Browse Tag

Justin Morgan

letter-from-america

Friday’s Letter from America

It’s that time of the week again, so welcome to this week’s Friday’s Letter from America, this week we publish Part II of Timeshare Debt and Hedge Funds. This article is from Justin Morgan and Michael Nuwer, with the introduction from our very own Irene Parker. But as usual a roundup from Europe.

It has been a very busy week in the courts again with many case being heard, with sentence still to be issued by the judge but there have been a few announced.

gavela

On Monday there were two announcements, the first was the judge of the Court of First Instance in Maspalomas found against Anfi, once again the contract was declared null and void, the client in this case will be returned over 12,000€ plus legal interest. The courts are certainly sticking to the letter of the law.

In the second case that was announced, the Court of First Instance in Tenerife found against Silverpoint (Resort Properties). In this case the judge found that the contract was in breach of the timeshare law 42/98 in that it exceeded the 50 years that is allowed, this should have also been explained to the customer before signing.

The judge declared the contract null and void, ordering Silverpoint to pay the client over £59,000 plus legal interest.

The following day, Tuesday, another sentence against Anfi was announced by the Judge of the Court of First Instance in Maspalomas. Another contract was declared null and void, with Anfi being ordered to return over 26,000€ plus legal interest.

Back in September Petchey Leisure (now MGM Muthu) was ordered to repay over 16,000€ and declared the contract null and void, by the High Court in Tenerife. The client in that case has now had the money transferred to their bank account.

On Thursday, there were three court sentences announced, Once again Anfi have been ordered to return over 20.000€ plus legal interest, this was by the Court of First Instance in Maspalomas. The judge also declared the contract null and void.

In Tenerife the Court of First Instance declared a Silverpoint contract null and void, ordering the return of over 30,000€ plus legal interest.

In the High Court in Tenerife, Regency Resorts was ordered to return £35,200 plus an extra £35,200 as double the deposit taken in the cooling off period, which is forbidden by law. This particular client will now be receiving £70,400 plus legal fees and legal interest. A nice Christmas present for this client!

Today as we this article was being prepared for publishing the following news was issued in a press release:

The Supreme Court in Madrid issued another damning sentence against Silverpoint, the Court ordered the return of the full purchase price plus double the deposit and all legal fees. The contract was also declared null and void. In this case the client will be receiving over £105,000.

All these cases have been brought on behalf of clients by the Arguineguin law firm Canarian Legal Alliance, who are certainly at the forefront in the field of timeshare law.

cla-brochure

Inside Timeshare is still receiving many enquiries regarding “claims” companies and “law firms” contacting owners with the promise that they have cases and can get their money back. Many of these readers don’t even own in Spain, or even upgraded in Spain since the law came into place in 1999, so how can these cases go to the Spanish Courts?

Some of these are also being told that they pay for a relinquishment, then the claim will be filed on a no win no fee basis. This can only mean one thing, an attempt to claim under Section 75 of the Credit Consumer Act 1974. Another aspect to this is the client will also be told at the meeting the only way they can do this is by purchasing another product! Sounds like the classic “bait and switch”!

There is also more news which at present we cannot publish as it has not been verified, so that is it from Europe, now on with our Letter from America.

Timeshare Debt and Hedge Funds – The Developer vs the Member

wall st

By Justin Morgan and Michael Nuwer

November 17, 2017

On Monday Inside Timeshare published an article comparing hedge fund involvement in Puerto Rico to hedge fund involvement in timeshare. Today we examine further how debt affects timeshare with help from Economics Professor Michael Nuwer and private equity investor Justin Morgan.

http://insidetimeshare.com/tuesday-slot-american-perspective-comparison/

Introduction by Irene Parker

As a Diamond Resorts member, I have access to information I would not have about other timeshare companies, so once again Diamond is used as an example with help from Michael Nuwer, also a DRI member, and Justin Morgan, a former DRI member, to explain the mechanics of timeshare inventory valuation and timeshare debt.

I asked Inside Timeshare Australian Contributor Justin Morgan how a company like Diamond can have a $2.2 billion dollar valuation when the entire inventory of points is worthless to the members, given so many complaints about the lack of a secondary market. Of course, there is value to staying at a property, but for discussion purposes, timeshares are a liability on an individual member’s net worth statement. Inside Timeshare has received 196 timeshare complaints from our readers against four major developers. The majority allege they were sold or upsold by deceit and bait and switch. I have interviewed many families devastated, sometimes just weeks after purchase.

In an article I wrote for TheStreet, I expressed concern over inventory valuation irregularities that delayed DRI’s second quarter 2016 earnings report, the last public report before being taken private. Diamond previously reported 11 quarters of consecutive robust earnings growth. After announcing the delay, just after the Apollo acquisition announcement, earnings had to be restated from 2014 going forward.

“After the correction, the change resulted in a decrease in net income of $5.6 million for 2015 and a $1.3 million decrease for the first quarter, in each case from amounts originally reported, according to the second-quarter release. Significantly, second-quarter net income decreased $10.1 million or 28.5% to $25.5 million year over year, compared with a first quarter increase of $8.4% or 32.6% to $34.4 million, prior to the restatement.”

https://www.thestreet.com/story/13702895/1/diamond-resorts-international-s-second-quarter-earnings-reversal-is-worrisome.html

Justin Morgan’s analysis

The whole industry itself uses some quite questionable inventory valuation methods that may be designed, according to some, to target more the financing arrangements that were the traditional model in the industry when GMAC and others were underwriting timeshare sales departments. This is why private hedge fund equity in the industry has somewhat caused a shift in thinking. If private equity is funding the model based upon equity vs loan models, the capital structures underneath begin to change. The same accounting reports will still be drawn upon to make sense of the numbers, but let’s not forget that inventory valuations do have a bit of leeway to move. Even financial reporting itself can diverge from standard reporting models, but it usually is flagged as a change in accounting methodology that would have otherwise tipped off Apollo.

Like Enron, it depends upon who’s looking, and who might be wanting to look away to get a deal done. Even if Apollo did know, it doesn’t mean they’d fess to the knowledge of spotting an irregularity if they believed they were able to profit in the end, and I believe that Michael Nuwer showed the sort of cap structure that Apollo introduced. It largely turned the debt into the membership, so whilst Apollo may have even noticed non-standard valuations, it might have only forced a better price to come from Diamond vs flagging the issue or walking away from the overall deal. Clearly, Apollo are their own beast in these type of private equity deals which reap profits and shift debt restructuring unwittingly into club members. This is a bigger issue. It’s like taking a loan out in someone else’s name and handing them the bill after you’ve taken what you want for the deal. Club members were only ever at Apollo-DRI’s mercy after this.

There are definitely some important and significant value-implied shifts from these numbers since the street uses earnings to make their valuations, but the valuation of inventory is an area that is somewhat suitable itself. The industry bodies know how to make it work and actually fought to use non-standard inventory models. But I’ve not gauged for differences between the pre-order hedge fund industry and the one we’re seeing rise out of the seas today.

I have looked with horror upon the entry of these private hedge funds because I know that they have little interest in the product itself. They are only in it to devour the membership of as much as they can get, and given the legal models, that could be the scariest evolution to date. At least cryptocurrencies attempt to establish some monetary supply rules, but timeshare clubs know that they can just keep raising budgets legally to cover their required rates of returns.

