Thursday, September 22, 2016

The Diamond Chronicles: Life in the Fast Lane, Timeshare Version

By Jeff Weir
Chief Correspondent for RedWeek.com

This is the first of what may be several columns on the changes afoot at Diamond Resorts International, which was just bought out by a huge Wall Street investment firm, Apollo Global Management, for $2.2 billion.  The merger’s effect on owners is to-be-determined, which is why we are going to report on the Diamond Chronicles.

Here is the Back Story


Throughout 2016, Diamond has made a lot of headlines, including a very damaging one on Jan. 22, when the New York Times (following articles published by RedWeek.com, TimeSharing Today and other organizations) published a critical news story about Diamond’s alleged use of high-pressure sales tactics to sign up new or repeat buyers.  Predictably, Diamond executives denounced the article.  Diamond investors didn’t like it either, as reflected by a large dip in stock price.  To stop the bleeding on Wall Street, Diamond issued a letter to investors Jan. 25 that said, in part, that the New York Times article “does not accurately reflect who we are as a company nor how we operate our business.”  Diamond did not challenge any specifics in the article or demand a correction or retraction. 

The second big thing that made Diamond newsworthy, all year long, was its overall stock performance, which had floated far below its timeshare competitors for many months.   So on Feb. 24, while under public pressure from major investors for stronger returns, Diamond’s board of directors announced that it had created a board-level committee to explore all “strategic alternatives” to maximize shareholder value.  That announcement, in effect, meant that Diamond was putting itself up for sale --- and Wall Street loved it, pushing Diamond’s stock up from $19.11 per share on Feb. 24 to $23.21 per share on Feb. 25.  Four months later, on June 29, Apollo announced that it would buy Diamond for $30.25 per share.  That offer amounted to a 26% premium over Diamond’s then-current share price.  The merger was consummated Sept. 2.  That’s the day that Diamond went dark, transformed from a public company that files quarterly results to investors, to one that is under no obligation to report anything publicly about its business.

But this is not a story about Wall Street.  It's about Diamond.

How Do Timeshare Owners Fit into the Apollo-Diamond Merger?


After months of hearing nothing from Diamond about the merger, Diamond timeshare owners got two very friendly Labor Day Weekend emails from the “stay vacationed” company, on Friday, Sept. 2.

The first came from David F. Palmer, Diamond’s president and CEO.

Thirty minutes later, the second arrived from Stephen J. Cloobeck, Diamond’s founder, chairman and former CEO (until Palmer succeeded him in January 2013).

The dual messages announced that “an affiliate of funds managed by affiliates of Apollo Global Management, LLC” had completed its acquisition of Diamond Resorts International for $2.2 billion.  That’s right, they said it: “affiliates of... affiliates” bought Diamond.

Cloobeck, the man who peddled “the Meaning of Yes” as a timeshare theme in all of his corporate messaging, said he was “thrilled” by the buyout.  Palmer was a bit more restrained, saying he was “pleased.”

No surprise.  In reality, they should be ecstatic, because Cloobeck and Palmer are the two biggest beneficiaries of Apollo’s purchase of Diamond’s stock.

According to an Aug. 5 New York Times story that was based on public Securities Exchange Commission stock filings, the Apollo buyout was worth $384 million for Cloobeck’s shares and $173 million for Palmer’s.  Not bad for one day at the timeshare office.

They weren’t the only big winners.  Thirteen other Diamond executives and directors (all major shareholders) stood to share $67 million, according to the SEC filing and the Times story.

So if you’re a Diamond timeshare owner, what does all this seemingly obscene profiteering by corporate executives mean to you?  Maybe not much.  In his email, Palmer assured all Diamond owners that “this transaction will not impact your membership or ownership and you will continue to enjoy all of the benefits you have come to expect.”

Cloobeck, as is his wont, was much more exuberant.  He celebrated Diamond’s sale as a personal victory.

“I am confident that the new owners will be excellent stewards of my legacy,” Cloobeck wrote in an email to owners.  “I am also pleased to announce that Apollo offered me a special position to assist them as an advisor, leveraging my expertise in the hospitality sector.”

So, while he counts his millions, Cloobeck also plans to hang around, advising the company on how to make even more money.  In an odd way, it’s fitting, because Cloobeck’s over-the-top personality has set the tone for Diamond since it bought out Sunterra’s timeshare assets in 2007.


Whenever I Think of Diamond, I See Cloobeck


Back in 2012, Cloobeck participated in a couple episodes of Undercover Boss, the semi-popular CBS-TV show about executives who masquerade as regular employees in order to find out what is “really going on” at their companies. 

