Friend of Sandman

I'm a new poster to the board, however, I have enjoyed living through the experiences of many of the members on the board vicariously for about 3 months now. I decided to take a moment and share my thoughts on what attracted me to DC's, and why my wife and I joined DHH in particular.

To put things in perspective, my wife and I are in our mid 30's, no children yet, and enjoy traveling as we currently reside on a 22sq mile island (Bermuda) and find that it feels less confining when you know that you have a spectacular trip planned in the near future!

A couple of years ago, we had a life changing event which caused us both to reflect on the present rather than "holding-off" creating luxurious travel experiences. Since then, we've decided to take trips that would create memories, not only for ourselves, but for our older parents as well. I would characterize ourselves in general as "sensible" when trying to find great travel hotels at excellent rates. Upon our first trip to Italy with the extended family, I not only found this to be very challenging (parties of 6 are not the same as managing for 3 parties of 2 - it feels like your herding cats) but also much more expensive than anticipated (2 rental cars instead of 1, 2 taxi's etc., bottled water, snacks, groceries....who wants pasta vs pizza - you get the point).

Nonetheless, the first trip to Italy, was so memorable for us (seeing Italy through my parent's eyes - as they're 2nd generation and never had been), that my wife and I decided this was money very well spent. We followed suit the second year where we stayed at a good friends fractional owned house at Glen Eagles in Scotland. The home was perfect, high end amenities, high attention concierge, overall a good value when you look at renting a house instead of 3 very nice hotel rooms. Yet, I was still irked that the large van rental was 2x the cost of a station wagon - (wagon only holds 5 people and enough room for luggage for about 4 people - so you have to go with a van to be comfortable). The best rate I achieved on this was about $1,200, but if I hadn't lucked out with an Internet special, we were destined to spend $2K just on the rental van!

The experience with the fractional, lead me to look for similar fractionals in Italy. I love to travel everywhere - but I'm stuck on Italy - I could go back there 4x a year. My wife certainly keeps me from doing this as she wants to complete seeing the world. Any case, found a few fractionals in Italy - and they were spectacular. Yet, I'm not at the point in life I desire to plunk down EUR400K-EUR600K plus EUR20K in dues per annum for 6 weeks at the same place. Yes, it would be an investment - but fractional resale haven't proven themselves in the real estate market as of yet. (I own several rental properties and love real estate - but just couldn't justify the investment). Then I hit upon Distinctive Holiday Home's Italy compound via a search hit on the Internet...the beginning of my new passion - destination clubs!

After reviewing the 20+ DC clubs extensively, as well as looking into equity clubs and fractionals - - DHH offered the perfect solution to our specific "large group 1-2 week per year" travel needs. My wife and I wish to at least travel 1 week per year with the extended family. For the cost of basically 3 hotel rooms (@$400/per night), we get places to stay that are far more impressive and comfortable than a small room to sleep and relax and unwind with a tiny bathroom. Plus hotel rooms don't cater well to socializing comfortably with larger groups of people.

The huge additional benefit about DHH - which really made me happy - was the use of high-end transport that would be amply comfortable for everyone to travel around. At the end of the day, the dollars and sense were clearly in our favor to join. Prior to DHH, we were basically paying $400/night for 3 rooms x 7 nights = $8,400, plus $1,200 for the vehicle for the week. This equates to $9,600 or $1,371 per night. If we were to take the cost of DHH per night, taking into account the non-refundable portion of the deposit and the opportunity cost of capital (using DC4M's terrific per-night spreadsheet), DHH costs approx $1,416/night. If you were to remove the $500 per week food allowance from the cost of the dues, (not counting the free spirits, soda, beer and water stocked in each location), that would bring it down to $1,345 / night which is the best comparable basis (4% opportunity cost of capital, 10 year duration membership)

Now, the economics certainly work, and then on top of it, this is scalable for many of their locations to 10/14 people - with little incremental cost. Plus, you have so much free room to relax and enjoy - for instance the 6 bedroom, 7,000 sq. foot ski home in Beaver Creek, the a 14 person compound in Italy with private pool, brick-oven pizza, (eventually a place in Bordeaux, France), Hawaii, Australia, etc. The experience they offer is simply apples and oranges as compared to staying in a hotel or going through the hassle of leasing a place. Speaking of leasing a place - from my experience in finding a villa in Italy - unless you live there, or have someone who's done the homework to find a perfect place for you - it's a real true gamble. You'd hate to waste a year's memorable holiday because the villa in the foreign country turned out to be no-so-great and/or in a less appealing location.

