Projecting future resale values

[havoc315]

The Hotwire part I did not know. I do know that at the end of COVID restriction at WDW, Disney was relocating guests to Grand Floridian at no additional cost from other resorts that were over booked, or that had not yet re opened but were accepting reservations. Yet, the Grand Floridian is supposed to be the "Flagship" resort at WDW. I am going to follow the construction of new DVC with great interest up to 2042. Starting in 2042 my best guess is there will be no more "new" resorts, but tear downs and re furbs of existing resorts and sold as new.

Things will change in and around 2042, with 3 1/2 major WDW properties reverting to Disney's use. Hard to make predictions about what will happen. Disney might not have much of an idea themselves yet.

Yes.... You were able to get blind deals on hotwire and priceline, etc, with Grand Floridian at 40-50% off rack rates. Disney likes to operate their hotels at near 100% occupancy. (actual 100% isn't possible, as there are always last minute cancelations, maintenance issues, etc).

My only very general prediction about 2042... is that the opportunity will be taken to reset some things. I do NOT expect them just to immediately turn around and start selling new 50 year contracts at BCV/BWV/BRV/OKW...
I wouldn't even be shocked if they took the opportunity to completely re-think the entire Crescent Lake resort area.
But there are lots of avenues, I have no clue which Disney will take. I just think they will do SOMETHING.

We may start to see a framework develop in another 10 years.

 

[floridavet]

Because they are 2 different avenues of profit, designed to operate in different ways.
Similarly, they have tightly controlled the deluxe hotel space, to keep occupancy high at very high prices -- But they have expanded value resorts, to give an avenue to capture large numbers of lower budget guests.

High occupancy rates at high room rates drives up per guest spending on a continuing basis.

DVC is about pocketing a whole bunch of revenue at once, up front.

If Disney has to cut their hotel rates, their per guest revenues go down immediately. If they cut DVC prices, by a few dollars, it doesn't really affect their per guest spending (which is spread over 50 years for a DVC buyer). Conversely, if they stop selling DVC, it is a major hit to their revenue.
In other words....... They are taking fresh revenue off their hotel rooms every single day. If they stop building deluxe hotel rooms (which they have), their existing rooms keep generating hotel revenue. DVC only generates direct revenue once -- when it is sold.


Also importantly, while there is a relationship between the direct and re-sale market, they are really very different markets, and they will grow even more different in time as resale restrictions grow more pervasive.
But I do believe DVC will offer more generous incentives, not raise prices as steeply as in the past.

But regular hotel bookings is about maximizing revenue per guest. DVC is about maximizing total sales. Two very different revenue streams for Disney.

I did not imply DVC and hotel rooms are similar, only that Disney surely has their best pencil pushers on each one. Surely they have a rough idea of how many properties is too many properties. If they thought they were close to saturating the market, they would hold off on building more, just as they do with deluxe hotels. You say that DVC is about a whole bunch of revenue at once, but DVC is also a whole bunch of cost at once. Aulani was 800 million and has yet to sell out. Again, with ROFR, they could make a tidy profit just buying resale contracts and reselling them direct and never have to put in the upfront cost of building a resort. I think there is a reason they have picked to build what they have and even with a lot of points I don’t see the market getting saturated yet.

 

[havoc315]

I did not imply DVC and hotel rooms are similar, only that Disney surely has their best pencil pushers on each one. Surely they have a rough idea of how many properties is too many properties.

But there is no such thing as too much with DVC. If they stop building hotel rooms, (which they have), they keep making direct revenue every day from those rooms.

If they stop building DVC... then they lose that revenue stream.

It's like renting out apartments versus selling hamburgers.
If you stop building apartments, you can keep renting out the existing apartments.
If you stop making hamburgers... then the burger joint has nothing to serve and has to shut down.

They can certainly have too much DVC to sell at once, creating excessive supply and hurting their price point. But it's still a different market than re-sale.

If they thought they were close to saturating the market, they would hold off on building more, just as they do with deluxe hotels.