Cloobeck's appearance on the semi-reality show was notable because he managed to turn his episodes into an unintended comedy, disguising himself in an ill-fitting wig, baseball hat and glasses while posing as a not-too-smart handyman.  Since a camera man and sound person followed him around various resorts while the episodes were filmed, it’s unlikely that Diamond employees had much doubt about who the guy-in-the-wig was.  Still, when the episodes ended, he graciously thanked the employees who put up with his phony handyman and gave them hugs and lots of money.  (See what RedWeek members have to say about the episode here)

Rank-and-file Diamond employees already knew who he was, of course, because during his reign as CEO Cloobeck made himself a ubiquitous presence at Diamond resorts.  According to staff, he had a habit of popping in, unannounced, at various resorts to see what employees were doing.  For several years, he and his marketing team also liked to feature videos of Cloobeck, talking about how wonderful “the Meaning of Yes” was to Diamond owners, on continuous-loop, large-screen TVs mounted on the lobby walls at Diamond resorts.   At check in, you could not escape him.  In the TV video, he looked every part the timeshare salesman that he is: expensive coat, pressed jeans, white open collar shirt, gold chains, big watch, vivid tan, brilliant white teeth, perfect pompadour, all topped by a tone of self-satisfaction as Cloobeck held forth from a spectacular beach resort (fancier than anything Diamond owns, FYI).  Those videos disappeared, overnight, when Cloobeck was replaced as CEO by Palmer, his longtime executive running mate at Diamond resorts.

From a branding standpoint, the marketing video wasn’t a bad idea. But just like the Undercover Boss episodes, the video seemed to reveal more about Cloobeck than the average timeshare guest might want to know about him (which is, that he’s proud of being rich and happy to share his wonderful life with mere humble timeshare owners).  As one might imagine, Diamond’s front-desk people purportedly hated the video, because they could not get away from it.  

The last time I stayed at a Diamond resort, I asked the front desk folks, “where’s the Cloobeck video.”  They laughed out loud, then confessed, “locked in the general manager’s safe.” Never to air again.

In a semi-recent YouTube interview about his Undercover Boss appearances, Cloobeck told an interviewer that he initially balked at doing the show “because I was afraid of tarnishing the brand.”  Still, he was obviously proud of the whole adventure.  Later, when asked about Diamond’s philanthropic programs for charitable causes, Cloobeck beamed, “I’ve always been a great philanthropist.”

After the second Undercover Boss episode aired, Cloobeck decided to put his money where his mouth was.  “I wanted to do something special for our team worldwide.  I donated $1 million, matched by the company, for a $2 million fund for team members that need help,” Cloobeck told the interviewer.

Diamond timeshare owners should like that bit of philanthropy, since they paid for it with their purchases, mortgages and maintenance fees.

I only met Cloobeck once, but it was a total goof and probably did not even register with him.  I was attending an industry conference in Las Vegas, hanging outside the media room while CEOs attended a private session next door to talk about high-level (i.e., secret) timeshare issues.  Suddenly, there was a flurry of movement.  It was the unmistakable Stephen Cloobeck, larger than life, decked out in golf shirt and shorts, swaggering through the lobby with a cigar in hand and accompanied by a big, beefy, bald-headed bodyguard (a very big version of Kojak, for those who remember Telly Savalas) who cut a swath for Cloobeck through the curious folks in the lobby.  Compared to the other CEOs who were dressed like bankers, it was a classic Cloobeck entrance.  Arrive late, act like you just left the golf course (which he had), then leave early.  I tried to introduce myself to Cloobeck, without slowing him down, but desisted when the bodyguard started twitching at me while his gold earring bobbed like a fish hook.  The pockets of his business suit bulged, too.  Regardless, it was a great moment: short, sweet, unforgettable Cloobeck.

Inspired by what I'd seen, the next day I called Diamond’s corporate office in Las Vegas to see if I could arrange an interview with Cloobeck while I was in town.  Seemed like a pretty automatic thing to do.  He seemed much more interesting than many CEOs I’ve met and was obviously living life as a self-styled timeshare celebrity, so why not? Good idea to see him in his lair for a feature story just like this.

That was three years ago.  I’m still waiting for the call back.


Out with the Public Company, In with the Private Company


So now it’s time for all timeshare owners to say goodbye to the Old Diamond, and hello to the New Diamond.  While both Cloobeck and Palmer promised in their emails that nothing would change as a result of the merger, that is not realistic.  Business people outside Diamond’s inner circle say there are always big changes when one company takes over another.  There are many winners and losers, including the people who get hired or fired as a result of Apollo’s integration of Diamond into its many-affiliate universe of companies.  After all, Apollo did not buy Diamond to keep everything the same.  Apollo bought Diamond, which has been hugely profitable for 12 quarters in a row, to make even more money.  More importantly, now that it will operate as a private company, Diamond has no legal obligation to file quarterly reports about earnings or annual reports.  Here’s what that means: barring voluntary announcements or web postings from Diamond, timeshare owners will have no easy to way to find out what’s going on with their timeshare company.  You’ll only learn what they want you to know.

