Mailing on the OKW Extension

[OneMoreTry]

I ....
For those who have no desire to extend, it seems like you're just creating additional work by failing to respond within the given timeframe.

What's a passive aggressive to do?

 

[tjkraz]

IThis will definitely awaken that component to the resale market, because it will force a price distinction between those that have elected to extend versus not by exactly $25 per point.

See, I'm not convinced that will happen, and IMO that's one of the dangers of extending for speculative reasons. DVC pretty much controls resale prices via ROFR. So, they can pretty much determine the cost on both the 35 and 50 year contracts. And since the extension is only a one-time offer, we really have no way of knowing how pricing may fall come March 1st.

I'll try to walk thru my logic.

Let's assume a $3 increase in the base price (to $107) by next March when DVC will probably begin selling the 50-year contracts. Deduct the pretty standard $10 per point incentive and it seems like buyers will be paying around $97 per point.

Resale prices normally fll $8-10 less than DVC's retail price. That's the point at which they start invoking ROFR. (If the disparity were any smaller, it just isn't worth their time and energy to buy-back a contract for, say $92 and then try to re-sell the point for $97.) So, the resale price for the 50-year contracts will probably be in the $87-88 neigbhorhood. Anything less and they'll get hit by ROFR.

Now, if the price for a 50-year contract is $88, that means a 35-year contract would have to fall to $63 in order to maintain that $25 spread. Given that the 35-year contracts are currently selling in the mid-$70s, that's a pretty steep decline.

And if you're DVC, wouldn't it be in your interest to have an ROFR threshold a bit higher than that on the 35-year contracts? Come 3/1/08, they will be the only ones who can extend a 35-year contract to the maximum 50 years. So, if they ROFR a 35-year contract at a much higher price like $75 per point, they can tack on the 15 extra years and re-sell for $97.

That's how I would view the finances of the extensions. The only thing we know for certain is that DVC holds all the cards. Personally I wouldn't view paying for the extension as a guarantee that you'll get the $25 back via resale in the next couple of years.

IMO the extension makes the most sense for people who are of an age such that they may actually be able to use the points after 2042, or for those who would be doing it essentially as a gift for a child, grandchild or other heir. As an investment opportunity, it seems like a high risk / low reward proposition. Even best-case you would only stand to get your money back for several years to come.

 

[G8RFAN]

Resale prices normally fll $8-10 less than DVC's retail price. That's the point at which they start invoking ROFR.

I would have to say there are a little more components to that such as resort and available points, etc with the resort being key (11 month window over the 7). You look at resales for OKW vs. BCV and you will see that supply/demand definitely drives a different resale value and the ROFR metric for different resorts. I agree that Disney can control the market between 35 and 50 year contracts. What I find interesting is that they chose to do this now, when the extra 15+ year component was a selling point with SSR and AKV but wasn't a major component to the resale market. I think that most exisitng members and a good portion of the future DVC population considering ownership through the resale market aren't looking for value beyond 35 years. Now, DVD has potentially and artificially injected that consideration into the resale decision. On one hand, they need to justify the $25/point extension price and on the other hand, they can't let the 35 year contracts drop that much in respective price and create more competition for the remaining SSR and AKV. So I also agree with your points. It will be interesting how DVC/DVD will manage with this.

 

[PamOKW]

I think there are still a lot of members out there who don't participate on boards such as this. And, they probably don't pay a lot of attention to mailings. I predict a lot of bodies hitting the floor when they open their dues bill this year and see an extra $5,000 or $6,000 due!