Harbour Point maintenance fee increase

[Ricci]

My Harbour Point maintenance fee has increased 7.3% for 2016.

The vast majority of the increase was from "bad debt expense"....it increased 2001.4%. What constitutes bad debt expense? ( It went from $2.88 to $60.52)

 

[SueDonJ]

Generally "bad debt" is associated with unpaid Maintenance Fees and/or mortgage loans. I'd guess that with the age of the resort MF's are more in play than mortgages but what would be the reason for so many more owners over a period of a year to not pay MF's?

 

[JIMinNC]

Budgeted bad debt expense was also one of the larger components in the DC Trust MF increase, although it was only about a 30% increase per beneficial interest. Still substantial, but nowhere near the percentage noted by the OP for Harbour Point.

Makes me wonder if there was perhaps some accounting policy change that has changed the way that they must provision for bad debts.

 

[bw3]

Bad Debt Expense

I noticed the bad debt expense at Marriott's Frenchman's Cove went from about $11 per week to about $54 per week from 2010 to 2016. I think the root of the problem is that the maintenance fee for off season weeks is so exorbitant that owners just stop paying. If you are paying for the maintenance fee on your week plus the fees others do not pay, when does the increase stop? Or when do you fire the current management company and bring in someone who can manage it better?

 

[pedro47]

I noticed the bad debt expense at Marriott's Frenchman's Cove went from about $11 per week to about $54 per week from 2010 to 2016. I think the root of the problem is that the maintenance fee for off season weeks is so exorbitant that owners just stop paying. If you are paying for the maintenance fee on your week plus the fees others do not pay, when does the increase stop? Or when do you fire the current management company and bring in someone who can manage it better?

When is off season at this resort ?

 

[dioxide45]

When is off season at this resort ?

Hurricane Season. Mostly August through October.

 

[pedro47]

Hurricane Season. Mostly August through October.

Thanks! Late August is the Commander-in-Chief Birthday. Now that explain why it is Hurricane Season.

 

[SueDonJ]

When is off season at this resort ?

Hurricane Season. Mostly August through October.

There are no season designations in the Resort Calendar. At the HHI resorts that do have seasons in their Resort Calendars, Aug-Oct is Gold and Feb-Mar is the lowest Bronze.

Hilton Head Island seems to be somewhat protected from hurricanes compared to other southeast coastal areas - they're not unheard of but as a frequent visitor I'm much more inclined to favor fall over winter, much less inclined to think of "hurricane season" being the same as, for example, Florida.

 

[SueDonJ]

I noticed the bad debt expense at Marriott's Frenchman's Cove went from about $11 per week to about $54 per week from 2010 to 2016. I think the root of the problem is that the maintenance fee for off season weeks is so exorbitant that owners just stop paying. If you are paying for the maintenance fee on your week plus the fees others do not pay, when does the increase stop? Or when do you fire the current management company and bring in someone who can manage it better?

A Developer can't be forced to be financially responsible for non-performing ownerships, and a Manager can do only so much to streamline the processes of transferring non-performing ownerships. In all cases, the other owners are responsible for the slack of non-performers regardless of what a Developer/Manager tries to do. So, to say it can be "managed better" sounds good but what exactly does/can it mean?

If the state regs don't allow the Developer/Manager to differentiate MF's based on high- and low-demand periods, which in the case of Harbour Point the SC regs do not, what could a new Manager do differently than what MVW is already doing? Within the last few years MVW has petitioned and won the right to perform non-judicial foreclosures (allowing a more streamlined process to reclaim non-performing Weeks/Points) and they've expanded their buyback/brokering program of Weeks. What else is there that doesn't involve MVW assuming the financial responsibility (which they're not going to do?)

 

[dioxide45]

There are no season designations in the Resort Calendar. At the HHI resorts that do have seasons in their Resort Calendars, Aug-Oct is Gold and Feb-Mar is the lowest Bronze.

Hilton Head Island seems to be somewhat protected from hurricanes compared to other southeast coastal areas - they're not unheard of but as a frequent visitor I'm much more inclined to favor fall over winter, much less inclined to think of "hurricane season" being the same as, for example, Florida.

pedro47 was replying to a post about Frenchman's Cove. So my response was in relation to that property.

 

[SueDonJ]

pedro47 was replying to a post about Frenchman's Cove. So my response was in relation to that property.

Ah, sorry about that.