In an industry that generally looks for 30% per annum returns as a rule of thumb, that’s going to cause some high maintenance fee jokes in the future. But I remember the old DRI hiking maintenance close to 25% circa 2007 and then again in 2009. They first blamed a strong economy, whilst the second blamed the weak economy. More like a satyr blowing hot and cold in the one breath! But the disturbing thing to me is how Apollo financed this whole arrangement. They shifted the debt onto the members. They made their money from the start…The rest is just cream…The debt which now pays the Apollonian entities is the debt Apollo created and lumped into the membership at the financing stage.

We must be clear. They created the debt specifically to land it on membership; so really, it is as if the DRI members paid a good chunk of the deal. If the Attorneys General don’t see this, then they’ll miss what chicanery has been done here.

Michael Nuwer

Diamond reports show increasing levels of bad debt accompanied by decreasing membership since the peak in 2013.

chart1

Membership is down 9% since 2013

chart2

One thing that is not clear to me is the economic value of points. It often appears that a developer sells the points (say 10,000 points) for, say, $20,000. But, the next day, if I (the owner) try to sell those points in the secondary market, they are worth, maybe, $1,000. (If Bluegreen points; DRI points are worth $0.) The economist in me thinks the developer originally sold me points for $1,000 plus a club membership for the remaining $19,000. Thus, if my points are foreclosed and resold for the full $20,000, only $1,000 is the value of the points.

So, the question here is: what is the developer selling. Is the sale just vacation points or is the sale a bundle that includes points plus other stuff? I’ve read my DRI contract many times and still can’t tell what it specifically covers.

So what happens when someone buys timeshare points?

Let’s look at this example:

Say Diamond makes a sale for $30,000. The buyer might make a down payment of 20% or $6,000. The remaining $24,000 is a loan. Diamond now has a short term financing problem. They have $6,000 in cash and $24,000 in a non-liquid asset. But Diamond has immediate operating costs. A bit more than $15,000 from the sale is needed for advertising, marketing, and commission expenses. The carrying cost of the inventory must also be paid. Additionally, Diamond faces G&A costs (general and administrative) which need to be paid. All of these are current expenses, but Diamond only has the cash down-payments to cover them.

To pay current expenses, Diamond borrows money from a bank (the jargon is a “warehouse facility”). This facility is a credit line agreement, and, just like my credit card, Diamond’s credit line has a limit. Before Apollo, Diamond’s credit line was $100 million with Capital One.

In short: Diamond must borrow money from a bank to cover the current year’s expenses while it waits 7-10 years to get re-paid on the outstanding loans made to members.

Securitization of the outstanding loans is a way to oil, and thereby speed-up, the lending machine. Once Diamond reaches its $100 million credit limit, it will not be able to offer more loans for the purchase of points. Thus, to overcome this limit, the company bundles outstanding loans into a trust fund and sells shares in that fund as an Asset-Backed Security. The proceeds from selling these shares are used to pay down the credit line and Diamond’s perpetual loan machine continues.

Irene asked how Apollo Global Management will fare in their purchase of DRI. Will the restatement of inventory valuation have an impact?

DRI EBITDA in 2015 was $385 million and thus the valuation multiple ($2200/385) is a mere 5.7. Apollo got the company for a steal. If they can spruce it up and get 10x, the valuation will be $3.8 billion. There’s Apollo’s 30% profit.

trust earned

Thank you to Michael Nuwer and Justin Morgan for their analysis. I have nothing against private equity, but extraordinary investment returns at the expense of timeshare members or Puerto Ricans is not acceptable if so many complaint allegations are true. In addition to 192 Inside Timeshare readers who are timeshare members, I have interviewed ten current and former timeshare sales agents that all confirm predatory sales practices are widespread in this industry. There have been several recent investigations and settlements by Attorneys General including New York, Wisconsin, Missouri, Arizona, Tennessee and Colorado as well as lawsuits too numerous to mention. It is our hope developers will confront the problem and work with member complaints to improve the quality of timeshare sales today rather than continue to deny such practices exists. Contact Inside Timeshare or an Advocacy Facebook if you have timeshare concerns.   

Timeshare self-help Facebook groups

https://www.facebook.com/timeshareadvocategroup/

https://www.facebook.com/groups/DiamondResortsOwnersAdvocacy/

https://www.facebook.com/groups/180578055325962/

https://www.facebook.com/groups/465692163568779/

https://www.facebook.com/groups/1639958046252175/

Thank you to Justin and Michael, also to Irene for her introduction. This week Irene has been very busy dealing with the many enquiries we have received from US owners / members. Within an hour of publishing Tuesdays article, we received 3 pleas of help, these are sent to Irene who then makes contact with the relevant advice and which of our advocacy team can help. Keep up the great work US Team.

If you need any information or help with any timeshare matter and don’t know where to turn, Inside Timeshare is here to help.

Also remember to do your homework before engaging with any company that either contacts you or you find in an advert. This last one rings very true for one UK reader, She found an advert in the Royal British Legion Magazine for a company that said it could help with a claim. Being in the British legion magazine she believed it would be genuine, well we all would! Unfortunately, adverts are not checked for authenticity, they are sold by a marketing company to pay the cost of publication, the same is also true for any newspaper or magazine. So the it proves that you need to do your homework!

On that note, Friday is here, the weekend is once again upon us, so have a great weekend and we will be back on Monday.

friday dog

 

vulture

The Tuesday Slot: An American Perspective and Comparison.

I can’t speak for Americans, but I imagine EU timeshare members, and even lawyers are not aware of the impact vulture lending by hedge funds has on impoverished Puerto Ricans and timeshare members. Not familiar with the term, my research uncovered the term private equity used to be called in the 80s venture capital and a venture capitalist was called a vulture capitalist due to targeting extraordinary returns for their investors. Fast forward 20 years and “Vulture” Funding in Puerto Rico is being talked about in American Financial news.   

puerto rico

It took me a while to “connect the dots” as Irene says in her article. The majority of complaints Inside Timeshare received concern rising maintenance fees. Legacy owners are particularly affected. Legacy owners are timeshare owners who have not given up their deed to convert to the points based program.

Diamond Resorts does not build new properties. Their strategy is to buy existing properties. Members tell us they are told they have to give up their deeded weeks and convert to points. This is not true. Some contacting Inside Timeshare report maintenance fees doubling or tripling after their resort is acquired. While Diamond will insist to owners, such maintenance fees increases are necessary to bring the resort up to standards, investor conference calls told a different story, explaining that 15% is added onto every budget line item after acquisition, affording investors a guaranteed and immediate 15% profit.

The Finn Law Group questioned the increases in this lawsuit filed against Diamond owned Bali Condominiums.

http://www.businesswire.com/news/home/20170629005705/en/Finn-Law-Group-Files-Suit-Timeshare-Maintenance

Not everyone has a background in private equity like Justin Morgan, economics like Michael Nuwer or an MBA like Irene Parker. Justin and Michael expressed their concerns about private equity and what is necessary for investors to achieve a 30% or better return.

http://insidetimeshare.com/fridays-letter-australia-no-read-correctly/

While explosive returns are often achieved in starting up a company like Apple or Amazon, expecting 30% or better returns out of timeshare may require tactics like those expressed by our readers, claiming they are being crushed by high interest rate loans and higher interest rate credit cards.

Let us know if Irene’s connecting of the dots makes sense to you.  Now to Irene’s article.

What does Puerto Rico’s Debt and Timeshare Debt have in Common?

The payouts they seek are potentially enormous – running into the billions of dollars, with predatory rates of return – if other vulture debt plays are any guide. (Hedgeclippers)

Witch

Part I – Puerto Rico and Timeshare Debt

Is Apollo Global Management involved with both?

