November 2018
Dear Fellow Virgin Grand Villas Owner:
As your elected representatives on our Board of Directors, we recently participated in the Fall 2018 meetings of the Board.
RESORT REOPENING
As you know from previous reports, Vistana moved very quickly to hire contractors, led by Cotton International (a large firm based in Texas), to rebuild the resort after Hurricane Irma. At times, about 300 personnel were actively engaged in clearing debris and reconstructing the damaged buildings. As a result, the resort will reopen on January 4, although four buildings will open somewhat later (but no later than May 1). Fortunately, everyone who owns unit weeks or fractional interests in the buildings that are opening later was offered accommodations in other units on the resort for the same time periods.
By and large, the resort will be better than it was before the storm because all of the furniture and much of the equipment will be new. There will also be new grills, water fountains and shade sails on the hillside, and patio and balcony furniture. Some of what is new will not be visible to owners but is of extreme importance. Most of the drywall had been damaged by water, and all the damaged drywall has been replaced. The HVAC cooling ducts were contaminated and have been replaced with new ducts. We also have new and improved fan coil units, specially constructed for the resort, and not only will the air conditioning be more efficient, but also the humidity in the units will be reduced to a much lower level than before. Fire alarm and sprinkler systems are also being upgraded.
Equipment and supplies for the resort have arrived, and are still arriving, in roughly 200 shipping containers, all of which must come to the island on the two small car barges that are still operating!
A few aspects of the resort will be different. Lemongrass will be closed for a few months, but the restaurant at the pool (which may or may not be named Snorkels) will serve breakfast, lunch and dinner until the Lemongrass building is ready. When that building re-opens, it will potentially house two different restaurants for dinner, with different menus: an informal open-air restaurant facing the beach, and a more formal restaurant in the interior. The lobby building was totally destroyed by the hurricane. It had low usage by owners and guests, and the restaurant upstairs could not be made profitable, so that building will not be rebuilt. In its place will be a sun terrace with soft seating areas covered by an open trellis as well as tables with umbrellas and chairs that will provide a spectacular view of the bay or for nighttime star-gazing. This area will also provide seating while you await transportation into town. In addition to the airport check-in lounge, there will be two check-in locations at the resort. One will be at the dock, as before, and the other will be in a building in the kids club/fitness center area. Owners and guests arriving by car will park in the lot near the fitness center and check in at the nearby registration desk. Also, two of the tennis courts have been converted to a multi-use court (including basketball hoops). Two of the remaining tennis courts have night lighting. If demand warrants, the Boards of the four condominium associations at the resort could consider purchasing lighting for the other courts.
ENVIRONMENTAL REMEDIATION
The Board has been particularly active in providing advice to management regarding environmental hazards associated with the hurricane. Every building suffered water damage, which can lead to mold and bacterial growth, especially in warm, tropical climates. The Board retained Environmental Analytics, an Arizona company with an expert reputation for environmental assessment, to visit the property several times during cleanup and reconstruction. Initially, employees of the firm did visual inspections of every room and took air and surface samples back to Arizona for analysis. They visited again and took more samples after Cotton followed their initial recommendations. Based on their visits and recommendations, our insurance company hired another environmental company, Hillman & Associates, to remain on-site for months and inspect every room as it was rebuilt. We expect that Environmental Analytics will return for a final visit to confirm that every room is safe and habitable before January 4.
TRANSPORTATION
There are some changes with respect to getting to St. John. Airline flights to St. Thomas were reduced during 2018, but more and more routes are being reopened. Because of limited car ferry service, there are long lines, at best, for the small car ferries; we therefore advise against renting a car on St. Thomas for use on St. John until we see evidence of more frequent, and larger, car ferries. The Westin ferry will still cost $120 per person ($90 for children), but passengers will now be taken by air-conditioned bus to Red Hook and will then take the 20-minute ferry to the resort. The ferry is a newly reconditioned vessel; we have seen pictures of it and it is gorgeous. Flights will be monitored and, if a flight is late, a bus and ferry will be available, even if a delayed flight doesn’t arrive until midnight. As before, the Westin ferry ticket includes unlimited rides back and forth to St. Thomas. The public ferry is running from Red Hook as well.
ISLAND SERVICES
Restaurants are slowly getting back into full operation. Some have closed and, at this writing, a few are operating with limited menus though they may have full menus by Christmas. The Ocean Grill, Zozo’s, Asolare and, of course, Knox and Ollie’s have closed permanently. Click here for a current list of which restaurants are open and which have closed.
Health services on the island are unfortunately very restricted. The Myrah Keating Smith clinic remains closed. There is a small emergency walk-in clinic in Cruz Bay which can write prescriptions and bandage small wounds, but it can’t handle anything more serious. Even in St. Thomas health care remains very limited. One emergency room and one intensive care unit are functioning, but there are no normal hospital beds or services; any person with a serious illness must be flown to the mainland for hospital treatment. Management is looking into whether any health care can be provided at the resort until a real clinic reopens, but liability and insurance concerns may preclude providing this service.
Most of the beaches are open, although some debris remains. Concession stands and facilities at Trunk Bay and Cinnamon Bay are currently closed, but there are some portable toilets. The road to Coral Bay is open.
