How Does Starwood Make Money from MFs?

[Fredm]

Fred,

Awesome. So you agree that if Starwood properly managed our TSs that our MFs should come out to less than $40 per night! Hotel rooms get cleaned every night they are used. Although TS units are generally larger, at Starwood cleaning is only included every 3.5 nights; the additional energy for the unit should be much less than cleaning less often (labor). Therefore, by your example above, if TSs are being properly managed, the breakeven point should be less than $40 per night per unit. Our MF are definitely higher than that! This is further proof that Starwood is ripping off its TS owners by the huge increases in MF.

($9000 for a paint job!)

Westin5Star, you are pulling my leg, right?

$9000 for a paint job is indeed ridiculous. Then again, Lisa may be wrong about that.

Yes, Starwood is making about $500 per 2 bedroom unit/week in OM fees and up-charges. Or, about $1,200,000 per year at KOR and KOR-N. Of course, that will increase somewhat over time. Since personnel and other costs are already charged to the resort, the amount is all profit. Not a bad business.

 

[LisaRex]

$9000 for a paint job is indeed ridiculous. Then again, Lisa may be wrong about that.

I was. I corrected myself earlier. It was $4000 for the paint job. The $9000, which represented 13% of the budget, was for "other contingency." It also warned in the FAQs that actual costs could be more due to increased labor costs. Guess they don't believe in, you know, signing contracts that set things like labor rates and material costs.

And, no, the numbers were not made up by me. They were quoted from nodge's link. If you want to look at the granite that cost $13M per owner, the lovely brochure is linked here. BTW, isn't it nice that the HOA took the time out to print a nice brochure like this? Cause they're "Here for us!"

https://www.mystarcentral.com/CMS/en_US/svo_media/CMSMedia/PDF/misc/Springs_Makeover_Brochure.pdf

https://www.mystarcentral.com/CMS/en_US/svo_media/CMSMedia/PDF/misc/Springs_Makeover_FAQs.pdf

A quote from the FAQ section:

"Does the renovation increase the value of my villa?
It is difficult to put a value on your refurbished villa but, typically, market conditions or supply and demand dictate the monetary value of vacation ownership villas. As your villa is upgraded with modern and stylish interior designs and appliances, and as the resort becomes a more desirable vacation destination, it is likely that there will be greater demand among vacation Owners."

That's worked out well for Owners, hasn't it? Let's see, going rate for SVR: $1.

It would be funny if people like the couple in their 70s who came her seeking advice, weren't being robbed. Frankly, I don't consider the renovation, or the increasing MFs, to be funny. And I think that Starwood is going to end up being very surprised at the Owner reaction as they get their letters. They may want to staff up at MSC.

 

[DanCali]

I was. I corrected myself earlier. It was $4000 for the paint job.

As a point of reference, I paid $1800 (labor + material) to have my 1100 2BR condo in Chicago painted. I used the first contractor I contacted and didn't negotiate the price at all...

 

[nodge]

[...]

* Houskeeping is $471.90

SVO really collects $471.90 from every owner for a full cleaning and a partial cleaning of their villa during the week!?!

I'm guessing that the cleaning crew members earn no more than $10/hour, which is still higher than minimum wage. However, even at $10/hour, they would collectively have to spend 47 HOURS (nearly two solid days!) cleaning each villa each week to justify this $471.90 PER WEEK “housekeeping fee” charged to owners.

Unless lawyers from SVO's retained law firm are cleaning our units at their litigation hourly rates, armed with only this one data point, can anyone here still legitimately question the fact that SVO is deriving huge profits from our maintenance fees? The only real questions are: 1) How huge is huge?; and, 2) What on earth is it doing with all of that money?

-nodge

 

[WINSLOW]

SVO really collects $471.90 from every owner for a full cleaning and a partial cleaning of their villa during the week!?!

I'm guessing that the cleaning crew members earn no more than $10/hour, which is still higher than minimum wage. However, even at $10/hour, they would collectively have to spend 47 HOURS (nearly two solid days!) cleaning each villa each week to justify this $471.90 PER WEEK “housekeeping fee” charged to owners.

