First Riviera ROFR

[havoc315]

I will also note that DAS restrictions plus moving from free to paid VQ is also an effective increase in capacity, because fewer people are in two places at once.

DAS was a temporary issue. Was DAS restricting capacity in 1995?

 

[Cfabar1]

I think one thing that some people are overlooking is the tax benefits that Disney achieves with new construction vs. flipping contracts. It is why I am convinced the 2042 resorts will go through complete gut rehabs or more likely tear down and rebuilds when 2042 comes. Not all at once, but staggered over several years. Disney won't pass up a chance to make a few bucks flipping contracts every now and then, but it will never be part of DVC's regular business model.

Can you explain this further for those of us who don't work in the tax/real estate space?

 

[Brianstl]

Can you explain this further for those of us who don't work in the tax/real estate space?

The construction costs can be deducted and the new buildings can be depreciated over the years to reduce the amount of income tax Disney owes.

 

[Mouseforward]

The construction costs can be deducted and the new buildings can be depreciated over the years to reduce the amount of income tax Disney owes.

Isn't it an issue that they have the additional layer of the ground lease from WDW to DVD and that is the only profit the building cost can offset?

DVD can't take the building cost off since they lease

 

[Brianstl]

Isn't it an issue that they have the additional layer of the ground lease from WDW to DVD and that is the only profit the building cost can offset?

DVD can't take the building cost off since they lease

On land you lease, but don’t own…..

You capitalize the construction costs and then depreciate those costs over 15 years for tax purposes

 

[Brian Noble]

DAS was a temporary issue. Was DAS restricting capacity in 1995?

You aren’t discussing. You are arguing to be right from a fixed position. Have fun with that.

 

[Mouseforward]

On land you lease, but don’t own…..

You capitalize the construction costs and then depreciate those costs over 15 years for tax purposes

But is DVD doing the construction or WDW? I thought only Aulani was DVD'd construction.

 

[Brianstl]

But is DVD doing the construction or WDW? I thought only Aulani was DVD'd construction.

I’m not sure what division is paying the cost of construction, but it doesn’t matter. Whatever division is paying for the new construction provides a tax benefits to the TWDC that the expense of buying contracts through ROFR doesn’t.

 

[havoc315]

You aren’t discussing. You are arguing to be right from a fixed position. Have fun with that.

Sorry if it seems that way.

I do think for purposes of this discussion, there are differences between physical capacity and simple attendance. Building new attractions will often increase attendance, but such increases are generally temporary. Similar issues like DAS.
The maximum physical capacity has not really changed in decades but, admittedly, that’s rarely relevant. Apart from a couple weeks of the year, the parks aren’t operating at full physical capacity.

Thus, there is plenty of room to keep driving up attendance. And if attendance kept increasing, then demand for hotel rooms would likely keep increasing, and there would be demand to keep building more hotels and more DVC.

Right now, attendance is still 10-15% below the pre-Covid peak.
So right now, there is lower demand for rooms than 6+ years ago.

Converting off-site to on-site? Not at the prices Disney is insisting on charging. They have been actively reducing hotel space over the last 10+ years — even when attendance was increasing.
So their model has been that it’s better to charge more for fewer rooms.

But their model absolutely has included converting regular hotel space into DVC. The question is whether that eventually hits a saturation point. Where you can’t find 10,000 new DVC buyers per year anymore.
Of course, my very rough math — DVC turns about 0.3% of visiting families into DVC buyers.

Disney may believe they can continue such a small conversion rate into perpetuity. (And thus, why they have 5 resorts in active sales now).

 

[Mouseforward]

Sorry if it seems that way.

I do think for purposes of this discussion, there are differences between physical capacity and simple attendance. Building new attractions will often increase attendance, but such increases are generally temporary. Similar issues like DAS.
The maximum physical capacity has not really changed in decades but, admittedly, that’s rarely relevant. Apart from a couple weeks of the year, the parks aren’t operating at full physical capacity.

