KBV News letter - the resort is in bad shape

[DeniseM]

Owners - you need to keep a close eye on this. This could be the beginning of the end. What happens if the property is condemned? Or they want a huge special assessment? I feel like we are being setup here.

KBV IOA Newsletter Volume 2 2022 April28, 2022Aloha Kauai Beach Villas Interval Owner, On behalf of your IOA Board of Directors, we hope that you and your family are doing well. Much has transpired in Kauai and at the resort since we last wrote to you.This is a long newsletter; please read it in its entirety as there is a great deal of information you should be aware of.The AOAO wasadvised by Wiss, Janney, Elstner, Inc. (WJEhttps://www.wje.com/)to close and evacuate buildings G & H due to issues with the post-tension cables, which was compete onon April 13. The evacuation went smoothly. Several owners have sharedquestions to which we do not have all the answersat this time. WJE will continue building inspectionsand testing over the next few weeks. We will let you know when WJE and The John Hardy Group(JHG (jhgi.com)), the AOAO Project Manager, will be in a position to answer questionsrelated to the various issues that affect the Project.At the direction and consultation ofour contracted expert consultants, the AOAO has contracted forsome of the remedial work that affects the structureof the buildings. Owners in affected buildings have been informed that the lanai shoring will return the buildings to full strength temporarily until apermanent solution can be developed. In addition, the sewer lines in all the buildingsare being jet cleaned; spalling concrete will also be removed from the lanais;and the exposed concrete will be protected until a permanent solutionis recommended by the professionals. In addition, per the recommendation of WJE,the soffits on Buildings F, G, andH will be removed as soon aspossible.The AOAO Board held a Special Meeting on April 7 to approve the expenditurefor this work.All the work that has been done, all the work going on,and all the work yet to be done has been on the advice and recommendation of architects and engineers. Allremediation work has been designed by architects and engineers.In this newsletter we want to provide you a historical overview of the AOAOprocesses and discoveries following theflooding onMarch 28, 2020.The issues being discovered continue to surprise us. As the engineers found one issue needing repair theywould open or remove something and discover another issue, like peeling an onion with a new problem in each layer.Project HistoryThis uncovering of the many latent problems inthe project began following the flood in March2020whenthe ground floors offive of our eight buildings were flooded.The remediation of the flooded units required the removal of the lower four feet of drywall. For the first timesince the

buildings were constructed in 1980 –42years ago–this exposed the inside of the walls,allowingforinspection.As a resultof the inspection process, multiple originalconstruction defects were uncovered. The following is alist of some of theexamples uncovered,though the list is notall inclusive:1.The sill plates of the walls sit on the concrete floor placed over bolts installedin the concrete when it is poured. Many of these bolts did not have washers and nuts installed as they shouldhave. Someof the nuts installed were never tightened.2.The outside edge of the sill plate should be flush with or behind the concrete floor edge to allow for caulking to keep moisture out. Engineers have repeatedly found locations where the sill plate hangsover theedge of the concrete. This leaves a pathfor moisture to enter the building.3.Some of the concrete slabs are spalling, erodingthe area that is supposedto support the sill plates.This creates another path for moisture to enter the building.4.The building support structure includes 4”x4” steel columns and angled supports. Some of these have deteriorated from rust due to the moisture entering the wallsfrom design and original installation problems on the exterior of the buildings. Some aredeteriorated tothe point that they are losing structural strength. The worstof these are at the corners of the lanais which is why the engineers have told the AOAOto reinforcethe lanai corners with wood shoring. Thisshoringisatemporaryfixuntil theycan replace or repair the columns.5.The engineers evaluating the support columnshave discovered no flashing or other means of sealing the wallswhere they meet the lanais at the locationsconcretewas poured. This provides a path formoisture to enter the walls. This has been most evident at the corners of the lanais which is why those columns exhibit the most rust and deterioration.6.The AOAOcontracted with Avelar of Walnut Creek, CA. (www.Avelar.net).They haveengineers and architects specializingin building envelope evaluation. They discovered many places on our buildings where flashing, sealants, and other means to prevent moisture intrusion were not installed when the buildings were originallyconstructed. Avelar produced a 93-page technical report with photographs of the problem areas.The following are quotes from the Avelar report. The wordsin parentheses are added for clarification.a.“The base of the siding extends past the face of the foundation and exposes the underlying gypsum sheathing to moisture”b.“The face of the foundation edge is uneven and/or incomplete allowing for moisture intrusion into the interior”c.“The building paper (vapor barrier) at exterior walls is not continuous behind belly bands (area between floors) which allows water intrusion into wall cavities”d.“The flashing and original trim installation at doors and windows is incomplete which allows water intrusion; window flashing isnot installed and building paper is not continuous to the window frame”.7.Many of our windows and doors were improperly installed and not sealed to the building envelope. Avelarremoved trim strips to inspect above sliding doorsduring their site visit. This exposed gapsbetween the top of the door frame and the wall above it in places wide enough to allow a person to slip their fingers through it.8.Drywall is normally installed in the interior of walls and should remain dry. The gypsum in the drywall will retain moisture itencounters. In our buildings the AOAO inspectionshave found a layer of drywall installed on the exteriorof the walls under the siding. This

