The Tale of Two Resorts

[OldGuy]

After 30 years of timesharing, I recently decided to look at the financials at the two resorts where we still own. There's some interesting things, maybe just to me.

Resort 1 is true legacy resort. It is a SW Florida beachfront resort that was established in 1982 by converting a motel built in 1959, a common practice in SW FL in the 70s and early 80s. It has an aging owner base and offers more-than-the-usual services to it's owners, an Owner Rental Program, a resale program, both rentals and resales to current owners at deep discounts, and year-round amenities day-use (beach club). There are resort-owned weeks that are both rented and offered for sale, being marketed on the Internet, through a local real estate company, and by various other means, like auctions and special offers to current owners (buy one for $650, get a second for $295).

I am getting information for this resort from the detailed budget(s) and financial statements prepared by a CPA firm.

Resort 2 is not a true legacy resort. It is in a popular Mid-South family tourist destination hosting 9 million tourists each year. It is located within an upscale gated golf community, and was established by the developer as an integral part of the residential/resort development, and was part of the developer's timeshare mini-system. The developer is long-gone, subsequent active marketing also ended long ago, and the timeshare mini-system is long gone. There are a lot of unsold units, especially in a "newer" timeshare-only section. Owners of any of the original 14 units have year-round day-use rights (country club) and are eligible for annual membership in the championship golf course. Owners pay a POA fee as part of their timeshare annual fee. This resort does not offer owners any of the extra services that Resort 1 does, Owner Rental Program, resale assistance, or discounts on rentals and resales. There are resort-owned weeks that are being marketed somehow, by some company that the Association does not like to discuss, but that is only for resort-owned weeks.

I am getting information for this resort from the breakdown for the annual fee.

Both resorts are dealing with the issue of defaulting owners, as do all resorts to one degree or another.

The first thing about Resort 2 is that not only is 18% of the annual timeshare fee going to the community's POA for the owned week, but another 10% is going to the POA for Association-owned weeks. So, 28% is a significant sum for owners of Resort 2 that owners of Resort 1 do not have, and the 10% that owners pay to the POA for resort-owned weeks is an expense to owners that I had never considered. So, unlike Resort 1, resort-owned weeks at Resort 2 not only represent no income, they actually cost all the owners extra money.

Of course, what I am really interested in is how the two resorts deal with the issue of defaulting owners, and if trying to do something pro-actively helps the owner base.

At Resort 2, Bad Debt expense is 8% and Legal Expense is 2% of the annual fee. However, there is a mysterious, unexplained Miscellaneous Income of 8.8%, so for the only-slightly-informed owner, it could be that they are doing something that creates a wash regarding defaults.

At Resort 1, Bad Debt expense is 10% and legal expense is 2% of the budget. I don't know how they go about taking weeks back other than that the most common way is through non-judicial foreclosure. However, income from other than owner assessments, i.e., rental income, rental commissions, and net unit sales income, is 11% of the budget. So, I can conclude that at Resort 1, the specific extra actions of the resort over and above normal resort operations offsets the expense of defaults.

 

[rboesl]

An interesting comparison. I recently received a financial statement from one of the resorts we own at. I was surprised to see Bad Debt expense was at 18%. It brought me to wonder what is the typical Bad Debt expense? And, is there an optimal percentage (other than 0)?

 

[OldGuy]

As I've posted a couple of times, Wyndham's loan default rate is 21%.

Bad debt expense is what is spent/budgeted on bad debt, not what the level of bad debt is. I don't think financial statements would show what the level of bad debt (default) is.

 

[JudyS]

....

The first thing about Resort 2 is that not only is 18% of the annual timeshare fee going to the community's POA for the owned week, but another 10% is going to the POA for Association-owned weeks. ...

I am trying to understand this. So, there is both an HOA for the timeshare and a POA for the larger development? Then, if bad debt is only 8%, doesn't that mean only 8% of the units are owned by the timeshare HOA? If total POA fees are 28% of MFs (18% plus 10%), and POA fees for HOA-owned weeks are 10% of MFs, that implies 35% of the weeks are HOA-owned.

 

[OldGuy]

I am trying to understand this. So, there is both an HOA for the timeshare and a POA for the larger development? Then, if bad debt is only 8%, doesn't that mean only 8% of the units are owned by the timeshare HOA? If total POA fees are 28% of MFs (18% plus 10%), and POA fees for HOA-owned weeks are 10% of MFs, that implies 35% of the weeks are HOA-owned.

There's no way of knowing how many weeks the Association owns based on the limited amount of information they provide.

In the annual fee breakdown, there is an item of $72.20 for POA fees for Association Owned Weeks, but it does not say how much that is per Association-owned week or how many owners are paying the $72.20.

Also, Association-owned weeks are not just defaulted weeks, because there are a lot of unsold weeks, so there really is not a reliable figure for the default rate.

I did not realize that the COA was paying the POA for unowned weeks, and that probably stems from the obligation of the original developer to do that. It just does not seem right that owners are paying the POA for weeks that are not owned, so no one is using the POA through them.

 

[Jan M.]

If you own that would make you part of the POA, property owners association, correct? I thought I read in one of the threads someone posted that at their resort owners are all given the opportunity to book the weeks owned by the POA. I don't remember what they posted but would guess that all you would have to do to take one of those weeks is pay the maintenance fees to use it. The first choice would be to rent them out for more than the cost of the maintenance fees which helps all owners a little more.

