Trouble - Marriott Grand Residence Tahoe [Management Agreement in Jeopardy?]

[igopogo]

Gas would be down simply because fuel prices are down. THe other items , landscaping and activities, are probably ares that were easy to cut in order to offset increases in other areas.

That's my thinking also. I would like to understand whether the board found a rational path to reduce costs that MVC is unhappy with from a brand perspective. One scenario, perhaps they found a way for Park Ave to take over some expenses like landscaping, but I really have no idea.

The gas bit is difficult to evaluate because I am comparing one budget to another, not to actual expenses. It would make sense if gas was down a little bit compared to last years actual, especially given the weather last year.

The questions I posed are honest questions, not meant to fuel the fire in either direction. I would just like to have more information to understand the gulf between the two parties.

 

[ocdb8r]

I'm putting myself on a T-9 minute hold as I try to delve into the financials. One thing I have noticed is that while there is mention of selected line-item budget deficits and surpluses in the BOD minutes, I can't find a summary of actual annual expenses by line item anywhere. Does this exist?

A few of interesting things I noticed on this year's budget:
- Activities is budgeted down 85% (maybe this goes to brand standards)
- Landscaping / Grounds is budgeted down by about 2/3
- Park Ave Development is budgeted up by about 50%
- Gas is budgeted down.
All of these comparisons are to last year's budget, since there are no actuals I can find. If would be nice to have some discussion about these significant changes.

I wonder how much we would save if the fire pit, which rarely has a soul nearby, were turned off.

Which budgets are you comparing? 2022 to 2023 or 2023 to 2024? I couldn't quite tell. In either case none of this makes a lot of sense to me.

If all these things were budgeted down in 2023 compared to 2022, clearly someone got it wrong because they're 400k in the hole for the year (and a "variance in Gas expense in the amount of -$58,150, due to rate increases that exceeded the budget expectations as risk was incorporated into the 2023 budget for the expense" was at least one reason why). The bolded statement seems to me a message that someone pushed decreasing the budget for gas on the hope rates would not go up very much KNOWING there was a real risk they would rise more than budgeted.

If they have budgeted all these things down in 2024 compared to 2023, where is the logic there given they couldn't even meet the 2023 budget?!?!

I understand individual line items will always vary and so it's possible some of the specific line items mentioned were indeed justified in being brought down....but overall there is clearly a budgeting disconnect when the resort has run out of funds in its operating budget. This could very well be due to things in MVCI's control, but the items mentioned in the July 2023 minutes seem to be mostly things outside the control of MVCI - Misc Revenue (sale of association controlled weeks); water & sewer; gas; insurance and finally rental income (only this last one do I see partially in MVCI control).

 

[igopogo]

I am comparing 2023 to 2024.

On the train at the moment and I don't have the documents in front of me, but the total budget for 2024 is up in an amount that almost exactly covers the anticipated 2023 shortfall. So if costs overall are held steady in 2024 there would be no additional bleeding. That's a pretty big if, but I also imagine that there were storm costs last year that may not be anticipated this year, including rental cancellations at peak times.

 

[ocdb8r]

I am comparing 2023 to 2024.

On the train at the moment and I don't have the documents in front of me, but the total budget for 2024 is up in an amount that almost exactly covers the anticipated 2023 shortfall. So if costs overall are held steady in 2024 there would be no additional bleeding. That's a pretty big if, but I also imagine that there were storm costs last year that may not be anticipated this year, including rental cancellations at peak times.

...but that seems even more unexplainable. If the 2024 budget was an overall increase of only 4.8% over 2023 and it just covers the anticipated shortfall, it's effectively no increase over what was actually spent in 2023. It seems very unlikely that's a reasonable assumption.

 

[igopogo]

...but that seems even more unexplainable. If the 2024 budget was an overall increase of only 4.8% over 2023 and it just covers the anticipated shortfall, it's effectively no increase over what was actually spent in 2023. It seems very unlikely that's a reasonable assumption.

