How Does Your Legacy/Mature Resort Supplement Annual Fee Revenues?

It’s a delicate balance to strike: Generating extra revenue while maintaining excellent owner/guest satisfaction. As resort managers, you want to provide a positive vacation experience while minimizing the number of times you have to charge for additional services.

Currently trending in the general hospitality industry is the addition of surcharges to the bill. According to a study released last year by New York University’s hospitality school, resorts and hotels were on track to take in a record $2.25 billion in revenue from “add-ons.” That’s a total of 6 percent more than in 2013.

The study found that some of the services consumers are paying extra for include in-unit safes, early/late check-in/check-out times, Internet and mini-bars. One resort even charges $25 a day if someone puts their own drink in the mini-bar. Another property adds an automatic $60-a-night fee for a welcome drink, the use of bicycles, umbrellas and lounge chairs – even if the services aren’t used. Some resorts and hotels are charging mandatory gratuities, and some properties in very busy places are charging fees for bypassing long check-in lines.

But what about legacy/mature timeshare resorts? Should there be a different approach to generating extra revenue as opposed to newer resorts? Kevin Mattoni is vice president of Cunningham Property Management Corp., based in Sarasota, Fla. He explained that putting the HOA in the mindset that they are operating a business is important.

“Budgets need to be accurate while allowing for property improvements. The financials must be accurate and timely. Income statements need to be reviewed every month to check any budget variances in income and expenses. Once the board understands its financial position, strengths and weaknesses, then decisions to resolve any issues can be made,” said Mattoni.

He also pointed out that every HOA must not only control expenses, but make a priority of increasing income, not just maintenance fees. “CPMC establishes a consistent maintenance fee collection policy, billing in a timely manner and utilizing a professional collection company on delinquent accounts. These are all essential ingredients to efficiently operate the property.”

Mattoni told us that the next substantial income stream comes from rentals, and that delinquent accounts must be optimized for rental income to offset bad debt. “CPMC develops the rental program according to the property, the amount of inventory, managing the inventory and the existing policies. Often times third-party rental agents and even global distribution is needed. The entire staff needs to be trained to assist in the rental and reservation of units owned by the HOA and individual owners. Software that provides immediate reservation information along with the proper accounting of income, commissions, and taxes due is necessary.”

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Sales management needs to be closely managed by the HOA, according to Mattoni. “If delinquent accounts and existing owners do not have an exit program, the delinquency will continually increase with only rentals to offset the bad debt. CPMC is a licensed broker. We develop an onsite sales program while looking at offsite opportunities,” he told us.

“These three revenue streams are the primary areas that will keep an HOA healthy.

Associations that successfully manage these areas can expect to keep their delinquency in single-digit percentage, which can be budgeted. Owners are happy that they not only have an affordable maintenance fee, but they are also able to use rental programs to produce income or use more vacation time. This creates more of a commitment from the owners who will buy more vacation time and refer their friends and family. Everyone wins. The owners are also very secure in that they will be able to sell when the time comes, and receive a fair price.”

Mattoni also points out that when all these factors are implemented, the HOA will remain financially viable and the owners will have memorable vacations and an overall positive ownership experience. “Happy owners pay maintenance fees, buy and rent additional time, refer friends and family. These are the ingredients that set the foundation for the long-term success of any property.”

We asked Mattoni how he thinks the need to create new revenue streams for legacy resorts differs from that of newer resorts. “New resorts have a developer who is selling and renting inventory, and generally has a buy-back agreement with the association if an owner becomes delinquent. The result is, while the developer is in place, the association does not suffer from a material maintenance fee collection delinquency. The HOA needs to understand what the developer has in place for sales and rentals. When the time comes that the developer moves on, or if a lender assumes control of inventory, the HOA will need to implement the same procedures discussed above, however they will have the benefit of any relationships that were established with rental and sales agents.”

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Dennis Ditinno is with Liberté Resort Management Group, based in Treasure Island, Fla. He told us their rental market has exploded through their unique marketing efforts. “Holding the most seasonal weeks for added income, many of the rentals are now being converted to owners. Additional rentals and unit use incentives on holidays have increased our rental activity, as well. We will be adding a ‘resort store’ to our website, and providing a payment plan for maintenance fees and assessments will add a few dollars for administrative costs that the association and management will divide. We are now investigating the issuance of resort-specific credit cards with up to 2 percent back to the association. With 2,200 owners making up to $17,000 in annual purchases with a 2 percent return to the resort, the resort could claim close to $750,000 to offset the budget. We are working on several additional methods, as well as midweek cleaning and weekly raffles,” Ditinno said.

“I have found that newer resorts, because most sell out with the newness effect, do not pose the cost savings ideas until later in the community’s life. This is both a mistake and a positive move. As with special assessments or an added fee to the maintenance fee once the charge (or income) is realized, owners do not feel it will be re-adjusted down, or that the income will always be there, while each year brings new and different opportunities.”