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Time Lines

The good news came by mail:
CONGRATULATIONS JOHN CARROLL!
The letter went on to breathlessly assure that I was a "major prize-winner" in the 1998 Polaris Giveaway. Maybe I'd won a new truck, or $25,000, or a major vacation package or $500 cash. All I had to do to claim my major prize was roll on up to Piney Shores Resort, west of Conroe, and "attend an informal 90-minute tour and sales presentation."

Weeks before, I had casually filled out a contest entry card at a local kids' festival at Hermann Park. All they wanted was some basic demographic information: age, income group, address. Turn it in for a chance to win a shiny, bright red truck.

Then the letters and cards started coming. CONGRATULATIONS, each exclaimed. And after the cards came a phone call and my appointment to pick up the prize. I had to be there on that date, the voice on the phone said, or I would be disqualified from any major prize. But when the appointed day rolled around, I blew it off. Who has time for 90 minutes with a salesman?

It turned out, though, that there was no disqualification. The follow-up calls started coming. And coming. And coming. "Oh, now," said one of the company's reassuring telemarketers, "the least you've won is $500 cash. How about that?"

Cash?
After more than six calls, I made an appointment.
Piney Shores is part of a Dallas-based time-share outfit called Silverleaf Resorts, which for some reason is listed as a "participating sponsor" on its prize correspondence. Only they don't like the term "time-share" anymore. They prefer "vacation ownership."

Time share became a big, dirty business back in the '80s, notorious for its hard-sell approach pushing weeklong shares of condos scattered in vacation spots around the world. So many people felt scammed in the process that the industry hit the skids as leery consumers shunned anything with the time-share stigma attached.

Silverleaf's CEO, Robert Mead, was a major player in that checkered past. He ran Freedom Financial when it pleaded guilty in 1988 to federal mail fraud and conspiracy charges for the way it ran its time-share contests. The company paid a $1.5 million fine and $100,000 in restitution, and one of its marketing reps was jailed after consumer complaints that Freedom offered phony "major prizes." Mead has since changed the company's name and the way it handles sales and marketing. A spokesman blamed outside contractors and said Mead cooperated with prosecutors in the case against Freedom.

The company is still dogged by a steady stream of complaints filed with agencies ranging from the Better Business Bureau to the state Attorney General's Office.

Despite that troubled past, time shares have bounced back in a big way in the '90s. There are now 120 time-share operations registered with the state Real Estate Commission. Disney, Marriott and a host of upscale companies have jumped into the market, looking for upper-income families to sign up for their time-share deals, said commission administrator Wayne Thorburn.

But Silverleaf is the biggest time-share company in Texas, and one of the biggest in the country, representing a significant slice of the 1.8 million time-share users nationally.

Not only does Silverleaf own Piney Shores and 19 other resorts in Texas and around the country, the company recently gained approval to build a condo project on the Galveston shoreline. It planned 650 units, but cut back to 280 after neighbors-to-be hired law firms to sue to stop the project.

State officials who've investigated Silverleaf say the company fits a common pattern for time-share companies: soliciting working-class families who can't afford a place at the lake or some other getaway spot, and selling time-share vacations at resorts within an easy drive of major urban areas like Houston. The company dangles "major prize giveaways" out to thousands of area residents to reach its target group of buyers.

"It's generally based on income," says Tom Franks, president of Silverleaf Resorts Acquisitions in Dallas. If the folks fill out an entry for the truck contest, have the right income and live in the area, they become major prize-winners.

Just like lucky me.

A week later, I'm in the passenger seat of a Jeep Wrangler. The top's off, and though it's still morning, the sun is already blistering hot. Not that the heat has wilted my tour guide, Seve, who's enthusiastically pointing out the highlights of Piney Shores while detailing the rules of the game.

First, said Seve, there would be special offers from Silverleaf that would be good for today only. Those who liked the program and wanted in -- great. But there would be no extended consideration period. "What I don't want to hear is: 'I want to think about it,' " says Seve, a tall, lanky young pitch artist. "Hey," he added. "Fair's fair."  

This was all part of the "informal" tour. A carefully scripted sales pitch designed to whip visitors into a state of buying fever. The last thing they wanted was for anyone to spend time thinking about it.

"After all," says Dawn Kelly, who inherited a Silverleaf time-share deal from her father, "you might find your brain, walking to the car."

