15 Year Extension at OKW for $25 per point

[JimC]

Jim,

In Ten years, HOW much more resale value will an extended contract have vs. your current one? That is the question and that is the bet you are making. Obviously it has to resale at least $15 more to break even. Keep in mind that's not a real accruate analysis because those $15 per point today are worth more than $15 per point in ten years. however, do you think the price difference will be MORE that $20 per point in 10 years. I do not believe so, but that is just my "guess". Anyway, let's just say that the resale value on extended contracts is $20 more per point in ten years vs. non-extended ones. On a 200 point contract that means you will be able to sell your extended OKW contract for $4,000 more than you would have otherwise. do you think it is a smart move to invest $3,000 today to get $4,000 in ten years?

Maybe I have not stated the concern clearly. Say in ten years I want to sell a 300 point contract. My guess when I bought into the program in 2002 was that the long slow decline in pricing on a 2042 contract would begin in 2008. (i.e. that this is the peak of the market for 2042 contract value). It is also possible that DVC thinks the same thing and this offer is to prevent that from happening.

So my guess is that my 300 point contract will net after commission around $10,300 in ten years. I am being conservative because my guess in 2002 for value for the contract today had been around $70 per point and it appears that contracts are going for a few bucks more. But let's leave that being as good a guess as any on what might have happened with no news from Disney on extensions. I have used a 90 day expected cycle from list to closing -- assuming no exigent circumstances like open reservations - as my target.

So now we have a new variable -- an extension. So let's say the discounted $15 price is offered. Then it takes $4,500 for me to add on the 15 years. So my question becomes how does that affect the $10,300 that I anticipated might be available from my contract then. You could do this with any time-frame to sell -- now, six months, a year, two years, whatever. Will it be worth much less? Will it take 180 days or longer to move at any price? I have not thought those issues through sufficiently to have answers yet. All I have been doing is raising the issue for discussion.

I have modeled the extension on a standalone basis. I did this primarily to see what investment now would make sense on a buy and use basis. So I projected future dues and hotel rate increases and factored in the opportunity cost of the money and came up with a $15 made sense and $25 was not worth it decision, but it was close to the indifference price of $22. So I thought maybe I was close to the analysis DVC did in pricing this. Naturally the key elements are the assumptions -- what hotel rates formed the base (moderate standard rooms with a mixed value and regular season usage with an average 17.5% discount), what inflationary factor did I use for dues (3.8%) and what inflationary factor did I use for hotel rates (4.2%) and what opportunity cost (6.6%). Pick different assumptions and you get different answers. But 50 year projections are wildly suspect anyway.

And I could project a likely value of the extension on a standalone basis. But what happens when the two combine and we have a mix of 2042 and 2057 contracts at the same resort? I am not accepting, yet, the validity of looking at SSR or AKV since they have extended terms. Both of those resorts are new and are still under construction; as well as having vastly different themes and styles.

So there you have it. Just some fun mind exercise during lunch. It does make for interesting debate.

 

[JimC]

I just joined this site today, wanting to get an idea of what DVC members had to say about this. I have to say my husband and I are upset about this whole thing -- the extension, the language of the letter and notice, the short time frame, the assessment -- everything. Now I have a question I could not find the answer to in the posts, although I admit my eyes did get glazed over after a while. The notice states that members "may satisfy their obligation to pay the special assessment by executing a deed (with the formalities required by Florida law) conveying to DVD their Ownership Interest for the period from January 31, 2042, to January 31, 2057." Does anyone know what this requires? For those of us who refuse to extend, are we going to incur fees as a result of having to execute a deed under Florida law? Thanks.

Welcome to the DIS

So far we expect that DVC will prepare the paperwork and handle the filing and associated charges to make the conveyance. I am sure that all will be spelled out when we receive our next communication on this later in September.

 

[LIFERBABE]

........... The notice states that members "may satisfy their obligation to pay the special assessment by executing a deed (with the formalities required by Florida law) conveying to DVD their Ownership Interest for the period from January 31, 2042, to January 31, 2057." Does anyone know what this requires? For those of us who refuse to extend, are we going to incur fees as a result of having to execute a deed under Florida law? Thanks.

Excellent Question! All our deeds will need to be changed will DVC foot the bill?

 

[Stitch 03]

I personally like the idea of an extra 15 years. However, I will not do the extension.

There is absolutely no benefit that I can see from exercising this extension in the short term. 35 years is a long time to wait to see any benefit result from an expenditure made today. The risk is huge.

If I was going to put out $15 to $25 then I would opt to sell my OKW points and buy elsewhere. At least then I would be able to acquire a tangible benefit that is useful to me now. That beneift is the 7 month booking window at a tough to book resort. I like OKW, but it is rarely a problem booking at 7 months.

