How Does Starwood Make Money from MFs?

I think the most compelling question I have for Starwood is "Why do you work so hard to control the HOA board?"

Combine their stronghold on the HOA board with ever-increasing and out-of-sight MFs, and the recent SVR SAs where, among other things, they were charging owners $9,000 per apartment to have it painted....and the end result is suspicion that they are not acting as responsible financial stewards of my money.

Starwood bends over backward to make sure that they no one gets on the ballot that is not pre-approved by them. If they didn't, I would be far less skeptical because I would be assured that someone is acting in MY interest. I don't have that assurance now. Hand picking the board is a clear conflict of interest, it goes against the spirit of an HOA, and it most definitely raises the appearance of impropriety.

DannyM said:

The island argument is good if we want to justify why MFs at WKORV should be higher than WKV. I'll buy that... but it doesn't justify those MF hikes over time, especially when hotels, food, rental prices and pretty much any other good or service you can think of on Hawaii had relatively stable (or even declining) prices over those years.

Too often you hear stories like this... Developers start by building a nice resort with low MFs and once it sells out maintenance fees rise to the point where people want to give their timeshares away and nobody wants them. The link above is regarding NYC, so the "island" argument hardly holds (even though technically Manhattan is an island).

Hawaii and the Bahamas were always islands - that hasn't changed. If it was feasible to run those resorts in 2005 with MFs around $1,600 for a 2BR LO/Dlx, I honestly don't see what has changed over the last 4 years to justify much of an increase, let alone the increases listed above. It can't possibly be energy prices... - those did go down significantly from their 2008 highs and nobody here is expecting lower MFs next year at any property

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Danny.

I am not defending Starwood's practice, or rationalizing annual fee increases. I am defining it.

In responding to Troppers question of why Marriott Maui Ocean Club and KOR had very similar annual fees, I offered two thoughts.

First, both make about double the 10% OM fee.
Starwood is not alone in making money on goods and services.
That's one reason fees are similar.

Having said that I believe they are really raking in 20%, instead of 10%, the other factor is actual costs.

The fact of the matter is that energy costs have skyrocketed.
Nowhere more so than Hawaii.

The price of a barrel of oil is not the measure. It is the cost of electricity. In my personal life, energy costs have increased almost 50% in the past 5 years. Not because I consume more energy, but because the electric utility charges me more.
It may be intended to incentive conservation, but it costs me lots more.

Likewise for food. I have been shopping at the same Vons/Safeway and Albertsons markets for at least 12 years.
When oil went to $140/barrel, grocery prices went up 50-60% Prices have not come down much at all, while the price of oil has been cut in half. Again, it's the cost of electricity up and down the chain of manufacture, packaging, distribution, and so on.

I am in a far better position to control my energy costs than a resort is.
A real problem is that families on vacation are not as consciences about conserving energy.
Restaurants and food suppliers are even less able to do so.

Hotel prices have nothing to do with it.
Timeshare owners do not have the luxury of renters. They must pay the full freight of ownership.
A hotel may have a occupancy break even cost of $40/night. If they charge $100 instead of 200 to increase occupancy, they are ahead of the game.

There is no doubt that these steep increases are causing owners to bail on their timeshares. Not good for the owner, market values, or anything for that matter.

But, once one accepts that Starwood is making 20% +/-, it is time to look elsewhere for the culprit. Increased fees are primarily caused by higher energy prices, all the way up and down the chain.

Fredm said:

Danny.

I am not defending Starwood's practice, or rationalizing annual fee increases. I am defining it....

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That makes sense. It would still be interesting to compare line items in the annual statements. While some things should go up based on reasons you stated, some are less likely to be affected.

For example, how much variation in housekeeping would one expect over time at the same resort, even with increasing energy costs? How much variation should there be in housekeeping costs in the same year across resorts (say WMH vs. WKORV)?

I just can't help feeling that many of these MF increases are just costs fabricated by Starwood. It would be tempting for them to do that when they get a 20% cut off the top line... especially when don't have to provide detailed explanations to owners and set billing amounts on their own.

LisaRex said:

SVR SAs where, among other things, they were charging owners $9,000 per apartment to have it painted....

