Originally Posted by Bourne

I can comment on HCC. During the very early stages, it started off with 30% down. The average across all properties today would be closer to 45-50%.



True. There are multiple factors at play.

1. In a non-equity model, DCs do not/cannot charge a premium on membership fees without having a comprehensive portfolio of properties. A prospective member has a higher risk during early stages and would be willing to pay less. Risk vs reward. . If a club waits to collect 100% of the funds prior to buying a property, it gets caught in a Catch-22 situation. Even with promised equty ownership, BH and CR have only been able to sell 100+ and 65+ memberships. A non-equity model would probably not even sell one.


2. As the membership price increases based on a club's ability to market it successfully, a higher percentage would be put down towards down payment. That said, I assume you would have a mix of 30% down and 60% down properties as the recurring payments would only change if the mortgage is refinanced.

3. The key is to have high enough dues from the get go. A club will reach critical mass when the down payment and dues are high enough to allow dues portion to cover all costs. That is what closed ended clubs like Lusso eventually want to attain. That said, I know that even Exclusive Resorts was not in a position last year. I am not sure of their current status.



Multiple factors.

1. I'll take an example from the time I did my due diligence. A company like HCC averaged 55K per full member back in early 06. With a ratio of 8:1, they were collecting 440K per 800K property back then. To pass the net asset test, they were liable for 350K (440K * 0.8). Even with an absolute stagnant market across all club destinations, the debt to equity ratio needs to be around 45%( 350/800). As you can see, an increase in property value works in the club's favor. Again, it is an average across all properties. Mexico, North East, Midwest, North West and spots in the Rockies are up whereas South East and South West are taking a bath. It depends on a club's exposure to the affected markets.

2. That said, a club cannot limit itself to member additions and dues in today's market. All of the top 5 clubs have some form of access to private equity and/or cash in hand. You have to keep your powder dry in this market to go in for the kill. These amounts show up on the balance sheet and accounts towards money allocated for potential liability.

Originally Posted by TarheelTraveler

Bourne - So if 30-50% is the typical downpayment on the properties, what percentage of the deposit goes towards actual real estate (versus current obligations of the club like finance costs, marketing, overhead, etc.)?

I think the size of the porfolio definitely impacts the equity players. Both BH and CR have relatively small portfolios. For some, having access to 8-15 houses is enough, as it is a lot more than if they did a PRC or outright ownership, but when people are looking at the DC space, it is hard to compete with that size portfolio.

As you allude to, if you can really leverage the portfolio (i.e., buy much more expensive houses than perhaps the DC could afford from past deposits and dues), you also are more attractive to potential customers. However, my main complaint is that a lot of DC consumers don't understand the risk that this approach of the average non-equity DC entails. They want the biggest houses with the least amount of deposit, even though the business model makes no economic sense, other than to just grow fast enough to become economically viable at some point down the road. It reminds me of the wild west days of the internet bubble, when companies didn't have to work economically. Instead, you wanted to be the first and fastest growing company in that space, so you could hopefully be bought out down the road.

Do most DCs not have a minimum % of the deposit that must be used to buy real estate, instead of finance costs, salaries, etc.?