Will reservations get easier?  Will owners ever be able to sell their Diamond Club points on the resale market?  Will Diamond take them back?  Stay tuned.

FYI, we asked Diamond’s PR team to arrange an interview with Palmer to talk about these issues, but they have not responded.  We will keep you posted if they do!


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Full Disclosure: In addition to being a reporter who covers timeshare issues, I am a longtime Sunterra/Diamond owner who has had generally positive experiences using my legacy weeks.  Even though I have stubbornly refused to convert them to points, Diamond still comes after me, every six months, to become a full-fledged member, rather than an orphan, of The Club.  I don't mind.  Diamond has pretty likeable employees.  Their solicitations are always challenging.

I have also covered Diamond's showdown with Lake Tahoe Beach & Ski Club extensively.  
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For more info on Diamond's financial performance, see Diamond’s last quarterly earnings announcement, published Aug. 6, 2016. 



Let us know what you think!  Leave your comments below to continue this conversation.

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NOTE: The views expressed here are the author's own, and do not necessarily reflect or represent the opinions of RedWeek.com or its affiliates.

Wednesday, September 07, 2016

Marriott Vacation Club Expands Footprint in Hawaii with New Timeshare on Big Island

Marriott Vacation Club just announced a new travel option for people who like the Marriott timeshare experience and, most importantly, vacationing on the Big Island in Hawaii.

On Sept. 7, MVC announced the opening --- next May --- of its newest Hawaiian resort, the 112-unit Waikoloa Ocean Club, a one- and two-bedroom suite complex which will be co-located on the island of Hawaii with Marriott's existing Waikoloa Beach Marriott Resort & Spa.   It represents Marriott's newest “mixed use” property where hotel and timeshare guests share the same facilities and amenities.

"The Big Island has been the only Hawaiian island missing from our resort portfolio," said Stephen P. Weisz, president and CEO of Marriott Vacations Worldwide.  "We are excited that our owners and guests will get to experience its diverse landscape and rich culture."

That landscape includes black sand beaches and Kilauea, one of the world's most active volcanoes, which spits fumes and smoke daily and, since the 1983, sends hot lava tubes down the mountain into the ocean.  Hawaii Volcanoes National Park is a must-see day trip from the Waikoloa area, but it's not the only attraction for visitors. The Big Island is easy to navigate by car and full of wide open spaces with a population of 175,000 people (compared to Oahu's 905,000, Maui’s 131,000 and Kauai's 63,000). The resort areas in Waikoloa and along the Kona Coast are just as spectacular as any resorts on the other islands --- but they offer more rocky coasts and fewer beaches than, say, Maui.  If you like to see molten magma, up close and personal, this is the only place to find it in Hawaii.

Marriott owners can call owner services immediately to start booking reservations, starting May 5, 2017, as part of Marriott's Destinations Exchange program (meaning, using Destination Club points to book stays). Between now and then, Marriott will continue upgrading the grounds and rooms to make sure the new timeshare resort --- which is a conversion of part of the existing property, similar in scope to Marriott's Kauai Beach Club conversion --- lives up to the standards Marriott has already tried to create at its five other Hawaii-based timeshares in Oahu, Maui and Kauai.  Significantly, the company has already added a sales gallery to the complex for future timeshare presentations.  As with the other Marriott timeshare resorts in Hawaii, the complex will offer everything visitors might want to do --- from beaches and golf courses to spas and restaurants, all within walking distance.

The Big Island is just that, nearly twice as big as all the other Hawaiian islands combined.  It offers 10 of the world's 14 different climate zones due to the massive elevations of its most famous volcanoes: Maunakea is the tallest sea-mountain in the world --- bigger than Mt. Everest; Maunaloa is the world’s most massive mountain and covers half of the island.  While big and rugged, the Big Island is also a baby, since it’s the youngest island in the Hawaii chain at 800,000 years old.

RedWeek subscribers can sign-up to be notified when new Waikoloa Ocean Club timeshare rentals and resales are made available.


Additional resources:

Wednesday, May 04, 2016

Don’t Forget to Take Your Vacation!

It’s that time of year again - springtime! The weather is starting to get warmer (or at least getting better!), and our thoughts turn to vacation planning. There's been much research done, and many articles written on the value of taking a vacation and its beneficial effects on work performance, relationships and overall well-being. 

Unfortunately, many of us are not taking their vacation time. The U.S. Travel Association says 6 in 10 organizations report employees fail to use 3+ days of paid vacation each year. In case you were thinking of not using your vacation time this year, here’s a quick review of why you should.
  • Vacationing improves health and well-being
It reduces stress and improves your health (maybe even preventing heart disease according to one study), makes us happier and more relaxed. 
  • After vacationing the effects at work are dramatic
It helps to prevent burn-out and enhances productivity and creativity, increases job satisfaction, and probably helps you to get along better with co-workers.   
  • Vacationing improves relationships with family and friends 
Quality time spent with family and friends without distractions is priceless. The results are better relationships, the strengthening of family bonds, and the making of positive, lasting memories. You may even find out a few things you didn’t know about the other person! 