Unless lawyers from SVO's retained law firm are cleaning our units at their litigation hourly rates, armed with only this one data point, can anyone here still legitimately question the fact that SVO is deriving huge profits from our maintenance fees? The only real questions are: 1) How huge is huge?; and, 2) What on earth is it doing with all of that money?

-nodge

Housekeeping must get paid a whole lot better there than in Florida at Vistana Fountains II where they budgeted $161.14 per unit for a 2 bedroom unit?

 

[Fredm]

SVO really collects $471.90 from every owner for a full cleaning and a partial cleaning of their villa during the week!?!

I'm guessing that the cleaning crew members earn no more than $10/hour, which is still higher than minimum wage. However, even at $10/hour, they would collectively have to spend 47 HOURS (nearly two solid days!) cleaning each villa each week to justify this $471.90 PER WEEK “housekeeping fee” charged to owners.

Unless lawyers from SVO's retained law firm are cleaning our units at their litigation hourly rates, armed with only this one data point, can anyone here still legitimately question the fact that SVO is deriving huge profits from our maintenance fees? The only real questions are: 1) How huge is huge?; and, 2) What on earth is it doing with all of that money?

-nodge

I don't know how costs are allocated to the "housekeeping" account.
But, I assume the following:
- Labor - fully burdened - 21.00/hr.
- Cleaning supplies, paper products.
- Toiletries, pens, and other disposables.
- Central laundry allocation.
- Pest control.
- Supervisory staff allocation.
- Equipment allocation. (motor carts, vacuum cleaners, etc.).
- Linens and towel replacement.
- Maintenance staff allocation and supplies - light bulbs, etc.

Again, I do not know how specific costs are allocated in the housekeeping account.
Nonetheless, if one housekeeper spends 10 hours per 2 bedroom villa, per week, their cost would be $210 (using my burdened rate assumption).

No doubt, Starwood is making money beyond their OM fee from all the above. But, your characterization is dramatized.

 

[DanCali]

I don't know how costs are allocated to the "housekeeping" account.
But, I assume the following:
- Labor - fully burdened - 21.00/hr.
- Cleaning supplies, paper products.
- Toiletries, pens, and other disposables.
- Central laundry allocation.
- Pest control.
- Supervisory staff allocation.
- Equipment allocation. (motor carts, vacuum cleaners, etc.).
- Linens and towel replacement.
- Maintenance staff allocation and supplies - light bulbs, etc.

Again, I do not know how specific costs are allocated in the housekeeping account.
Nonetheless, if one housekeeper spends 10 hours per 2 bedroom villa, per week, their cost would be $210 (using my burdened rate assumption).

The point is not whether lawyers are cleaning up... I think the bigger point is that the costs outlined by Fred should not vary much from state to state. Comparing across resorts - housekeeping labor is relatively low cost, supplies are Starwood's, laundry is laundry etc. Even if Starwood sends supplies UPS Ground to mainland locations and Fedex air to Hawaii that should not make a difference of $200 per unit per week in housekeeping costs (besides, these costs and their timing are so predictable in advance so they could send supplies weeks in advance by boat).

The second point is a comparison across time - did the cost of labor, cleaning supplies, and some electricity to run the dishwasher and laundry go up 100% over 5 years in these locations? Do these costs really need to go up every year? By 10%-15%?

 

[DavidnRobin]

I don't know how costs are allocated to the "housekeeping" account.
But, I assume the following:
- Labor - fully burdened - 21.00/hr.
- Cleaning supplies, paper products.
- Toiletries, pens, and other disposables.
- Central laundry allocation.
- Pest control.
- Supervisory staff allocation.
- Equipment allocation. (motor carts, vacuum cleaners, etc.).
- Linens and towel replacement.
- Maintenance staff allocation and supplies - light bulbs, etc.

Again, I do not know how specific costs are allocated in the housekeeping account.
Nonetheless, if one housekeeper spends 10 hours per 2 bedroom villa, per week, their cost would be $210 (using my burdened rate assumption).

No doubt, Starwood is making money beyond their OM fee from all the above. But, your characterization is dramatized.