They are assuming:
1 -- VHD will have strong demand, given it's Disneyland location and the general lack of DVC out there.
2 -- VGF will largely be sold out by the time Poly hits the market.

From Disney's perspective --- it's the opposite of hotel rooms. If they "run out" of hotel rooms, it gives them a reason to raise the prices on hotel rooms, and they actually increase their revenue per guest.
If they run out of DVC to sell... then it really hurts a revenue stream.

You say that DVC is about a whole bunch of revenue at once, but DVC is also a whole bunch of cost at once. Aulani was 800 million and has yet to sell out. Again, with ROFR, they could make a tidy profit just buying resale contracts and reselling them direct and never have to put in the upfront cost of building a resort. I think there is a reason they have picked to build what they have and even with a lot of points I don’t see the market getting saturated yet.

But again, the re-sale market is very different than the direct market. For example, Disney could entirely wipe out the re-sale market practically overnight -- Imagine they ROFR'ed every single contract for a couple of months. That would wipe out the potential re-sale buyers (why go through the trouble of purchasing a re-sale contract if Disney is just going to ROFR it?) . So after a couple months of ROFRing everything.... the entire re-sale market would dry up. Sellers wouldn't be able to find a buyer anymore, at any price.

The re-sale market is ultimately at Disney's mercy.

So let's say DVC is getting saturated at the $207 price point -- That doesn't mean they can't sell it anymore. Just means they have to lower their price.

The fact that Aulani still hasn't sold out is exactly the point I'm making. If Aulani was sold out, re-sale prices would be higher. The more resorts you have that don't sell out.. the more incentivized direct points you have on the market, the lower re-sale prices go too.

 

[Cfabar1]

And my hunch is that, in the next few months, with the specter (and possible arrival) of recession, the incentives will continue, and maybe even be expanded. Maybe not immediately, and maybe not linearly, but I do expect incentives to continue, and possibly increase, especially if there is a price increase on the horizon.

 

[floridavet]

But there is no such thing as too much with DVC. If they stop building hotel rooms, (which they have), they keep making direct revenue every day from those rooms.

If they stop building DVC... then they lose that revenue stream.

It's like renting out apartments versus selling hamburgers.
If you stop building apartments, you can keep renting out the existing apartments.
If you stop making hamburgers... then the burger joint has nothing to serve and has to shut down.

They can certainly have too much DVC to sell at once, creating excessive supply and hurting their price point. But it's still a different market than re-sale.



They are assuming:
1 -- VHD will have strong demand, given it's Disneyland location and the general lack of DVC out there.
2 -- VGF will largely be sold out by the time Poly hits the market.

From Disney's perspective --- it's the opposite of hotel rooms. If they "run out" of hotel rooms, it gives them a reason to raise the prices on hotel rooms, and they actually increase their revenue per guest.
If they run out of DVC to sell... then it really hurts a revenue stream.





But again, the re-sale market is very different than the direct market. For example, Disney could entirely wipe out the re-sale market practically overnight -- Imagine they ROFR'ed every single contract for a couple of months. That would wipe out the potential re-sale buyers (why go through the trouble of purchasing a re-sale contract if Disney is just going to ROFR it?) . So after a couple months of ROFRing everything.... the entire re-sale market would dry up. Sellers wouldn't be able to find a buyer anymore, at any price.

The re-sale market is ultimately at Disney's mercy.

So let's say DVC is getting saturated at the $207 price point -- That doesn't mean they can't sell it anymore. Just means they have to lower their price.

The fact that Aulani still hasn't sold out is exactly the point I'm making. If Aulani was sold out, re-sale prices would be higher. The more resorts you have that don't sell out.. the more incentivized direct points you have on the market, the lower re-sale prices go too.