drywall is retaining moisture in our walls. The engineering firms we haveretainedhave not seen anything like thisand are unable tooffer us an explanation as to why it wouldhavebeen constructed this in 1980.9.While inspecting the steel columns, the design professionalshave discovered columns that are not flush with the concrete edge, leaving part of the post base hanging off the concrete. This reduces support and provides yet another entry point for moisture.These are some examples,and by no meansis this listall inclusive. Inspections weregoing on in late 2020 and through2021. It took time to select and retain expert services and initiate services beginning withinspections. During this time,COVID-19 led to government mandated travel restrictions forthe islands,even after we found firms willing to travel. COVID-19 was one of our biggest obstacles to making progressthrough 2021.The AOAO wasreluctant to release early reports until theyhad the full scope of issues, how they could be repaired and the costs associated with such repairs. The initial reports only identified problems without providing solutions. Therefore, at that time the decision was made to obtain more information before releasing such reports. The AOAOhas technical reports from:John Graham & Co. ArchitectsWiss, Janey, Elstner Associates, Inc. (WJE)BRPH Architect Engineers, Inc.Insight Environmental LLCPremier RestorationRambollAvelarWith all these reports the AOAO Board needed the information summarized in aform they could review and consider. Theycontracted G70 Architects to create this executive summary.TheAOAOreceived the first draft in mid-June 2021.The executive summary told the AOAOwhat generally needed to be done.Next,theyneeded to understand the cost of the repairs. The AOAOcontracted Joe Uno & Associates (UNO) to provide a Rough Order of Magnitude(ROM) Opinion of Probable Costs (OPCs) for recommended and prospective repairs. Theyreceived the UNO final report in early October 2021. The AOAOneeded to combinethe Executive Summary from G70 and the ROM from UNO and make decisions ofwhat todo, when to do it and how tofund it. Chris Porter of Porter, McGuire, Kiakona,LLP,helped theAOAOunderstand how a Project Manager (PM) could create the plan they needed. The AOAOspent October2021through the end of the year interviewing prospective PMs. Each interview required extensive coordination. In addition,the Governor of Hawaii asked people to not visit the islands in October, which requiredin-person Board and Annual Meetings to also be moved to Zoom. Theylost three weeks in November and December to the holidays. By early