Thus, there is plenty of room to keep driving up attendance. And if attendance kept increasing, then demand for hotel rooms would likely keep increasing, and there would be demand to keep building more hotels and more DVC.

Right now, attendance is still 10-15% below the pre-Covid peak.
So right now, there is lower demand for rooms than 6+ years ago.

Converting off-site to on-site? Not at the prices Disney is insisting on charging. They have been actively reducing hotel space over the last 10+ years — even when attendance was increasing.
So their model has been that it’s better to charge more for fewer rooms.

But their model absolutely has included converting regular hotel space into DVC. The question is whether that eventually hits a saturation point. Where you can’t find 10,000 new DVC buyers per year anymore.
Of course, my very rough math — DVC turns about 0.3% of visiting families into DVC buyers.

Disney may believe they can continue such a small conversion rate into perpetuity. (And thus, why they have 5 resorts in active sales now).

And yet, they are building a new hotel with 500 plus cash rooms. Do you think disney can not afford the best quants to analyze the data?

 

[Jimmy Geppetto]

Here is another hypothesis (and completely different perspective):

What if Disney exercised ROFR to keep the contract out of the hands of a commercial renter?

Let’s look at the facts.

1. The contract was reported to be ROFR’d via DVCRM.
2. DVCRM stated it “was likely a distressed seller”.
3. DVCRM had a RIV contract of 500 points sold at $100pp just recently.

Now let’s ask the questions:

1. How does it get agreed to at $89pp? Could it have been a seller who agreed to the “instant sale” price if they were distressed?
2. Why not advise the seller to list it at $100pp? Or $95pp?

Or maybe it was just a lucky buyer who negotiated a great deal and Disney decided this was a great contract to make money on like you’ve all suggested.

 

[PolyRob]

1. How does it get agreed to at $89pp? Could it have been a seller who agreed to the “instant sale” price if they were distressed?

Pretty spot on based on the details shared about the taken contract...

 

[Cyberc1978]

I'm excited about this! Keep the floor of it high!

Now that really depends, doesn’t it?

Depends on what floor Disney wants. If they currently only exercise below $90 then you can argue if that is keeping the floor high. Same goes if it’s any price under $100.

Had they decided on any price below $150 I would agree no doubt about that - but then we would have seen more ROFR - but we don’t.

 

[Cyberc1978]

I'll just share one other thought that I shared on the ROFR thread. If Disney's long-term strategy with restricted resorts is to keep the resale market low (by comparison to the O14 resorts) so they can regularly buy and flip them back into direct, that will go a long ways to ameliorating the concern that some people have had about all the resale owners booking everything up at 11 months. The restricted resorts could well end up with much smaller percentages of resale owners than the O14. I have always thought there are other reasons to think this concern was overblown, but this is a potentially significant one.

At some point DVD needs to change whatever strategy they have. IMO they are currently building and selling new resorts. But for how long can they do that? It’s not as Disney owns endless acres of land - they will run out - is that now, in 5 years or 10 years i don’t know. But before they do they will change the strategy, maybe into buying and flipping.

 

[Cyberc1978]

Here is another hypothesis (and completely different perspective):

What if Disney exercised ROFR to keep the contract out of the hands of a commercial renter?

Let’s look at the facts.

1. The contract was reported to be ROFR’d via DVCRM.
2. DVCRM stated it “was likely a distressed seller”.
3. DVCRM had a RIV contract of 500 points sold at $100pp just recently.

Now let’s ask the questions:

1. How does it get agreed to at $89pp? Could it have been a seller who agreed to the “instant sale” price if they were distressed?
2. Why not advise the seller to list it at $100pp? Or $95pp?

Or maybe it was just a lucky buyer who negotiated a great deal and Disney decided this was a great contract to make money on like you’ve all suggested.

Pretty spot on based on the details shared about the taken contract...

View attachment 993774


View attachment 993775

Even if it was true - and I don’t think it is. Then DVC should start buying up a lot of contracts to avoid LLC’ getting them. That said in this case it could be the truth that the buyer was a LLC as the instant price tool shows the exact same price. But DVC took it because of the price.