While it would not account for large cleaning charge - do not forget that it is not just the unit - it is also 1/52 for the housekeeping of the entire resort.

 

[nodge]

While it would not account for large cleaning charge - do not forget that it is not just the unit - it is also 1/52 for the housekeeping of the entire resort.

And don't forget the nightly renters that get daily cleaning. I'm sure SVO tracks those "housekeeping" charges separately in accordance with well established accounting principles. No matter how easy it would be, I'm sure that SVO wouldn't even think of dumping those charges in with the owner housekeeping charges even if it could collect more renevue from those nightly rentals if it did.

-nodge
my website

 

[Fredm]

The point is not whether lawyers are cleaning up... I think the bigger point is that the costs outlined by Fred should not vary much from state to state. Comparing across resorts - housekeeping labor is relatively low cost, supplies are Starwood's, laundry is laundry etc. Even if Starwood sends supplies UPS Ground to mainland locations and Fedex air to Hawaii that should not make a difference of $200 per unit per week in housekeeping costs (besides, these costs and their timing are so predictable in advance so they could send supplies weeks in advance by boat).

The second point is a comparison across time - did the cost of labor, cleaning supplies, and some electricity to run the dishwasher and laundry go up 100% over 5 years in these locations? Do these costs really need to go up every year? By 10%-15%?

I really don't know what to attribute specific increases to, resort by resort.
My response was to the simplistic representation of housekeeping costs made by nodge.

While I have offered my opinion about where the lions share is, I don't know the line item specifics. Neither do you.

I find myself repeating facts you want to ignore.

The cost of electricity affects the cost of everything (to manufacture, distribute, and store). And brief fluctuations cannot track to budgets, because its difficult if not impossible to budget correctly for it, without grossly over-budgeting.

The commercial price of a kw/h in California was 10.71 cents on January 1, 2005. On July 31, 2009 it was 16.38 cents. Rates were higher for most of 2008. I took the latest figures as they will fluctuate and be higher in the future.
Roughly a 60% increase in 4 1/2 years.

I am not saying that the increased cost of electricity, natural gas, water, fuels, etc are necessarily the entire reason for the budget increases. But, if you are looking for a broad factual answer, you have it.

Hawaii is another case altogether. The effects are magnified. A loaf of bread is $6. A gallon of milk is $8-9. Anyway, you get the point.

 

[DanCali]

The commercial price of a kw/h in California was 10.71 cents on January 1, 2005. On July 31, 2009 it was 16.38 cents. Rates were higher for most of 2008...

I am not saying that the increased cost of electricity, natural gas, water, fuels, etc are necessarily the entire reason for the budget increases. But, if you are looking for a broad factual answer, you have it.

Fred - I am not ignoring what you said... While I do agree that some of the cost increases over the past 5 can be attributed to electricity, I just don't see that as a broad factual answer. The electricity component is only some portion of the cost of running a resort yet MFs have risen as if electricity was 100% of the cost. The costs of labor, supplies etc just didn't have that kind of inflation.

Moreover, looking at a more recent period, we both agree electricity rates were higher in 2008 than in 2009. In fact, the cost of most things in the economy was flat or down. If so, why are MFs rising by 10%-15% across resorts again? If this is due to MF delinquencies by other owners then why aren't delinquencies a separate line item so we can track true MFs versus delinquencies from last year (I would think they would be happy if they could show flat "MFs" and an increase in payment in a separate line item only due to the recession)? Why doesn't the HOA get the rental revenue from the units of owners who didn't pay MFs? Do we even get any statistics on delinquencies?

The fact that there is little transparency and no accountability, and Starwood seems to care about its own pockets and not about owners' leads to my skepticism about their intentions and comments like "robbing Peter to pay Paul" from other tuggers.

 

[Fredm]

Fred -.

The electricity component is only some portion of the cost of running a resort yet MFs have risen as if electricity was 100% of the cost. The costs of labor, supplies etc just didn't have that kind of inflation.

