Lakeshore Financial Issues?

Just received a proxy from Lakeshore Reserve asking us to vote to waive "fully funded reserves for the next fiscal year" if we do this it also states that by doing so this may result in unit owner liability for payment of unanticipated assessments. If we choose not to we could see a significant increase in fees.

Has anyone else received this proxy?

Sounds to me as if there are cashflow problems at Lakeshore and they need to reduce the reserve to meet expenses. I could be wrong but I dont like this.

No, it relates to the Florida law requiring reserves to repair and maintain the capital facilities of the resort.

The owners are the source of those funds. Very few owners would want to cough up that amount of money in one chunk. Therefore, the law gives the owners the right to waive that requirement, and to build up the reserve fund with smaller annual contributions.

Yes, if there were a major calamity, and the reserves were not fully funded, there would be a big assessment. If the requirement isn't waived, that assessment would have to be paid now, to meet the requirement of fully funded reserves, even without a major calamity occurring.

Art

We owned at Sabal Palms for 24 years and we got this every year. It is routine and exactly what the previous post says.

BocaBoy said:

We owned at Sabal Palms for 24 years and we got this every year. It is routine and exactly what the previous post says.

Click to expand...

That is a VERY dangerous choice to make as a resort/Board. It is basically purposely underfunding the annual amount needed for the estimated reserves. It is fine to spread out the cost as that is the idea of reserves vs specail assessment but the Association needs to fully fund the estimated amount need say over 5-7 years not simply underfund it (usually to hold annual fees down). It is setting the resort up for a special assessment or the inability to properly fund scheduled/needed replacements/upgrades when the time comes.

I would always vote NO on that proposal & vote out any Board member that supported it. It is developer thinking not proper fiduciary care of a resort budget and the reserves needed. Very shortsighted move by any resort Association to take that route.

Art said:

No, it relates to the Florida law requiring reserves to repair and maintain the capital facilities of the resort.

The owners are the source of those funds. Very few owners would want to cough up that amount of money in one chunk. Therefore, the law gives the owners the right to waive that requirement, and to build up the reserve fund with smaller annual contributions.

Yes, if there were a major calamity, and the reserves were not fully funded, there would be a big assessment. If the requirement isn't waived, that assessment would have to be paid now, to meet the requirement of fully funded reserves, even without a major calamity occurring.

Art

Click to expand...

You have it backwards...Fully funded reserves means paying in small chunks over time...If you dont fund your reserve account fully, you will get hit with big lump sums

A simple hypothetical example for a 2unit time share with 100 intervals

we estimate our roof will last another 10 years, and will cost $20000, and we have $10000 in our reserve fund dedicated to the roof replacement,

so we need to add $1000 to the roof fund each year to the roof reserve fund. We have 100 owners so each owner has to pay $10 into the roof reserve fund this year to fully fund the reserve account.

If we vote to waive the requirement to fully fund reserves every year, when the roof need replacement you can count on a special assessment to pay for it..In my example $10000 iwill be needed, divided by 100 owners, or $100 each.

Voting to waive the requirement for a fully funded reserve account is asking for special assessments somewhere down the road

This resort is so new and quite small. I'm not surprised it is on the table.

The issue I've always had with our Ocean Pointe HOA/BOD is they use scarry words like significant increase in MF's without actually spelling out what those fee's would be.

My problem has been understanding the FL law. By fully funded, do they mean fully funded for any eventuality from day one, which would result in a huge reserve fund from owners or, do they mean fully funded over a reasonable amount of time? It's my understanding that they would require fully funded from day one.

Ocean Pointe owners have only been asked to pay one special assessment due to hurricane damage. Even then it was a relatively small SA. Ocean Pointe has one of the largest reserve fund collections of any resort we own. The replacement reserve for 2010 was $271 for our 3 bedroom unit. For that matter, our Las Vegas Grand Chateau 3 bedroom unit required a $190.90 reserve funding for 2011. It seems to me that Marriott requires a pretty good cash reserve be kept by it's resorts.

But, there appears to be more than one way for resorts to handle their accounting and it's not clear to me how these numbers are arrived at and, I'd like to see the comparison between what the HOA/BOD recommends and what the state of FL requires unless owners wave the fully reserved funding rule. Without that knowledge and a full understanding of what's at stake, owners really can't make an informed decision as to what's best for them.

