Ocean Pointe’s proposed budget increase is 10-15%

[Luvtoride]

Superchief, I agree with your points and share your concerns. The GM incentive for expense control was a new initiative to be implemented going forward (probably for next year), but your point about the DC trust points is well taken and needs to be better understood and explained as to the impact on all MVC resorts.

As to the Owner Services charge, that is referred in a footnote (7) to the budget and one I still don't fully understand. Apparently MRHC is a separate entity from MVC and provides other services (food and beverage services??). I will try to get a better understanding of this next time I speak with him. I see the area at the bottom of the budget that contained this charge in the past. It was $44.89/ unit week last year there and is now $46.24/ unit week this year in operating expenses, an increase of 3.01% over prior year.

 

[SueDonJ]

I spoke with Ocean Pointe GM, Dennis Nau yesterday about the budget questions. We discussed the following:
...
- Owner Services- the $812,000 charge are for services provide by MRHC (Marriott Resorts Hospitality Corp) separate from Marriott management fees. These costs have always been in the budget but they were previously listed "below the line" of operating expenses and this was inconsistent with other Florida Club resorts. By moving this charge to Operating expenses, MVC can assess their 10% management fee on these expenses, thus it is increasing Management fee by about $81,000. ...

I think it's great that you were able to get specific answers to your specific questions from the resort GM - that's what all of us should be able to expect as the norm.

The GM's explanation for this one item confuses me, though. According to the SurfWatch docs that I referenced earlier in the thread, the 10% Management Fee that goes directly to MVW is assessed on every single item in the Operating Budget including Reserves and Property Taxes (with an explanation that it applies whether taxes are included as a line item component in the budget or assessed directly to the owners - which isn't the case for any resorts other than the CA resorts, making me think the language, or the intent of the language, is somewhat standard across every resort including OP.) It's a stipulation that's written in to all three sections of the Public Offering Statements for both my resorts: the Master Deed, the Timesharing Declaration and the Management Agreement, and there's nothing ambiguous about it.

I have the itemized Operating Budgets for both SurfWatch and Barony going back to when we purchased and I just looked over the last five years. "Owner Services" has been a line item during that time (and I'm assuming further back) with the following footnote: "The Marriott Resorts Hospitality Corporation ("MRHC") has been delegated the authority to provide all services incidental to the management of the Condominium, including Owner Services and all property operations. In connection with the performance of those services, all operating expenses will be charged to and paid by the Association to MRHC, including some that may be incurred through affiliates of MRHC. Certain of the operating expenses charged to and paid by the Association to MRHC may reflect economies of scale associated with the number of projects managed by MRHC and the affiliated relationship between MRHC and the developer. The amounts charged for such operating expenses may reflect pricing that is lower than what equivalent services would cost if charged on an independent basis."

So I'm interested to know if the Operating Budget itemizations for OP (and any other resorts, Florida Club or not) during the years prior to 2020 didn't include an Owner Services fee and if they didn't, why not? Because, why at my resorts has the 10% MF been assessed on the Owner Services line item for all these years while at other resorts, maybe not? Also, what is specific to the Florida Club resorts that make them exempt, if they are, considering that it's always been explained (on TUG anyway, by owners) as the cost of administering what's essentially an internal exchange benefit among only the FC resorts?

Noting, if it's not clear, for my two resorts the (10%) Management Fee and the Owner Services fee are and always have been separate line items in the Operating Budgets. Also, the 2019 Owner Services line item total for SurfWatch was $450,785 and for Barony Beach was $583,794. You can bet I'll be looking specifically at this line when these two 2020 budgets are eventually invoiced.