Even Planning a Vacation Makes You Happier

A 2010 study by Dutch researchers, found that just planning a vacation boosts happiness. When you start to look at places you’d like to visit and all the things you want to do, it builds excitement and gives you something to look forward to. Include your spouse and children in the planning process to make everyone feel a part of the adventure.


Make Your Vacation Even More Valuable

You know how good it makes us feel to do something for someone else - to feel that we've made a positive difference. Many people are doing that by turning their vacation into a volunteer experience.  Whether domestically or internationally, you can use your passions and skills to help build a house, teach a language, support children, get involved in a conservation or ecological project, provide health and agricultural support. There are several agencies that can team you with a project and a particular country.  Not only are you giving to others, it’s a great way to see the world, understand the country and experience a culture unlike your own. 

Monday, October 19, 2015

Owners at Legacy Timeshare Resort in Lake Tahoe Deny Diamond's Bid to Gain a Majority Seat on the HOA Board

By Jeff Weir

In a stunning setback for Diamond Resorts, timeshare owners at Tahoe Beach and Ski Club defiantly denied Diamond Resort International's bid to place a senior vice president on the HOA's board of directors. Instead, they reelected two board members who constitute a 3-2 majority opposed to Diamond's unannounced plans for the resort.

Frank Goeckel's defeat was a first on many fronts. He is Diamond's liaison and board relations consultant to 31 resorts and currently serves on four timeshare HOAs, including the nearby Tahoe Seasons resort. All he wanted to do, he told owners repeatedly, was serve on the board to protect Diamond's investment in Tahoe Beach and Ski Club and create a richer vacation experience for all owners. Diamond's investment is substantial: it has aggressively bought Tahoe Beach and Ski Club units at tax sales during the past two years and now owns 25% of all Tahoe Beach and Ski Club timeshares. To many outsiders, Diamond's ownership (including $1 million in maintenance fees this year alone), is viewed as a very positive key to the legacy resort's long-term financial survival.

But the 200 owners who assembled on the Tahoe Beach and Ski Club beach for the HOA election on Sept. 26 did not embrace Goeckel's pitch, or his sometimes combative personality. He finished a distant third out of four candidates, collecting 1,719 votes, including 1,604 he cast for himself as Diamond's proxy holder. In their rejection of Goeckel, Tahoe Beach and Ski Club owners voted to maintain their resort's independence in the face of a company with very acquisitive designs on older but valuable resorts across the country.

Jake Bercu and Alfred Fong after their reelection
Bad as the results were personally for Goeckel, the HOA vote was a triumphant victory for President Alfred Fong and Treasurer Jake Bercu, who were reelected to new terms on the strength of their campaign pitch that Goeckel, and co-challenger Cathy Ryan were bad for the board and bad for the resort. In effect, they portrayed Goeckel as a Trojan Horse whose ascension to the board would enable Diamond, over time, to take over the resort at the expense of longtime deeded week owners. Citing Diamond's and Goeckel's record at other Diamond resorts, Bercu-and-Fong supporters at the HOA meeting predicted that Diamond would increase maintenance fees, open up the resort's coveted private beach to non-owners, and pressure longtime owners to convert their deeded weeks into Diamond's point-based travel club.

Many owners also distrust Diamond's motives because of Diamond's decision, last February, to sue the current board for its refusal to recognize Diamond's purchase of 241.5 vacation units last December. As one irate owner pointed out at the HOA meeting, "Did you know you're being sued by this man? He [Goeckel] wants your vote!"

The candidate's forum at the HOA meeting was rancorous. The candidates aggressively challenged each other while members of the audience heckled Goeckel and complained about Diamond's corporate behavior at other resorts. Bercu and Fong beseeched owners to protect their vacation experiences and preserve the spirit of the resort by rejecting Goeckel and Ryan. Goeckel vowed that he would never open up Tahoe Beach and Ski Club's private beach to Diamond owners at the Lake Tahoe Vacation Resort, located right next door, but with no beach of its own. Ryan, a bit player in the drama, said she just wanted to work with all owners and improve the financial stability of the 140-unit resort.

200 Tahoe Beach and Ski Club owners gather for the vote
Goeckel answered every accusatory charge (and boos) from owners with as much reasonableness as he could muster. But he was also obviously upset at the hostility he absorbed from Tahoe Beach and Ski Club owners at the candidates' forum. He even told a story about how his wife and children, at home in Florida, got hateful and threatening phone calls from owners at The Point in Poipu, a Diamond resort on Kauai that went through an owner class-action lawsuit several years ago (over a $6,000 one-time assessment to repair ocean-water damages). The case was eventually settled --- with Goeckel calling the experience one of his proudest achievements as a board member at Poipu --- but still left a bad aftertaste among many Poipu owners. To this day, they complain loudly, and bitterly, on online forums (including this one on RedWeek.com) about their alleged mistreatment from Diamond.

