By Jake Bercu, a Tahoe Beach and Ski Owner
Hilton Grand Vacations (HGV) announced its acquisition of Diamond Resorts (DR) in a press release on March 10, 2021, promising to combine Diamond’s strength with the brand and culture of Hilton Grand Vacations. The two companies had dramatically different business models. Hilton built resorts. Diamond acquired control of existing resorts, and then unleashed their sales force to convince deeded owners to give up their deed and convert to Diamond points, promoting their “Club” concept. Diamond Owners became Members.
Diamond Resorts CEO Michael Flaskey’s letter to members and owners, also dated March 10, 2021, stated that the merger, “Will bring together the iconic Hilton Grand Vacations brand with the scale and unique culture of Diamond Resorts to create a new global standard of vacation ownership hospitality.”
While there was a slight discrepancy in terms and definitions of “acquisition” and “merger” in the March 10, 2021 HGV press release, and Diamond’s letter to members, there was a major clash announced in the documents between Hilton’s culture and Diamond’s culture. Each organization promised that their own culture would persist.
Tahoe Beach & Ski (TBS) resort is not owned by Diamond Resorts or Hilton Grand Vacations. Considerable efforts have been made, first by Diamond Resorts, and now by Hilton, to take control of our resort.
Differing methods to acquire inventory
Hilton Grand Vacations built their brand by concentrating on adding inventory by building new purpose-built resorts, or converting existing hospitality facilities to desirable resorts, upholding the HGV standard. This increase in inventory came at a cost, which was recovered during the sales process of the specific resort. In rare cases where “legacy” resorts were added to the HGV club, the legacy resort owner was treated fairly, and the resort benefited from the HGV affiliation.
Mark Wang, current HGV CEO, built his reputation partly based on his skillful handling of the transition of the Waikoloa Bay Club resort into the HGV program in 2002. In Hilton’s consideration of the acquisition, they identified early on that one of the major reasons for the poor financial performance of DR was bad publicity, including the following publications:
“The Timeshare Hard Sell Comes Roaring Back” detailing tactics reported in the New York Times by Pulitzer winner Gretchen Morgansen, ( NY Times : Diamond Hard Sell to Push Timeshares )
“Diamond Resorts still can’t explain why it sold $250,000 worth of timeshare points to an 88-year-old” as reported by Consumer Affairs. https://www.consumeraffairs.com/news/diamond-resorts-still-cant-explain-why-itsold-250000-worth-of-timeshare-points-to-an-88-year-old-032919.html
“Company convinces Arizona couple, nearly 90 years old, to buy $150,000 timeshare” published by azcentral and USA Today
Over 1,000 Diamond members filed complaints with the Office of the Arizona Attorney General in 2016 and 2017.
According to Sec filings pertaining to the acquisition, Diamond lost money in 2018, 2019 and 2020. Financial results for those years are reported on pages 19 and 20.
https://www.sec.gov/Archives/edgar/data/1674168/000119312521195175/d137147ddefm14a.htm
According to owner statements, tactics used to convince deeded owners to surrender their deeds included:
Inform deeded owners that most owners already gave up their deeds and DR already controlled the resort. This was especially true in the case of Tahoe Beach & Ski, which Diamond did not control, owning only 25% of the inventory.
Fewer and fewer owners would be left that will be responsible for maintenance fees (a last-man-standing warning),
Inform deeded owners that they would not be able to get desirable future reservations in Float-Week Ownership resorts because DR already controlled most of the inventory, when they did not,
Inform deeded owners that there would be a large Special Assessment and the only way to avoid it would be to give up the deeded ownership and join the points program. The last resort taken over by Diamond, just prior to the HGV acquisition, was the San Luis Bay Inn resort in Avila Beach, where the same Diamond Senior Vice President of Inventory and Yield Management, was on the Board of Directors of San Luis Bay. He currently holds the same position with Hilton Grand Vacations. Other notable takeovers of timeshare resorts were Tahoe Seasons Resort in South Lake Tahoe, and Grand Beach and Grand Beach II in Orlando.
Inflate the price of the credit for an existing timeshare, in return for surrendering the TBS deed. (An actual example: $111,835 purchase price less additional equity of $82,395 for the owner’s Orange Lake and Westgate deeds =Adjusted purchase price $29,440.) These timeshares have basically no resale value,
Tahoe Beach and Ski Resort (TBS) in South Lake Tahoe - a unique position
Diamond’s 25% ownership in TBS means they were unable to gain control of the TBS Board and Management, despite numerous attempts. Attempts over the last ten years included:
Multiple lawsuits to replace the Board with a court appointed Receiver. The resort was financially sound so had no need for a receivership.
Personal lawsuits were filed against three duly elected Board members.
Purchased 1.5% of Association foreclosed inventory at a cost of over $700,000. This was distressed inventory with no resale value.
Created a Shadow LLC in New Mexico called Tahoe Beach and Ski Owners Acquisition LLC which contacted TBS Owners and offered thousands of dollars to buy their deeded ownership.
Contacted TBS Owners directly and offered free deed-back even though Diamond was never a TBS developer.
