This cliffside community of million-dollar homes overlooking the Pacific is up in arms over the likely fate of its neighbor, the Highlands Inn. The $425-a-night hotel, replete with Jacuzzis, fireplaces and mood lighting, recently hosted President Clinton for dinner. Julia Child has been a frequent visitor for three decades. Madonna and Sean Penn spent their honeymoon here.
But now the inn’s owner, Chicago-based Hyatt Hotels Corp., is planning to turn the place into an upscale time-share resort. And as some locals see it, there goes the neighborhood.
Outraged residents are packing zoning meetings and have ringed the hotel with handmade protest placards.
“Time-share horror stories abound,” says Marianne Egerter, a local activist. “We’re afraid it will destroy the hotel.”
While unusual, the Carmel protest illustrates the lingering stigma that major hoteliers face as they plunge into the luxury time-share business.
Hyatt and Four Seasons Inc. are among the major companies looking to turn some of their top hotels into time shares, or build new developments from scratch. They plan to sell units to wealthy patrons to use for a few weeks a year, at prices that can reach well into six figures.
For the hotel companies, such projects make sense. Time shares have much higher profit margins than hotels. But before the upscale projects get off the ground, they must distance themselves from the time shares of old.
The industry gained notoriety in the 1970s and ’80s, when high-pressure sales people hawked shares in cheaply built furnished condos to naive buyers, throwing in free toasters to seal deals.
Priced at a few thousand dollars and located in middle-income resort spots like Orlando and Branson, Mo., these time shares were hard to unload. The resale market proved weak or nonexistent, units were abandoned in droves and developments ran down. In the late 1980s, the resulting lawsuits and legal sanctions chilled time-share sales.
Sales have bounced back in the wake of regulatory and voluntary reforms. The American Resort Development Association, the time-share industry trade group, has issued a rulebook of appropriate sales practices. (One caveat warns against suggesting that a time share might appreciate in value.)
Buyer qualms also have eased as companies like Marriott International Inc. and Walt Disney Co. have entered the business.
Still, hoteliers concede that the image problem could taint their new luxury developments.
John Richards, a Four Seasons executive vice president who oversees its time-share operations, says it is critical to alter the perception “that this is a sleazy, lousy business that no one thinks we should get involved in, that will pull us down and get us dirty.” The only solution, he says, is to operate time shares without a blemish.
Toronto-based Four Seasons is building what it calls “vacation-ownership resorts” in Southern California, Arizona and Mexico, and is scouting properties in Hawaii, Florida and the Caribbean as well.
“We’ve got four or five more projects on the drawing board,” says Anthony D. Sharp, a Four Seasons vice president and son of the company’s founder, Isadore Sharp.
Though sales data are scanty as yet, both Hyatt and Four Seasons say the market has exceeded their expectations.
Prices aren’t a deterrent for the likes of R. A. “Dutch” Cambruzzi, a Cincinnati real estate developer. Last July, he bought into a new Hyatt time share in Beaver Creek, Colo., paying $330,000 for two weeks around New Year’s. He got three summer weeks as a bonus. He says the cost of buying a home in the area “would have been at least a million dollars.”
A project being developed on Bald Head Island, N.C., by the George Mitchell family of Houston oil wealth, is preparing to sell four-week shares in 2,900-square-foot homes with ocean views and Bose music systems for up to $89,000.
The potential profit margins on this class of time share are as much as 25 percent, more than double that of most hotels, according to Stephen Kent, an analyst with Goldman, Sachs & Co. in New York.
Time shares are cheaper to build and operate than hotels; they’re usually constructed like condos, without room service, elevators and other costly amenities. Cash flows in upfront, rather than dribbling in night by night.
Still, the nettlesome resale problem remains. At a recent Los Angeles auction of used conventional time shares, bids started at $500–less than some annual maintenance fees and a fraction of the purchase price.
High-end time-share developers all acknowledge the resale bugaboo. Some say they would consider buying back unsellable units to protect their investments.
Meanwhile, some buyers appear unfazed by the potential risks. On a whim, Houston developer Steve Gilmore recently paid $41,000 cash for two weeks a year at Aviara, Four Seasons’ time-share project going up in Carlsbad, Calif.
He didn’t bother to have an attorney read the contract, and he figures the $2,000 annual maintenance on his three-bedroom unit might balloon in the future.
“If the whole thing gets flushed, I can handle that,” he says. “I’m willing to take that risk.”
Other high-end buyers are willing to pay a premium for convenience. Harold Brown, a retired real estate developer who lives in Coral Gables, Fla., recently spent $91,000 to buy four week-long intervals at Aviara. He and his wife, June, sold their 2,800-square-foot vacation home at California’s nearby La Costa resort a few years ago. Compared to maintaining that home, he calls their time share “a good value.”
The Browns like the Four Seasons name, its offer of full maid service, and its promise to redecorate every five years or so.
“I assume that the quality of people who will be coming will be high caliber,” Brown adds.
Hyatt officials insist that this is the type of buyer they’ll seek at the Highlands Inn.
Nick Pritzker, chairman of Hyatt Vacation Ownership, Hyatt’s time-share affiliate, says the “character and clientele” of the inn won’t be altered. Other Hyatt officials say that the place will remain elite by dint of high prices, which haven’t been set yet.
But Honey Williams, a Carmel resident and real estate agent, says she fears that owners will tire of paying for upkeep and sell cheaply to less discriminating buyers.
The plan is to convert the Highlands Inn as soon as Hyatt receives approval from local development authorities, who now are besieged by complaints. The intensity of the opposition has shocked Hyatt and local officials. More than 100 protesters have turned out at zoning hearings, and the group is arranging an art auction to raise funds for a possible court battle.
“We can only go by past experience with time shares,” says Clifford Bagwell, who can see the inn’s renowned restaurant, the Pacific Edge, from his living room. “We’re losing a world-class hotel.”