Unlike Poipu, the HOA election at Tahoe Beach and Ski Club ended peacefully, with all candidates retreating to the best wishes of their supporters while owners milled around, excited and nervous, about whatever history they were about to make. An hour later, they found out.
With two seats open on the board, the referendum on Diamond's investment in Tahoe Beach and Ski Club was:
  • Bercu, 2,217 votes
  • Fong, 2,207.5
  • Goeckel, 1,719 (including Diamond's 1,604)
  • Ryan, 1,624.5 (including Diamond's 1,604)

Saturday Night Pizza Party Puts the Vote into Perspective

The night before the election, Goeckel probably knew what was coming. He had dinner, by himself, at the end of a long bar at the Pizza Hut located right next door to the Tahoe Beach and Ski Club. His only visitor was a reporter who stopped by to say hello and engage in small talk. Goeckel was not in the mood for pleasantries. In response to several questions, he just stared back, stone-faced, like he was looking through a mirror.

While Goeckel munched on his lonely pepperoni, 50 or so Tahoe Beach and Ski Club owners held a pre-election party in a dining room just 20 yards away. With college football game TVs blaring overhead, they didn't know Goeckel was in the same room, and they didn't care. They were celebrating an owner-movement in its infancy: people taking charge of their timeshare destinies by getting involved in mundane things like HOA elections. For these folks, getting involved felt good --- very, very good.

Diamond Resorts' Goeckel takes the mic
Compared to the newby activist owners, Goeckel's been deeply involved in timeshare issues for 25 years. He has more board member experience than all of the Tahoe Beach and Ski Club members, combined. He also serves on the board for the American Resort Development Association and its owner-affiliate, ARDA's Resort Owners Coalition. But Goeckel, despite a resume that spans six pages, hit a rocky speedbump at Tahoe Beach and Ski Club. Owners, including other board members, routinely refer to him as a 'bully.' Goeckel claims to be baffled by all the hostility he's received from owners at Tahoe Beach and Ski Club, but he knows the truth of the situation. Bottom line: the owners that know him don't like him or his company.

The enmity is understandable. At an owners' meeting on the beach a month ago, Goeckel matter-of-factly told owners that if he did not get elected to the board this year, he'd get elected NEXT year. Diamond, he said, "is not going anywhere."

Owner Activism in Tahoe Starts a Movement?

The showdown on the beach at Lake Tahoe beach illustrates, in one isolated case, what can happen when legacy resort owners communicate and get organized to defend their perceived interests. It also opens a window into how major companies view the future of timeshare --- where big companies gobble up units at smaller resorts in high-value destinations like Lake Tahoe. It seems to be a natural part of the ongoing consolidation of the industry where big companies survive and smaller independent timeshares teeter on the brink of insolvency as owners age-out and go delinquent on their maintenance fees.

Across the country, a similar owners' rebellion sparked a civil and criminal investigation of The Manhattan Club timeshare resort by New York Attorney General Eric Schneiderman. As part of that investigation, Schneiderman obtained a court order in 2014 that terminated all sales at the club and froze the company's assets.

But those kinds of moments are few and far between. Most timeshare owners are concerned about their reservations and vacations, not the people who run their resorts.

In the aftermath of the vote, as the calm waters of Lake Tahoe lapped quietly at Tahoe Beach and Ski Club's private beach, Bercu and Fong were proudly optimistic about the challenges that still must be addressed --- Diamond's lawsuit, dealing with delinquencies and launching a new resale program to put foreclosed units back into circulation --- and creating revenues.

They also have to prepare for another election, next September, when two other board members, Steve Williams and Shannon Krutz, who back Goeckel, stand for reelection. The board has already asked Krutz to resign because of her role in approving Diamond's purchase of Tahoe Beach and Ski Club timeshares last December (without board approval), but she has not responded. Other owners, full of energy from their victory in reelecting Fong and Bercu, are openly debating whether to launch a recall election, immediately, to unseat Krutz. So the situation remains fluid, despite the election.
Bercu says that Goeckel, communicating with other board members through back channels, has already agreed to engineer Krutz's resignation --- in return for his getting an appointment to serve out her term.

Diamond's Lake Tahoe Vacation Resort behind TBSC
It's a risky proposition, since owners have already spoken about their position about Goeckel.
"Diamond is still trying to buy our inventory, so we don't want Goeckel on the board," Bercu said. Krutz declined to comment.

Goeckel also sidestepped comment after the HOA vote. In an email, he said, "I am unable to comment on issues relating to the pending litigation at Tahoe Beach & Ski Club in South Lake Tahoe, California."

