Problem 3: Our Owner Fees

If we have an expense problem (like our outrageous insurance) we need to solve that problem and not just compensate for it by raising fees.

Nobody likes owner fees, and I’m no exception. Believe me, I probably pay more owner fees than all of you. Just today I wrote out checks for over five thousand dollars of owner fees. I don’t just pay owner fees for our seven slips at Oriental Harbor, but I also pay owner fees for slips at two other marinas. This year I’ll pay well over $20,000 in owner fees!

But owner fees (or regular assessments, as they’re called in our bylaws) are a necessity. It’s how we pay the bills at the marina. And it’s how we maintain our marina. So while I don’t like owner fees; like taxes, I’m happy to pay them so long as they are reasonable and so long as they are not wasted. But our fees at Oriental Harbor Marina are not reasonable, and they are being wasted. And that’s a problem. I’ll explain.

How can we know if our fees are “reasonable”? In business, you evaluate your expenses by comparing your expenses to what similar companies pay for the same expense. If you remember, I did that when discussing insurance. But so that you have an accurate picture, you have to compare apples with apples. You can’t compare apples and oranges.

The same is true with owner fees. Oriental Harbor has 111 slip owners to share the expenses while Pecan Grove has twice that many. Expenses might be higher at marinas that have to maintain more amenities or a restaurant. So before you can compare one marina’s fees to another’s, you have to convert them to a common metric.

Think back to your math class in school. Before you could work with different fractions you had to convert them to the same units. The same is true with owner fees. In order to compare them, you first have to convert them to a common unit, and that unit is something called “fees-to-equity”. And fees-to-equity is actually pretty easy to understand: You simply take the annual fees of a marina and divide them by the average value (or equity) of slips in that marina.

Now let’s look at our fees-to-equity. Last year our annual fees were $1,872 per slip. The average value (equity) was $15,125. Now divide the fees ($1,872) by the equity ($15,125) and you have fees-to-equity of 12.38%. Simple enough. So when fees go up and equity doesn’t, like what happened when we raised fees by 6% this year, it changes our fees-to-equity. Now our fees-to-equity are 13.09%.

Let’s look at the other major marinas in the area. All seven have similar ownership structures with privately-owned slips, and all have common areas that are maintained by their associations. Some are bigger than ours and some are smaller. Some have more amenities than others. So it is unfair to simply compare owner fees in terms of dollars.

I’m going to show you two charts. The first one is Owner Fees by Marina. The second chart is Owner Fees by Marina (using fees-to-equity). If you were to simply look at the first chart, you’d say Grace Harbor at River Dunes had the highest fees, and you’d be correct.

But when you compare their fees using fees-to-equity, you have an entirely different picture. Now let’s look at the same marinas only instead of apples to oranges, let’s look at apples to apples this time.

See what I mean? When you compare apples to apples, our fees are not just out of line, they’re way out of line. And the owner fees at River Dunes, which initially looked the highest, are actually the lowest of all! The average fees-to-equity for the other six marinas is 6.65% while ours are nearly double that amount!

Yet we continue to raise fees when we actually should be slashing them. If we have an expense problem (like our outrageous insurance) we need to solve that problem and not just compensate for it by raising fees. Our high fees are one of the two major drivers of turnover. And high turnover brings low values.

This year I’ve personally talked to well over a dozen slip owners in our marina who’ve contacted me about selling, not to mention those I’ve sought out. There are two common reasons given for selling: our hurricane evacuation policy and our high fees. Best of all, the two are related. As we bring values up by making changes, that rise in values alone will bring our fees-to-equity back in line with the norms.

We can’t just slash owner fees right now or we’ll be insolvent. I understand that. But we need to make a commitment to our owners that lower fees are coming, and coming soon. Otherwise the exodus will continue and values will continue to plummet.

Frankly, I think most of us can endure another year or two of outrageous fees if that money is used to fund our reserves. It’s certainly less painful than the alternative: a large one time assessment. But this never-ending march to the moon has to stop. It's as if we’re cutting off our arm an inch at a time! We can all endure the torture a little longer if we know it ends at our elbow and it ultimately saves our life. But make no mistake: We need a commitment that it ends. Now onto the next problem…

Go to Problem 4 >>>