Bright Lights Dimmed, Chetola and Tarbutton Subject of Real Estate Commission Supsensions

Bright Lights Dimmed, Chetola and Tarbutton Subject of Real Estate Commission Supsensions
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By David Rogers. February 15, 2017. BLOWING ROCK, NC – An iconic Blowing Rock real estate firm, RSK Mountain Properties (Chetola) and its broker-in-charge (Kent Tarbutton) came under regulatory fire this past week and there is at least a small “ripple effect” impact on Blowing Rock’s town finances and, possibly, the local economy.

COVER IMAGE: Chetola Resort & Spa has long been an iconic Blowing Rock vacation and business conference destination. Photographic image courtesy of visitnc.com

It is devilish irony that Chetola only recently was awarded “Gold Star” status from Resort Condominiums International – for the 25th consecutive year, according to a recent letter obtained by Blowing Rock News from Tarbutton to owners of condominiums in the Chetola rental pool.

But even the best of businesses sometimes can stumble, even if not intending to do anything wrong. The Chetola business we know is fairly complex, a microcosm of the tourism industry in several respects, including Chetola Lodge, the Bob Timberlake Inn, Timberlake’s Restaurant, a spa, outdoor recreation opportunities — and then there are the condominium sales, rentals, and timeshare businesses.

Chetola condominiums. Photographic image courtesy of chetola.com

In the February 2017 Real Estate Bulletin distributed late last week,  the North Carolina Real Estate Commission reported that Kent Tarbutton and his real estate firm RSK Mountain Resort LLC (for which Tarbutton serves as qualifying broker and broker-in-charge) have had their licenses suspended for 36 months, effective January 1, 2017. RSK Mountain Resort LLC is the operating company for Chetola Mountain Resort’s condominium sales, as well as its vacation rental company.

According to information obtained by Blowing Rock News on Friday, this “by consent” suspension means that all of Mr. Tarbutton’s Chetola-based real estate sales functions must be curbed during that 36 month period. In addition, all of the Tarbutton-supervised property management activities, such as prospective vacation rentals for the approximately 200 Chetola condominiums on the 87-acre Chetola Mountain Resort and Spa are suspended during the same period.

It begins to get complicated when the “room charge” is actually the rental of a third party-owned condominium.

Not affected are the ongoing operations of the Bob Timberlake Inn, Timberlake’s Restaurant, Chetola Lodge and the spa operations. We are seeking clarification as to whether and, if so, how the timeshare operations are affected because they involve the condominiums, but as of this writing have not obtained that information.

In a telephone interview with Janet Thoren, senior legal counsel of the North Carolina Real Estate Commission, Blowing Rock News learned that the disciplinary action against Chetola and Mr. Tarbutton did NOT result from a complaint by either the owner of a condominium being managed, nor from a customer of Chetola, but from a “spot audit” that the Commission conducted.

According to its website, the Commission conducts periodic, random spot audits of the 11,268 real estate firms, 16,218 brokers-in-charge, and 61,352 active brokers licensed in North Carolina to make sure they are following the rules and standards established both by the industry and the state to protect consumers, as well as the industry participants.

Thoren stated to Blowing Rock News that the Commission’s findings derive from a “spot inspection” in November of 2015 and its determination of deficiencies in RSK’s operations were first brought to Tarbutton’s and RSK’s attention in July 2016.  RSK and Tarbutton were given until October 2016 to bring their operations into compliance with the Commission’s rules and regulations, Thoren said, then given an extension to January 1st at the request of Chetola.

In the Real Estate Commission’s Bulletin published and distributed late last week, the regulatory agency took disciplinary action against Tarbutton and RSK Mountain Resort LLC on the basis of the following findings:

  1. “…RSK Mountain Resort changed its legal name, but failed to notify the Commission; that from 1999 to 2016, RSK Mountain Resort operated under a name other than the name on its license.”
  2. “…RSK Mountain Resort regularly deposited trust money belonging to others into its operating account.”
  3. “…RSK Mountain Resort did not enter or maintain proper agency agreements in both sales and property management transactions.”
  4. “…RSK Mountain Resort failed to provide vacation rental agreements to tenants;
  5. “…and failed to maintain its trust account records in compliance with the Real Estate License Law and Commission Rules.”

As broker-in-charge and qualifying broker, Mr. Tarbutton has the ultimate responsibility for his firm’s following the Commission’s rules and regulations. In addition to the above, he was also cited for not operating his real estate sales and property management offices from the same physical location.