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WOW-I just built a 16,000 square foot house in SoCal with 10 bathrooms, 8 bedrooms, 2 offices, theatre room, playroom, craft room, 4 staircases, 2 kitchens, 2 laundry rooms, etc. and I only paid exactly $9000 to have the inside painted. This included the materials and labor for all baseboards, doors, ceilings, waynes coating, and bulit up crown moulding throughout! So Starwood is paying contractors as much to paint a small 2 bedroom TS that is 10% of the size of my house the same cost that I paid my contractor. I am glad that Starwood negotiated such a great deal since they were painting so many TSs; I was only painting one house!

I would be very surprised if there wasn't relatives, friends, and kickbacks invovled with this painting contract. The would be much less chance of this happening with an independent BOD that are all separate TS owners!

Westin5Star said:

WOW-I just built a 16,000 square foot house in SoCal with 10 bathrooms, 8 bedrooms, 2 offices, theatre room, playroom, craft room, 4 staircases, 2 kitchens, 2 laundry rooms, etc.

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When do you start accepting reservations?

me too...

how about this to add fuel?
WKORV is being renovated (w/o SA - so assume on reserves - hopefully...) - and all the old TVs, DVDs, consoles, couches, chairs, etc.) were being taken away by local people with trucks this morning - I hope as donations - but if auctioned/donation - does the HOA get that credit?
answer this - and it may reveal alot (good or bad)...

btw - we like the renovated WKORV villas (esp flat screen TVs - and those ugly TV consoles are gone) - and with existing reserves (I hope)...

Renovated Villas

Originally Posted by DavidnRobin
btw - we like the renovated WKORV villas (esp flat screen TVs - and those ugly TV consoles are gone) - and with existing reserves (I hope)...

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Any chance of getting some pictures of the renovated villas?

DannyM said:

That makes sense. It would still be interesting to compare line items in the annual statements. While some things should go up based on reasons you stated, some are less likely to be affected.

For example, how much variation in housekeeping would one expect over time at the same resort, even with increasing energy costs? How much variation should there be in housekeeping costs in the same year across resorts (say WMH vs. WKORV)?

I just can't help feeling that many of these MF increases are just costs fabricated by Starwood. It would be tempting for them to do that when they get a 20% cut off the top line... especially when don't have to provide detailed explanations to owners and set billing amounts on their own.

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It would be interesting to compare line items year to year at the same resort. Even across resorts for the same year. But, Hawaii is a different animal, IMO. Supplies are much more expensive in Hawaii. As is labor. Both may be governed by the same minimum wage laws, but I suspect that Hawaii pays more because of the cost of living. I might be wrong about that, but can't help but believe it is true. That's why it would be interesting to compare.

I don't believe Starwood is outright fabricating costs. That would be illegal. They may be many things, but stupid is not one of them.

Also, a minor clarification. I never said Starwood takes 20% off the top. They take 10% off the top. The remainder is my estimate of what is made from up-charges for goods and services, which might add another ~10% to the total.

A "former poster" who now calls himself a "lurker," continues to send PMs to Tuggers instead of posting his thoughts publicly. I've already received two emails from him. His latest correspondence accuses me, in a roundabout way and complete with a smiley face, of posting "astounding misinformation" because all he had to do was CALL Starwood and they gave him the names and occupations of the HOA board at his four resorts. And that information, I presume, satisfied him that the HOA boards were NOT hand-picked by Starwood. (I'm sure he'll come by and clarify if I've misrepresented his position here.)

Here is the response I sent him:

I didn't say that the Starwood board was comprised of ex-Starwood employees. I said that the Starwood board was hand-picked by Starwood. Quite a difference.

When one gentleman tried to run for the board, he reported that he was told he had to pass a screening from the current board. They never called.

I routinely receive correspondence from my "Board of Directors." It neither lists a person's name, nor a way to communicate back to them. The only means that I have to communicate with them is through the corporate website, MyStarCentral. I have no doubt that they read every email that is sent.

My HOA ballot didn't list one person's name, let alone their bio. It just allowed me to check to approve everyone, only those who appear in person, or nobody. Don't you find that to be disquieting?

Just a few weeks ago, I received correspondence that said, "Dear Mission Hills Villa Owner." that went on to state, verbatim, what had been sent to owners at other resorts. Don't you find it terribly odd that an HOA board at WMH came to the exact same conclusion, and drafted the exact same letter, as their sister HOA board at SVR?

Conclusion: Starwood CORPORATE drafted the letter, not the HOA, not just because the verbiage was identical to other resorts, but because *I don't own at Westin Mission Hills.* How else would the WMH board get proprietary information such as my snail mail address, if they are not working through corporate?