{ETA}
Something was rolling around in my brain and I finally found it - in this 2017 post from @dioxide45 about the Florida Club fee at Grande Vista:

All owners at all properties pay an "Owner Services Fee". This fee in 2017 was $41.11. Owners in the Florida Club also pay a "Club Fee" of $4. These two fees are separate on the Operating Budget. However, when they send out the MF bills, they list the two fees combined as one total as "Florida Club Fee" in the amount of $45.11. Grande Vista Owners not in the Florida Club or those at resorts outside of the Club may not even see this fee listed separately on their bill, it is baked in to the "Operating Fee".

So now I'm a little more relieved about whether every owner pays an Owner Services fee, but as I now understand it the Florida Club fee is a line item in addition to the Owner Services line item in the relevant Operating Budgets, and that those two line items are combined as a separate component on the actual MF's invoices for Florida Club resorts.

But this still doesn't explain why the Ocean Pointe GM answered the question as if the 10% Management Fee hasn't until this year been assessed on either the Owner Services or the Florida Club fees. Do I understand correctly that's what he's saying? Because again, every single US resort is supposed to be assessed the 10%-of-all-line-items Management Fee.

 

[Superchief]

This raises another question for me:
What does MVC actually provide for the 10% management fee? I had always assumed this covered some of the 'overhead' of running the MVC program.

 

[SueDonJ]

This raises another question for me:
What does MVC actually provide for the 10% management fee? I had always assumed this covered some of the 'overhead' of running the MVC program.

It may be that Marriott has at times dipped into their profit and used those monies for various expenses that could have been assessed to owners but weren't - specifically I'm thinking about that brouhaha over Aruba Ocean Club's multi-year Special Assessment where Marriott partially covered the costs of substantial necessary repairs including roofs, windows, etc, but there may have been others.

Other than that it hasn't ever been my assumption that the Management Fee is anything other than a profit margin because the governing docs don't stipulate any requirements that it be used for resort costs. In the docs it simply states that the Management Fee is 10% of the Operating Expenses including Reserves and Property Taxes, and it goes to the entity which is contracted as the Management Company. The way I read it, if the Management Agreement between the resort and Marriott is dissolved and the owners hire another management company, that company would be entitled to the same unless they and the owners negotiate a different fee in their affiliation contract.

 

[Steve Fatula]

So now I'm a little more relieved about whether every owner pays an Owner Services fee, but as I now understand it the Florida Club fee is a line item in addition to the Owner Services line item in the relevant Operating Budgets, and that those two line items are combined as a separate component on the actual MF's invoices for Florida Club resorts.

But this still doesn't explain why the Ocean Pointe GM answered the question as if the 10% Management Fee hasn't until this year been assessed on either the Owner Services or the Florida Club fees. Do I understand correctly that's what he's saying? Because again, every single US resort is supposed to be assessed the 10%-of-costs Management Fee with ONLY property taxes exempt from the assessment.

Looking at Playa Andaluza and DSV, Management fee is and has always been (as far back as my copies go) on the budget, and is 10% including owner services fee. I think the explanation seems wrong actually as far as the guy at Ocean Pointe. Only way to know is to look at the previous year budget details. Anyone have one?

I have no problem with the 10% management fee. I am sure they have expenses in the oversight, people for sure.

 

[Superchief]

Looking at Playa Andaluza and DSV, Management fee is and has always been (as far back as my copies go) on the budget, and is 10% including owner services fee. I think the explanation seems wrong actually as far as the guy at Ocean Pointe. Only way to know is to look at the previous year budget details. Anyone have one?

I have no problem with the 10% management fee. I am sure they have expenses in the oversight, people for sure.

I never had a problem with the 10% management fee because I had assumed it covered the corporate overhead expenses, including the website and vacation advisor staff, as well as corporate management. I'm sure there is also a 'goodwill' charge for the Marriott name that goes to Marriott (not MVC). I always thought that a majority of the MF's are related to resort specific expenses, including staff at the resort. I would have a real problem if the 10% is their profit margin requirement that we receive nothing in exchange for.

 

[Fasttr]

I think the explanation seems wrong actually as far as the guy at Ocean Pointe. Only way to know is to look at the previous year budget details. Anyone have one?