Kelly and her husband regularly took free long weekends at time-share resorts, enduring the sales pitch and leaving. But then she took her parents to one put on by Silverleaf. "My dad fell for it hook, line and sinker. Against my objections, he bought the thing."

He was sold on the notion of "freezing" his vacation costs, but the monthly maintenance fees had shot up to $600 a year. The idea of "owning" a vacation translated to spending about $100 a night, and the time-share places where they stayed ranged from the ideal to the comically nightmarish, including one spot that was so small the bed was built in the wall.

After financing his deal, Kelly's father ended up paying about $15,000 for the package, aside from the maintenance fees. And that package, she said, was finally sold on the huge secondary market -- formed by time-share owners begging for a way out -- for $3,500.

"The secondary market is glutted," says Kelly, an accounting professor at Texas Tech University. "And good luck running an ad in the newspaper." That's a common complaint, says Dan Parsons, vice president of the Houston Better Business Bureau. Back in the '80s, says Parsons, the BBB used to send representatives by Silverleaf and other resorts to hear sales lines to see if they were pushing beyond the boundaries of the law.

One of those companies was Freedom Financial, the firm that was bought out by Silverleaf ten years ago, after the federal fine for deceptive use of the mails to lure people in for "prizes."

"The marketing and sales people involved in that [prosecution] are long gone," says Franks. "During that time in the industry, people utilized outside contractors. Freedom Financial was no exception.... It was obviously a very tough time for the company at that time. The use of outside contractors caused a lot of problems."

Despite the change of names for the company, it still notes the past guilty plea and recurring consumer complaints in documents filed with the Securities Exchange Commission. According to Silverleaf's latest 10K filing with SEC: "The Company has encountered and expects to encounter some level of additional consumer complaints in the ordinary course of its business."

But these days the complaints aren't about prizes; they're coming from people who have bought in and just want out.

"Today, it's more buyer's remorse," says Parsons. Companies like Silverleaf are known to send in a series of closers to get prize-winners to sign on the dotted line. Not that Parsons is especially sympathetic to people who succumb to such thinly disguised prize programs. "Get a life," he says. "This stuff's been around for 30 years."

Finding a way out of "vacation ownership" seems to be on the minds of many time-share buyers these days. Last year, a survey of the American Resort Development Association found that 46 percent of time-share owners were interested or "very interested" in finding a way to sell their units.

But that's not easy when you can't run your own major prize campaign. As a result, says Kelly, who's experienced it all firsthand, most owners walk away with just a fraction of the deal they had been sold.

Last year, Silverleaf shelled out $30,000 to the state after the Texas Real Estate Commission began to investigate a wave of complaints that hit three years ago, including some accusations that company reps were offering a buy-back reimbursement program for unhappy customers -- a program that doesn't exist. The company had also failed to register with the commission all the projects it was selling in Texas. The company also paid more than $15,000 to the state Attorney General's Office for the costs of the investigation. At the time, says Silverleaf's Franks, the company was going public and wanted to resolve all outstanding grievances. The company did not admit any wrongdoing in the process.

Thorburn, the real estate commission administrator, said the state has received several more complaints since then about Silverleaf's sales practices, all of which have been resolved on a case-by-case basis. Meanwhile, the company is expanding with its Galveston project.

Kahala Beach Estates is an exclusive enclave on the fringe of Galveston. The houses on West Beach are upscale, and the residents visibly cringe at the mere mention of time-share condos moving into their back yard.  

Where Silverleaf saw a rich new source of funds and time-share members, the upscale neighbors saw a revolving band of working-class beach invaders organized by a company with credibility problems and a history of brushes with state and federal investigators.

"Galveston has serious trouble. So anybody that wants to come in and spend money, they think it's manna from heaven." Edgar J. Smutny is talking, clutching a thick stack of documents in his hand that he's painstakingly gathered over the past seven months, since Silverleaf suddenly arrived on the scene. Smutny is head of the Kahala Beach Homeowners Association, which has been waging an expensive -- $50,000 to date -- legal battle against Silverleaf. The war has made him a caustic critic of the city's planning and zoning boards.

"You have a planning commission that will approve anything short of a nuclear dump." But he reserves his most severe criticism for Silverleaf, which he maintains has been misleading city officials and misrepresenting the facts since it first appeared in December.

