2018 MF's Discussion Thread

[SueDonJ]

A reminder that MF's shouldn't be posted to the sticky thread, Marriott 2018 Maintenance Fees, until the proposed budgets have been approved and MF's are officially announced via billing or Board/GM Notice.

The DC Trust Points have already been proposed and posted in this thread: 2018 Proposed MVC Trust Budget/Maintenance fee. MVW does not release the proposed Weeks budget/fees for every resort because every state does not require formal notice, but where it is required you should begin seeing them now.

Also state-specific is whether MVW is required to include "Fully-Funded Reserves" in the proposed budgets, which may or may not be voted down during the Annual Meeting. Those proposed fees always raise questions on TUG.

Last year following Hurricane Matthew several east coast resorts were assessed a one-time "Disaster Recovery" fee which was included as a line item in the Operating Fee component. The timing of the storm and MF's billings were such that MVW advised that if the total amount of the DR fee wasn't necessary then the balance would be refunded. That's something to watch for this year (although after seeing the result of Matthew on HHI a month or so after the storm, I'm personally not expecting a refund.) And of course, with several more catastrophic storms this year, we may see another round of "Disaster Recovery" fees at those same resorts plus some.

If you're seeing MF's increases that are higher than usual/expected, please read through the budget and any accompanying statements for any explanations. It's appreciated more than you might expect that TUGgers do such a good job of compiling all this info.

 

[Saintsfanfl]

[Moved from older thread.]

There is no difference between fully funded reserves per state law and fully funded reserves as the board determines. All of the information on the required funding must come from the board and management. The state of Florida does not run around assessing each hoa controlled property to determine what the reserves should be.

Basically the board determines what the reserves should be and then they vote to fund less than would eventually be needed.

So this brings the question that I have brought up numerous times. Everyone seems to complain about the rising fees but they do not want to adequately fund reserves to accrue for proper maintenance and replacement. This causes a never ending snowball of increases down the road. If reserves were adequately funded from the very beginning (which developers don't do), then we wouldn't be in this mess. Everyone wants to kick the can down the road and pay as little as possible today. It inevitably leads to timeshare ruin.

 

[dioxide45]

There is no difference between fully funded reserves per state law and fully funded reserves as the board determines. All of the information on the required funding must come from the board and management. The state of Florida does not run around assessing each hoa controlled property to determine what the reserves should be.

Basically the board determines what the reserves should be and then they vote to fund less than would eventually be needed.

Are you sure? When I look at my annual budget meeting material, I see the following statement;

4) Florida Law requires the Association to maintain reserves for deferred maintenance and capital expenditures, based on the estimated useful life and replacement cost of each reserve item. The Association is accumulating funds for repairs and replacements over the remaining useful lives of the components based on estimates of current replacement costs. Actual expenditures may vary from the estimated replacement costs.

There is also a chart that indicates Estimated Useful Life and Remaining Estimated Useful Life for certain capital expenditures. I was always of the impression that the state law mandates fully funded reserves based on their estimated useful life. However the HOAs usually have a reserve study performed every few years to determine the actual estimated useful life based on the actual assets. So while the state indicates a roof will last 21 years, the HOA may come to the conclusion that it is actually good for 25 years. So they don't need to fully fund the reserves to the 21 year mandate and can waive the requirement to fully fund and only fund based on 25 years, meaning they don't need to replace the roof as often and thus can spread the expenditure out over 25 years instead of 21.

It is also important to point out that the fully funding of reserves isn't a timeshare law or requirement, it applies to all condominium associations in the state of Florida. I would suspect for a property as old as some in Orlando, that have never fully funded their reserves that they would have had to have some kind of special assessment. However that isn't the case.

 

[SueDonJ]

Florida isn't the only state with Fully-Funded mandates that require 100% funding unless the membership votes to waive - South Carolina and California are two that also have mandates and there may be others. I don't know how CA does it but the process for the SC resorts is different from FL in that SC doesn't require that proposed budgets be released and the mandate isn't an annual voting item. For Barony and SurfWatch during the years it is, we only get generic info with the Annual Meeting packet about how to vote for or against fully-funded reserves with the proxy.

The mandate is fairly simple and Saintsfan is correct that the states don't set dollar figures for items and they don't inspect properties/budgets. It basically means, for example, that if a roof is estimated to need replacement at 10 years at a cost of $100K, then $10K needs to be in reserve in year 1 with $20K in year 2, $30K year 3, etc. But I understand it similarly to Dioxide, that it doesn't take into consideration things like extended warranties that the Board may have negotiated with roofing, etc contractors, or like MVW's bulk-purchase advantage. And not all financial experts agree on whether a less-than-100% reserve fund practically guarantees a Special Assessment at some point - many say that 70% is safe.