Like all litigation, Diamond's lawsuit against Tahoe Beach and Ski Club will have a life of its own. The next status conference before a local judge is tentatively set for mid-November. That judge has already opined that Diamond will lose the case because Krutz had no authority to authorize the sale on behalf of the board. The Tahoe Beach and Ski Club board is actively fighting the case and, in a recent maneuver, filed a countersuit against Diamond and VRI, the club's former management company, over the December sale.

So what will happen next?

"The owners want more blood," Bercu said. "They are feeling empowered. We want to keep them engaged but channel the energy into something positive."

Tuesday, August 25, 2015

RedWeek's Casting Call Visits Hilton Head!

RedWeek's latest Casting Call features long-time RedWeek members Michelle and Bill at Marriott's Barony Beach Club on the beautiful Hilton Head Island! Featuring vibrant work by Hilton Head Island-based Kellie McCann, these photos truly capture the laidback, beachy spirit of Hilton Head. Check out more of the photoshoot on our exclusive Facebook album, and you can view more of Kellie's work and book a session of your own on her Web site

Don't forget that RedWeek's Casting Call has been reopened! If you're traveling to a timeshare resort in the next few months and are willing to work with a professional photographer, check out the details and apply here. You'll receive all of the digital photos from the shoot, a $50.00 printing certificate and you'll be featured on the RedWeek homepage for all of our 2 million+ registered users to see! Casting Call registration closes on December 31st of this year, so be sure to enter as soon as possible.


Monday, July 20, 2015

Exclusive Photography Opportunity for RedWeek Members!

Looking to travel to Orlando soon? We've partnered up with an Orlando-based photographer to offer a special deal to RedWeek members who are planning a vacation in the area.

For $350.00, you'll receive an hour-long session and over 30 professionally edited digital photos - a $50 savings compared to standard pricing. On top of that, RedWeek has a special offer of our own - for the first ten participants, we will match the discount and $50 back to you if you let us use your photos and a quote on the RedWeek website. A great deal and RedWeek fame - what's not to love?

To see if you qualify and get started, contact us with the details of your trip, including your dates, where you're staying and how you booked. We'll be back in touch to let you know if you qualify and the next steps. In the meantime, check out some of the photos from our photographer's previous shoot with RedWeek members Gillian and Trevor for an idea of what you can expect on our Facebook page!

Wednesday, June 10, 2015

Manhattan Club Case Approaches One-Year Anniversary with No End in Sight


Manhattan Club ongoing legal troubles

The Developers Fight Back: Seek a Court Hearing June 22 to Partially Lift Injunction and Dismiss Eichners from Case, Claiming that Investigation by New York Attorney General has "Essentially Destroyed" Timeshare Business 

By Jeff Weir, Chief Correspondent for RedWeek.com


MANHATTAN --- If you like heavyweight fights, shootouts in old Westerns, or bare-knuckle courtroom dramas, you should covet this upcoming showdown in the Big Apple.

And if you are a timeshare owner at The Manhattan Club, this is what you've been waiting for.

After laying low and saying nothing of substance for many months, the embattled developers of the Manhattan Club are fighting back, with a vengeance, against New York Attorney General Eric Schneiderman's highly publicized investigation of alleged fraud and misrepresentation in timeshare sales at the mid-town resort.  The primary target of the inquiry, New York developer Ian Bruce Eichner and his wife, Leslie, and brother, Stuart, now claim in court papers that they are victims of an "overbroad" and overlong investigation that has "caused severe financial and reputational harm." That's a lawyerly way of saying the case has already cost them millions and damaged their
reputations.

"The Attorney General's investigation ad infinitum has become an investigation ad absurdum," said Gerald Shargel, the Eichners' lead attorney, in a new court filing.  During an interview with RedWeek over the weekend, the soft-spoken but defiant Shargel added: "There comes a time when this has to stop.  If they have a case against the Eichners, file it, and you can count on the fact that we will defend it."

In a blistering blizzard of motions and memoranda filed since May 28, Shargel is petitioning the New York Supreme Court to jettison parts of the July 29, 2014 injunction that shut down the club's $400 million timeshare business and threw thousands of owners into limbo and turmoil.  The court order also froze the club's assets and blocked foreclosures, which pinched the club's operating capital.  A hearing on the motions and arguments is scheduled for June 22. But given the history of the case,
postponements are possible.

Eichner's legal team is making four basic requests, including one that will probably make many Manhattan Club owners cringe.  First, they want a judge to dismiss the Eichners from the case on grounds they committed no personal wrongdoing.  Second, they want to lift the ban on sales for 21 buyers (out of 64) whose purchases were halted by last July's court order.  Third, they want an Aug. 1, 2015 cut-off date for further discovery and depositions (legal Q and A interviews conducted under oath).  Finally, Eichner's attorneys are asking the court to prohibit the AG from sending "mass mailings" to Manhattan Club owners (for a survey about their experiences at the club).