Transferred TBS deeds to DR executives so the executives could run for the Board as deeded owners rather than as candidates representing Diamond Resorts.
Used a Florida LLC as an intermediary clearing house which accepted TBS deeds from Exit Companies. The deeds were ultimately transferred to Diamond Resorts. DR later filed lawsuits against some of the same Exit companies that were used to prey on TBS deeded owners to convince them to surrender their deeds.
An example obtained from public records showed a deed transferred to a Florida LLC by an owner that had owned at TBS for a long time. In 2020 she called the TBS Association and said she received the 2020 maintenance fee dues bill, but was no longer the owner. She had paid around $14,000 to Real Travel LLC / V.C.S. – Vacation Consulting Services to be released. Like many, this owner likely received a flier in the mail inviting her to a dinner to discuss “important information about your timeshare” only to be pitched a Travel Club promising the ability for the family to travel for less money, while releasing the owner from their timeshare liability. The problem is, often owners were not released, so they were stuck with their timeshare AND a Travel Club.
This owner really did not want to exit. She was happy with her ownership, so she is paying dues on her unit and using it.
The Missouri Attorney General filed a lawsuit against Vacation Consulting Services (VCS). VCS owner Brian Scroggs was Director of Sales for Diamond Resorts from April 2010 to October 2013, a period of 3 years and 7 months. Diamond obtained a $600,000 judgment against various exit companies, including VCS.
A title company did a transfer to the TAHOE BEACH & SKI DEV LLC in the fall of 2019 (a third LLC). The same person that owned the title company did the transfers. More than 25 intervals were transferred to this LLC.
During the more than ten-year struggle by TBS deeded owners to retain control of Tahoe Beach and Ski, owners developed a strong resentment towards the predatory actions of Diamond Resorts.
Hilton Grand Vacations
The news that HGV intended to replace the DR culture was received with great anticipation and relief by deeded owners, yet the actions of DR in the last two Board elections in October of 2021 and September of 2022, under HGV control, have left little hope for deeded owners. The DR culture prevails and we see no sign of the Hilton culture.
In the October 2021 Board election at TBS, a popular Board candidate was struck by Covid after the voting started, and unfortunately, passed away. The owners substituted a new candidate and extended the voting period to give owners an opportunity to change their vote to one of the other candidates. The HGV Senior Vice President of Inventory and Yield Management attended the reconvened Annual Meeting and demanded that the motion passed by the owners to extend the voting period be reversed, annulling the votes cast between the original voting deadline and the extended voting deadline. The HGV Vice President of Asset Management, one of the candidates, was not elected.
In September of 2022, during the TBS Board elections, HGV did not have any candidates of their own on the ballot. There were three qualified candidates running for two positions. All three candidates were not in favor of HGV gaining control of the Board and/or Management. Based on Hilton's Culture, we did not expect Hilton to interfere with Board elections. However, HGV used intermediaries to send messages to one of the candidates, threatening loss of HGV votes if this candidate made negative statements about Hilton.
The end result of the election was that the candidate that was cautioned about negative HGV statements, who received 1,850 votes, from deeded owners, did not get elected to the Board. However, one of the other two candidates, who received only 310 votes from deeded owners, was elected to the Board because HGV gave that candidate their 1,750 votes. HGV elected to vote for two of the three candidates directly, instead of remaining neutral.
The owners of TBS hoped that the HGV culture involved using the front door to engage with the Board and Owners to reach consensus on issues for the betterment of TBS. Instead, the TBS owners got more of the DR culture of using back channels to influence Board candidates, and change the results of Board elections by using bloc votes with no meaningful engagement about the future of TBS.
As it Stands Today
HGV’s goal to rebrand Diamond into Hilton Grand Vacations seems to be on schedule, but this stands in stark contrast to the failure to plan and execute a cultural change, in that the old model of taking control of Legacy resorts, like Tahoe Beach & Ski, remains the same. The same old Diamond culture and means to acquire resorts threatens to infect HGV’s respected culture of building new properties and how they incorporated acquired resorts in the past.
The quicker HGV plans and carries out a strategy to implement their culture in all aspects of their business, which includes inherited resorts, the less negative publicity HGV will receive, and the less threat there will be to the HGV culture from the poisonous culture that ultimately took down Diamond Resorts.
Related Articles
An interview with Jake Bercu
https://tarda.org/timeshare-talks-with-jake-bercu-tahoe-beach-ski-club-board-tre
TheStreet:
Diamond’s acquisition of inventory was accomplished without cost, but it brought bad publicity. One of the most notorious examples was the takeover of the Point at Poipu in Kauai, Hawaii, where deeded owners filed a class action lawsuit in 2012 over an exorbitant Special Assessment that the Diamond controlled Board approved.
The Special Assessment caused many deeded owners to surrender their deeded timeshare and convert to Diamond Collection points. The lawsuit singled out four Diamond employees that were involved in fear tactics used to take over the resort. Two of the four employees are now employed by HGV in senior management positions. One of them is Senior Vice President of Inventory and Yield Management.