 

[BocaBoy]

If the state regs don't allow the Developer/Manager to differentiate MF's based on high- and low-demand periods, which in the case of Harbour Point the SC regs do not, what could a new Manager do differently than what MVW is already doing?

I continue to be truly amazed by the number of people who seem to think that maintenance fees (as opposed to property taxes) should vary by season. (I recognize that this was not the point of your post, Sue.) Maintenance fees are, after all, a COST OF OWNERSHIP and it costs as much to maintain a resort in off season as it does in high season. It is kind of like saying an expensive car should pay more than a cheap car for a gallon of gas. In fact, if maintenance fees were to vary by season, I think a strong argument could be made that the maintenance fees for hurricane season weeks should actually be higher than for peak season weeks, or that summer Arizona weeks should have higher maintenance fees than winter weeks because of the air conditioning costs. Timeshare owners too often think of maintenance fees as rental type expenses rather than ownership costs.

 

[bazzap]

I continue to be truly amazed by the number of people who seem to think that maintenance fees (as opposed to property taxes) should vary by season. (I recognize that this was not the point of your post, Sue.) Maintenance fees are, after all, a COST OF OWNERSHIP and it costs as much to maintain a resort in off season as it does in high season. It is kind of like saying an expensive car should pay more than a cheap car for a gallon of gas. In fact, if maintenance fees were to vary by season, I think a strong argument could be made that the maintenance fees for hurricane season weeks should actually be higher than for peak season weeks, or that summer Arizona weeks should have higher maintenance fees than winter weeks because of the air conditioning costs. Timeshare owners too often think of maintenance fees as rental type expenses rather than ownership costs.

It is interesting that at some of our home resorts at various times they lay on "extras" in high season, be they sports events, social events, special dining events, shuttle services...etc which are not available in low season, so I could almost see some justification for MF variation by season.
It would be a total nightmare to manage this though, so keeping things simple (which I really wish MVC would do with so many other things) is the only sensible option with the vast majority of resort ownership costs being common for everyone.

 

[bw3]

Bad debt expense

Sue, in reply to your questions regarding what the management/developer can do. No, I never suggested that they charge different fees for lower demand season or that someone should be forced to repurchase the weeks. But as a management company, I expect Marriott to work real hard to offset these expenses. They could rent out the weeks and put the income against the owner maintenance fees. Marriott is paid $1.8 million for management fees at MFC (Frenchman's Cove). When you compile accounting, administration, billing and collections, front desk, housekeeping, human resources, owner services and management fees, the total is $6.3 million out of an operating budget of $12.6 million. I can imagine that Marriott makes a significant profit in these areas. The bad debt expense in total is $440,000 for the budget. I don't think it is asking too much of a management company to think of some ideas to offset maybe $300,000, do you? Marriott does not say this in their budget but the numbers suggest something like this, " Some owners didn't pay their fees. Nothing we can do. So your charge goes up. Not our fault. Too bad!" All managers are charged with the responsibility of watching costs and acting in the best interest of the owners. That is all I expect from Marriott.

 

[SueDonJ]

Sue, in reply to your questions regarding what the management/developer can do. No, I never suggested that they charge different fees for lower demand season or that someone should be forced to repurchase the weeks. But as a management company, I expect Marriott to work real hard to offset these expenses. They could rent out the weeks and put the income against the owner maintenance fees. Marriott is paid $1.8 million for management fees at MFC (Frenchman's Cove). When you compile accounting, administration, billing and collections, front desk, housekeeping, human resources, owner services and management fees, the total is $6.3 million out of an operating budget of $12.6 million. I can imagine that Marriott makes a significant profit in these areas. The bad debt expense in total is $440,000 for the budget. I don't think it is asking too much of a management company to think of some ideas to offset maybe $300,000, do you? Marriott does not say this in their budget but the numbers suggest something like this, " Some owners didn't pay their fees. Nothing we can do. So your charge goes up. Not our fault. Too bad!" All managers are charged with the responsibility of watching costs and acting in the best interest of the owners. That is all I expect from Marriott.

About what's bolded - although it sounds heartless that is exactly the stance that I expect MVW to take, as well as any other management company brought in, because that's exactly what the governing docs spell out: once the Weeks/Points are sold from Developer inventory it's the Owners who collectively share the burden for any that become non-performing. If MVW or a new Manager volunteered to assume that responsibility from the Owners, I'd wonder what their motivation is and how quickly they'd bankrupt themselves and maybe the resorts with their reckless spending.