The great things about the DC's are that they will only buy places in hot locations where people around the globe have pointed to and said "that's perfect - I want to be there." DC's have the perfect litmus test built in - if a location isn't getting traffic - it's no longer hot and they will sell and buy a place people want to be. It's a perfect check and balance for all of us using the club - because you can get a really good feel for the places based on member comments and watching the booking activity.

So, specifically to DHH's credit - what we really liked about them (other than the great properties so far), is the apparent low debt ratio. (I say apparent, as we are the 51st membership, and since joining May 12th, we are still waiting for their auditors to sign-off on their independent audit and provide a comfort letter - our membership is predicated on our approval of this statement and I have been assured by Robert Good that this will be forthcoming soon.) Low debt ratio (target of 50% or less), and a target of approx. 30 member weeks/property without leases, I think is a favorable combination for access and security (please always do your own financial analysis and only use money for the clubs that you otherwise do not need to rely upon).

The one drawback to DHH, is that I would appreciate if the member deposit return (which I hope not to exercise during my lifetime), to be based on 80% of "then market value" which unfortunately is not - but I've come to terms with this in the per-night pricing analysis.

Also, with the EUR/USD of 1.60/1.00 during interday trading yesterday, I think of DHH as a "hedge" for my future travel outside the US to Europe (and with a similar value proposition to other territories around the world). We were crushed with the exchange rate in Scotland this year, and as Buffet has predicted, this will continue to get worse for several years. By not expending USD on hotel rooms nor the car, that insulates us considerably. I know the annual dues go towards the property taxes etc. - but the major expense in hotels etc - is the facilities and the staff themselves. DHH, I imagine is either simply putting 50% or more equity down on each property and locking in a loan for the next 15-30 years (I would expect). Therefore, a bulk of our travel expense (other than airfare and food) is hedged to an extent.

I have to say that I haven't tested the properties of DHH out as of yet. So I have gone out on a limb to say everything above - but in my dealings with the Robert and Rebecca at DHH (and secondary interaction with the CEO, Nick Wood), I genuinely receive the feeling that the organization is run well and will be sticking to the important tenants of what makes people want to join and happily stay in a club. In reviewing the properties and hearing the member comments about the locations etc. - I am certain that our future experiences are going to be spectacular.

I decided to write this post - in order to give back to this community. I think this community helps keep the entire DC industry informed and on top of issues for it's members and prospective members. I am hopeful that others who are on the fence about joining a DC or DHH specifically, read this and are benefitted by it. I also welcome any questions regarding my basis of opinion on DHH vs other clubs, or any other related questions for that matter.

Regards


Friend of Sandman

Kagehitokiri

welcome to the forum Friend of Sandman.

fantastic post, i hope you stick around. :thumbsup:

what are your thoughts on the way DHH basically allows you to resell your membership in the future?

DC4MS

Thank you very much for your informative post and I look forward to any reviews of DHH properties you visit.

* edit - some posts from this thread moved to > Bermuda homes *

Friend of Sandman

Thank you Kagehitokiri. I'm glad you raised the point about ability of the member to sell their membership to a third party, rather than returning it for the 20% contractual hair-cut to DHH.

I do think that this private party sale option is nice to have - currently DHH charges $5K to facilitate this transfer (in conjunction with DHH approval of the new member). I would say that DHH is one of the few DCs that I am aware of which allow this to take place (other than equity interest based DCs).

The up side I believe was previously articulated by Nick Wood on one of the boards, where he inferred that "New Member" should be motivated to potentially cover "Old Member's" deposit reduction (the 20% non-refundable portion) to purchase the membership - especially if DHH's current deposit requirements have risen from Old Member's original point of entry into DHH. The other benefit of this is that DHH allows you to bypass any waitlist there may be to exit the club.

