KBV: Ballots on their way

[bnoble]

Today’s USPS delivery summary includes something from “election services” on behalf of the KBV IOA. It appears we are getting one for each owned week. I haven’t gone out to the mailbox yet, so no idea whether this is The Big One or just a “routine” Board election. But keep an eye out for them in your mail. There is often a short fuse on these things.

 

[bnoble]

It is The Big One. I will scan the letter in when I get a chance later.

In the meantime, my take on what it all means: The AOAO Board (the body that includes both the timeshare owners and the whole owners) has called for a vote on NOT PROCEEDING with the remediation. To pass, this vote requires 75% of the Apartment Owners to approve the motion---again, the motion is to NOT PROCEED.

If the motion carries, the entire property will be sold at auction, with the proceeds of the sale (plus any insurance proceeds) divided amongst the owners. Payouts would be subject to the owner being current on anything due. If the motion fails, then the next question is how to proceed with paying for the remediation. Note that's not whether to proceed, but how. So, this ballot is the "do we stay or leave" vote.

For the purposes of the AOAO vote, each "unit" (apartment) votes as a single entity. That means that the timeshare owners are voting as part of a larger group of the other owners of their unit to produce a single up or down vote. If there is a majority of votes in any unit, the IOA will cast the vote in accordance with that majority. If there is not a majority (presumably, because some people do not vote and/or abstain) the IOA Board will vote in what it believes to be the IOA's overall best interest. There is no statement about what the IOA Board believes that to be---at least not that I can see.

The meeting is scheduled for May 2nd, starting 10:30 HST. Proxies must be received by 4:30P HST on April 27th to count.

----------------------

I have not spoken with my partner about this, but as I've written before, I believe we will be voting in favor of the motion not to proceed. Remediation is estimated to cost almost $9K per 2BR interval in total (not including any loan interest), and is expected to take five years. For $9K, I can buy resale weeks at other very nice Hawaiian timeshares. Conversely, these units are worth $0 on the resale market--even the ocean-views, so any proceeds we'd get from the sale/insurance are just a bonus.

I'm sad about this--this has been a great resort, and important to our family. But, it is time.

 

[DeniseM]

Thank you so much - I look forward to receiving the letter.

 

[DeniseM]

I'm going to put up a poll - it's going to be private, so Wyndham et al. can't see how you vote.

THIS POLL IS FOR KBV OWNERS ONLY: CLICK HERE FOR THE POLL

 

[magmue]

Remediation is estimated to cost almost $9K per 2BR interval in total (not including any loan interest), and is expected to take five years

Is that spelled out as part of the letter that accompanies the ballot?

We haven't received anything yet.

The process describes sounds needlessly complicated. I wonder how they arrived at 75% majority needed to pass a resolution to sell? ?

 

[amycurl]

I'm guessing that percentage is spelled out in the by-laws of the association, not just some random percentage that they made up.
The more interesting thing is the whole putting the 52 timeshare owners of each unit together to figure out the vote for that unit. The chances are slim that 27 owners will vote in one definitive direction or the other. And that means knowing what the IOA Board feels is in the best interest of the owners all the more compelling. I can see why they didn't spell it out--not wanting to necessarily influence the vote--but it will be *very* important going forward.

 

[bianchicycle]

I, for one, will not pay $7k x 5 weeks as their assessment. It has been 22 wonderful years at KBV but even if I paid the (proposed) assessment, there is no guarantee that it will all be repaired for that. It will also take years to re-build with us paying assessments for those years. Makes no financial sense.

 

[CO skier]

To pass, this vote requires 75% of the Apartment Owners to approve the motion---again, the motion is to NOT PROCEED.

The only sensible decision is to "Not Proceed." So many owners would walk away rather than pay the estimated $9,000 per week assessment, that it would result in a crushing load of bad debt in unpaid assessments and unpaid maintenance fees going forward, and the resort would ultimately be sold at auction with most if not all the proceeds going to pay for the foreclosure and other costs. A very messy end.

The nightmare scenario is that a majority of owners vote to "Not Proceed" with the remediation, but it does not reach the 75% threshold to pass.

 

[bnoble]

Here is a scan of the letter. (I think this should be publicly accessible.)

-----
After talking it over, we have decided to vote not to proceed with remediation.

 

[TheHolleys87]

I'm not an owner at KBV, but my parents were (G14), and my dad transferred ownership to my brother a few years ago. DH and I stayed there a couple of times with my dad, and the view from the oceanfront villa was beautiful. So this makes me very sad -- but I would vote not to proceed with remediation.