About the Management Fee - it's a flat 10% (at the US resorts) of the Operating and Reserve items in the budgets. MVW doesn't build in profit margins to the budget's administration-related line items and then on top of those earn the additional 10% - they earn only the 10%. (I know, I know, "only" is relatively ridiculous in context. )

As far as non-performing Weeks/Points generating rental income, MVW or any other Manager already has the rights to do so. SurfWatch's docs say that any amount above MVW's costs to rent a non-performing interval are to be applied to the delinquent Owner's account (thus reducing its burden as "bad debt.") I don't know if/how the governing docs for other resorts read.

I'm not at all suggesting that MVW's profit margins wouldn't easily allow for sacrifice on their part if they were to voluntarily offset "bad debt" expenses in the resorts' budgets. Of course they could afford to do it! But why should they, or any other management company, be expected to do it? They're charged with performing according to the Management Agreement and other governing docs - if they're following those directives I don't have a problem with what they're doing. (And neither should their shareholders whose concerns are also important.) My problem is with Owners who are financially solvent walking away from their commitments, and I don't understand why the Manager gets criticized when it's Owners who are causing the problem.

 

[rsackett]

Does anybody know what happens to the weeks usage when someone does not pay their main fees? I am sure they do not retain usage. Does the TS Management turn the week over to Marriott to rent? If so how does the rental fee get divided? At $3 per week fee I was not so interested, at $60/wwek I am much more interested.

Ray

 

[bw3]

Thanks Ray. That is really the point. I don't think Sue gets it. We as owners need management to rent out these weeks for our benefit. And that benefit would offset the deadbeat owners. Management does not have to pay for the unpaid maintenance fees. But the now vacant units should be converted into some kind of rental income for the remaining owners. The owners should be foreclosing on unpaid weeks.

 

[SueDonJ]

Thanks Ray. That is really the point. I don't think Sue gets it. We as owners need management to rent out these weeks for our benefit. And that benefit would offset the deadbeat owners. Management does not have to pay for the unpaid maintenance fees. But the now vacant units should be converted into some kind of rental income for the remaining owners. The owners should be foreclosing on unpaid weeks.

I do get it. But it doesn't matter what any of us think MVW as the Manager should be doing, what matters is what they and the owners can do! I know it's frustrating to no end to always hear the same response, that the governing docs should be reviewed, but the fact is that they contain contingencies for most every ownership concern including this particular one and they can't be ignored.

All the questions you're asking about the phenomenal increase in the resort's "Bad Debt" line item and what's being done to minimize it should be directed to your HOA Board, who should be willing to engage with Owners who are performing. Is the line item being figured differently from years past? If so, they should explain their new equations. If not, they should be able to at least theorize why this year's numbers are so much higher than last year's, so much higher than the historical year-over-year numbers.

Generally when anomalies are present in the annual budgets, they're given at least a line or two in the annual GM's letters for my resorts. I don't know if this year's problems with the MF's being released and invoiced are holding up those letters, too, or if your resort's GM regularly sends such letters. I completely agree with you that this one item deserves a detailed explanation, and I don't blame you for being concerned now and maybe indignant if they're given a chance to explain it but don't. Really - if I owned there I'd be as concerned as you are and I'd be asking the same questions you're asking. I would expect MVW, the resort board and the GM to be responsive. Good luck.

 

[BocaBoy]

It is CLEARLY the case that a management company like Marriott should be doing everything they can to offset these bad debt expenses. We owners PAY THEM to do just that. They manage the budget and should do everything they can to keep it under control. That is one thing I would expect from the 10% we pay them. It is condo management 101. (That does not mean Marriott needs to cover these losses -- that is not the point that anyone is making here.)

And by the way, Marriott earns 10% on the bad debt expense, which is further evidence that they have the obligation to be working hard on this item.

Unfortunately, MVCI flunks on this cost control point, as well as others.

 

[dioxide45]

It is interesting that at some of our home resorts at various times they lay on "extras" in high season, be they sports events, social events, special dining events, shuttle services...etc which are not available in low season, so I could almost see some justification for MF variation by season.
It would be a total nightmare to manage this though, so keeping things simple (which I really wish MVC would do with so many other things) is the only sensible option with the vast majority of resort ownership costs being common for everyone.

