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Summary Analysis of Economic and Social Impacts on Maui County from Timeshare Conversions June 1, 2006 Final Report

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Summary Analysis of Economic and Social Impacts on Maui County from Timeshare Conversions June 1, 2006 Final Report County of Maui Summary Analysis of Economic and Social Impacts on Maui County from Timeshare Conversions June 1, 2006 Final Report HOSPITALITY ADVISORS LLC 1 2 HOSPITALITY ADVISORS LLC HOTEL TOURISM & REAL ESTATE CONSULTING June 1, 2006 Mr. Kalbert K. Young Director of Finance Department of Finance County of Maui 200 South High Street Wailuku, HI 96793 Dear Mr. Young: Hospitality Advisors LLC (“Hospitality Advisors”) and the University of Hawaii School of Travel Industry Management (“UH TIM”) are pleased to provide the County of Maui (“COM”) this draft report entitled “Timeshare Industry Study for the Department of Finance, County of Maui.” This report provides relevant overview market data, analyses and commentary as appropriate with respect to the impact of timeshare developments and conversions in Maui County. Suite 2124, Fort Street Tower 745 Fort Street Mall Honolulu, HI 96813 Telephone: (808) 550-8955 Fax: (808) 550-8655 e-mail: [email protected] TERMS AND CONDITIONS 3 Our work is based on information provided by secondary research sources, industry interviews, our extensive database and knowledge of the Hawaii market. Information provided to us was not audited nor verified by us and is assumed to be correct for the purposes of this engagement. Where appropriate, the source of information provided to us has been stated. We have no responsibility to update our report and analyses prepared by us for economic, market or physical factors or receipt of new information after the date of our fieldwork. Recognizing that the war and ensuing aftermath with Iraq continues to evolve as of the date of this report, Hospitality Advisors and UH TIM will not be responsible nor liable for any impacts that the war may have on the results of this analysis or assumptions used, whether considered or not in the preparation of this report. Information, estimates and opinions furnished to us were obtained from sources considered reliable and is considered to be true and correct. However, no representation, liability or warranty for the accuracy for such items, as well as any information, estimates or opinions prepared by Hospitality Advisors and UH TIM, is assumed by or imposed on us, and is subject to corrections, errors, omissions and withdrawals without notice. Any information and analysis provided to COM in this report will be solely for your information and use except as agreed to in writing. The information and analyses shall not be relied upon for any other purpose or by any other entity. Neither our report nor any reference to our firm may be included or quoted in any offering circular or registration statement, prospectus, sales brochure, appraisal, loan or other agreement or document unless agreed to in writing as to the specific manner and circumstance of the reference. COM agrees to indemnify and hold harmless Hospitality Advisors and UH TIM from any and all third party claims, liabilities, costs and expenses relating to services Hospitality Advisors renders under this Engagement Letter, except to the extent finally determined to have resulted from the willful misconduct or fraudulent behavior of Hospitality Advisors and UH TIM relating to such services. Thank-you again for the opportunity to provide consulting services to COM. Should you have any questions concerning this report, please do not hesitate to contact me at 550-8955. Very truly yours, Joseph M. Toy Russell Uyeno President & CEO Director of Applied Research and Consultancy Hospitality Advisors LLC University of Hawaii – School of Travel Industry Management 4 Table of Contents 1. Executive Summary p. 5 2. Background p. 6 3. Methodology p. 7 4. Finding 1: Apparent Magnitude of Impact p. 9 5. Finding 2: Conversion Impact on Operating FTE p. 16 6. Finding 3: Timeshare Visitor Expenditures p. 19 7. Finding 4: Timeshare Activities p. 22 8. Finding 5: Branding p. 25 9. Finding 6: Real Property Tax p. 26 10. Finding 7: Tax Impact p. 27 11. Finding 8: Relevant Studies p. 29 12. Finding 9: Impact on MCI Market p. 31 13. Finding 10: Maui County Employment p. 32 14. Finding 11: Perceived Business Impact p. 33 15. Finding 12: Visitor Behavior p. 35 16. Finding 13: Traffic p. 36 17. Conclusions p. 37 5 Background ¾ Hospitality Advisors LLC and the University of Hawaii School of Travel Industry Management were engaged by the County of Maui, Department of Finance to conduct an economic and social impact analysis due to timeshare conversions on the County of Maui. ¾ The scope of the project included: Analysis of the economic and social impact of timeshare conversions in Maui. Timeframe of analysis for 2000-2005; 