See attachment to post #9. What the GM said appears to be correct when comparing 2019 vs 2020.

 

[Luvtoride]

Fasttr, yes, that’s where I was quoting the per unit Owner’s Services charges from ‘19 vs. ‘20. Apparently when it was “below the line” there and not included in operating expenses it wasn’t subject to the Management fee.


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[Fasttr]

Fasttr, yes, that’s where I was quoting the per unit Owner’s Services charges from ‘19 vs. ‘20. Apparently when it was “below the line” there and not included in operating expenses it wasn’t subject to the Management fee.


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That’s certainly how it looks from that attachment.

 

[Steve Fatula]

See attachment to post #9. What the GM said appears to be correct when comparing 2019 vs 2020.

Ok, I have read post 9. Here's what I see...
$2,282.75
For DSV2, looking at the breakdown for this resort that I have in hand, which is 2018, the MF was $1212.27. Of that, the management fee was $110.21. So, I take the total MF (without property tax) - the management fee = $1,102.06, which would be the MF if there was no mgmt fee. So, 10% of that is precisely $110.21. Which is then added to the base MF. Works out exactly to 10%.

Now we move to post 9. For 2019, it shows a total MF (without taxes) of $1,512.17. Of that, the 10% was $151.81. Which is more than 10% if you use the same calculation, what am I missing?

For 2020, it shows MF without taxes of $2,282.75. The 10% mgmt fee is shown as $221.83, again, more than 10%. I am not understanding how Ocean Pointe is calculating the 10% fee differently as the first problem. Am I misreading it?

 

[dioxide45]

In past years, Marriott used to include the Florida Club Fee along with the Owner Services fee as a single combined item. For non Florida Club resorts, they included the Owner Services fee in the Operating Fee. I saw this with our Grande Vista budgets in the past. Seems Marriott was leaving some money on the table and fixed that up.

 

[dioxide45]

Ok, I have read post 9. Here's what I see...
$2,282.75
For DSV2, looking at the breakdown for this resort that I have in hand, which is 2018, the MF was $1212.27. Of that, the management fee was $110.21. So, I take the total MF (without property tax) - the management fee = $1,102.06, which would be the MF if there was no mgmt fee. So, 10% of that is precisely $110.21. Which is then added to the base MF. Works out exactly to 10%.

Now we move to post 9. For 2019, it shows a total MF (without taxes) of $1,512.17. Of that, the 10% was $151.81. Which is more than 10% if you use the same calculation, what am I missing?

For 2020, it shows MF without taxes of $2,282.75. The 10% mgmt fee is shown as $221.83, again, more than 10%. I am not understanding how Ocean Pointe is calculating the 10% fee differently as the first problem. Am I misreading it?

I have the same problem with Grande Vista
2020 Proposed Operating Fee $1,076.01
2020 Proposed Management fee $169.15

If you take the management fee out of the operating fee it is $906.86
The $169.15 is way more than 10%.

This is why I think (at least in Florida, Grande Vista) they calculate the management fee on all costs (including taxes and reserves).

If you add in the operating fee of $651.95 and a somewhat average of taxes (Gold-$139.65 and Platinum-$166.58) then take out the $169.15, you get $1711.95 for a total fee (Operating, Taxes, Reserve). That gets closer to the 10% being $169.15. I suspect they do a more detailed "average" of the taxes based on actual allocation of weeks. So it seems in Florida we may be paying the Management fee on Operating+Reserve+Taxes?

 

[Steve Fatula]

I have the same problem with Grande Vista...

This is why I think (at least in Florida, Grande Vista) they calculate the management fee on all costs (including taxes and reserves)....

So it seems in Florida we may be paying the Management fee on Operating+Reserve+Taxes?