By Irene Parker

Part II Friday November 17  

The Effect of Debt and Inventory Evaluations on Timeshare

By Contributors Justin Morgan, Australia and Michael Nuwer, US

November 14

Anthony Bourdain’s CNN show Parts Unknown, which aired November 6, described how Puerto Ricans are being crushed under the weight of debt orchestrated by hedge or “Vulture Funds”. Similarly, many timeshare members struggle with high interest rate timeshare loans and higher interest rate credit cards. It’s not surprising to find out hedge funds are involved with both Puerto Rico and timeshare debt.  

http://www.foodandwine.com/news/anthony-bourdain-parts-unknown-puerto-rico

FOX Business reporter Maria Bartiromo interviewed Diamond Resorts CEO Michael Flaskey April 2017.  The Milken Institute was prominently displayed during the interview. Connecting the dots, Michael Milken, formerly known as the “King of Junk” in the 80s because of his role in a junk bond scandal, worked at the brokerage firm Drexel Burnham Lambert. According to Wikipedia, Drexel Burnham Lambert banker Leon Black founded Apollo Global Management after DBL declared bankruptcy, having incurred $650 million in fines. Diamond Resorts, owned by Apollo, is managed by an affiliate of affiliate of funds.

Apollo Global Management, LLC is an American private equity firm, founded in 1990 by former Drexel Burnham Lambert banker Leon Black. The firm specializes in leveraged buyout transactions and purchases of distressed securities involving corporate restructuring, special situations, and industry consolidations. (Wikipedia)

https://www.bloomberg.com/graphics/2015-drexel-burnham-oral-history/

Debt and Michael Milken are as synonymous as debt and timeshare.

While Mr. Milken is known for his generosity, he is also known to have served 22 months in jail for securities fraud. Mr. Black emerged from the DBL bankruptcy unscathed, today worth $5.1 billion according to Hedgeclippers, $6.3 billion according to Forbes 2017 ranking (Hedgeclippers footnote link 85)   

Only Bloomberg subscribers can read the article linked below, but the headlines speak volumes.

Munis Meet Milken as Hedge Funds Dictate Puerto Rico Terms

Laura J. Keller

June 29, 2015, 12:01 AM EDT Updated on June 29, 2015, 11:40 AM EDT

Puerto Rico is getting a thorough introduction to Michael Milken’s junk-bond world as it increasingly relies on some of the financial industry’s most aggressive players to solve its crippling financial troubles.

https://www.bloomberg.com/news/articles/2015-06-29/munis-meet-milken-as-hedge-funds-dictate-puerto-rico-debt-terms

Vulture activity in Puerto Rico: Excerpts from Hedgeclippers

http://hedgeclippers.org/hedgepapers-no-17-hedge-fund-billionaires-in-puerto-rico/

Hedge funds and billionaire hedge fund managers have swooped into Puerto Rico during a fast-moving economic crisis to prey on the vulnerable island. Several groups of hedge funds and billionaire hedge fund managers have bought up large chunks of Puerto Rican debt at discounts, pushed the island to borrow more, and are driving towards devastating austerity measures.

Known as “vulture funds,” these investors have followed a similar game plan in other debt crises, in countries such as Greece and Argentina.

argentina

The spoils they ultimately seek are not just bond payments, but structural reforms and privatization schemes that give them extraordinary wealth and power – at the expense of everyone else.

The payouts they seek are potentially enormous – running into the billions of dollars, with predatory rates of return – if other vulture debt plays are any guide.

Apollo Global Management, the third largest US-based private equity firm, has not yet been reported to be a member of the Ad Hoc Group looking to collectively pressure the Puerto Rican government, but press reports have indicated that Apollo, along with Fortress Investment Group and Aurelius Capital, are looking to take on a “more activist role” as the debt restructuring continues.

I think we can add timeshare to the list after Greece and Argentina given our reader responses and Diamond’s increased loan loss provision. Moody’s has placed Diamond on a downgrade watch after the company raised its loan loss provision to 18.4% March 31, 2017, from 12.9% the prior year.

The review for downgrade is a result of Diamond Resorts’ high leverage — Moody’s adjusted debt/EBITDA was about 7.0x for the last 12 month period ended March 31, 2017 — and increasing loan loss reserves which will make it difficult for the company to reduce leverage. Diamond Resorts, and other timeshare companies, has increased its loan loss reserve over the past year as a result of an increase in timeshare owner defaults, which to a large degree have been initiated by third party activities. Diamond Resorts’ loan loss provision increased to 18.4% of gross Vacation Interests sales at March 31, 2017, from 12.9% in the prior year. Should the loan loss reserve trend not improve, the company will have difficulty lowering its leverage below our trigger for a downgrade (below 6.5x).

https://www.moodys.com/research/Moodys-places-Diamond-Resorts-ratings-on-review-for-downgrade-including–PR_370606

Of note is the blame placed on third party activities, which includes fraudulent transfer companies and resale agents, some posting ads above our Inside Timeshare articles as soon as we publish. Ignored is deceit on the front end of the sale, despite numerous Attorneys General investigations and lawsuits too numerous to mention, as well as the severely limited or sometimes non-existent secondary market. Without a secondary market, a timeshare contract is worth nothing the moment the contract is signed and it is not uncommon for a timeshare to cost over $100,000.

Timeshare members struggling to meet loan and credit card payments can relate to those suffering in Puerto Rico. Inside Timeshare has heard from 192 of our readers of which 183 are from Diamond Resort members. The majority allege they were sold or upsold by deceit and bait and switch, locked into loans and credit card debt they can’t afford, owning a perpetual vacation product they can’t sell.

Holding timeshare members hostage is a short term profit plus for Apollo’s investors, but is squeezing money out of middle class families at 12% to 24% sustainable? Not one of our readers was aware of the difficulty selling points due to lack of buyers. Contract language doesn’t help because the contract states “you can sell your points” but the part about secondary market restrictions and lack of buyers is not included, at least not in the contract I signed. Timeshare companies will either take back points or foreclose, reselling the same points over and over, described as a hamster wheel by one former Diamond sales agent.

money man

They say history repeats itself, but I would have never imagined, as a former Drexel Burnham Lambert client, the subsequent Apollo firm would buy my vacation plan twenty years later. This, in addition to reading so many online complaints posted by timeshare members who seemed to have nowhere to turn, motivated me to join Charles Thomas and Inside Timeshare in an effort to provide factual timeshare information and to warn the general public to do due diligence before buying any timeshare. I felt there was a need to go a step beyond helpful Facebook posts to warn members away from fraudulent listing and transfer agents, steering them towards regulatory and law enforcement agencies, if they feel they were a victim of a bait and switch.    

On Friday Inside Timeshare Contributors Justin Morgan and Michael Nuwer will explain in Part II their take on the role private equity plays in timeshare.

Inside Timeshare has already heard from Diamond members worried about special assessments after this season’s catastrophic hurricanes, especially St. Maarten. They fear a repeat of the Poipu water damage assessments that resulted in a class action lawsuit.

http://advantagevacation.com/the-point-at-poipu-angry-owners-file-lawsuit-against-diamond-resorts/

As timeshare members brace for 2018 maintenance fees, Inside Timeshare will be here to help those who have questions, given the perpetual contract that still exists in the US, along with member sponsored Advocacy Facebooks.

We seek to provide Diamond Resort members a way to proactively address membership concerns; to advocate for timeshare reform; to obtain greater disclosure from the company; to advocate for a viable secondary market; and to educate prospective buyers.

https://www.facebook.com/timeshareadvocategroup/

https://www.facebook.com/groups/DiamondResortsOwnersAdvocacy/

https://www.facebook.com/groups/180578055325962/

https://www.facebook.com/groups/465692163568779/

https://www.facebook.com/groups/1639958046252175/

not alone

I don’t know about you the readers, but my head is spinning after this, finance and economics have never been my strong point, but it does look a little clearer now, so thank you Irene.