2006-2010 for anticipated conversions Intended to provide data and information base for COM’s use as “tool” to develop tax policy, not recommendations for tax rates or categories Due to resource constraints, primary focus on existing data, supplemented by limited interviews ¾ Study Timeline Key Dates Early January: Begin project, including preliminary research; meeting with County, DBEDT Economics Analysis Division Late January-February: Initiate meetings and stakeholder interviews; design various surveys and questionnaires; interviews with Council Members; status presentation to Mayor Arakawa March: Continue interviews, analyze data; coordinate cooperation with timeshare operators and Chamber of Commerce Late March/April: Analyze preliminary survey results; continue stakeholder interviews and site inspections; preliminary status report to Mayor Arakawa and County Council; complete research and report writing May: Deliver written draft to Department of Finance End May: Deliver final report based on review comments ¾ Considerations While Maui is Hawaii’s most successful destination, the island is faced with a number of growing challenges due to both resident population and visitor growth Our scope was to analyze the extent such issues, concerns and challenges are due specifically to timeshare conversions Analyses were challenging due to lack of data and prior analyses specific to timeshare conversions 6 Methodology ¾ Our study approach included: Analyzing current and prior research from HTA, DBEDT, HVCB, County of Maui data Conducting Maui property and market site visits Conducting stakeholder interviews Conducting limited industry surveys ¾ In particular, the State of Hawaii provided extensive “tailored” databases to help specifically analyze comparisons between hotel, condo hotel and timeshare visitors to Maui with respect to activities, expenditures and demographics Sample size for the Maui hotel visitor satisfaction and income data is 1,385 Sample size for the Maui timeshare visitor satisfaction and income data is 196 Sample size for the Maui hotel expenditure survey is 3,026 Sample size for the Maui timeshare expenditure survey is 5,617 ¾ Representative Issues and Concerns Are timeshares paying “fair share” of taxes? Are timeshare conversions substantial contributor to traffic congestion? Are timeshares disproportionately using public resources (e.g. public parks)? Are timeshare conversions causing significant loss of employment and economic decline? Are timeshares attracting a less desirable market segment? 7 Executive Summary ¾ In general, our analysis of timeshare conversions did not indicate any major social or economic impact on the County of Maui resulting from conversions of hotel to timeshare product. The overall Maui timeshare industry is small compared to the islands’ more developed hotel and condo-hotel market. An analysis of timeshare conversion activity revealed that timeshare conversions comprised an even smaller part of Maui’s lodging industry, with only three properties converting in whole or in part to timeshare during the period 2000 to 2005. It was noted that there were far more condo conversions that occurred in Maui during the same period. ¾ We do note that the problems that Maui faces are real and include increasing traffic congestion, increases in cost of living and housing. Although timeshare conversions likely contribute in part to these issues, impacts appear to be more likely due to changes in Maui’s repeat visitor profile, increases in Maui’s hotel leisure guest mix and the substantial rise in Maui residents over the past five years. These changes in themselves have led over time to different visitor spending and demand patterns, greater use of public facilities, and rising competition for public space and services with residents and visitors alike. ¾ Nonetheless, data from the State of Hawaii Department of Business, Economic Development & Tourism suggests that the impact specifically from timeshare conversions is likely minimal. Separate data provided by the County, our real property tax model and data from those hotels that underwent conversion also supports this conclusion. ¾ It is important to note that data relating to this specific issue is currently lacking in the industry. Further and/or on-going research, including the insertion of Maui-specific questions into DBEDT’s visitor surveys, could be considered to track this currently small, but active industry. ¾ We also note that Real property tax rates and methods vary among the Counties, with Maui’s timeshare rate the highest Statewide. As each County has a different method for categorizing and valuing timeshare properties, Maui may wish to consider further analysis into these alternative methods for any applicability for Maui. 8 Findings: Economic Impact 9 Finding 1: Apparent Magnitude of Impact ¾ Timeshare conversions on Maui and Statewide have
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