WSJ VGV (Hillside) - BOD letter (Nov, 2013)
Once again - I cannot convey how much the WSJ VGV BOD members Phil and Bob do (and have done) for our HOA
*****
November 2013
Dear Fellow Virgin Grand Owner:
Maintenance fee going down again but value still going up
As your owner-elected representatives on the Board of Directors, we recently participated in a meeting to establish the budget for 2014. The very good news is that despite very significant increases in the cost of property insurance and electricity, and despite the fact that Starwood is now billing our Owners association for several costs that it has up to now absorbed, the maintenance fee will not go up in 2014. In fact, it will go down by a small amount -- on the average $20.31 per unit week, the 4th consecutive reduction.
Increased costs
Our property insurance carrier reappraised the value of the buildings for the first time since July 2001. The appraised value has gone up from $25.9 million to $46.4 million since the prior appraisal. As you know, we have made very significant improvements during the past few years, so it is no surprise that the value has increased. Our insurance cost has increased in three ways: (a) we have to pay for insurance based on the higher value, (b) our insurance premiums have increased by 7% (an average increase of nearly $43 per unit week), and (c) because our deductible in the event of hurricane destruction is 5% of the higher appraised value, the maintenance fee will include $60.21 per year per unit week (on average) until about 2020, rather than until 2016, to fund a $2.3 million hurricane contingency reserve. This reserve fund is intended to avoid a special assessment in the event of a catastrophic hurricane.
The cost of electricity purchased from the power company on St. John continues to climb with no end in sight. It is now 48 cents per kilowatt-hour, compared to 41 cents a year ago. Currently, the average cost of electricity for each unit week exceeds $200; it is a very substantial component of the maintenance fee. As you know, we foresaw these increases and therefore made the units far more energy efficient during the recent renovations and installed photo-voltaic cells on the roofs of buildings 41 through 44 to defray some of the costs. The cumulative average savings per unit week since 2008 has amounted to $115. But the existing photo-voltaic arrays are relatively small, generating less than 5% of the energy needs of Virgin Grand. We are therefore considering two much more ambitious initiatives. The first could involve installing microturbines in the vacant space behind the fence that runs along the left side of the road going up the hillside. They would run on propane, would be out of sight, and would not generate audible noise. Management estimates that they could potentially generate all of the electricity that Virgin Grand needs at a cost (given the current price of propane) of only about 32 cents per kilowatt hour. The association could borrow from the reserve fund to install the microturbines, without raising maintenance fees, provided that the savings from their use is plowed back into the reserve fund until their costs are recovered; that is, for a period of about 7 years, after which we would realize the savings year after year. In addition, we are exploring installation of photo-voltaic cells on the roofs of the hillside buildings and in a ground-based array on the hillside below buildings 31 and 32. A third party vendor has offered to install those solar cells at no cost to the Owners association or to Starwood, provided that we contract with them to purchase the electricity from it at 29 cents per kilowatt hour in the first year, increasing by 2.5% per year. At that rate, it will be many years before we would be paying as much as the power company currently charges, and the power company’s rates may of course increase even more. We are investigating whether the ground array can be built in such a way that it will be largely out of sight, and to the extent it is visible from the patios of buildings 31 and 32, not unduly unsightly.
New billings from Starwood
We pay 28.66% of certain costs for resort facilities that are shared with Bay Vista and the hotel. For example, we pay for 28.66% of the costs of running the fitness center, because our units comprise 28.66% of the units at the resort. But until now, Starwood has not billed the association for certain costs that are attributable to our portion of shared services and facilities. For example, we benefit from the water treatment plant, but we have never paid for any portion of the amount that Starwood puts into a reserve account for replacement of the water treatment plant and other capital structures related to water. Similarly, we have not paid, until now, for electricity in the common areas, such as lighting the tennis courts at night or the pathways on the resort side of the property. And we have not, until now, paid for a share of the salary of the resort’s human resources administrator. Starwood is going to be billing us for these costs beginning in 2014, and we have budgeted to include them.
Although we are incurring these added costs (and various cost of living increases, such as in the wages of the housekeepers), the maintenance fee is decreasing slightly because of cost efficiencies throughout the resort. Some staff positions have been consolidated and others are being eliminated. One change that you will notice is that the security guard’s booth at the entrance to Virgin Grand is being replaced by a keycard-operated device that you will use to raise a gate arm to allow access for vehicular traffic. A security guard will be watching the entrance from the other side of the main road. We were paying for the guards on our side of the road; Starwood will be paying for the guard on its side of the road.
Improvements
Notwithstanding the reduction in the maintenance fee, Owners will see some modest improvements. In particular, we have budgeted for high-speed internet rather than “basic” internet service. During 2013, we heard from many Owners that unless they paid more than $10 a day for enhanced internet service, they could not watch even short videos, such as YouTube videos, on their computers. We will now provide the highest level of premium service without charge to villa occupants, although hotel guests will still have to pay for premium service.
