Timeshares are an extremely popular segment of the U.S. real estate market. The timeshare industry in the United States generates over $2.1 billion in sales annually. See The United States Timeshare Industry Overview and Economic Impact Analysis, American Resort Development Association & Alliance for Timeshare Excellence 85 (1997). Consumer and developer confidence in the continued growth of this industry is high.  If a developer decides to begin a timeshare development project, the developer must overcome a number of obstacles before the business can become profitable. Among the most pressing concerns for a developer is financing. The developer will require a source of funds for construction of the project, operating expenses and, as time goes on, growth of the development.  Most likely the timeshare developer will face a serious liquidity problem from the beginning of the development project through the first few years of its operation. Most timeshare projects experience negative cash flow for the first few years. Most timeshare sales involve consumer financing so that the developer receives paper notes on interval sales. The developer will receive a relatively small percentage of cash as revenue. How does the developer first obtain financing to build a timeshare project from the ground up? How does the developer cover operating costs during the beginning years? What can a developer do with an excess supply of consumer notes?  This article examines construction/development financing for start-up costs and receivables hypothecation financing and securitization for operating costs. It also gives a cursory look at subordinated debt financing in the timeshare industry. Finally, it discusses the application of TILA and RESPA to timeshare sales and examines recent trends in the area of timeshare lending, with particular attention to the "big money" area of securitization. 

Premium Content for:

  • ABA Section of Real Property, Trust and Estate Law Members
Join Now

Already a member? Log In