That would appear to be the case, it may be based on exact number of units of each type. Question I have is, is that correct based on the governing documents for Florida resorts? SueDonJ wrote in post 13 that at Surfwatch, it says "equal to ten percent (10%) of the Estimated Operating Budget (exclusive of the Management Fee itself, but inclusive of Reserves and real property taxes".

I'm just trying to figure out the numbers first. Does Surfwatch and Ocean Pointe pay property tax separately? We do at DSV, maybe that's why it isn't included in the management fee there?

It could be then that this is a perfect storm of sorts to cause such an increase. Adding in Owner Services, combined with insurance costs likely due to increased risk, fully funded reserves, and the 10% fee are the biggest items in the increase. All (but the 10% fee) increases the 10% fee too, which makes it a big line item.

 

[BocaBoy]

A proposed 5% increase at an MVC Resort doesn’t surprise me. If this is a one off adjustment, give the reason. If this becomes the new norm fees will double in 6 years, which is alarming to me. Whatever the reason a proposed increase of this magnitude NEEDS to be explained.

In the current non-inflationary environment that has prevailed over the last decade or so, 5% year in and year out is exorbitant and cannot be justified. I don't see that type of increase in costs for property expenses anywhere else, with the occasional one-off special situation.

 

[BocaBoy]

He did say that MVC management is changing their compensation policies, in particular bonus awards to GM staff to better reflect control of costs with a target of a 3% or under cost increase. This will require GM's to be more proactive in pursuing expense control initiatives and finding new sources of revenue to help offset expense increases.

It is mind-boggling to me that cost control has apparently NOT been one of the more important targets in determining bonuses for management. No wonder maintenance fees are out of control.

 

[bazzap]

A

It is mind-boggling to me that cost control has apparently NOT been one of the more important targets in determining bonuses for management. No wonder maintenance fees are out of control.

At some of our “home” MVC resorts, the GM and team are very pro-active and effective in controlling costs, at others very much less so.
Greater consistency in this most critical and important area really should be a priority.

 

[dioxide45]

In the current non-inflationary environment that has prevailed over the last decade or so, 5% year in and year out is exorbitant and cannot be justified. I don't see that type of increase in costs for property expenses anywhere else, with the occasional one-off special situation.

Has there really been a non-inflationary environment over the last decade though? I know the costs of most things we buy have gone up a lot, in many cases much more than the reported inflation rate.

 

[Steve Fatula]

Has there really been a non-inflationary environment over the last decade though? I know the costs of most things we buy have gone up a lot, in many cases much more than the reported inflation rate.

Eating out prices have more than doubled in our area in the past 5 years. For us, that's the highest "inflation" of anything that impacts us.

 

[RLS50]

Has there really been a non-inflationary environment over the last decade though? I know the costs of most things we buy have gone up a lot, in many cases much more than the reported inflation rate.

This is also my sentiments and experience. There are a number of arguments / theories how and why real inflation is under reported, but that is another topic entirely.

However I do agree with the main points.

- Hotel Rack Rates have not increased as dramatically as the average increases in timeshare maintenance fees. Timeshare maintenance fee increases of 4%-5% or more are probably not sustainable in the long run.

- I also agree that cost control should be a Captain Obvious focus for any GM and Board, and should have been from the beginning. It is a core part of any management companies fiduciary responsibility to the HOA.

I think the major developers being publicly traded companies do us owners no favors. In today's stock performance driven world, that puts additional pressure on timeshare companies to keep increasing profits each year in order to drive stock performance, keep major shareholders happy, and drive executive compensation. Keeping maintenance fees as close to stagnant as possible does not help contribute to year over year profit growth, and certainly does not help contribute to the annual growth rate Wall St desires and expects.

I think in these almost competing agendas, self interest to boost the PPS will always trump desire to keep maintenance fees (and thus the corresponding management fee income) lower. At the very least, knowing that your management fee profit increases with every dollar of overall maintenance fee increase, would seem to contribute to an almost ambivalent approach to serious cost controls.

