The economy and Timeshare bad debt

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

I remembered last year looking at the bad debt line item on our Polo Towers MF bill and thought I'd revisit it this year. Especially since I had recalled the increase in bad debt funding increase to be over 300% for last and, in scanning the billing for this year, it seemed that figure again increased over 300%.

Budgeted for 2009 was $37,098
Budgeted for 2010 was $173,169
Budgeted for 2011 is $746,300

What I'm wondering is how long a timeshare can withstand these sort of increases? If this continues, 2012's bad debt expense will be in the range of $2,280,000!

[tonyg Goomba & Super Moderator Find all posts View Profile Close tonyg]

Unless this involves more than MF, it seems startling and indicates that management has no plan to reduce the problem.

[timeos2 Senior Member Find all posts View Profile Close timeos2]

I remembered last year looking at the bad debt line item on our Polo Towers MF bill and thought I'd revisit it this year. Especially since I had recalled the increase in bad debt funding increase to be over 300% for last and, in scanning the billing for this year, it seemed that figure again increased over 300%.

Budgeted for 2009 was $37,098
Budgeted for 2010 was $173,169
Budgeted for 2011 is $746,300

What I'm wondering is how long a timeshare can withstand these sort of increases? If this continues, 2012's bad debt expense will be in the range of $2,280,000!

My lord that is a move in the totally wrong direction on the surface BUT might be simply reflecting the bad news that was there if it was accounted for or not. If it exists then owners should know, it shoud be in black & white and now the management needs to be clear how they intend to deal with it.

That level of bad debt can easily become unmanageable and build on itself. There does need to be some serious plan given as to how it is going to be fixed and soon! I'll give Diamond the props that they do face this stuff head on & try to correct it so I hope that will be the case for your resort as well. It may not be pretty as they get it under control. And permanent correction means new owners from somewhere OR higher fees for those remaining forever. Keep us posted.

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

Unless this involves more than MF, it seems startling and indicates that management has no plan to reduce the problem.

Or that management ignored the problem in prior years. There is also a budget defecit for Polo Towers that is on a 6 year plan to eleminate. I had serious reservations about the financial management of Polo Towers up until a couple of years ago. It seems almost as if someone magically started paying attention when S. Cloobeck re-entered the picture.

I went back and read some of the previous years meeting minutes. A few years ago, the HOA questioned the expense of the ICE contract and how many owners were really using that amenity. They were assured by the resort president/manager that "many" people made use of ICE but, he'd look into it and get back with them. Apparently he "assumed" it was being used because out of ~ 27,000 interval owners (Suite's and Villa's combined), it was found ~100 people per year utilized this option. Needless to say, the contract/membership with ICE has been canceled.

There's an old management philosophy that you get what you inspect, not what you expect. I suspect someone may have been asleep at the wheel and wasn't really looking at what was happening. They were just expecting it was a certain way. This leads to bigger issues down the line.

I'm happy that management seems to be paying closer attention and am hopeful that these drastic increases are more a sign that someone wasn't paying attention more of a sign of the times. I'm impressed that despite this huge increase in bad debt costs, MF's haven't gone up anymore than they have. I'm hopeful that, with the new points based/trust system of selling that foreclosed units can be more easily sold than in the past.

[ace2000 Senior Member Find all posts View Profile Close ace2000]

What I'm wondering is how long a timeshare can withstand these sort of increases? If this continues, 2012's bad debt expense will be in the range of $2,280,000!

I think for this assumption to hold true, the economy would have to tank just as bad.

Hopefully, we've bottomed out, and unless we hit a double-dip recession, the worst is completely behind us!

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

My lord that is a move in the totally wrong direction on the surface BUT might be simply reflecting the bad news that was there if it was accounted for or not. If it exists then owners should know, it shoud be in black & white and now the management needs to be clear how they intend to deal with it.

That level of bad debt can easily become unmanageable and build on itself. There does need to be some serious plan given as to how it is going to be fixed and soon! I'll give Diamond the props that they do face this stuff head on & try to correct it so I hope that will be the case for your resort as well. It may not be pretty as they get it under control. And permanent correction means new owners from somewhere OR higher fees for those remaining forever. Keep us posted.

These number are for the Suite's. If this were reflective of all 2 bedroom units, 2011's budgeted bad debt is equal to approx. 694 intervals. That would be representitive of an approx. 4% default rate.

I know that there are those who promote just walking away from the obligation of paying MF's but, even a small number such as four of five percent can have a major impact on the 95 or 96% that continue to be responsible owners. This isn't something that affects the developer so much as it affects every other regular owner.

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

The numbers for the Villa's are similar.

2009 Budgeted bad debt expense: $20,088
2010 Budgeted bad debt expense: $212,812
2011 Budgeted bad debt expense: $744,681

The scary thing witht the Villa's is that there are approx. 6,000 fewer interval weeks. This would be reflective of an anticipated default rate of approx 6%.

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

Numbers for Marrioptt's Grand Chateau

For contrast I've looked up the figures for Marriott's Grand Chateau.

2006 bad debt expense $46,978
2007 bad debt expense $48,641
2008 bad debt expense $186,558
2009 bad debt expense $303,170
2010 bad debt expense $561,034

[taffy19 Gold Contributor Find all posts View Profile Close taffy19]

Can you find this online or do you have to get this from what they have sent us over the years? Could you ask for this information from the Marriott?

[timeos2 Senior Member Find all posts View Profile Close timeos2]

For contrast I've looked up the figures for Marriott's Grand Chateau.

2006 bad debt expense $46,978
2007 bad debt expense $48,641
2008 bad debt expense $186,558
2009 bad debt expense $303,170
2010 bad debt expense $561,034

Another troubling snap shot - especially for a newer, high end resort. Troubke ahead?

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

Can you find this online or do you have to get this from what they have sent us over the years? Could you ask for this information from the Marriott?

With Marriott I pulled my files to get the information. I tried going online but could only easily find last years assessment.

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

Another troubling snap shot - especially for a newer, high end resort. Troubke ahead?

I suspect that this is an industry wide trend. In the past bad debt may have been 0.5 to 1% but, with unemployement running around 10% rather than 4 or 5% this probably isn't much of a surprise.

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

I just glanced at both our HGVC and Southwind managaed properties and neither of them puts a bad debt expense line item on their MF breakdown. I can only assume it's in with "other" management expenses.

[dougp26364 Senior Member Find all posts View Profile Close dougp26364]

I was reading the letter that's being sent out with the MF bills for DRI. One of the line items under revenue reflects a contribution made by DRI to the HOA and I wasn't exactly certain what the item was for. There is an agreement in place whereby DRI pays the HOA 75% of the deliquencies and pays all the collection charges and any fee's associated wtih foreclosure on deliquent intervals, effectively offseting much of the anticipated bad debt expenses. So while it looks bad on one line, it's offset to some degree on another line.