NeilGoBlue

You should be worried about most clubs...private capital is dried up, the real estate values are dropping... look at the clubs balance sheets..they don't look good.. The industry is changing...it'll weed out the players from the pretenders...clubs are coming to the conclusion that they need 300-500 for economies to work.. not 100-200.

We haven't even started talking about redemptions... with the economy in a recession, people will be resigning for personal financial reasons.. it's already started..

I'm not saying it's doom and gloom... but I think you'll see a lot of changes in the next 18 months..

Kagehitokiri

where are the values dropping on $3MM properties?

what clubs are you talking about?

3DH

No, absolutely no indication LUSSO is having any type of problems... And, from what I have heard, another location is going to announce soon!

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"Boutique" is better! Another extremely satisfied LUSSO member!

NeilGoBlue

I'm not speaking to any one club in particular...

The values might or might not be dropping,...but more important they aren't going up... and investors.. don't want to fund depreciating assets.. and when they do fund them.. the price of the funding is higher...

What I'm really speaking to is the funding of properties to get ahead of the membership curve, or to sustain operating losses..

I'm just hearing that it's more difficult to get members right now, more difficult to get funding and when you do get it, it's more expensive than it was.. and the values are going down and members resigning is on the rise..

Please don't misunderstand what I am saying...I love the DC industry, i'm a happy Bellehaven's member... but the industry started during one of the biggest real estate expansionary times... now that times have changed...I think we all would be foolish to not take into account these changes and how it affects the clubs.

just my 2cents.. I hope I'm wrong..

TarheelTraveler

There are a few clubs that leverage heavily to buy more expensive houses than the membership deposits would perhaps warrant. It used to be that it made good economic sense when you could borrow at 8 or 9%, with similar rates of appreciation. However, a lot of the financing has dried up and when it's available, it's at a higher rate, and you can no longer count on the appreciation (at least in the short term). The DC concept is so good that it is not going away. However, people need to be careful when evaluating DCs, and in IMHO, choosing more economically conserative models, and not just focusing on membership deposit of X, dues of Y and houses with a value of Z.

It will be interesting to see what happens to the membership growth of DCs. I could see it getting better, as perhaps, people choose DCs over more expensive options such as outright ownership of a vacation house, but I could also see people not spending the money any more, even though most of those who can afford it will not be as adversely impacted by the economy as those on the lower end of the economic scale, again IMHO.

3DH

OK, I'll bite! I would venture to say that anyone considering a DC would still rather join rather than trapse out on their own and purchase a multi-million dollar vacation home in one location. Even considering the economic state of the country right now, the DC concept is working, and should still continue to do so... the fact that real estate prices are not escalating at disproportionate amounts will only fuel the acquisition of new properties. This is all IMHO, of course... and I am unanimous in that!

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"Boutique" is better! Another extremely satisfied LUSSO member!

NeilGoBlue

I absolutely agree..

But I bet we see those sales decline also, if they haven't already..

Desties

Well things like the "3-in 1-out" redemption rule will keep the clubs from buckling just because redemptions trickle in or real estate asset values diminish. It may upset the members but it will keep defections in check.

Still, I think it's tough to deny that luxury real estate han't been slammed, especially since a lot of the homes purchased by clubs in recent years are in markets that rose the most then and are falling the most now.

Just one example. That new HCC house in Outer Banks sounds pretty impressive. It's just a few houses down from a Private Escape Platinum property. Even if PE property is a little bigger -- and I don't know if that's true -- Platinum is a club buying $1.5 million homes while HCC's average is $0.8 million.

I can't imagine that there is any club showing an increase in the value of its homes (I don't know if a Crescendo makes this public), beyond the overseas properties that are benefiting from the weaker dollar and the more robust overseas real estate market.

That said, this is a great time for new clubs (or old clubs with money to put to work) to start nibbling at some of the property deals that are springing up.

If PE/UR are signing up a lot of new members, they will come to the table with a lot of money to spend in a buyer's market. At the very least, the influx of fresh capital may be what sways the financing hurdles to be cleared at the end of the day.

ER Traveler

It sounds like the clubs that have some capital to work with will really benefit in the current and upcoming market. ER has developers throwing themselves at them and the club is anticipating some amazing acquisitions as a result. The trick will be to determine which developers can actually make their projects happen.

On the consumer side, I agree with 3DH that the DC concept is such a deal compared with the hassle, risk and expense of going solo with a second or third home. There could be plenty of new customers flocking to the DC clubs. I wouldn't think the average DC member has too much trouble weathering an economic downturn or recession. I would think the current economic environment represents lots of investment opportunities.

Just wondering Neil, what balance sheets have you seen?

TravelGuy

On the previous page when I said "start to worry" I was talking about Kage's statement on the luxury market (targets consumers worth more than $10MM) and not Destination Clubs as a whole. There is significant evidence that the luxury market is taking a BIG hit right now. Who do you think owned a lot of the $*** Billion in equities that evaporated in the last six months?

I do think it's becoming clear that momentum in sales is the Destination Clubs best friend AS LONG AS the club has a good base biz plan. The Destination Clubs that have sales momentum, have raised investment capital, have good cash flow (even if it's not yet positive) and have a solid biz plan should survive and thrive better than the luxury retail market.

Then again, there's the price of oil and it's effect on travel ....

NeilGoBlue

I've seen a couple, especially Bellehavens. I see how bellehavens makes money by some measures and loses money by other measures (they make money on the homes that are owned by the club, but lose money on the homes they buy in anticipation of new members. These 'anticipation' homes are held in a different entity. When I say 'make money' what I mean is they supply managment with some profit and cover all the expenses of the club). So, Bellehaven's with 100 members is at some level self supportive, but it has NO DEBT. What are the other clubs doing that have mortgage payments? Where is the breakeven point? 200 members? 500 members? I don't know.

I've also talked to various people who have seen even more balance sheets and hear that some clubs are really struggling..of course this is only heresay.. but it does come from reliable sources..

Steamboat Bill

When we decided to join a Destination Club, we originally compared it to the price of timeshares, fractionals, full ownership condos, renting via VRBO, or simply paying cash.

We never factored in a real estate slowdown or the price of oil into the equation and I am not sure it would have made any difference.

When 9-11 happened, my immediate thought was to actually increase my travel plans and those few trips to Disney and other locations were very uncrowded. It should also be noted that pre 9-11, we had very small kids and did not travel much as it was a hassle.

No matter what happens to the economy, our family is a family of travelers and explorers. Perhaps we might tone it down a little and look for better deals and then rentals via VRBO or eBay may get very attractive.

As long as Destination Clubs can offer luxurious accomidations for families at competetive prices vs cash rentals via the Internet web sites, then the industry should remain strong.

If there is a serious decrease in the price and demand of rentals....then DCs should watch out and modify their business plan.