Pelican Resort Club saga “Mismanagement by Tenants Association a major factor”

POSTED: 05/5/11 12:32 PM

Timeshare Association analysis of the Pelican Resort Club saga

SIMPSON BAY – An independent third-party report conducted by the St. Maarten Timeshare Association SMTA in the aftermath of the foreclosure of Pelican Resort Club cites the Board of the Tenants Association Pelican Resort Club’s (TAPRC) mismanagement as a major factor along with adverse economic conditions.  The analysis states: “There is nothing to show that Royal Resorts acted in anything other than good faith.”

 

The analysis confirms that “the resort was owned from 1996-January 2011 by the Pelican Resort Club, the Owner Company N.V. and managed by the Pelican Resort Club, the Management Company N.V., both of which were wholly owned by the TAPRC, comprised of all timeshare owners who were then in good standing.”

 

The report points out that the “TAPRC was more than just an influence. It was the actual shareholder and through instructions to Royal Resorts which are substantiated by extensive documentation, Pelican Resort Club groups under its direct ownership made independent and unilateral decisions regarding budgets, payment and non-payment of loans, and assessing of maintenance fees.”  The report notes that these decisions were often made against Royal Resort’s recommendations.

 

The report traces the history of financial problems at Pelican Resort Club back to its first bankruptcy in 1996 when the TAPRC’s “acquisition of the property was mostly financed by the bankruptcy trustee of the Vlietman phase, with the resort being valued at $8.5 million based upon unsold timeshare intervals and a starting debt to the trustee of $6.5 million to be paid over 18 months.  The trustee later accepted an extension of the time to pay off the purchase as the TAPRC did not have the funds.

 

“From November of 1996 through July of 1997 the resort had major problems as a succession of General Managers produced nothing but failed attempts.  On July 31, 1997, the TAPRC hired the Royal Resorts Group, one of the world’s leading developers and management companies with a stellar reputation as a co-managing director of the management company and to provide management services to straighten out what was a fiscal and operational mess.  During that time estimated losses were $1.5 million,” according to the report.

 

Over the next several years there were continuing shortfalls in operating money including funds sorely needed for repairs and replacements. Due to the shortage of funds, Royal Resorts was not paid its fee and the trustee was only partly paid, the report states.

 

SMTA explains that “Royal Resorts’ advice about maintenance fees was not followed by the TAPRC Board,” and that the board “did not make efforts to collect outstanding fees that would normally be done resulting in large write-offs of outstanding maintenance fees and assessments.”

 

The analysis points to a positive chapter in the Pelican Resort Club’s history when “4,004 unsold inventory were sold by the owning company to Friendly Island Properties (FIP) in 2000 and 2001, an affiliate of Royal Resorts, and over the next two years all these intervals were sold or transferred to individuals – almost exclusively to Royal Resorts’ membership base in Cancun, Mexico.  This resulted in the first year of no operational losses in 2001 and again in 2002.”

 

Unfortunately, as detailed in the SMTA report, “the resort’s timeshare owners were still reluctant to increase maintenance fees to a sufficient point to bring the resort up to proper standards out of fear that each raise in fees would result in people abandoning their timeshares.  Ironically, it can also be argued that keeping the fees too low also resulted in deterioration of the product that resulted in people abandoning their timeshares.

 

“By the end of 2004, the TAPRC group finally paid off the original bankruptcy trustee for the purchase of the property – again through borrowing,” said the report, referring to an emergency loan provided by Quantum Investment Trust (QIT) in excess of $3 million.  “The system deciding who to owe money to, continued to be a drag on operations, but interestingly Royal Resorts group consistently forgave all or most of any interest owed on accumulated debts to it over the years,” the report noted.

 

“Consistent operational losses continued to weaken the capital of the property resulting in a complex web of planned and budgeted borrowing via the PCIP (Pelican Capital Improvement Fund) and deferred payments to various parties.”

 

The study explains how profits from the Pelican Marina Residences project were projected to result in the payment of all existing debts, and to provide capital for much needed renovations.  “This plan, conceived by the TAPRC Board and Royal Resorts group in 1999 should have worked, but events over the next eight years would conspire to doom these efforts.  The future events to unfold were complex and few of them could have been foreseen,” according to SMTA.

 

The report provides background into the dismal investment climate in the Caribbean during the time the Pelican Marina Residences project was conceived.  “Timeshare construction loans and the required receivable financing loans were not easy to obtain in the Caribbean. None of the local banks had an interest in this and there were very few banks and lending institutions that would even consider a Caribbean project and all of these were requiring personal financial commitments of the developers; despite its internal discussion, something not available to TAPRC and affiliates.  Royal Resorts was able to arrange these loans through personal connections with QIT without the personal guarantees but with full collateralization of the immovable assets of the resort, not just the new project.

