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Hospitality Industry and Credit Crisis

eTN Executive Talk: Is the hospitality industry recession-proof?

Hazel Heyer, eTN Staff Writer  Oct 21, 2008

Howard Nusbaum, president and CEO of the American Resort Development Association (ARDA) gave eTN an in-depth look on how the hospitality industry is currently performing amid the serious economic meltdown.

eTN: Will the bailout plan have any positive impact on the industry?
Howard Nusbaum: First of all, the credit markets did not lock up overnight and will not unlock overnight. People look too much to the stock markets as the barometer, but they are not the barometer of the credit market. Credit markets reflect how much banks trust each other and trust consumer debt. But the bailout, what I aptly call the rescue plan, has the goal to stabilize the market and create a back-up for mortgage-backed securities. And this will directly impact timeshare as we deal with mortgage-backed securities, in terms of hypothecating the loans in timeshare.

I see this as just an easing in the marketplace.

eTN: Is the slowdown being made pronounced by this election year?
Nusbaum: There is, of course, this uncertainty in the run-up to the election. It really does not matter who wins because both parties have totally different philosophies. Now if the business community will have a plan on how to develop in the next year, it may have to wait and see how the tax structure, rules and regulations will change. Until we know what they are, it will be another 2-3 weeks I think before we see real great big changes in our market.

eTN: What about 2009? Will the market continue to sink next year?
Nusbaum: We’ve seen double digit growth for the industry in the last 20 years, even until 2007. However, 2009 will be flat. If you will prorate over the last 20 years, you will still see some growth in hospitality. Note, we always perform better even during a downturn.

For the first time, we see a weakening that is led by the consumer’s market not the business market. And this is what makes it a little more unique. More than ever before, it is about consumers being able to have access to capital today. If they cannot have access to cash and not buy timeshare, then this will also affect timeshare jobs. Our industry is tied to the credit market. When a timeshare developer sells to the consumer, the consumer puts a down-payment and takes a mortgage for the rest of it. The developer still has operating expenses and payments to make whether the consumer defaults or not. The ability to make the note liquid is very important to the developer.

eTN: Have you seen more and more delinquencies these days?
Nusbaum: In talking to developers, there is just a slight uptick unlike other markets because whoever already bought a vacation, would take it anyway. If you go on a vacation in a hotel, you would spend $1000 easily. If one values taking a vacation, one will take it. It’s truly about wellness. shows that people still want to take a break. Americans are still taking a vacation.

eTN: Despite a crippled economy and numerous job losses? ?
Nusbaum: The heart of this credit crunch is in the financial sector. Timeshare and vacation ownership will still thrive. Though recession-resilient, and not recession-proof, this business will bounce back. To think of it, timeshare was born in this scenario - slow growth and sluggish economy in the 1970s when there was a surplus of condominiums in the country. And this is a consumer-led recession which will see us thrive.

As long as the credit markets loosen up, we are just months away from recovery.

eTN: Which markets are suffering today?
Nusbaum: This is the softest time of the year for sales. Developers who put together attractive packages are doing much better than the rest. In our financial survey, more people are purchasing bi-annuals; while creative developers sell points or weeks. Developers should design better programs. Fact is, I saw only one month of the big drop – that is September.

The truth of the matter is developers who don’t see cash cannot fix their business model quickly. And remember, nobody buys a timeshare to flip. We are not part of the sub-prime crisis. Timeshare is a used product. Our value proposition holds up better in tough times. Buyers don’t buy to look at selling next year for profit.

eTN: What about the overbuilt inventory of condo-hotels which are still empty or being foreclosed? Who will end up using them?
Nusbaum: The demise of the condo-hotels is absolutely beneficial to the timeshare industry as in the 70s boom of condos which led to the birth of timeshare. Conversion opportunities are here again for mixed-use properties, timeshare and fractionals. This is how we were born! Again, it will work as long as the capital market eases.

eTN: Any message to the incoming [US] administration?
Nusbaum: Both Obama and McCain have shown support for the visa waiver and worker visas. Both are pro- immigration. We will find in one of them a positive change. We continue to work (as ARDA and TIA) that the US remains welcoming to all immigrants and furthermore, treat visitors with dignity. We are working on programs to attract more international visitors down the road. Because of the US reputation, and the war on Iraq, it has not been a stellar image; we have to change that face. In this economic downturn, only one industry offers that trade surplus. The travel industry, undoubtedly, provides incoming dollars while more people travel in-bound than outbound and spend here. No industry other than ours will provide the surplus in this downturn.

eTN Executive Talk:  Is the hospitality industry recession-proof?
Howard C. Nusbaum (Image via

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