As it is, Marriott MF's are among the highest in the industry. Somehow, I doubt the majority of owners would vote for further increase the financial burden upon themselves, instead prefering to trust that the HOA/BOD has their best interests in mind. Even if they don't completely comprehend the risks/rewards involved.

Lardan said:

This resort is so new and quite small. I'm not surprised it is on the table.

Click to expand...

This is always on the table at our Orlando resorts. Old or new. I think also that if they vote against fully funded reserves, they can borrow funds to spread out those costs of major capital repairs over a longer period of time.

We always vote no to this provision, but it always passes. Though I did read that it didn't pass at Cypress Harbour last year.

macster43 said:

Just received a proxy from Lakeshore Reserve asking us to vote to waive "fully funded reserves for the next fiscal year" if we do this it also states that by doing so this may result in unit owner liability for payment of unanticipated assessments. If we choose not to we could see a significant increase in fees.

Has anyone else received this proxy?

Sounds to me as if there are cashflow problems at Lakeshore and they need to reduce the reserve to meet expenses. I could be wrong but I dont like this.

Click to expand...

Thanks for everyones input I think I have a better understanding now

dougp26364 said:

My problem has been understanding the FL law. By fully funded, do they mean fully funded for any eventuality from day one, which would result in a huge reserve fund from owners or, do they mean fully funded over a reasonable amount of time? It's my understanding that they would require fully funded from day one.

Click to expand...

The apparent intent of the law is 100% funding of estimated future costs. A problem is that how you come up with a reasonable & realistic future cost is a true art. But purposely UNDERFUNDING that amount, which is what this proposal would allow, is a BIG mistake and most likely won't save money over time but lead to a SA when the work is required. The fancier and more equipped a resort is the higher that reserve - as well as on going maintenance fees - necessarily have to be. It costs money.

See the recent II Vacation Industry Review article about this very idea. It is a good one & every owner should read it.

The Cypress Harbour BOD is a good board. You are correct, the measure did fail at Cypress Harbour, 1,860 for to 2,130 against.

dioxide45 said:

This is always on the table at our Orlando resorts. Old or new. I think also that if they vote against fully funded reserves, they can borrow funds to spread out those costs of major capital repairs over a longer period of time.

We always vote no to this provision, but it always passes. Though I did read that it didn't pass at Cypress Harbour last year.

Click to expand...

Most of the posts here do not have the slightest idea of what is meant by "fully funded" reserves. Do you really want all the money there day one for expenses years down the road? Prudence would dictate funding over time. Same principle as a pension plan. If you were saving for a new car you think will be needed in 5 years, would you put all the money in a savings account now or would you put a fifth of it in each year? Do you any idea of the one-time cost of "fully funding" the reserves up front?

BocaBoy said:

Most of the posts here do not have the slightest idea of what is meant by "fully funded" reserves. Do you really want all the money there day one for expenses years down the road? Prudence would dictate funding over time. Same principle as a pension plan. If you were saving for a new car you think will be needed in 5 years, would you put all the money in a savings account now or would you put a fifth of it in each year? Do you any idea of the one-time cost of "fully funding" the reserves up front?

Click to expand...

Fully funded over time is ideal & what the state law requires. Voting to underfund over those years, which is what this vote is asking for, is setting up a bad situation. DO NOT vote yes on this despite the seeming "savings" it represents. Those are not real savings just a method to put off what you pay in the long run either way. One way it's planned - the other a self inflected shortage when it is actually required. Bad plan. Bad idea. Vote no to the proxy if you get asked. It is a plan that developers management get blasted for regularly and rightfully so, don't be a party to it by voting to allow it.

BocaBoy said:

Most of the posts here do not have the slightest idea of what is meant by "fully funded" reserves. Do you really want all the money there day one for expenses years down the road? Prudence would dictate funding over time. Same principle as a pension plan. If you were saving for a new car you think will be needed in 5 years, would you put all the money in a savings account now or would you put a fifth of it in each year? Do you any idea of the one-time cost of "fully funding" the reserves up front?

Click to expand...

I think its you that doesn't understand. Read timeos2's post and mine above to get a better idea.

