During this time of crisis, the COVID-19 pandemic has forced corporations to work on tight budgeting. Timeshares are no different. As of now, what the ultimate COVID-19 impact on rentals and maintenance fees will be is unpredictable. While nobody has a crystal ball to foresee what the future will bring, Timeshare HOAs need to evaluate payment options and implement contingency plans.
Participating TBMA panelists offered attendees their support, expertise, and advice on budget planning during a Budget Planning webinar held on October 8. The panel was made up of Craig Huntington, President, Alliance Association Bank; Gary Porter, President, Facilities Advisors International; and Scott MacGregor, Senior Vice President/COO, Lemonjuice Capital.
The Budget Decision-Making Process
As resorts are going through their annual budgets, they are planning more strategically than they have in the past. There’s plenty that has to go into the budget making process and Scott MacGregor, Senior Vice President/COO, Lemonjuice Solutions, believes the process has to be conducted thoughtfully by the board, but easy for the owners to understand and comply with.
“Make it work around their lifestyle and situation,” he said. “Give options—payments over a period of time…series of payments. Don’t let people pay when they get around to it. It’s fair. It’s consistent for everybody. Everybody knows what the rules are, and we ask everybody to play by the same rules.”
During 2020, some of the resorts have had their overall expenses reduced as they’ve closed down and reduced their recent staff, according to Gary Porter, President, Facilities Advisors International. He believes his company can benefit resorts under pressure to stay afloat. He said, “We can work with them so they can keep their operating budgets intact. If you can’t pay your utility bill, you got a problem. So, we work with them on that.”
On the banking side, Craig Huntington, President, Alliance Association Bank, expects that in 2021 many people will be coming for loans. He assured, “Our main role is to help with the collections of the assessments in a proper and quick manner.”
Financial Planning and Modeling
While it’s uncertain what will happen 30 years from now, Porter, said, “We are always looking for that 30-year projection. We have to make sure based on the information available that a 30-year funding projection works.”
Focusing on the immediate three to five years, can help estimate. Porter advises that while he can work on reducing funding and reserves if needed–and even borrow from reserves–it’s a subject not to be touched without clearing it with your management staff, state law, and your governing documents.
“Assuming you’ve done all those things,” he said, “we can work with you three to five years. Beyond that, it becomes more difficult to maintain a valid thirty-year projection.”
In agreement, MacGregor added, “We can really think and plan for three to five years. Beyond that is hard.”
While seeking options takes time, MacGregor encourages Boards to not wait until it’s too late. Anticipate the capital requirements for the property, and now is the time to start thinking how you’re going to pay for it.
In today’s world, during the pandemic, walking into a bank isn’t as easy as it used to be. Making an appointment with a banker ahead of time is the new approach. But technology makes it easier and Huntington is attuned to that. “We can consult, share screens, and answer questions,” he said. “That’s what technology has done for us here.”
The Lifespan of Maintenance Responsibilities
When it comes to term budgets, you can’t omit the big items—plumbing and electrical systems, windows and doors, pools, infrastructure, sunset/legal costs, and storm deductibles. This is especially relevant for properties 40-, 50-, and 60-years-old.
Plumbing and electrical systems, along with windows and doors are the biggest expenditures you’re going to face, according to Porter. He said, “Most people don’t think those are maintenance responsibilities you are going to have. If you have a property approaching fifty- or sixty-years-old, we have to start looking at those big components.”
MacGregor added, “That’s enough to change the life of a timeshare if it’s not prepared. Plumbing, electrical…if you’re not maintaining, they will fail.”
With the maintenance responsibilities, there is no denying a lot must be done to keep a timeshare going. And there’s a lot to be done in order to borrow money for a timeshare. That’s why very few banks in the country will do it, according to Huntington. “The main issue is A/R,” he said. “You really need to plan and have a great budget plan about what to do for the units that are not making a profit for you.”
When coming to Alliance Association Bank and asking for a loan, Huntington stresses that you must make sure you have a strong management team. “We want to see somebody who is an expert,” he said. “Spend extra money for a management team. It will save you money in the long run.”
Porter, who has been doing reserve studies for over 30-years, shared that his company subscribes to a service they call a reserve management plan to make sure that the reserve study meets their budget needs within the association.
And, if 2020 has taught us anything, it’s that change can throw any of us off kilter. MacGregor’s solution is to adopt to it. “Change is happening at a faster pace,” he said. “Change is always scary if you don’t prepare and embrace it.”