DC4MS

DestinationClubForums.com Interviews Portofino CEO – April 3, 2008

I woke up this morning in a bad mood after dreaming that the Destination Club industry is possibly facing another club melt-down “a la” Tanner & Haley all over again. So I decided to pick up the phone and call Portofino Destination Club myself to see what the heck is going on with their club.

Background story - The problems with Portofino were first reported by SherpaReport on March 27th and then Halogen Guides reported that their 800 number (it is actually a toll-free 877 number) was disconnected on April 2nd. Our own DestinationClubForums.com member “Desties” was the first to report that their non-toll free phone number was still working on April 2nd.

I personally called Portofino Destination Club on their non-toll free number at about 12:15 pm EST on April 3rd and much to my amazement, after pressed button #1, Ron Tapp, the CEO picked up the phone and politely said hello. I am not sure if I caught him off guard or not, but I introduced myself as the owner of DestinationClubForums.com and I wanted to ask him a few questions about his club.

I quickly grabbed a pen and sheet of paper as it has been a very long time since I had to interview anyone and I did not have the benefit of a tape recorder. Readers should be aware that I had several photojournalism scholarships and published many photos and articles in major magazines and newspapers, but that was my during college days.

Ron he was very responsive to my on-the-spot questions and politely spent well over 30 minutes discussing the situation with me and answering whatever questions popped into my head. Before anyone posts something like, “Why didn’t you ask him about ???” try to remember that I was 100% unprepared to speak to the CEO of this club.

The first thing I said to Ron was not actually a question and was something like, “Do you realize that your toll-free 877 number is not working and the message tells people that that number is disconnected. With your announcement of a restructuring, this is a very bad sign for your club and are you restructuring or winding down (a polite term for going bankrupt).”

Ron said he had no idea that the toll-free 877 number was not working and mentioned that they recently moved offices and that something must have been misscommunicated with the phone company. He also said the club is definitely restructuring and has no plans for a wind-down or bankruptcy. He said he wants to change the club to an equity based model so members will actually own the club and this was very important to balance the current operating budget.

Ron wants to have the annual member dues pay for 100% of the operating costs of the club, where in the past they used a combination of dues and new membership sales to make the operating budge work. He feels that this new structure will improve the balance sheet for the club as the current plan is unsustainable. He also wants to change to a board managed club where members of the club can sit on the board and wants to raise another $1m in capital. He has scheduled a members meeting in mid-April to get current members input on his new plan.

Ron wants to consolidate the current three clubs (Signature Collection $1m homes, Portofino Collection $2m homes, Continental Collection $3m homes) into only one club…Portofino Collection. He intends to spin off the Continental Collection and merge the Signature and Portofino Collections into one club. The new club will have a collection of homes with an average value of $2.2m and the full memberships will be able to support the yearly operating expenses of these homes.

When I asked Ron about the total number of members in each collection he said they currently have:

Signature Collection – 15 members and 6 homes
Portofino Collection – 115 members and 20 homes
Continental Collection – 14 members and 2 homes

When I asked him how are they supporting the Signature Collection when there is only a 2.5 member to home ration (I did have a calculator nearby), he said, “That is one of the problems we currently have and is one of the reasons for a restructuring.”

Ron felt that it was too difficult to try to market and sell three different membership collections and they used “commission-based sales reps” that were paid incentives to sell higher priced collection memberships. Therefore, the sales representatives did not promote the lower priced collection. He also informed me that their overall sales were below expectations and they were losing money each month. He did state that a few members upgraded collections as they were happy with the club.

Ron expects to come out of this restructuring with a stronger club and will soon announce a major growth program that he feels will be very successful. He indicated that his new sales campaign may create synergistic partnerships with multiple real estate agents and they would be able to sell memberships along with buying new properties and selling a few current properties.

I also asked him if he plans on attending the Information Management Network Destination Club & Private Residence Club Industry Symposium in Miami next month and he said he is not currently signed up, but may attend after the meeting with his members.

I also asked him if they ever considered joining the Destination Club Association and he said they attended the first meeting (at Exclusive Resorts headquarters) two years ago and felt intimidated as they wanted to review all their financials and felt it was a conflict of interest with Exclusive Resorts. He said he likes the concept of a DCA, and may join in the future, but he is not confident that they can pass the net asset test they now require for membership and felt the membership fee (he did not remember if it was $10k or $20k per year to join the DCA) was steep for a small club to afford.