Fully funded for a new roof doesn't mean 100% of the roofs estimated cost of replacement has to be in reserve today.....If its a 20 year roof, it means 5% needs to go in every year for 20 years.....It also means that the estimated cost of replacement has to be recalculated every so often to adjust for inflation, and increased materials costs.

You can also "correct" your calculations as you go along by re estimating remaining life.. maybe 10 years into the life of your roof, you have it inspected and you estimate it still has 15 years left...you can adjust your contributions

If you try to keep mfs down by voting to waive funding reserves you are asking for a special assessment at some point, and you will pay 100% at that time. You are also depressing the resale value of what you own, because careful buyers will review your reserves, and walk away from resorts that are underfunded

As the old commercial used to say...You can pay me now, or you can pay me later

ronparise said:

I think its you that doesn't understand. Read timeos2's post and mine above to get a better idea.

Fully funded for a new roof doesn't mean 100% of the roofs estimated cost of replacement has to be in reserve today.....If its a 20 year roof, it means 5% needs to go in every year for 20 years.....It also means that the estimated cost of replacement has to be recalculated every so often to adjust for inflation, and increased materials costs.

You can also "correct" your calculations as you go along by re estimating remaining life.. maybe 10 years into the life of your roof, you have it inspected and you estimate it still has 15 years left...you can adjust your contributions

If you try to keep mfs down by voting to waive funding reserves you are asking for a special assessment at some point, and you will pay 100% at that time. You are also depressing the resale value of what you own, because careful buyers will review your reserves, and walk away from resorts that are underfunded

As the old commercial used to say...You can pay me now, or you can pay me later

Click to expand...

The Polo Towers HOA/BOD did just this years ago. Owners got hit with a >$1,000 SA when it was time to refurbish. But it didn't stop there. They didn't learn their lesson and continued to underfund the cash reserve. Now, with S. Cloobeck back in charge, things appear to have changed. There was a recalculation that showed a deficit in funding. Estimates were made to make up for that deficit while at the same time increasing the cash reserve funding each year a little more until we get to where we should be for future needs.

Sunterra was bad about underfunding and allowing resorts to go into disrepair. In the end, it's cost those owners as Sunterra went belly up and DRI has drastically increased MF's to cover current costs plus future expenses.

IMHO, the HOA is being deceptive when they don't completely show owners the cost difference and tell them what it will mean in the end. Owners are going to get from point A to point B one way or the other. You can either pay for it as you go or pay one lump sum in the end. Either way, owners are going to pay. Personally, I'd rather pay a little at a time.

Still, it's hard for me to believe that Marriott is purposefully underfunding the cash reserves. Marriott collects more for cash reserves than any other timeshare system we own including HGVC. It seems to me that they plan reasonably well in most cases. I would still feel better having the difference fully explained and see a simple cost analysis given to owners so that they can judge for themselves vs the scare tactic of telling owners you MF's will be higher.

macster43 said:

Just received a proxy from Lakeshore Reserve asking us to vote to waive "fully funded reserves for the next fiscal year" if we do this it also states that by doing so this may result in unit owner liability for payment of unanticipated assessments. If we choose not to we could see a significant increase in fees.

Has anyone else received this proxy?

Sounds to me as if there are cashflow problems at Lakeshore and they need to reduce the reserve to meet expenses. I could be wrong but I dont like this.

Click to expand...

Not from your resort, but from Grande Vista. I wrote the HOA and they explained that Florida has very tough timeshare laws (due to all the past issues with them folding, etc.). Their requirements for accruing funds for future repairs are too high. Marriott (at least at Grande Vista) hired a firm to evaluate what the real requirements were for the resort and that is the level of funding they have each year. There would be way too much money set aside if they strictly followed Florida law. This is a normal warning letter and is nothing to worry about. The alternative is to not vote for this and pay a HUGE maintenance fee to bring the fund's reserve up to Florida standards.
Do not listen to the others posting doom-and-gloom here....they apparently have not really looked into this in Orlando.