The company has submitted two different plans for the Galveston project, he says, each of varying size and both in violation of the city's master development plan outlining a proposed density of four units per acre. Smutny believes the company has been playing fast and loose with numbers on units and acreage in an effort to circumvent zoning restrictions.

Opponents of the project cite more potential project problems: Time-share ventures in Galveston have had a history of going sour, returning far less than the original economic stimulus promised by developers.

There also is no current plan for the company's beachfront property. Neighbors believe a time-share development in that area would destroy the value of the single-family homes that dot the area. And more fears are voiced about the effect of the development on the wetlands in the area. Those are intended to be protected from the runoff of pesticides and other chemicals from the proposed golf course that will border the project's bayside boundary.

Coupled with that are all the nagging problems of the company's past, and current problems with consumer-protection groups in Texas. "How can we trust their numbers?" Smutny asks rhetorically.

So far, they've met with some success. Silverleaf has redesigned its planned development, and the group's suit against the city is in abeyance as the new plan is scrutinized. But Smutny and his neighbors won't be satisfied by any modifications. They want Silverleaf to go away, and take its condos somewhere else.

Silverleaf had been planning on getting started on its multimillion-dollar project this summer, but had to put their plans on hold when the good people of Kahala Beach began raising hell at local planning commission meetings.

For his part, Franks played up the economic rewards, focusing on a fountain of cash worth millions every year in new economic activity -- welcome money in a town that has been struggling for years. And despite the opposition, Franks says he'll break ground this fall and get started on selling more time shares soon after.

While they may not like to call it time share anymore, the rules of the game are remarkably unchanged: Get them in and sell them hard until they sign up for a deal that will cost almost $15,000, paid out over three to five years, after the deal is inflated with a 14.5 percent interest rate that the sales people manage to avoid mentioning.

What they like to do is focus on what a wonderful company Silverleaf is. "It's debt-free," says Seve, "strong, wealthy and traded on the New York Stock Exchange."

Not quite.
In March, the company completed a subordinated note program to raise $75 million in financing from investors, a common debt vehicle outlined in the company's SEC forms. But there's no doubt the company does just fine, as Seve assures us. In Silverleaf's last quarterly report, it lists $31 million in revenue, $3.2 million in income, courtesy of 61,000 time-share owners.

The main hall at Piney Shores is packed with major prize-winners and prospective time-share owners. This is the end of our 90 informal minutes, and that morning more than 150 people had turned out for their prizes; couples, families with kids, a middle-class crowd typically dressed in crisply laundered weekend apparel.

This is a great deal, we're told. It all gets down to simple math. Seve has his crib sheet ready, titled "Vacation planner." Buy an RV, he says, why, you're talking $50,000 to $200,000.

"How much did you spend on your last vacation?" he asks. After some finagling, we figure that my last week on the road cost $1,300.  

Why, in ten years, that's $13,000, and $39,000 in 20 years, says Seve, running fast now. And with inflation running at 5 percent per year, that's 100 percent on top of that -- $78,000.

Aside from the bad math, inflation has been running under 5 percent for years now, a fact that creates a puzzled look on Seve's face. "Four and a half million people have joined the program; we know you'll love it," he says.

Then someone started ringing the bell. The noisy hall falls silent and three sales people take to the floor. Three couples had just joined. One was planning their tenth wedding anniversary at a Silverleaf resort. "Join me in a big round of applause!" one exclaims, as the room erupts with cheers and clapping.

The excitement is all part of the pitch, but Seve's face crumples a little more when he hears that my answer is no. But that doesn't end the session. A minute later his supervisor is at the table, pushing the financial sense of vacation ownership. Is there something we don't understand?

A second and final "evaluator" hits the table with the same result. That's when my wife and I are sent away to collect our major prize. First, we're ushered into a waiting room, our papers stuffed into a full box. We are invited to take a seat with about 25 other major prize-winners, one more glum than the rest.

"This is just a waste of an entire day," says one father, head in hands and staring at the floor. Time starts dragging.

"This is punishment for not buying in," says a young man. Fifty minutes later, in an effort to speed up the exodus, a group of us are called into the back office. We receive an apology for the wait and get, en masse, our major prize.

My prize? Well, mine and everyone's prize was second place. Ten free day-passes for a party of four at any Silverleaf facilities. Does that include an overnight stay? I ask.

No. But we could use the pool.
I'd won big.


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