Misinformation, indeed.

Yours truly,

Lisa

And, here's what I sent Lisa that generated her response:

"Lisa,

"Starwood bends over backward to make sure that they no one gets on the ballot that is not pre-approved by them. If they didn't, I would be far less skeptical because I would be assured that someone is acting in MY interest. I don't have that assurance now. Hand picking the board is a clear conflict of interest, it goes against the spirit of an HOA, and it most definitely raises the appearance of impropriety."

When I saw your accusation, I wrote to Starwood's association services and asked who were the board members at the 4 resorts I own at.

Below is what Starwood sent me. All I needed to do is ask.

Cap Witzler (president at WKV), who I played golf with last October at Kierland, is the retired from the Collection Department of the IRS' Denver Office. He and his wife, Suzy, are active in supporting the arts in the Denver area. Suzy is the publisher of a plastics magazine.

Bishop Jack Iker (president of Bella) is the Episcopal Bishop of Fort Worth.

Bella probably has 1 Starwood employee on the board, Coffey who may be related to a Starwood VP. WKV may have none (I can't find anyone by Googling names + Starwood). Are you insinuating that their presidents, ex-IRS and a bishop, are corrupt?

Lagunamar is Starwood dominated because it is still under construction.

Harborside has Curtin, who is Starwood. Bruce Thompson is on the board of ARDA (I think, but unrelated to Starwood). Dixie Proctor is probably the co-founder of a nanotechnology company in Florida.

But perhaps facts don't matter on TUG. I have seen posted, time and again, that only Starwood employees are on the HOA boards.

"Thank you for contacting Association Management.

The list below includes the names of the Board Members for the following Associations:

HARBORSIDE II

Dixie Proctor - Vice President
Dale Curtin - Vice President
Bruce Thomson - Secretary

BELLA

Bud Boberg - Vice President
Michael Coffey - Vice President
J. Douglas Drushal - Secretary
Bishop Jack Iker - President

KIERLAND

JL "Cap" Witzler - President
Cheryl Paar - Secretary
Anthony DeNapoli - Vice President
David Timm - Vice President

CANCUN

Thorp Thomas - Manager
Teri Castleberry - President
Shawn O'Brien - Vice President
Jonathan Ho - Secretary"

The astounding misinformation posted on TUG about Starwood and the vehemence of the defense of the misinformation in the face offacts is why I am now a lurker." ... eom

Fredm said:

I don't believe Starwood is outright fabricating costs. That would be illegal. They may be many things, but stupid is not one of them.

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You are right. There is a fine line called "The Law" between fabricated and inflated. For someone who pays the bill at the end of the day it probably doesn't make much difference though...

DannyM said:

You are right. There is a fine line called "The Law" between fabricated and inflated. For someone who pays the bill at the end of the day it probably doesn't make much difference though...

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And, right you are, Danny. It doesn't make much difference. Bottom line is the same. It does matter how we characterize the issue, however.

If we agree that Starwood inflates the cost of goods and services, which adds an additional 8-12% to annual fees, that covers it.
Recognizing that they are not alone (Marriott and all other branded OM's do it), they are guilty as charged. Let's hang 'em.

Annual increases that are a result of the actual cost of goods and services remain. Starwood has already been hung.
It's the double and triple jeopardy that concerns me. It tends to cloud the issue, not clarify it. And THAT leads to more dissent than is good for the market of what is owned, compounding the very real problem caused by high and increasing fees.

I have said before that to a certain extent complaining may be good for the soul. But, let's not lose track of the underlying question. How many would rather potentially save the couple of hundred a year Starwood makes from up-charging to be outside of their system? If it were even a realistic possibility.

I simply suggest that we not make matters worse than the facts themselves.

aeroflygirl said:

Any chance of getting some pictures of the renovated villas?

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I will post photos once I get my life back in order - strange to be back home after 8 weeks away...

and jarta - once again you are missing the larger picture...

LisaRex said:

I didn't say that the Starwood board was comprised of ex-Starwood employees. I said that the Starwood board was hand-picked by Starwood. Quite a difference.

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Lisa - That is correct. We have had TUG members who completed the application process to run for their BOD's and never received a response from Starwood. Starwood HAND PICKS the people they will allow to run. That seems totally democratic to me! The management company that WORKS FOR US to manage the resorts that WE OWN, hand picks their own bosses!

