First and foremost, owners at any given resort usually do not own the property their building sits on. They own the right to use their unit one week per year. The land is owned by another entity, often a land holding company related to the original developer.
Secondly, even the best insurance policy has a co-pay and costs that aren't covered. I doubt any policy covers a year of lost revenue, for instance. No matter what, future premiums will be significantly higher. Utilities will increase, too, as they must recoup the cost of repairs from a very limited customer base. This tragedy will inevitably mean higher MFs and/or an SA, at least in the short term.
Any time you raise MFs significantly, you risk losing paying owners. WSJ is especially vulnerable, due to many factors:
- Distinct seasons. In resort with distinct low seasons, those owners are always more vulnerable for defaulting because they are often paying close (or exceeding) comparable rental rates already. By law, HOAs cannot assess different MFs based on seasons, so if MFs exceed inflation, who in their right mind would pay $500 to $1000 MORE than current rental rates?
- Disgruntled owners: Low season owners were already hit once because nearly the entire 2017 low-season was wrecked by Irma. With no remedy forthcoming for this year's loss, how likely will these same owners be to pay that next invoice?
- Voluntary resort: Most of WSJ is voluntary, and most of the new phases have been around long enough that there's already going to be a decent number of resale owners. With depositing their week in II being their only possible remedy (and maybe not even that because they technically don't have a week to deposit), resale voluntary owners are at an even higher risk than mandatory week owners.
- The island is in shambles: Some owners will see the damage to the island and decide not to return to a place that resembles a war zone
- Immensity of the storm: Because of the sheer amount of damage, it'll take months before utilities are up and running. They can't even begin cleaning up without fresh water, nor can they start to rebuild without electricity. Every day that the resort is closed means lost revenue.
- Downtime: What percentage of owners are going to pay 2018 MFs (and possible SA) knowing that there's a decent possibility that the resort will be out of commission the entire year?
- Lack of new owners: In a healthy economy, a resort like WSJ could easily find new owners to replace "deadbeat" owners. The Caribbean is far from healthy. Finding new owners quickly is imperative for the survival of all timeshares, because otherwise you risk starting a vicious cycle of higher MFs yielding more defaults yielding higher MFs yielding more defaults.
Of course, more data is needed before anyone must make a decision on what to do. However, the obstacles for WSJ are enormous. That is why some people are opining that this storm might have staked WSJ right through the heart. Even though it's not running and generating much needed revenue, bills still need to be paid, such as key staff salaries, management fees (I think they owe Starwood $1M per year just for naming rights!), utilities (once they are up and running), insurance premiums, property taxes, and, of course, clean up and repair costs that aren't covered by insurance. Who's going to pay for all of that?
It's like the perfect storm has hit WSJ.