If you need any help or advice about any timeshare matter, or just about any company you may be thinking of doing business with or that has contacted you, Inside Timeshare will point you in the right direction.

 

letter from america

Friday’s Letter from America on Thursday

Welcome to Friday’s Letter from America on Thursday, yes that is correct, we are publishing a day early as we are travelling to the US on Friday.

Inside Timeshare is visiting our American colleagues, with Irene and Don meeting me at Orlando airport, while there we have arranged to meet with several attorneys including America’s very own Timeshare Crusader Lisa Ann SchreierWe will also be meeting many other people and hopefully having a few cold beers.

beer

Inside Timeshare is also pleased to announce a new collaboration, for sometime CLA International based in Dubai, has been getting their website up and running. They have been following the articles published on Inside Timeshare and have asked if we would run their news section.

They wanted an independent voice rather than their own take on things, Inside Timeshare has agreed to supply those articles, so many of the articles regarding international timeshare news we publish will be posted on their website. These will be from the many contributors who are now writing for Inside Timeshare. We also hope to add more from the following areas:

India (Goa), Thailand and the surrounding Asian area, Australia, Mexico, Central and South America, we welcome any contributor who would like to publish their experiences, news and views on the world of timeshare. You can contact us via our contact page or direct to admin@insidetimeshare.com

contribute

Update from Europe

Once again, Inside Timeshare has heard from another reader who found our articles on the Litigious Abogados family, namely Amador Galeca Abogados.

The reader had a call regarding their timeshare at Royal Sunset Beach, with the name Andrew Cooper again being named as the director being taken to court with all his personal property and assets being seized. For a sum of just under 1000€ they could be part of the case.

The reader then made a bank transfer, but then decided to check out the name Andrew Cooper, finding our previous article. When the reader contacted us we explained how the scam operates, they immediately informed their bank and the bank is now trying to stop the transaction.

The reader explained that when her husband became too ill to travel Royal Sunset actually took back the timeshare, so they no longer owned. Because of this there would not be any basis for a claim in any court.

This story just goes to show once again, before you pay any money, check who you are dealing with. Hopefully the readers bank was informed in time to stop the money being transferred.

stop think proceed

We started the week with verdict from the courts against Palm Oasis (Tasolan), the following day the Supreme Court ruled on another case against Silverpoint in Tenerife, that made 64 rulings from this court on timeshare. In this case the court again declared the contract null and void, awarding over £99,000 plus a double deposit of £6,082 including legal fees and legal interest.

Then yesterday Wednesday 4 October the High Court in Tenerife ruled once again against Silverpoint and awarded over 67,000€ plus legal fees and interest to the client. This was then followed by the news the Supreme Court had just issued another sentence against Silverpoint, bringing the total number of cases won at this court by Canarian Legal Alliance to 65.

Now on with Irene’s article where she recounts our first meeting and her visit and interview with Canarian Legal Alliance. We have certainly moved on since that first meeting.

Canarian Legal Alliance and Inside Timeshare

The meeting of minds

Irene with CLA
Irene Meeting with CLA Staff Sept 2016

By Irene Parker

October 5, 2017

We are judged by the company we keep, so shortly after submitting my first article to Inside Timeshare my husband and I flew to Gran Canaria, Canary Islands to meet Charles Thomas and his Canarian Legal Alliance friends. It was not an easy trip since we boarded the wrong plane in Madrid and ended up in AMSTERDAM!

We stayed at Diamond Resorts Cala Blanca resort on Mogan. A Diamond sales agent in the US actually introduced me to Charles by sending me one of his articles. The staff at Cala Blanca could not have been nicer. I talked quite a while with the manager as he was the head of a resort employee union of sorts advocating on behalf of refugees he felt were being treated unfairly at a resort on the other side of the bay. One of the sales agents working at Cala Blanca and a friend of Charles is one of my Facebook friends.

In today’s timeshare world you can’t be too careful. Attorneys come in all ethical shapes and sizes. In addition to meeting Charles, I was able to meet with the CLA office manager Csilla, named business person of the year for Gran Canaria, several intake workers showing sincere compassion as they listened to timeshare accounts over the phone, and a few CLA lawyers. Since this July 2016 video clip CLA has achieved several more victories for EU timeshare clients – 65 Supreme Court victories to be exact as of October 4, 2017. Watching this video for the first time, I remember thinking if Cristina ever decides she doesn’t like law, she could find a job in the motion picture industry.

http://www.canarianlegalalliance.com/cla-latest-updates-video/

Timeshare today seems to have lost all sense of direction. True, we hear primarily from the disgruntled, but developer lawsuits flying back and forth between timeshare developers and transfer agents has left many timeshare members in a state of confusion. Who do you trust?

I trust CLA and am honored to have been asked to have my Inside Timeshare articles featured on the new CLA International website with Charles webmaster of the news tab. Our Diamond Resorts member sponsored Advocacy Facebook administrator and Economics Professor Michael Nuwer and Australian Contributor Justin Morgan submitted their comments for this article about the Apollo Global Management buyout of Diamond Resorts.

http://clainternational.ae/2017/09/28/who-is-apollo-what-is-apollo-two-diamond-member-consumer-advocates-offer-their-opinion/

Timeshare members need help. It has been widely reported many aging baby boomers (like me) are desperate to be released from timeshare. Some timeshare companies have launched surrender programs, like Wyndham’s Ovation program, but the vast majority of members contacting Inside Timeshare succumbed to high interest rate loans and credit cards. Thus, they are not eligible for voluntary surrender programs. Often they are forced into foreclosure. The problem is exacerbated when the member alleges they were deceived into buying a timeshare or upgraded for maintenance fees relief or buy-back programs that do not exist. Out of 157 complaints received (as of October 4), 143 allege deceit on the front end of the sale. The others can’t afford rising maintenance fees.

From our humble beginnings, as more members started helping other members, we called ourselves Timeshare Advocacy Group™ as members turned anger and disbelief into action and advocacy. Timeshare Advocacy Group™ started as an afterthought. A former timeshare sales agent contacted me and said they wanted to do a press release in Arizona. We needed a place where readers could respond.

Irina Allen stepped up to the plate. She is our Facebook page administrator.

admin lady new

Irina (Irene) Allen purchased over $500,000 worth of timeshare points to share with family, friends and clients. On the advice of a sales agent, Irene opened a RedWeek account and posted one ad to rent some of her points. She gave up this idea after she never got paid for the rental. Rentals are not allowed, according to company rules, but there are hundreds of rental ads anyway. She also was accused of opening an Airbnb account. Irene says she has never had an Airbnb account. She was expected to pay $2,400 per month in mortgage payments and $29,000 in maintenance fees for a year while her account was suspended. Resorts are exempt from the rule for promotional purposes. Thus, the resort was able to rent out Irene’s points at Irene’s expense.

At Timeshare Advocacy Group™ members also help members with regulatory filings and media outreach. We have Wyndham, Bluegreen and Diamond members working alongside former Hyatt, Westgate, and Diamond timeshare sales agents in an effort to reform an industry badly in need of reform. In addition to timeshare members, other Advocates, like blogger Lisa Ann Schreier, lend their support. Lisa Ann and Charles are both former timeshare sales agents.