In a separate telephone interview, Tarbutton explained to Blowing Rock News that their attempts to rectify the problems found by the Commission’s spot audit by investing in new software did not resolve the most serious issue, the alleged co-mingling of trust funds with operating capital, “…and we just ran out of time,” he stated.

Analysis

Editor’s Note: In response to several inquiries from readers, we are attempting to explain the situation and its circumstances, as well as the prospective impact not just on Chetola, but on the Town finances and local economy as well.

Unraveling A Mess

Both Tarbutton and the Real Estate Commission’s Thoren acknowledged that the most serious deficiency is the co-mingling of funds held in trust for third party property owners with Chetola’s operating capital.  It is important to reiterate that neither the Commission’s audit nor its findings resulted from a complaint by a condominium owner or from any other Chetola customer.

Chetola condominiums. Image courtesy of Trulia.com

Chetola Resort & Spa is neither a typical hotel nor solely a vacation rental business. On the grounds of the 87-acre campus in Blowing Rock are a hotel, restaurant, meeting rooms, spa, banquet facilities and, yes, somewhere in the neighborhood of 200 condominiums mostly, if not entirely owned by third parties.  Like a lot of housing in Blowing Rock and even elsewhere in the tourism-centric High Country, some of the Chetola condos are owned by full-time residents and others by seasonal residents, but still others are the subject of a timeshare ownership structure.

Tarbutton is the first to acknowledge the need to protect the interests of those third party condo owners…

In an interview with Mr. Tarbutton on Friday, he reported that 98 condo properties were in Chetola’s rental pool where someone else owned the unit but had contracted with his firm to manage the rental of that property.

Tarbutton is the first to acknowledge the need to protect the interests of those third party condo owners and keep trust funds separate from Chetola’s operating capital.  For his firm, the challenge is how to achieve that while making it convenient for the paying customer. Apparently, Tarbutton and Chetola chose the wrong solution from the get-go.

Most of us are familiar with the process of putting ancillary charges on our hotel room tab while travelling. Go to a restaurant and tell the waiter to “put it on my room tab.” Go to the gift shop or spa or cigar bar and do the same. Then when we check out at the end of our stay, all of the charges are on one bill, which we pay with one swipe of our Visa, MasterCard, American Express or another credit card.

In Chetola’s case, that process is complicated in that the “room charge” may actually be for a third party condominium unit. Apparently, this is where Chetola (AKA “RSK”) got into trouble.  Apparently, they were treating the third party condominium as just another hotel room instead of following the rules and regulations specified by the State of North Carolina in the Vacation Rental Act, which Thoren noted to Blowing Rock News should have been followed.

In 2016, the Blowing Rock TDA received total occupancy taxes (from all sources) of a little more than $1.05 million, a 15% increase.

Chetola has a group sales team that does a pretty good job of soliciting larger organizations, such as the Oasis Shriners or the Porsche Club, to hold special events in Blowing Rock and at Chetola. A group like the Shriners, for example, will reserve just about every room in the lodge AND in the Bob Timberlake Inn AND in the Chetola condominiums AND create some overflow for occupancy in other area lodging establishments in Blowing Rock.

Tarbutton’s and Chetola’s challenge has been how to separate the condominium charges — that the Vacation Rental Act requires to be kept in a separate trust fund for the benefit of the respective condo owners – from all of those ancillary charges that rightfully should flow through Chetola’s operating books.

We will not presume to know enough about the Chetola/RSK business or similar resort businesses to determine a best solution.  Maybe it will require keeping a completely separate set of books, perhaps even different software packages for each of the business units. Maybe the solution will be for the guests staying in condominiums to swipe their credit card twice: once for the condo stay with the money going to the trust account, and once for all of the ancillary charges. More than likely it will require some combination of solutions.

For now, Tarbutton and Chetola managers are scrambling to find that answer with hopes that rectifying the problem and bringing things in line with the Vacation Rental Act will allow them to get their licenses back sooner than in 36 months.

Impact On Town

Because Chetola is such an important piece of Blowing Rock’s economic puzzle, we have to look at the impact on the Town of Blowing for Chetola’s real estate sales and vacation rental units being unable to operate for up to three years. And of course that assumes that the firm is able to satisfy the Real Estate Commission’s identified deficiencies during that time frame for those licenses to get reinstated at all.

