travelenthusiast

So ... I hear most of you thinking that the jury is still out on this new club. From what has been put into writing (press releases, etc.) it sounds intriguing to me. I don't see the down side. What are your thoughts??

Bourne

It is intriguing because an Equity based club technically has more perceived protection of deposit.

The biggest downside is growth. Given the model, it will always remain a fringe player.

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DC4MS

What makes you think that A&KRC will only be a "fringe player" when it appears that they have a huge company behind them.

Kagehitokiri

Bourne was referring to the debt free model..

TarheelTraveler

An equity based club has more perceived and actual protection of the deposit, particularly the Bellehavens/A&K model (as compared to the Crescendo/Equity Estates model). The real estate is not owned by the management or DC investors, but instead is owned solely by the members. Therefore, the risk to the deposit is really only a real estate risk, that the portofolio of homes depreciates over a long period of time. A non-equity club's membership deposits also have substantial management risk that people don't typically recognize. If the club continues to grow, a member is fine, as the new membership deposits fund the debt on the portfolio and operating expenses. If an equity club stalls, you liquidate the portfolio. There is no debt, investors to pay off, management to pay off, etc., so you are first in line. If a non-equity club stalls, you are in the line of creditors (and definitely not the first in line).

Yes, the A&K model is debt free, meaning you've got to either put more money in or have less expensive homes, but the economics are transparent, understandable and much less risky. If a member wants debt, let them incur the debt individually when they buy the membership, when it's often tax deductible, it's almost always at a much lower rate and the member is in total control of the amount of debt incurred rather than the managment. I think that the more that people look into DCs and the economics (I know I've learned a lot since I first joined a DC), the more people will demand ownership and more conservative economic models, particularly if we have another bust in the industry which many are predicting.

Bourne

Apologize for making a cryptic statement in the middle of the night. Let me explain my statement in detail...

Intriguing - because it is a boutique model different from the mainstream non-equity DCs. Who does not want more protection for their money especially when the numbers are in lower to mid six figures.

perceived protection of deposit - This is going to take a bit of explaining. The assumptions are based on how Bellhavens was structured as this is the model A&K is following going forward. Here is an example...
=> Take a 2 Mil Home on the market.
=> A&K collects 20 x 100,000 in deposits and buys a home.
=> Prior to adding the home to the portfolio for usage, the management takes a 15% fees.( Bellhavens model )
=> For a 2 mil home, the club spends 50 -100K(5%) in upfront cost to make the property adhere to club's quality standards.
=> A&K add the home to the portfolio and transfers the deed/risk over to a member trust.
=> The dues structure is high enough to cover all ongoing expenses including payroll, furnishing, upkeep, etc...
=> Given that enough members join, A&K adds three to four more properties to the portfolio and increases the buy in price.

Now my answers to Tarheel's comments. I am resuing his comments as it very lucidly points out the salient features of an equity club from a member's perspective. Do not consider it as a rebuttal...

A 2 Mil home enters the club with 1.6 Mil in equity. Or to put it another way, $2.4 Mil is required to to buy a 2 Mil home. 15% management fees and 5% initial upgrade/furnishings etc. Bottomline is, which ever way you slice or dice it, the members own a property that is 20% lower than their deposits.

That is true. Keeping the 20% shave off aside, the risk to deposit is only a real estate risk.

Again, that is true.

True. However, all things remaining static, the member stands to lose 20% of their deposit. The saving grace is that you are first in line to get it.

That statement is not true. The DC market growth in different segments answers that. A typical DC owner is moving away from hassles of ownersip(second home) towards a club structure with more properties to choose from. Regarding conservative model, there are actually looking for a robust and stable model. That is the primary reason Exclusive Resorts has runaway growth.

The biggest downside is growth.

Its the chicken and egg situation. Members will not come if a portfolio of homes does not exist. Portfolio of homes cannot exist if members do not join.

Given the model, it will always remain a fringe player.

There is room for all flavors of DCs. However, given the model A&K will remain a fringe player. A&K might use its money to add more homes into the club to build up a portfolio in advance like BellHavens tried, but then, you are moving away from the core principle of an equity based DC. The homes are not owned by the members and A&K will be paid first before the members see the money.

My biggest concern

Do not increase the buy in price with a rule that existing members get x% of then current prices as in Bellhavens case for an equity based model. In the example provided earlier, the club adds four homes and increases the membership cost by 10%. You now have a case where the management has promised to pay $2.2 Mil on a property that has 1.6 mil in equity. i.e. 30% in the hole.