As far as re-sale value, I am unconcerned. If the market is allowed to operate freely and is efficient then I expect the difference in re-sale values between the 2042 and 2057 contracts to be $15 or $25 in the short term. Longer term, as we get closer to 2042, who knows maybe the 2057 OKW contracts will be worth considerably more (however, I did not buy into DVC as an investment and do not intend to start know).

Now if DVC was to offer the extension and provide some tangible benefit that is of value now - then I may reconsider.

One note - The reason I bought into DVC was it was a good value. I pre-pay my vacations and the original capital outlay will pay itself back in 3 to 7 years. If this pay back had been longer (say 10 to 20 years), I would not have bought into DVC. The risk would have outweighed any potential gains. I would have considered myself better off with cash ressies for all future trips.

 

[Doctor P]

Wait, hold on...I just re-read what you wrote.

Isn't the bolded piece basically the same thing? Not exact, but functionally? Their points are used to calculate the budget (so the fees are "figured" in on those points), they don't actually PAY them, but make up the shortfall in actual expenses (which, you'd think. would be close to, if not over, the amount they would have paid in maintenance fees) + budgeted reserves.

For example:

Budget is $10,000. There are 10,000 points. Disney owns 2500 points.

So they collect $7500 in dues, but disney makes up the difference between that $7500 and the acutal expenses + budgeted reserves (around 10k...bit less, bit more). I realize it means they achieve a "discount" if expenses are less than budget....but it means we're not really left "on the hook" for the difference, or for the reserve fund contribution (which is a budget item). Right?

Actually, there is a HUGE difference, especially since the "global entity" pays itself a management fee as part of the budget. It may work as you suggest in practice, but I highly doubt it. Disney wouldn't be doing it if they had to subsidize, IMHO.

 

[Dean]

You did not read the POS correctly. Disney DOES NOT pay maintenance fees on the points they own. Their points are calculated in in deciding what the fees will be, but Disney does not actually pay the fees. They have residual responsibility for the budget.

Per the CFO this past Sept they do pay maint fees on the points they own but I know the POS suggests otherwise IF they indemnify against any excess expenses in a given year.

 

[Dean]

As I noted, I don't think DVC will be able to proceed as is being looked at in this thread as a SA. Here are the type of things DVC can do as a SA and I don't see any that can be stretched to this situation. Here are the types of things that DVC has the right to do a SA and no others.

• common expenses
• repair and upkeep
• replacement of funiture, etc.
• Casualty/liability insurance
• Utility services
• taxes but not ad valorem RE taxes
• any other expense incorred in the normal operation and maintenance of the units and common elements that cannot be attributed to a particular owner.

And I see that the land lease appears to be the determinant of the expiration so it is likely that all contracts are extended if the land lease is. Per the POS

Duration of the Vacation Ownership Plan

The term of the Vacation Ownership Plan will continue through January 21, 2042, the expiration date of the Ground Lease ... unless the Ground Lease is sooner terminated ... or unless the term is otherwise extended in accordance with the Condominium Documents

 

[Doctor P]

Per the CFO this past Sept they do pay maint fees on the points they own but I know the POS suggests otherwise IF they indemnify against any excess expenses in a given year.

I might be wrong, but I thought this was also covered in the annual declaration they make. Something like, "in lieu of..."

Frankly, I think it is semantics as long as they are paying themselves out of the maintenance fees that the rest of us pay. At that point it is strictly a paper transfer that doesn't really involve anything out of pocket for the entity (and the degree to which that is material depends on corporate practices and separations). If I was putting together a trip and charged the other five people going with me a fee for putting together the trip and that fee was more than I owed for the trip, who is paying for my trip? I can say that I am because I write the check, but all the money in my account came from the fees I charged you as the trip arranger.

 

[Dean]

I might be wrong, but I thought this was also covered in the annual declaration they make. Something like, "in lieu of..."

Frankly, I think it is semantics as long as they are paying themselves out of the maintenance fees that the rest of us pay. At that point it is strictly a paper transfer that doesn't really involve anything out of pocket for the entity (and the degree to which that is material depends on corporate practices and separations). If I was putting together a trip and charged the other five people going with me a fee for putting together the trip and that fee was more than I owed for the trip, who is paying for my trip? I can say that I am because I write the check, but all the money in my account came from the fees I charged you as the trip arranger.

I sat at the table last Sept with the Manager of Compliance, CFO and one other official discussing a number of topics DVC and this was one. I had thought that DVC didn't pay dues on what they owned in my reading of the POS but I was assured they did and not just on the ROFR points. It was a very interesting, informative and fun meeting.

