How did we get to Diamond bought by Apollo, bought by Hilton Grand Vacations, now buying Bluegreen Vacations?
The following are snippets of history dating back to the 80s when “Junk Bond King” Michael Milken and Drexel Burnham Lambert co-founder Leon Black’s illegal junk bong trading activities, ultimately led to where we are today. After DBL filed for bankruptcy, and Mr. Milken went to jail, Mr. Black co-founded Apollo Global Management. Apollo retained 28% of Diamond Resorts when Hilton Grand Vacation acquired Diamond in 2021.
Wall Street’s option of the merger: Seeking Alpha
Hilton Grand Vacations shares have fallen over 20% since August and continue to decline, making it an opportune time to sell.
It is taking on debt to pay an over 100% premium for BVH with synergy targets that are very aggressive.
Billions will be made, while Ashley, a single mom with a severely disabled child, is left with no choice but to default on her high-demand Bluegreen Big Cedar weeks and points. The family had enjoyed vacations at Big Cedar for over 20 years. Suspended without warning, vacations had to be canceled. Ashley only agreed to take her grandmother’s points after her grandmother was assured Bluegreen has a free “Relief” program. Ashley’s son has twelve doctors. His symptoms include lung disease and heart failure. Ashley’s account was suspended for having reservations in the name of others. She must rely on friends and relatives to help with maintenance fees. Infuriated about having to cancel family vacations, she inquired about the Relief program and was told it had changed. It would cost $8,165 (1 ½ years maintenance fees), but if Ashley waited until August 1 of this year, Bluegreen would require an extra $5,500 for 2024 maintenance fees. Forced to default, as Bluegreen suggested, we’re told that Ashley’s Big Cedar weeks will sell on the floor like sharks in a feeding frenzy.
Follow the money – It started in 1990 with Drexel Burnham Lambert (DBL)
First, some background: In 2019 Bluegreen was delisted from NASDAQ
BBX Capital first became involved with Bluegreen Vacations in 2009. Because Bluegreen operates a timeshare business, it has direct exposure to a highly cyclical segment of the real estate market, and its stock was trading at depressed levels following the bursting of the real estate bubble.
Timeshare Contracts are better than Junk Bonds (for investors)
Drexel Burnham Lambert filed for bankruptcy in 1990. Michael Milken served almost two years in white-collar confinement, which must have been annoying, but worth the $6.5 billion he currently enjoys, Mr. Milken’s estimated worth as of 2023. Who says crime doesn’t pay? He was later pardoned by President Trump. Mr. Milken’s Institute supported Diamond Resorts.
Apollo Global Management is a private equity firm. Private equity is a more palatable term than venture capitalist. Mr. Black stepped down from his leadership role at Apollo amidst his much-publicized relationship with the late sexual predator and multi-billionaire, Jeffrey Epstein. Mr. Epstein served on Leon Black’s Family Foundation Board.
Junk bonds are low-rated bonds that are more likely to default. Investors who invest in junk bonds expect to be rewarded with higher yields, but the DBL strategy collapsed. Remember sub-prime mortgages? Even mortgage short sellers recoup some of their money, and low-rated junk bonds still have value. It is likely Mr. Black could not further engage in junk bonds.
Enter timeshare! Timeshare contracts are even better than junk bonds (for investors). Instead of being redeemed for value, members or owners often have to PAY to get out of their contracts, IF the timeshare company agrees to take the timeshare back.
Greenhaven private equity investors touted the following as a reason to buy Diamond stock when shares were publicly traded, before Apollo took the company private – because buyers are stuck with no secondary market!
Mr. Miller: The largest downside to the customer that I see is the undeveloped secondary/resale market for all timeshares. There are a few websites and specialized brokers in timeshare hotbeds like Maui, but timeshares are hard to sell in general, and when they do sell, it is often at a very significant discount to the original price paid. In summary, customers experience a reasonable value proposition tempered by the lack of a secondary market.
The secondary market has undoubtedly had its growth stunted because the absence of the market creates an opportunity for the timeshare companies.
Westgate Resorts charges $2,500 to $3,500 to take back a deed, according to owner reports, if Westgate will take it back. Diamond Resorts charges $1,000 per contract. Wyndham’s Certified Exit program is free. A timeshare encumbered with an outstanding loan is not eligible for take-back programs and are nearly impossible to sell.
Prior to acquiring Diamond in 2021, Hilton Grand Vacation didn’t really need a take-back program because HGV deeded weeks could be sold. Now, Hilton is selling primarily U.S. Collection points (formerly Diamond U.S. Collection points), as a means to upgrade existing members to HGV MAX. These points have no resale value. Why? If I buy 20,000 points from you, I have to buy 10,000 points from Diamond/Hilton, to “clean” the points to be able to join The CLUB, the booking reservations program. As we last checked, this policy remains in effect.
Diamond Resorts was plagued with negative press. As reported by Pulitzer winner, Gretchen Morganson, in 2016:
Apollo’s interest in Diamond comes at a time of concerns about its business practices and the possibility for heightened regulatory scrutiny across the timeshare industry. The company’s resort network consists of 426 vacation destinations in 35 countries.
As of July 13, (2016), Diamond’s top executives and directors beneficially owned almost 23 million shares in the form of options and company stock. If the transaction is completed, a filing stated, those 15 people “would be entitled to receive an aggregate amount of $624,131,129 in cash.”
