The industry has improved, but are they right for clients?

Don't be shocked if a client approaches you about buying an interest in a nine-bedroom Miami Beach castle, complete with a shark-filled moat and gargoyles. The price of a membership, starting at $1 million, includes access to a chauffeur-driven Bentley and Jaguar convertible. In fact, a membership proposal for "The Castle" recently was being prepared for rock singer Ozzie Osbourne.

Or perhaps your clients would prefer a "fractional" at the Ritz Carlton Club, complete with a concierge staff and airport pickup. At the club in Jupiter, Fla., your client may have a private splash pool. In Aspen, Colo., perks include a ski valet service and locker room. Membership packages at Ritz-Carlton Clubs, now at four locations, range from $98,000 to $490,000 for 21 to 35 days.

Welcome to the new world of timeshares. Actually, today's purveyors of timeshares cringe at the term, which carries the tainted image of bad investments, bankruptcies and high-pressure sales.

They prefer to call their offerings, "vacation ownership," "vacation clubs," "shared ownership" or "private residence clubs." The term, "fractional," refers to what may be the fastest-growing segment of the timeshare industry: longer-term vacation ownership, typically of one month or more. Today, time ownership may be significantly longer than the typical one-week period, and accommodations may be more luxurious than hotels. They often allow purchasers to trade time at other resorts or for other services.

One thing is certain: Experts say timeshares have become the bright light of the travel industry during the latest recession. On the whole, the travel industry has grown an average of 5.7% annually since 1994, according to the Travel Industry Association of America in Washington. In 2001, it was up just 2%.

By contrast, timeshares grew at a 14% to 17% annual clip in the 1990s, says Jason Tostevin, spokesperson for the Washington-based American Resort Development Association. That dropped to 6% to 7% in 2001. "It's not the light-speed clip at which it was growing before," Tostevin admits, "but it's also significant growth in a year when individual companies had a lot of trouble."

Jake Fuller, hospitality and leisure analyst with Thomas Weisel Partners, a New York-based investment bank, cites a few reasons for the timeshare industry's attractive growth:

Timeshares previously were built for some other purpose, such as condominiums, for example, and converted to timeshares when they didn't sell. Today, many of the timeshare resorts actually are designed as timeshares, with the ultimate luxuries from the onset. In fact, Cendant Corp.'s Fairfield Resorts has a special prototype warehouse in Florida where it can test what potential clients might want in timeshares. Some timeshares, such as Disney's, are tied in with theme parks.

Exchange networks-the largest are RCI, a Parsippany, N.J., division of Cendant Corp., and Interval International in Miami-can help owners trade their time for some at another resort. In fact, another unit of Cendant Corp., the Abercrombie & Kent Registry, also in Parsippany, allows timeshare trades for such unusual items as Super bowl tickets.

Legitimate branded companies-namely major hotel chains-dominate the timeshare industry today.

Since September 11, people want vacations but don't necessarily wish to fly, Fuller said. Many of the timeshares are based within two to three hours of major urban areas.

Timeshare providers say their growth is being fueled by a need for busy families to lock in time together. They also may be less of a hassle than a second home or rental.

John Barrows, an RCI spokesman, says timeshares present a way for hotel companies to diversify. "Most (timeshares) are pre-sold," he adds. "From a business perspective, imagine if Detroit could sell their cars before they had to make them."

Today, there are 1,562 timeshare properties in America and some three million timeshare owners, Tostevin says.

The average timeshare sale is about $13,000, and 67% of timeshares are financed, according to Barrows. The majority of timeshare purchases, 64%, are two-bedroom units. The average annual maintenance cost for timeshares is $414.

The industry went through a major change during the 1990s, when there were a number of independent timeshare companies. "They went public and raised significant capital," Fuller says.

Many of those since have merged. Now the timeshare industry, he says, is consolidated largely in the hands of Cendant, Starwood Hotels & Resorts Worldwide Inc., Marriott International Inc. and Hilton Hotels Corp.

Today, he says, timeshare marketing is much more savvy and cost-effective. Marriott, which owns four brands of vacation ownership-including the Ritz-Carlton Club-is said to have started revolutionizing the business in 1984.

