Chapter 9 Resort Operations: The Importance of Recreational Amenities

1. Chapter 9Resort Operations:The Importance of Recreational Amenities

2. Stages of the Recreational Amenities Process: • Feasibility Analysis and Planning • Construction • Operations Management

3. Feasibility Analysis and Planning • preliminary estimate is made of the likely demand • alternative sites are investigated • one is chosen for in-depth analysis • development team is assembled • development concept is agreed upon

4. Feasibility Analysis and Planning (cont.) • detailed feasibility analysis • concept may have to be refined or an alternative site may have to be selected and the process begun again • product programming is put into place • type and mix of residential, timeshare, and hotel products are determined, an association structure and amenity program agreed on, and the phasing of the development set up

5. Feasibility and Analysis (cont.) • approvals from necessary agencies and citizen groups • plan finalized in detail • financing is secured • marketing begins

6. Construction and Operations Management • Planning, construction, and marketing activities overlap Operations/Management The various stages of development may overlap • specialized management services may be required • transfer of community management to associations of owners or members • consider renovation and repositioning of the resort

7. Elements involved in creating an amenity strategy and the impact on the development process. • An amenity strategy is a “clear understanding of the role of recreational facilities within an overall project.” • The elements are: • Provide what the market wants. • Provide for the changing role of the amenity package over the life cycle of the development. • Balance the cost of the amenities with the revenue they generate. • Guarantee developer control in the early steps of the project. • Provide for an orderly transfer of control from the developer to residents

8. Impact on the development process • An amenity is “a rather broad concept that can encompass virtually any feature that is attractive to a given market and thus adds value to land.” • There are two basic reasons for including amenities in a recreational development: • they increase the value of the real estate • amenities give marketing leverage

9. Impact on the development process (cont.) • Downside: substantial costs are involved in providing what is often a seasonal attraction • The key is to achieve a balance between the cost of providing the amenity with the sales generated by its presence.

10. The relationship between developers and managers of an amenity package in terms of successful planning and implementation. • An operational plan is needed that identifies: • who will develop, own, and operate the facilities and for how long • who will use the facilities and on what terms • precisely what the expected relationship will be between real estate and recreational amenities • Development must balance the cost of constructing the amenities with revenue generated by their presence • Recreational amenities should be developed up front and used to draw guests or stimulate real estate sales.

11. Relationship between developers and managers (cont.) • The developer should continue to control construction, operation, and maintenance of the amenity package throughout development • The rule of thumb is that the developer retains control until at least 50% of the project is completed

12. Relationship between developers and managers (cont.) • Once the recreational amenity has served its primary purpose of selling real estate, its value to the developer declines while the carrying costs increase. The amenity is then either given away or sold to the residents of the project. • Developers have little or no leverage at the end of the build-out phase. Therefore it is a good idea for the developers to negotiate at the beginning of the project

13. The role of the developer in the various types of community management structures • Communities • can be managed through municipal corporations and community improvement districts, nonprofit tax-exempt organizations or community associations. • Government bodies • the developer has no control as the residents of the municipality elect the governing body, which makes most operating decisions

14. Role of the developer (cont.) • Nonprofit tax-exempt organizations • developer could select and control the board indefinitely • nonprofit organization does not have the authority to enforce covenants which are usually desirable in a master-planned development • this type of organization is best used in conjunction with other types. • Community association • gives most flexibility for a resort community • various classes of membership can be designed so as to allow the developer to control the community until it can be transferred to the owners later

15. Compare and contrast the opportunities for effectively structuring the management of a community and its amenities. • There are four common structures: • Equity Club • Right-to-Use Club • Convertible Club Program • Association Membership

16. Equity Club • Developers can transfer ownership of the recreational facilities to a separate nonprofit while retaining the right to operate the facilities until most of the residential property is sold. • Developer is protected by ensuring that the amenities will not be operated in a way that adversely affects sales of the remaining real estate units • Developer contributes the recreational amenities in return for the right to sell equity memberships to real estate owners

17. Equity Club (cont.) • Club members pay annual dues for the right to use the facilities and benefit from any increase in the value of the amenities • If property purchasers inherit the equity membership of owners the value of the equity membership is increased • If all memberships are sold, new owners must wait for one to become available before they can participate in the amenity program.

18. Right-to-Use Club • Developer retains ownership and control of the facilities • Members buy the right to use the amenities • Developer decides whether the initial payment is a fee or a deposit • Fee program: a member who resigns from the club may receive all, some, or none of the deposit back • Deposit program: members receive the full deposit when they resign, but not until 20 to 30 years after their acceptance into the program

19. Convertible Club Program • Program begins as a right-to-use club, but members are made aware up front of the intention to turn it into an equity club. • One-time fee or deposit is refundable and may be applied to the equity club membership.

20. Association Ownership • Homeowners’ association is set up to represent the surrounding property units. • Association members do not buy memberships but can pay off the debt through assessments and user fees • Memberships may be sold to owners who want preferential treatment • Developer recovers the cost of building the recreational amenities through means other than the sale of real estate

21. Comparison of Basic Options • Up-front cost is highest for the equity club • The membership price on an initial right-to-use club is even higher • Cost is reduced by the original initiation fee • No up-front cost for the association ownership unless annual memberships are sold. Even then, the annual cost is relatively low. • Gross proceeds from the membership program are greatest with the right-to-use club, although the income is dependent on the selling of memberships

22. Comparison of Basic Options (cont.) • the income is less in an equity club, the guarantee that the money will be realized is greater • convertible program produces less gross income • association management produces no gross income at all unless annual memberships are sold • initial operational cash flow is low with both association management and an equity club and moderate with the other two options

23. Comparison (cont.) • sell-out operational cash flow is greatest in an equity club, slightly less in a right-to-use club, and lower in the other two options. • because association members own and operate the recreational facilities, a greater sense of community exists among them • sense on community remains good in an equity club, less so in a right-to-use club because of the loss of owner control and uncertainty over the amenities, and even less in a convertible club program because owners have no control over the facilities

24. Comparison (cont.) • developer has the greatest flexibility under a convertible club program and none with association ownership • litigation risk to the developer is low in both an equity club and association membership, moderate to low in a right-to-use club, and greatest when a developer sells the amenities in a convertible club program. • convertible club program is the best option where nonowner access to club facilities is important • in an equity club, access is limited to available memberships until a cap is reached

25. Comparison (cont.) • in a right-to-use club, access is good until conversion takes place • access varies in association ownership depending on the regulations set by the members themselves • convertible club program is the best option where nonowner access to club facilities is important

26. Comparison (cont.) • in an equity club, access is limited to available memberships until a cap is reached • in a right-to-use club, access is good until conversion takes place • access varies in association ownership depending on the regulations set by the members themselves

27. The End!