I agree with that on the surface. Need more information.

But it also puts the 700k 2024 shortfall claimed by MVC into some perspective. That seems quite high. I still feel like the reality is somewhere in the middle. Which is probably good if there is room for both sides to move.

 

[ocdb8r]

What a mess....I'm going back to refill the popcorn bowl.

 

[davidvel]

All of this budget talk makes me think about a related issue I could never figure out. During COVID expenses must have been down tremendously (though I think much of staff may have been retained as a measure of support.) Expenses like utilities and guest service items (lights, heat, ac, welcome amenities, soap, shampoo, tissue, kitchen soft goods, towel cleaning and renewal, cleaning supplies, etc.) all vanished . Utilities being a giant component I would think.

However I do not recall any significant reduction or even holding of mf. Am I wrong, and did they go down? If not why not?

 

[dioxide45]

All of this budget talk makes me think about a related issue I could never figure out. During COVID expenses must have been down tremendously (though I think much of staff may have been retained as a measure of support.) Expenses like utilities and guest service items (lights, heat, ac, welcome amenities, soap, shampoo, tissue, kitchen soft goods, towel cleaning and renewal, cleaning supplies, etc.) all vanished . Utilities being a giant component I would think.

However I do not recall any significant reduction or even holding of mf. Am I wrong, and did they go down? If not why not?

Several resorts did carry these funds forward or returned them. Our MGV budget for 2023 has an income line item of "Surplus Return" and an expense line item of Operating Capital. The two line items directly offset each other. So it allowed them to carry the money forward and just blow it on stupid stuff we didn't need.

 

[LeslieDet]

I'm putting myself on a T-9 minute hold as I try to delve into the financials. One thing I have noticed is that while there is mention of selected line-item budget deficits and surpluses in the BOD minutes, I can't find a summary of actual annual expenses by line item anywhere. Does this exist?

Just FYI - I'd suggest reaching out to your BOD members and request the detailed Income Statement (cash basis, not accrual) for the property for the year from the in house accountants at MVC who maintain those records. The BOD should be seeing those detailed reports quarterly, perhaps even more often. For 2022, there should be an audited financial statement for the year ending 12/31/22.

 

[davidvel]

Several resorts did carry these funds forward or returned them. Our MGV budget for 2023 has an income line item of "Surplus Return" and an expense line item of Operating Capital. The two line items directly offset each other. So it allowed them to carry the money forward and just blow it on stupid stuff we didn't need.

That's what I figured. What was the percentage "saved"/blown the next year? I'll have to look at my resort's budget as well. I guess we're all just conspiracy theorists to question why the BODs/management didn't refund it, especially when the management company gets 10% of it if retained and spent. "What a country!"

 

[frank808]

All of this budget talk makes me think about a related issue I could never figure out. During COVID expenses must have been down tremendously (though I think much of staff may have been retained as a measure of support.) Expenses like utilities and guest service items (lights, heat, ac, welcome amenities, soap, shampoo, tissue, kitchen soft goods, towel cleaning and renewal, cleaning supplies, etc.) all vanished . Utilities being a giant component I would think.

However I do not recall any significant reduction or even holding of mf. Am I wrong, and did they go down? If not why not?

I can tell you that at MKO resort laid off most hourly employees for at least 6 weeks and some longer than that as it was a recall of employees as guests returned. No cleaning, AC, lights, water, sewage etc for all units but the 2 or 3 units occupied for about 6 - 8 weeks. Budget for MKO 2023 was just a small increase. To me that did not seem right. I figure w saved at least 5% of the running costs but got an increase in MF instead.

 

[surrey91724]

Just received the below notice. This sounds very concerning....given the Board clearly approved a budget opposed (or lacking the funding required) by MVCI, I wonder how this will play out.



