Cypress Harbour Condominium Association, Inc.
2013 Proposed Operating, Property Tax and Reserve Budget
Highlights
As we all know, our beautiful resort opened 21 years ago in 1991. Much of the building construction is wood combined with cinder block and steel studs. Over the last year, we have discovered two serious issues with the buildings:
We are experiencing deterioration of the wood trim and frames around many of our villa windows. Over time as this condition progresses, the windows begin to leak causing water damage in the villas. In the past, there were minor cases of wood deterioration as one can expect from the humid Florida weather. However, the number of occurrences and repairs needed have been increasing at a rapid rate. A vendor was contracted to thoroughly study and report on every window in every building. The unpleasant consensus is that we have major repairs to make which include removing every window and assessing the condition of the window and frame. Once the condition is assessed the window is either reinstalled with the seal, caulk, etc. all replaced or in many cases the window is completely replaced. All surrounding wood trim will be replaced with Hardi Board, which is considerably more water-resistant and will require much less maintenance than the wood trim has required over the years.
Although we are in the last phase of replacing the flat part of the 22 buildings’ roofs, the mansard roof panels, low-sloped roofs and interior wall parapet panels are showing considerable deterioration which over time will result in leakage and other problems. We hired a roofing consultant to evaluate all roof areas. Unfortunately, while these areas were expected to last close to 30 years, which is reflected in the reserve study and analysis, they will not last another nine years and need major repairs now.
Right now, we are in process of obtaining firm price estimates and quotes on these repairs. The preliminary estimates for the project are approximately $4 million for the windows and $8.7 million for the roofs. Yes, you read it correctly.
While we could spread these projects over four to five years, we would continue to have emergency issues which need immediate attention. The Board discussed this at length and we believe it is in everyone’s best interest to complete the repairs as quickly as possible. We hope to have the contractors price the entire project and guarantee their pricing for the duration of the project. If we are successful, the total expenditures should be less than the above estimates.
The current plan is to start the window work now; it will take approximately 18 months to complete. To do the work requires that the villa is vacant; thus, we need to manage the project around the slow times in order to reduce the inconvenience to our owners and guests.
The roof work has no impact on owners and guests other than generating noise. We are able to phase this project over three years by repairing the most critical needs first, etc.
How are we going to pay for this almost $13 million? If we spread the work over many years, we would have to increase the Reserve Fund contribution by at least $100 for 2013 and continue increasing at a 5-7% rate indefinitely. However, if we ask for more now, we can collect all the funds needed over a shorter period, have the work done over a shorter period and thus, reduce the reserve contribution when the project is complete.
Thus, we are currently anticipating an increase in the Reserve Fund of approximately $200 for each of 2013, 2014 and 2015. This would take the Reserve Fund contribution from $285 per owner to $485 per owner for each of those three years. We currently expect, barring any other critical needs, to reduce the reserve contribution back to $346 per owner in 2016, which is the compound impact of a 5% increase, which we believe is adequate given what we know now. In all 21 years, and the 18+ years some of the current Board Members have served on the Board, this is the first time we are recommending this drastic course of action.
You will see this special reserve contribution of approximately $200 reflected on the enclosed proposed 2013 budget as follows:
$180.00 on the “special reserve fee” line. This is the actual amount which will be added to the Reserve Fund.
$3.34 additional credit card expense based on the estimated number of owners who will pay this special reserve contribution by credit card.
$18.00 additional management fee expense.
We currently expect a similar $200 reserve charge will be included in the 2014 and 2015 budgets, so the Association collects a full $600 for each one-week timeshare interest. Of course, the 2014 and 2015 budgets are still subject to formal review and approval processes, which will take place at the appropriate time over the next two years. Of course, we will always ask for our owners input on such a course of action.
We hope you agree with the Board’s decision. We want to hear from you on this issue. Please feel free to email any one of us with your comments and suggestions – whether good or bad. We are also continuing to explore ways to reduce the overall cost of the project, or perhaps modify the timing of billing and collecting the needed funds, to reduce the overall expense for each owner. We will keep you posted on this.
Some highlights on the rest of the proposed budget are:
The regular reserve contribution for 2013 remains at $285 in the proposed budget. Right now, we are operating at a surplus for 2012. Any surplus realized will be allocated to reserves which we hope will allow us to keep the reserve contribution the same as 2012.
As we outlined in the spring newsletter, the Property Tax assessment is higher due to an increase in our assessed valuation. Unfortunately, the current assessor is not considering third-party sales when determining the fair value of our villas. We appealed this decision and hope to have a favorable response before the Annual Meeting. If that occurs, we expect that the approved budget will reflect a reduced Property Tax contribution.
The Operating Fund increase is just under 3%, once you eliminate the additional management fee and credit card expense totaling $21.34 per unit week. In light of the major repairs, we worked with management to keep this increase to a minimum. We are using $6.44 per unit week of the surplus accumulated in the Operating Fund from prior years to achieve this result.
The majority of the increase in the Operating Fund is due to a projected 3.1% average associate wage increase for 2013. While these raises are not automatic, we believe they are critical to retaining the excellent staff we have. We have spoken over the years about the competitive Orlando market for time share and hotel workers, despite the 8.2% unemployment rate. We all benefit from skilled associates – and we must be doing something right since once again our AES (Associate Engagement Score) put us in “World Class” within the organization and our GSS (Guest Satisfaction Scores) are as high as they have ever been.
The rest of the increase comes from small contract increases, marginal increases in housekeeping supplies, projected increases in health and benefit costs and day to day maintenance of our aging resort.
We will discuss each line item of the budget during our regularly scheduled meetings in October as well as the Annual Meeting on October 26th. As always, we welcome your thoughts and comments.
We endeavor to present a “worst-case” scenario when we prepare this preliminary budget mailing. Working with management, we do our best to find opportunities to reduce the final budget we approve. As it stands now, the following is the maintenance fee per unit week based on the proposed budget:
Special $1,254.01
Sport $1,229.91
Summer $1,243.73
