Trying to Understand "Extended" Contracts

[Kid_@_50]

The basic idea that DVC contracts expire at a future date stresses me out. I decided that DVD operates on the Las Vegas model. Every few years some Las Vegas resort gets destroyed, then completely rebuilt with the latest and greatest.

I had a friend who "owned/rented" commercial real estate with a 20 year land lease. He fixed up the property, made great money on rents, then put the property in harvest mode as it approached the end of its lease. At the end of 20 years he owned nothing, not the land or the building.

A DVC contract expires at some future date. I would like to assume that the property management company is taking direction from the DVC timeshare owners not the DVD (land owners). I'd rather not be paying for upgrades or maintenance that extends the economic life of the property beyond the expiration date of my contract.

My friends' commercial real estate was definitely in the decline state the last 5 years and only got worse. I really wonder what is going to happen in the last 5 to 10 years before the contract expires?

Just to add to my confusion, OKW owners were "offered" a 15 year extension. It seems to me that the owners that did not take the offer will be paying to maintain the property beyond their contracted end date.

Will someone share their views on "Extended" contracts?
What are your expectations on maintenance fees and overall unit and propery condition as contracts approach their end date?

 

[dianeschlicht]

W did NOT extend our OKW contracts, because it made no sense for us. We will be 94 when the original contract expires, so we saw no benefit to extending. Even our "kids" will be in their 70's, so we saw no benefit.

 

[hellerjw]

What are your expectations on maintenance fees and overall unit and propery condition as contracts approach their end date?

Nobody really knows since the oldest contracts still have 33 years on them before they expire. I believe the OKW owners that opted-out were told they would have some kind of special credit against their dues as the original 2042 contract expiration grows closer. I don't think any of the budget estimates go beyond 10 years so it will most likely be another 23 years before any real numbers start to be allocated for final year(s) maintenance, etc on these older resorts.

 

[chalee94]

I really wonder what is going to happen in the last 5 to 10 years before the contract expires?

yep - no one really knows for sure. it's a risk.

Just to add to my confusion, OKW owners were "offered" a 15 year extension. It seems to me that the owners that did not take the offer will be paying to maintain the property beyond their contracted end date.

Will someone share their views on "Extended" contracts?
What are your expectations on maintenance fees and overall unit and propery condition as contracts approach their end date

supposedly, non-extenders will not be charged for that additional maintenance.

"DVC has stated they will calculate/estimate how much will be used for rehabs after 2042, and those contracts that expire in 2042 will have that amount credited/refunded."

we'll have to see how it actually plays out, though.

keep in mind that disney will still be trying to sell rooms in the expiring properties for cash in 2040, so i doubt they'll be allowed to decline too far...

 

[Mississippian]

W did NOT extend our OKW contracts, because it made no sense for us. We will be 94 when the original contract expires, so we saw no benefit to extending. Even our "kids" will be in their 70's, so we saw no benefit.

You were right not to extend your contract. It is a terrible investment based on the time value of money.

The key, though, is not how old you will be at the expiration of your contract. You will almost certainly sell before then. The key is whether or not the money you spend on extending the contract plus say eight percent per year compounded increases the resale value by that amount or more.

The fact is that the present value of 10 extra years delivered 34 years in the future is very little, about three dollars a point. Since DVC wanted $15 per point (and now more, I think) to extend the contracts it was a bad deal for everyone except those who don't trust banks and don't have enough money in their house to store all their money.

 

[tjkraz]

supposedly, non-extenders will not be charged for that additional maintenance.

"DVC has stated they will calculate/estimate how much will be used for rehabs after 2042, and those contracts that expire in 2042 will have that amount credited/refunded."

we'll have to see how it actually plays out, though.

It shouldn't be difficult to do.

All of the capital reserves allocations are tied to specific refurbishment projects. Dollars are set aside for things like roof replacement, parking lot repaving, room renovations and so on. And each of those categories includes some basic notation indicating when the funds will be needed.

It will be relatively simple to identify projects earmarked for dates after 1/31/42 and exclude the non-extenders from having to make any contributions.

 

[Kid_@_50]

It shouldn't be difficult to do.

All of the capital reserves allocations are tied to specific refurbishment projects. Dollars are set aside for things like roof replacement, parking lot repaving, room renovations and so on. And each of those categories includes some basic notation indicating when the funds will be needed.

It will be relatively simple to identify projects earmarked for dates after 1/31/42 and exclude the non-extenders from having to make any contributions.

In my mind the issue is not the projects scheduled from 2042 to 2057.
The issue is the economic life or value of any maintenance, work, projects, etc that add value or extend the economic life beyond 2042 that are started before 2042.

Say in 2037 something breaks (or its normal economic life ends) and it can be repaired in an acceptable manner so that it will last another 5 years, until 2042 However, a better longer term cost effective solution is to replace it extending its economic life another 15 years.

The DVC owners with extended 2057 contracts will certainly favor the longer term cost effective solution. The DVC owners with original 2042 contracts will most likely be forced to pay for repairs, refurbishments and projects that extend economic value beyond 2042.

I think it will be an accounting nightmare and a lawyers paradise because one group or the other is going to get financially penalized.

 

[tjkraz]

In my mind the issue is not the projects scheduled from 2042 to 2057.
The issue is the economic life or value of any maintenance, work, projects, etc that add value or extend the economic life beyond 2042 that are started before 2042.

Say in 2037 something breaks (or its normal economic life ends) and it can be repaired in an acceptable manner so that it will last another 5 years, until 2042 However, a better longer term cost effective solution is to replace it extending its economic life another 15 years.

The DVC owners with extended 2057 contracts will certainly favor the longer term cost effective solution. The DVC owners with original 2042 contracts will most likely be forced to pay for repairs, refurbishments and projects that extend economic value beyond 2042.

I think it will be an accounting nightmare and a lawyers paradise because one group or the other is going to get financially penalized.

DVC isn't going to examine these costs at a micro level. Only the large capital improvements projects will be rated separately for the two groups of owners.

If a TV breaks in 2040, there won't be accounting performed to charge 2 years' worth of use to one group and additional years to another group. That replacement will fall under the standard annual maintenance budget billed to all owners.

It will only be the major projects like I previously mentioned which will be segregated based upon the timeframes involved.