In America, it’s not easy these days for opposing sides to talk to each other, but every once in awhile there is a glance of a Republican sticking their toe over to the Democratic side of the aisle. It is our hope there will be a day when developers will take the time to listen to what critics have to say instead of only focusing on ambulance chasing unscrupulous transfer and listing agents. It is my belief, until the deception on the front end of the timeshare sale is acknowledged and addressed, the court of public opinion is the only court open for the beleaguered and often financially devastated timeshare member learning their contract is perpetual and the secondary market limited at best. For some timeshare companies, there is no secondary market. What other investment or product exists that holds the buyer of a product hostage?

Charles Irene

Charles is winging his way to America tomorrow, so let us know if you will be in the Orlando area October 8 – 12. Or, let Charles know the next times you happen to be on Gran Canaria in the Canary Islands.

I am a former stockbroker and financial planner. After I retired from the brokerage business, I became a CASA Supervisor, writing court reports for Family Court on behalf of children in foster care. I have always had a problem turning my back on anyone who considers themselves a victim. There are many ways to volunteer time in retirement. Join us in our efforts to enhance timeshare accountability and transparency.

http://insidetimeshare.com/what-a-volunteer-does-for-nothing/

globe

That’s it for this week, tomorrow will be a long day as it is Gran Canaria, Madrid, Miami then to Orlando. I know Irene and Don have set aside a couple of days to show me some of the sights, so it will not be all work and no play!

We will however be trying to publish some articles while over there, so keep an eye on these pages.

Have a great weekend

cartoon-airplane

letter from australia

Friday’s Letter from Australia

We start September with another Friday’s Letter from Australia, just to give our American cousins a rest. Today Justin Morgan, looks at the the role private equity plays in timeshare, with the introduction and comments by our very own Irene Parker. But first a little from Europe.

europe

Earlier in August we said that it tends to be a quiet month, well this was not the case this year, as our roundup of the month article yesterday showed. We also mentioned that September usually sees the start of new companies, changes of name or even resurrected ones. Well they have started to surface already.

Doing our usual daily rounds of the internet, one site, mindtimeshare, since the beginning of August has published the names of 6 that have come to their attention. 3 of these were published yesterday. We begin with:

Appointing Consultants, with the following website, which was only registered on the 14 August, as usual, the registrant is hiding under a privacy service.

http://appointingconsultants.co.uk/

According to the website, they are a company that offers the following services:

  • Appointment Setting; We can provide your business with qualified appointments for your sales team.
  • Lead Generation; We can offer bespoke leads from both websites and telemarketing operations.
  • Customer Service; Create the best customer services team for your business.
  • Online Marketing; Run an online marketing campaign. We can help you with SEO or e-mail campaigns.
  • Data Sourcing; Source the best possible data to make your business thrive.
  • Sales Training; Teach your team with one of our professionals to be the best. (Their spelling mistake)

The thing is they are informing timeshare owners that they have grounds to make a claim, which for a telemarketing company making appointments for another company is a little worrying.

They also do not appear on any company house records.

The next one is Barlow & Scott, with the telephone number 01904 501 389 which is a York number. When checking on who is calling, one name comes up First 4 Legal, there was a company of this name registered in London, but it was dissolved in February 2012.

There is no mention of a website and they seem to be contacting Club Class members, stating that they are a solicitors office and that there is money being held for the client by the courts in Spain!

They claim that the purchase of membership was never completed as the client never had an NIE Number, no problem for £500 we can get this for you then you can get your money back.

This is however untrue, you do not need an NIE number unless you are going to live in Spain or for any of the following:

  • Open a bank account
  • Buying, selling or insuring a property
  • Arranging a mortgage or credit
  • Pay taxes
  • Being employed
  • Registering with employment agencies
  • Registering to study
  • Applying to start a business
  • Registering with social services, receiving social security benefits
  • Applying for a driving licence
  • Inheriting assets

The NIE is a Spanish Tax Number for foreigners. So beware these types of claims.

The next is called Stapleton Consultancy. Once again they claim that the Spanish courts are holding money owed to the consumer from a previous fraud. Now to get this money paid out Stapleton Consultancy will need to be paid in order to do the work. There are no contact details available, so very little is known.

There is a company called Stapleton Consulting Limited, but they are chartered building surveyors, so absolutely nothing to do with timeshare. As and when new information comes to light, we will publish it here.

This really does show that you must do your homework before dealing with any company that calls you out of the blue, especially when they inform you that you have a payment waiting to be released by a court!

homework1

Just to finish off the month of August, Canarian Legal Alliance announced yet another sentence from the Court of First Instance in Maspalomas, once again it is against Anfi, who still deny that they have any cases against them.

In this particular instance the court declared the contract null & void, the infraction was again a contract over the stipulated period of 50 years. The court awarded this consumer over 23,000€, they also awarded over 4,000€ as double the amount that was taken as a deposit within the mandatory 14 day cooling off period.

If August was a quiet month, what will the next few months bring? Keep an eye on these pages and you will see.

So here we go to the land down under and this weeks article from Justin.

What Role Does Private Equity Play in Timeshare?

we the corporations

By Justin Morgan

Introduction and comments by Irene Parker

September 1, 2017

Private equity firms, traditionally providing capital to fund high growth start-ups, may be shortchanging timeshare consumers in their quest for returns typically targeted to reach higher returns than those of the public market.

Timeshare in general has been facing increased pressure due to overly aggressive sales tactics. This warning about escalating default rates was published February of this year by American BankerDiamond Resorts and Wyndham under pressure due to aggressive sales tactics. Wyndham is a publicly traded company. Diamond is owned by private equity firm Apollo Global Management.

Diamond Resorts ABS under Pressure from Company’s Sales Tactics

https://asreport.americanbanker.com/video/diamond-resorts-abs-under-pressure-from-companys-sales-tactics

The question is – how are higher returns for private equity investors won?

Is timeshare even an appropriate venue for private equity investment? Can higher returns be earned without strangling the timeshare consumer with excessive maintenance fee increases, reduced availability and other unsavory tactics driven by such demands?

Former Diamond CEO David Palmer explained this concept to investors at a September 2014 conference, according to a transcript, “Anything that is put in the budget that gets expended on an annual basis, we get our 15 percent fee, That is basically a 100 percent profit business.”

Meanwhile, timeshare members received this notification:

“Timeshare owners of the Grand Beach Resort, a 192-unit property in Orlando, Fla. … learned in a letter in September that their annual maintenance fee would rise 14.9 percent this year.”

I asked Advocate Justin Morgan, our Australian Contributor, his thoughts:

This is the ‘Super Profits’ issue that I questioned years ago… I pointed out that retail prices for vacation points were sometimes four to six times retail value across Asia and Australia. But the real focus involves turning vacation ‘currency’ into more fiat currencies at super profit level. In my opinion, they are not interested in member value at all. It’s an early version of cryptocurrency! My sentiments are no different today…even worse.

In my case, I found my Diamond Resorts account terminated for renting, although my contracts clearly gave me in writing the right to rent. If they changed the rules, that’s unfair, but virtually all timeshare contracts state the rules can be changed at any time for any reason.  It is now apparent we were ‘all-in’ against the Vegas House that takes all it can get.

Irina Allen agrees. Irina is a professional who ended up with 139,000 Diamond points alleging she was up-sold to that level by deceit. Inside Timeshare previously reported on how Irina’s account was suspended for posting one ad on RedWeek. Rental ads for Diamond points on RedWeek abound.

http://insidetimeshare.com/monday-start-another-week/

The timeshare point’s product is a cryptocurrency that offers no backing other than your promise to keep paying ‘whatever it is this year’ maintenance fee increases. Some timeshare companies force maintenance fee increases for any reason…They can then pick up default points.