 

[WebmasterDoc]

As I noted, I don't think DVC will be able to proceed as is being looked at in this thread as a SA. Here are the type of things DVC can do as a SA and I don't see any that can be stretched to this situation. Here are the types of things that DVC has the right to do a SA and no others.


And I see that the land lease appears to be the determinant of the expiration so it is likely that all contracts are extended if the land lease is. Per the POS

The letter makes it pretty clear that the Board will be voting on an agreement to extend the ground lease - "thereby extending the DVC condominium, the Vacation ownership Plan and each Member's Ownership Interest in the DVC Condominium in exchange for the payment by the Association to DVD of $25 per Vacation Point." It is also clear that ALL contracts will be extended.

I take that to mean that this could be covered as a SA just using the - "any other expense incorred in the normal operation and maintenance of the units and common elements that cannot be attributed to a particular owner." you used as an example of the "types" of things that would fall under a SA. I'm betting that your list was NOT all inclusive and that there are other reasons a SA could be incurred but regardless , this extension would seem to me to fit the generalization presented above. It would especially seem to be appropriate since they have included an "escape" clause for those choosing not to extend.

 

[Msteg]

All operating expenses, taxes and capital improvements are paid from our dues - so the income gained from selling additional contract years is mostly profit. There is no suggestion that this will be used for any improvements - nor should we expect that. This extension simply adds the right to use the property for an additional 15 years. I would expect that there is some consideration being "paid" to Disney by DVD in order to lease the land for the additional years and that is likely the only expense against the revenue gained. There is certainly no indication that members should anticipate any additional benefit beyond the ability to sustain their membership for an additional 15 years. Other "improvements" will still be covered by the annual fees.

SO... if what WebmasterDoc says above is true ( and I believe it is ) then DVC and in turn Disney are going to make a HUGE profit in today's dollars just for the future obligation to keep OKW in operation 35 to 47 years from now ( and we still will have to pay the annual fees for those extra years).

Sounds to me like this is a fantastic deal for them but a very questionable deal for us DVC members. Especially since they have set the price of the deal ( be it 15 or 25 $/point) and we have no input as to what the fair price should be.

I know there are people at both extreme ends of this issue. Some will never want to or be able to pay this extra amount in 2008 and some will jump on the bandwagon and pay up without blinking an eye. I can't expect this discussion will change those extermes but I hope the vast majority of us DVC members will think hard about the deal and then decline it.

I say this for several reasons. First, anytime there is a take it or leave it deal, it is more often than not a deal that benefits one party much more than the other. Disney is not being a fair negotiator with DVC members in this case. All OKW DVC members should have a say in what the extension is worth to them. Even with a negotiated price for an extension, there will still be many OKW members who decide they do not want to extend but at least the members had some say in settting that price.

Second, Why should we accept their first offer? ( Do you always buy a car at the sticker price or do you negotiate for the best deal?). if most members decide to accept the deal as currently outlined, it sets a very bad precedent for future DVC assesments. What is going to stop DVC from offering another deal to members at other resorts at an even higher price?

And third, maybe we could negotiate for some other current perks or benefits as a part of the deal, like better discounts on annual passes or dining ( or even more free admission passes!!)

Mike

 

[Dean]

The letter makes it pretty clear that the Board will be voting on an agreement to extend the ground lease - "thereby extending the DVC condominium, the Vacation ownership Plan and each Member's Ownership Interest in the DVC Condominium in exchange for the payment by the Association to DVD of $25 per Vacation Point." It is also clear that ALL contracts will be extended.

I take that to mean that this could be covered as a SA just using the - "any other expense incorred in the normal operation and maintenance of the units and common elements that cannot be attributed to a particular owner." you used as an example of the "types" of things that would fall under a SA. I'm betting that your list was NOT all inclusive and that there are other reasons a SA could be incurred but regardless , this extension would seem to me to fit the generalization presented above. It would especially seem to be appropriate since they have included an "escape" clause for those choosing not to extend.

Given the wording of the POS I think the list is inclusive. Basically if it doesn't fit into the list, a SA is not possible. And a SA to extend the time would certainly not be normal operation and maintenance of units or common elements. It will be interesting to see what happens.

 

[tubtruck]

wow, been away from the boards for some time, though looking at the $25 price tag for the extra 15 years, it doesnt seem a very good deal especially if you were just buying a resale contract added together it means a resale could be well over $100 plus the extra closing costs etc. Disney are sure creative in raising extra revenue but this surley is their greatest bit of imagineering, and costs them very little to do and one heck of a lot less than actually having to build somthing before extracting money from people.