If DVC wanted to avoid LLC’ buying up contracts all they had to do is enforcing the “No rentals allowed” policy for LLC’. When one or more LLC’ starts getting blood on their hands the word will spread on SoMe about cancelled reservations from LLC’

Then we will see a flood of new contracts up for sale - then DVC could potentially have a ROFR feast.

 

[airjay75]

Another interesting point of comparison in our conversation about RIV is the other DVC restricted resort that actually has a fair amount of active resale activity - VDH. I've pretty much ignored it until this point because I'm not particularly interested in the DL properties at this point in life, but it is interesting to see how the DVC resale market views a restricted resort in a smaller market where there is very little value to the ability to trade your points out at the 7-month mark. Sure, you can use direct VDH points at AUL or WDW, but that's probably not the primary reason you buy VDH (or VGC). And the resale market appears to place A LOT of value on those resale VDH contracts. TBH, looking through dvcforless.com history of VDH, I think to myself, why would anyone pay those prices ($160-$190/point) when direct is not that much more expensive?

Of course, highly unlikely that RIV and WDW properties will ever face the same dynamic that the DL properties have - just way more supply. But, the more the priority booking window is needed at a particular property, the more the resale market will value a contract. We don't ultimately know where RIV will end up on that particular dynamic, and won't until it is sold out.

 

[pzw90]

Another interesting point of comparison in our conversation about RIV is the other DVC restricted resort that actually has a fair amount of active resale activity - VDH. I've pretty much ignored it until this point because I'm not particularly interested in the DL properties at this point in life, but it is interesting to see how the DVC resale market views a restricted resort in a smaller market where there is very little value to the ability to trade your points out at the 7-month mark. Sure, you can use direct VDH points at AUL or WDW, but that's probably not the primary reason you buy VDH (or VGC). And the resale market appears to place A LOT of value on those resale VDH contracts. TBH, looking through dvcforless.com history of VDH, I think to myself, why would anyone pay those prices ($160-$190/point) when direct is not that much more expensive?

Of course, highly unlikely that RIV and WDW properties will ever face the same dynamic that the DL properties have - just way more supply. But, the more the priority booking window is needed at a particular property, the more the resale market will value a contract. We don't ultimately know where RIV will end up on that particular dynamic, and won't until it is sold out.

What also boggles my mind is that not only are you only able to stay at VDH, you will always have to pay the TOT. Making the cost per point to stay there significantly higher

 

[airjay75]

What also boggles my mind is that not only are you only able to stay at VDH, you will always have to pay the TOT. Making the cost per point to stay there significantly higher

Totally agree. It's one thing to have to worry about your annual dues and how much they might increase year over year, but layer on top of that the TOT that is subject to the whims of whoever is elected to the City of Anaheim government. It would be a tough sell for me, but apparently there is demand for such a product, and the resale restrictions appear to have little impact on how the market values it.

 

[muppets3d]

Totally agree. It's one thing to have to worry about your annual dues and how much they might increase year over year, but layer on top of that the TOT that is subject to the whims of whoever is elected to the City of Anaheim government. It would be a tough sell for me, but apparently there is demand for such a product, and the resale restrictions appear to have little impact on how the market values it.

I mean, what's the alternative? You can try to get VGC points, or buy direct and try to book VGC at 7 months. Both of those are not as easy. I expect that new DVC resorts (if any) as part of Disneyland Forward will also have TOT as well, because California.

 

[airjay75]

I mean, what's the alternative? You can try to get VGF points, or buy direct and try to book VGF at 7 months. Both of those are not as easy. I expect that new DVC resorts (if any) as part of Disneyland Forward will also have TOT as well, because California.

I'd say that the alternative is not locking yourself into a timeshare commitment until 2074 in the State of California . Maybe I'd have a different view if I Iived on the West Coast and planned to visit DL regularly.