Dioxide makes another good point. If not fully-funding the reserves practically guarantees an SA, why is it that SA's are still a relatively rare occurrence with MVW ownerships? Barony Beach had one almost a decade ago; if I'm remembering correctly they brought in a new company that year to analyze reserves who recommended a bump based on locally-rising construction costs. And of course, both Barony and SurfWatch had one last year following Hurricane Matthew. As an owner at both I know that neither resort has ever fully-funded yet their track records aren't financially concerning to me (or Don, and he's a numbers professional.)

(I'm moving these last few posts from this older thread to the 2018 MF discussion thread.)

 

[Saintsfanfl]

Are you sure? When I look at my annual budget meeting material, I see the following statement;

4) Florida Law requires the Association to maintain reserves for deferred maintenance and capital expenditures, based on the estimated useful life and replacement cost of each reserve item. The Association is accumulating funds for repairs and replacements over the remaining useful lives of the components based on estimates of current replacement costs. Actual expenditures may vary from the estimated replacement costs.

There is also a chart that indicates Estimated Useful Life and Remaining Estimated Useful Life for certain capital expenditures. I was always of the impression that the state law mandates fully funded reserves based on their estimated useful life. However the HOAs usually have a reserve study performed every few years to determine the actual estimated useful life based on the actual assets. So while the state indicates a roof will last 21 years, the HOA may come to the conclusion that it is actually good for 25 years. So they don't need to fully fund the reserves to the 21 year mandate and can waive the requirement to fully fund and only fund based on 25 years, meaning they don't need to replace the roof as often and thus can spread the expenditure out over 25 years instead of 21.

It is also important to point out that the fully funding of reserves isn't a timeshare law or requirement, it applies to all condominium associations in the state of Florida. I would suspect for a property as old as some in Orlando, that have never fully funded their reserves that they would have had to have some kind of special assessment. However that isn't the case.

The state does not determine how long the roof will last. It can't because not all roofs are the same. There can be a really big variance which is why the reserve study is required. The reserve study determines the actual estimated time periods and amounts. The reserve study is then used to determine what fully funded reserves amount to, and then the vote is to deviate from the number.

Special assessments are rare because maintenance fees keep going up enough to catch up to the needed amounts. Cap the increase at 3% and there would definitely be SA's in the future. What is the difference between a Special Assessment after 10 years or a maintenance fee increase of 9% a year for 10 years? The increase is obviously better but my point is nobody wants the increases or to fully fund reserves.

I have argued this before and I know I am in the minority but the entire problem is artificially low maintenance fees in the early years. The developer sets the fees too low which makes it attractive to buy the timeshare and then they don't care because they sold all the units and made their money. Later the owners are faced with large increases in order to catch up to the needed amounts. The increases cause defaults, bad debt, and foreclosures. This increases the fees even more which snow balls even further.

 

[dioxide45]

Special assessments are rare because maintenance fees keep going up enough to catch up to the needed amounts. Cap the increase at 3% and there would definitely be SA's in the future. What is the difference between a Special Assessment after 10 years or a maintenance fee increase of 9% a year for 10 years? The increase is obviously better but my point is nobody wants the increases or to fully fund reserves.

But if they never fully fund the reserves, shouldn't we end up with an SA at some point, regardless if the MFs keep going up. If waiving of fully funded reserves is always passed, how do they never have a shortage and need an SA? Somewhere, sometime they would have to need an SA if they never fully fund?

 

[Saintsfanfl]

But if they never fully fund the reserves, shouldn't we end up with an SA at some point, regardless if the MFs keep going up. If waiving of fully funded reserves is always passed, how do they never have a shortage and need an SA? Somewhere, sometime they would have to need an SA if they never fully fund?

Mathematically you don't have to. Each item is being accrued every year and when it is replaced you are accruing for the next replacement. Since there are multiple items on different clocks you could pay for a replacement that was under funded by using the accrued funds of other future replacements. Then you reassess what is needed the next year, increase the amount, but still have it under the full amount. You could keep doing that over and over again without an SA provided there is enough total reserves to pay for the next item being replaced.