Timeshare developers pocket millions and millions this way. Most members are not allowed to leave. It’s like ‘Hotel California’s’…you can check in anytime you want, but you can never check out.

“Last thing I remember, I was

running for the door

I had to find the passage back

to the place I was before

“Relax, “said the nightman,

“We are programmed to receive.

You can check-out any time you like,

But you can never leave!” The Eagles

It doesn’t matter much whether they are public or private, though I feel private equity firms have far less scrutiny. The problems lie in the legal structuring of these entities, and how they can basically bill members for whatever tab that they find is allowable. If they control the HOA, and therefore budget approvals, the rest of the structure is usually just a financing and ‘dividend’ pay out model. Wages can be like a hidden dividend, if they are simply looking to pull money from members over to those they seek to pay out:  i.e. usually management, vs the actually financiers, who are often at the back of house in the financing structure.

In my opinion these private equity firms are targeting the timeshare industry now because they understand that they can raid them by simply jacking up maintenance fees by 20%, or even their required rate of 30% return, by simply hiding cost allocations within their structure, or simply paying their executives directly from the Club. There’s no stopping what they can do under some structures. It is a license for them to take what they want.

dollar man

As reported by Business Wire, “A class action lawsuit has been filed against timeshare developer Diamond Resorts International, timeshare owners associations Bali Condominium Association and Parkway International Owners Association, and auditor RSM U.S. L.P. alleging breaches of fiduciary duty, breach of contract, and professional negligence over billing practices for maintenance.”

The plaintiffs allege that the language addressing maintenance and management fees in the condominium association’s governing documents were outdated and ambiguous. The outdated language allowed the defendants to include subsequent amendments to:

  • Charge inappropriate maintenance fees.
  • Inflate management fees.
  • Hide inappropriate fees.
  • Charge costs unrelated to the maintenance and management of the timeshare development including an “indirect corporate fee.”

http://www.businesswire.com/news/home/20170629005705/en/Finn-Law-Group-Files-Suit-Timeshare-Maintenance

Bluegreen is exploring a possible Initial Public Offering. I asked Bluegreen member and Economics Professor Michael Nuwer if Bluegreen BBX Capitol falls into this private equity category.

http://www.otcmarkets.com/stock/BBX/news?id=167811

BBX Capitol is not a private equity firm. Alan Levan has had a significant ownership interest in Bluegreen since at least 2008. Something like 85% of BBX revenue and 75% of their income comes from Bluegreen.”  

squiggle

What falls from the mouths of timeshare company public relations departments in their message to the investment community often sounds like a foreign language to beleaguered timeshare members. New York, Tennessee, Colorado and Arizona Attorneys General settlements against timeshare companies are but the tip of the iceberg.

Thank you Justin, we look forward to more from our Australian cousins and your insights into this worldwide product called timeshare. No matter where you are, the story seems to be the same, you are the UP’s, you have the money and we will take it from you, but give you nothing but hassle in return!

It now just leaves us to say thank you to all who contribute to Inside Timeshare, a very big thank you to all the volunteer advocates of our advocacy group, who do a splendid job of helping others with their problems. Have a great weekend and we’ll be back again next week with more from the murky world of timeshare.

BBQ chef

 

start the week

Starting The Week.

We ended last week with a new contributor, Justin Morgan from Australia, along with some of the news from the courts in Spain. In those reports it was mention that the court in Tenerife had found once again against Diamond Resorts contracts. We have been reliably informed of many more cases in the pipeline.

If last week is anything to go by, we are expecting many more sentences being announced over the course of this week. Although, these will be among the last before the annual break in August, where Spain basically shuts down for the month.

Just moving away from Diamond for a change, last October we published an article of a class action lawsuit against Marriott. The case is for alleged “racketeering”, a term we usually associate with the old gangster films depicting the escapades of the likes of Al Capone, not large timeshare and hotel companies.

This the Irene Parker’s update on this story.

The Marriott Racketeering Case – An Update

Not since the Book of Genesis [1:9-10] has the extraordinary feat of creating land from nothingness been chronicled … and Marriott “saw that it was good” for business. (Plaintiff’s response to motion to dismiss)

Moses

By Irene Parker

Some stories tell themselves

July 3, 2017

Timeshare members find themselves with few friends in Florida state legislative and regulatory circles. The Florida Timeshare Division only acted on 110 out of 2,360 timeshare complaints filed from April 2012 to April 2014. In addition, a Florida law passed in 2015, making it more difficult to get out of a timeshare contract, sparked outrage among timeshare owners and advocates. I’m told $70 billion a year flows into Florida in timeshare dollars. That kind of money certainly could buy a lot of power and influence.

http://www.orlandosentinel.com/news/taking-names-scott-maxwell/os-gov-rick-scott-signs-bad-timeshare-law-20150617-post.htm/

http://insidetimeshare.com/chicken-soup-timeshares-soul/

Paul Brinkmann of The Orlando Sentinel first reported on the Marriott Racketeering case back in May of 2016.

The lawsuit takes aim at Marriott’s points program, which replaced traditional sales of timeshare weeks at specific resorts in 2010. According to the suit, Marriott timeshare customers pay fees associated with owning real estate — such as closing costs and recording fees — but don’t actually own any real estate.

The lawsuit says Marriott timeshare buyers “are being duped into believing they are obtaining title to a real-property interest … when, in fact, they are merely getting a right-to-use license,” the lawsuit says.

Edward Kinney, spokesman for Marriott Vacation Club, said the company will defend itself in court. He said the timeshare industry is highly regulated.

“We sense the people behind this lawsuit have a misunderstanding of how our product works. But we follow every aspect of the state regulatory compliance for vacation ownership sales,” Kinney said. “Everything we do as far as sales are reviewed by the state.”

Fast forward one year later

On May 23, 2017, Governor Rick Scott signed into law SB-818 which amends Section 721.05(21) of the Timeshare Act by adding a subsection (b) to clarify that, for purposes of a “multisite timeshare plan” (e.g., the MVC Product), an “Interest Holder” does not include any person or entity that has an interest in, or lien on, the underlying condominium or property:

https://www.flsenate.gov/Session/Bill/2017/00818/?Tab=BillHistory

Revising the definition of the term “interest holder” to clarify that the term does not include certain parties to a certain multisite timeshare plan; revising requirements for the termination of a timeshare plan; specifying the percentage of votes required to extend the term of a timeshare plan under certain circumstances, etc.

Marriott defendants then submit to the Court

Case No. 6:16-cv-855-Orl-41TBS

This Notice is being submitted to alert the Court to a recent amendment (“Amendment”) to the Florida Vacation Plan and Timesharing Act, Fla. Stat. § 721.01, et seq. (“Timeshare Act”), in further support of the Marriott Defendants’1 and the First American Defendants’ Motions to Dismiss the Complaint (see Doc. Entries 77, 78, and 79, filed September 15, 2016).

Attorneys for the Plaintiffs respond to the request for dismissal (excerpts)

Based on the fact that the FVPTA Amendment (which became effective on May 23, 2017) is so specifically tailored to address a narrow exception pertaining precisely to the particular facts of this case, it is beyond obvious that Defendants (immediately following briefing on the motions to dismiss) railroaded the law through the legislative process.  Defendants’ blatant lobbying effort smacks of impropriety and amounts to an admission that their conduct is not authorized under existing law. Further, it is proof positive that Defendants are willing to use any means possible – including government influence – to mask the unlawfulness of their prior acts.  