January,the AOAOhad selecteda PM and began contract negotiations. Finally,on February 24, 2022,AOAO President Warner signed the PM contract with The John Hardy Group, Inc. (Hardy or JHG).JHG initiated a review ofthe reports, summaries, and ROMs to understand what the AOAOhad discovered to date. On March 24,2022,theymet at Kauai Beach Villas.Present from JHG:Brent Hardy, President and licensed architectJustin Evans, Senior EstimatorRyan Marzzarella, SeniorProject Director(SPD)From Wyndham Destinations:Robert Morrice, Regional VP of Resort Operations–Hawaiian IslandsRhonda Brown, General Manager, Kauai Beach VillasIan Litchfield, Project Manager, Wyndham DestinationsLarry Warner, President, AOAO Board of DirectorsTheyspent timesharingthe structure of KBV management, the association’s buildings, and the IOA and AOAO relationship. Theytalked about the age and history of the resort and the buildings. The group walked the property looking at rusty columns, lanai ceilings on the third floor, soffits on F, G,andH, stairs, concrete walls, and railings. Theywalked a few units to give the JHG SPD(Ryan Marzzarella) a flavor of the layout, what the remediated IOA units look like, an old unit, etc. With the exception of GM Brown, the group then continued to Honolulu.G70 invited the groupto meet in their offices in Honolulu. Aaron Erickson, SeniorAssociate of Wiss, Janney, Elstner Associates, Inc (WJE),and Rick Papa of RPAPA Construction joined themeeting.Time was spent reviewing the major items on the executive summary report G70 prepared covering the multitude of engineering, air quality, structural and other reports. Each item was discussed in detail until everyone understood the issue and possible remediation. Much of discussion was about the orderand timingof the repairs.The group discussed whether a whole building should be closed and all the remediation completed at one time,orrepairsstaged across several buildingssimultaneously. There were discussions of construction staging space at KBV, resident owner and guest considerations, painting, building envelope, roofs and much more. JHG brings a new perspective. To date the AOAOBoard has seen many reports and suggested remediation for the issues. JHG’s mission is to develop a plan to get KBV to the “finish line” ata reasonable cost and in a reasonable amount of time. JHG has a huge task to complete. They project this initial analysis will takethree months.

Once a comprehensive planhas been devised,the AOAO Board will need to consider financing options. TheAOAOBoard will considercash flow over the life of the project, how much money will be required and when. Part of this financial plan will include determining what needs to be done right away and which tasks can be deferred of scheduledlater.It is theirhopethatin three months the AOAO will have an overallplan theycan initiate. Theywill then need to evaluate and obtain financing within the association’s means. Once theyhave determined what theycan accomplish theywill seek contractors that can perform the work. Before the work begins,theywill need permits from the County, acquisition of materials, a determination of when buildings will be closed and estimates ofhow long. This is going to be a multi-year project.KBV’s buildings were not constructed properly and the aggressive marine environment has taken a toll on them. There is a lot to be done to extend the serviceable life of the buildings. The AOAOwantsto do this while allowing owners to useas much of the resort as possible. It will require the cooperation of everyone at KBV.We will continue to keep you informed and appreciate your understanding.

 

[T_R_Oglodyte]

Eerily similar to the Water Intrusion situation at Point at Poipu.

 

[klpca]

Yikes. That sounds very serious and likely expensive. I guess that the risk is always there with older buildings, both timeshare and residential.

 

[bnoble]

Denise, what do you mean about being set up? Do you think they are making this up?

If it’s a problem it’s a problem and we owners collectively will have to deal with it.

 

[DeniseM]

When Wyndham took over management of the resort in a hostile and unethical takeover, some of us suspected they had an ulterior motive. Either the resort being condemned or a huge special assesment would allow Wyndham to do whatever they want with a valuable ocean front property. I don't trust them.

 

[geist1223]

Denise do you doubt the Inspections and Reports? Do you think these different Engineering/Architecture Firms would collude with Wyndham? Sounds like the General Contractor and numerous Subcontractors cut a lot of corners when the Resort was originally built over 40 years ago and nobody was checking their work. It just might be time to Pay the Piper. I wonder how many Owners will try to just walk away?

 

[bianchicycle]

This is nothing unusual in building construction. I live in a twenty year old community in Los Angeles. Out of the 30+ areas, constructed by different companies, ALL OF THEM haVE been in litigation for building defects. Every condo in my community of 80 units has had some work done to it. It is no surprise that this could and did happen on an island like Kauai.