"We don't have that 'you must buy it now' attitude,'" said Marriott spokeswoman Beth Vairo. "Our philosophy, regardless of brand, is we want you to have an incredible experience going through the sales process. We want you to feel better about Marriott walking away.''

Horizons and Marriott vacation clubs, she says, typically offer discounted rates at their timeshare units for three or four nights. In Orlando, Fla., for example, theme park tickets might be included. Although this creates a very economical vacation, those who accept must take a 90-minute tour. Afterward, however, prospects easily can walk away. That is a far cry from timeshare presentations of the past, which had the reputation of all but strong-arming clients into a purchase.

Marriott also lets potential customers test timeshares through a general toll-free number. If there happens to be timeshare vacancies available, people can stay there at special rates-no tour required.

Fuller says the marketing conversion rate to sales for timeshares is believed to have improved dramatically since the hotel chains entered the business. However, industry experts say they do not believe there has been much change in timeshare resale values, which historically have been poor. The reason: a lack of an active secondary market for timeshares.

RCI's Barrows says one significant problem is difficulty in documenting timeshare ownership. After all, how do you know whether a timeshare, viewed online, actually is owned by the person who posted the ad? Most of the fraud surrounding timeshares, he says, has been in the timeshare resales arena.

In fact, 38,000 timeshare owners recently were bilked out of $15.4 million in appraisal fees. Timeshare owners were enticed in an elaborate telemarketing scheme to pay a $399 appraisal fee to sell their timeshares. Barrows says that Cendant Corp. hopes to help rectify the timeshare resale problems shortly. It is working with eBay to create a timeshare sales site on the Internet that would verify ownership by all timeshare owners who list properties.

So are these new timeshares worth it for your clients?

"Make the assumption that you're going to lose 50% of the value over 10 years. Add that to the time value of money. Then add the annual fees-maintenance and refurbishment," says J. Michael Martin, an attorney and CFP licensee who is president of Financial Advantage in Columbia, Md. "Then ask, how does that compare to two weeks at a comparable hotel? If the numbers are close, I wouldn't do it. I'd only do it if it's cheaper."

The reason, Martin says, is that many people lose interest in their timeshares. Even though there may be exchange options on a timeshare, often those options are more flexible on paper than in reality. If a client is considering the timeshare because of the exchange option, Martin advises finding owners in the same building who already have used the exchange options.

Another reason Martin questions timeshares is the open-ended risk with maintenance fees. "You don't know how fast it's going to escalate," he says.

"If there are values in timeshares, try to find someone who's trying to get out of one. If someone has one they want to sell, maybe you'll get it for half price. It's the same rule as for closed-end mutual funds. Never invest in a closed-end fund on the offering."

Jon Paulisin, editor of Vacation Ownership magazine, says it's very easy to arrange to write off a timeshare by putting it into a business. "We just did an article on donating your timeshare to a charity and writing it off. If you're having a problem selling it and you pay $20,000, you can receive the full tax benefits if you know how to do it." Paulisin has an option on the swanky Miami Beach "Castle" and is marketing timeshare ownership in it. He also owns the Tax Advisors Institute in Las Vegas.

If your client is buying a timeshare, watch any loan he or she takes, warns Charles "Chip" Ballew, president of Timeshares.com in Indianapolis. It's tough to get a loan from a bank exclusively for a timeshare. "There are no interest rates under 14% on a timeshare-regardless of how good credit is," he says. Options may be to obtain special financing from a developer, pay cash or use a home equity loan or credit line.

Ballew advises that clients do their homework and analyze their vacation style before considering a timeshare. If a young couple plans to have kids 10 years from now, for example, they might consider buying a two-bedroom rather than a studio.

Beware of buying timeshares in foreign countries. In Mexico, for example, timeshares often are long-term leases rather than deeded interests.

"If you're considering owning internationally, you do have to be in contact with your resort each year. If it takes long-distance phone calls and you get someone who doesn't speak English, that can be really frustrating and expensive," Ballew says.

Also, watch for extra charges. Electricity use in Europe, for example, may be metered. Ballew suggests that clients research timeshares in advance at his Web site and others, including Timeshare User's Group at www.tug2.net and TimeSharing Today at www.tstoday.com.