Last year RedWeek ran a long blog post on the legal and beachfront battle between Diamond Resorts and the timeshare association that governs a legacy resort, Tahoe Beach and Ski Club. At the time, Diamond ran a corporate candidate for the board so that Diamond could take majority control of TBSC. What has happened since last summer?
To answer this question, RedWeek talked to members of the TBSC board, attended quarterly board meetings and, on July 31, sat in on an owners' update meeting that had all the trappings of a campaign rally AND a revival meeting as activist owners prepared for a new board election on Sept. 24. We also reached out to Diamond executives for feedback, but they declined to shed any light on their intentions. Here's a snapshot of the ongoing Battle for the Beach at Lake Tahoe — a battle that is closely watched by other legacy resorts that have affiliations with Diamond Resorts.
"Bill and Kathleen for the Board"
Gil Mars' homemade campaign sign says it all: "Bill and Kathleen for the Board." Mars, a retired service manager for a major equipment company in Las Vegas, owns 15 weeks at Tahoe Beach and Ski Club, a sleepy 33-year-old deeded-week resort with a spectacular setting on the shores of South Lake Tahoe. Mars' resort sits right next door to the beautiful but daunting Diamond timeshare, the Lake Tahoe Vacation Resort, which has tons of timeshare owners but no beach of its own. Mars is about as loyal a timeshare owner as one could find, even putting up $1,000 of his own money to send postcards to fellow owners, urging them to vote in the upcoming HOA election. It's worth it, he says, to keep his club's private beach and their timeshare rights out of the clutches of Diamond, which is perceived as a wolf of Wall Street attempting to take over a valuable legacy resort.
"We just saw the threat coming to all of our precious owners here, that if Diamond ever took over, they would try to convert everybody to their points system," Mars said at the owners' update meeting. "We don't want anything to do with them."
As the sign suggests, Mars is an ardent supporter of Kathleen Montgomery and Bill Costa, two longtime owners who are running to fill the expiring board terms of Steve Williams and Shannon Krutz, both of whom declined to run for re-election. Rightly or wrongly, Williams and Krutz are viewed by most rank-and-file owners as Diamond sympathizers (a recall election against Krutz was abandoned recently due to cost considerations).
Montgomery and Costa have already attended several board meetings as advisor-owners, so they know what they are getting into. They are also enthusiastically supported by Board President Al Fong, Vice President Cedric Ketchum, and Treasurer Jake Bercu — who constitute a 3-0 voting bloc against Diamond's longtime bid to acquire a controlling interest in the resort. Williams' wife, Mary Kay, attempted to run for her husband's seat on the board, but missed the filing deadline.
What's at Risk?
So why is Mars putting his spare time and money into a campaign to support two candidates who have no known opposition? Because he and other loyalists, including the aforementioned board members, suspect that Diamond, which owns 22 percent of the timeshare intervals (and voting power) at TBSC, will mount a write-in campaign — on Sept. 24 — to place one or two Diamond supporters on the board to defeat Montgomery and Costa. Their suspicions are understandable, since the current board is already embroiled in litigation with Diamond over 245 intervals that Diamond purchased in late 2014. When the board subsequently refused to recognize the validity of Diamond's deeds (on grounds that the bloc sales were never authorized in the first place), Diamond sued. The TBSC board countersued Diamond and its own former management company, VRI, over the proposed sale. A judge who reviewed the case last year opined that Diamond would eventually lose on the merits.
The litigation is now in settlement talks that neither side will discuss — but everything is on the table: the Diamond deeds, future affiliation agreements, rental policies — all the nuts and bolts of running a business. But the tension and animosity from that case persists, as it boiled up one year ago, when Diamond senior vice president Frank Goeckel placed his own name in nomination to gain a seat on the HOA board. A suspected Diamond supporter, Cathy Ryan, ran alongside Goeckel in a bid to unseat the two board members who are the most outspoken opponents of Diamond's potential takeover of the resort: Fong and Bercu.
At a jammed annual meeting that drew 200 owners last September, Fong and Bercu won re-election with more than 2,200 votes each, while Goeckel and Ryan finished with 1,719 and 1,624, respectively (including 1,619 votes that Goeckel cast for himself and, presumably, Ryan).
That vote simply set the stage for this year's HOA election where, Bercu said, activist owners are eagerly campaigning for Montgomery and Costa to overcome "a state of complacency" among owners who may think the entire Diamond vs. TBSC drama was resolved by the 2015 election. "We're afraid that Diamond (through Goeckel) will walk in here Sept. 24 with 22 percent of the votes for a write-in," Bercu said.
Timeshare's David and Goliath
To be sure, Diamond has the clout and resources to mount a serious challenge to Costa and Montgomery. Tahoe Beach and Ski Club has a $4 million annual budget. Compare that to Diamond, which has hundreds of resorts in its vacation network, manages 99 timeshare resorts, and makes sizeable profits, quarter to quarter, on new timeshare sales, financing agreements, and management services at various resorts.
On top of that, the company announced June 29 that it had agreed to be purchased (and taken private) by a giant investment fund, Apollo Global Management, for a nifty $2.2 billion. The only thing that Diamond has not announced — at least to TBSC owners — is what it plans to do with its huge ownership stake in Tahoe Beach and Ski Club.
So money is not an issue for Diamond. But it's a driving force for the Tahoe Beach and Ski Club board, which has struggled over the past three years to combat delinquencies while renovating the entire resort (a common problem for many legacy timeshares). Financially, TBSC is performing much better this year than last, when its financial stability was a key part of Goeckel's argument for an increased Diamond presence on the HOA board. The resort now operates with a modest surplus, delinquencies have declined from 17.5 percent to 9 percent, and a new owner resales program has generated 105 sales since January. The resort's new management company, Grand Pacific Resorts, is also spearheading operational improvements and rental programs to upgrade the entire vacation experience for owners.
Those improvements, ironically, may have contributed to a perceived lack of urgency about this fall's election. Happy timeshare owners, typically, are not spending their vacation time politicking for board elections.
At the most recent beachfront owner meeting, Fong, Bercu, Ketchum and candidate Montgomery, a retired health care professional from Sacramento, encouraged all owners to get involved in the upcoming vote, either in person or via social media sites that the board created to increase communications among owners (on Yahoo and Facebook).
"You have an opportunity to ensure that we keep this piece of paradise independent," Montgomery said. "It's in your hands."
"Diamond got burned badly last year," Bercu added. "They are hoping our owners fall asleep so they can come in and steal the election."
But the strongest words came from Board President Fong, a retired postal worker and nine-week owner who spends every summer at TBSC. In addition to his experience on the board, Fong knows Diamond well, since he is a Diamond timeshare owner and stockholder.
"Frank Goeckel is sneakier this year. He did not put his name in [nomination]. But he's got 1,600 to 1,700 votes in his pocket for himself. That's what we've got to beat," Fong said. "Since they could not beat us last year, they are coming after us another way. They are using us as a hotel. It's corporate bully-ness. It's vinegar and oil. We don't mix."
Goeckel and Diamond's public relations team did not respond to requests for comment on this article. The last time Goeckel talked to a representative of RedWeek in person, he advised us that we were "not authorized" to publish comments he made at a public TBSC board meeting that was attended by two dozen owners. One year ago, he and a Diamond attorney attended TBSC's lakefront owner meetings. He engaged with owners (and RedWeek). This year he has been noticeably absent.
Full Disclosure: the author of this update, Jeff Weir, is a Diamond Resorts timeshare owner who has had generally positive experiences staying at Diamond resorts.