Let’s not play the blame game or shoot the messenger. If you love the island and the property, let’s do anything we can do to help and encourage. If you don’t, sell and get out and stop complaining.

 

[tango]

The devil will be in the details. All of which are unknown at this point. It remains to be seen how commited Wyndham is to owners who have supported the property over the years. We certainly have enjoyed our time at KBV, but everything has its limits.

 

[DeniseM]

First of all, I will complain - it's naive to bury your head in the sand.

Secondly, you can't even give these timeshares away under the current conditions.

If Wyndham steps up and does the right thing by owners, I will eat crow, and be thrilled - but I don't think they will.

I never said the reports were fraudulent - I said they would allow Wyndham to take over ownership of a valuable piece of property and do whatever they want with it. If the resort is condemned or owners can't/won't pay a big assessment, it would be simple for Wyndham acquire a majority of the deeds, and that puts Wyndham in control of the property as the OWNERS of the property.

 

[bnoble]

If Wyndham steps up and does the right thing by owners

What would you define this to be?

 

[DeniseM]

That's a good question: What it would NOT be is an attempt on Wyndham's part to take over ownership of the resort.

When I talked to the Wyndham Mgr. the last time we were at the resort, she told me that there would NOT be a special assessment, and that Wyndham would get a loan for the repairs that could be paid back over a number of years - let's see if that still happens. That would be a good start.

 

[bnoble]

I'm not sure Wyndham needs to do anything to take control of the resort, as I suspect they have a plurality of the votes by now anyway. Anything they've foreclosed will have been put into CWA, and they retain voting rights forever on that inventory. Based on the fraction of non-performing weeks in the last few budgets, that could be a sizeable chunk.

We love the resort, and will continue to enjoy our ownership there even if it means there is a sizeable special assessment due. It would be nice if Wyndham fronted and financed the cost so that we could pay it over time, and I'd appreciate it, but I don't think that they are obligated to do so.

 

[DaveNV]

As a former owner at KBV, I'm saddened to hear about this. I hope it resolves to the satisfaction of all current owners.

Any idea if the Kauai Beach Resort next door has similar unresolved issues? The hotel was built at the same time the timeshares were built, likely by the same contractors. The whole property was flooded in 2020, in varying degrees. They're actively selling units in the hotel, which makes me question whether those ones are headed for a similar situation.

Dave

 

[DeniseM]

What if, as the majority owners, Wyndham votes to end the property as a timeshare, tear it down and build something much more profitable? The minority owners would only get a token reimbursement.

Again - Wyndham's hostile takeover of the resort was a red flag, and I am not going to pretend everything is OK, because I don't believe it is. It may already be too late, but it will definitely be too late if we just "trust" Wyndham to do the right thing. YMMV

 

[VacationForever]

What if, as the majority owners, Wyndham votes to end the property as a timeshare, tear it down and build something much more profitable? The minority owners would only get a token reimbursement.

But wouldn't it be better than when you can't even give away the timeshare?

 

[DeniseM]

No, what would be better is for Wyndham to fulfill their fiduciary duty to provide the best service to the owners of the resort.

 

[VacationForever]

No, what would be better is for Wyndham to fulfill their fiduciary duty to provide the best service to the owners of the resort.

Which may mean a large special assessment?

 

[magmue]

What if, as the majority owners, Wyndham votes to end the property as a timeshare, tear it down and build something much more profitable? The minority owners would only get a token reimbursement.

I think that would require a vote by all deeded owners, but as with electing recent boards, Wyndham would certainly be able to put a thumb on the scale with a large block of votes.

And given that they effectively control the board, the options offered for owners to vote on will most likely be structured to encourage the outcome Wyndham prefers.

 

[tango]

I certainly would have no idea as to which would be better for Wyndham. But I'm pretty sure that it all comes down to dollars and cents. I would think that having a block of maintenance paying owners might be a benefit that Wyndham might want to keep. But maybe tearing it all down and starting anew as a resort would be more profitable. Is the timeshare model an idea past its time? Would Wyndham simply charge a large assessment, scare away a block of owners, and resell more timeshares in order to find profits. I'm pretty sure that KBV and it's buildings are pretty small potatos for Wyndham, and it would not be a stretch for them to absorb the renovation costs. Others more knowledgeable than me might know.