December 4, 2023


Dear Grand Residence Club Lake Tahoe Members,

As your Management Company, one of our key goals is to work with your Board of Directors to balance your maintenance fee obligations with the need to provide the level of services and resort amenities that Grand Residence Club Lake Tahoe (GRCLT) Members expect. The balancing of these priorities has been even more challenging over the past few years with the impacts of hyperinflation, as well as wages, benefits and insurance costs escalating well beyond consumer price index averages. These challenges are being faced by most businesses and associations across the country. We are writing to you today to provide you an update outlining the following concerns:

1) Forecasted 2023 Association budget & cash flow shortfall; and
2) 2024 Board-approved Association budget shortfall.

Over the last two years, the budgets established by the Board, on an annual basis, for the Association have not adequately covered the expenses to operate the resort, with the shortfall largely driven by utility costs (gas and electricity) and property insurance premiums. The reality of property insurance costs in South Lake Tahoe after the 2021 Caldor Wildfire and the rate increases that have been enacted by the electricity company are creating cost pressures that are necessitating an increase in annual maintenance fees that exceed the increases typically experienced at your resort.

Throughout 2023, we have been working diligently with your Board regarding the needed funding to operate your resort to the standards you have grown to expect from Marriott Grand Residence Club. While the Board has several options to address the cash and budget shortfall for 2023, the Board has chosen not to act on these concerns. As of the date of this mailing, we find ourselves at an impasse. Unfortunately, the 2023 financial shortfall is forecasted to be approximately $550,000, with the key drivers being related to utilities and insurance costs, as noted above. Without Board action to fund this shortfall, we have run out of funds to operate the resort as of December 1, 2023. As a result, the Management Company will be unable to pay any Association bills related to the operation of your resort.

At the October Board meeting your Board of Directors approved an annual budget increase of 4.8% for the overall 2024 maintenance fees and only a 5.2% increase in the operating fund. Unfortunately, given the anticipated increases in utilities and insurance, we expect that the Board-approved 2024 budget will not provide sufficient funding to cover all of the basic expenses for your resort. We currently estimate the approved budget to be understated by approximately $780,000 (an 11% shortfall in operating funds) for 2024, and the Board-approved 2024 budget also does not address the forecasted shortfall of $550,000 in operating funds from 2023.

Finally, the Management Company is also aware that the Association is working to resolve an outstanding matter with us related to foreclosed fractional interests at the resort, and the Association may be anticipating covering its budget shortfall with funds received as part of that resolution. However, we are not able to anticipate the timeframe for resolution of that issue, and funds received by the Association (if any) will not resolve the long-term budgeting and cashflow issues outlined above.

We remain hopeful in our effort to find a positive solution with the Board. However, we are reaching out to you, the Members, regarding the potential impact to your ownership resulting from the issues described above. Failure to resolve these issues in a manner which provides adequate funding for continued operation of resort services and amenities at appropriate levels creates a substantial risk that many of the current benefits provided by Marriott Vacation Club and Marriott International to the GRCLT Members will be terminated along with the resort’s current management contract. While not intended be an all-inclusive list, the programs and benefits which may be eliminated include:

• The fractional interest rental program facilitated by Marriott Vacation Club
• Marriott brand recognition and use of Marriott.com
• Exchange of fractional interests for Marriott Bonvoy® points
• Exchange of fractional interests for MVC Points
• Status in the Marriott Bonvoy program or the Abound by Marriott Vacations™ program directly related to your GRCLT ownership

Given the magnitude of this situation, we needed to share these issues and concerns directly with you to ensure that you were aware of the potential implications to your GRCLT ownership. We encourage you to reach out and follow up with your Board of Directors. Please find the following email address for your Board: GRCBOD@vacationclub.com

Sincerely,

Tom McCormack
Market Vice President
Resort Operations Americas, West

Has there ever been a case in which a HOA and owners fire the management company, put up for sale the resort, sell, pay off all debts. The share equally the remaining profits, if any?

