Morritt’s going to the market

The Morritt’s Tortuga Club and
Morritt’s Grand timeshare resort properties will be listed for sale after it
was revealed the developer owes more than US$3 million combined to the member
associations.

The decision to sell was announced
during meetings last month of the boards of directors of the companies that own
the properties.  Developer David Morritt
confirmed the properties would be listed for sale with a posting on the
resorts’ website.

This announcement came after the
two timeshare associations made an offer to buy the properties, Morritt said in
an interview.

“I was shocked when the
associations offered to buy me out,” he said. “It’s given me food for thought
now. That’s why I opened the club to the market. Perhaps I will sell; I don’t
know.”

 Morritt, who is 66, hasn’t ruled out selling
the resort to the associations, be he did say the terms of the first offer were
not satisfactory, partially because payment would be spread out over 20 years.

“I’m giving them a chance to make
the right offer,” he said.

 Morritt downplayed the significance of the
debt to the associations, explaining that there has always been a ‘due to/from
developer’ account.

 “Sometimes I owe the accounts; sometimes they
owe me,” he said. “At the moment, I owe them. It’s a normal practice.”

However, Morritt admitted that the
associations have never owed him as much as the $3.1 million he now owes them.

A statement from the boards of the
two associations posted on Morritt’s website after the board meeting said they
had “major concerns” with the financial issues relating to the due to/from
accounts.

“While
it was a common occurrence in prior years for there to be balances in these accounts,
the level of the “Due from Developer” accounts as of December 31, 2008 were of
a magnitude that required an action plan from the developer,” the statement
said.

Audited financial statements for
the year ending 31 December 2008 showed Morritt Properties Cayman Ltd. owing
US$1.83 million to the Morritt’s Tortuga Club association and a little more
than US$975,000 to the Morritt’s Grand Resort association. Those figures grew
larger during the course of this year.

Part of the money owed is for
unpaid maintenance and special assessment fees on the inventory still owned by
the developer.

 Morritt said the development company was making
weekly payments on the due to/from developer account to keep the amount owed
from getting any larger.

 

The economy blamed

 Morritt blamed the economy for the current financial
predicament.

“Sales have been off… maybe two to
three years,” he said, adding that timeshare developers everywhere were
experiencing similar sales drop offs.

“Every company is going through
stress,” he said. “We just need to bide our time until things get better.”

 Morritt said a local bank had recently refinanced
a $6.2 million loan on the resort, lowering the monthly loan payments.

Two appraisals done earlier this
year valued the properties at $32 million and $38million. 

With the economy starting to
rebound in the United States, from where most of the resort’s owners come,  Morritt said he believes an end to the financial
problems are in sight.

“I think in the next six months,
things are going to start to improve,” he said.

 

Hurricane Ivan’s role

Some owners, however, are running
out of patience.  Trouble at the resort
started five years ago because of damage caused by Hurricane Ivan. It took more
than three years to settle the insurance claim, and timeshare members were
asked to pay a special assessment to cover the deductible, something that
didn’t sit well with some of them.

Two of the seaside buildings at the
resort were damaged beyond repair by Ivan and later demolished, but only one
has been rebuilt so far.  Construction on
the other building, in which most if not all timeshare weeks had already been
sold, has not begun. However, owners in that building continue to have to pay
maintenance fees, even though it does not currently exist.

 Morritt said members who owned weeks in the
yet-to-be-built building can use units in other buildings.

“The availability is the same as
ever,” he said. “We still have weeks; it’s no problem.”

Timeshare owner Bob Harig, who owns
units at both Tortuga Club and the Grand, doesn’t see it that way, although he
agrees Morritt’s has done all they can to accommodate people.

“However, you have to understand
that this has the potential to greatly affect people’s ability to make a
reservation,” he said.

As an example, Harig said there
were only four penthouse units in the existing Seaside building, which replaced
one of the structures that was razed after Ivan.  The other demolished building that hasn’t
been rebuilt yet had five penthouse units.

During the height of the tourist
season, when the units would be in high demand, only four of the nine penthouse
owners could be accommodated, Harig explained. The ones that weren’t
accommodated would have to either use another available unit, perhaps by the
poolside instead of oceanfront, or use a penthouse another time of the year
when it was available.

 Harig made a long posting on the Morritt’s forum
on 30 July, revealing information he learned when he received copies of the
audited financial statements. In that post, he complained about the large
assessment owners of the Grand had to pay in 2008, partially for the rebuilding
after Ivan and partially for future major repairs.

“At the time, it was sold to us
under the guise that this would be a hardship on the developer because he would
be responsible for the same assessment on all his unsold weeks,” Harig wrote on
the forum. “All the while, the developer sat in our meetings to approve this
hefty assessment knowing he probably would not be able to pay it himself.”

In addition to other debts, Royal
Construction Ltd. is claiming it has been owed CI$270,000 for the past three
years.

 Morritt acknowledged the debt to Royal and its
owner, Howard Finlason.