The analysis clarifies that Royal Resorts’ “personal connections were fully disclosed” and that, “as part of a standard clause in these types of loans, a contract with an experienced and successful sales and marketing company was required.”

The report shows that “since its inception in 1996, the TAPRC was severely undercapitalized for the project and efforts to improve this were hampered by a lack of strong commitment until the plan to develop their way out of their problem via the Pelican Marina Residences emerged.  This involved some risk taking as any developer must do, whether it is an individual, a group or in this case 12,000 timeshare owners.  With no capital cushion, the risk in this case resulted in a loss to the developer.  This is a normal occurrence in business, which cannot be regulated by law.

“The current board of the TAPRC is attempting to show that this was some sinister plot on the part of Royal Resorts and QIT to ‘steal’ their property.” However, the analysis shows that, “had TAPRC properly funded itself from the beginning, there would have been no need to assume additional risk. The debt service it had from the beginning, as even countries such as our own Netherlands Antilles discovered, was resulting in financial failure.”

The SMTA confirms that “beyond unsubstantiated allegations, there is nothing to show that Royal Resorts acted in anything other than good faith in attempting to shepherd the timeshare owners through their trials. The number of supportive deals and forgiving of debt and timely payment on the part of Royal Resorts is well substantiated.”

The report notes that sales for the Pelican Marina Residences began in 2006 pre-construction and through 2008 performed “reasonably well.” However, “serious questions on the part of the external financial auditing company Ernst and Young, were raised in 2008 on the sustainability of the operation as balances on equity and income were all in negative territory.”

The study also notes that the Pelican Marina Residences project “faced serious headwinds due to various groups of Pelican timeshare owners that were for a long time publicly engaged in bashing Royal Resorts.”

SMTA explains that these owners “improperly sought access to all TAPRC timeshare owner contacts, blaming all financial problems on Royal Resorts,” concluding that “without this headwind, the superior quality of the Pelican Marina Residences project could have produced far better results.”

In its findings, SMTA recognized the impact of the economy on timeshare sales, which along with the destructive influence of current TAPRC board Chairman Jeffery Borowick and his followers, played a significant role in diminishing sales for the Residences.

“In 2009, at Pelican as well as throughout St. Maarten and the rest of the western world, timeshare industry sales literally fell through the floor as the ‘Great Recession’ took deep roots in discretionary spending of the upper-middle and middle classes.  The resort and QIT renegotiated the terms of the financing at this time in an effort to forestall foreclosure on default.  Interest rates were reduced and the loans were fully restored to good standing.”

“In summary of this period, one can look at what was considered a reasonable plan to resolve financial issues that began in 1996, whereby initial undercapitalization and a non-stop cycle of debt and consequent interest payments constantly threatened the resort as a going concern.  Initial shortfalls in funding at the time of the 1996 takeover by TAPRC and failure to raise needed capital early on through maintenance fees or special assessments resulted in debt service that prevented the TAPRC from having a sustainable business plan,” according to the independent analysis.

Contrary to the claims of the current TAPRC Board, which argued that Royal Resorts’ commission fees on sales for Pelican Marina Residences was excessive, the third-party SMTA report explains that “even the most successful properties were experiencing combined costs of sales and marketing in excess of 50% and in some cases as high as 65%, all well over the 45% commission rate” and further suggests that, had Royal Resorts and TAPRC “negotiated a raise in sales commissions it might have proved possible to make the project viable.”

It also noted that “persons who are now TAPRC board members have long stated that Royal Resorts’ 10% management fee has been way too high and is the cause of the resort’s financial difficulties,” but disputes this premise as “research has shown that the average management fee for the timeshare industry is between 8-12% placing Royal Resorts’ fee completely in line with standard business practice.”

In regards to the unavoidable foreclosure of Pelican Resort Club brought on by the poor financial decisions and lack of foresight on the part of the TAPRC board, SMTA confirms that “QIT was extremely cooperative in debt restructuring through 2009.”