 

[dayooper]

I can tell you that at MKO resort laid off most hourly employees for at least 6 weeks and some longer than that as it was a recall of employees as guests returned. No cleaning, AC, lights, water, sewage etc for all units but the 2 or 3 units occupied for about 6 - 8 weeks. Budget for MKO 2023 was just a small increase. To me that did not seem right. I figure w saved at least 5% of the running costs but got an increase in MF instead.

But you lost the some of the onsite business. The loss of the marketplace, restaurant and bar income may offset some of those monies. Now throw in the rental losses and you might have equaled the savings in wages and housekeeping products.

 

[Fasttr]

But you lost the some of the onsite business. The loss of the marketplace, restaurant and bar income may offset some of those monies. Now throw in the rental losses and you might have equaled the savings in wages and housekeeping products.

In most instances, the income (and expenses) related to the marketplace, restaurants and bars go to MVC, not to the HOA.

 

[frank808]

But you lost the some of the onsite business. The loss of the marketplace, restaurant and bar income may offset some of those monies. Now throw in the rental losses and you might have equaled the savings in wages and housekeeping products.

Marketplace, Longhis and Longboards lease does not got to HOA coffers. Rental income from rooms booked from Marriott does not go to HOA either.

 

[LeslieDet]

I can't find a summary of actual annual expenses by line item anywhere. Does this exist?

FYI - if you look at the minutes from the July meeting (which I pasted below in quotes), these documents were provided to the BOD members; wasn't there an October meeting? Most likely the same type of documents for the next quarter (July, August and Sept) were provided to the BOD at that time.

"Ratification ofReview ofFinancial Statements
A motion was made by Sharon McKarns to recognize the GRCLT Condominium, Ine., Board of Directors review of the April 2023, May 2023 and June 2023 Operating Accounts, Reserve Accounts, actual Operating revenues, and expenses compared to budget, account statements, income, and expense statements, check ledger, monthly general ledger, and delinquent assessment receivable report. The motion was seconded by Bill Gunderson and unanimously carried."

 

[dioxide45]

That's what I figured. What was the percentage "saved"/blown the next year? I'll have to look at my resort's budget as well. I guess we're all just conspiracy theorists to question why the BODs/management didn't refund it, especially when the management company gets 10% of it if retained and spent. "What a country!"

For MGV it was about $45 per unit week. So not that much compared to a budget of $1600. The income and expense items offset each other, so there was no additional management fee charged, but if they had just refunded it, it would have caused a lower management fee. I suspect Grande Vista spent a bundle of it on a new sign for the main entrance. It is all fancy each letter lights up. I don't know the actual cost, but it has to be in the tens of thousands, it not a hundred thousand dollars.

 

[davidvel]

For MGV it was about $45 per unit week. So not that much compared to a budget of $1600. The income and expense items offset each other, so there was no additional management fee charged, but if they had just refunded it, it would have caused a lower management fee. I suspect Grande Vista spent a bundle of it on a new sign for the main entrance. It is all fancy each letter lights up. I don't know the actual cost, but it has to be in the tens of thousands, it not a hundred thousand dollars.

With the management fee, that's over 3% that could have been refunded. I'm actually surprised it is that low, given budget line items that seemed to have been significantly reduced. I'm wondering if they decided to spend more on other luxuries in 2020 from the slush fund, and yet still had extra $$$ to roll over and spend the next year.

 

[sponger76]

Do I believe that if those MVC Leaders are on a tight leash, by the HOA Boards, that they can do a good job, yes (in part, a result of the Owner Benefits that MVC brings to the table), but, I believe those senior most MVC Leaders must be watched like hawks, with Outside Auditors looking after the best interests of HOA Unit Owners, on behalf of the HOA.

In theory it sounds nice. But what you're missing is that these "MVC Leaders" are employed by MVW, not by the HOAs, so the HOAs don't really have the power to watch them "like hawks" or to force "Outside Auditors" on those leaders or MVW operations as a whole. MVW is not owned/controlled by resort HOAs, so those HOAs don't have any power to interfere in internal operations of MVW. Pretty much all any resort HOA can do is have additional auditors, above and beyond those already being paid to audit the books, look at how MVW handles finances and management of that HOA's specific resort. Of course that would come at the HOA's expense (and therefore be an addition to Maintenance Fees paid by that resort's owners).

