other Silicon Valley tech companies expand to the Reno area, the local travel economy is expecting a boom-let that may benefit the "new" Plaza that reopens under new ownership in 2017.
"This is an excellent model for any resort that wants to avail themselves of the wind-down opportunity and find a way to take care of their owners," Drechsler said. "I think we may have built a better mousetrap that other resorts can follow."
Shep Altshuler, publisher of TimeSharing Today and founder of the TimeShare Board Members Association (a nonprofit education group for HOA members), applauded Drechsler for turning a disastrous timeshare shutdown into a good story that gives options for longtime timeshare owners. He said it's also a cautionary tale for all legacy resorts that have comparable economic challenges.
"The steps taken by Dick Drechsler on behalf of the Plaza Resort Club are an indication that all timeshare HOA board members must conduct in-depth studies to determine the viability of their resorts," Altshuler said. "There are hundreds of well-run legacy timeshare resorts in the U.S., but dark clouds may be gathering above hundreds of others."
Walking Away with No Regrets
Janet Beale, whose family owned and used their Reno Plaza timeshare for decades, is one of many owners who simply agreed to sign their deed back to the Plaza HOA. Initially, she was dismayed not to get any money back for her interval, which her parents bought for $5,800. She considered hiring a lawyer, but discovered that it would be expensive and, possibly, fruitless. Gradually, she resigned herself to the reality that her timeshare has no resale value (she tried to sell it on RedWeek.com, but got no interest).
"It's all good now," said Beale, who lives in the suburbs outside Portland, Oregon. "That story is over for me. We have another timeshare we're happy with, and we'll continue using it."
Beale is not alone. Drechsler, who has talked to hundreds of owners about the program, said he's already received deed-back instructions from 75 percent of his members. That percentage is important because it means the HOA board will have a legal voting majority to change the CCR's in order to wind down the Plaza Resort Club early next year.