The time-share portion of David Walley's Hot Springs Resort & Spa south of Genoa may close if time-share owners don't pay a $494-$939 "special assessment" designed to offset a running budget deficit, according to Walley's owner Celebrity Resorts.
In a statement released Thursday, the company said the Walley's Property Owners Association is currently facing an operating deficit of approximately $2.3 million and a reserve deficit of approximately $2.1 million.
"Bad debt for 2009 was 13 percent and is anticipated to rise to 25 percent in 2010," the company said. "The monies collected thus far from the 2010 maintenance and tax assessments, which were due and payable Jan. 1, 2010, have been used to pay the obligations of the association.
"Unfortunately, if the special assessment does not pass, the resort will be forced to close unless another source of funds can be used to sustain ongoing operations. Celebrity Resorts obviously desires to avoid this outcome, and the special assessment will enable the association to continue operations and move forward with a more positive financial outlook," the company said.
Gary Grottke, treasurer of the Walley's Property Owners Association and president of Quintus Resorts, put the percentage of unpaid dues much higher. He said as many as 40 percent of David Walley's Hot Springs Resort & Spa's 6,600 time-share owners have not paid their dues for 2010.
"It is true that the level of nonpayment of dues has risen dramatically in the last three years," Grottke said Tuesday. "It's an industry-wide problem. I can't tell if our dues collection is better or worse than the industry."
Grottke said Florida-based Celebrity Resorts, which bought most of Walley's real estate and management contract in 2008, held a meeting on Sunday to discuss the special assessment that owners are being asked to pay, on top of their annual dues. He said about 400 people showed up.
"There has been a high level of frustration among the board on the timing of the whole thing," Grottke said. "At the same time, the board recognizes that we are short of cash, and that a certain amount of cash is needed to keep us going. The board thinks a better job could have been done in communicating and explaining the need, and starting earlier to explain the potential problems."
Grottke said he has a fiduciary responsibility to the owners association as a board member, but also a vested interest in seeing the resort succeed, as Quintus still owns more than 500 time-share weeks.
"The board is committed to finding a way to keep the resort open and operating, even if at a reduced level, until we can get the financial situation straightened out," he said.
Grottke said because there were not enough proxy votes on Sunday to meet quorum requirements, a new meeting on the special assessment was scheduled for Saturday.
"Ultimately, it's an ownership vote," Grottke said. "If the vote comes back 'no,' we need to exhaust every single option. We can increase the effort to collect that money, cut expenses, whatever allows us to continue operations and to get people the vacations they paid for."
Celebrity Resorts said when they began managing David Walley's in late 2008, a significant deficit already existed totaling approximately $2.27 million in operating expenses alone.
"Through Celebrity Resort's management efforts, the rate of the annual deficit accumulation drastically decreased to only about $100,000 additional deficit throughout 2009," the company said. "For 2010, Celebrity Resorts expects no deficit. The Walley's Property Owners Association only survived 2009 by using loans from Celebrity Resorts, which Celebrity Resorts had no obligation to extend, as well as borrowing from its own reserves and by using 2010 assessments to cover 2009 expenses. Celebrity Resorts chose to do so because it has a long-term commitment to the property. However, Celebrity Resorts cannot continue to loan money to an association that annually operates at a deficit, especially given the current state of the credit markets."
Association President Marlena Forst, of Nipomo, Calif., agreed with Grottke that there was not enough communication between Celebrity and the time-share owners.
"We, as a board, haven't been given enough information," she said.
Forst said that unfortunately, in her experience with time-shares, owners usually have to compensate for "bad debt."
"If they gave us more information, if we understood a little more, we may see the assessment is necessary, though the amount they're proposing may not be," she said. "Yes, sure there is bad debt, but there's bad debt with every time-share. It's whether we are at the point of shortage where the owners have to make up the difference or there is something else we can do."
Forst said the board is looking at other options and has scaled back the special assessment costs closer to $500.
"It's a bad situation, and we hope it gets resolved on Saturday," she said.
Minden resident Karen Davis, part-owner since 2007, said she felt like she was being punished for being responsible and paying her dues.
"The annual assessment has been going up quite dramatically," she said. "Every year, it helps pay for the upkeep of the facility."
But now, Davis said, the owners are being asked to save the property.
"Those of us who did pay ended up getting another bill," she said. "Now, they're saying there is no money left, and they'll have to close the time-share portion of the facility."
In response to charges of insufficient information, Celebrity Resorts said they "alerted the owners association to the need for a special assessment at the January board meeting, put together various alternative financial scenarios for the board's review and then, following the obligations under the governing documents of the association and after obtaining board approval, noticed a special meeting of members."
"Unfortunately a small contingency of interested parties, who may not share the interests of the entire association or the management company, have begun to spread misinformation and are attempting to derail the special assessment process," the company said.
In April 2009, Douglas County commissioners approved modification of the resort's special use permit, allowing another 190 time-share units to be built on the historic property south of Genoa.
The resort's original permit, issued in 1997, allowed for 150 timeshares. Since then, 112 have been built on the east side of Foothill Road. New plans are for 12 more units on the east side and 216 new units on the west side of Foothill Road for a grand total of 340 timeshares.
Commissioners also approved up to $90,000 in redevelopment money for an underground tunnel beneath Foothill Road to connect both sides of the resort.