As a former Drexel Burnham Lambert client, I was astonished when the people involved in illegal investment activities bought my timeshare. program. Jim Cramer’s investment news service, TheStreet, allowed me to express my feelings.
My involvement with Diamond Resorts
I became involved with timeshare after learning, in 2016, that it would cost about $10,000 (in equivalent maintenance fees dollars) to book a week in New York City, compared to about $3,000 if booked online. We bought additional points to stay in NYC because our daughter lives there. Reading the contract would not have helped. The NY properties were “affiliate” properties not owned by Diamond. When I questioned the poor value, the response was, “Those locations are for people who have so many points they don’t know what to do with them.”
I filed complaints with the Arizona, Florida and New York attorneys general. Ultimately, I was offered a refund, via Diamond’s response to the NY AG, but I refused to sign a non-disclosure agreement. Diamond’s initial response was a list of all the times I used the points. This, of course, had nothing to do with the complaint. Never give up.
The Office of the Arizona Attorney General received over 1,000 Diamond Resorts complaints in 2016 and 2017. Their office issued an Assurance of Discontinuance, settled with the company for $800,000, and as part of the settlement agreement, Diamond could not charge Arizona residents, or anyone who bought in Arizona, $1,000 to take back a contract. The fee for Arizona residents or buyers is $250 per contract.
In 2023 Diamond was ordered to pay $13,000,000. Zwicky vs Diamond Resorts
Subject to Court approval, the Settlement provides for the establishment of a Settlement Fund of $13,000,000.00 to pay Settlement Class Member Payments, Settlement Administration Costs, any attorneys’ fees and litigation expenses awarded by the Court (25% of the Settlement Amount, a total of $3,250,000.00), Service Awards ordered by the Court ($10,000 to Plaintiff Zwicky and $1,500 each to the remaining three Plaintiffs), and any cy pres payment due under the Settlement.
To make sure that you receive your cash benefits at your current address, log into your Diamond Resorts account at https://loginsso.diamondresorts.com and verify your contact information.
From my TheStreet article:
What owners don’t often know is that a big chunk of that money goes directly into the pocket of the company. Here’s how the CEO, David Palmer, described it to investors in 2014, per the Times article:
“Anything that is put in the budget that gets expended on an annual basis, we get our 15 per cent fee,” Mr. Palmer explained to investors at a September 2014 conference, according to a transcript. “That is basically a 100 per cent profit business.”
I started writing about families harmed by timeshare. Since 2016, I have heard from over 1,000 Diamond members, with many complaining about buying additional points for reasons that they later learned didn’t exist. I know there are happy timeshare buyers, but if they listen daily to families forced to default, like Ashley, they might think again about supporting these companies.
Reining in Repeat Offenders, a lecture by CFPB Director Rohit Chopra
“Too Big to Jail, Too Big to Fail”
Hilton Grand Vacations third-quarter 2023 earnings report
Hilton Grand Vacations Inc (NYSE: HGV) reported a third-quarter FY23 sales decline of 8.8% year-on-year to $1.02 billion, missing the analyst consensus estimate of $1.05 billion.
Real estate sales and financing segment revenues totalled $612 million, a decrease of $133 million from last year. Total contract sales in Q3 decreased $18 million to $603 million. The full report:
Hilton Grand Vacations 2021 SEC proxy filing prior to the Diamond acquisition
Irene as usual has been quick off the mark, this news only broke this week and I think it has taken members by surprise, it appears that no one had any concrete evidence that it was about to happen. When I saw the first post of the news my immediate thought was it came from one of the many scam operators in the “exists” industry, must be the suspicious mind working overtime. So what is it going to mean for members?
That is a question which may be answered by our title banner, as we know, monopolies are frowned upon, they offer no choice and it is the consumer who pays the price, is this what is happening in timeshare?
Are we going to see the same problems Diamond owners have had with unscrupulous sales tactics and misleading information by various sales agents, all designed to force members into upgrades or lose the “benefits” they previously had?
What about availability, are members going to lose inventory unless they move to another club, i.e. HGV?
We have already seen this in Europe with the rebranding of Club la Costa resorts to Wyndham, those are no longer available to CLC members. which also leads to a lack of availability in the remaining resorts as there are even more members chasing the now fewer resorts. Availability has been a major factor in members wanting to get out of their contracts, being infuriated to see resorts they can’t book, now available to the general public online. We will also add to this they are also usually cheaper than the average maintenance bills.
It does make you wonder why own a timeshare, after all, you pay a very hefty premium to become a member, yet once in, you are treated as a second-class customer. The only way out of the problem of availability is to purchase more and more, upgrade after upgrade, and increasing your annual maintenance bill even more. And for what?
I may not have a great knowledge of the financial side of business, stocks and shares or any of that investment palava, but it is obvious that Hilton is looking to make a financial killing from this. If not why would they do it, it’s most definitely not out of “compassion” for Bluegreen members, perish that thought straight away, just remember our title banner.
That’s it for this week, Baby Dog, why I still call him that I don’t know, he is now coming up to two and half, which makes him a teenager, and that is now showing. Don’t let his looks fool you, he gets stubborn out on walks and throws tantrums when he doesn’t get his own way at home. Have a great weekend.