 

[TimGolobic]

In theory it sounds nice. But what you're missing is that these "MVC Leaders" are employed by MVW, not by the HOAs, so the HOAs don't really have the power to watch them "like hawks" or to force "Outside Auditors" on those leaders or MVW operations as a whole. MVW is not owned/controlled by resort HOAs, so those HOAs don't have any power to interfere in internal operations of MVW. Pretty much all any resort HOA can do is have additional auditors, above and beyond those already being paid to audit the books, look at how MVW handles finances and management of that HOA's specific resort. Of course that would come at the HOA's expense (and therefore be an addition to Maintenance Fees paid by that resort's owners).

Agreed. MVW's standard response to things they don't want to share is "that's proprietary information".

 

[SunandFun83]

We rescinded. Shew. Thank you so very much! Felt like we were losing our home. We got a call from someone. We understand the increase projections over the next few years. And that’s fine. But we were blatantly lied to and manipulated. 7 hours. We asked all the right questions. That’s the scary part. Thank you!!!!!

You did not "Ask All The Right Questions" The questions are
1. Would I expect this timeshare person to be honest? -
2. Would I expect this timeshare person to provide all the relevant information?
3. Why am I still going to these stupid timeshare salres meetings?

The obvious answer is just stop going. The liars will manipulate you into making bad decisions.

PS: Congratulations on rescinding. You did ask the right question "Should We Rescind" the answer is rescind 99% of the time, and if you do not know who the fish is at the poker table it is you..

 

[LeslieDet]

But it also puts the 700k 2024 shortfall claimed by MVC into some perspective. That seems quite high. I still feel like the reality is somewhere in the middle.

I don't know if this will add some perspective, as it isn't an exact property comparison, but for Newport Coast the 2024 Budget has a line item of $1,960,129 as "Deficit Recovery" with the financials reflecting that Newport Coast, as of the October BOD meeting, had operating fund deficits of over $1.6MM based upon increases in Front Desk, Housekeeping, Insurance, Transportation and various utilities, including trash services. The 2024 budget for insurance is up 62.5% over 2023 for the condo association and 30.5% for the timeshare association. As to housekeeping, those number are up 23.2%. To top it off, the bad debt expense category was also subject to a sizable percentage increase.

I only offer this info to show you that the increased operating costs at another California located property are also significant, as is the 2023 operating deficit. The wages, insurance and utilities appear a main driver of the increases. As there are 3 different associations at Newport (Timeshare, Condominium and Master), the combined increase is 18.3%. But for the largest components, ie the Timeshare and the Condominium Associations, those increases were 19.8% and 19.9% respectively.

In addition to operating cost increases, the reserve fee for 2024 adds significantly to the MFs for Newport. Per the Newport Coast budget re reserves, "The cash flow method is being used, which is based on a minimum twenty-year projection of the association’s future income and expenses to fully fund its replacement reserve requirements each year during that twenty-year period. The cash flow method requires the association to assess and collect from its owners to fully fund 100% of the estimated replacement reserves, in order to establish a full replacement reserve for the association by the end of each fiscal year." BTW - The 2024 Newport reserves totaling $584.69 are 30.69% of the overall MF of $1904.75 per week owned.

 

[timsi]

The question is not about the extent to which those costs have increased but rather their specific contribution to the overall budget increase.
The cost of housecleaning may vary significantly based on the number of Marriott guests receiving daily housekeeping. In your opinion, what would account for a 23% increase in housekeeping costs in 2024?