I think when the timeshare divisions of the major Hotel chain companies were spun off from the main brand this profit pressure increased. Because as a stand alone entity they no longer have the luxury of being buried in the overall quarterly results of the mother ship.

I think Diamond Resorts (pre-Apollo) might be a good example in this regard as a timeshare only company (even if a more extreme case). The old CEO of Diamond Resorts (before Apollo bought it) even stressed to Wall St during at least one of the quarterly calls, that management fees were pure profit, and increased every single time any line item on the budget contributed to an increase in costs. It almost sounded like the idea was being conveyed that maintenance fee inflation was always good for the bottom line of the management company and thus good for the stock price. Based on their own comments to analysts, my interpretation was that increasing management fees appeared to be a key part of their core profit model. I also suspect this is one of the factors that contributed to Diamond charging a 15% management fee, instead of the more customary 10%.

I think this is one of the real dilemmas...for us as owners...and for the (now) standalone timeshare companies...who have to answer to an increasingly active and impatient fund driven investor class.

But this is just one of the factors involved, I do not mean to suggest it is the only one.

 

[SueDonJ]

In past years, Marriott used to include the Florida Club Fee along with the Owner Services fee as a single combined item. For non Florida Club resorts, they included the Owner Services fee in the Operating Fee. I saw this with our Grande Vista budgets in the past. Seems Marriott was leaving some money on the table and fixed that up.

... So it seems in Florida we may be paying the Management fee on Operating+Reserve+Taxes?

I'm sorry for adding confusion to this thread; I've gone back and edited my last couple posts to clarify that in the governing docs it says that the (10%) Management Fee is assessed on all components including operating costs, reserves and property taxes (whether they're included in the Operating Budgets or billed directly to the owners.)

It still is confusing to me that Ocean Pointe owners, and possibly owners of other Florida Club-enrolled Weeks, have for all these years NOT been assessed the MgmtFee on the "Owner Services" line item. As an owner at resorts where it has been assessed as stipulated, I think it's fortunate for Ocean Pointe owners that Marriott didn't correct for the mistake this year by imposing a Special Assessment to at least partially recover what was, "left on the table" in years past.

As for the OP math, I'm leaving it to you human calculators to figure out how to get to a $38,962,270 total, resulting in the 10% Mgmt Fee being $3,896.227.

 

[SueDonJ]

... I'm just trying to figure out the numbers first. Does Surfwatch and Ocean Pointe pay property tax separately? We do at DSV, maybe that's why it isn't included in the management fee there? ...

(Sorry! I've corrected my posts to reflect that the 10% MgmtFee *is* assessed on the property taxes.)

The CA resorts are the only US resorts where Property Taxes are billed directly to the owners by the counties; at all others they're included as a component of the Operating Budgets. Assuming (I know, I know!) that the language in the governing docs is similar across the entire network of resorts to the language in the SurfWatch and Barony Beach docs, the direct-billed CA property taxes should be included in the line items on which the MgmtFee for those resorts is assessed.

 

[davidvel]

(Sorry! I've corrected my posts to reflect that the 10% MgmtFee *is* assessed on the property taxes.)

The CA resorts are the only US resorts where Property Taxes are billed directly to the owners by the counties; at all others they're included as a component of the Operating Budgets. Assuming (I know, I know!) that the language in the governing docs is similar across the entire network of resorts to the language in the SurfWatch and Barony Beach docs, the direct-billed CA property taxes should be included in the line items on which the MgmtFee for those resorts is assessed.

The Shadowridge (CA) TS Declaration expressly excludes "taxes ... separately levied by the County or other governmental agency against each Owner of the Timeshare Interest" from "Basic Expenses" upon which the management fee is calculated.

Whether they follow this is an entirely different question.

 

[dioxide45]

I think it's fortunate for Ocean Pointe owners that Marriott didn't correct for the mistake this year by imposing a Special Assessment to at least partially recover what was, "left on the table" in years past.