"The Attorney General's investigation...and the related preliminary injunction have essentially destroyed the Manhattan Club's ability to operate as a viable business.  They have forced the termination of 90 of 93 employees and independent contractors (97 percent of the staff) and have pushed one of New York City's premier timeshare organizations into an almost-insurmountable financial deficit," Eichner's motion stated.

It did not take long for the AG's office to respond in kind.  "Although the investigation is ongoing, to-date we have found evidence indicating a widespread pattern of wrongdoing including but not limited to sales misrepresentations, numerous practices that violate the terms of the Manhattan Club's statutorily-required offering plan, the failure to properly register as broker-dealers of securities, and the misclassification of employees." This summary of the investigation comes from one of New York's top timeshare regulators, Andrew H. Meier, deputy bureau chief for the AG's Real Estate Finance Bureau, in a June 5 letter to Justice Jeffrey K. Oing.

The outcome of this slugfest will impact the vacations, and pocketbooks, of thousands of Manhattan Club timeshare owners.  Maybe a political career or two, as well, since Schneiderman, a Democrat, is frequently mentioned in the media as a likely candidate to challenge Gov. Mario Cuomo in 2018.

Welcome to the OK Corral of Timeshare Legal Disputes


The Manhattan Club case is a painful example of things gone wrong in the timeshare industry, which relies on high-pressure sales tactics, including first-day discounts, incentives and gifts (shows and meals) to persuade customers to buy weeks or points in vacation clubs. In this case, however, the overall buyer experience soured when hundreds of owners started complaining publicly, including in RedWeek.com forums, that they could not get reservations to use their high-value timeshares. Instead, they discovered that many intervals were simultaneously available for rent online to non-
owners --- and at prices that were LOWER than their annual maintenance fees, which
average $2,000 or more per unit.

Schneiderman's office started investigating the club two years ago --- cautiously at first, aggressively in the last year --- after receiving more than 100 formal complaints from owners who said, in effect, that they had been defrauded and/or duped into buying expensive timeshares they could not use.

By July 2014, Schneiderman's team had collected enough potential evidence, including undercover video-taped transcripts of wildly misleading sales presentations at the club, to secure a court order that shuttered the timeshare operation, immediately, while the AG continued investigating the club's sales practices, rental policies and public offering statements.

Now, 11 months later, the investigation has turned into a tortured legal battle pitting some of the smartest lawyers in Manhattan against each other.  Eichner's legal team specializes in white collar criminal defense and negotiating complicated business litigation.  Schneiderman's team, representing New York taxpayers, appears to have unlimited resources to pursue the Eichners, indefinitely.  If someone made a TV crime drama out it, they'd call it "CSI: Manhattan."

Like most TV and real-life dramas, the Manhattan Club investigation is all about following the money.  Disgruntled owners want their purchase money back; the AG's Office wants to find out where the club's money is, or went; and the Eichners want to lift an injunction that, for now, prevents the club from using its bank accounts.

In an odd twist --- again, perfect for a reality TV script --- the Eichners claim to be the injured parties of an overzealous investigation from the AG that should never have been approved by a New York judge on July 29, 2014.  Their court pleadings are silent, however, on the underlying question --- who are the real victims in this case?

Straight from the Court Files: the Eichners Plead Their Case

Here are excerpts from the Eichners' pleadings, drafted and filed by Shargel's team, as they seek to overturn big chunks of the 11-month-old injunction.  Some of the excerpts merit an introduction.  Others speak for themselves.


  • "There was no proper basis for a preliminary injunction.  There was no allegation that the three Eichner respondents personally engaged in any wrongful conduct."

  • "The Attorney General has had ample time to investigate Ian Bruce Eichner, Leslie H. Eichner, Stuart P. Eichner and Urban (the company that manages the Manhattan Club's HOA) after the order was issued.  Yet no further action has been taken.  Rather, a preliminary injunction remains in place, and the business interests and personal and professional reputations of these respondents continue to (unjustly) suffer.

    "Urban" is legal shorthand for New York Urban Ownership Management LLC, which is majority owned by Ian and Leslie Eichner.  The company has managed all aspects of the Manhattan Club since its inception.

  • "The Attorney General's primary allegations relate to a single group of salespeople at the Manhattan Club. Each of the alleged misrepresentations was made by one sales representative and the sales team he supervised.  There is no allegation that this alleged course of conduct went beyond that sales team." (The sales person is named in the Eichner pleadings --- which are public documents --- but RedWeek sees no public benefit in publishing the man' name.)

    "There is not one drop of evidence, or proof, to suggest the Eichners had any knowledge of that (sales) conduct," Shargel added, when questioned by RedWeek.  "You cannot blame the general for the unsupportable conduct of privates that are engaged in conduct not known to the general."