SMTA explains that the “situation changed as the TAPRC board in place from the beginning of 2010 increasingly displayed well-documented hostility towards both the lender and the Royal Resorts group, and had initiated overt actions to have the Royal Resorts group removed from its managing and sales roles.  TAPRC further fanned the flames in June of 2010 when it decided to stop paying the loan and demanded another renegotiation of the loan terms.  This might have worked in other situations, but faced with what was now seen as a hostile resort owner (borrower) deeply in debt and arrears that was further threatening the stability of the entire project by attempting to remove Royal Resorts with no clear plan or prior management and sales credibility, QIT acted within its legal rights in defense of its outstanding loans of over $20 million and subsequently foreclosed on the entire property.”

The report refers to the decision by the TAPRC to not allow any maintenance fee increases for 2010 and 2011.  “This was done despite Royal Resorts’ recommendation for increases of 3% per year, in line or below what other St. Maarten timeshare properties thought necessary due to rising resort operations costs, which were in excess of general inflation rates.  In 2010 this action led to the closing of units, the reduction in work-week from 5 days to 4 for union and non-union employees, and reduction in needed repairs and replacements.”

TAPRC’s vision was to delay payments to government, vendors and the lender even further for 2011, the report concludes. “A short-term solution with no exit strategy.”

The analysis emphasized that, as a result of the TAPRC Board’s consistent refusal to increase maintenance fees and aggressive actions against their lender QIT, the foreclosure took place. Undermining the project’s credibility via a strong internet campaign among owners helped to reduce sales of the Pelican Marina Residences.” The recession also had an effect.

The report details how the auction was unsuccessfully challenged in court by TAPRC and that the judge ruled that TAPRC could “in no way provide reasonable proof that it would be in a position to cure its default within any reasonable time.  The financial history and all the correspondence were evaluated by the court at that time as a basis for the decision. This independent analysis of the documentation confirms this opinion.”

The current state of affairs at the resort shows a significant shortfall in collected maintenance revenue that will be available for the resort’s operation 2011, the SMTA-report states. It explains that this is a direct result of “financial decisions made by the previous owner.”

The analysis also points out that pending court cases initiated by the TAPRC can have major consequences. If the tenants association manages to annul the auction, it could result in another closure because the association has insufficient funds to operate the resort.

Another potential problem area is that TAPRC owned the resort’s furnishings, and they were not part of the loan collateral. Recently the association transferred the ownership of the furnishings to a foundation.  TAPRC now demands $5 million these assets from Simpson Bay Resort & Marina. According to the report, the resort has offered to forgive the money TAPRC took from the 2011 maintenance fees to pay for 2010-expenses.  This is a considerable amount and the resort considers the offer fair.

 

The report comes to the same conclusion as Royal Resorts, and suggests that it seems “likely at this time that TAPRC will maintain a series of court cases for as long as they can afford to pay legal fees.”

 

Simpson Bay Resort & Marina hopes that “this unbiased, independent report will shed some light on the history of the resort’s difficulties and the TAPRC’s significant contribution to the decline and foreclosure of Pelican Resort Club.”

 

It feels that most TAPRC members are level-minded individuals who simply wish to enjoy the resort and hopes this third-party analysis will motivate them to become more involved in the upcoming June 4, 2011 TAPRC elections in order to prevent further damages to their timeshare investments.  The resort “reminds members that the reckless actions of the rogue group currently in control of the TAPRC were made possible by the widespread voter apathy that allowed them into power in the first place, despite overwhelming evidence of their shortsightedness and destructive influence.”

Simpson Bay Resort & Marina stated that it remains “committed to working with the current TAPRC Board – despite its aggressive and unreasonable stance – toward a lasting resolution that will allow timeshare members to enjoy their vacations without further unnecessary drama or the burden of continuing litigation costs.”

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Comments (3)

 

  1. Dave in DC says:

    Independent Third Party?

    MP Jules James, a managing partner of Pelican resigned as the Chairman of St. Maarten Timeshare Association back in September when he was elected to the MP position. Funny thing he said he was resigning to spend time doing the peoples’ work, yet he was magically on the Pelican payroll almost immediately he left SMTA.

    Hardly a resounding endorsement saying that SMTA is an objective outsider! This whole report sounds more like a favor to a politician, friend, and former employee who has a vested interest in making sure that Royal Resorts appears to be the victim not the perpetrator. Wonder where SMTA got there facts for this unbiased and objective synopsis of what really happened? Look no further than RR and JJ. This is just another Corso, Sutton, and James sham.

  2. Mark J. Roebber says:

    Right on Dave. The corruption and criminal conduct that is being allowed to continue is beyond belief. If I were J.J. I would be sleeping very uncomfortabely at night. St. MAARTEN/Martin is a very small island…

  3. Bob Gray says:

    Has anyone heard of Redwood Property Management? They are offerring to buy our units at a big price.