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NeilGoBlue

Bourne,

Let me clear up an inaccuracy...You are correct about the Bellehaven's model. However the AK model doesn't EXACTLY follow the Bellehaven's model.

1) AK does not add in a fee to the cost of the home when it puts it in the club. (bellehaven's did). Bellhaven's gave you, in theory, 100% of the upside but 'charged' you for putting the homes in the portfolio. AK does not add any fee into the property when it is moved from the developmental company to the club (there are some soft costs, closing costs and holding costs, but no 'fee' or 'profit'. But, AK only gives you 60% of the upside. (unlike 100% for Bellehavens)

You are probably accurate in some of your assertions currently, but you might not be thinking long term. AK firmly believes that once it hits critical mass, and has stability and credibility... all other things being equal, people will choose an equity club. They might not choose that right now vs exclusive resorts, but they will in the future. I happen to agree with both Tarheel's and your statments.. both are accurate for different time frames... Bournes is applicable now, because it is a botique club... but 24 months from now if it has 500 members and growing it should be able to 'beat' exclusive resorts.

Now, management will have to fund some properties ahead of time and they plan on doing that. I think they will grow much quicker than most people give them credit for. Don't underestimate the power of being able to tap into the Intrawest network, the AK network and the Fortress network to sell memberships. No other club has the AK 'mailing lists' let alone the other ones.

vineyarder

I'm not sure why you would say this; from what I have read, everyone is extremely positive towards this new club... the ONLY concern I have observed is the potential for concern regards the name/prior affiliation with Tanner & Haley...

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Kagehitokiri

intrawest has some reasonable developments dont they? the club would really make out if they added $3MM value properties.

NeilGoBlue

You will see AK do that.. give it a few more months.. they are very clear, they are not going to add properties from AK or Intrawest, just for the sake of adding properties.. They have to meeet the standards of the club..

Bourne

IMHO, in light of the new info, the current plan is more sound than Bellhavens.

Members get 100% equity in the short term with no risk but give up unlimited gains. A&K on the other hand carries the risk in the short term to eventually have unlimited gains over 60% appreciation.

__________________
The Nile is a river in Egypt......

Kagehitokiri

A&K is already adding some rental villas. i was just saying if intrawest has existing/new higher end developments, they could do even better than ER in terms of adding high value properties for a much lower "acquisition" cost. so thats another competitive factor IMHO.

NeilGoBlue

Excellent point.. hadn't thought of that..

TravelGuy

Agreed. I'll give the new club the benefit of the doubt, but if this was their first business decision .......

TravelGuy

Regarding "Equity" vs. Non-"Equity" Destination Clubs - I believe this breaks down into four schools of thought:

1) Those members who wish to pay substantially more in membership deposits and annual fees in order to have less risk to their deposit.

2) Those members who wish to pay substantially more in membership deposits and annual fees in order to participate in part of the appreciation/depreciation of the clubs properties after club costs and management fees.

3) Those members who wish to pay substantially less in membership deposits and annual fees because they are comfortable with the risk associated with their DC and it's business model.

4) Those members who wish to pay substantially less in membership deposits and annual fees because they only want access to the properties and services their DC provides and they believe that they can make better returns on the saved capital in other investments.


Many members have a combination of thoughts on this. I personally am a believer in #3 and #4 and, accordingly, am not concerned with participation in the equity model. This would justify my decision to join High Country Club and my current thought to exclude an "Equity" DC from consideration for a second DC membership.

Remember that these are just MY thoughts on the "Equity" model. As in all investments, there tend to be many opinions and passions.

DestiFan

Uh oh....I agree with TG. I prefer 3 and 4, but COMPLETELY understand someone who wishes to have more security.

The one think nobody is talking about on equity level is depreciation of housing. We easily could be on a 3-4 year stretch of minimal, if any, of significant housing appreciation. Now, I do not worry about A&K on this, as Fortress has the bankroll to be ok with that, but it is a real risk. Remember, from 1965-1908 the stock market did nothing. Housing may be a bit like that over the next decade, especially in certain markets...

That being said, many DCs have little financial plan if memberships do not grow quickly - which I have heard from others before on here. Equit protects you on this. I believe that post-2008 year-end, we will have a shakeout - ER, A&K, UE, HCC, Lusso and Quintess will be fine...I do think the fringe clubs - Markers, Portofino, etc. will be looking for a "white knight". If UE was smart, they will have negotiated that credit agreement preparing for this.