 

[Ken555]

In addition to operating cost increases, the reserve fee for 2024 adds significantly to the MFs for Newport. Per the Newport Coast budget re reserves, "The cash flow method is being used, which is based on a minimum twenty-year projection of the association’s future income and expenses to fully fund its replacement reserve requirements each year during that twenty-year period. The cash flow method requires the association to assess and collect from its owners to fully fund 100% of the estimated replacement reserves, in order to establish a full replacement reserve for the association by the end of each fiscal year." BTW - The 2024 Newport reserves totaling $584.69 are 30.69% of the overall MF of $1904.75 per week owned.

I own property at a California HOA which has never fully funded its reserve (the board and owners don’t care as long as there isn’t a special assessment). I don’t know any California property which does fully fund the reserve other than timeshares. It does make sense that timeshares should fully fund, based on their objective third party reserve studies. That said, in my (limited) experience it’s rare for a non-timeshare association to run into practical funding issues of reserve line items if it’s ~=>55% funded. I wonder if this 100% reserve fund influences the board (and management)’s desire to upgrade, improve, and/or replace items on a more frequent basis. I have noticed that HOAs which don’t have a fully funded reserve tend to be more creative, and/or defer, with their improvement projects out of necessity.

It would be interesting to see the reserve studies for a timeshare property based in California, which line items the board has added over the years, remaining expected lifespan of said items, etc.


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[LeslieDet]

I own property at a California HOA which has never fully funded its reserve (the board and owners don’t care as long as there isn’t a special assessment). I don’t know any California property which does fully fund the reserve other than timeshares. It does make sense that timeshares should fully fund, based on their objective third party reserve studies. That said, in my (limited) experience it’s rare for a non-timeshare association to run into practical funding issues of reserve line items if it’s ~=>55% funded. I wonder if this 100% reserve fund influences the board (and management)’s desire to upgrade, improve, and/or replace items on a more frequent basis. I have noticed that HOAs which don’t have a fully funded reserve tend to be more creative, and/or defer, with their improvement projects out of necessity.

It would be interesting to see the reserve studies for a timeshare property based in California, which line items the board has added over the years, remaining expected lifespan of said items, etc.


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I agree the only HOAs that I've seen actually fully fund their reserves are timeshares, and I live in CA and have a HOA for my home. I was looking at the detail on the reserve funding for the Newport "Timeshare Association" (there are three associations for Newport), and the amount billed for 2024 as reserve per unit for the "Timeshare" is $418.61. These reserves are primarily for replacement of the unit interiors. Of the Timeshare Assoc. estimated reserve replacement costs totaling $149,678,021, the amount of $134,274,498 is categorized as "unit interiors" [Note in prior year budgets there was only one category called "furniture and fixtures".]. The other associations, the "Master" association billed $82.54 for reserves (which covers the roads and common area amenities), has replacement costs estimated at $35.6MM, and the Condo association has estimated replacement costs of $81.5MM and billed $83.54 in reserves (the buildings, roof, external building maintenance and painting).

So, just looking at the numbers, combined with the useful life used in the projections, it does seem as though the internal beautification of the units is a significant component of the reserves billed to MF. I don't know if the HOA BOD and/or management can be more creative or defer that aspect, given that the damages done to units varies based upon the user; and we all want the units to remain high quality and not shabby. As an owner, it's extremely frustrating to see such high dollar amounts required for replacement of unit interiors.

It's also frustrating to compare year over year changes to the reserve requirements. The 2023 budget referred to a 11/1/2019 reserve study projecting the furniture and fixtures (the only item for the Timeshare Assoc) replacement cost of $124MM, and the 2024 budget refers to an 8/3/2023 reserve study placing the replacement cost for what appears to be additional components not previously assigned to the Timeshare Assoc, which total almost $150MM (with unit interiors being $134MM of the total). So, in a one year span between operating budgets, the estimated replacement costs of the components assigned to the Timeshare Assoc increased from $124MM to almost $150MM. The overall year over year (2023 to 2024) increase in component estimated replacement cost for all three Newport Coast associations went from $227MM to $268MM. Ouch.