Defendants were clever in making sure the FVPTA Amendment was characterized as a remedial “clarification.” Of course, simply calling it a “clarification” does not automatically bestow retroactive application – especially, in this case, where the FVPTA Amendment purports to clarify a long-standing law, enacted over twenty years ago.

An “interest holder” has a legally-binding property interest in the accommodations under the existing law. The definition of accommodation includes timeshare condominiums under the existing law. Fla. Stat. § 721.05(1). Therefore, it would substantively change the existing law to exclude from the definition of encumbrance anything that would be contained in a timeshare condominium declaration.

This makes it clear that the revision was recognized and acknowledged for what it truly is – a substantive change to existing law, creating new categories of exclusions to interest holders and having potential constitutional implications. Nothing in the legislative history, including any staff or committee analysis, provides even marginal support for the conclusion that the legislature intended the FVPTA Amendment to be a mere clarification that would have retroactive application in this case.

Regardless of Legislative Intent, FVPTA Cannot Have Retroactive Application because it will impair Vested Rights in Violation of the Constitution.

scroll

As usual, I contacted timeshare attorney Mike Finn of the Finn Law Group for his take on Governor Scott’s legislative prowess. Our Advocacy group of 84 Timeshare Advocates includes 18 attorneys. Timeshare is extremely specialized so we do not suggest any aggrieved timeshare member seek legal advice from any attorney without real estate or timeshare experience. Mike has assisted several timeshare owners needing legal assistance.

According to Mike,

“The constitution of the United States protects US citizens from Ex Post Facto laws, meaning that you cannot take an act and make it criminal after the fact. You can criminalize that action, but you can only do so prospectively because any actor is entitled to notice that this particular act is now a crime. How unfair it would be to be able to punish someone who had no previous warning that a non-criminal act was suddenly and with no advanced warning or notice made criminal?”

“There is no comparable constitutional protection in the civil arena even though the consequences in suddenly and intentionally changing a civil law while a case is pending, and applying the new law retroactively to a set of facts that resulted in extinguishing an existing and viable claim for monetary damages are essentially identical. Imagine how you would feel as the litigant bringing a claim, after hiring an attorney, filing a lawsuit that was meritorious when you filed it, only to have your case dismissed because the rules of the game were changed after you had filed your case?” “How dishonest!”

Attorneys for the plaintiffs continue

On May 16, 2016, the Plaintiffs (represented by Jeffrey Norton and the law firm of Newman Ferrara) filed a class action complaint against Marriott and First American (“Defendants”) that included numerous claims arising out of hundreds of thousands of instances of unlawful conduct, in which Defendants engaged for over seven years, related to the creation and continued sale and operation of the MVC Trust Product.

In December 2016, briefing on Defendants’ motions to dismiss was completed.

On February 9, 2017, SB 818 was introduced. That bill, introduced curiously on the heels of this action and immediately following briefing on the meaning of “interest holder” (a term having a direct impact on Defendants’ racketeering activity), sought to revise the definition of “interest holder” as it applies to the Florida Vacation Plan and Timesharing Act. More specifically, SB 818 aimed to “clarify” that the term “interest holder” excludes certain parties to certain multisite timeshare plans – a uniquely-focused amendment that appears specifically crafted to address claims in this case.

Three months to the day later, SB 818 was presented to Governor Scott for signature.

And, on May 23, 2017, SB 818 was enacted into law (the “FVPTA Amendment”).  Two weeks

later, on June 7, 2017, the Marriott and First American Defendants (the “Defendants”) filed the

Notice to “alert” the court of the FVPTA Amendment and its purported impact on this case.  

It seems obvious that because Defendants could not justify the legality of their conduct under existing law, they endeavored to change the rules. The Notice is tantamount to an admission that Plaintiffs’ claims are meritorious and that Defendants’ conduct violated the laws that actually were in effect during the relevant time period.

This is not the first time Defendants have endeavored to prevent this Court from considering the claims in the Complaint under existing law. Defendants previously filed a borderline frivolous motion seeking to invoke primary jurisdiction in order to refer the matter to the Florida Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares, and Mobile Homes (the “Division”), and a stay of the entire matter pending review by the Division.

(Note from Irene: Maybe that’s because only 110 out of 2,360 timeshare complaints were acted on by the Florida Timeshare Division.)

As argued by Plaintiffs, however, it is abundantly clear that the Division does not have primary jurisdiction over the claims in Complaint (and expressly rejects providing advisory opinions in pending litigation.

Parcels of real property do not simply materialize out of thin air by virtue of a statutory definition and nothing in the construction of a timeshare estate’s definition under Fla. Stat. § 721.05(34) supports Defendants’ preposterous construct.

girl

Whew! That was a lot for the average timeshare member to grasp, but more and more timeshare members are coming forward to learn about what goes on behind the scenes of their dream vacation. Inside Timeshare is hearing from timeshare members on a daily basis crying foul. Thank you to all our 18 attorney advocates as we work together to “take back our vacation” from an industry clearly in need of reform.

Once again Irene explains a difficult subject for us mere mortals in a way that is understood.

Over the weekend Inside Timeshare has received many more stories from some very concerned owners. It certainly looks like the articles we publish are hitting home to many owners, if you have any questions concerns or comments about anything published, contact Inside Timeshare and we will point you in the right direction.

                                                       

 

 

letter from australia

Friday’s Letter from Australia (No, you have read that correctly)

Welcome to Friday’s Letter from (America) now Australia, this is just to confuse our American cousins, the reason is that we welcome our first Antipodean cousin to our pages. Justin Morgan, makes his debut with his first contribution to Inside Timeshare. It is ironic that it happens to be on the first anniversary of Irene Parker’s very first article, which was about the acquisition by Apollo of Diamond.

Since her first article, Irene has been a major contributor and very much a driving force in bringing the problems of owners in the US to the fore. She has also become a very valued friend not just to myself but to all those she met while visiting Gran Canaria.

But enough of that, how about some news of timeshare in Europe?

Diamond Resorts has had a battering in the courts in Tenerife, Canarian Legal Alliance has secured a victory for one of their clients with the High Court declaring their contract null & void, with the return of over 29,000€ plus legal interest. In this case the court stated that the contract did not contain specified information required by law, with the product being the points system which the Supreme Court has deemed illegal due to their lack of tangibility.

This is the fourth verdict delivered against Diamond by the Tenerife courts this year, which our sources indicate is just the tip of the iceberg!

justice2

Anfi, based in Gran Canaria is on the defensive, it would seem they are already sending out new contracts after the vote last Friday 23 June, which coincided with another defeat at the High Court in Las Palmas. In that case the court declared the contract null & void as it was for more than 50 years.

As this is being written, the news has just arrived from our contact at the Court of First Instance in Maspalomas, that another contract has been declared null & void, with the client being awarded over 35,000€ plus legal interest.

At the same court yesterday Palm Oasis / Tasolan, were ordered to repay over 31,000€ and declaring the contract null & void. In this case the court ruled against the points system, which it deemed as selling nothing but promises.

On the Tauro Beach project, which has been the subject of many articles, it seems that the beach is still closed to the public, although many people are ignoring the fences and entering the area. There still seems to be no indication when this area will be fully open to the public, it may not be for sometime yet as there are several court cases pending.

So now on to this weeks article.

Who is Apollo? What is Apollo?