We will have to agree to disagree. I agree that Disney will use incentives to lower price (rather than a true price drop). Where we diverge, is that I think if Disney thought they were at a saturation point, they would stop making resorts.
As you point out, there is no overall revenue if they stop making resorts (and do nothing else). You ignore the idea that if they make a resort that no one buys they not only don't make money, they lose money. If they make a resort that people will only buy below their break even point, they lose money.
I agree with you that Disney could wipe out the resale market if they wanted. I think you ignore the idea that wiping out the resale market is a viable profit center. If Disney decided to buy back every AKL at 145 tomorrow, anyone who wanted to buy AKL would need to go direct ($200) and that is a tidy profit without building anything. Your analogy of apartments and hamburgers is off because Disney could buy premade hamburgers (resale contracts) and sell them as shiny new hamburgers as the only hamburger store in town.

 

[havoc315]

We will have to agree to disagree. I agree that Disney will use incentives to lower price (rather than a true price drop). Where we diverge, is that I think if Disney thought they were at a saturation point, they would stop making resorts.

Dropping price = saturation. If there wasn’t saturation, then they raise prices.

Saturation means there is insufficient demand at full price, so they have to lower price. A “sale” just means there is market saturation.

As you point out, there is no overall revenue if they stop making resorts (and do nothing else). You ignore the idea that if they make a resort that no one buys they not only don't make money,

saturation isn’t “no one buys”

Saturation is, “we have to drop the price to sell it”

they lose money. If they make a resort that people will only buy below their break even point, they lose money.

Break even Point is around $10 per point in terms of construction for a new resort.

For conversion like GFV… it’s more a question of whether they make more money by renting it as a cash room or more money selling it as DVC. (Thus… when hotel rooms are saturated, it becomes more profitable to sell as DVC… I ran the math once, selling DVC at GFV current prices is the equivalent of booking the room for the next 50 years at about $850 per night. )

I agree with you that Disney could wipe out the resale market if they wanted. I think you ignore the idea that wiping out the resale market is a viable profit center. If Disney decided to buy back every AKL at 145 tomorrow, anyone who wanted to buy AKL would need to go direct ($200) and that is a tidy profit without building anything

Except there isn’t enough demand to sell that many AKV contracts at $200… or Disney would do exactly that.

. Your analogy of apartments and hamburgers is off because Disney could buy premade hamburgers (resale contracts) and sell them as shiny new hamburgers as the only hamburger store in town.

Except that buying those pre-made hamburgers is far less profitable.
Buy a pre-made hamburger for $150 to sell at $200…
Make a new hamburger for $10 and sell it for $190.

 

[AvidDisReader]

I do not see any evidence of saturation. The combined sales of DVC points (new offerings: RIV and GFV2) has been over 140,000 points a month from May 2022 thru Aug 2022. This in the face of runaway inflation and looming recession. The demand for the product speaks for itself.

 

[havoc315]

I do not see any evidence of saturation.

Re-sale prices are down. That is the evidence of saturation.

Saturation changes over time. Saturation simply means that demand is not matching supply at a given price point. Due to that saturation, price is dropped.

The combined sales of DVC points (new offerings: RIV and GFV2) has been over 140,000 points a month from May 2022 thru Aug 2022. This in the face of runaway inflation and looming recession. The demand for the product speaks for itself.

https://dvcnews.com/dvc-program/financial/news-34867/4467-direct-sales-soar-in-april-2019 -- April 2019, sales were 267,000 points. 200,000 in May 2019, 231,000 in June, 199,000 in July 2019...


Demand is down relative to supply. Direct sales are down... Re-sale prices are down.
It very well may be "saturation due runaway inflation and looking recession" -- That would be the reason for the saturation.
Are you claiming that re-sale prices have been going up in the last year?

"Market saturation is a scenario where the market growth trajectory of a given product stagnates." -- https://corporatefinanceinstitute.com/resources/knowledge/economics/market-saturation/
Has re-sale pricing been rising or stagnating for the last year? Are sales up or down, compared to pre-Covid?

You seem to be saying "the saturation is due to the market conditions" -- Ok... that's fine. That's still saturation.

 

[Cfabar1]

I wonder how much of this has to do with Millennials and Gen-Zers being less interested in Timeshares. I have been told that it is an aging industry by those in the business.