According to information obtained by Blowing Rock News on Monday, the Blowing Rock Tourism Development Authority (TDA) received a little more than $1.05 million in occupancy taxes from all sources during the calendar year 2016, a 15% increase over the prior year.

Vacation rentals in a tourism-based economy like Blowing Rock are big business.

Occupancy taxes are collected from all lodging establishments, including from individual home owners renting to others, whether by themselves or through agencies such as Vacation Rentals by Owners (VRBO) and AirBnB.  It’s a pretty big business in a tourism-based economy like Blowing Rock.  For lodging establishments to have paid $1.05 million in occupancy taxes to the Blowing Rock TDA, it implies that total lodging sales of more than $17 million flowed through the cash registers of hotels, motels, bed and breakfast inns, vacation rental management companies, and the web-based agencies like VRBO and AirBnB.

Mr. Tarbutton and Chetola were kind enough to provide Blowing Rock News with copies of two letters that have been sent to condominium owners explaining what has happened and detailing for them options since he and the firm are currently unable to rent their properties.  He also authorized sending us the gross revenue figures for January ($126,441), February ($133,113) and March ($112,118) of 2016.  These are the figures upon which occupancy taxes for the condominium rentals are paid to the town.

Chetola declined providing us with numbers for the full year and we were told by Mr. Ed Evans, Town Manager, and Nicole Norman, Finance Director for the Town of Blowing Rock that is is illegal for the Town to divulge that information. The only available legal source, Evans stated, is for that information to be provided by Chetola.

So in assessing the impact of Chetola and Tarbutton losing their licenses for any length of time, we are left with conjecture and reasoned speculation. It is not a perfect world, but it is a place to start in understanding what the Chetola operations mean to the Blowing Rock community and its economy.

We will break it down into three alternative scenarios, since we do not have real numbers to work with.  Any reader who thinks he or she has a clearer picture of the actual numbers can massage our calculations accordingly.

SCENARIO A. Let’s assume that Chetola was responsible for contributing one-third (33%) of the $1.05 million in occupancy taxes collected by the Blowing Rock TDA in 2016, or roughly $350,000.  Let’s further assume that the condominium rentals amount to 50% of Chetola’s total occupancy taxes, or $175,000, with the other half generated by the hotel and Bob Timberlake Inn, which are unaffected by the Real Estate Commission suspensions.

By law, the TDA uses two-thirds of the occupancy taxes received to pay for marketing and promotion of Blowing Rock as a tourist destination and pays the other one-third to the Town for the infrastructure development and maintenance that supports tourism. That means that the Town of Blowing Rock in this scenario is losing a little more than $58,000 from its budget and the TDA is losing about $116,000 from its budget.

SCENARIO B. Let’s assume that the monthly average of almost $124,000 in the first quarter of 2016 is identical to the monthly average for the rest of the year.  That implies annual condo rentals of $1.49 million. With an 6% occupancy tax, that implies that the Chetola condos would contribute $89,400 to the Blowing Rock TDA over the course of a year.  So the Town of Blowing Rock would experience a budget impact of a little under $30,000 and the TDA budget would get hit by almost $60,000.

SCENARIO C. If you think that rental volumes will actually be sigificantly greater from late spring through the summer and autumn periods so that the monthly average for the full year was double that of the actual numbers for the first quarter of 2016, then let’s assume a monthly average of $248,000. That would imply gross condo rental revenue of almost $2.98 million, generating total occupancy taxes to Blowing Rock of $178,560 — which is almost identical to the calculated results in Scenario A, so we won’t even bother.

All of these scenarios depend on reasoned speculation and assumptions for Chetola’s revenue performance.  They also assume that Mr. Tarbutton and his team are unable to craft a solution for rectifying the problem and are unable to have their licenses reinstated.

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2 Comments

    1. DavidRogers

      Sure Bill, but do know that you can go to http://www.blowingrocknews.com and see everything. I just send out the “Recent Headlines” email in case our regular readers miss going to the website a couple of days and miss a story or two. But http://www.blowingrocknews.com is updated pretty much daily with new stories, sometimes more, sometimes fewer. FYI: I have not sent out an email blast for Recent Headlines in a little over a month, so you may not have dropped off, after all, but I will check! Thanks for the inquiry. As an FYI, anyone you think might want to be on the email list, please send along thaeir email address!

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