The Timeshare Beat: Jerry Sikes; With Regard to Additional Duties

Wherever there is a Timeshare or Vacation Ownership Resort there exists the necessity to manage the affairs of the Resort and its Owners Association if there is one. Typically one thinks of those necessities in relationship to the day-to-day operation of the property and the supervision of the staffs necessary to insure suitability for occupancy. If the Association exists it is probably incorporated in the state as a nonprofit corporation and those incorporation papers will contain a statement of purpose such as the one displayed below:

Purposes: The general purpose for which this Association is formed is to act as the Association for the operation and maintenance of the XXXXXX Resort located at ........., for the benefit of the owners thereof and for all other lawful purposes for which nonprofit corporations may be organized. The character of affairs which the Association initially intends to conduct is management of XXXXXXX Resort.
(a), (b), (c), (d) To maintain and operate the Common Areas and Residence Units within the Property and contract for the maintenance, operation and management thereof ...

The typical timeshare plan owner, regardless of if they are at their home resort or visiting another via an exchange, are aware of the obvious. They look at the grounds, at housekeeping & maintenance, the check-in/check-out process and overall hospitality for their measure of effective management and operations. If these things are in place they assume that the underlying essential issues are just as effectively taken care of.

Let us assume that many of these additional duties/issues have been delegated by the Associations Board of Directors to those directly responsible for Resort Management. This may be the General Manager of a self-managed property or a Professional Management Firm under contract to the Association. If these are the circumstances at your resort or if you serve the Association as a Board Member, you should inquire of those responsible for an overview of the current status of the following duties/issues.

It is obvious that several critical issues/duties are not among those listed above, however no matter how long the list something would be missing as it relates to some resorts. The reality is that a timeshare resort is like a town or city. It has housing that is constantly occupied by individuals who demand all the benefits, services and protections of any resident citizen and are exposed to any of the typical occurrences. If you could have read it in the local newspaper, seen it on the 6 o'clock news or heard it on talk radio you can expect that it has occurred at the resort or sooner or later it will.

The following real life happenings will highlight how these additional duties could affect the health and well being of any timeshare resort.

1] The year was 1990 and the timeshare resort was in transition from Developer controlled to Owner controlled. During the previous two years the developer had elected to pay his allocable share rather than providing a subsidy. This meant that the Developer paid the same annual assessment on the Intervals which had not been conveyed, as did the other owners who had purchased Intervals at the resort. In the prior year the property tax had been $185,000. As with any tax on real property, the taxpayer has the right to appeal the amount if they feel it was inappropriate. No one in the Developer's organization had identified this issue and acted upon it, thus the tax was paid each year without an appeal ever being filed. In 1991 the property tax was appealed and the result was a reduction in the amount to approximately $97,000 for a savings of about $65,000 after the appeal costs had been paid. This savings amounted to more than $11.50 for each interval owner and while that amount may seem inconsequential, twelve years later the property tax is still $45,000 below the tax amount paid in 1990. Assuming a $45,000+ annual savings over 12 years the accumulated amount would approach $600,000 and that isn't chicken feed.

2] After the events of 9/11 everyone expected that insurance premiums would increase, it was just a question of how much. Property insurance for a timeshare resort is not optional, it is a necessity. The current Insurance Broker had been providing coverage for the resort for the last three years and had, for the most part, contained the expected increases to single digits. This Broker has provided excellent service and had become very friendly to the senior staff. He would drop by on regular occasions during the year with a box of cookies, a big can of specialty popcorn or some homemade brownies. When asked in midyear to estimate the increase for coverage beginning 1/15/04 over the prior year, that Broker indicated the increase to be approximately 10%, however when the actual premium proposal was received in early December the actual increase was about double the projection. It would have been very easy for the Resort Manager to renew the existing insurance policies and maintain that relationship. Fortunately the Resort Manager had requested Property Insurance coverage proposals from other Brokers and had received a proposal from another firm that provided the same coverage from a Triple-A carrier for premiums that were almost identical to the 2003 amounts. Needless to say, the correct decision was made and the unnecessary increase in Property Insurance costs was avoided.

3] Just because the resort has a relationship with a management firm doesn't automatically indicate that these additional duties are being handled in the best interest of the resort and its Owners. The Developer had developed a relationship with the management firm because they were noted to be pro-developer in their effort. They were very supportive of any endeavor by the developer to enhance new sales and to facilitate interface between the resort guest and the marketing team. The concierge desk became in house marketing and the guest that wanted to take a local excursion such as a balloon ride or van/jeep tour was pressured into submission for '90' minutes of sales presentation to receive a special discount of that trip. During the period of Developer Subsidy, they cooperated with the developer in keeping the annual assessment at a level that raised the minimum of objections at the closing table and didn't press the developer in funding the reserve account. The Management Firm's actual management fee was very low by comparison to other firms, however for that cooperation with the Developer, the management firm was allowed additional 'hidden' incomes such as assessment billing fees, accounting fees, rental fees, computerization interface fees, record storage, etc., etc. When transition of the resort from Developer control Owner control occurred, the owner-elected Board of Directors found that the resort appeared poorly equipped to perform all these essential functions and were deluded into maintaining the Developer influenced relationship with the existing management firm. It took several years for the resort to realize that on-site resort staff was actually performing most of those functions and many others could be contracted out at no actual cost to the Owners Association. Example: Almost all of the reputable third-party collection firms add their collection fee onto the delinquency amount so that when the collection occurs the resort receives 100% of its delinquent assessment with the collection fee paid by the Owner in default.

4] The resort was a relativity small one with just over 100 units. While the resort had been purpose built for timesharing, the Developer provided only the very minimum of operational space. Those who occupied the Residence units found them exceptionally clean and well supplied with high quality linen and terry items. Those things were expected thus little thought was given to how these things were managed and at what costs. Because there was no laundry or storage facility provided, the linen and terry items were acquired from a Hospital Service Laundry firm. That firm (for a fee) provided the required clean linen and terry items on a daily basis and picked up the dirty for processing overnight. The costs for this service exceeded $120,000 per year. After the resort came under control of the owners and the Developer-friendly management firm had been replaced, cost containment became an issue. With funds provided from the accumulated Reserves a capital improvement project was commenced which included the building of a housekeeping facility that contained space for a full laundry and inventory storage. For approximately $160,000 the building was constructed, the laundry was fully equipped and a 4-par of linen and terry items was purchased. For the 12 months following the opening of the facility the cost to provide clean items for the villas (including a provision for replacement linens) was approximately $24,600. Effectively the costs savings was approximately $8,000 per month and in just over 20 months the facility had paid for itself.

Final Thought

Operating a timeshare resort is a business and in most cases it is a big business. Let us assume that there exists a resort that has 200 units or 10,200 intervals with annual operating costs of 6 million (including property tax and reserve allocation) and the only source of revenue was assessments from the owners. Consequently each owner would pay approximately $600 per year as his or her allocable share. Under this scenario a thin dime equates to over a thousand dollars, a buck equates to over ten thousand and over one hundred thousand comes with an additional $10.00. That $100,000 would equate to just over a 1.5% increase in each owner's assessment.

Each year every timeshare owner receives a copy of the operating budget for the coming year and an invoice for his allocable share. While I am not proposing that every owner begin to micro-manage every detail of the annual operating budget, it surely would not hurt to question a few specific areas similar to those listed above.

Providing a few answers never hurt anyone and who knows, just getting some questions may generate a second look at some areas that may have been taken for granted. A penny here and a penny there could add up to a tidy sum. Make it someone's additional duty to tidy up...