Two Diamond Member Consumer Advocates offer their opinion

Up Down

By Michael Nuwer and Justin Morgan

Introduction by Irene Parker

June 30, 2017

In honor of my one year anniversary writing for Inside Timeshare, it is only fitting to revisit Apollo Global Management’s acquisition of Diamond Resorts as Apollo’s Diamond acquisition was the subject of my inaugural article June 30, 2016.

http://insidetimeshare.com/700-2/

I had been shouting my timeshare concerns from the rooftops since my husband I attended a pathetically aggressive sales presentation July 2015 at Diamond’s Grand Beach Resort, which ultimately led to our appearance on the FOX News show Property Man, interviewed by Las Vegas attorney Bob Massi.

http://insidetimeshare.com/peasant-venice-queen-versailles/

The first I heard from Diamond was a year later in reaction to my Apollo article written for Jim Cramer of CNBC’s Mad Money’s investment news service, TheStreet. Diamond contacted TheStreet demanding a rebuttal. Diamond members are still waiting for Transitions, a relinquishment program that must still be in development.

http://www.thestreet.com/story/13624491/1/is-apollo-returning-to-its-junk-roots-with-its-acquisition-of-diamond-resorts.html

Diamond boasted 11 quarters of robust earnings growth until shortly after the Apollo acquisition announcement. A delayed 2016 second quarter earnings report was attributed to accounting irregularities.

http://www.thestreet.com/story/13702895/1/diamond-resorts-international-s-second-quarter-earnings-reversal-is-worrisome.html

According to a May 2017 KROLL Bond Report, Diamond’s default rates remain elevated.

The collateral pool of DROT 2014 – 1 has experienced elevated levels of defaults, which similar to certain other vacation ownership companies in the industry, Diamond Resorts attributes to an increase in the number of borrowers who have been solicited by lawyers to get out of their timeshare and/or have sent Diamond Resorts “cease and desist” letters.  

https://www.krollbondratings.com/announcements/3705

A National Mortgage News article appeared indicating the interest rate on the Apollo acquisition was raised due in part to the earnings restatement. Earnings had to be restated back to 2014 resulting in an earnings decline from the prior earnings report. Since the merger was announced as an all cash $2.2 billion deal, I did not understand the comment about the raised interest rate.

advocate 1

We seek to provide Diamond Resort members a way to proactively address membership concerns; to advocate for timeshare reform; to obtain greater disclosure from the company; to advocate for a viable secondary market; and to educate prospective buyers.

https://www.facebook.com/groups/DiamondResortsOwnersAdvocacy/

Timeshare Advocate Michael Nuwer explains. I now understand what it meant when Diamond owners were informed Diamond is owned “by an affiliate of an affiliate of funds.” It’s pretty high finance.

Apollo Global’s acquisition of Diamond Resorts was organized as a “leveraged buyout”.  Here’s how the deal worked:

Apollo created a shell company called Dakota Parent. Four of Apollo’s investment funds own this company. Dakota Parent created a wholly owned subsidiary called Dakota Sub. Dakota Sub borrowed $2.2 billion dollars (a big chunk of it, $1.1 billion, from the four Apollo funds) and bought 100% of the DRI shares — 72.7 million shares at $30.25 each. Then DRI merged into Dakota Sub, changed the company name to Diamond Resorts International, and thereby took on all Dakota Sub’s debt. This is the way leveraged buyouts typically work. Former Diamond CEO Cloobeck used the same structure when he bought Sunterra in 2007.

Now that all is said and done, DRI is a wholly owned subsidiary of Dakota Parent. The equity in Dakota Parent is owned by the four Apollo funds. Diamond has $2.2 billion debt on which it must make interest payments. The primary lenders are the four Apollo funds. They are in for $1.1 billion, $500,000,000 at 7.75% and $600,000,000 at 10.75%. The secondary lenders are in for $800 million, and another $200 million is secured by some DRI assets (I think they are consumer loans).

There are two ways Apollo makes money on this deal assuming all goes well. First, the four Apollo investment funds receive interest income out of DRI’s cash flow. They are guaranteed $103,250,000 per year. High profits or low profits, it doesn’t matter, Apollo gets paid. Further, the Apollo investment funds own a claim to all the equity growth of the company (that is all value over $2.2 billion). Thus, if they can sell the 72.7 million shares for $45 each, not an unreasonable number if all goes well, Apollo’s capital gain will be about $1 billion.

Aussie Flag

From Justin Morgan Australia

As a tax accountant, finance planner, part time private equity guy, I completely agree that the Apollo deal will only end in debt being laid upon Diamond members, for the benefit of those who arranged the details of a LBO merger that, when combined with the liabilities of the timeshare structure that utilized Association Board powers and targets them, it becomes a lethal mix that allows financial dealers to write their own checks bigger each year. It seems there is no end to how high they could simply raise their own salaries, pay-outs and ‘returns’ towards simply legally expecting members to pay their share of these increased contributions.

In the economy, we have certain protections such as Trade Practices Acts, Fair Trading Laws, financial regulation, monopoly laws…All this is designed to prevent abuse of market power. In my opinion, I would characterize this Diamond set-up as worse, because there is NO market that is anything other than what DRI, and the timeshare industry in general, allows. It is engaging in practices specifically designed to restrict the market to only it and its approved associates.

I feel this exploits consumers at near will, and I wonder where Apollo will set their ceiling …Looking at how the deal was structured, they see huge opportunity to lend to a membership base locked up in dubious legalities and unfair contracts. All this would not be legal in Australia. I’m amazed at how it turns out to be in the US. And I write this from Mexico, where it is well known what happens when dangerous cartels form and throw their money around here.

Circumstantial evidence is that the proof is in the pudding, but proving it in the US, where the banks and private equity already got away with much…well, I can only hope that the powers that be realize that it won’t get better if they keep allowing the average consumer and householder to be abused by what is, in my opinion, predatory sales and lending.

If the new DRI were to strip assets, it’d be left holding the large liabilities, but that is usually the reason why they then go back to legacy members warning of bankruptcy if they do not buy more points. It looks like the new DRI is just financially ‘creating’ this balance sheet to look exactly how it should look to siphon off more money from members. They already have their interest windfall. Next would be the stripping, and finally, the call for more contributions to boost management revenue…all this whilst the members are forced into more debt.

This is a strategic type play from the banking world, but DRI and private equity were some of the quickest learners out of the Great Financial Crisis. Many learnt how the banks do it. Private equity rushing into timeshare is the new rush to create financial instruments that creates only ‘liability’ for the timeshare owner. The financial guys profit from the creation of liability, which is their ‘debt-holding’. In a near zero interest rate environment, Apollo is looking to create the debt, then shift it across to the membership…effectively, they’ve already done it. Now they must get their $1.1bn back, and the result is just pure profit for the financial players. This could turn out to be a textbook case of why this must be stopped immediately. It will possibly play out over years.  Bravo Irene for taking a stand. I will support your efforts however I can. You’ve struck here what I believe is the actual core of the New Timeshare. The Old Timeshare was less sophisticated, but for those of us who know that private equity in this industry is licking its lips over several recent acquisitions, the old caveat of “buyers beware” may even be too late.

Teacher

Thank you to Michael and Justin for their reader responses which are possibly the most sophisticated reader responses in the history of Inside Timeshare. More and more timeshare Advocates are coming forward bringing their expertise and experience to the timeshare table.

Contact Inside Timeshare or one of our Timeshare Advocacy Group™ Facebooks or websites if you need timeshare assistance or can become an Advocate.   

So there we have it, another week over in the murky world of timeshare, Inside Timeshare thanks Irene for her efforts in bringing so many people together to share their views and experiences.

To our latest addition to the Inside Timeshare family, a very hearty welcome and we hope to hear more from those in the “Land Down Under”, who we do tend to forget share the same experiences as us in Europe and the US.

It’s Friday, the weekend is here, so break out the BBQ’s and let’s PARTY!!!!!!!!

barbie