You are right. The electricity the resort consumes is inflated by the cost of the electricity. The water and gas consumed is inflated by the increased prices of gas and water (which in part is inflated by their use of electricity). The cost of supplies has actually increased more than the 60% increase in electricity prices.
Paper products have almost doubled. Cleaning chemicals are up 75%.
Soap is up 50%. All because of the price of electricity and petroleum.

Postage is the stand out. Its only up 25%. Way to go, USPS!

While hourly wages have not kept pace with these increases, employer costs for all employees have increased far more than the hourly rate. Health insurance costs, unemployment insurance costs, FICA contributions, and so on. Not to mention legal defense costs for wrongful termination claims, etc, etc.
HOA's get to pay all of it, because it is ultimately built in to the rate charged to the resort.

Have I missed anything of consequence relating to the operational costs of running of a resort? Besides plant material and fertilizer?

looking at a more recent period, we both agree electricity rates were higher in 2008 than in 2009. In fact, the cost of most things in the economy was flat or down. If so, why are MFs rising by 10%-15% across resorts again? If this is due to MF delinquencies by other owners then why aren't delinquencies a separate line item so we can track true MFs versus delinquencies from last year (I would think they would be happy if they could show flat "MFs" and an increase in payment in a separate line item only due to the recession)? Why doesn't the HOA get the rental revenue from the units of owners who didn't pay MFs? Do we even get any statistics on delinquencies?

08 was a killer. Not likely fully budgeted for. So, it had to be adjusted for in 09. Just a guess.

As for delinquencies, your guess is a good as mine. It certainly plays a part. If I had to guess, an increasingly expensive part. Ask them.

The fact that there is little transparency and no accountability, and Starwood seems to care about its own pockets and not about owners' leads to my skepticism about their intentions and comments like "robbing Peter to pay Paul" from other tuggers.

I agree that there is little transparency. More would answer many legitimate questions. I don't understand why more effort is not being made to get these answers from the horses mouth.
At the end of the day, the BOD have a fiduciary responsibility to the owners. Never mind who put them there. If funds are not being correctly accounted for, or spent improperly, they have serious personal exposure. Beating this to death here accomplishes nothing, if you are not inclined to believe them.

As for "robbing Peter to pay Paul", I don't get that.
The money that's theirs, is theirs. What they do with it is their business.
Unless they have broken the law and collected income illegally. Now, this is the nub of the matter. Is it not?
If you simply do not like how the resorts are being run, you should organize to overthrow the OM and the current BOD. You may get the answers you want in the process.
Or, sell your interests and get on with it.
Just bottom lining it.

 

[spuppy]

I've been to costco and walmart in hawaii. The prices are not that expensive.

 

[LisaRex]

Per the Owner's Agreement, all WKORV inventory not booked is turned over to SVO, who is free to rent it out for cash and/or StarPoints. And they get to keep all the cash, aside from a modest housekeeping charge ONLY IF extra housekeepers are called in to deal with the renters. We owners get nothing. Nada. Zilch.

It really irritates me that SVO wrote such a one-side agreement. We get all the downsides of owning (e.g. covering all the costs) and NONE of the upsides, such as rental income to offset our expenses. If FredM is correct, we're not only getting screwed by having to absorb the wear and tear of these renters, but we're also footing the bill for their energy usage -- their air conditioning bills, their hot water usage, etc.

And, of course, as delinquencies go up, we're now expected to foot the bill for delinquent owners. Which means MORE inventory for Starwood to rent out, more money in their pockets, and more OUT Of the owners. It's a great system. For them!

The whole system is wrong. And we should pressure our HOA to do something about it. We simply cannot sustain a 10%+ increase every year.

And if the HOA won't do anything about it, then surely there's an out-of-work attorney somewhere that could take up our cause to fight this usurious, one-side agreement.

 

[DanCali]

The whole system is wrong. And we should pressure our HOA to do something about it. We simply cannot sustain a 10%+ increase every year.

And if the HOA won't do anything about it, then surely there's an out-of-work attorney somewhere that could take up our cause to fight this usurious, one-side agreement.

The HOA hasn't been doing much until now so I doubt it will start now.