MikeM132 said:

Not from your resort, but from Grande Vista. I wrote the HOA and they explained that Florida has very tough timeshare laws (due to all the past issues with them folding, etc.). Their requirements for accruing funds for future repairs are too high. Marriott (at least at Grande Vista) hired a firm to evaluate what the real requirements were for the resort and that is the level of funding they have each year. There would be way too much money set aside if they strictly followed Florida law. This is a normal warning letter and is nothing to worry about. The alternative is to not vote for this and pay a HUGE maintenance fee to bring the fund's reserve up to Florida standards.
Do not listen to the others posting doom-and-gloom here....they apparently have not really looked into this in Orlando.

Click to expand...

That is fooling yourself. Florida isn't "too high" and only demands what a qualified, outside evaluation finds as the minimum needs- not even allowing for any potential upgrades! Management may try to say they know better but we've all heard the nightmare stories of underfunded reserves but never one that said "we had too much for our renovation " If you have to trust one group over another go with the state over any developer as the state is trying to protect you not their profit margins.

MikeM132 said:

Not from your resort, but from Grande Vista. I wrote the HOA and they explained that Florida has very tough timeshare laws (due to all the past issues with them folding, etc.). Their requirements for accruing funds for future repairs are too high. Marriott (at least at Grande Vista) hired a firm to evaluate what the real requirements were for the resort and that is the level of funding they have each year. There would be way too much money set aside if they strictly followed Florida law. This is a normal warning letter and is nothing to worry about. The alternative is to not vote for this and pay a HUGE maintenance fee to bring the fund's reserve up to Florida standards.
Do not listen to the others posting doom-and-gloom here....they apparently have not really looked into this in Orlando.

Click to expand...

I would be interested to know how much more the MF would be. Cypress Harbour voted down the measure last year and their newsletter indicated that there wouldn't be a big impact on fees.

timeos2 said:

That is fooling yourself. Florida isn't "too high" and only demands what a qualified, outside evaluation finds as the minimum needs- not even allowing for any potential upgrades! Management may try to say they know better but we've all heard the nightmare stories of underfunded reserves but never one that said "we had too much for our renovation " If you have to trust one group over another go with the state over any developer as the state is trying to protect you not their profit margins.

Click to expand...

If Marriott was only concerned with their profit margins, wouldn't they suggest that owners go along with the Florida requirement to fully fund reserves from Day One? Considering that their management fee is a percentage of the MF - including reserves - it doesn't seem like their profit margins are their main concern here.

The way I read this is that 100% fully-funded is what's necessary to completely refurb a resort as well as a cushion for unanticipated events, and Florida law requires funding that from Day One unless owners elect to pay only a portion each year until the fully-funded threshold is reached. Considering that resorts don't completely refurb on an annual basis, I'd elect to not pay one massive reserve fee instead spreading out the payments over time.

My Marriott resorts are pretty good about including reserve amounts and anticipated costs in the annual MF bill/report, probably most Marriott resorts are the same in that way. I wouldn't worry unless something looked out of whack there. In the back of my mind I know that a catastrophe could happen anytime which would require a special assessment, but I'd rather not give my resorts that money to play with until they need it.

SueDonJ said:

In the back of my mind I know that a catastrophe could happen anytime which would require a special assessment, but I'd rather not give my resorts that money to play with until they need it.

Click to expand...

Hopefully if a catastrophe were to happen the resort would have insurance and have enough reserved to cover any deductible that the policy would require. In some places where hurricanes are prevalent, deductibles can be a half a million dollars or more. The HOA should be holding funds in reserve to cover that if the need ever arises.

In reading up a little on this law (Google is your friend). It seems that Florida has some strict rules related to "useful life" of items. They may state that the useful life of an elevator is 10 years (only an example), however the HOA may determine that they can get 15 years of useful life out of that item through repairs. They then don't need to fully fund for the replacement in 10 years, but rather 15 years plus the anticipated cost of the repairs. The same would go for the roof, paint, carpet, or any other capital repair item.

Waiving the fully funded reserves, gives the HOA more flexibility to determine useful life and not follow the more strict Florida law.

MikeM132 said:

Marriott (at least at Grande Vista) hired a firm to evaluate what the real requirements were for the resort and that is the level of funding they have each year.

Click to expand...

Anything Marriott does is suspect. They have only short-term goals in mind, i.e. keep MF low so they can sell developer inventory. They have no stake or interest in what MF are when the bills for long-term upkeep eventually come due.

It amazes me that there are still Marriott owners who trust the company and its motivations.