Another change of interest is that Starwood is converting more hotel rooms into timeshare units, in a new phase of development to be called “Coral Vista.” As hotel rooms are converted, the number of units on the hotel side of the property will decrease somewhat, and that will increase (from 28.66%) the percentage of common costs (for the big pool, the fitness center, etc.) that we pay. However, because the resort will become even more of a flagship destination, Starwood is increasing the number of StarOptions associated with each of our units. That won’t affect Owners who vacation only in St. John, but it will significantly increase the trading value of our units when we exchange into other SVO resorts. The new development will be points-based rather than weeks-based, and Starwood will enable us to purchase points for cash. Such purchases would enable us to stay an extra day or two in a villa at the Westin St. John at the beginning or end of a week-long villa stay. Depending on what the airlines do, that could enable Owners with Saturday or Sunday check-in days to save money by flying on a weekday rather than a weekend day.
Delinquencies
We are still able to collect only about 95% of maintenance fees, and Owners must collectively pay the fixed costs for the 5% who are delinquent. Those Owners are locked out of their units, and for the past few years we have been filing liens against their units, initiating foreclosure proceedings, and selling the foreclosed units to new Owners. The recent bargain sale to Virgin Grand Owners resulted in the sale of 38 units. As soon as closings are completed on those sales, we will begin receiving maintenance fees from the new Owners. We are working with attorneys to foreclose on additional units, and we expect to hold another bargain sale in 2014.
Owner exchange bulletin board
A great deal of progress has been made on creating a password-protected bulletin board on which Owners can advertise units for rent, sale, or exchange (and list weeks that they want to rent or buy). The system is now in beta-testing, and we hope to put it on line late in the first quarter of 2014 or very soon thereafter. We think that Owners will be very pleased to be able to exchange with each other without having to go through Starwood, and also to have this ability to list their units for rent or sale without going through a real estate agent.
Property tax bills
Several Owners have asked us why the government of the Virgin Islands sends our tax bills to Starwood, which then has to sort nearly 4,300 bills and forward them to us. The answer is that the Virgin Islands tax office simply doesn’t have the manpower or equipment to keep up with the changes in ownership of timeshare resorts (and changes of addresses of Owners who continue to own for many years). So, unfortunately, these bills are likely to pass through the hands of SVO for many years to come. However, the Virgin Islands government does seem to be plowing through its prior-year backlog, so we should not have another year like this one, in which we received the bills for several tax years.
Freecycle shed
Owners have generally liked the freecycle shed, even though sometimes it is full of equipment and sometimes it is nearly empty. When one of us (Schrag) checked out of his unit in late June there were 13 beach chairs in the shed, an all-time high in his experience. If a few dozen Owners would contribute a beach chair or a water toy during the coming year, we would have a wealth of shareable items in the shed. We have made several changes to make the shed work better. First, we have purchased it, so we no longer are paying rental fees. Second, we are putting it on supports during 2014, which will add to its longevity. Finally, a lock has been installed on the shed. Only Virgin Grand unit room keys, and those of management and of the person who cleans the shed, will open this lock. We hope that this will ensure that only residents of Virgin Grand will be able to remove items from the shed.
Lawsuits
Here is a status report on the two lawsuits that we had previously reported to you. The relatively small dispute with a waterproofing contractor who had previously worked on some of the renovations has been settled on terms with which we all are comfortable. The lawsuit brought by some Owners against Starwood and our Owners association seeking (among other things) to rescind the affiliation agreement between our resort and Starwood, is presently on hold. Both Starwood and our Owners association filed motions to dismiss the case and we were confident that the case would be dismissed based on our motion. However, in July, before the court could rule on the motions, the plaintiffs’ lawyer suddenly died. We do not know whether the plaintiffs will retain a new lawyer or decide not to proceed with the lawsuit.
Checking out
Finally, a word on late checkouts. Just as we have urged (and will continue to urge ) our fellow Owners to keep down those high energy costs by turning up the air conditioner and turning out the lights when you are not in the unit, we now urge you to check out of your unit by 10:00 a.m. as our agreement with the resort requires. Part of our maintenance fee expense is going toward extra cleaning staff who have to come in on weekends because some Owners do not check out on time, resulting in a crush of room-cleaning work in the early afternoon, before the new occupants are due to check into their rooms. In addition, some Owners leave their units in such a disordered and dirty condition that extra cleaning staff is required. Management has not charged for extra time when Owners stay beyond the designated 10:00 a.m. checkout time, but is likely to have to do so if the costs for additional housekeeping continue. So please, (a) leave your unit in reasonable shape for a fast cleanup, (b) check out on time, and (c) don’t forget a gratuity for the hardworking housekeeping staff – and perhaps something extra if you are leaving a great deal of trash behind.
We look forward to seeing many of you in St. John, perhaps at the annual Owners’ meeting, which in 2014 will be held on March 3.
Philip G. Schrag
phil.schrag@gmail.com Robert Werbel
robert.werbel@yahoo.com