 

[WebmasterDoc]

Given the wording of the POS I think the list is inclusive. Basically if it doesn't fit into the list, a SA is not possible. And a SA to extend the time would certainly not be normal operation and maintenance of units or common elements. It will be interesting to see what happens.

Where did you find that in the POS? When you used the "type of" phrase, it suggested those were just examples rather than the entire list. Even there, the list provided is not very specific, but I'd also be interested to read the passage myself.

 

[Dean]

Where did you find that in the POS? When you used the "type of" phrase, it suggested those were just examples rather than the entire list. Even there, the list provided is not very specific, but I'd also be interested to read the passage myself.

You want to read the Declaration of Condominium sections 2.10, 2.11 and all of Article 8. Also the Bylaws section 6.1 and the Master Cotenancy Agreement section 7 which would not give them the right to collect this type of assessment it appears. The part I shortened minimally is section 8.1.

Read it and see what you think. I'd be interested if you can find anything that would legally allow for a SA for extension or anything that would separate extension of the land lease from extension of an individual membership, I couldn't. As I see it they are stuck between possibly extending for all for free, abandoning this project, selling this as a "separate" ownership or getting the members to vote directly. I believe that having the voting rep do so would be a violation of the POS in this instance unless it's a free extension.

 

[Doctor P]

I sat at the table last Sept with the Manager of Compliance, CFO and one other official discussing a number of topics DVC and this was one. I had thought that DVC didn't pay dues on what they owned in my reading of the POS but I was assured they did and not just on the ROFR points. It was a very interesting, informative and fun meeting.

The annual declaration of the budget indicates that they are excused from paying their share of the common expenses in exchange for their guarantee. I just checked it. They may not proceed this way, but they seem to declare that they are excused each year that I can find.

 

[Dean]

The annual declaration of the budget indicates that they are excused from paying their share of the common expenses in exchange for their guarantee. I just checked it. They may not proceed this way, but they seem to declare that they are excused each year that I can find.

And that's what the POS says but requires they underwrite expenses for any given year that are overages. This comes directly from the FL statutes.

 

[LIFERBABE]

You want to read the Declaration of Condominium sections 2.10, 2.11 and all of Article 8. Also the Bylaws section 6.1 and the Master Cotenancy Agreement section 7 which would not give them the right to collect this type of assessment it appears. The part I shortened minimally is section 8.1.

Read it and see what you think. I'd be interested if you can find anything that would legally allow for a SA for extension or anything that would separate extension of the land lease from extension of an individual membership, I couldn't. As I see it they are stuck between possibly extending for all for free, abandoning this project, selling this as a "separate" ownership or getting the members to vote directly. I believe that having the voting rep do so would be a violation of the POS in this instance unless it's a free extension.

Dean, would the members have to get lawyers to challenge DVD on this? Obviously they feel they are within their rights to do this. How do we challenge it? I know on the cruise fee issue, a Diser called the Panama Port Authority to find out how the tax change should be calculated. After many challenged DCL and contacted the media, they agreed to not charge anything.

 

[JimC]

...Sounds to me like this is a fantastic deal for them but a very questionable deal for us DVC members. Especially since they have set the price of the deal ( be it 15 or 25 $/point) and we have no input as to what the fair price should be....I say this for several reasons. First, anytime there is a take it or leave it deal, it is more often than not a deal that benefits one party much more than the other. Disney is not being a fair negotiator with DVC members in this case. All OKW DVC members should have a say in what the extension is worth to them. Even with a negotiated price for an extension, there will still be many OKW members who decide they do not want to extend but at least the members had some say in settting that price....

What makes this any different than buying DVC in the first place? DVC sets the terms -- you buy or you do not buy. This is the same thing.

We do have an indirect input...if few people buy the option then they will need to adjust. I find it interesting that people get all worked up over this, but never bat an eye at buying into AKV for a fifty year term.

 

[Dean]

Dean, would the members have to get lawyers to challenge DVD on this? Obviously they feel they are within their rights to do this. How do we challenge it? I know on the cruise fee issue, a Diser called the Panama Port Authority to find out how the tax change should be calculated. After many challenged DCL and contacted the media, they agreed to not charge anything.

I don't think so but it's possible. If it goes the route that this thread has suggested I think we can guarantee legal action fairly soon. Legal action was not needed to get them to reverse the decision wether to allow free tickets for OKW members using 2000 points borrowed to 1999 though I'm sure it was threatened. All it took as I understand it was making the case to the legal department per the POS. Since it was not restricted in the POS, the position was therefore not legal.