“Of course Howard will be paid,”
Morritt said.

The resort’s value

Although the resort does have a
high value, according to the audited financial statements Morritt Properties
Cayman, Ltd. only owns 2608.5 of the total 9,672 timeshare intervals available
at Tortuga Club and the Grand.

In addition to facing a slow time
for sales due to the economy, Harig pointed out that Morritt’s faces another
sales challenge.

“The problem here is [Morritt’s] is
having to compete with the resale market, where people are selling them for
pennies on the dollar,” he said.

Depending on the week and size of
the unit, weeks can be bought for deep discounts through Cayman realtors and
even on eBay.

However, Morritt said the resort
had planning permission to build another five-storey building on the beach side
of the road, and another shopping centre and rental apartment buildings on the
inland side of the road.

“The potential of Morritt’s is
unbelievable,” he said.

 

Maintenance issues

 Morritt roundly dismissed any notion the resort
has suffered as a result of the debt owned to the association.

“My club is looking better than
ever,” he said.

A statement issued by Resort
Manager Dutch Hoffman on 29 August, supported Morritt’s claim.

“Both the Grand and Tortuga Resorts
are periodically being scored by RCI and I am pleased to advise that we are
above threshold in many of our departments,” he said, specifically pointing to
housekeeping and maintenance.

 “We have kept our Gold and
Silver Crown status, which is graded on reports received from the guests we
have visiting our piece of paradise here in Grand Cayman.”

 Hoffman said Morritt’s deals with all
maintenance and housekeeping issues as necessary and had put in place
“progressive maintenance teams” to look after the buildings on a proactive
basis over the past six months.

Not all the members, however, agree
with Morritt’s and Hoffman’s assessment.

Frank Woodruff has been a Morritt’s
owner for 10 years and owns units at Tortuga Club and Seaside. Both of his sons
also own there. Staying in one of his units last week, Woodruff said there were
several maintenance issues that needed attention. 

“The lack of funds from the
developer has prevented many required maintenance issues from being
resolved,” he said. “It has also caused a great deal of disappointment from the
owners who Morritt has always referred to as his ‘valued friends and family’.”

Patty Luca, a timeshare owner at
Tortuga since 1990, is also unsatisfied with the maintenance at the resort.

“Over the last two years or so, we
have noticed a decline in services offered at the resort and just
other maintenance issues with the building and the beach,” she said. “This
last visit [in March 2009] we found sharp objects in the sand and lots of
pebbles and stones. It was not safe to walk without beach shoes. We also
saw areas for needed repairs in the condo such as broken screens,
walls needing paint, etc.”

 Morritt acknowledged that there has been some
staff reduction at the resort, but said there were still 103 employees there.

Asked how the money owed to the
associations would be used if paid, Morritt said, “to build the building”.

 Harig strongly disagreed with that contention.

“That money is for operations,” he
said. “The fact that the developer owes $3-million put the resort’s operation
in peril.”

 Harig also believes the resort has suffered
from the association’s not having the money owed from the developer.

“They’ve had to cut corners,” he
said. “Amenities are not the same.  It’s amazing to me that we’ve made it
this long without that money.”

 

To sell or not

Although Morritt has committed to
listing the resort on the market, it is clear he is ambivalent about the
decision.

“My club is very dear to my heart,”
he said, noting that he lives at the resort. “This is my home.”

 Morritt knows that some of the owners are
unhappy with the situation, but he believes the majority of the 9,000 – 10,000
timeshare owners support what he’s trying to do.

“I have ten thousand friends who
come here and love it to death,” he said. “Every night of the week they come to
me and thank me for keeping it going after coming through a hurricane, and that
gives me great strength.

“Morritt’s has been and still is a
success story.”

 Morritt spoke about the high average occupancy
at the resort, even during the summer off-season tourism months.

A recent week this month only had
70 per cent occupancy, which Morritt said was the lowest it has ever been.

“We’ve always had between 88 and 95
per cent [occupancy],” he said. “We still bring 40,000 owners every year.”

Last year, the Cayman Islands
attracted just over 302,000 stay-over tourists.

Still, the delays in replacing the
second building demolished after Ivan and the large amount owed by the
developer to the associations has worn the patience thin for some Morritt’s
owners, who want to see the resort sold.

Luca said the owners have been more
than patient with the developer since Hurricane Ivan.

“Selling the property to someone
else is a better option,” she said. “At this point, many owners have lost their
trust and patience with David Morritt.”

 Woodruff complained about the lack of communication
from the resort’s management about the financial problems.

“We are well aware that owners cannot
be involved in all aspects of a rebuilding project, but a total lack of
communication just added more and more fuel to a simmering fire,” he
said.  “At this point in time, my personal option would be to have Morritt
sell the property and be gone. 

“I do realize that this will not be an easy task for
him to give up a place that he considers ‘his baby’, but I do feel that it
would be in the best interest of all of us for him to move on.”

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