 

[RivShore]

This thread is still going, huh. As I may have mentioned before, I really have a problem with the whole premise of this. You are trying to apply normal supply demand analysis during very abnormal times. The world economies (and especially the travel industry) have been upside down and inside out for 3 years and will be for at least another 3. To try and determine long term trends from current trends is just not logical.

 

[floridavet]

This thread is still going, huh. As I may have mentioned before, I really have a problem with the whole premise of this. You are trying to apply normal supply demand analysis during very abnormal times. The world economies (and especially the travel industry) have been upside down and inside out for 3 years and will be for at least another 3. To try and determine long term trends from current trends is just not logical.

Agreed...by definition market saturation is the phase of a products life where it stagnates, indefinitely, and the only way to increase your market share is to steal from competitors through things like price breaks.
There is no indication of that and, given the last 3 years, predicting what will happen on 1 year of sales seems bold.

 

[E2ME2]

I wonder how much of this has to do with Millennials and Gen-Zers being less interested in Timeshares. I have been told that it is an aging industry by those in the business.

This is too funny!
I remember thinking 20 years ago that timeshares were for the older crowd, as the only people I knew with Timeshares were my parent's friends.
I bought in about 12 years ago, in my early 50s.
Being in the last wave of the "Boomers", I think there is still a large portion of the U.S. population that will be entering that phase of life in the next decade, and DVC will continue to attract that demographic.

 

[havoc315]

This thread is still going, huh. As I may have mentioned before, I really have a problem with the whole premise of this. You are trying to apply normal supply demand analysis during very abnormal times. The world economies (and especially the travel industry) have been upside down and inside out for 3 years and will be for at least another 3. To try and determine long term trends from current trends is just not logical.

That’s like saying… doctors shouldn’t treat patients who are very sick. Or don’t feed people who are hungry.

To say, “we should only examine finances when everything is smooth and great” is illogical.

 

[RivShore]

That’s like saying… doctors shouldn’t treat patients who are very sick. Or don’t feed people who are hungry.

To say, “we should only examine finances when everything is smooth and great” is illogical.

I really am am having a hard time understating your comparison to illness and hunger.

You certainly should examine finances in good times and bad but you should not base future projects on just one or the other. That is all I'm saying. I have not read every post here but it seemed to me that you were trying to project well into the future values, based solely on current activity. That is were I see a problem, basing projections solely on current activity that has been impacted by once in a century black swan event.

 

[DVCanadian]

But again, the re-sale market is very different than the direct market. For example, Disney could entirely wipe out the re-sale market practically overnight -- Imagine they ROFR'ed every single contract for a couple of months. That would wipe out the potential re-sale buyers (why go through the trouble of purchasing a re-sale contract if Disney is just going to ROFR it?) . So after a couple months of ROFRing everything.... the entire re-sale market would dry up. Sellers wouldn't be able to find a buyer anymore, at any price.

The re-sale market is ultimately at Disney's mercy.

The situation you describe would be the opposite, you are only considering the resale buyer’s situation.
Disney would be at the mercy of the people that want to sell, they don’t wipe out the resale market by ROFRing everything, they would bring sellers to the table who could ask any price. If disney is taking everything, I’d have my friend offer $400 per point.

the resale market wouldn’t cease if they bought everything for a couple of months, they would have to do it forever, or the resale buyer just comes back when they stop.

 

[havoc315]

The situation you describe would be the opposite, you are only considering the resale buyer’s situation.
Disney would be at the mercy of the people that want to sell, they don’t wipe out the resale market by ROFRing everything, they would bring sellers to the table who could ask any price.

Not at all. They simply ROFR at everything below direct pricing.
Sellers can’t ask any price — nobody would bite at a price higher than direct.

And Disney would only have to do it for 2-3 months. At which time, the re-sale market is obliterated.

If disney is taking everything, I’d have my friend offer $400 per point.