 

[DeniseM]

If they have the votes to end the resort's existance as a timeshare, they have no obligation to build another timeshare. They could build multi-million dollar condos (local regulations permitting of course.) They could build something that would be a lot more profitable to Wyndham.

Or maybe they would build high-end timeshares and sell them for $50-$100K like the top level resorts do.

In simplest terms: How can you trust them after they rigged the election to take control of the resort?

 

[Ty1on]

If they have the votes to end the resort's existance as a timeshare, they have no obligation to build another timeshare. They could build multi-million dollar condos (local regulations permitting of course.) They could build something that would be a lot more profitable to Wyndham.

Or maybe they would build high-end timeshares and sell them for $50-$100K like the top level resorts do.

In simplest terms: How can you trust them after they rigged the election to take control of the resort?

Wyndham Destinations isn't in the business of building multi million dollar condos. They are barely in the business of building timeshare condos, preferring an asset lite model. Seems awfully bogeymanish to suggest that a company that has NEVER made such a move would do it here.

It is clear that you hate Wyndham, but I just can't see a basis for this particular accusation.

 

[geist1223]

Unfortunately these types of construction short cuts are not unusual in the Construction Trades. About 20 years ago when the Worldmark Resort was built in Seaside Oregon within a couple years Wyndham filed a major law suit against the Prime Contractor and most of the Subcontractors because of numerous contruction errors. This included leaking exterior doors and windows, crumbling Decks, HAVC on the roof, etc. After several years a $30 or $40 million settlement was reached. The remediation was started. Due to the way the building was constructed they would shut down a vertical column and rebuild one or two columns at a time. The whole process took several years.

In downtown Salem a $35 million Government Building cost $70 million due to all the Construction errors and short cuts that were discovered a couple years after initial completion.

Companies in Oregon have learned the hard way that after you award the Contract to the Prime Contractor you have to hire another Prime Contractor to Bird Dog the first.

 

[jacknsara]

Aloha,

Since this may be longer than most will want to read, I will begin with a concluding recommendation to KBV owners and both (IOA and AOAO) KBV boards: use this thread or another on this KBV forum to seek clarification of unaddressed questions of importance regardless of whether answers will be provided here or in direct communication to all owners. Toward the end of this response, I will give examples of such questions. Guidance for directors when posting in the KBV IOA PS forum is document here https://tugbbs.com/forums/threads/g...-when-posting-in-the-kbv-ioa-ps-forum.286967/

It has been almost three years since I resigned from the board after Wyndham’s hostile takeover. With one minor exception, I have no privileged information regarding the current subject and feel free to participate. (The exception documented in 8/29/2018 IOA board minutes for a smaller scope of work focused on defective post-tension cable failures: item E. Building G Spalling Repairs . . . Director Goodstein recommended that the Board obtain a written assurance from a professional engineer that the units are approved for occupancy while the project is underway.)

I resigned from the board within a day of Wyndham’s hostile takeover. I believed I had achieved as much of the objectives identified in my campaign materials and other TUG posts as I ever would so there was little point in remaining on the board. My hopes / strategic direction for maintaining KBV independence depended on several years of freedom from exogenous shocks. The exogenous shocks of the flood and COVID would have doomed such efforts. Whatever happens going forward, I believe the outcome will be better with Wyndham’s control than would have been possible as an independent timeshare.



In post #1, DeniseM asked: What happens if the property is condemned? Or they want a huge special assessment? And in post #14 she asks What if, as the majority owners, Wyndham votes to end the property as a timeshare, tear it down and build something much more profitable?

These matters are addressed in our governance documents. I haven’t read them in 3 years and do not intend to do so now. As a matter of speculation somewhat informed by following Kauai news for two decades, no informed decision maker should assume that anything totally new could be built within a reasonable business decision timeline on a site so close to the ocean if the existing buildings are condemned and removed. As long as the cost to repair does not significantly exceed putative cost to build new, repair will make better business sense.