I am not sure how they could do this. It would also be pretty low class. Really if you think about it, assessing the Management Fee on the Owner Services Fee and other back end accounting/HR fees is kind of a tax on a tax isn't it. Other resorts could have a case for a suit against Marriott. It was Marriott's mistake for the past 20+ years, not the owners. I am actually disappointed that the BOD buckled and allowed Marriott to move the line item up as a simple money grab. Why not move the Owner Services fee down for all the other resorts?

 

[SueDonJ]

I am not sure how they could do this. It would also be pretty low class. Really if you think about it, assessing the Management Fee on the Owner Services Fee and other back end accounting/HR fees is kind of a tax on a tax isn't it. Other resorts could have a case for a suit against Marriott. It was Marriott's mistake for the past 20+ years, not the owners. I am actually disappointed that the BOD buckled and allowed Marriott to move the line item up as a simple money grab. Why not move the Owner Services fee down for all the other resorts?

Well of course, I'd prefer that, as one of the millions of owners who have always been assessed the 10% MgmtFee on top of the Owner Services fee!

My comment wasn't meant to say that Marriott *should have* assessed OP owners for prior years, but that I don't see anything that says they *couldn't have.* So in the Ocean Pointe owners' shoes, if I were facing this year a MF's increase explained as a correction for all the years they could have but didn't collect the same, I'd feel somewhat fortunate that I'd not been charged for years what I could have been charged, but also - of course - sorry to see that come to an end.

I wonder if this isn't going to call the attention of all the other resort boards to make sure the line items in their Operating Budgets are correctly aligned and that the MgmtFee is being assessed on every required item, and whether we'll see similar corrections in next years' MF's at any resort.

(Now taking the broader issue of the Management Fee to the thread where it's being specifically discussed relevant to all resorts:
2020 Maintenance Fee Discussion (inc. "Management Fee" line item)

 

[dioxide45]

Well of course, I'd prefer that, as one of the millions of owners who have always been assessed the 10% MgmtFee on top of the Owner Services fee!

My comment wasn't meant to say that Marriott *should have* assessed OP owners for prior years, but that I don't see anything that says they *couldn't have.* So in the Ocean Pointe owners' shoes, if I were facing this year a MF's increase explained as a correction for all the years they could have but didn't collect the same, I'd feel somewhat fortunate that I'd not been charged for years what I could have been charged, but also - of course - sorry to see that come to an end.

I wonder if this isn't going to call the attention of all the other resort boards to make sure the line items in their Operating Budgets are correctly aligned and that the MgmtFee is being assessed on every required item, and whether we'll see similar corrections in next years' MF's at any resort.

(Now taking the broader issue of the Management Fee to the thread where it's being specifically discussed relevant to all resorts:
2020 Maintenance Fee Discussion (inc. "Management Fee" line item)

Not sure I would say I feel fortunate. Over the 12 years we have owned, we have perhaps saved about $75 in additional management fees. So I am happy that I didn't have to pay that, but it really isn't that much all things considered. I really don't like percentage based management fees. For a property manager of rental properties, a percent works because they work for the homeowner/investor and have an incentive to make them the most money and thus get the highest commission. The problem is that with timeshares, the management fee is based on expenses. It doesn't really cost Marriott more to manage 1,000,000 in expenses than it does $750,000. All their other costs are covered by the owners in all the other line items. The problem with percentage based fees is that there is no real incentive to keep costs down. That 5% average probably works out to a couple percentage points in "growth" for the overall company. The bigger the management fee increase the bigger the growth. 5% average growth over the past decade is nothing to sneeze at.

With so many other vacation options out there I am seriously considering if I want to continue carrying nearly $3000 in MF for our two Marriott timeshare weeks. My wife and I could go on a pretty great cruise for the MF on one of those weeks and now that we live in Florida and can book last minute, we could perhaps do two week long cruises. It is getting harder and harder to justify the MF on these weeks for the value we get back.