So, I do think that it is an appealing option to have..... yet finding someone you know to buy you out when you need to get out, would be the challenge.

Perhaps in the future this forum could have a "buy/sell" section to introduce parties to be able to exchange ownership! The parties could be charged a modest fee by the forum to help DC4MS offset the costs of hosting this site! If this resource were available, then I would put much more value on the option granted than I currently do.

Friend of Sandman

I was please to receive a call this evening from Mr. Robert Good, who was reaching out to DHH Club members with the news of the comfort letter from the accountants (Feitelberg & Company, of Los Angeles, CA) DHH contracted with to review the membership deposit coverage ratio. Mr. Good followed up our call with a copy of the said letter by e-mail.

While the review was based on the Consolidated Balance Sheet and Income Statement provided by DHH to Feitelberg & Co (the BS and IS did not involve verification by the accountants, only an opinion rendered based on the information provided), it certainly is a valuable disclosure by the Club.

I am even more pleased to indicate that DHH's Net Book Value Asset coverage ratio is 11.3467 times more than refundable Membership Deposits for the period ending December 31, 2007. This compares quite favorably to the overall DC industry.

This is certainly an appealing aspect to DHH's business model. I continue to be impressed with their focus on financial conservatism to date.

Regards,

__________________
Friend of Sandman

ChicagoMark

Please clarify that number-You're saying that their equity in the club is 11X the amount of refundable member deposits? That's an off the charts amount of money. If they have 250 members each having posted $500K, and thus $400K per member of refundable deposits or a total of $100,000,000, they would need to have over $1.1 Billion dollars to have the 11X ratio you wrote of-you sure you don't mean 1.13X?? That's a number that I would believe......

Kagehitokiri

DHH has $25MM, like quintess has $210MM.

Friend of Sandman

Yes, supposedly the founder Nick Wood and his original equity investors plucked down $25M to start the fund. They then bought properties and began securing memberships. I think they still have around 55 members, all with either founding membership deposit levels, or at current level.

If you were to estimate that the first 50 members each have 2 weeks at what I recall the original membership deposit rate of $25K/week, and the last 5 have 2 weeks at the current $59K deposit/week then the math works as follows:

Original equity investment:
$25M
plus
50 members x $25K x 2 weeks = $2.5M
plus
5 members x $59K x 2 weeks = $0.59M

Totals: $28.09M divided by 80% of refundable membership deposits ($2.472M) = 11.4

This is simply an example for illustrative purposes. Please keep in mind, that by design, this ratio will continue to reduce as members join and as long as there aren't any additional equity investments from the founders.

That's one of the key reasons I feel more secure putting my membership deposits with this club at this juncture in time. Does this help?

Regards,

__________________
Friend of Sandman

Friend of Sandman

As an update to my earlier posting, due to original pricing that did not take into account appropriate budgeting for exchange rate fluctuations, appropriate usage level of certain properties, or appropriate up-keep for larger properties, DHH is now increasing the number of days required for 4 of their 12 properties/boats:

- 86' motor yacht is now 14 days for 1 week (from 8 days for a 1 week use)
- The 53' sail boat is now 7 days for a 1 week use (from 4 days)
- Italy property is now 8 days for a 1 week use (from 7 days)
- Beaver Creek is now 8 days for a 1 week use (from 7 days)

DHH is also decreasing the number of days for the Auckland property to 5 days for 1 week (from 7 days).

Please keep in mind that DHH does not consider increase in days required to use a location as a cost increase. Cost increases for annual dues are outside of increases in days required to use properties and can still occur.

While I understand their need to charge appropriately for each of the locations to remain fiscally sound, I think these changes came as a surprise to many of the members. I joined a few months ago, and none of these changes were mentioned ahead of time that they were even possible.