 

[bnoble]

We're very sad about this too. Those oceanfront units played a pretty important role for my partner during a particularly rough patch. They are much more than just a timeshare for us.

On the bright side, if the current motion not to proceed with remediation passes, it looks like the process won't be nearly as protracted as it has been for some other resorts that have ceased operations. In a lot of those cases, someone had to track down owners to get deeds moved in preparation to sell the property, and that's a slog. The Hawaii statues provide a much cleaner and easier path. I give the Board credit for finding this particular way forward, as there is a chance this is all relatively painless. Or at least as painless as I can imagine it being.

 

[DaveNV]

We're very sad about this too. Those oceanfront units played a pretty important role for my partner during a particularly rough patch. They are much more than just a timeshare for us.

On the bright side, if the current motion not to proceed with remediation passes, it looks like the process won't be nearly as protracted as it has been for some other resorts that have ceased operations. In a lot of those cases, someone had to track down owners to get deeds moved in preparation to sell the property, and that's a slog. The Hawaii statues provide a much cleaner and easier path. I give the Board credit for finding this particular way forward, as there is a chance this is all relatively painless. Or at least as painless as I can imagine it being.

For the timeshare owners. definitely. We loved the many years we owned at KBV. We sold our Ocean View ownership several years ago, around the time Grand Pacific was stepping in. The politics and outright shenanigans since then have been astounding.

As to the vote Not To Proceed, (which I personally agree with), what happens to the wholly-owned apartment owners? They stand to not only lose a lot of value money, if the property auctions for a lower price than they may have paid, but they also potentially stand to lose their homes. Not a good thing for them. I wonder if the wholly-owned apartment owners have any special sort of insurance against this sort of thing?

We'd considered and investigated a number of times about buying a unit there to live in when we retired. With this development, I'm rather glad it never happened.

Dave

 

[DeniseM]

Dave - The wholly-owned apartment owners are suing, so that may be settled separately.

 

[bnoble]

If I remember correctly, the value of the condos is less than the cost of remediation. Full remediation for a 2BR/2BA condo is roughly $440K---and that's before the inevitable repairs that will need to be made to the interiors after the work is done, plus presumably years of not being able to use it at all. I think someone dug up a recent sale (or maybe just a listing) for one of these for less than that.

So, they are hosed either way, but it looks like they would be better off liquidating than trying to move forward.

I have no idea what a typical insurance policy might or might not cover in this case, nor is it obvious to me that the management company will ultimately be held responsible for construction defects. A lot will probably depend on the exact terms of the Pahio acquisition from 2006, and secondarily whether or not they can show that maintenance was negligent given those defects were (presumably) unknown.

As an aside, if I'm an owner at any other Pahio resorts, I'm probably thinking about getting out now. What are the odds that significant construction defects are limited to this resort? I suppose it might depend on their age; KBV is pushing 40 years AFAICT.

 

[rickandcindy23]

If I remember correctly, the value of the condos is less than the cost of remediation. Full remediation for a 2BR/2BA condo is roughly $440K---and that's before the inevitable repairs that will need to be made to the interiors after the work is done, plus presumably years of not being able to use it at all. I think someone dug up a recent sale (or maybe just a listing) for one of these for less than that.

So, they are hosed either way, but it looks like they would be better off liquidating than trying to move forward.

I have no idea what a typical insurance policy might or might not cover in this case, nor is it obvious to me that the management company will ultimately be held responsible for construction defects. A lot will probably depend on the exact terms of the Pahio acquisition from 2006, and secondarily whether or not they can show that maintenance was negligent given those defects were (presumably) unknown.

As an aside, if I'm an owner at any other Pahio resorts, I'm probably thinking about getting out now. What are the odds that significant construction defects are limited to this resort? I suppose it might depend on their age; KBV is pushing 40 years AFAICT.

I never thought about Bali Hai and Shearwater being at risk. Something to consider, certainly.

 

[amycurl]

Are Bali Hai and Shearwater as close to the ocean as KBV is? Being more exposed to the elements might have hastened the collapse of the original construction more quickly here than at those two, even if they might share the same structural defects.

 

[DaveNV]

As an aside, if I'm an owner at any other Pahio resorts, I'm probably thinking about getting out now. What are the odds that significant construction defects are limited to this resort? I suppose it might depend on their age; KBV is pushing 40 years AFAICT.