I understand that they don't want every screwball who can fill out an application to run for the BOD, but there are other legitimate options. For instance, why not have a petition option where an owner can provide a certain number of signatures from owners at the resort, and be nominated via petition? Why? Because then Starwood would lose control of the election....

BTW- I have never seen anyone post that all BOD's members are Starwood employees, but I and others have posted that 1) the BOD's are controlled by Starwood and 2) many of the directors are Starwood employees. I believe the majority of the directors at WKORV are still Starwood employees.

But I could be wrong, because I've never played golf with anyone from Starwood...

BTW - If you are receiving undesired communications from anyone, and you ask them to stop, and they continue, please let me know. I was receiving undesired communication, and it stopped when I asked.

Jarta - this seems odd. Are you sure the HOAs consist of 3 people + a secretary? Could it be that they only sent you non-Starwood employees?

DannyM, ... Amazed, are you? Doesn't jive with TUG orthodoxy, does it?

I guess the the WKV and Bella presidents, the Episcopal Bishop of Fort Worth and the ex-IRS guy, must be Starwood stooges who do whatever Starwood tells them to do. Mere rubber stamps that let Starwood steal from owners? Does anybody here even know who the people are that they are ignorantly slandering?

However, there are Starwood employees on the boards at 3 of the 4 resorts. Lagunamar is controlled by Starwood employees.

And, BTW, DeniseM evidently doesn't play golf. Sometimes when you show up as a single or a twosome in the pro shop, they just put you wherever you can fit in. They didn't even ask if I was a TUG member when I was paired up at the SVOpen. lol!

The responses to my post proved just how little facts matter here. Back to lurking. ... eom

jarta said:

DannyM, ... Amazed, are you? Doesn't jive with TUG orthodoxy, does it?

The responses to my post proved just how little facts matter here. Back to lurking. ... eom

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I beg to differ on this. This is a forum where people post opinions and if they are wrong someone else will be quick to point it out.

If you have ever been to a Starwood sales presentation you know very well that what they do is mislead people with half truths and sometimes flat out lies. An organization that does that is capable of doing much more.

Here are some facts I hope we can agree on...

The reality is that MFs are set by Starwood and owners have no say in their level or rate of growth. Starwood provides little to no explanation why MFs increase at such a rapid pace at some resorts. This is not unique to Starwood, but this is the Starwood forum...

It is also a fact that if they get any cut from the top line (10%, 20% whatever) there is little incentive to try to keep MFs low. The financial incentive favors high MFs, especially at sold out resorts where they are no longer selling units.

Lastly, this is causing many owners - and not just TUGgers - to be dissatisfied with their ownership. Just take a look at how many WKORV, WKORVN, and HRA units are for sale relative to other resorts...

the point is about SVO ability to control communication between Owners and therefore control HOA board membership....
(as said over and over...)

but keep up the company-line...

I attended my husband's 25th high school reunion on Saturday night. I was amused to see the campaign ads for for Student Council. One of the guys running for President was the son of another guy I used to date, and he looked just like his father....

Then it dawned on me. Perhaps the most damning evidence supporting the notion that Starwood controls the WKORV HOA boards is the fact that there is never a contest.

My husband's high school, with a class size of maybe 300, had THREE students running for President. With over 15,000 potential owners at WKORV-N, are we to believe that none of the positions is ever contested? Really? Even with MFs increasing by 10% each year? Wow. And how lucky and convenient it is that we have exactly one person running for exactly one position each year. (And by "convenient" I mean "suspicious.")

Heck, last year WKORV-N HOA didn't even bother listing NAMES on the ballot. How uncontested is that?

Fredm said:

But, once one accepts that Starwood is making 20% +/-, it is time to look elsewhere for the culprit. Increased fees are primarily caused by higher energy prices, all the way up and down the chain.

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Interesting that you equate higher fees with higher energy prices.

I'm glad to see that the HOA was able to save on energy bills at WKORV.

If it's energy costs then why aren't hotel rates escalating at the same rate? Surely they have to air condition the place, too.

Troopers said:

Interesting that you equate higher fees with higher energy prices.

I'm glad to see that the HOA was able to save on energy bills at WKORV.

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Yep. Hawaii commercial rates decreased. July 08 was 31.94 cents per kwh. - July 09, was 20.74 cents per kwh.

But, rates have increased 18% in the past two months! plus a surcharge is now scheduled. So, that party is over.

Glad to know that KOR benefited from the temporary 30% drop.