In post #6, geist1223 concludes with . . . . I wonder how many Owners will try to just walk away?

When the IOA management contract was returned to Wyndham, we were informed of an improved Wyndham program of taking back unwanted units. During our February 2022 stay at KBV we called the Certified Exit phone number. ( https://clubwyndham.wyndhamdestinations.com/us/en/help/wyndham-cares/certified-exit ) Each ownership unit was individually checked. All were eligible. All but one were resales bought on ebay; none had been converted to the Wyndham program. About two weeks ago, we submitted our notarized paperwork to return our one non-OF unit. I suggest that geist123’s question be expanded to include: Will Wyndham continue to accept unconverted KBV units into its Certified Exit program? If the answer is ‘yes’ then DeniseM’s concern in post #9 (Secondly, you can't even give these timeshares away under the current conditions) is mostly addressed.



We concur with bnoble’s statement in post #12: We love the resort, and will continue to enjoy our ownership there even if it means there is a sizeable special assessment due. It would be nice if Wyndham fronted and financed the cost so that we could pay it over time, and I'd appreciate it, but I don't think that they are obligated to do so.

We occasionally rent condos in Hawaii through VRBO. We’ve become acutely aware of what a bargain the MF’s at KBV are for ocean front units. We hope they’ll continue to be a bargain even with some combination of special assessments and increased MFs. On a separate tangent, I speculate that long term, the unconverted KBV OF units will be worth much more than the market currently reflects but that is way off topic for now.



In post #13, DaveNV states: Any idea if the Kauai Beach Resort next door has similar unresolved issues? The hotel was built at the same time the timeshares were built, likely by the same contractors. The whole property was flooded in 2020, in varying degrees. They're actively selling units in the hotel, which makes me question whether those ones are headed for a similar situation.

While I don’t explicitly know the answer, I have a few observations from our visits in Oct 2021 and Feb 2022. The exteriors of their buildings were undergoing extensive renovations included spalling and railing repairs on the lanais. While I expect their parking lots were flooded, I think their hotel is at least as high as buildings G and H which did not suffer direct flood damage. I know we have to walk uphill from the parking lot to enter the hotel.



In post #20 DeniseM states: If they have the votes to end the resort's existance as a timeshare, they have no obligation to build another timeshare. They could build multi-million dollar condos (local regulations permitting of course.) They could build something that would be a lot more profitable to Wyndham. Or maybe they would build high-end timeshares and sell them for $50-$100K like the top level resorts do.

While on the board, I led a committee that among other issues, researched what would be required to remove (de-annex) units from the IOA; short answer is its complicated, expensive and essentially impractical outside of bankruptcy. Regardless of when or if Wyndham has dominant control of the timeshare IOA sufficient to pursue these options, they would have to achieve the buy in of all the 45 independent ownerships in the AOAO that are not it the IOA. Not impossible but not cheap either.



Here are the questions I have now that have not yet been answered by official communication that I believe should be:

Regarding Wyndham’s Certified Exit program:
* Will it be continued for ownership units not converted to the Wyndham club?
* Assuming a special assessment due in 2022 is announced, will submittals prior to the announcement be processed without paying the SA? (note: Certified Exit requires all currently due fees be paid)

Regarding existing reservations for G and H buildings:
* How are near term reservations being accommodated? e.g. as owners and exchangers arrive, is the IOA providing equivalent accommodations elsewhere within the resort or on the island?
* How are reservations in the G and H buildings further in the future being addressed. If not yet decided, when are such decisions expected? e.g. if we haven’t bought airline tickets yet, how long should we hold off?



If you’ve read this far, then a big
Mahalo

Jack

 

[magmue]

Will Wyndham continue to accept unconverted KBV units into its Certified Exit program?

@jacknsara does Wyndham already accept converted KBV units into the exit program?

 

[DeniseM]

Jack - Thank you for your expertise - much appreciated!