You may not be able to find a law firm willing to take up some of these issues even as a class action - as one sided as these agreements are, we entered into them of your free will. We all had 7-10 days to read the fine print and change our minds, but we thought we got a "steal" on the resale price.

What seems to grab attention from corporations in this day and age are these types of initiatives...

 

[DanCali]

I've been to costco and walmart in hawaii. The prices are not that expensive.

I didn't think Costco prices were that much different from the mainland either.

I also didn't notice if the price of paper towels and toilet paper has doubled along with whatever other paper products were affected by energy prices... If you asked me, I'd say I was paying the same today as I was three years ago for paper, soap, and cleaning products. If these costs are truly double then I should start paying more attention to these things.

Maybe I'll start being thankful that Starwood is raising MFs by only 15% and is using its negotiating power with suppliers in my and other owners' interests!

 

[Fredm]

What seems to grab attention from corporations in this day and age are these types of initiatives...

That will definitely do it! Talk about exposure. Over 5mm hits!

 

[jerseygirl]

Danny M --

That's brilliant! I saw that video when it first came out and was super impressed with the coverage it got (all the major news networks covered it).

Nodge ---

We need you. I'll chip in $100 to pay some garage bad to record a song if you'll write it. It needs to hit home ...

I'll also "take one for the team" (weather getting chilly here!) and go to Vistana Resort for a week to video the $67K worth of renovations during a recession.

 

[DavidnRobin]

Per the Owner's Agreement, all WKORV inventory not booked is turned over to SVO, who is free to rent it out for cash and/or StarPoints. And they get to keep all the cash, aside from a modest housekeeping charge ONLY IF extra housekeepers are called in to deal with the renters. We owners get nothing. Nada. Zilch.

It really irritates me that SVO wrote such a one-side agreement. We get all the downsides of owning (e.g. covering all the costs) and NONE of the upsides, such as rental income to offset our expenses. If FredM is correct, we're not only getting screwed by having to absorb the wear and tear of these renters, but we're also footing the bill for their energy usage -- their air conditioning bills, their hot water usage, etc.

And, of course, as delinquencies go up, we're now expected to foot the bill for delinquent owners. Which means MORE inventory for Starwood to rent out, more money in their pockets, and more OUT Of the owners. It's a great system. For them!

The whole system is wrong. And we should pressure our HOA to do something about it. We simply cannot sustain a 10%+ increase every year.

And if the HOA won't do anything about it, then surely there's an out-of-work attorney somewhere that could take up our cause to fight this usurious, one-side agreement.

While unbooked WKORV intervals are turned over to SVO/SVN - what about this situation where Owners do not pay their MFs and they rolled over into the MFs owed? What happens to their villas in the long run if they default?

Since this is a global issue for all SVO intervals it seems (WSJ base MFs are going up 25% in part because of deliquences) - pehaps it should be it's own thread - as to unify in order to start pressuring various HOAs for answers.

 

[Fredm]

didn't notice if the price of paper towels and toilet paper has doubled along with whatever other paper products were affected by energy prices... If you asked me, I'd say I was paying the same today as I was three years ago for paper, soap, and cleaning products. If these costs are truly double then I should start paying more attention to these things.

I was using prices from Jan1 2005, through current. So, almost 5 years.

Just came back from Target. Bought a box of Target brand tissues.
Paid 1.12 for a box of 120.
A few years ago a box of 200 was .99.

A bar of Dial Soap was 5 oz, and cost .39. Now it's 4 oz and .59.

I'm one of those penny wise, and dollar foolish people. For whatever reason, I notice the price of everyday things. As often as not, the price is hidden in the unit count.

 

[jerseygirl]

I'm one of those people who doesn't trust my memory and uses the Bureau of Labor Stats to check prices!

CONSUMER PRICE INDEX FOR THE HONOLULU AREA, FIRST HALF OF 2009


Consumer prices in the Honolulu metropolitan area increased by 0.3 percent from one year prior, but decreased by 1.0 percent in the first half of 2009 according to the Bureau of Labor Statistics of the U.S. Department of Labor. Regional Commissioner Richard J. Holden noted that an increase in the housing index contributed significantly to an overall increase in the annual all items index.