 

[SueDonJ]

Mathematically you don't have to. Each item is being accrued every year and when it is replaced you are accruing for the next replacement. Since there are multiple items on different clocks you could pay for a replacement that was under funded by using the accrued funds of other future replacements. Then you reassess what is needed the next year, increase the amount, but still have it under the full amount. You could keep doing that over and over again without an SA provided there is enough total reserves to pay for the next item being replaced.

So if that accrual method results in items being properly maintained/replaced on pace with routine reserve analyses, without fully-funding as mandated and absent Special Assessments, why then do you categorize (in post #2) waived full-funding as a problem that will inevitably cause inadequate funding and resultant SA's?

 

[Saintsfanfl]

So if that accrual method results in items being properly maintained/replaced on pace with routine reserve analyses, without fully-funding as mandated and absent Special Assessments, why then do you categorize (in post #2) waived full-funding as a problem that will inevitably cause inadequate funding and resultant SA's?

Because it leads to large maintenance fee increases and defaults. My explanation was more directed at those that complain about rising fees but did not want to properly fund reserves 10 years ago. Eventually it can even out if enough people keep paying maintenance fees. Some properties it probably has already evened out. With higher end properties like Marriott it can work especially with more and more units converting to the trust but the lower end properties end up broke and the timeshare ends.

The principal behind not fully funding reserves is to intentionally pay less today at the expense of tomorrow.

 

[VacationForever]

[Post moved.]

Service industry inflation is going to be higher than consumer inflation rate because labor is a significant component of the Maintenance Fees. California has also increased its minimum wage and hang in for the ride. It will go to $15 per hour by 2022. Whenever overtime is incurred we are looking at $22.50 per hour plus burden which is another 30 percent over the base rate. California has the highest workers compensation rate in the country - part of what makes up the 30%. CA timeshare MF is going to get from bad to worse.

 

[SueDonJ]

[Originally posted by GetawaysRus in the MF's sticky thread, related to DSVII.]

All of these numbers are well above the reported rate of inflation. According to http://www.usinflationcalculator.com/inflation/current-inflation-rates/: "The current inflation rate for the United States is 2.2% for the 12 months ended September 2017, as published on October 13, 2017 by the U.S. Labor Department."

 

[Saintsfanfl]

[Post moved.]

Service industry inflation is going to be higher than consumer inflation rate because labor is a significant component of the Maintenance Fees. California has also increased its minimum wage and hang in for the ride. It will go to $15 per hour by 2022. Whenever overtime is incurred we are looking at $22.50 per hour plus burden which is another 30 percent over the base rate. California has the highest workers compensation rate in the country - part of what makes up the 30%. CA timeshare MF is going to get from bad to worse.

That is a theory on the explanation of the increase but you would have to look at the specific categories to prove it out. Looking at the details the labor is usually a small explanation for the larger than inflation increase. In some cases some individual labor categories may have even decreased. Many times the property tax or replacement reserves account for the majority of the higher than normal increases. I am not saying the labor is not and will not be a factor but if that was the only issue it would not be as big of a deal.

 

[Saintsfanfl]

The average inflation rate for lodging from 2000 to 2017 is 1.88% per year.

It is a little skewed when compared to timeshares because non-timeshares will change prices based on demand where we are stuck with the down years at full price and then some since we have to eat the bad debt and in some cases lack of rental revenue. For example the lodging inflation rate in 2009 was -7.02%. That was a tough year for owners and operators and they dropped their prices but this has little to do with the price of goods and services associated with providing the lodging going down.

Whether we like it or not we are the owners and our costs are not going to decrease when the economy stagnates or decreases. Combine that with improperly managed budgets and reserves and it leads to the financial issues.

 

[SueDonJ]

I have finally compiled all of the info in the sticky thread, Marriott 2018 Maintenance Fees, merging a few posts and deleting a few others for continuity's sake. Please feel free to take a look and check for errors.

If what you own isn't listed in the first post, it would be appreciated more than you know for you to add to the thread. Thanks!

 

[Ralph Sir Edward]

SueDonJ, could you put placeholders (with no entry noted) for resorts without ant TUGger entry (such as Royal Palms)?

 

[SueDonJ]

SueDonJ, could you put placeholders (with no entry noted) for resorts without ant TUGger entry (such as Royal Palms)?

The reasons I don't do that are, 1, (selfishly) it gives me extra typing to do that might not ever come to fruition and 2, I - and I hope others too - have simply gotten used to thinking of the list in the first post as those MF's reported by owners. In my mind it might give those who haven't reported yet and don't see their resort in the list some kind of incentive to participate?