Residual Value at the Royal Resorts, Cancun
Article submitted by:
31 July 1997
I want to state that I am a member of Vacation Clubs and Royal Mayan, but I am not
one of the developers, nor do I have any ownership in the development company.
I have been asked a question the answer to which I think will be interesting to
other TUG members. The question refers to the type of deed we have at the
Royal Resorts in Can-Cun. (The Royal Resorts are Vacation Clubs International,
Royal Mayan, Royal Islander, and the Royal Caribbean, all in Cancun.)
Originally, when Vacation Clubs was first sold in 1977, we bought a 30 year membership
at the end of which we would have nothing. A few years later, for whatever reason,
the developers decided to give the members who had bought up to that point the
option to pay an additional amount, which would give us a guaranteed residual value
at the conclusion of the 30 years. It would also give us an interest in the appreciation
of the property, as outlined below.
From then on, all memberships at Vacation Clubs, and later on at the other Clubs which
were to be built, were sold only WITH the residual value included in the price of
membership. Some of the members of Vacation Clubs opted to pay the additional
amount to have residual value included in their deeds, and some opted not to pay it,
for which reason if you want to buy a resale at Vacation Clubs it is important to clarify
whether or not it includes the residual value.
In addition, the guaranteed residual value is fixed, and the resale price might be
more or less than the residual value... so today you might buy a membership
of, for example, $10,000 and have a guaranteed residual value of less, $8,000 (or
perhaps a price is agreed that is more than the residual value.)
What is going to happen is that at the end of the 30 years period the resort will
theoretically be sold to a third party. At that point, in the first place the members
are guaranteed the first return on their residual value... in the second place the
developers will receive an amount equivalent to the residual value... and thirdly, if
there is any more in the kitty, then it will be split down the middle, fifty/fifty for the
member and the developers. So, for example, if you have a residual value of $10,000
and the property is sold and $15,000 corresponds to this particular membership, then
the member gets the first $10,000 and the developers get the remainder. If it is sold for
$8,000 then the member gets all and the developers receive zero. If it is sold for more
than $20,000 then the member will receive more than his guaranteed $10,000 and
the developers will also receive the same amount.
This means that the developers have a continuing interest in the property. The
developers will not receive anything at the end of the 30 years if the property has
depreciated, or they might make a fortune if it is well maintained. And, since the
members pay the maintenance fee and the developers don't pay any maintenance fee,
therefore the developers have a real interest in making certain that the properties are
maintained to their maximum. This is, in fact, what has happened, and maybe this
explains how and why I.I. and R.C.I. and TUG members and just about everybody
agrees that the Royal Resorts are superbly maintained, and have superb service.
I think it's almost certain that we will receive the guaranteed residual value on Vacation
Clubs memberships in the year 2007, but there is also a good chance that we might
even receive more than the guarantee. As seen above, this could occur if the interval
is resold for more than twice the residual guaranteed in 1980.
A resort 30 years old that goes UP in value might be a rare thing, but with super
maintainence of the property, and Cancun being Cancun, and the Royals being the
Royals, and the rise in prices being what it has been, and the developers being
who they are, and with the track record they have proven they have, I think there's
a good chance that residual values paid will be higher than the guarantee.