The transportation index fell by 11.0 percent for the year and 9.8 percent for the past six months. Over the year, gasoline prices were lower by 32.6 percent since the first half of 2008 and 30.6 percent since the second half of 2008.

The housing index made appreciable gains of 0.8 percent for the year. Annual prices for shelter also rose by 2.7 percent over the year and 2.3 percent for the past six months. The rent of primary residence index experienced increases of 3.2 percent and 2.5 percent for the year and for the past six months, respectively.

Prices paid for food and beverages rose 5.8 percent over the course of the year. During this period, both the food at home and food away from home indexes increased by 5.9 percent. An increase of 1.8 percent was recorded in the food and beverages index over the past six months. Food at home prices were up a modest 0.6 percent over the past six months and food away from home prices increased by 2.1 percent. The price of alcoholic beverages increased by 2.1 percent for the year and increased by 3.2 percent since the second half of 2008.

Medical care prices rose by 1.5 percent for the past twelve months and by 1.1 percent for the past six months.

Apparel prices exhibited large gains, with an 8.0 percent increase for the year and a 9.3 percent increase since the second half of 2008. Prices for recreation were unchanged since first half of 2008, but increased 0.6 percent from the latter half of 2008.

Education and communication prices advanced 5.0 percent during the past year and 1.5 percent over the past six months. Other goods and services rose by 7.5 percent on an annual basis and 5.1 percent on a semi-annual basis.

The Honolulu area’s Consumer Price Index for All Urban Consumers (CPI-U) advanced to 228.070 (1982-84=100) during the first half of 2009. Therefore, a market basket of goods and services that cost $100.00 in 1982-84 would have cost $228.07 in the first six months of 2009. Local area CPI data are not seasonally adjusted

 

[Fredm]

I don't like relying on memory either.

The discussion was about the effect of electricity prices on HOA fees over time.

I used the seventh table down to pin commercial rates, starting in 2001 through the present.

 

[jerseygirl]

08 was a killer. Not likely fully budgeted for. So, it had to be adjusted for in 09. Just a guess.

But I don't think it works this way, Fred. For all of the resorts I own (too many), the financials clearly reflect when a deficit is carried over from one year to the next (it happens). If WKORV owners did not see a deficit c/o in their 09 numbers, then there's no way they should be seeing increased utility (or other, for that matter) costs in 09. Your own chart shows Hawaii commercial power rates decreasing from $31.94 to $20.74.

I haven't read this thread line-by-line ... am I missing something ... wouldn't be the first time.

 

[Fredm]

But I don't think it works this way, Fred. For all of the resorts I own (too many), the financials clearly reflect when a deficit is carried over from one year to the next (it happens). If WKORV owners did not see a deficit c/o in their 09 numbers, then there's no way they should be seeing increased utility (or other, for that matter) costs in 09. Your own chart shows Hawaii commercial power rates decreasing from $31.94 to $20.74.

I haven't read this thread line-by-line ... am I missing something ... wouldn't be the first time.

I don't know either. That's why I said it was just a guess.
Troopers reported that KOR was indeed showing a reduction in energy bills.

However, prices for goods and services affected by utility rates do not fall in tandem with these rates.
My observation covers the almost 5 years from 1/1 2005. Not just the temporary drop for 6 months in 09, which are now going back up big time.
The rate drop not universal. California rates increased during the same 08-09 time period.
Items specifically consumed by a Hawaii resort are not manufactured in Hawaii. Their cost basis is established elsewhere.

Nor do I hold that utility rates are the sole cause of increased fees.
But a substantial part across a five year period for all resorts.

I also have estimated Starwood up-charges about 10% for goods and services it provides, in addition to its management fee. This becomes a larger take as actual costs increase.

 

[krj9999]

Your should probably not compare January from one year with July from another year. Below are the year-to-date averages:

http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_b.html

The commercial price of a kw/h in California was 10.71 cents on January 1, 2005. On July 31, 2009 it was 16.38 cents. Rates were higher for most of 2008. I took the latest figures as they will fluctuate and be higher in the future.