Brings up questions about the Aqua hotel next door as well. Wasn't it built at the same time the KBV condos were? They've sold a lot of rooms there as studio condos.

Construction companies on Kauai were likely following the same building techniques for anything of that era. Makes you wonder whether any other place besides Pahio buildings have the same hidden issues.

Dave

 

[bnoble]

Are Bali Hai and Shearwater as close to the ocean as KBV is?

No, they aren't. And I want to be really clear: This is totally baseless speculation. I have NO EVIDENCE AT ALL that any other resort suffers from even part of these problems. But at the same time, if KBV successfully terminates, we'll be in the market to add to our portfolio--and may well want to own in Hawaii again. But I will be hard-pressed to buy anything else that was under the same development umbrella.

 

[magmue]

It is my understanding that board members - theoretically - have a fiduciary responsibility to act in the best interests of the resort and membership as a whole. They also have a responsibility to be well informed.

I find it confusing that they are unwilling or unable to tell us in the letter what they recommend, based on detailed information they have access to and we do not. Instead, they will vote “as it determines to be in the best interest of the IOA” only for units that don’t reach a majority vote Yea or Nay? Wouldn’t it be in the best interests of the owners to vote with the benefit of knowing wha the board recommends? Of course depending on how much you trust the board, that might sway one toward or against following their advice.

And does the board have a consensus so that they know how they will vote if or those units who don’t reach a majority? If Yes, why not tell us? And if No, will there then be a prolonged board wrangle to cast those votes?

 

[bnoble]

I can imagine at least two reasons.

#1: Suppose that of the votes actually cast, there is a clear consensus on what the owners wish to do, but those votes are not sufficient to rise to the level of 75% by themselves. The IOA Board might then choose to cast its votes in line with whatever that consensus happens to be, faithful to the spirit of the owners' wishes. In that case, the Board would not be able to state a preference, because they cannot know in advance how that consensus will resolve.

#2: Suppose the Board does have an idea of what it would prefer. Disclosing that definitely has the potential to influence the way individuals vote. Perhaps more importantly, the "losing side" might use that as grounds to claim the Board was trying to ram through its own agenda--an accusation that has certainly been leveled more than once over the past several years. By remaining outwardly impartial, the Board avoids at least some of that agita.

But it doesn't really matter, because they haven't disclosed any lean one way or the other, beyond informing us of the process, and the relevant facts as they are understood right now. It's each owner's job to vote their own individual interests in light of those facts, and then let the process sort itself out.

----

To me, this all seems rather academic. If my understanding of the financial picture is correct, there doesn't seem to be a case for attempting remediation, because it will cost more than the units are worth. If that's right, the answer of "what would a fiduciary agent do" is pretty obvious. But, to get to that point, we have to follow a process consistent with the covenants and Hawaii law.

 

[Slrr87]

I'm going to put up a poll - it's going to be private, so Wyndham et al. can't see how you vote.

THIS POLL IS FOR KBV OWNERS ONLY!

I am not an experienced user on TUG.. is there a place I can find this poll?

 

[DeniseM]

Here you go: https://tugbbs.com/forums/threads/this-poll-is-for-kbv-owners-only-how-are-you-going-to-vote.351002/

In the KBV Forum, the poll is the next thread down under the thread we are posting in.

 

[jacknsara]

<snip> As an aside, if I'm an owner at any other Pahio resorts, I'm probably thinking about getting out now. What are the odds that significant construction defects are limited to this resort? I suppose it might depend on their age; KBV is pushing 40 years AFAICT.

Aloha,
I'm still catching up with more urgent stuff having been away for almost a month.
I previously posted about some zillow values for a couple of apartment sales in my campaign document. Feel free to search my posts to find it.
David Walters (PAHIO developer) did NOT develop KBV. It was originally the Hanamaulu Beach Villas and was failing financially. Walters bought the original developers remaining inventory and over a few years bought several of the previous individual owners out as well. Much of that history is documented in the declarations and amendments here https://kauaibeachvillasresort.com/owners-community/documents/ .
It is my understanding that Walters did develop the Shearwater and first phase of Bali Hai. We have owned at the Shearwater for about 10 years. They have had to replace one or a few of the log poles that hold the stairwells up. The place seems to be (feels) well maintained.
Jack

 

[magmue]

No sign of a ballot arriving here. I just called and left a message at Wyndham Kauai Owner Services.

And Owners Community via Jack's link won't let me in

 

[DeniseM]

Based in previous mailings, I think they mail communications to owners in several batches - not all at the same time.