dooijp

not 100% on how this works, but let me run this by people here and see what you think. We do know that 100% of your deposit at A&K is NOT being used to buy homes, you start in the hole some 27.5% ( i think that's the number they retain as a fee for buying homes effectively investing 72.5%) day 1. so to get your real estate appreciation, assuming members earn 60% of the upside seems to be a bit onerous (to get to 100 you need that 72.5 to jump to 117.5 (they keep 17.5 or 40% of upside)--in other words 63% rise in prices). So realistically, you are more likely to get better payback from rising membership deposits in other clubs that give you that (like quintess, lusso)--so question 1: is the upside an illusion? It would be handy to know if my logic is right here. Now, the downside is better protected, but given deposits look higher by 100K then competing dc plans at 30 day level, a large decline in real estate coupled with the initial 27.5% charge means you may not do much better in equity model. 25% decline takes your 72.5% to 54%--so you lose half your money, but put in 100K too much up front. So 390K plan is a 195 writeoff. It's not a ton better than the 30 day plan potential losses elsewhere of 100% of 260-300K membership fees. Now, can anyone tell me if this math is right? Is equity really just a marketing gimmick? Is LUSSO's secured idea any better? Also, i don't value the hotels they have at all--i went online and could book any of them any time for less than 1000 bucks a night. This means you are overpaying by 500-750 a night using a DC. Staying in hotels with anything other than <90 day plan days is a bad call.

TarheelTraveler

The 27.5% is essentially the commission to A&K, but out of that, they pay the marketing and sales costs with a reasonable return built in assuming they sell enough memberships. The rest goes into the 100% member owner corporation for the purchase of real estate. 27.5% may sound like a decent chunk (particularly without knowing what it is being used for), but most of the other DCs are much higher. It's just on the table and transparent. The dues go towards the property expenses and managing the club residences. The A&K development company sells the houses at cost to the member corporation after sourcing them. The member deposits are not being used for funding debt payments and other expenses.

The return for A&K members is based on membership deposits like Quintess and Lusso not the real estate appreciation, but presumably there should be some correlation long term. To date in the industry, the membership deposit increases have far out paced inflation and real estate appreciation. It will be interesting to see how that holds long term. I guess you've got some good potential there. I wouldn't count on it, but I guess it compares favorably to a 20-25% haircut.

The reason the membership deposits are higher is that you are buying without debt. It's definitely not because of the 27.5% which as I said is much lower than competitors if you can get that information. If you are only putting 20-50% down on a house, you can price the membership deposits lower and use more for non-real estate expenses. Short-term that's great, long-term not so much.

I agree with you personally on the hotel suites. UE and others are doing it, but in my mind, not as much value as the residences or A&K trips with respect to A&K. It would be most useful if you have some extra days to burn.

dooijp

the 27.5% is reasonable in my view --A&K is great at transparency, too which i respect. i did hear some lower numbers of deposit theft at other clubs though--more like 20%. Clubs tell you everything now--you sign an NDA and basically you get every number you want, but you can't post here about it. I don't mind the extra 100K of deposit as it's really the model in return for getting some possibility of equity appreciation. however, on the downside disaster scenario i do believe that at best you are picking up only marginal advantage vs other clubs where you might easily lose 100% of deposit. On the 400K level plan it looks like to me you are only 100K ahead in a 25% meltdown of prices and club liquidation. If prices go up, it's safe to assume no one goes out of business. see above for math and let me know if anyone disagrees.

LTTravel

I agree that there are advantages and disadvantages to the "equity" model. As I see it, the downside(loss of deposit) is more protected, but at a higher buy in price and decreased number of available homes. This should definitely not be looked as an investment or full protection of your deposit.
As for the hotel rooms, I agree that this is not necessarily a great benefit, however can come in handy. For example, if you are vacationing in Tuscany and want to spend a couple of days in Rome on your trip, it is nice to have the availability of a hotel room in Rome available to you. I would think that this is valuable only to members with many days, such as a 45 or 60 day plan when it is sometimes difficult to use all your days otherwise. Looking at the price of suites in European hotels, I have been shocked by the prices. Though this still does not make it a good buy, it may be at best an even trade.
ER has instituted the OIL (Once in a Lifetime) program. When you try to calculate the value of these trips and compare them to the benefits of getting a full home, they don't compare. But it provides variety. Remember, some members have 60 days per year for the last four years and they have been to almost all of the destinations once (even though there are 40). They may take advantage of the offers.

dooijp

I guess they must wind up with less homes as they promise 3 million value homes. so figure 495K deposit, 6 to 1 ratio, 27.5% held back by operating company you get only 2 million to buy a house (495x6x72.5%) which means to buy a 3 million home they need 9 members. To lower that wouldn't they either need to lease or give you hotel nights? If you wind up in a hotel though, that would stink. I hope they don't count hotel nights in membership ratio somehow as that would be unfair to members paying 1K a night + another 500-1000 in opportunity cost on the zero interest loan they are making. as it is the memb ratio stat seems meaningless everywhere else anyway since everyone counts em different.

TarheelTraveler

If A&K does not provide $3M+ houses, you would definitely know about it, because the financials have always listed the current appraised value of every property on an annual basis (at least that's the way it has always been in the past with CR, for example, and since it's all about transparency, I doubt that will change). To explain how you get to $3M, my understanding is that 27.5% is the max. commission. Also, the goal is to have the same or better utilization ratios as other leading clubs. The A&K trips are a big component of the ratios, the summer leased villas in Europe also have a solid impact, the hotels have a further positive impact, plus the use of homes in the development entity have additional positive impact, so you can go to 8 or 9 members, get to the 3M debt free and potentially have lower utilization ratios than other clubs. Some clubs have gotten in trouble with too high of utilization ratios and some are low which can be very expensive and bad for the club. As you've quickly realized, dooijp, the member to home ratio has become pretty much useless.

LTTravel

I agree with doijp. The only way this works is with a 9 to 1 member to home ratio, though this is not an indication of utilization or availability because of the additional A & K tours and the leased homes and hotels. But for the model to work, the cost of the A & K tours or the leased homes MUST be less than the amount of the membership dues collected for those number of days. By definition then, the value of the A & K tours and the leased homes must be less than the value of the owned homes because the owned homes have no debt but the prices of the leased homes certainly include the cost of debt calculated into the lease price.

star1000

The value of the tours or leased properties may not be equal to cost. AN A&K tour has a travel agent commission built in, as well as company profit. So if they give you 1400 a night value that may be a 1400 value to you but cost them only 1000.

TarheelTraveler

Good point, Star1000. Also, on the villa issue, because A&K is booking the villas outside of the DC bookings, they can get some very good volume deals. Additionally, I suspect that most of the villas are family owned villas without debt. From what I have seen, I would be surprised if the villas had a lower value than the other properties. I'm definitely not an expert on European real estate, but they are 4-6BR, almost all with pool, often with staff, in great locations, etc.