Ron reassured me again that this is a restructuring and does not intend to do anything like Tanner & Haley did to their members in the past. I advised him to IMMEDIATELY fix the toll-free 877 number and to continue honest and open dialog with his members and the Destination Club community. I also suggested that he shares our website address with his current members so they can post about their experiences and concerns about the club on our forums. He thought that would be a good idea for the club.

I also advised him that he may want to reach out to a few other Destination Clubs to discuss a spin-off or merger with them as this could be a much less painful solution to his current problems that a complete restructuring or wind-down.

3DH

Nice work, Sherlock! But, did you possibly get the proposed "consolidation" clubs mixed up? Assuming you are correct, I have a hard time seeing how the lower two tiers will constitute an average home value of $2.2m, but maybe so, if some of the Portofino are actually valued at over $2m.

Also, with the above assumptions, how are those who paid to join the Continental Collection going to feel to be "downgraded" (for the lack of better terms) to the less expensive homes?

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

Kagehitokiri

very impressive on two counts >

1. the first real breaking news story from this forum
2. seems like very positive information from CEO

thumbs up to DC4MS and Ron Tapp for getting this information out there!

DC4MS

No mix-up on the merged clubs...that is what I was told.

I assume some lower priced homes will be sold and the some of the most expensive homes may be sold, leading to a $2.2m average for all owned homes.

I personally think that is a strange number as $2m has a nice ring to it. I also forgot to ask if any homes were leased.

I am not sure if the Continental members are being downgraded or spun off to another club...it was unclear.

The CEO was very cordial on the phone, I just hope he is true to his word that this is a restructuring, not a wind-down.

Kagehitokiri

couple things >

first it sounds like they have a plan for restructure AND future growth. i wish them luck.

someone said the DCA fee was $20K/yr.

very interesting point he raised about conflict of interests with ER. does ER share its financials with DCA members? because they dont with their members.

? - the only thing im curious about with regards to portofino is how their equity/appreciation works. (and if its going to change from the current model during restructuring)

Portofino builds property appreciation into perks - The Denver Post

Halogen Guides said they would follow up with details, but looks like they never did.

Bourne

Good job.

My two cents..

+ ive
1. Like Kag said, they are biting the bullet.
2. Sell to raise cash and increase dues to be in line with expenses.

- ive
1. If a club CEO tells me they cannot join DCA because of 20K, it's bu**. TO Ron's credit, he did candidly mention that they would have failed the net asset test.
2. The restructuring hinges on the member's input.

I hope they survive and come out stronger. Then again, if they do melt down, its is not T&H. Last time the 800 pound gorrila stumbled creating a major earthquake. This time, they will be made a poster child of what can go wrong by the DCA.

DJTraveler

Nice job!

Asset test is important!!! Transparency for the actual percentage should be offered quarterly DCA or Not. I made another post - my biggest concern. Any club that commits to 100% deposit return has to count that as deposit return liability on their books. They can't use the 20% as revenue which most clubs need to survive - unless their dues are high enough to cover expenses and/or they build significant equity through developing RE - which I'm finding is rare.

3 Clubs in one??? It's like I've got all these different assets and the only way to make them work is create different clubs - Who says a Club can be all things to all people? Can't imagine how it can work from a service standpoint if there is any - Marriott is the only Co I can think of who does it well - with hotels! Results from mergers, certainly not members There's a big club out there with the same problems.

Congrat's again on the scoop.

DC4MS

I want to clarify this issue so there are no misunderstandings.

I probed Ron Tapp about membership in the DCA and why they are NOT a member. He said they originally went to the first DCA meeting at Exclusive Resorts headquarters and that felt intimidating, but they had a strong interest in joining. Then he said that they would have to submit all their financials to the director of the DCA who just happened to be an Exclusive Resorts agent and they felt uncomfortable doing that.

He even said something along the lines like - it would be nice if our attorney could review all of ERs financial records. When I specifically ask him about the membership fee, he said that the $10k or $20k was a significant amount of money for a small club to spend and that could be better used on other club expenses. Then he concluded by saying that he doubts the present club would pass the financial test for joining the DCA. He did admit that he thought the DCA was a good thing for the DC industry and hoped that his restructured club could join the DCA in the future.

Kagehitokiri

its totally bogus that ER gets to see everyone's financials, but never reveals theirs... not revealing to members is one thing, but jeese.