 

[OldGuy]

If you own that would make you part of the POA, property owners association, correct? I thought I read in one of the threads someone posted that at their resort owners are all given the opportunity to book the weeks owned by the POA. I don't remember what they posted but would guess that all you would have to do to take one of those weeks is pay the maintenance fees to use it. The first choice would be to rent them out for more than the cost of the maintenance fees which helps all owners a little more.

1. The POA does not own any of the timeshare weeks.

2. I am not aware of any effort by the timeshare Association to offer Association-owned weeks to owners, or anyone, for sale or rent. I'm not sure what their plans are. If this sounds like perhaps the Association does not provide much information to owners, that would be correct. If I asked, they would just be snooty about it, like who am I and why would I need to know?

But, I sent them the following, so we'll see what they have to say:

Just wondering . . . how many weeks does the Association own?

Are they available to owners, to rent or purchase?

Why are owners paying a POA fee for Association-owned weeks? Since they are not owned, and no one is using them, so no POA amenities or services are being used by them? Or are they?

How many POA fees for how many Association-owned weeks does my $72.20 pay?

Do owners get an audited financial statement, a budget, or just the breakdown of the annual fee?

 

[silentg]

I’m confused in previous posts you said you don’t own any-timeshare now? Where do you own?

 

[JudyS]

There's no way of knowing how many weeks the Association owns based on the limited amount of information they provide.

In the annual fee breakdown, there is an item of $72.20 for POA fees for Association Owned Weeks, but it does not say how much that is per Association-owned week or how many owners are paying the $72.20.

Also, Association-owned weeks are not just defaulted weeks, because there are a lot of unsold weeks, so there really is not a reliable figure for the default rate.

I did not realize that the COA was paying the POA for unowned weeks, and that probably stems from the obligation of the original developer to do that. It just does not seem right that owners are paying the POA for weeks that are not owned, so no one is using the POA through them.

Thanks for the information. I own at a timeshare that is part of a larger vacation resort and has had severe problems with the POA for the whole development. IIRC, timeshare owners were being charged more than whole-ownership owners for using the pools and other facilities. The timeshares HOAs (there were technically four of them, although just two management companies) sued the POA and won. This was in North Carolina and the timeshares I owned were Foxrun and Fairways of the Mountain, both managed by VRI (I still own a week at Fairways.) The other management company was Wyndham.

In this case, it sounds like the HOA board is part of the problem. That is much harder to fix.

 

[OldGuy]

I’m confused in previous posts you said you don’t own any-timeshare now?

You must have me confused with another Old Guy.

 

[OldGuy]

Thanks for the information. I own at a timeshare that is part of a larger vacation resort and has had severe problems with the POA for the whole development. IIRC, timeshare owners were being charged more than whole-ownership owners for using the pools and other facilities. The timeshares HOAs (there were technically four of them, although just two management companies) sued the POA and won. This was in North Carolina and the timeshares I owned were Foxrun and Fairways of the Mountain, both managed by VRI (I still own a week at Fairways.) The other management company was Wyndham.

In this case, it sounds like the HOA board is part of the problem. That is much harder to fix.

The resort that we owned at since 1992, that is being referred to here currently as a diamond in the rough, and where we just got rid of the last of three weeks by deed back, which I had been requesting for several years, had full ownership, quarter shares, 1/8 shares, and intervals, and that caused turmoil over the years.

The resort I am referring to in this thread has an overall POA for all the properties, many houses, at least three full-ownership COAs, and the timeshare Association, whatever it's called. It's fairly pricey to own in a COA, with two full association fees. Probably $300-400/month.

 

[OldGuy]

But, I sent them the following, so we'll see what they have to say:

Just wondering . . . how many weeks does the Association own?

Are they available to owners, to rent or purchase?

Why are owners paying a POA fee for Association-owned weeks? Since they are not owned, and no one is using them, so no POA amenities or services are being used by them? Or are they?

How many POA fees for how many Association-owned weeks does my $72.20 pay?

Do owners get an audited financial statement, a budget, or just the breakdown of the annual fee?

Well, it's been 10 days and I have not heard back. I've learned that asking once is annoying, and asking twice is badgering , so I'm debating asking again. After all, all I am is one owner asking for the association to perform their fiduciary duty, and provide an accounting of how money is being spent. No other owners are asking, so why should I.

Today is check-in day, so they'll be seeing me in person.

 

[OldGuy]

I inherited my filing system from my mother, except that I hoard in chronological order. On a slow(er) day I may go back in time and see if I can come up with some financial reports, maybe from the diamond in the rough resort we just deed back the last of three weeks there.

Maybe some actual financial reports from the annual meetings of the Association that I've said didn't provide one. Surely they would report that to owners, huh?!

I'm on my way to check (some folks) in there, so I'm sure they'll have what I want waiting for me.

 

[OldGuy]

Today is check-in day, so they'll be seeing me in person.

Check-in was smooth and pleasant, and they have eliminated the second check-in desk, where you got your pool passes and scheduled your "Update." Based on that, I would conclude that they have given up trying to market to current guests and owners.

But, darn, they did not have any financial statements, or answers to my other questions, for me.

The Social Director for the POA was there with flyers inviting timeshare guests to the community-wide Summer party, which, unfortunately for this week's guests, is next Saturday night.

I got my guests situated and they seemed to be very pleased with their Gold Crown accommodations.