  • Sixty-four timeshare purchases were under contract but not finalized when the AG's court order terminated all timeshare sales at the club last summer. Forty-three subsequently rescinded their contracts. Purchase deposits from the remaining 21, ($423,793 - an average of $20,180 per timeshare) were put into an escrow account. These owners, while aware and informed of the AG's investigation, have chosen to keep their Manhattan Club timeshares. As a result, the Eichners are asking the court to allow those sales to proceed. Just as important, they also want permission to use the money from those sales, including deposits and maintenance fees, to fund ongoing operations at the club (including, presumably, the legal fees for this case).

  • The Eichner pleadings about discovery limits and mass mailings are straightforward but strange.  They're also related. "On May 19, 2015, the Attorney General demonstrated that the reasonable and productive lifespan of its investigation has reached an end.   On that date, the Attorney General caused a mass-mailing email to be sent to hundreds of current and former Manhattan Club timeshare owners from a company named 'SurveyMonkey.' The email contained a link to a customer satisfaction survey with 36 suggestive questions clearly intended to provoke after-the-fact complaints from owners."

  • "The Attorney General's reliance on 'SurveyMonkey' to build a case that has already consumed nearly a year demonstrates that this case will clearly drag on into the indefinite future and beyond any reasonable bounds...Many of the questions, taken together, were structured to suggest that a recipient may have been the victim of fraudulent sales practices by the Manhattan Club...This is not an appropriate or effective method for New York State's highest law enforcement agency to gather information.  We intend to move at an appropriate time (if necessary) to exclude the results of the Attorney General's SurveyMonkey and any leads generated by the survey."

    Shargel, in his interview with RedWeek, said the AG's questionnaire to owners is full of leading questions that would not stand up in court.  "They are just flailing around trying to make a case out of no case," he said.

  • In addition to challenging the AG's communications with owners --- many of whom had voiced frustrations, for months, about their inability to get direct information from the AG about the investigation --- Eichner's legal papers shed light on the raging financial successes of the Club's timeshare operation.

  • "Before the order was issued in this case, the Manhattan Club and the Timeshare Association had enjoyed 17 years of success.  Between 1997 and 2014, the Manhattan Club realized a sales total of approximately $400,000,000...Since the order was issued...lost revenue opportunities are estimated in the tens of millions of dollars."

The AG's Not Talking, But Others Are, Including Owner Advocates


Representatives from the Attorney General's Office declined to talk about the case, choosing, instead, to let their own voluminous court filings speak for themselves. Other interested parties, however, are not so reticent.  Owner forums on RedWeek.com and other online discussion groups are on fire with generally hostile commentaries about the club's owner services and reservation problems, the Eichners, escalating maintenance fees and, in some cases, the AG's office (over the pace of the inquiry).

Douglas F. Wasser, a New York attorney hired by a group of Manhattan Club owners to work directly with the AG's office, scoffed at the Eichners' attempt to get themselves out of the case.

"I can't imagine that the court will take this seriously," Wasser said.  "The subjects of an investigation by the New York Attorney General should not get to dictate the scope, length and people subject to the investigation. The law doesn't work that way."

Warming up to the subject, Wasser added: "Eichner's attoneys may brag in their memo of law that over $400 million in TMC units have been sold to the public between 1997 and 2014. But we simply view that assertion as an admission that $400 million in publicly owned equity has been wiped out by TMC operations.  What purpose does the New York Attorney General serve but to police against such a grievous public harm?

"The sheer number of TMC owners who, prior to the New York Attorney General's current proceeding, tried to simply surrender their units to TMC for little or no money begs the question as to the current value of TMC units,"  Wasser said.

Greg Crist, CEO of the National Timeshare Owners Association, has monitored the case for many months, and written about it in trade publications.  While aware of the details of the investigation, he'd rather focus on its significance for owners and the overall industry.

"I don't want to see another Manhattan Club scenario anywhere," said Crist. "This case is quite unusual, but it does not bode well for the good operators in the industry, ecause it disturbs consumer confidence about the industry's sales practices. Fortunately, there's no real pattern to this kind of activity."

Shargel, for now, gets the last word.

"We look forward to a hearing," Shargel said. "The discovery is substantially complete. We have no more to give them.  The Eichners did not engage in any acts of wrongdoing. There is no case against the Eichners.  If they (the AG) think the resolution here is to bring a complaint, then bring it.  But I am frustrated, because this should come to an end.  At some point, this has to end."

One thing is certain.  Barring a miraculous change in strategy and tactics, the case will go on.  Beyond the June 22nd court hearing, both sides have already agreed to participate in another private status conference on July 10.  So it goes.

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Interested in following this case? Visit RedWeek.com for much more information on the Manhattan Club investigation and how you can get involved.