The Club has indicated that these types of changes should not occur going forward (I trust this means that they will hedge appropriately for foreign properties, and budget more appropriately for usage expenses. I'm sure a representative will articulate their prospective action plan in future posts)

__________________
Friend of Sandman

DC4MS

I think the cost increase for the 86' motor yacht and 53' sailboat are reasonable when you consider the HIGH cost to operate these properties. Even so, spending $11,900 (annual dues for a standard 14 night plan) is still a good value to use the 86' yacht for one week as compared to yacht chartering.

However, I find it a little strange to charge 8 days usage for Italy and Beaver Creek for a 7 night stay as this will create orphan nights somewhere. If you are a 7, 14, 21, 28, etc member, where does the extra night come from?

It will probably come from the extra night fee of $950.

I wonder if you can stay for only 6 nights and the fee would be 7 nights usage, but then there is no huge advantage to DHH as it will mean that the property is unused for one night during a popular time.

Also, any INCREASE in days required to use a location is definitely a cost INCREASE to the members and I don't think there is an easy way to state that other than that.

caribbeansun

Memories of Starwood's annual revision/devaluing of points via changes to their hotel categories. Oh there's no additional cost but we did move a whole bunch of those cat 5 to cat 6 so it takes more points to stay but it's to reflect the additional demand for those locations...

"changes came as a surprise to many of the members"
"changes that should not occur going forward"

As a general comment (not specifically about DHH) it's unfortunate that one has to be a lawyer in order to determine if there are any clauses that clubs can exploit to alter the substance of what a member agreed to. Even then, as with many contracts, there's always room for interpretation. I does make one wonder if other clubs might follow this specific example.

Kagehitokiri

DHH started with a pseudo point system, they didnt just add it. now onekey did just convert to a DHH-style system.. i dont know whether current cardholders were grandfathered or not.

DHH's original 3 nights per week for smaller yacht was a ridiculously good offer.

i would assume the idea is over time they will have more properties that are >7/wk and <7/wk, so that it equals out in terms of "orphan nights."

LTTravel

The explanations given were:

1. The cost to run the 86' yacht was almost $20,000 per week (just in expen ses) and they were subsidizing the cost. A tremendous cost, especially for those members paying an average of $5450 or less per week.
2. If you book one week at a destination that requires 8 days and you don't have the extra days available, they will charge you your extra day fee, which now varies from $320 to $950 per night, depending on your membership contract.
3. You may book less that seven days. The current wording of the contract is that you have one advanced reservation token for every seven days of your contract. If you book less than seven days, the remainder of the days become space available days. So if you book a destination for 5 days, two days become space available days. But I don't know what happens if you book a destination for 6 days which requires 8 days. It is not clear. I am also not sure what happens if you book a destination which requires less than 7 days per week for less than seven days (NYC will require 4 days for 7. What happens if you only book 4 days?)
4. If the costs to run a property exceed the operational costs, the DC has a few options. They may either 1.Eliminate the property 2. Sell the property and get a cheaper property 3. Add a daily surcharge to the property (As ER has done with The World. Initially $0 extra per day, then $300 extra per day and now $450 extra per day) or 4. Require extra days for the bookings. Unfortunately none of these are great options. I guess DHH has chosen option 4. If contractually it is contested, then they do have the right to at least two of the other options for certain (1 and 2) and probably 3.
DHH still remains very cheap compared to the other options. I do agree that they are still having some growing pains and require operational adjustments. Even the newer plans still include $500 in food per week, daily maid, laundry and breakfast service, one to two vehicles or boats. For example the Tuscany property has a BMW X5 and a Mini-Van. An X5 would cost you at least $1000 per week to rent alone. The Beaver Creek home has and X5 and a Dodge SUV. In winter, they would cost you at least $500-$600 per week each. The Auckland property includes and Audi Q7 and a 22 ft motor boat and they only charge 5 nights for use of 7.
I am not justifying their increases as they will impact on me. But I can't complain too much. Their availability is still great. I would like to see them continue to grow as they just opened the home in Hawaii (which has a X5 and a Mustang convertible) They are opening NYC soon and are looking for a boat in Miami and home in the carribean now. I am deciding whether or not to upgrade now for additional weeks.

Friend of Sandman