Compare this to California during the same period. 7/08 was 14.47. 7/09 is 16.38.

However, as energy costs affects Hawaii's economy, energy prices for transportation have increased ~60% since 2001. And almost everything needs to be transported a very long distance.

LisaRex said:

If it's energy costs then why aren't hotel rates escalating at the same rate? Surely they have to air condition the place, too.

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Because hotel rates are much more fluid.

I am a bit dated on the stats, but an example will suffice.

Marriott had a room break even cost of $40/night. That is, it cost Marriott $40 for a guest to occupy a room for 1 night.
In a good economy Marriott's room rates were, say, $185/night, and occupancy was high.

To increase occupancy in a soft economy, prices can fall to anything above the break even cost. If it increases occupancy. So, it is not uncommon today for prices to be $100-120/night. Still well above the break even rate.

The cost of public area a/c, lighting, keeping the restaurants open, etc. are fixed costs. Higher occupancies help these as well. They burn if no one were in the hotel.

Fredm said:

Because hotel rates are much more fluid.

I am a bit dated on the stats, but an example will suffice.

Marriott had a room break even cost of $40/night. That is, it cost Marriott $40 for a guest to occupy a room for 1 night.
In a good economy Marriott's room rates were, say, $185/night, and occupancy was high.

To increase occupancy in a soft economy, prices can fall to anything above the break even cost. If it increases occupancy. So, it is not uncommon today for prices to be $100-120/night. Still well above the break even rate.

The cost of public area a/c, lighting, keeping the restaurants open, etc. are fixed costs. Higher occupancies help these as well. They burn if no one were in the hotel.

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Fred,

Awesome. So you agree that if Starwood properly managed our TSs that our MFs should come out to less than $40 per night! Hotel rooms get cleaned every night they are used. Although TS units are generally larger, at Starwood cleaning is only included every 3.5 nights; the additional energy for the unit should be much less than cleaning less often (labor). Therefore, by your example above, if TSs are being properly managed, the breakeven point should be less than $40 per night per unit. Our MF are definitely higher than that! This is further proof that Starwood is ripping off its TS owners by the huge increases in MF.

($9000 for a paint job!)

Westin5Star said:

($9000 for a paint job!)

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I have misled you. The $9000 was for "other continency." Who knows what that is? They charged owners a mere $4000 to paint the 1300 square feet. (I know, you're saying "What a bargain!") See below for a breakdown of the costs, but you might want to take your blood pressure medicine first.

They charged $8000 to demolish each villa. Outrageous, you say! Now, now, they did have to tear out cabinets and rip up carpeting. That took at least 3/4 of a day! (Personally I'd have done it for $8M. I could have made a tidy profit even after forking out transportation costs to Orlando, renting a dumpster, buying a crowbar and hammer, and staying in 5* accomodations. But I digress.)

What is the breakdown of the cost per villa?
The refurbishment cost for each villa will be approximately $67,170.

Kitchen $289*
Cabinets/countertops - $13,575
Master bedroom/bathroom* – $8,004
Guest bedroom/bathroom* – $4,155
Dining room – $4,134
Living room – $12,040
Patio/balcony – $784
Tile flooring – $5,245
Paint – $4,018
Demolition/renovation - $7,859
Stairwell improvements – $2,500
Other/contingency – $9,023

* This estimate is for furniture, fixtures and equipment only. Reserves will be used to offset the refurbishment cost by $4,456 per villa.

Here's the scope of the work:
KITCHEN
Granite countertops, cabinets, window treatments, garbage
disposal, sink and faucet and paint
DINING ROOM
Dining table and chairs, bar stools, chandelier, artwork, trim
and paint
LIVING ROOM
Media center with 42" LCD flatscreen TV and Bose®
entertainment system, queen sofa bed, lounge chair, carpet,
lamp, coffee and end tables, draperies, crown molding,
artwork and paint
MASTER BEDROOM AND BATHROOM
32" LCD flatscreen TV, mirror, lighting, king-size headboard,
duvet, nightstands, desk, lamp, dresser, lounge chair, carpet,
draperies, artwork, granite countertop, sink and fixtures, and
paint.
GUEST BEDROOM
32" LCD flatscreen TV, headboards, bed coverlets, nightstand,
lamp, dresser, artwork and paint
GUEST BATHROOM
Granite countertops, vanity, mirror, bath/shower tile,
lighting, fixtures and paint
PATIO/BALCONY Table and chairs