Starwood Loses More on Timeshares

Starwood Hotels & Resorts Worldwide announced a $362 million loss on its timeshare business, vowing to halt all new timeshare construction in its fourth-quarter report. Starwood has had a number of timeshare losses, as has Marriott International Inc. who posted a$760 million writedown on timeshares in the third quarter. Its fourth quarter earnings are expected to be similarly affected.

Starwood's hotel business has also been hit, with its revenue per available room falling about 10 percent across North America and about 7.2 percent -- and even without new construction, Starwood still has 22 timeshare properties across the globe.
Meanwhile, Marriott is still continuing to build and open timeshare properties, including its 50th property in Riviera Beach, Fla., Marriott Oceana Palms, a 169-unit resort.

While some may criticize Marriott for continuing to open resorts, as previously reported in BNET, if the property was in the final stages of development it would be better to finish it rather than abandon it to the elements. And since the realization that their timeshare business was an albatross around its neck became apparent only late last year, I would expect another few properties to open this year. After that, however, opening more is sheer stupidity.

Starwood, on the other hand, can at least claim distraction. With its lawsuit against Hilton going on almost for a year, selling off its Bliss spa line in November for $100 million to shore up profit and spending $4 billion to renovate its Sheraton brand, perhaps its eyes were not focused on its timeshare business. However, their timeshare business is half the size of Marriott's, and likely easier to stop all construction.

Moving from a cash-based business like lodging to a financing-based business like timeshares isn't without risk, as both Starwood and Marriott found out when the housing bust hit hard in 2007 and credit markets dried up. Its timeshare customers, some awash in debt from easy credit, couldn't make payments while new customers couldn't qualify for financing. And the the number of unsold units piled up.

Hotel companies found that getting into the real estate business was something even more risky than hotels. Now at least both companies will concentrate on selling rooms one day at a time.