MAINTENANCE FEES
Fortunately, our property was well insured (subject to a $2.3 million deductible, for which we have reserved funds for the last eight years), so we will not have to have a special assessment as a result of the hurricane’s damage. However, we will experience a 5.6 percent maintenance fee increase (2.80 percent per year) compared with what we paid in 2017. The average maintenance fee will be $2,207, which is $118 higher than the average maintenance fee for 2017. The budget that Vistana sent to owners shows the maintenance fee for each unit type. This is the first increase after six years of small decreases in the maintenance fees.
The increase is driven primarily by four factors which are beyond our control. Chief among them is an increase in the insurance premiums that we will have to pay after our current policy expires on April 30, 2019. We anticipate that because of the three hurricanes in 2017, the hurricanes in 2018, and the forest fires in California, insurance companies will raise their rates for property insurance at resorts like ours by 40%, and rates for other types of insurance will increase by 10%. These rate increases will alone account for an increase of about $59 per average unit week compared with 2017.
The second-largest factor driving the rate increase is a non-recurring event: the final stage of the conversion of the hotel into villas in the Sunset Bay condominium. As we previously reported, with fewer units on the property, our share of expenses attributable to maintaining the common areas such as the big pool has increased from about 24 percent in 2010 to about 36 percent. The last stage of that increase in common area expenses accounts for about $43 (on average) of the maintenance fee increase.
The third driver of the increased maintenance fee is an increase of an average of about $32 in utility costs, particularly electricity and water.
The final significant driver is an increase in federal income tax due to increased taxable revenue (such as rental and investment income) that we receive from sources other than maintenance fees. This amounts to an average of about $14 per unit week.
To offset some of these increases, the Board decided to reduce, by about $21 on average, the amount we usually set aside for the replacement reserve fund (though we are continuing to build up the special reserve to pay the deductible on insurance, in the event of a new hurricane). We plan to make up for this reduction in reserves by adding small amounts to the annual replacement reserve funding in the 2021 and 2022 budget years, when we will no longer experience increases due to the conversion of hotel rooms.
INSURANCE DEDUCTIBLE
At the present time, we do not know how much the resort’s insurance claim for Hurricane Irma will be; therefore, we do not know how much our share of that claim will be. Not surprisingly, the size of the expected claim grew substantially during 2018 as the full scope of the damage became clearer. We do know, however, that we have enough money in the hurricane contingency reserve fund that we have built up over the years, and in our 2018 operating surplus, to cover what we will have to pay. We will report a final figure sometime next year.
COLLECTIONS AND FORECLOSURES
We anticipate that the rate of assessed maintenance fees that we will collect this year will be about 95%, which is about the average over the last several years. We worried that the lack of occupancy this year would reduce the collection rate but this did not happen, perhaps because owners were able to use their StarOptions at other resorts or to bank them for future use at St. John or elsewhere. While 95% is a good rate, owners who pay have to make up the other 5%, so we prevent delinquent owners from using their unit weeks, place a lien on their property and ultimately foreclose on it so that the unit weeks can be sold to owners who will pay their fair share. We have authorized our attorneys to commence foreclosure proceedings against many of the owners who are currently delinquent and locked out. We urge all owners to pay maintenance fees on time and not to suffer lock-outs, liens and foreclosures.
As a result of foreclosures, we currently own 28 unit weeks and 9 fractional interests that are unencumbered by mortgages. A contract we signed with the developer (which is now Marriott Vacations Worldwide, successor to Starwood and ILG) requires us to offer the interests first to the developer. We have offered the developer the opportunity to acquire all of those interests (but not to cherry-pick among them). The offer is being considered. If the developer decides not to acquire all of our interests, we will offer them to current owners at bargain-basement prices in a special sale, as we have done twice before.
LEAVE THE AIR CONDITIONER ON!
We now have new air conditioners and ductwork in all of our units. The equipment was custom-made and specially designed to reduce the humidity and thereby to prevent mold growth in the units. But the humidity control can’t work if the air conditioning is off or the patio doors are open. Turning off the air conditioning when you leave the unit or opening the windows at night may seem desirable from the point of view of energy conservation, but such measures can actually cause damage in the units. Therefore, we ask all owners to refrain from turning off the air conditioning or leaving any doors or windows open. You may, of course, raise the temperature if your unit is too cold; so long as the air conditioner is on, it won’t allow you to turn it up so high as to be problematic.
BANKED 2018 STAROPTIONS
Many of you banked some or all of the StarOptions that were associated with your 2018 Virgin Grand ownership. If you look at your account(s) on the Vistana Dashboard, you may see that these StarOptions appear to expire at the end of 2020. However, banked Virgin Grand 2018 StarOptions actually expire at the end of 2021. The 2020 expiration date on the Vistana website is an error caused by the fact that the computer system has not yet been updated. We have been assured that a correction will be made before the 2020 Use Year ends.
NEXT MEETING
The next Board meeting will take place on the property, immediately following the Annual Meeting on March 4. We hope to see some of you there in person.
Your owner-elected representatives,
Larry Pelletier
larrypelletierx@gmail.com
Philip G. Schrag
phil.schrag@gmail.com
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