Well, then you and your friend have paid some closing fees for a bogus transaction.

the resale market wouldn’t cease if they bought everything for a couple of months, they would have to do it forever, or the resale buyer just comes back when they stop.

The buyers won’t come back with major incentive (rock bottom pricing). Who go through all the trouble of making a bid and waiting for months, if you know it’s just going to get ROFRed?

 

[havoc315]

I really am am having a hard time understating your comparison to illness and hunger.

You certainly should examine finances in good times and bad but you should not base future projects on just one or the other. That is all I'm saying. I have not read every post here but it seemed to me that you were trying to project well into the future values, based solely on current activity.

I’m projecting the intermediate future based on known factors.
Known— the 2042 resorts will be worth 0 in 2042.

More immediate — more points being added to the market while prices are already going down. Prices going down despite the travel industry booming over the last year, and a likely recession in the next year.

I’ve actually said I don’t know what will happen in the longer term with 206x resorts.

That is were I see a problem, basing projections solely on current activity that has been impacted by once in a century black swan event.

 

[DVCanadian]

Not at all. They simply ROFR at everything below direct pricing.
Sellers can’t ask any price — nobody would bite at a price higher than direct.

And Disney would only have to do it for 2-3 months. At which time, the re-sale market is obliterated.




Well, then you and your friend have paid some closing fees for a bogus transaction.



The buyers won’t come back with major incentive (rock bottom pricing). Who go through all the trouble of making a bid and waiting for months, if you know it’s just going to get ROFRed?

Ok, so when you said ROFR everything you mean didn’t everything.

So what happens after 3 months of buying every point at near direct pricing? What’s next? What do they do for the next 5 years?

Buying back resale points at near the same price as direct makes little business sense. Unless Disney buyback everything forever, which is a guaranteed buyback program, the market returns.

Sellers can ask any price because it is a market.
I’d sell my resale points bought at 50pp back to Disney for current direct pricing. Certainly I’d turn in my OKW at near direct prices and upgrade to longer contract at a newer resort.
Disney wins! They get a direct sale!

 

[havoc315]

Ok, so when you said ROFR everything you mean didn’t everything.

?? Nobody would pay more than direct price. So sure, if someone pays more than direct, they wouldn’t ROFR it.

So what happens after 3 months of buying every point at near direct pricing? What’s next? What do they do for the next 5 years?

After 3 months, all the resale brokers are out of business. The re-sale market is in shambles. The smattering of re-sale attempts would be at rock bottom prices, so Disney would be able to ROFR whatever is left for pennies (relatively speaking).

Buying back resale points at near the same price as direct makes little business sense. Unless Disney buyback everything forever, which is a guaranteed buyback program, the market returns.

Sellers can ask any price because it is a market.

No. ROFR only kicks in when a buyer actually enters into a contract. Without a buyer willing to pay the price, the seller can’t demand anything. By ROFRing nearly everything, the market of buyers will dry up.

Basically… it makes the re-sale market so unattractive, that it dries up.

I’d sell my resale points bought at 50pp back to Disney for current direct pricing.

First, you’d need to find a buyer willing to pay direct prices for your resale points. Why would any buyer be willing to do that?

Basically, Disney would be broadcasting a message — “we will not allow any sales to go through to private buyers for under direct pricing… so buyers shouldn’t waste their time” (Disney couldn’t literally make that announcement, as it could violate anti-trust laws, but they could take those actions to the same effect)

Certainly I’d turn in my OKW at near direct prices and upgrade to longer contract at a newer resort.
Disney wins! They get a direct sale!

You already can do that. A person could sell their VGC points and buy Riviera, for example.

 

[sethschroeder]

Dropping price = saturation.

No it's called the economy and there being a recession going on multiple months with no letting up.

I just think its funny how you try to spin all of this.

Again I will point out Disney added a small percentage of new points and only 1% of those will hit resale on an annual basis. To say additional demand doesn't absorb that is funny.

Resale is always based on what direct prices are. As long as Disney doesnt start decreasing direct prices resale will be fine.