Case Study:

Sea Pines Villa: Are They Ready For The Big One?

INTRODUGTIUH Sea l'ines 1v"illa(.'-il"v'] manages and rents 42 vacation villas on a barrier island near South Carolina. The island is a celebrated higherend tourist destination, and business has thrived. From April through ()ctober, i-ll'lvr books rentals \"boutique\" style, with guests renting from three nights to three weeks. From midNovember through March, the bulk of rental activity is for monme oocupancies. I-' or the last ve years, SIM!r has enjoyed almost no vacancies except for scheduled deep cleanings, remodels, owner occupancies, and the like. 1WILLA RENTALS Guests can book villa rentals by calling SP'v' directly, using SI'V's website, or by going through one of several travel reservation we hsites where f-il'lrr properties are listed. Consistent with industry practice, 3px! collects rental monies before the stay. While a small numher of guests still prefer to write a check, most pay by credit card. Regardless of the method of payment, all of the money collected is immediater deposited into an escrow account and can not he released (by law) to either SPV or the villa own er until after the guest has departed. 'lh ensure compliance with all the local and state regulations, {Lily'sIr has had a longtime practice of releasing money from escrow once a month. The rental money is held in escrow until the fth of the month after the guest departs. F or example, a rental for September 25 through October} is not released until November 5. 1While such a lengthy lag is very conservative, SP'v' is committed to maintaining this schedule. Other similar businesses have found themselves in disputes with owners andr'or guests over the rental company taking early possession of money, premature distribution to owners, and other inappropriate disbursements of escrowed rental monies. SP'v' has a reputation for both honesty and transparency, and company management believes their sucoess is due, at least in part, to their diligent separation of funds and ensuring all parties are satised before disbursement. SP'V eams revenues from villa rentals via several different streams. First, guests pay resort fees that cover gate passes to enter the resort, passes to health clubs and swimming pods, and other desirable guest amenities like bicycles and outdoor grills. The amount of the resort fee depends on what amenities the guest wants included with his or her stay and how many cars he or she wlmld like to have while staying at the villa. lGuests also pay a reservation fee. The amount of the reservation fee varies with the sine of the villa (n um be: of bedrooms and bathrooms). Resort fees, reservation fees, and state and local (mupancy taxes are collected with the rental monies and deposited into the escrow accou nt. None of the money is received by til\".-r until the monthly release following the guest's departure. slrv also earns nders fees equal to 20% of each rental amount (before tax, resort fees, and reservation fees]. The amount of the nders fees depends on the rental amount, which varies with the size and location of the villa, the duration of the stay, and the time of year of the stay. The owners are responsible for paying the nders fees, and spy! receives this money out of the owners' distributions when the rental monies are released from esCrow. rst has several different costs associated with villa rentals. Prior to each guest arrival, the villa is professionally cleaned and restocked with fresh linens. The cleaning company invoices on the date of service and is paid on the same day. Before each rental, the villa is also restocked with various consumable items like facial tissues, paper toweling, coffee lters, trash bags, and the like. Upon arrival, each guest also nds a \"welcome package\" in the main living area containing samples of local foods and beverages, pass information for pools, directions to the beach, rules about interacting with wildlife, and information about the island, resort, and the specic villa he or she is renting. 'l'he supplies for the villas and welcome packages are generally purchased as needed throughout each month. .'illl'lvr also provides a resort gate pass for each guest vehicle. The resort invoices for the gate passes once a month for the gate passes ordered the previous month. SP'v' also pays one monthly at fee for all its guests to have access to a health club and gym. l-'inally, E-il'lvr pays various nancial fees for credit card processing, internet payment processing, and payment processing through the various travel websites. All of these fees are due once a month and are based on the amount of paymean processed. Generally, guests pay a deposit when they make the initial reservation and then pay the remainder of the rental sometime during the month preceding their stay. Hence, nancial fees payments are highly correlated with the following month's total rental receipts (rental amounts plus resort fees and reservation fees}.