Another thing is that quite often amenities are taken away in the off season. Pools are often closed and villas are being renovated causing parking issues or noise near your villa. Obviously Marriott fixed the MF for low season by going to points, low season weeks cost fewer points and thus lower MFs. This would be like charging $1 per point in MFs for buying only 1000 points or $0.50 per point if you own 2,000.

 

[dioxide45]

I continue to be truly amazed by the number of people who seem to think that maintenance fees (as opposed to property taxes) should vary by season. (I recognize that this was not the point of your post, Sue.) Maintenance fees are, after all, a COST OF OWNERSHIP and it costs as much to maintain a resort in off season as it does in high season. It is kind of like saying an expensive car should pay more than a cheap car for a gallon of gas. In fact, if maintenance fees were to vary by season, I think a strong argument could be made that the maintenance fees for hurricane season weeks should actually be higher than for peak season weeks, or that summer Arizona weeks should have higher maintenance fees than winter weeks because of the air conditioning costs. Timeshare owners too often think of maintenance fees as rental type expenses rather than ownership costs.

A lot of high end expensive cars do pay more for gas, they usually require premium where the cheaper car can run on regular

 

[suzannesimon]

I don't really know how easy it would be for them to rent off-season weeks. I think they should be foreclosing quickly and selling the weeks to anyone - how about to Marriott and they can put them in the Trust? I don't know what the legalities are for renting weeks that are owned. If you've ever lived in a condo , which is what a timeshare is, a management company can't just step in and rent a unit because someone is in arrears in their fees. They have to foreclose and then hopefully sell it to someone else or become the landlord and rent it then. I'm not sure management can rent weeks that are deeded to someone else.

 

[bw3]

Well, yes, foreclosure is recommended after a period of time. But the Marriott online reservation site gives notice that reservations made will be cancelled within 3 days if maintenance fees are past due. The front desk always knows when units are vacant. Interval used to rent excess unused villas for about half the maintenance fee amount for off season weeks when there was a glut of inventory. I am not sure what Harbour Point would be able to get for a December or January week. Even if they get $400, it would offset some of the lost maintenance fees.

 

[SueDonJ]

Well, yes, foreclosure is recommended after a period of time. But the Marriott online reservation site gives notice that reservations made will be cancelled within 3 days if maintenance fees are past due. The front desk always knows when units are vacant. Interval used to rent excess unused villas for about half the maintenance fee amount for off season weeks when there was a glut of inventory. I am not sure what Harbour Point would be able to get for a December or January week. Even if they get $400, it would offset some of the lost maintenance fees.

Suzanne makes a good point about the probability of renting off-season intervals. Just last week I made a 5-night mid-December reservation at Harbour Point using the Member Discount for last-minute DC stays at 205 total DC Points. The same nights would have also been available from II as a Getaway or using an AC, and on marriott.com using the DC status discount at $153 per night. That's a lot of available inventory for a long-established MVCI resort; I'd guess that MVW is making rental intervals available.

At question is how many of these available intervals represent non-performing ownerships either in arrears or foreclosed, and, regardless of their origin, how many of them can/are generating income that MVW is required to apply as an offset to "Bad Debt." Those are the numbers you need in order to begin focusing the much-needed discussion.

"Bad Debt" as a single subject is important enough. The "Bad Debt" single-year increase in the Operating Budget at this one resort is astronomical, out of the range of any norm in the system, and owners are justified in the panic they may be feeling over it. Again, I would expect MVW, the resort Board and the GM to be willing to explain as much as they can this statistical anomaly and what's being done to counter it. Worth noting is that the Jun'15 letters from the BOD and the GM (posted at the resort's my-vacationclub.com page) make no mention at all of skyrocketing "Bad Debt"-related items.

 

[suzannesimon]

I would love to know what they can legally do with the weeks with unpaid fees prior to foreclosure. I'm sure they are buried in the recorded documents somewhere. We know that the Interval getaways are excess inventory from people who have traded their weeks to Interval for other weeks. We also know that Marriott can rent the weeks that are traded for Reward Points. Can there be a "bucket" for unpaid maintenance fee? If not, the association should foreclose quickly and have an auction. I've occasionally seen posts here on TUG of reported scheduled auctions by the timeshare associations.

It sounds to me like they aren't moving these off the books fast enough. Marriott might grab them on ROFR, but who cares?

Is it possible that there is a line-item somewhere on the financials that shows money coming in through assn-owned units that sold that is offsetting the bad debts?