Dear Fellow Owners,
I hope this letter finds all of you well. I wanted to give you a few important updates on our budget and assessments for 2024.
Our 2023 forecast landing versus budget:
Overall, we performed well in 2023 against the budget we set in terms of revenues and most operating expense line items, although we did end the year with a deficit. The deficit was caused by three significant and unforeseeable variances in operating expenses: higher-than-expected cost of natural gas in January, higher-than-expected legal expenses related to ongoing litigation, and higher property taxes. All of these have been reflected in the year-end forecast. Below is more color on each of the non-assessment revenues and the two negative expense variances.
1. In terms of non-assessment revenues, we forecasted to generate over $200k more in revenues for the year compared to budget, a positive variance that partially offset the negative expense variances.
2. In January 2023, we incurred a major negative $100k variance in our gas utility expenditure. This was not related to usage, but rather was related to a non-recurring spike in the price/kWh of gas from our provider, AM Gas. We believe that this spike was unique to providers of gas coming from the west coast. To avoid this situation in the future, East West Hospitality and the Board entered into a fixed price contract with the incumbent provider which fixed the price/kWh of gas through April 2024.
3. We have incurred significant legal expenses because we retained specialist litigation counsel in June to assist the Board in its dispute with our former counsel, who has asked for excessive remuneration related to the work they did when we separated from Marriott. These cases have now gone through arbitration, and we hope to have a resolution by the end of the year. Once this case is resolved, we expect legal expenses to be within our normal annual budget. However, an additional assessment might be levied in the future depending on the results of the arbitration, which is discussed further below.
4. Due to the overall appreciation of property prices in the Aspen area, the County has raised the assessment of our property significantly. We expect property taxes to be nearly $300k more in 2023 than the budgeted amount, or a negative variance of 47%. We feel the assessed amount is excessive and will be disputing it.
As far as project / capital expenditures, $4.5m had been spent through the end of October, compared to $1.1m spent for all of 2022. $4.6m had been reimbursed from the Reserve Fund (nine withdrawals) this year, including some residual withdrawal related to 2022 projects. Through the end of the year, we are expecting to disburse an additional $2.6 million for project expenditures mostly related to the refurbishment.
The balance in the Reserve Fund as of November 9, 2023 was $6.1m, of which $60k was cash, $3.2m was in USTs (four), and the balance of $2.9m was in CDs (13, of which three ($583k) are structured CDs due in 2028 which remain significantly under water).
All of you know that 2023 was finally the year to start the re-design of the property in three phases. The room refurbishment is now estimated to cost around $12 million, with circa $3.9m disbursed to date, $2.4m expected to be disbursed during the remainder of this year and $5.6m expected to be disbursed in 2024, most of which will be paid in the first half of the year. The cost of the room refurbishment will be significantly more than the $7m that has been in the budget for this major overhaul overdue for many years, and the overage will need to be funded with a special Reserve Funds assessment in 2024. The redo of the bathrooms has been dropped until at least 2026 for cost and time-related reasons.
In addition to the refurbishment, we continue to be burdened with various infrastructure-related expenditures, many of which were not anticipated. For example, non-room related projects that need to be completed in the coming months include replacing the air handlers (for heat and air conditioning) in rooms, resurfacing balconies, replacing nine hot tubs on balconies of select units, updating the fire alarm system and replacing roof shingles.
Our 2024 budget
In 2024, we are forecasting an +11.0% increase in operating expenses compared to the 2023 budget, but a 2% decline when compared to our forecasted landing. Much of the increase is related to higher wages for employees, although we are assuming that most cost items generally increase since this has been our experience over the last two years.
In 2024, we will also need to recover the deficit of $746k for 2023, related to the items outlined in the first page of this letter.
As far as reserves, the Board requested a new reserve study in 2023, which was undertaken by Association Reserves. The report was completed and provided to the Board / HOA on June 29th. As expected, it shows a substantial shortfall in reserves should we continue to contribute at the legacy level (suggested in the 2021 Reserve Study prepared by Armstrong Consulting).
2024 Assessment
As a result of negative operating variances leading to a 2023 deficit and significantly higher-than-expected project expenditures, we are once again forced to request a significant increase in the assessment for owners for 2024. As we had hoped last year, we again believe that a portion of the assessment will not be recurring. The refurbishment should be largely completed in 2024, and we are hoping for no surprises as far as operating expenses.
You should also note that we are not requesting an incremental assessment for the legal reserve fund this year, although we do not know the outcome of the arbitration as of the date of this letter. Recall that the HOA is disputing the excessive legal fees that were charged by our former counsel in conjunction with the legal suit against Marriott, which was ultimately settled out-of-court. The Board entered into a definitive settlement through arbitration with our former legal counsel to resolve the amount of legal fees the HOA owes and also our lawsuit against our prior President.
The arbitration hearing(s) started in late October and is now complete. We are awaiting the outcome which we anticipate will be in by the end of the year. Depending on that judgement, including amount and payment schedule (if applicable), we might need to return to the owners to request additional funding. Recall that we established a legal reserve fund last year, and that we also have some assets acquired during the transfer that will be sold and the funds applied to defray any potential excess cost.
We are requesting an increase in the assessment this year of 44% on our operating and reserve funds (compared to last year). The table below breaks down the property-level assessment for forecast 2023 vs budget, before and after the special one-off charges. It also depicts the legal reserve fund, project reserve fund and deficit recovery for 2023.
It should also go without saying that the Board, working alongside local management, has done everything possible to keep costs down while at the same time doing what needed to be upgraded, and not skimping on quality. We will continue to focus on a combination of other revenue streams and cost efficiencies to further enhance the value of our property. Our objective – like yours – is to have the prices of our fractional units (and rentals) continue to escalate. We believe that the improvements we have made and are continuing to make will move our unit values in a positive direction.
We have set up a zoom meeting for owners to ask questions on the budget. Please see the following if you want to join us:
You are invited to a Zoom webinar.
When: Tuesday Nov 14, 2023
10:00 AM Eastern Time (US and Canada)
Topic: 2024 TAMR Budget Review with Owners
Please click the link below to join the webinar:
https://us02web.zoom.us/j/88984966652?pwd=NVozcnFzSlJacjRvMHdFWkN1aXJuZz09
Passcode: 266568
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International numbers available: https://us02web.zoom.us/u/kbUZ402P1I
On behalf of your Board,
Al Kenney
President, The Aspen Mountain Residences HOA Board
860-354-7979
al@bluewaterfractionals.com
Board Members and Owner Director Contact Information:
Joe Ferguson – jferguson@rjrcapital.com
Tim Hall – timhl9999@gmail.com
Tom Kaplan – tkaplan@kkladvisors.com
Peter Wells – petercwells@yahoo.com
Bruce Clay – bjc2115@gmail.com
Trust – Appointed Member to the Board:
Jami Champagne – Jami.Champagne@vacationclub.com
